As filed with the Securities and Exchange Commission on March 11, 2019

Registration No. 333-_________

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

Richmond Mutual Bancorporation, Inc.

(Exact Name of Registrant as Specified in Its Charter)

  

 

 

Maryland 6022 36-4926041

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

31 North 9 th Street

Richmond, Indiana 47374

(765) 962-2581

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

  

Garry Kleer

Chairman of the Board, President and Chief Executive Officer

Richmond Mutual Bancorporation, Inc.

31 North 9 th Street

Richmond, Indiana 47374

(765) 962-2581

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

Copies to:

James Fleischer, Esquire
Martin L. Meyrowitz, P.C.
Michael S. Sadow, P.C.

Silver, Freedman, Taff & Tiernan LLP

3299 K Street, N.W., Suite 100

Washington, D.C. 20007

(202) 295-4500

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

 

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 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 7(a)(2)(B) of the Securities Act. ¨

 

 

 

CALCULATION OF REGISTRATION FEE  

  

Title of each class of

securities to be registered

 

Amount

to be
registered (1)

  Proposed
maximum
offering price
per share 		   

Proposed
maximum
aggregate

offering price (2)

   

Amount of

registration fee

 
Common Stock, $0.01 par value per share   13,526,625 shares   $ 10.00     $ 135,266,250     $ 16,395  

 

(1) Includes 500,000 shares to be issued to the First Bank Richmond, Inc. Community Foundation.

 

(2) Estimated solely for the purpose of calculating the registration fee.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

PROSPECTUS

 

RICHMOND MUTUAL BANCORPORATION, INC.

(Proposed Holding Company for First Bank Richmond)

 

Up to 11,327,500 Shares of Common Stock

(Subject to increase to up to 13,026,625 shares)

 

Richmond Mutual Bancorporation, Inc., a newly formed Maryland corporation, is offering up to 11,327,500 shares of common stock for sale to the public at $10.00 per share on a best efforts basis in connection with the conversion and reorganization of First Bank Richmond from the mutual holding company form of organization, which we refer to in this document as the “reorganization.” When the reorganization is completed, all of the outstanding common stock of First Bank Richmond will be owned by the newly formed Richmond Mutual Bancorporation, Inc., and all of the outstanding common stock of Richmond Mutual Bancorporation, Inc. will be owned by public stockholders. In addition to the shares that we will sell in the offering, we intend to contribute a total of $6.25 million to a charitable foundation that we are establishing in connection with the reorganization, which contribution will consist of $1.25 million of cash and $5.0 million (500,000 shares) of common stock. Currently, there is no established trading market for our common stock. We expect that our common stock will be traded on the Nasdaq Capital Market under the symbol “RMBI” upon conclusion of the stock offering. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

 

The shares of common stock are first being offered in a subscription offering to eligible depositors and certain borrowers of First Bank Richmond and to First Bank Richmond’s tax-qualified employee benefit plans. Shares not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to residents of the communities served by First Bank Richmond. Any shares of common stock not purchased in the subscription or community offerings may be offered for sale to the public in a syndicated offering through a syndicate of broker-dealers managed by Keefe, Bruyette & Woods, Inc., a Stifel company (“KBW”). The syndicated offering may commence before the subscription and community offerings (including any extensions) have expired. However, shares purchased in the subscription offering or the community offering will not be issued until the completion of any syndicated offering. The subscription, community and syndicated community offerings are sometimes collectively referred to as the “offering.”

 

We may sell up to 13,026,625 shares of common stock as a result of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 8,372,500 shares in order to complete the offering. KBW will use its best efforts to assist us in selling our common stock, but is not obligated to purchase any of the common stock that is being offered for sale. Subscribers will not pay any commissions to purchase shares of common stock in the offering.

 

The minimum order is 25 shares of common stock. Generally, no individual or individuals through a single account held jointly may purchase more than 30,000 shares of common stock, and no individual or other person, along with their associates and those with whom they are acting in concert, may purchase more than 40,000 shares of common stock.

 

The subscription and community offerings are expected to expire at 2:00 p.m., Eastern Time, on [Date 1] . We may extend this expiration time and date, without notice to you, until [Date 2] . Once submitted, stock orders are irrevocable unless the subscription and community offerings are terminated or extended, with regulatory approval, beyond [Date 2] , or the number of shares of common stock offered for sale is increased to more than 13,026,625 shares or decreased to less than 8,372,500 shares. If the subscription and community offerings are extended beyond [Date 2] , we will notify all subscribers and give them an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offerings is increased to more than 13,026,625 shares or decreased to less than 8,372,500 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription and the community offerings will be held in a segregated account at First Bank Richmond and will earn interest at [•]% per annum until completion or termination of the offerings.

 

In addition, our officers, directors and employees may participate in the solicitation of offers to purchase common stock in reliance upon Rule 3a4-1 under the Securities Exchange Act of 1934, as amended. They will pay the same $10.00 per share offering price as paid by all other persons who purchase shares in the offering.

 

OFFERING SUMMARY

Price: $10.00 per share

 

    Minimum     Midpoint     Maximum     Adjusted Maximum  
Number of shares     8,372,500       9,850,000       11,327,500       13,026,625  
Gross offering proceeds   $ 83,725,000     $ 98,500,000     $ 113,275,000     $ 130,266,250  
Estimated offering expenses, excluding selling agent
fees and expenses 		  $ 1,600,000     $ 1,600,000     $ 1,600,000     $ 1,600,000  
Estimated selling agent fees and expenses (1) (2)   $ 766,270     $ 902,200     $ 1,038,130     $ 1,194,450  
Estimated net proceeds   $ 81,358,730     $ 95,997,800     $ 110,636,870     $ 127,471,801  
Estimated net proceeds per share   $ 9.72     $ 9.75     $ 9.77     $ 9.79  

 

 

(1) See “The Reorganization and Offering − Plan of Distribution and Marketing Arrangements” for a discussion of KBW’s compensation for this offering and the compensation to be received by KBW and the other broker-dealers who may participate in a syndicated community offering.
(2) Excludes reimbursable expenses and records agent fees, which are included in estimated offering expenses.

 

This investment involves a degree of risk, including the possible loss of principal.

Please read the “Risk Factors” beginning on page 18.

 

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Indiana Department of Financial Institutions, the Federal Deposit Insurance Corporation nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

For assistance, please contact the Stock Information Center at (___) ___-____.

 

The date of this prospectus is _____, 2019.

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

SUMMARY 1
RISK FACTORS 18
SELECTED FINANCIAL AND OTHER DATA 33
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 35
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING 37
OUR POLICY REGARDING DIVIDENDS 39
MARKET FOR THE COMMON STOCK 40
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE 41
CAPITALIZATION 42
PRO FORMA DATA 44
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE CHARITABLE FOUNDATION 48
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 50
BUSINESS OF RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND) 60
BUSINESS OF FIRST BANK RICHMOND 60
TAXATION 91
REGULATION AND SUPERVISION 93
MANAGEMENT 103
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS 115
THE REORGANIZATION AND OFFERING 116
FIRST BANK RICHMOND, INC.  COMMUNITY FOUNDATION 138
RESTRICTIONS ON ACQUISITION OF RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND) 141
DESCRIPTION OF CAPITAL STOCK OF RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND) 147
TRANSFER AGENT AND REGISTRAR 148
EXPERTS 148
LEGAL AND TAX OPINIONS 148
WHERE YOU CAN FIND ADDITIONAL INFORMATION 148
REGISTRATION REQUIREMENTS 149
INDEX TO FINANCIAL STATEMENTS F-1

 

 

 

 

SUMMARY

 

The following summary explains material information in this prospectus, but it may not contain all of the information that is important to you. Before making an investment decision, you should read carefully this entire document, including the consolidated financial statements and the notes thereto and the section entitled “Risk Factors.”

 

Richmond Mutual Bancorporation, Inc., a Delaware corporation, which is referred to in this document as “Richmond Mutual Bancorporation-Delaware,” owns 100% of the outstanding shares of common stock of First Bank Richmond. Upon the completion of the reorganization Richmond Mutual Bancorporation-Delaware will cease to exist, and First Bank Richmond will be a wholly owned subsidiary of Richmond Mutual Bancorporation, our newly formed Maryland corporation, which is hereafter referred to in this document as “Richmond Mutual Bancorporation-Maryland.” In certain circumstances, where appropriate, the terms “we, “us” and “our” refer collectively to (i) Richmond Mutual Bancorporation-Delaware and First Bank Richmond with respect to discussions in this document involving matters occurring prior to completion of the reorganization and (ii) Richmond Mutual Bancorporation-Maryland and First Bank Richmond with respect to discussions in this document involving the offering and matters occurring post-reorganization, in each case unless the context indicates another meaning.

 

The Companies

 

Richmond Mutual Bancorporation, Inc. Richmond Mutual Bancorporation, Inc., a Maryland corporation, was incorporated in February 2019. The offering of common stock by means of this prospectus is being made by Richmond Mutual Bancorporation-Maryland in connection with the reorganization of First Bank Richmond from the mutual holding company form of organization. Upon completion of the reorganization and offering, Richmond Mutual Bancorporation-Maryland will become the bank holding company for First Bank Richmond by owning all of the outstanding shares of capital stock of First Bank Richmond, and will be regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the Indiana Department of Financial Institutions. Our corporate office is located at 31 North 9th Street, Richmond, Indiana, and our telephone number is (765) 962-2581 .

 

To date, Richmond Mutual Bancorporation-Maryland has engaged in organizational activities only. Following the reorganization and offering, Richmond Mutual Bancorporation - Maryland’s primary business activity will relate to owning all of the outstanding shares of capital stock of First Bank Richmond. In the future, Richmond Mutual Bancorporation-Maryland will be authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies, which may include the acquisition of banking and financial services companies. We have no plans for any mergers or acquisitions, or other diversification of the activities of Richmond Mutual Bancorporation-Maryland at the present time.

 

Our cash flow will depend on earnings from the investment of the net proceeds received in the offering that we retain, and any dividends received from First Bank Richmond. Initially, Richmond Mutual Bancorporation-Maryland will neither own nor lease any property, but will instead use the premises, equipment and furniture of First Bank Richmond. At the present time, we intend to employ only persons who are officers of First Bank Richmond to serve as officers of Richmond Mutual Bancorporation-Maryland. We will also use the support staff of First Bank Richmond from time to time. These persons will not be separately compensated by Richmond Mutual Bancorporation-Maryland. Richmond Mutual Bancorporation-Maryland may hire additional employees, as appropriate, to the extent it expands its business in the future. The initial directors of Richmond Mutual Bancorporation-Maryland consist of the current directors of First Bank Richmond. See “Management.”

 

First Bank Richmond. First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The bank 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 bank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the 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’s current holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio, which it operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when Mutual Federal Savings Bank 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 bank 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.

 

  1  

 

 

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 Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation. At December 31, 2018, on a consolidated basis, we had total assets of $849.6 million, total deposits of $620.6 million and stockholders’ equity of $85.9 million.

 

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 $126.0 million at December 31, 2018.

 

Our corporate offices are located at 31 North 9th Street, Richmond, Indiana, and our telephone number is (765) 962-2581. Our website addresses are www.firstbankrichmond.com and http://www.mutualbancorp.com . Information on these websites should not be considered a part of this prospectus.

 

Our Current Organizational Structure

 

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 has no stockholders and is controlled by its members. First Mutual of Richmond-MHC owns 100% of the outstanding shares of common stock of Richmond Mutual Bancorporation-Delaware. Richmond Mutual Bancorporation-Delaware owns 100% of the outstanding shares of common stock of First Bank Richmond.

 

Pursuant to the terms of our plan of reorganization and stock offering, First Mutual of Richmond-MHC will convert from a mutual holding company to the stock holding company corporate structure. Upon the completion of the transaction, First Mutual of Richmond-MHC and Richmond Mutual Bancorporation-Delaware will cease to exist, and First Bank Richmond will be a wholly owned subsidiary of Richmond Mutual Bancorporation-Maryland, our newly formed Maryland corporation.

 

  2  

 

 

The following diagram shows our current organization structure:

 

 

 

(1) First Mutual of Richmond-MHC owns all of the common stock of First Mutual of Richmond Statutory Trust (the “Trust”), which was formed to issue trust preferred securities to the public. All of the trust preferred securities issued by the Trust and outstanding following the reorganization will be redeemed with proceeds from the offering, after which the Trust will be dissolved.

 

After the reorganization and offering are completed, we will be organized as a fully public stock holding company, as follows:

 

 

 

Business Strategy

 

We are a community-oriented financial institution dedicated to serving the needs of customers in our primary market area. Our commitment is to offer a full array of consumer and commercial banking products and services to meet the needs of our customers. We offer mortgage lending products to qualified borrowers to give them the broadest access to home ownership in our markets. We offer commercial lending products and services tailored to complement their businesses. Our goal is to maintain asset quality while continuing to build our strong capital position while looking for growth opportunities in the markets we serve. To achieve these goals, we will focus on the following strategies:

 

Lending. We believe that commercial lending offers an opportunity to enhance our profitability while managing credit, interest rate and operational risk. We seek quality commercial loan opportunities in our existing markets and purchase loan participations that complement our existing portfolios. We will continue to focus our efforts on our existing markets as well as to further develop the Columbus, Ohio market through our loan production office. We anticipate that the majority of our commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million.

 

  3  

 

 

Deposit Services. Deposits are our primary source of funds for lending and investment. We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit greater than $250,000 and brokered certificates of deposit) in our primary market area, with a particular emphasis on non-interest bearing deposits. We will continue to enhance our offering of retail deposit products to maintain and increase our market share, while continuing to build our product offering of commercial deposit products to strengthen our relationships with our business customers. Core deposits represented 75.0% of our total deposits as of December 31, 2018.

 

Balance Sheet Growth . As a result of our efforts to build our management and infrastructure, we believe we are well-positioned to increase the size of our balance sheet without a proportional increase in overhead expense or operating risk. Accordingly, we intend to increase, on a managed basis, our assets and liabilities, particularly loans and deposits.

 

Asset Quality. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our non-performing loans to total loans ratio was 0.69% at December 31, 2018.

 

Capital Position. Our policy has always been to protect the safety and soundness of First Bank Richmond through credit and operational risk management, balance sheet strength, and sound operations. The end result of these activities has been a capital ratio in excess of the well-capitalized standards set by our regulators. We believe that maintaining a strong capital position safeguards the long-term interests of First Bank Richmond.

 

Interest Rate Risk Management. Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities. As such, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities. In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.

 

Reasons for the Reorganization and Offering

 

Our primary reasons for converting and raising additional capital through the offering are to:

 

Enhance our capital base to support continued growth on a prudent basis. We intend to continue to grow our franchise, both organically and through strategic transactions as opportunities arise, on a prudent basis. While we currently exceed all regulatory capital requirements, the offering proceeds will strengthen our capital position and support our planned growth.

 

Offer our customers, employees and directors an equity ownership interest in Richmond Mutual Bancorporation-Maryland. We believe that offering stock to our depositors will provide them with an economic interest in our future success should they decide to invest. The offering will also further enable us to attract and retain directors, management and employees through various stock-based benefit plans, including an employee stock ownership plan and one or more equity incentive plans.

 

Support our local communities through establishing and funding a charitable foundation. The contribution to the charitable foundation will complement our existing charitable activities, and should enable the communities that we serve to share in our long-term growth.

 

Facilitate future mergers and acquisitions, if available, on a prudent basis. Although we do not currently have any understandings or agreements regarding any specific transactions, the additional capital raised in the offering may be used to finance mergers with, and acquisitions of, other financial institutions, asset portfolios and branch offices when and if attractive opportunities arise.

 

  4  

 

 

Terms of the Offering

 

We are offering between 8,372,500 and 11,327,500 shares of common stock of Richmond Mutual Bancorporation-Maryland to eligible depositors and certain borrowers of First Bank Richmond and to our tax-qualified employee benefit plans, and, to the extent shares remain available, to the general public in a community offering. If necessary, we will also offer shares to the general public in a syndicated offering. The number of shares of common stock to be sold may be increased to up to 13,026,625 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 13,026,625 shares or decreased to fewer than 8,372,500 shares, or the subscription and community offerings are extended beyond [Date 2] , subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past [Date 2] , all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will cancel your order and promptly return your funds with interest at [•] % per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 13,026,625 shares or decreased to less than 8,372,500 shares, all subscribers’ stock orders will be canceled, all withdrawal authorizations will be canceled, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at the same rate. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated offering.

 

Subscription priorities have been established for the allocation of common stock to the extent the subscription offering is oversubscribed. See “The Reorganization and Offering − Offering of Common Stock − Subscription Rights” for a description of allocation procedures in the event of an oversubscription.

 

The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, the community offering or the syndicated offering. Investors will not be charged a commission to purchase shares of common stock in the offering. KBW, our marketing agent in the subscription and community offerings, will use its best efforts to assist us in selling shares of our common stock in the subscription and community offerings but is not obligated to purchase any shares of common stock in the subscription and community offerings.

 

How We Determined the Offering Range and the $10.00 Price Per Share

 

The amount of common stock we are offering for sale is based on an independent appraisal of the estimated market value of Richmond Mutual Bancorporation-Maryland, assuming the offering has been completed and the charitable foundation has been established and the contribution of shares of common stock and cash to it has been made. RP Financial, LC., our independent appraiser, has estimated that, at February 8, 2019, and assuming we were undertaking the offering, this market value, including the shares to be issued to the charitable foundation, was $103.5 million. Based on applicable regulations, this market value forms the midpoint of a valuation range with a minimum of $88.7 million and a maximum of $118.3 million. Based on this valuation range and the offering price of $10.00 per share, Richmond Mutual Bancorporation-Maryland is offering for sale a range of shares of common stock, from 8,372,500 shares to 11,327,500 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversion transactions undertaken by financial institutions. If demand for shares or market conditions warrant, the appraisal can be increased by 15%, which would result in an appraised value of $135.3 million, and we may sell up to 13,026,625 shares of common stock.

 

The appraisal is based in part on our financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded savings and loan holding companies that RP Financial considers comparable to Richmond Mutual Bancorporation-Maryland on a pro forma basis. See “The Reorganization and Offering – How We Determined the Stock Pricing and the Number of Shares to be Issued.” The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market. Total assets are as of December 31, 2018.

 

  5  

 

 

Company Name   Ticker
Symbol 		  Headquarters   Assets  
            (In thousands)  
Elmira Savings Bank   ESBK   Elmira, NY   $ 590  
ESSA Bancorp, Inc.   ESSA   Stroudsburg, PA     1,862  
HMN Financial, Inc.   HMNF   Rochester, MN     712  
IF Bancorp, Inc   IROQ   Watseka, IL     664  
MSB Financial Corp.   MSBF   Millington, NJ     585  
Prudential Bancorp, Inc.   PBIP   Philadelphia, PA     1,115  
Severn Bancorp, Inc.   SVBI   Annapolis, MD     974  
Spirit of Texas Bancshares, Inc.   STXB   Conroe, TX     1,468  
Standard AVB Financial Corp.   STND   Monroeville, PA     972  
Wellesley Bancorp, Inc.   WEBK   Wellesley, MA     871  

 

The independent appraisal will be updated before we complete the reorganization and offering. If the pro forma market value of the common stock at that time is either below $88.7 million or above $118.3 million, then Richmond Mutual Bancorporation-Maryland, after consulting with the Federal Reserve Board, may terminate the plan of reorganization and return all funds promptly with interest; extend or hold a new subscription or community offering, or both; establish a new offering range and commence a resolicitation of subscribers; or take such other actions as may be permitted by the Federal Reserve Board and the Securities and Exchange Commission. If we resolicit subscribers in this instance, then all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest.

 

Two measures investors use to analyze an issuer’s stock are the ratio of the offering price to the issuer’s tangible book value and the ratio of the offering price to the issuer’s annual net income. RP Financial considered these ratios, among other factors, in preparing its independent appraisal. Tangible book value is the same as total stockholders’ equity less any intangible assets, and represents the difference between the issuer’s assets and liabilities.

 

The following table presents a summary of selected pricing ratios for Richmond Mutual Bancorporation-Maryland (on a pro forma basis) at and for the 12-months ended December 31, 2018, and for the peer group companies based on earnings and other information at and for the 12-months ended December 31, 2018, with stock prices at February 8, 2019, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 42.4% on a price-to-book value basis, a discount of 47.1% on a price-to-tangible book value basis and a discount of 6.5% on a price-to-earnings basis.

 

   

Pro Forma
Price-to-Earnings
Multiple (1)

    Pro Forma
Price-to-Book
Ratio 		    Pro Forma
Price-to-Tangible Book
Value Ratio 		 
                   
Richmond Mutual Bancorporation-Maryland                        
Adjusted Maximum     20.41 x     74.52 %     74.52 %
Maximum     17.86 x     70.92 %     70.92 %
Midpoint     15.63 x     67.20 %     67.20 %
Minimum     13.51 x     62.89 %     62.89 %
                         
Valuation of peer group companies (historical)                        
Averages     16.71 x     116.62 %     127.09 %
Medians     15.83 x     115.44 %     126.60 %

 

 

(1) Price-to-earnings multiples calculated by RP Financial are based on reported earnings, and assumes all shares are outstanding, including shares owned by the ESOP, for purposes of earnings per share calculations. These ratios are different than those presented in “Pro Forma Data.”

 

The pro forma calculations for Richmond Mutual Bancorporation-Maryland include the following assumptions:

 

· A number of shares equal to 8% of the shares sold in the offering and contributed to the charitable foundation are purchased by the employee stock ownership plan, with the expense to be amortized over 20 years;

 

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· A number of shares equal to 4% of the shares sold in the offering and contributed to the charitable foundation are purchased by a stock-based benefit plan, with the expense to be amortized over five years; and

 

· A number of options equal to 10% of the shares sold in the offering and contributed to the charitable foundation are granted under a stock-based benefit plan, with option expense of $2.95 per option amortized over five years; and

 

· offering expenses would equal 2.5% of the offering amount at the midpoint of the offering range.

 

The independent appraisal does not indicate market value. Do not assume or expect that Richmond Mutual Bancorporation-Maryland’s valuation as indicated above means that the common stock will trade at or above the $10.00 purchase price after the reorganization and offering. Furthermore, the pricing ratios presented in the appraisal were used by RP Financial to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

 

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Reorganization and Offering − Stock Pricing and the Number of Shares to be Issued.”

 

How We Intend to Use the Proceeds from the Offering

 

We intend to (i) invest at least 50% of the net proceeds from the offering in First Bank Richmond, (ii) fund the loan to our employee stock ownership plan to finance its purchase of shares of common stock in the offering, (iii) contribute $1.25 million in cash to the charitable foundation, (iv) use approximately $5.0 million to redeem outstanding subordinated debentures and related trust preferred securities issued by First Mutual of Richmond-MHC which will be assumed by Richmond Mutual Bancorporation-Maryland in connection with the reorganization and (v) retain the remainder of the net proceeds from the offering at Richmond Mutual Bancorporation-Maryland. Therefore, assuming we sell 11,327,500 shares of common stock in the offering at the maximum of the offering range, resulting in net proceeds of $110.6 million, we intend to invest $55.3 million in First Bank Richmond, lend $9.5 million to our employee stock ownership plan to fund its purchase of shares of common stock (which may include, subject to market conditions, open market purchases after the completion of the reorganization and offering if the employee stock ownership plan is unable to purchase its shares in the subscription offering due to an oversubscription by our eligible account holders), use $1.25 million of the net proceeds to fund the cash contribution to the charitable foundation, use approximately $5.0 million to redeem outstanding subordinated debentures, and retain the remaining $39.6 million of the net proceeds at Richmond Mutual Bancorporation-Maryland.

 

Richmond Mutual Bancorporation-Maryland expects to initially invest the net proceeds it retains from the offering in interest-earning deposits and securities issued by the U.S. government and its agencies or government sponsored enterprises, and as otherwise permitted under our investment policy. Richmond Mutual Bancorporation-Maryland may use a portion of the net proceeds to repurchase shares of our common stock in the future, although we are generally not permitted to do so during the first year following our reorganization, and may use a portion of the net proceeds to finance the possible acquisition of other financial institutions or other financial service businesses. We may also use the net proceeds for other general corporate purposes.

 

First Bank Richmond intends to use approximately $13.3 million ($9.8 million after tax) of the funds it receives from Richmond Mutual Bancorporation-Maryland to terminate its participation in the Pentegra Defined Benefit Plan for Financial Institutions (the “Pentegra DB Plan”), an industry-wide, tax-qualified defined-benefit pension plan, and generally intends to use the remaining proceeds it receives to originate loans. Funds used to pay the termination expense related to the Pentegra DB Plan may be higher or lower depending on a number of factors, including but not limited to the interest rate environment and the valuation of plan assets. First Bank Richmond may also purchase securities as permitted under our investment policy, expand its banking franchise organically through de novo branching, or expand through acquisitions of other financial institutions, branch offices, or other financial service businesses. It may also use the proceeds it receives to support new loan, deposit or other financial products and services, and for general corporate purposes. Neither First Bank Richmond nor Richmond Mutual Bancorporation-Maryland has any plans or agreements for any specific acquisition transactions at this time.

 

See “How We Intend to Use the Proceeds from the Offering.”

 

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Persons Who May Order Stock in the Offerings

 

We are offering the shares of common stock of Richmond Mutual Bancorporation-Maryland in a “subscription offering” in the following descending order of priority:

 

(1) To depositors who had accounts at First Bank Richmond with aggregate balances of at least $50 at the close of business on December 31, 2017;

 

(2) To our tax-qualified employee benefit plans (including First Bank Richmond’s employee stock ownership plan) which may subscribe for, in the aggregate, up to 10% of the shares of common stock sold in the offering and contributed to the charitable foundation. We expect our employee stock ownership plan to purchase 8% of the shares of common stock sold in the offering and contributed to the charitable foundation;

 

(3) To depositors who had accounts at First Bank Richmond with aggregate balances of at least $50 at the close of business on [SERD]; and

 

(4) depositors of First Bank Richmond at the close of business on [VRD] and borrowers of First Bank Richmond as of October 16, 1997 whose borrowings remained outstanding at the close of business on [VRD] , to the extent not already included in a prior category.

 

Shares of common stock not purchased in the subscription offering will be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in Wayne, Fayette, Henry, Randolph, Shelby and Union counties, Indiana and Darke, Franklin, Miami, Preble and Shelby counties, Ohio. The community offering may commence concurrently with, during or promptly after the subscription offering. The community offering must be completed within 45 days of the end of the subscription offering, unless extended with Federal Reserve Board approval.

 

In addition, any shares of our common stock not purchased in the subscription offering or community offering are expected to be offered for sale to the general public in a syndicated community offering through a syndicate of selected dealers. We may begin the syndicated community offering at any time following the commencement of the subscription offering. The syndicated community offering will be managed by KBW acting as our agent. In such capacity, KBW may form a syndicate of other broker-dealers. Neither KBW nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, KBW has agreed to use its best efforts in the sale of shares in any syndicated community offering. See “The Reorganization and Offering - Syndicated Community Offering.”

 

We have the right to accept or reject, in our sole discretion, any orders received in the community offering or the syndicated community offering.

 

To ensure proper allocation of stock, each eligible account holder must list on his or her stock order form all accounts in which he or she had an ownership interest at December 31, 2017, [SERD] or [VRD], as applicable. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation. We will attempt to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you had an ownership interest. Our interpretations of the terms and conditions of the stock issuance plan and of the acceptability of the order forms will be final.

 

If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. Shares of common stock will be allocated first to categories in the subscription offering in accordance with our plan of reorganization. A detailed description of share allocation procedures can be found in the section entitled “The Reorganization and Offering − Offering of Common Stock.”

 

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Limits on the Amount of Common Stock You May Purchase

 

The minimum number of shares of common stock that may be purchased is 25 shares.

 

Generally, no individual, or individuals through a single account held jointly, may purchase more than 30,000 shares ($300,000) of common stock. If any of the following persons purchase shares of common stock, their purchases when combined with your purchases cannot exceed 40,000 shares ($400,000) of common stock:

 

· Any person who is related by blood or marriage to you and who either lives in your home or who is a director or officer of First Bank Richmond;

 

· Companies or other entities in which you are an officer or partner or have a 10% or greater beneficial ownership interest;

 

· Trusts or other estates in which you have a substantial beneficial interest or as to which you serve as a trustee or in another fiduciary capacity; and

 

· Any other persons who may be your associates or persons acting in concert with you.

 

Persons having the same address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to the overall purchase limitation of 40,000 shares ($400,000). We have the right to determine, in our sole discretion, whether prospective purchasers are associates or acting in concert.

 

Subject to regulatory approval, we may increase or decrease the purchase limitations in the offering at any time. A detailed discussion of the limitations on purchases of common stock by an individual and persons acting in concert is set forth under the caption “The Reorganization and Offering – Additional Limitations on Common Stock Purchases.”

 

We expect that the employee stock ownership plan will purchase 8.0% of our outstanding shares (including shares contributed to the charitable foundation). Subject to the approval of the Federal Reserve Board, the employee stock ownership plan may purchase some or all of these shares in the open market following the completion of the offering. Our employee stock ownership plan purchases will range from 709,800 shares to 1,082,130 shares of common stock, respectively, at the minimum and adjusted maximum of the offering range.

 

How You May Purchase Shares of Common Stock in the Subscription and Community Offering

 

In the subscription offering and the community offering, you may pay for your shares only by:

 

(i) personal check, bank check or money order payable to Richmond Mutual Bancorporation, Inc. (cash and third-party checks will not be accepted); or

 

(ii) authorizing us to withdraw available funds (without any early withdrawal penalty) from the types of deposit account(s) maintained with First Bank Richmond designated on the stock order form.

 

First Bank Richmond is not permitted to knowingly lend funds for the purpose of purchasing shares of common stock in the offering. You may not pay by wire transfer, use a check drawn on a First Bank Richmond line of credit, or use a third-party check to pay for shares of common stock. Please do not submit cash.

 

You can subscribe for shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment, before the expiration date of the subscription offering. You may submit your stock order form in one of three ways: by mail, using the reply envelope provided; by overnight courier to the address indicated on the stock order form; or by bringing your stock order form and payment to First Bank Richmond’s office located at 20 North 9 th Street, Richmond, Indiana. Please do not mail stock order forms to First Bank Richmond . Once submitted, your order is irrevocable. We do not intend to accept incomplete stock order forms, unsigned stock order forms, or copies or facsimiles of stock order forms. For orders paid for by check or money order, the funds must be available in the account. Funds received prior to the completion of the offering will be held in a segregated account at First Bank Richmond. Subscription funds will earn interest at [•] %. If the offering is terminated, we will promptly return your subscription funds with interest.

 

  9  

 

 

Withdrawals from certificate of deposit accounts at First Bank Richmond for the purpose of purchasing common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with First Bank Richmond must be in the deposit accounts at the time the stock order form is received; no credit to purchase shares will be given for future interest to be earned on the funds in your deposit account or submitted for payment for the shares. However, funds will not be withdrawn from the accounts until the offering is completed and will continue to earn interest at the applicable deposit account rate until the completion of the offering. A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you. If a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit will be canceled at the time of withdrawal without penalty, and the remaining balance will earn interest at [•] % thereafter, until such funds are withdrawn. After we receive an order, the order cannot be revoked or changed.

 

By signing the stock order form, you are acknowledging receipt of this prospectus and that the shares of our common stock are not deposits or savings accounts that are federally insured or otherwise guaranteed by First Bank Richmond, the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency.

 

Using Retirement Account Funds to Purchase Shares of Common Stock in the Subscription and Community Offerings

 

You may be able to subscribe for shares of common stock using funds in your IRA or other retirement account. If you wish to use some or all of the funds in your IRA or other retirement account held at First Bank Richmond, the applicable funds must be transferred to an IRA, or other retirement account that can hold common stock, maintained by an independent custodian or trustee, such as a brokerage firm, before you place your stock order. If you do not have such an account, you will need to establish one. A one-time and/or annual administrative fee may be payable to the independent custodian or trustee. Because individual circumstances differ, and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [Date 1] , 2019 offering deadline, for assistance with purchases using funds in your IRA or other retirement account held at First Bank Richmond or elsewhere. Whether you may use such funds for the purchase of shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held. For a complete description of how to use IRA funds to purchase shares in the offering, see “The Reorganization and Offering − Procedure for Purchasing Shares − Using Retirement Account Funds to Purchase Shares.”

 

You May Not Sell or Transfer Your Subscription Rights

 

Applicable regulations prohibit you from selling, giving, or otherwise transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the shares of common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal or state regulatory agencies, against anyone who we believe has sold or given away his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the stock order form, you cannot add the name(s) of person who do not have subscription rights or who qualify only in a lower purchase priority than you do. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all accounts, giving all names on each account and the account number at the applicable eligibility record date. Your failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation, if there is an oversubscription. Eligible subscribers who enter into agreements to allow ineligible investors to participate in the subscription offering may be violating federal and state law and may be subject to civil enforcement actions or criminal prosecution.

 

Deadline for Orders of Common Stock

 

The deadline for submitting orders to purchase shares of the common stock in the subscription and community offerings is 2:00 p.m., Eastern Time, on [Date 1] , 2019, unless we extend this deadline. If you wish to purchase shares of common stock, your properly completed and signed original stock order form, together with full payment for the shares, must be received (not postmarked) by this time. Orders received after 2:00 p.m., Eastern Time, on [Date 1], 2019 will be rejected unless the offering is extended.

 

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Although we will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on [Date 1] , 2019, whether or not we have been able to locate each person entitled to subscription rights.

 

See “The Reorganization and Offering - Offering Deadline” for a complete description of the deadline for purchasing shares in the offering.

 

Once Submitted, Your Stock Purchase Order May Not Be Revoked Except Under Certain Circumstances

 

Funds that you use to purchase shares of our common stock in the offering will be held in a segregated account until the termination or completion of the offering, including any extension of the expiration date. Because completion of the reorganization and offering is subject to the receipt of all required regulatory approvals, including an update of the independent appraisal, among other factors, there may be one or more delays in the completion of the reorganization. Any orders that you submit to purchase shares of our common stock in the offering are irrevocable, and you will not have access to subscription funds unless the offering is terminated, or extended beyond [Date 2] , 2019, or the number of shares to be sold in the offering is increased to more than 13,026,625 shares or decreased to fewer than 8,372,500 shares.

 

Termination of the Offering

 

The subscription offering will expire at 2:00 p.m., Eastern Time, on [Date 1] , 2019. We expect that the community offering, if one is conducted, would expire at the same time. We may extend this expiration date without notice to you until [Date 2] , 2019, or such later date as the applicable regulators may approve. If the offerings are extended beyond [Date 2] , 2019 we will be required to resolicit subscriptions before proceeding with the offering. In such event, all subscribers will be afforded the opportunity to confirm, cancel or change their orders. If you choose to cancel your order or you do not respond to the resolicitation notice, your funds will be promptly returned to you with interest and deposit account withdrawal authorizations will be canceled. All further extensions, in the aggregate, may not last beyond [Date 4] , 2021, which is two years after the special meeting of members of First Mutual of Richmond-MHC to be held on [Date 3] , 2019 to vote on the plan of reorganization.

 

Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares

 

If we do not receive orders for at least 8,372,500 shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may (a) increase the purchase limitations, (b) seek regulatory approval to extend the offering beyond the [Date 2], 2019 expiration date, and/or (c) reduce the valuation and offering range, provided that any such extension or reduction will require us to resolicit subscriptions received in the offering and provide subscribers with the opportunity to increase, decrease or cancel their subscriptions. If the offering is extended beyond [Date 2] , 2019, subscribers will have the right to confirm, cancel or change their orders. If the number of shares to be sold in the offering is increased to more than 13,026,625 shares or decreased to less than 8,372,500 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest.

 

Market for the Common Stock

 

We have never issued capital stock and there is no established market for our common stock. We expect that our common stock will be traded on the on the Nasdaq Capital Market under the symbol “RMBI” upon conclusion of the offering. See “Market for the Common Stock.”

 

Our Dividend Policy

 

Following completion of the reorganization and offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. We currently intend to pay quarterly cash dividends but have not determined the amount or when payment would start. The payment and amount of any dividends will depend upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; statutory and regulatory limitations; and general economic conditions. See “Our Policy Regarding Dividends” in this prospectus for additional information regarding our dividend policy.

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Possible Change in the Offering Range

RP Financial will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 13,026,625 shares in the offering without further notice to you. If our pro forma market value at that time is either below $88.7 million or above $135.3 million, then, after consulting with the Federal Reserve Board, we may:

 

· terminate the offering, cancel deposit account withdrawal authorizations and promptly return all funds received in the offering with interest at [•] %;

 

· set a new offering range; or

 

· take such other actions as may be permitted by the Federal Reserve Board, the Indiana Department of Financial Institutions, the Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission.

 

If we set a new offering range, we will promptly return funds, with interest at [•] % for funds received in the offering, cancel deposit account withdrawal authorizations and commence a resolicitation. In connection with the resolicitation, we will notify subscribers of their right to place a new stock order for a specified period of time.

 

Possible Termination of the Offering

 

We may terminate the offering at any time prior to the special meeting of members of First Mutual of Richmond-MHC that is being called to vote on the reorganization and offering, and at any time after member approval with applicable regulatory approval. If we terminate the offering, we will promptly return your funds, with interest at [•] %, and we will cancel deposit account withdrawal authorizations.

 

Our Officers, Directors and Employees Will Receive Additional Benefits and Compensation After the Reorganization and Offering

 

In connection with the reorganization, we are establishing an employee stock ownership plan, and, subject to stockholder approval, we intend to implement a stock-based benefit plan that will provide for grants of stock options and restricted stock.

 

Employee Stock Ownership Plan . The boards of directors of Richmond Mutual Bancorporation-Maryland and First Bank Richmond have adopted an employee stock ownership plan, which will award shares of our common stock to all eligible employees primarily based on their compensation. We expect the employee stock ownership plan to purchase up to 8.0% of the shares of common stock sold in the offering (including shares contributed to the charitable foundation) from the proceeds of a loan to be made by Richmond Mutual Bancorporation-Maryland to the plan. If market conditions warrant, in the judgment of the plan’s trustees, and the employee stock ownership plan’s subscription order is not filled, the employee stock ownership plan may elect to purchase shares in the open market following the completion of the offering, subject to the approval of the Indiana Department of Financial Institutions and the Federal Reserve Board.

 

Stock-Based Benefit Plan . In addition to shares purchased by the employee stock ownership plan, we intend to adopt a stock-based benefit plan. The plan will be designed to attract and retain qualified personnel in key positions and provide directors, officers and key employees with an ownership interest in Richmond Mutual Bancorporation-Maryland, which will be an incentive to contribute to our success and will reward key employees for their performance. The number of options and shares of restricted common stock awarded under a stock-based benefit plan may not exceed 10.0% and 4.0%, respectively, of the shares of common stock sold in the offering (including shares contributed to the charitable foundation), provided that if First Bank Richmond’s tangible capital at the time of adoption of the stock-based benefit plan is less than 10% of its assets, then the amount of shares of restricted common stock may not exceed 3.0% of our outstanding shares. If a stock-based benefit plan is adopted more than 12 months after the completion of the offering, it would not be subject to the percentage limitations set forth above. 

 

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Under applicable regulations, a stock-based benefit plan cannot be established sooner than six months after the offering, and if adopted within one year after the offering, the plan must be approved by a majority of the votes eligible to be cast by our stockholders. If a stock-based benefit plan is established more than one year after the offering, it must be approved by a majority of votes cast by our stockholders.

 

The following additional restrictions would apply to our stock-based benefit plan only if such plan is adopted within one year after completion of the offering:

 

· non-employee directors in the aggregate may not receive more than 30% of the options and shares of restricted common stock authorized under the plan;

 

· no non-employee director may receive more than 5% of the options and shares of restricted common stock authorized under the plan;

 

· no individual may receive more than 25% of the options and shares of restricted common stock authorized under the plan;

 

· options and shares of restricted common stock may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plan; and

 

· accelerated vesting is not permitted except for death, disability or upon a change in control of First Bank Richmond or Richmond Mutual Bancorporation-Maryland.

 

We have not determined whether we will present a stock-based benefit plan for stockholder approval prior to or more than 12 months after the completion of the offering. In the event federal regulators change their regulations or policies regarding stock-based benefit plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.

 

The shares needed for our stock-based benefit plan may be obtained either by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.

 

Equity Plan Expenses. The implementation of an employee stock ownership plan and a stock-based benefit plan will increase our future compensation costs, thereby reducing our earnings. For example, we will be required to recognize an expense each year under our employee stock ownership plan equal to the fair market value of the shares committed to be released for that year to the participating employees. Similarly, if we issue restricted stock awards under a stock-based benefit plan, we would be required to recognize an expense as the shares vest equal to their fair market value on the grant date. Finally, if we issue stock options, we would be required to recognize an expense as the options vest, equal to their estimated value on the grant date. See “Risk Factors − Risks Related to the Offering − Our stock-based benefit plans will increase our costs, which will reduce our net income” and “Management – Existing and Future Benefit Plans and Agreements.”

 

Benefits to Management. The following table summarizes the stock benefits that our officers, directors and employees may receive following the reorganization and offering, at the adjusted maximum of the offering range and assuming that our employee stock ownership plan purchases 8.0% of the total shares of common stock sold in the offering (including shares contributed to the charitable foundation) and that we implement a stock-based benefit plan granting options to purchase 10.0% of the total shares of common stock sold in the offering (including shares contributed to the charitable foundation) and awarding shares of restricted common stock equal to 4.0% of the total shares of common stock sold in the offering (including shares contributed to the charitable foundation).

 

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Plan   Individuals Eligible to Receive
Awards 		  Percent of
Outstanding
Shares 		    Value of Benefits Based
on Adjusted Maximum
of Offering Range
(In Thousands) 		 
                 
Employee stock ownership plan   All employees     8.0 %   $ 10,821  
Stock awards   Directors, officers and employees     4.0       5,411  
Stock options   Directors, officers and employees     10.0       3,990 (1)
Total         22.0 %   $ 20,222  

 

 

(1) The fair value of stock options has been estimated at $2.95 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; no dividend yield; expected option life of 10 years; risk free interest rate of 2.69%; and a volatility rate of 13.53% based on an index of publicly traded financial institutions.

 

The actual value of the shares of restricted common stock awarded under the stock-based benefit plan would be based on the price of Richmond Mutual Bancorporation-Maryland’s common stock at the time the shares are awarded. The following table presents the total value of all shares of restricted common stock to be available for award and issuance under the stock-based benefit plan, assuming receipt of stockholder approval and that the shares are awarded in a range of market prices from $8.00 per share to $14.00 per share.

 

Share Price     354,900 Shares
Awarded at
Minimum of Offering
Range 		    414,000 Shares
Awarded at Midpoint
of Offering Range 		    473,100 Shares
Awarded at
Maximum of
Offering Range 		   

541,065 Shares
Awarded at Adjusted

Maximum of
Offering Range

 
(In thousands, except share price information)  
         
$ 8.00     $ 2,839     $ 3,312     $ 3,785     $ 4,329  
$ 10.00     $ 3,549     $ 4,140     $ 4,731     $ 5,411  
$ 12.00     $ 4,259     $ 4,968     $ 5,677     $ 6,493  
$ 14.00     $ 4,969     $ 5,796     $ 6,623     $ 7,575  

 

The grant-date fair value of the options granted under the stock-based benefit plan will be based in part on the price of shares of Richmond Mutual Bancorporation-Maryland’s common stock at the time the options are granted. The value will also depend on the various assumptions utilized in the option pricing model ultimately adopted. The following table presents the total estimated value of the options to be available for grant under the stock-based benefit plan, assuming receipt of stockholder approval, using a Black-Scholes option pricing model, and assuming the market price and exercise price for the stock options are equal and the range of market prices for the shares is $8.00 per share to $14.00 per share. The Black-Scholes option pricing model provides an estimate only of the fair value of the options, and the actual value of the options may differ significantly from the value set forth in this table.

 

Market/Exercise
Price 		    Grant-Date Fair
Value Per Option 		    887,250 Options at
Minimum of
Offering Range 		    1,035,000
Options at
Midpoint of
Offering Range 		    1,182,750
Options at
Maximum of
Offering Range 		    1,352,662
Options at
Adjusted
Maximum of
Offering Range 		 
(In thousands, except market/exercise price and fair value information)  
         
$ 8.00     $ 2.36     $ 2,094     $ 2,443     $ 2,791     $ 3,192  
$ 10.00     $ 2.95     $ 2,617     $ 3,053     $ 3,489     $ 3,990  
$ 12.00     $ 3.54     $ 3,141     $ 3,664     $ 4,187     $ 4,788  
$ 14.00     $ 4.13     $ 3,664     $ 4,275     $ 4,885     $ 5,586  

 

Restrictions on the Acquisition of Richmond Mutual Bancorporation-Maryland and First Bank Richmond

 

Federal and state regulations, as well as provisions contained in the articles of incorporation of Richmond Mutual Bancorporation-Maryland, restrict the ability of any person, firm or entity to acquire Richmond Mutual Bancorporation-Maryland or a controlling interest in its capital stock. These restrictions include the requirement that a potential acquirer of common stock obtain the prior approval of the Federal Reserve Board before acquiring in excess of 10% of the voting stock of Richmond Mutual Bancorporation-Maryland, as well as a provision in Richmond Mutual Bancorporation-Maryland’s articles of incorporation that generally provides that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock of Richmond Mutual Bancorporation-Maryland, be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit. See “Risk Factors - Risks Related to the Offering — Various factors may make takeover attempts more difficult to achieve.”

 

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Proposed Stock Purchases by Management

 

Richmond Mutual Bancorporation-Maryland’s directors and executive officers and their associates are expected to purchase, for investment purposes, approximately 225,100 shares ($2,251,000) of common stock in the offering, which represents 2.5% of the shares of common stock to be issued in the offering (including shares contributed to the charitable foundation) at the minimum of the offering range. If more shares are sold in the offering, then officers and directors will own a lesser percentage of Richmond Mutual Bancorporation-Maryland. Like all of our eligible subscribers, our directors and executive officers and their associates have subscription rights based on their deposits and, in the event of an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of reorganization. Directors and executive officers will pay the same $10.00 per share price paid by all other persons who purchase shares in the offering. These shares will be counted in determining whether the minimum of the offering range is reached.

 

The plan of reorganization provides that the aggregate number of shares acquired in the offering by our directors and executive officers (and their associates) may not exceed 25% of the shares of common stock sold in the offering, except with the approval of federal regulators. We may seek approval from the federal regulators to allow purchases by our directors and executive officers (and their associates) to exceed the 25% limit to the extent needed to enable us to sell the minimum number of shares of common stock in the offering range.

 

These proposed purchases of common stock by our directors and executive officers (2.5% of the aggregate shares sold in the offering and contributed to the charitable foundation at the minimum of the offering range, together with the purchase by the employee stock ownership plan (8.0% of the aggregate shares sold in the offering and contributed to the charitable foundation), as well as the potential acquisition of common stock through the proposed equity incentive plan (an amount equal to 14% of the aggregate shares sold in the offering and contributed to the charitable foundation) will result in ownership by insiders of Richmond Mutual Bancorporation-Maryland in excess 24.5% of the total shares sold in the offering (including shares contributed to the charitable foundation) at the minimum of the offering range. As a result, it could be more difficult to obtain majority support for stockholder proposals opposed by the board and management. See “Risk Factors - Risks Related to This Offering – Various factors make takeover attempts more difficult to achieve.

 

Conditions to Completing the Reorganization and Offering

 

We cannot complete the reorganization and offering unless:

 

· we sell at least 8,372,500 shares, the minimum of the offering range;

 

· the members of First Mutual of Richmond-MHC vote to approve the reorganization and offering; and

 

· we receive final approval from the Federal Reserve Board to complete the reorganization and offering, as well as any additional required approvals from the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation.

 

Federal Reserve Board, Indiana Department of Financial Institutions or the Federal Deposit Insurance Corporation approval does not constitute a recommendation or endorsement of an investment in our stock.

 

Delivery of Prospectus

 

To ensure that each person receives a prospectus at least 48 hours before the deadline for orders for common stock, we may not mail prospectuses any later than five days prior to such date or hand-deliver prospectuses later than two days prior to that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or stock order form by means other than U.S. mail.

 

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We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on [Date 1] , 2019, whether or not we have been able to locate each person entitled to subscription rights.

 

Our Contribution of Cash and Shares of Common Stock to the Charitable Foundation

 

To further our commitment to our local community, we intend to establish and fund a charitable foundation as part of the reorganization and offering. Assuming we receive regulatory approval, we intend to contribute a total of $6.25 million to the charitable foundation, consisting of $1.25 million of cash and $5.0 million (500,000 shares) of common stock (with the contribution of common stock representing 6.0% and 3.8% of the shares of our common stock at the minimum and adjusted maximum of the offering range, respectively).

 

The charitable foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which we operate. The contribution of common stock and cash to the charitable foundation will:

 

· with respect to the contribution of shares of common stock, dilute the voting interests of purchasers of shares of our common stock in the offering; and

 

· result in an expense, and a reduction in capital, during the quarter in which the contribution is made, equal to the full amount of the contribution to the charitable foundation, which we expect to be offset in part by a corresponding tax benefit.

 

The amount of common stock that we would offer for sale would be greater if the offering were to be completed without the establishment and funding of the charitable foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering, see “Risk Factors – Risks Related to the Charitable Foundation — The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2019”, “Risk Factors − Risks Related to the Charitable Foundation — Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.” “Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation” and “First Bank Richmond, Inc. Community Foundation.”

 

Delivery of Shares of Common Stock

 

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the offering. Shares of common stock sold in the syndicated community offering may be delivered electronically through the services of The Depository Trust Company, subject to any necessary regulatory approval. We expect trading in the stock to begin on the day of completion of the offering or the next business day. Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

 

Tax Consequences

 

First Bank Richmond and Richmond Mutual Bancorporation-Maryland have received an opinion of counsel, Silver, Freedman, Taff & Tiernan LLP, regarding the material federal income tax consequences of the reorganization, including an opinion that it is more likely than not that the fair market value of the nontransferable subscription rights to purchase the common stock will be zero and, accordingly, no gain or loss will be recognized by members upon the distribution to them of the nontransferable subscription rights to purchase the common stock and no taxable income will be realized by members as a result of the exercise of the nontransferable subscription rights. First Bank Richmond and Richmond Mutual Bancorporation-Maryland have also received an opinion of BKD LLP regarding the material Indiana state tax consequences of the reorganization. As a general matter, the reorganization will not be a taxable transaction for purposes of federal or state income taxes to First Bank Richmond, Richmond Mutual Bancorporation-Maryland or persons eligible to subscribe in the subscription offering. See the section of this prospectus entitled “Taxation” for additional information regarding taxes.

 

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Emerging Growth Company Status

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies. See “Risk Factors − Risks Related to the Offering − We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors” and “Regulation and Supervision − Emerging Growth Company Status.”

 

An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, 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. We have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

How You May Obtain Additional Information Regarding the Reorganization and Offering

 

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the reorganization and offering, please call the Stock Information Center at (___) ___-____. The Stock Information Center will be open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.

 

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RISK FACTORS

 

You should consider carefully the following risk factors, in addition to all other information in this prospectus, in evaluating an investment in our common stock.

 

Risks Related to Our Business

 

We have a substantial amount of commercial and multi-family real estate and commercial and industrial loans, and intend to continue to increase originations of these types of loans. These loans involve credit risks that could adversely affect our financial condition and results of operations.

 

We intend to continue to originate and purchase commercial and multi-family real estate loans and commercial and industrial loans. At December 31, 2018, our commercial real estate, multi-family real estate and commercial and industrial loans totaled $326.9 million, or 49.5% of our total loans and leases, with approximately $77.2 million of these loans, or 11.7% of our total loans and leases, located in the Columbus, Ohio market. While these types of loans are potentially more profitable than residential mortgage loans, they are generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. These loans also generally have relatively large balances to single borrowers or related groups of borrowers. Given their larger balances and the complexity of the underlying collateral, commercial and multi-family real estate and commercial and industrial loans generally have more risk than the one- to four-family residential real estate loans we originate. Because the repayment of these types of loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment can be affected by adverse conditions in the local, regional and national real estate market or economy. A downturn in the real estate market or the local, regional and national economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of non-performing loans. Further, unlike residential mortgage loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may depreciate over time, may be more difficult to appraise or liquidate and may be more susceptible to fluctuation in value at default. As our commercial and multi-family real estate and commercial and industrial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.

 

Our portfolio of loans with a higher risk of loss is increasing and the unseasoned nature of our commercial loan portfolio may result in errors in judging its collectability, which may lead to additional provisions for loan losses or charge-offs, which would hurt our profits.

 

Our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, has increased to $399.9 million, or 60.5% of total loans and leases, at December 31, 2018 from $226.9 million, or 48.5% of total loans and leases, at December 31, 2016. A large portion of our commercial loan portfolio is unseasoned, meaning they were originated recently. Our limited experience with these borrowers does not provide us with a significant payment history pattern with which to judge future collectability. Further, these loans have not been subjected to unfavorable economic conditions. As a result, it is difficult to predict the future performance of this part of our loan portfolio. These loans may have delinquency or charge-off levels above our historical experience, which could adversely affect our future performance.

 

If our allowance for loan and lease losses is not sufficient to cover actual losses, our earnings could decrease.

 

We periodically review our allowance for loan and lease losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets. We cannot be certain that our allowance for loan and lease losses will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets, and changes in borrower behaviors. Differences between our actual experience and assumptions and the effectiveness of our models may adversely affect our business, financial condition, including liquidity and capital, and results of operations.

 

The Financial Accounting Standards Board, or FASB, adopted Accounting Standards Update, or ASU, No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or CECL, on June 16, 2016, which changed the loss model to take into account current expected credit losses. This accounting pronouncement is expected to be applicable to us, as an emerging growth company, effective for our fiscal year beginning January 1, 2022. The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

 

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CECL substantially changes how we calculate our allowance for loan and lease losses. We are evaluating CECL and when we will be required to adopt it. We cannot predict when and how it will affect our results of operations and financial condition, including our regulatory capital. See “- We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.”

 

A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our operations, financial condition and earnings.

 

Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans. A deterioration in economic conditions could have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

 

· demand for our products and services may decline;

 

· loan delinquencies, problem assets and foreclosures may increase;

 

· collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; and

 

· the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

 

Moreover, a significant decline in general local, regional or national economic conditions caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

 

Changes in the valuation of our securities portfolio could hurt our profits and reduce our capital levels.

 

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free rates. In analyzing an equity issuer’s financial condition, management considers industry analysts’ reports, financial performance and projected target prices of investment analysts within a one-year time frame. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. Declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. As of December 31, 2018, we have no securities that are deemed impaired.

 

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A tightening of credit markets and liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

 

Liquidity is essential to our business. A tightening of the credit markets and the inability to obtain adequate funding to replace deposits and fund continued loan growth may affect asset growth, our earnings capability and capital levels negatively. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, including brokered deposits, as well as cash flows from loan payments and our securities portfolio. Borrowings, especially from the Federal Home Loan Bank and repurchase agreements, also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow also could be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.

 

Our utilization of time deposits, including brokered certificates of deposit, as a source of funds for loans and our other liquidity needs could have an adverse effect on our operating results.

 

We rely primarily on deposits for funds to make loans and provide for our other liquidity needs, including time deposits and brokered certificates of deposit. As of December 31, 2018, brokered certificates of deposit represented 20.1% of our total deposits. Such deposits may not be as stable as other types of deposits and, in the future, depositors may not renew those time deposits when they mature, or we may have to pay a higher rate of interest to attract or keep them or to replace them with other deposits or with funds from other sources. Not being able to attract those deposits or to keep or replace them as they mature would adversely affect our liquidity. Additionally, we are regulated by the FDIC, which requires us to maintain certain capital levels to be considered "well capitalized." If we fail to maintain these capital levels, we could lose our ability to obtain funding through brokered deposits. In addition, we may also be restricted from paying higher deposit rates to attract, keep or replace those deposits, which could have a negative effect on our operating results and the value of our common stock.

 

We may be adversely affected by recent changes in U.S. tax laws.

 

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes. The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan and lease losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

 

We use estimates in determining the fair value of certain assets, such as mortgage servicing rights (“MSRs”). If our estimates prove to be incorrect, we may be required to write down the value of these assets which could adversely affect our earnings.

 

We sell a portion of our one- to four-family loans in the secondary market. We generally retain the right to service these loans through First Bank Richmond. At December 31, 2018, the book value of our MSRs was $1.2 million. We use a financial model that uses, wherever possible, quoted market prices to value our MSRs. This model is complex and also uses assumptions related to interest and discount rates, prepayment speeds, delinquency and foreclosure rates and ancillary fee income. Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the model. The primary risk associated with MSRs is that they will lose a substantial portion of their value as a result of higher than anticipated prepayments occasioned by declining interest rates. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. If prepayment speeds increase more than estimated, or delinquency and default levels are higher than anticipated, we may be required to write down the value of our MSRs which could have a material adverse effect on our net income and capital levels. We obtain independent valuations annually to determine if impairment in the asset exists.

 

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If our investment in the Federal Home Loan Bank of Indianapolis becomes impaired, our earnings and stockholders’ equity could decrease.

 

At December 31, 2018, we owned $6.4 million in Federal Home Loan Bank (“FHLB”) of Indianapolis stock. We are required to own this stock to be a member of and to obtain advances from the FHLB of Indianapolis. This stock is not marketable and can only be redeemed by the FHLB of Indianapolis. The most recent stock buyback initiated by the FHLB of Indianapolis was in 2015. The FHLB of Indianapolis’ financial condition is linked, in part, to the eleven other members of the FHLB System and to accounting rules and asset quality risks that could materially lower their capital, which would cause our FHLB of Indianapolis stock to be deemed impaired, resulting in a decrease in our earnings and assets.

 

Our size makes it more difficult for us to compete.

 

Our asset size makes it more difficult to compete with other financial institutions that are larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings may also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base may make it difficult to generate meaningful non-interest income from such activities as securities brokerage or the sale of insurance products. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.

 

As a community bank, maintaining our reputation in our market area is critical to the success of our business, and the failure to do so may materially adversely affect our performance.

 

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our current market and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. We operate in many different financial service businesses and rely on the ability of our employees and systems to process a significant number of transactions. Operational risk is the risk of loss from operations, including fraud by employees or outside persons, employees’ execution of incorrect or unauthorized transactions, data processing and technology errors or hacking and breaches of internal control systems. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected.

 

We face significant operational risks because the financial services business involves a high volume of transactions and because of our reliance on technology.

 

Our business requires us to collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and our own business, operations, plans and business strategies. Our operational and security systems infrastructure, including our computer systems, data management and internal processes, as well as those of third parties, are integral to our performance. Our operational risks include the risk of malfeasance by employees or persons outside our company, errors relating to transaction processing and technology, systems failures or interruptions, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards or customer attrition due to potential negative publicity.

 

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In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, or a breach of our security systems, including if confidential or proprietary information were to be mishandled, misused or lost, we could suffer financial loss, face regulatory action, civil litigation and/or suffer damage to our reputation. Although to date we have not experienced any technology failures, cyber-attacks or other information or security breaches, there can be no assurance that we will not suffer such losses or other consequences in the future. Our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats and our role as a provider of financial services, our continuous transmission of sensitive information to, and storage of such information by, third parties, including our vendors and regulators, the outsourcing of some of our business operations, threats of cyber-terrorism, and system and customer account updates and conversions. As a result, cyber-security and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.

 

Our information technology systems may be subject to failure, interruption or security breaches.

 

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions and security breaches, including privacy breaches and cyber-attacks, and, although we have not experienced any such events to date, such failures, interruptions or breaches may still occur or may not be adequately addressed if they do occur.

 

There have been increasing efforts by third parties to breach data security at financial institutions. Such attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations. There have been several recent instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. Although we take protective measures, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures.

 

In addition, we outsource a majority of our data processing requirements to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with those service providers, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel. To our knowledge, the services and programs provided to us by third parties have not suffered any security breaches. However, the existence of cyber-attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

 

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

 

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Future changes in interest rates could reduce our profits and affect the value of our assets and liabilities.

 

Net income is the amount by which net interest income and non-interest income exceed non-interest expense, the provision for loan and lease losses and taxes. Net interest income makes up a majority of our net income and is based on the difference between:

 

· the interest income we earn on interest-earning assets, such as loans and securities; and

 

· the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings.

 

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time. In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. A decline in interest rates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans. At December 31, 2018, 44.6% of our loan and lease portfolio consisted of fixed-rate loans and leases.

 

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and liabilities and ultimately affect our earnings.

 

We monitor interest rate risk through the use of simulation models, including estimates of the amounts by which the fair value of our assets, liabilities and equity (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. As of December 31, 2018, in the event of an instantaneous 200 basis point increase in interest rates, we estimate that we would experience a 10.1% decrease in EVE. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Economic Value of Equity.”

 

Strong competition within our market areas may limit our growth and profitability.

 

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and securities brokerage firms and unregulated or less regulated non-banking entities, operating locally and elsewhere. Many of these competitors have substantially greater resources and higher lending limits than we have and offer certain services that we do not or cannot provide. In addition, some of our competitors offer loans with lower interest rates and fees on more attractive terms than loans we offer. Competition also makes it increasingly difficult and costly to attract and retain qualified employees. Our profitability depends upon our continued ability to successfully compete in our market area. If we must raise interest rates paid on deposits or lower interest rates charged on our loans due to competition, our net interest margin and profitability could be adversely affected.

 

The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve greater economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. For additional information see “Business of First Bank Richmond − Market Area” and “− Competition.”

 

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Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

 

First Bank Richmond is subject to extensive regulation, supervision and examination by the FDIC and the Indiana Department of Financial Institutions, and Richmond Mutual Bancorporation-Maryland will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of First Bank Richmond, rather than for our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan and lease losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. See “ - We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.”

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies have exercised significant discretion in drafting the implementing rules and regulations. It will be some time before the full effect of the Dodd-Frank Act and the regulations thereunder can be assessed. Compliance with the Dodd-Frank Act and its implementing regulations and policies has already resulted in changes to our business and operations, as well as additional costs, and has diverted management’s time from other business activities, all of which have adversely affected our financial condition and results of operations.

 

We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.

 

The nature of our business makes us sensitive to the large body of accounting rules in the United States. From time to time, the governing bodies that oversee changes to accounting rules and reporting requirements may release new guidance for the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Changes which have been approved for future implementation, or which are currently proposed or expected to be proposed or adopted include requirements that we calculate the allowance for loan and lease losses on the basis of the current expected credit losses over the lifetime of our loans, referred to as the CECL model, which is expected to be applicable to us, as an emerging growth company, beginning in 2022. CECL adoption will have broad impact on our financial statements, which will affect key profitability and solvency measures, including, but not limited to higher loan loss reserve levels and related deferred tax assets.  Increased reserve levels also may lead to a reduction in capital levels. Any such changes could have a material adverse effect on our business, financial condition and results of operations.

 

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Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The forward-looking modeling required by CECL relies on a number of macroeconomic variables. Unexpected changes to such indicators between periods could potentially result in greater earnings volatility from period to period. Our reserves may need to be adjusted in response to not only to our actual experience, but also to external factors. If we are required to materially increase the level of the allowance for loan and lease losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

 

An additional impact of CECL will be the asymmetry in accounting between loan related income, which will continue to be recognized on a periodic basis based on the effective interest method, and the related credit losses, which will be recognized up front at origination. This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses. Periods of stable or declining loan levels will look comparatively more profitable as the income trickles in for loans, where losses had been previously recognized.

 

We are evaluating the impact the CECL accounting model will have on our accounting, but expect to recognize a one-time cumulative-effect adjustment to the allowance for loan and lease losses as of the beginning of the first reporting period in which the new standard is effective. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our financial condition or results of operations. The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

 

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

 

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on pursuing acquisitions or establishing new branches. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations. Furthermore, these rules and regulations continue to evolve and expand.

 

We have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares.

 

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and defines “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5% which results in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amounts.

 

The application of more stringent capital requirements could, among other things, result in lower returns on equity, and result in regulatory actions if we are unable to comply with such requirements. Specifically, following the completion of the offering, First Bank Richmond’s ability to pay dividends to Richmond Mutual Bancorporation-Maryland will be limited if it does not have the capital conservation buffer required by the capital rules, which may further limit Richmond Mutual Bancorporation-Maryland’s ability to pay dividends to stockholders. See “Regulation and Supervision − Federal Banking Regulation − Capital Requirements.”

 

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The cost of additional finance and accounting systems, procedures, compliance and controls in order to satisfy our new public company reporting requirements will increase our expenses.

 

As a result of the completion of this offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a stand-alone public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”) requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the Securities and Exchange Commission. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.

 

Changes in accounting standards could affect reported earnings.

 

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our financial statements. In some cases, we could be required to apply new or revised guidance retroactively. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.

 

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

 

In preparing this prospectus as well as periodic reports we will be required to file under the Securities Exchange Act of 1934, including our consolidated financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loan and lease losses and our determinations with respect to amounts owed for income taxes.

 

Legal and regulatory proceedings and related matters could adversely affect us.

 

We have been and may in the future become involved in legal and regulatory proceedings. We consider most of the proceedings to be in the normal course of our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation. There could be substantial costs and management diversion in such litigation and proceedings, and any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

 

We are subject to environmental liability risk associated with lending activities or properties we own.

 

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, which require us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

 

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We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed or on terms acceptable to us.

 

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. We believe the net proceeds of this offering will be sufficient to permit Richmond Mutual Bancorporation-Maryland to maintain regulatory compliance for the foreseeable future. Nevertheless, we may elect to raise more capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital in the future. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. We cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, or if the terms of such a capital raise are not advantageous, it may have a material adverse effect on our financial condition, results of operations and prospects.

 

There may be future sales of additional common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock.

 

We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur.

 

Our board of directors is authorized to allow us to issue additional common stock, as well as classes or series of preferred stock, generally without any action on the part of the stockholders. In addition, the board has the power, generally without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our business and other terms. If we issue additional preferred stock in the future that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue additional preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market value of the common stock could be adversely affected.

 

Risks Related to the Offering

 

The future price of our common stock may be less than the purchase price in the offering.

 

If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price in the offering. In some cases, shares of common stock issued by newly converted financial institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of Richmond Mutual Bancorporation-Maryland and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.

 

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The capital we raise in the offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.

 

Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. Although we anticipate increasing net interest income using proceeds of the offering, our return on equity will be reduced by the capital raised in the offering, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt. Until we can implement our business plan and increase our net interest income through investment of the proceeds of the offering, we expect our return on equity to remain relatively low compared to our peer group, which may reduce the value of our shares.

 

We have broad discretion in using the proceeds of the offering. Our failure to effectively deploy the net proceeds of the offering may have an adverse effect on our financial performance and the value of our common stock.

 

We intend to invest between $40.7 million and $55.3 million, or $63.7 million if the offering is increased by 15%, of the net proceeds of the offering in First Bank Richmond. We also expect to use a portion of the net proceeds we retain to fund a loan to the employee stock ownership plan for the purchase of shares of common stock in the offering by the employee stock ownership plan, will contribute $1.25 million in cash to the charitable foundation that we are establishing in connection with the reorganization and will use approximately $5.0 million to redeem outstanding subordinated debentures and related trust preferred securities issued by First Mutual of Richmond-MHC which will be assumed by Richmond Mutual Bancorporation-Maryland in connection with the reorganization. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including, subject to regulatory limitations, the repurchase of shares of common stock and the payment of dividends. First Bank Richmond intends to use approximately $13.3 million ($9.8 million after tax) of the funds it receives from Richmond Mutual Bancorporation-Maryland in the offering to terminate its participation in the Pentegra DB Plan and generally intends to use the remaining net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. Funds used to pay the termination expense related to the Pentegra DB Plan may be higher or lower depending on a number of factors, including but not limited to the interest rate environment and the valuation of plan assets. With the exception of the loan to the employee stock ownership plan, the contribution to the charitable foundation, the redemption of the subordinated debentures and related trust preferred securities, and the termination expense of the Pentegra DB Plan, we have not allocated specific amounts of the net proceeds for any purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. Also, certain of these uses, such as any potential acquisition, paying dividends and repurchasing common stock, may require prior regulatory approval. We have not established a timetable for reinvesting the net proceeds, and we cannot predict how long it will take to reinvest the net proceeds. Our failure to utilize these funds effectively and timely would reduce our profitability and may adversely affect the value of our common stock. For additional information see “How We Intend To Use The Proceeds From The Offering.”

 

There may be a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock.

 

We have never issued capital stock and there is no established market for our common stock. We expect that our common stock will be quoted on the Nasdaq Capital Market under the symbol “RMBI” upon conclusion of the offering, subject to completion of the offering and compliance with certain conditions, including having 300 “round lot” stockholders (stockholders owning more than 100 shares) and at least three companies making a market for our common stock. KBW has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, we may not be able to obtain such commitments. This would result in our common stock not being listed for trading on the Nasdaq Capital Market, which could reduce the liquidity of our common stock.

 

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The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment.

 

We will incur a substantial expense in connection with the termination of First Bank Richmond’s participation in the Pentegra DB Plan, which will most likely eliminate all of our earnings for 2019 and result in us reporting a net loss for the year ending 2019.

 

First Bank Richmond participates in the Pentegra DB Plan, an industry-wide, tax-qualified defined-benefit pension plan, which covers substantially all of its employees. First Bank Richmond intends to use funds it receives from Richmond Mutual Bancorporation-Maryland in the offering to terminate its participation in the Pentegra DB Plan, which will require us to pay an amount based on the underfunded status of the plan, referred to as a withdrawal liability, which we currently estimate to be approximately $13.3 million ($9.8 million after tax). Our actual termination expense may be higher or lower depending on a number of factors, including but not limited to the interest rate environment and the valuation of plan assets. For the year ended December 31, 2018, we reported net income before income taxes of $7.0 million. As a result of the one-time termination fee and based on our historical earnings, we expect to report a net loss for the fiscal year ending December 31, 2019.

 

Our stock-based and other benefit plans will increase our costs, which will reduce our net income.

 

We intend to adopt a new stock-based benefit plan after the reorganization and offering, subject to shareholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plan. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually granted under the plan, the fair market value of our stock or options on the date of grant, the vesting period, and other factors that we cannot predict at this time. If we adopt stock-based benefit plans within 12 months following the offering, the total shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the offering and contributed to the charitable foundation. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based benefit plans adopted more than 12 months after the completion of the offering, our costs would increase further.

 

We also will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for shares purchased by the employee stock ownership plan in the offering and for our new stock-based benefit plans has been estimated to be approximately $2.4 million ($1.9 million after tax) at the adjusted maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share offering price as fair market value. Actual expense may be higher if the price of our common stock at the time the shares are allocated or awarded is greater than $10.00 per share.

 

For further discussion of our proposed stock-based plans, see “Management - Existing and Future Benefit Plans and Agreements — Proposed Employee Stock Ownership Plan” and “— Proposed Stock-Based Incentive Plan.”

 

In addition, First Bank Richmond entered into a nonqualified deferred compensation plan with Garry Kleer, its Chairman, President and Chief Executive Officer, which will result in a $1.9 million ($1.4 million after tax) expense to First Bank Richmond in 2019. For a discussion of the non-qualified deferred compensation plan, see “Management - Existing and Future Benefit Plans and Agreements — Nonqualified Deferred Compensation Plan.”

 

The implementation of a stock-based benefit plan may dilute your ownership interest.

 

We intend to adopt a stock-based benefit plan following the reorganization and offering. The stock-based benefit plan will be funded through either open market purchases, if permitted, or from the issuance of authorized but unissued shares. Our ability to repurchase shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on common stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the new stock-based benefit plan through open market purchases, stockholders would experience a reduction in ownership interest totaling 12.3% in the event newly issued shares are used to fund stock options and restricted stock awards in an amount equal to 10.0% and 4.0%, respectively, of the total shares issued in the reorganization and offering (including shares contributed to the charitable foundation).

 

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We have not determined when we will adopt our new stock-based benefit plan. Stock-based benefit plans adopted more than 12 months following the completion of the reorganization and offering may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.

 

If we adopt a stock-based benefit plan more than 12 months following the completion of the offering, then grants of shares of common stock or stock options under our existing and proposed stock-based benefit plan may exceed 4% and 10%, respectively, of shares of common stock sold in the offering and contributed to the charitable foundation. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “- Our stock-based and other benefit plans will increase our costs, which will reduce our net income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to shareholders in excess of that described in “- The implementation of a stock-based benefit plan may dilute your ownership interest.” Although the implementation of stock-based benefit plans would be subject to shareholder approval, the timing of the implementation of such plans will be at the discretion of our board of directors. Historically, shareholders have approved these stock-based benefit plans.

 

Various factors may make takeover attempts more difficult to achieve.

 

Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Richmond Mutual Bancorporation -Maryland without our board of directors’ prior approval.

 

Under Federal Reserve Board regulations, for a period of three years following completion of the reorganization and offering, no person may directly or indirectly acquire or offer to acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding company creates a rebuttable presumption that the acquirer “controls” the bank holding company. Also, a bank holding company must obtain the prior approval of the Federal Reserve Board before, among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, including First Bank Richmond.

 

There also are provisions in our articles of organization that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of the shares of common stock outstanding and a provision governing certain business combinations. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of Richmond Mutual Bancorporation-Maryland without the consent of our board of directors. Taken as a whole, these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

 

For additional information, see “Restrictions on Acquisition of Richmond Mutual Bancorporation-Maryland” for a discussion of applicable Federal Reserve Board regulations regarding acquisitions and provisions in our articles of incorporation and bylaws that could impact acquisitions of control of Richmond Mutual Bancorporation-Maryland.

 

Our management team has limited experience managing a public company, and regulatory compliance may divert its attention from the day-to-day management of our business.

 

Our management team has limited experience managing a publicly traded company or complying with the complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to a public company, which will be subject to significant regulatory oversight and reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our management team and may divert their attention away from the day-to-day management of our business, which could materially and adversely impact our business operations.

 

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You may not receive dividends on our common stock.

 

Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. The declaration and payment of future cash dividends will be subject to, among other things, regulatory restrictions, our then current and projected consolidated operating results, financial condition, tax considerations, future growth plans, general economic conditions, and other factors our board of directors deems relevant. Richmond Mutual Bancorporation-Maryland will depend primarily upon the proceeds it retains from the offering as well as earnings of First Bank Richmond to provide funds to pay dividends on our common stock. The payment of dividends by First Bank Richmond also is subject to certain regulatory restrictions. Federal law generally prohibits a depository institution from making any capital distributions (including payment of a dividend) to its parent holding company if the depository institution would thereafter be or continue to be undercapitalized, and dividends by a depository institution are subject to additional limitations. As a result, any payment of dividends in the future by Richmond Mutual Bancorporation-Maryland will depend, in large part, on First Bank Richmond’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors.

 

You may not be able to sell your shares of common stock until you have received a statement reflecting ownership of shares, which will affect your ability to take advantage of changes in the stock price immediately following the offering.

 

A statement reflecting ownership of shares of common stock purchased in the offering may not be delivered for several days after the completion of the offering and the commencement of trading in the common stock. Your ability to sell the shares of common stock before receiving your ownership statement will depend on arrangements you may make with a brokerage firm, and you may not be able to sell your shares of common stock until you have received your ownership statement. As a result, you may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.

 

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

 

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or on any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

 

As a result, our stockholders may not have access to certain information they may deem important, and investors may find our common stock less attractive if we choose to rely on these exemptions. This could result in a less active trading market for our common stock and the price of our common stock may be more volatile.

 

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Risks Related to the Charitable Foundation

 

The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2019.

 

We intend to establish and fund a new charitable foundation in connection with the reorganization and offering, subject to approval of the members of First Mutual of Richmond-MHC. We intend to contribute a total of $6.25 million to the charitable foundation, which contribution will consist of $5.0 million (500,000 shares) of common stock and $1.25 million of cash. The 500,000 shares of common stock contributed to the charitable foundation will represent approximately 6.0%, 5.1%, 4.4% and 3.8% of the common stock sold in the offering at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The contribution will have an adverse effect on our net income for the quarter and year in which we make the issuance and contribution to the charitable foundation. The after-tax expense of the contribution is expected to reduce net income in fiscal 2019 by approximately $4.6 million. Our fiscal 2018 net income was $5.7 million. In addition, persons purchasing shares in the offering will have their ownership and voting interests in Richmond Mutual Bancorporation-Maryland diluted by up to 5.6% and 3.7% at the minimum and adjusted maximum of the offering range, respectively due to the contribution of shares of common stock to the charitable foundation.

 

Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.

 

We may not have sufficient profits to be able to fully use the tax deduction from our contribution to the charitable foundation. Under the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (generally income before federal income taxes and charitable contributions expense) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a charitable contribution could, if necessary, be deducted over a six-year period and expires thereafter.

 

As previously stated, we will incur a substantial expense in connection with the termination of First Bank Richmond’s participation in the Pentegra DB Plan, which will most likely eliminate all of our earnings for 2019 and result in us reporting a net loss for the year. As a result, we do not expect to be able to use the tax deduction in 2019 from our contribution to the charitable foundation. There are no assurances that we will have sufficient profits in the future to be able to fully use the tax deduction from our contribution to the charitable foundation.

 

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SELECTED FINANCIAL AND OTHER DATA

 

The Financial Condition Data as of December 31, 2018 and 2017 and the Operating Data for the years ended December 31, 2018, 2017 and 2016 are derived from the audited financial statements and related notes included elsewhere in the prospectus. The Financial Condition Data as of December 31, 2016, 2015 and 2014 and the Operating Data for the years ended December 31, 2015 and 2014 are derived from audited financial statements not included in this prospectus. The following information is only a summary and you should read it in conjunction with our financial statements and related notes beginning on page F-1 and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

    At December 31,  
    2018     2017     2016     2015     2014  
    (In thousands)  
Selected Financial Condition Data:                                        
Total assets   $ 849,618     $ 753,621     $ 693,956     $ 674,637     $ 614,197  
Loans and leases, net (1)     654,755       557,929       461,990       400,427       366,332  
Securities available for sale, at fair value     122,482       118,357       144,214       189,571       180,350  
Investment securities, at amortized cost     21,080       24,892       27,360       28,837       13,567  
Federal Reserve and FHLB stock     6,561       6,717       6,224       5,384       7,129  
Deposits     620,637       560,395       516,302       520,487       475,161  
FHLB advances     136,100       104,000       92,300       71,600       57,600  
Stockholders’ equity     85,853       81,798       78,105       77,576       75,920  

 

    Years Ended December 31,  
    2018     2017     2016     2015     2014  
    (In thousands)  
Selected Operations Data:                                        
Total interest income   $ 35,199     $ 29,104     $ 26,686     $ 25,561     $ 25,586  
Total interest expense     7,752       5,250       4,068       3,630       4,090  
Net interest income     27,447       23,854       22,618       21,931       21,496  
Provision for loan and lease losses     1,680       1,370       1,155       830       1,800  
Net interest income after provision for loan and lease losses     25,767       22,484       21,463       21,100       19,696  
Service charges on deposit accounts     1,115       1,111       1,157       1,282       1,409  
Card fee income     698       644       673       661       670  
Loan and lease servicing fees (losses)     335       208       84       (198 )     125  
Gain on loan and lease sales     459       794       712       375       298  
Gain on sales of securities     15       96       473       1,567       527  
Other income     1,671       1,662       1,491       1,202       2,370  
Total non-interest income     4,294       4,515       4,590       4,889       5,399  
Total non-interest expenses     23,105       21,312       21,574       20,284       20,710  
Income before provision for income taxes     6,956       5,687       4,479       5,705       4,385  
Provision for income taxes (2)     1,278       2,972       1,075       1,651       1,437  
Net income (2)   $ 5,678     $ 2,715     $ 3,404     $ 4,054     $ 2,948  

 

 

(1) Net of allowances for loan and lease losses, loans in process and deferred loan fees.
(2) The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 reducing our federal corporate tax rate from 34% to 21%, effective January 1, 2018. As a result of the Tax Act, our provision for income taxes and net income in 2018 were positively impacted by a $676,000 tax benefit related to tax rate changes, while our provision for income taxes and net income in 2017 were negatively impacted by an additional $1.5 million in tax expense related to an adjustment to our deferred tax asset.

 

  33  

 

 

    At or For the  
    Years Ended December 31,  
    2018     2017     2016     2015     2014  
Selected Financial Ratios and Other Data:                                        
Performance ratios:                                        
Return on average assets (ratio of net income (loss) to average total assets)     0.71 %     0.38 %     0.50 %     0.63 %     0.47 %
Return on average equity (ratio of net income (loss) to average equity)     6.89 %     3.36 %     4.28 %     5.28 %     4.03 %
Yield on interest-earning assets     4.58 %     4.24 %     4.14 %     4.18 %     4.27 %
Rate paid on interest-bearing liabilities     1.18 %     0.92 %     0.78 %     0.76 %     0.90 %
Interest rate spread information:                                        
Average during period     3.40 %     3.32 %     3.36 %     3.43 %     3.37 %
End of period     3.11 %     3.21 %     3.27 %     3.36 %     3.45 %
Net interest margin (1)     3.57 %     3.48 %     3.51 %     3.59 %     3.61 %
Operating expense to average total assets     2.89 %     2.96 %     3.18 %     3.16 %     3.30 %
Average interest-earning assets to average interest-bearing liabilities     117.01 %     120.20 %     124.13 %     127.18 %     131.52 %
Efficiency ratio (2)     71.84 %     73.22 %     78.20 %     78.79 %     77.37 %
                                         
Asset quality ratios:                                        
Non-performing assets to total assets (3)     0.56 %     0.60 %     1.63 %     2.11 %     3.14 %
Non-performing loans and leases to total gross loans and leases (4)     0.69 %     0.80 %     1.62 %     3.24 %     4.91 %
Allowance for loan and lease losses to non-performing loans and leases (4)     122.40 %     106.36 %     71.31 %     39.96 %     34.27 %
Allowance for loan and lease losses to loans and leases receivable, net     0.85 %     0.85 %     1.15 %     1.29 %     1.68 %
Net charge-offs to average outstanding loans and leases during the period     0.14 %     0.38 %     0.23 %     0.49 %     0.64 %
                                         
Capital ratios: (5)                                        
Common equity tier 1 capital (to risk weighted assets)     11.49 %     11.80 %     13.10 %     15.30 %     16.80 %
Tier 1 leverage (core) capital (to adjusted tangible assets)     10.06 %     10.30 %     9.80 %     10.30 %     10.50 %
Tier 1 risk-based capital (to risk weighted assets)     11.49 %     11.80 %     13.10 %     15.30 %     16.80 %
Total risk-based capital (to risk weighted assets)     12.26 %     12.60 %     14.10 %     16.50 %     18.00 %
Equity to total assets at end of period     10.11 %     10.85 %     11.26 %     11.50 %     12.36 %
Average equity to average assets     10.30 %     11.22 %     11.71 %     11.97 %     11.69 %
                                         
Other data:                                        
Number of full service offices     12       12       11       11       12  
Full-time equivalent employees     172       174       173       170       180  

 

 

(1) Net interest income (on a tax equivalent basis) divided by average interest earning assets.
(2) Total other (non-interest) expenses as a percentage of net interest income (on a tax equivalent basis) and total other (non-interest) income, excluding net securities transactions.
(3) Non-performing assets consist of non-accruing loans and leases, accruing loans and leases more than 90 days past due and foreclosed assets.
(4) Non-performing loans and leases consist of non-accruing loans and leases and accruing loans and leases more than 90 days past due.
(5) Capital ratios are for First Bank Richmond.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. 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.

 

These forward-looking statements are based on our current beliefs and expectations and 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. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this prospectus.

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

· 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;

 

· 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;

 

· the impact of the Dodd-Frank Act and the implementing regulations;

 

· changes in the quality or composition of our loan or investment portfolios;

 

· technological changes that may be more difficult or expensive than expected;

 

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· 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;

 

· the deductibility of our contribution to the charitable foundation for tax purposes; and

 

· changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see “Risk Factors” beginning on page 18.

 

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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

 

Although we will not be able to determine the amount of actual net proceeds we will receive from the sale of shares of common stock until the offering is completed, we anticipate that the net proceeds will be between $81.4 million and $110.6 million, or $127.5 million if the offering is increased by 15%.

 

Richmond Mutual Bancorporation-Maryland intends to distribute the net proceeds from the offering as follows:

 

    Based Upon the Sale at $10.00 Per Share of  
    8,372,500 Shares at
Minimum of Offering
Range 		    9,850,000 Shares at
Midpoint of Offering
Range 		    11,327,500 Shares at
Maximum of Offering
Range 		   

13,026,625 Shares at
Adjusted Maximum of
Offering Range (1)

 
    Amount     Percent of
Net
Proceeds 		    Amount     Percent of
Net
Proceeds 		    Amount     Percent of
Net
Proceeds 		    Amount     Percent of
Net
Proceeds 		 
    (Dollars in thousands)  
                                                 
Gross offering proceeds   $ 83,725             $ 98,500             $ 113,275             $ 130,266          
Less: estimated offering expenses     (2,366 )             (2,502 )             (2,638 )             (2,794 )        
Net offering proceeds   $ 81,359       100.0 %   $ 95,998       100.0 %   $ 110,637       100.0 %   $ 127,472       100.0 %
Less:                                                                
Proceeds contributed to First Bank Richmond   $ (40,680 )     (50.0 )%   $ (47,999 )     (50.0 )%   $ (55,318 )     (50.0 )%   $ (63,736 )     (50.0 )%
Proceeds used for loan to employee stock ownership plan (2)     (7,098 )     (8.7 )%     (8,280 )     (8.6 )%     (9,462 )     (8.6 )%     (10,821 )     (8.5 )%
Proceeds used to redeem subordinated debentures     (5,000 )     (6.1 )%     (5,000 )     (5.2 )%     (5,000 )     (4.5 )%     (5,000 )     (3.9 )%
Cash Contribution to the charitable foundation     (1,250 )     (1.5 )%     (1,250 )     (1.3 )%     (1,250 )     (1.1 )%     (1,250 )     (1.0 )%
Proceeds retained by Richmond Mutual Bancorporation-Maryland   $ 27,331       33.7 %   $ 33,469       34.9 %   $ 39,607       35.8 %   $ 46,665       36.6 %

 

 

(1) As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2) The employee stock ownership plan (“ESOP”) will purchase 8.0% of the shares of common stock sold in the offering (including shares contributed to the charitable foundation) with the ESOP obtaining the funds to purchase the shares from a loan made available by Richmond Mutual Bancorporation-Maryland to the ESOP. The loan will be repaid principally through First Bank Richmond’s contribution to the ESOP and dividends payable on common stock held by the ESOP over the anticipated 20-year term of the loan. The interest rate for the ESOP loan is expected to be equal to the prime rate, as published in The Wall Street Journal , on the closing date of the offering.

 

The net proceeds may vary because total expenses relating to the reorganization and offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering were used to sell shares of common stock not purchased in the subscription offering and the community offering. See “The Reorganization and Offering—Plan of Distribution and Marketing Arrangements” for a discussion of fees to be paid in the event that shares are sold in a syndicated community offering. Payments for shares made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of First Bank Richmond’s deposits. First Bank Richmond will receive at least 50% of the net proceeds of the offering.

 

Use of Proceeds Retained by Richmond Mutual Bancorporation-Maryland

 

Richmond Mutual Bancorporation-Maryland:

 

· intends to initially invest the proceeds that it retains in interest-earning deposits and in securities, including securities issued by the U.S. government and its agencies or government sponsored enterprises, mortgage-backed securities, and other securities as permitted by our investment policy. See “Business of First Bank Richmond − Investment Activities;”

 

· may, in the future, use a portion of the proceeds that it retains to pay cash dividends or to repurchase shares of our common stock, although under current federal regulations we may not repurchase shares of our common stock during the first year following the reorganization and offering, except to fund stock-based benefit plans or when extraordinary circumstances exist with prior regulatory approval;

 

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· may, in the future, use a portion of the proceeds that it retains to finance acquisitions of financial institutions, or branches thereof, or other financial services businesses, or to expand through de novo branching, although no specific transactions are being considered at this time and no specific expansion is being considered at this time;

 

· expects to use the proceeds that it retains from time to time for other general corporate purposes.

 

See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the offering.

 

Use of Proceeds Received by First Bank Richmond

 

First Bank Richmond:

 

· intends to use approximately $13.3 million ($9.8 million after tax) to terminate its participation in the Pentegra DB Plan; however, this amount may be higher or lower depending on a number of factors, including but not limited to the interest rate environment and the valuation of plan assets;

 

· intends to use a portion of the proceeds received to fund new loans;

 

· may use a portion of the proceeds received to support new loan, deposit and other financial products and services if our board of directors determines that such products will help us compete more effectively in our market area or increase our financial performance;

 

· may invest a portion of the proceeds received in securities issued by the U.S. government and its agencies or government sponsored enterprises, mortgage-backed securities, and other securities as permitted by our investment policy;

 

· may, in the future, use a portion of the proceeds received to expand our retail banking franchise, by acquiring other financial institutions, branch offices or other financial services businesses, or establishing new branches or loan production offices, although no specific transactions are being considered at this time; and

 

· expects to use the proceeds received from time to time for other general corporate purposes.

 

The use of the proceeds by Richmond Mutual Bancorporation-Maryland and First Bank Richmond may change based on changes in interest rates, equity markets, laws and regulations affecting the financial services industry, our relative position in the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. 

 

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OUR POLICY REGARDING DIVIDENDS

 

Following completion of the reorganization, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. We currently intend to pay quarterly cash dividends but have not determined the amount or when payment would start. The payment and amount of dividends would depend upon a number of factors, including: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; statutory and regulatory limitations; and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, they will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by applicable law, regulations and policy, may be paid in addition to, or in lieu of, regular cash dividends.

 

The Federal Reserve Board has issued a policy statement providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate of earnings retention is inconsistent with its capital needs and overall financial condition. In addition, First Bank Richmond’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the applicable capital rules, which may limit our ability to pay dividends to stockholders. See “Regulation and Supervision − Federal Banking Regulation − Capital Requirements.” No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future.

 

Richmond Mutual Bancorporation-Maryland will file a consolidated federal tax return with First Bank Richmond. Accordingly, it is anticipated that any cash distributions that Richmond Mutual Bancorporation-Maryland makes to its stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes. Additionally, pursuant to regulations of the Federal Reserve Board, during the three-year period following the offering, Richmond Mutual Bancorporation-Maryland will not take any action to declare an extraordinary dividend to its stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

 

Pursuant to Richmond Mutual Bancorporation-Maryland’s articles of incorporation, we are authorized to issue preferred stock. If we issue preferred stock, the holders thereof may have a priority over the holders of our shares of common stock with respect to the payment of dividends. For a further discussion concerning the payment of dividends on our shares of common stock, see “Description of Capital Stock of Richmond Mutual Bancorporation-Maryland − Common Stock.” Dividends we can declare and pay will depend, in part, upon receipt of dividends from First Bank Richmond, because initially we will have no source of income other than dividends from First Bank Richmond and earnings from the investment of the net proceeds from the sale of shares of common stock retained by Richmond Mutual Bancorporation-Maryland and interest payments received in connection with the loan to the employee stock ownership plan. Indiana banking law imposes limitations on “capital distributions” by First Bank Richmond. See “Regulation and Supervision – Indiana Banking Regulation — Dividends.”

 

Any payment of dividends by First Bank Richmond to Richmond Mutual Bancorporation-Maryland that would be deemed to be drawn out of First Bank Richmond’s bad debt reserves, if any, would require a payment of taxes at the then-current tax rate by First Bank Richmond on the amount of earnings deemed to be removed from the reserves for such distribution. First Bank Richmond does not intend to make any distribution to Richmond Mutual Bancorporation-Maryland that would create such a federal tax liability. See “Taxation.”

 

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MARKET FOR THE COMMON STOCK

 

Richmond Mutual Bancorporation-Maryland has never issued capital stock. Accordingly, there is no established market for our common stock. Richmond Mutual Bancorporation-Maryland expects that its common stock will be listed for trading on the Nasdaq Capital Market under the symbol “RMBI”, subject to completion of the reorganization and offering, and compliance with certain listing conditions, including the presence of at least three registered and active market makers. KBW has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, there can be no assurance that we will be successful in obtaining such commitments.

 

The development and maintenance of an active trading market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and sellers, which is not within our control or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. Furthermore, we cannot assure you that, if you purchase shares of common stock, you will be able to sell them at or above $10.00 per share. Purchasers of common stock in this offering should have long-term investment intent and should recognize that there may be a limited trading market in the common stock. This may make it difficult to sell the common stock after the offering and may have an adverse impact on the price at which the common stock can be sold.

 

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

 

At December 31, 2018, First Bank Richmond exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of First Bank Richmond at December 31, 2018, and the pro forma equity capital and regulatory capital of First Bank Richmond after giving effect to the sale of shares of common stock at $10.00 per share. The table assumes the receipt by First Bank Richmond of 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”

 

    First Bank Richmond
Historical at 		   

Pro Forma at December 31, 2018, Based Upon the Sale in the Offering of (1)

 
    December 31, 2018     8,372,500 Shares     9,850,000 Shares     11,327,500 Shares    

13,026,625 Shares (2)

 
    Amount    

Percent of
Assets (3(4))

    Amount    

Percent of
Assets (3)

    Amount    

Percent of

Assets (3)

    Amount    

Percent of
Assets (3)

    Amount    

Percent of
Assets (3)

 
    (Dollars in thousands)  
       
Equity   $ 80,857       9.57 %   $ 101,059       11.59 %   $ 106,605       12.13 %   $ 112,152       12.67 %   $ 118,531       13.27 %
                                                                                 
Tier 1 leverage capital   $ 84,250       10.06 %   $ 104,452       12.07 %   $ 109,998       12.62 %   $ 115,545       13.15 %   $ 121,924       13.76 %
Tier 1 leverage capital requirement     41,888       5.00       43,253       5.00       43,590       5.00       43,926       5.00       44,313       5.00  
Excess   $ 42,362       5.06 %   $ 61,199       7.07 %   $ 66,408       7.62 %   $ 71,619       8.15 %   $ 77,611       8.76 %
                                                                                 
Tier 1 risk-based capital (5)   $ 84,250       11.49 %   $ 104,452       14.14 %   $ 109,998       14.87 %   $ 115,545       15.59 %   $ 121,924       16.42 %
Tier 1 risk-based requirement     58,640       8.00       59,077       8.00       59,184       8.00       59,292       8.00       59,416       8.00  
Excess   $ 25,610       3.49 %   $ 45,375       6.14 %   $ 50,814       6.87 %   $ 56,253       7.59 %   $ 62,508       8.42 %
                                                                                 
Total risk-based capital (5)   $ 89,850       12.26 %   $ 110,052       14.90 %   $ 115,598       15.63 %   $ 121,145       16.35 %   $ 127,524       17.17 %
Total risk-based requirement     73,300       10.00       73,846       10.00       73,981       10.00       74,115       10.00       74,270       10.00  
Excess   $ 16,550       2.26 %   $ 36,206       4.90 %   $ 41,617       5.63 %   $ 47,030       6.35 %   $ 53,254       7.17 %
                                                                                 
Common equity tier 1 risk-based capital (5)   $ 84,250       11.49 %   $ 104,452       14.14 %   $ 109,998       14.87 %   $ 115,545       15.59 %   $ 121,924       16.42 %
Common equity tier 1 risk-based requirement     47,645       6.50       48,000       6.50       48,087       6.50       48,175       6.50       48,275       6.50  
Excess   $ 36,605       4.99 %   $ 56,452       7.64 %   $ 61,911       8.37 %   $ 67,370       9.09 %   $ 73,649       9.92 %
                                                                                 
Reconciliation of capital infused into First Bank Richmond:                                                                  
Net offering proceeds     $ 81,359             $ 95,998             $ 110,637             $ 127,472          
Proceeds to First Bank Richmond     $ 40,680             $ 47,999             $ 55,318             $ 63,736          
Less:                                                                                
Expense of Pentegra DB Plan termination, net of taxes       (9,831 )             (9,831 )             (9,831 )             (9,831 )        
Common stock acquired by employee stock ownership plan       (7,098 )             (8,280 )             (9,462 )             (10,821 )        
Common stock acquired by stock-based benefit plans       (3,549 )             (4,140 )             (4,731 )             (5,411 )        
Pro forma increase     $ 20,202             $ 25,748             $ 31,296             $ 37,674          

 

 

(1) Pro forma capital levels assume that the employee stock ownership plan purchases 8.0% of our total outstanding shares (including shares contributed to the charitable foundation) with funds we lend and that one or more stock-based benefit plans purchases 4.0% of our total outstanding shares (including shares contributed to the charitable foundation) for restricted stock awards. Pro forma capital calculated under U.S. generally accepted accounting principles (“U.S. GAAP”) and regulatory capital have been reduced by the amount required to fund these plans. See “Management – Existing and Future Benefit Plans and Agreements” for a discussion of the employee stock ownership plan.
(2) As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(3) Tier 1 leverage capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(4) Based on total assets of $845.0 million for the purposes of the GAAP capital ratio, total assets of $837.8 million, for the purposes of the Tier 1 leverage capital requirement and risk-weighted assets of $733.0 million, for the purposes of the Tier 1 risk-based and total risk-based capital requirements.
(5) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

 

  41  

 

 

CAPITALIZATION

 

The following table presents, on a consolidated basis, our historical deposits, borrowings and capitalization at December 31, 2018, and the pro forma consolidated capitalization of Richmond Mutual Bancorporation-Maryland after giving effect to the offering, based upon the sale of the number of shares of common stock indicated in the table and the other assumptions set forth under “Pro Forma Data.”

 

    Consolidated
Historical
Capitalization 		    Pro Forma Consolidated Capitalization at December 31, 2018
of Richmond Mutual Bancorporation-Maryland
Based Upon the Sale for $10.00 Per Share of 		 
    at December 31,
2018 		    8,372,500
Shares 		    9,850,000
Shares 		    11,327,500
Shares 		   

13,026,625
Shares (1)

 
    (Dollars in thousands)  
                               
Deposits (2)   $ 620,637     $ 620,637     $ 620,637     $ 620,637     $ 620,637  
Borrowings     136,100       136,100       136,100       136,100       136,100  
Subordinated debentures     5,000       —       —       —       —  
Total deposits and borrowed funds   $ 761,737     $ 756,737     $ 756,737     $ 756,737     $ 756,737  
                                         
Stockholders’ equity:                                        
Preferred Stock, $0.01 par value per share: 10,000,000 shares authorized (post offering); none to be issued   $ —     $ —     $ —     $ —     $ —  
Common Stock, $0.01 par value per share:                                        
90,000,000 shares authorized (post offering); shares to be issued as reflected (3)     —       89       104       118       135  
Additional paid-in capital (3)     12,751       94,020       108,645       123,269       140,087  
Retained earnings (4)     77,480       77,480       77,480       77,480       77,480  

First Mutual of Richmond-MHC consolidation Adjustment (5)

    (6,035 )     (6,035 )     (6,035 )     (6,035 )     (6,035 )
Accumulated other comprehensive loss, net     (4,378 )     (4,378 )     (4,378 )     (4,378 )     (4,378 )
Stock contribution to charitable foundation     —       5,000       5,000       5,000       5,000  
Less:                                        
Expense of contribution to charitable foundation, net of taxes (6)     —       (4,629 )     (4,629 )     (4,629 )     (4,629 )
Expense of Pentegra DP termination, net of taxes     —       (9,831 )     (9,831 )     (9,831 )     (9,831 )
Common stock acquired by employee stock ownership plan (7)     —       (7,098 )     (8,280 )     (9,462 )     (10,821 )
Common stock acquired by stock-based benefit plans (8)     —       (3,549 )     (4,140 )     (4,731 )     (5,411 )
Total stockholders’ equity   $ 79,818     $ 141,070     $ 153,936     $ 166,802     $ 181,598  
Total tangible stockholders’ equity (9)   $ 79,818     $ 141,070     $ 153,936     $ 166,802     $ 181,598  
                                         
Pro forma shares of common stock outstanding:                                        
Shares offered for sale     —       8,372,500       9,850,000       11,327,500       13,026,625  
Shares issued to charitable foundation     —       500,000       500,000       500,000       500,000  
Total shares outstanding     —       8,872,500       10,350,000       11,827,500       13,526,625  
                                         
Total stockholders’ equity as a percentage of pro forma total assets     9.39 %     15.49 %     16.66 %     17.81 %     19.09 %
Total stockholders’ tangible equity as a percentage of pro forma total assets (9)     9.39 %     15.49 %     16.66 %     17.81 %     19.09 %

 

 

(1) As adjusted to give effect to a 15% increase in the number of shares of common stock outstanding after the offering, which could occur due to an increase in the maximum of the independent valuation to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the offering. Such withdrawals would reduce pro forma deposits by the amount of such withdrawals.
(3) The sum of the par value and the additional paid-in capital equals the net offering proceeds plus Richmond Mutual Bancorporation-Delaware’s historical retained earnings. No effect has been given to the issuance of additional shares of common stock pursuant to the exercise of options under one or more stock-based benefit plans that we expect to adopt following completion of the reorganization and offering. See “Management - Existing and Future Benefit Plans and Agreements.”
(4) The retained earnings of First Bank Richmond will be substantially restricted after the offering. See “Regulation and Supervision - Indiana Banking Regulation — Dividends.”
(5) To reflect adjustments required to consolidate the financial statements of First Mutual of Richmond-MHC with those of Richmond Mutual Bancorporation-Delaware’s consolidated financial statements presented in this prospectus.

 

(footnotes continued on following page)

 

  42  

 

 

(6) Represents the expense of the contribution to the charitable foundation based on a 25.9% tax rate. The realization of the deferred tax benefit is limited annually to a maximum deduction for charitable donations equal to 10% of our annual taxable income, subject to our ability to carry forward any unused portion of the deduction for five years following the year in which the contribution is made.
(7) Assumes that 8.0% of the shares of common stock outstanding following the reorganization and offering (including shares contributed to the charitable foundation) will be purchased by the employee stock ownership plan at a price of $10.00 per share and that the funds used to acquire the employee stock ownership plan shares will be borrowed from Richmond Mutual Bancorporation-Maryland and will represent unearned compensation, reflected as a reduction of stockholders’ equity. First Bank Richmond will provide the funds to repay the employee stock ownership plan loan. See “Management – Existing and Future Benefit Plans and Agreements.”
(8) Assumes a number of shares of common stock equal to 4.0% of the shares of common stock outstanding following the reorganization and offering (including shares contributed to the charitable foundation) will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such plans to purchase the shares will be provided by Richmond Mutual Bancorporation-Maryland. The dollar amount of common stock to be purchased is based on the $10.00 per share offering price and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the offering price. Richmond Mutual Bancorporation-Maryland will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital in an amount equal to the charge to operations. Implementation of such plans will require stockholder approval. See “Management – Existing and Future Benefit Plans and Agreements.”
(9) At December 31, 2018, we had no intangible assets, other than our Mortgage Servicing Rights which are included for purposes of calculating tangible stockholder equity.

 

  43  

 

 

PRO FORMA DATA

 

The following tables summarize our historical data and the pro forma data of Richmond Mutual Bancorporation-Maryland at and for the year ended December 31, 2018. This information is based on assumptions set forth below, and in the table and related footnotes, and should not be used as a basis for projections of market value of the shares of common stock following the reorganization.

 

The net proceeds disclosed in the tables are based upon the following assumptions:

 

(i) all shares of common stock will be sold in the subscription and community offerings;

 

(ii) our directors, executive officers, and their associates will purchase 225,100 shares of common stock;

 

(iii) our employee stock ownership plan will purchase an amount of shares equal to 8.0% of our outstanding shares, including shares contributed to the charitable foundation, with a loan from Richmond Mutual Bancorporation-Maryland. The loan will be repaid in substantially equal principal payments over a period of 20 years. Interest income that we earn on the loan will offset the interest paid by First Bank Richmond;

 

(iv) Richmond Mutual Bancorporation-Maryland will contribute $1.25 million in cash to the charitable foundation;

 

(v) we will pay KBW a fee equal to 1.0% of the aggregate amount of common stock sold in the subscription and community offerings, excluding any shares of common stock purchased by our tax-qualified and non-qualified employee stock benefit plans or contributed to the charitable foundation; and

 

(vi) total expenses of the offering, other than fees and commissions to be paid to KBW, will be $1.6 million.

 

We calculated the pro forma consolidated net income of Richmond Mutual Bancorporation-Maryland for the year as if the shares of common stock had been sold at the beginning of the year and the net proceeds had been invested at 2.51% (1.86% on an after-tax basis), which is equal to the yield on the five-year U.S. Treasury Note as of December 31, 2018. In light of current interest rates, we consider this rate to more accurately reflect the pro forma reinvestment rate than the arithmetic average method, which assumes reinvestment of the net proceeds at a rate equal to the average of the yield on interest-earning assets and the cost of deposits for those periods.

 

We further believe that the reinvestment rate is factually supportable because:

 

· the yield on the U.S. Treasury Note can be determined and/or estimated from third-party sources; and

 

· we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest.

 

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of net income and stockholders’ equity by the indicated number of shares of common stock. For pro forma income calculations, we adjusted these figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts for each period as if the common stock was outstanding at the beginning of the periods, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.

 

The pro forma tables give effect to the implementation of one or more stock-based benefit plans. We have assumed that the stock-based benefit plans will acquire an amount of common stock equal to 4.0% of our outstanding shares of common stock (including shares contributed to the charitable foundation) at the same price for which they were sold in the offering. We assume that shares of common stock are granted under the plan in awards that vest over a five-year period.

 

  44  

 

 

We have also assumed that the stock-based benefit plans will grant options to acquire common stock equal to 10.0% of our outstanding shares of common stock (including shares of common stock contributed to the charitable foundation). In preparing the following tables, we also assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.95 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model incorporated an estimated volatility rate of 13.53% for the common stock based on an index of publicly traded thrifts, no dividend yield, an expected option life of 10 years and a risk-free interest rate of 2.69%.

 

As disclosed under “How We Intend to Use the Proceeds from the Offering,” Richmond Mutual Bancorporation-Maryland intends to contribute 50% of the net proceeds from the offering to First Bank Richmond and will retain the remainder of the net proceeds from the offering. Richmond Mutual Bancorporation-Maryland will use a portion of the proceeds it retains for the purpose of making a loan to the employee stock ownership plan, will utilize its funds to make the cash contribution to the foundation and retain the rest of the proceeds for future use.

 

The pro forma table does not give effect to:

 

· withdrawals from deposit accounts for the purpose of purchasing shares of common stock in the offering;

 

· our results of operations after the offering;

 

· increased fees and expenses that we would pay KBW and other broker-dealers if we conducted a syndicated offering; or

 

· changes in the market price of the shares of common stock after the offering.

 

The following pro forma information may not represent the financial effects of the offering at the date on which the offering actually occurs and you should not use the tables to indicate future results of operations. Pro forma stockholders’ equity represents the difference between the stated amounts of assets and liabilities of Richmond Mutual Bancorporation-Maryland, computed in accordance with U.S. GAAP. We did not increase or decrease stockholders’ equity to reflect the difference between the carrying value of loans and other assets and their market value. Pro forma stockholders’ equity is not intended to represent the fair market value of the common stock, and may be different than the amounts that would be available for distribution to stockholders if we were liquidated. Pro forma stockholders’ equity does not give effect to the impact of tax bad debt reserves in the event we were to be liquidated.

 

  45  

 

 

    At or For the Year Ended December 31, 2018
Based Upon the Sale at $10.00 Per Share of 		 
    8,372,500
Shares at
Minimum of
Offering
Range 		    9,850,000
Shares at
Midpoint of
Offering
Range 		   

11,327,500
Shares at

Maximum of
Offering
Range

   

13,026,625
Shares at
Adjusted
Maximum of
Offering
Range (1)

 
    (Dollars in thousands, except per share amounts)  
Gross proceeds of the offering   $ 83,725     $ 98,500     $ 113,275     $ 130,266  
Market value of shares issued to foundation     5,000       5,000       5,000       5,000  
Market value of Richmond Mutual Bancorporation-Maryland   $ 88,725     $ 103,500     $ 118,275     $ 135,266  
                                 
Gross proceeds of the offering   $ 83,725     $ 98,500     $ 113,275     $ 130,266  
Estimated expenses     (2,366 )     (2,502 )     (2,638 )     (2,794 )
Estimated net proceeds     81,359       95,998       110,637       127,472  
Cash contribution to foundation     (1,250 )     (1,250 )     (1,250 )     (1,250 )
Redemption of subordinated debentures     (5,000 )     (5,000 )     (5,000 )     (5,000 )
Termination of Pentegra DB Plan     (9,831 )     (9,831 )     (9,831 )     (9,831 )
Common stock acquired by employee stock ownership plan (2)     (7,098 )     (8,280 )     (9,462 )     (10,821 )
Common stock acquired by stock-based benefit plans (3)     (3,549 )     (4,140 )     (4,731 )     (5,411 )
Estimated net proceeds, as adjusted   $ 54,631     $ 67,497     $ 80,363     $ 95,160  
                                 
For the year ended December 31, 2018                                
Consolidated net income:                                
Historical (4)   $ 5,678     $ 5,678     $ 5,678     $ 5,678  
First Mutual of Richmond-MHC consolidation adjustment (5)     (283 )     (283 )     (283 )     (283 )
Historical, as adjusted     5,395       5,395       5,395       5,395  
Reduction in expense from termination of Pentegra DB Plan     1,278       1,278       1,278       1,278  
Reduction in expense from redemption of subordinated debenture     148       148       148       148  
Income on adjusted net proceeds     1,016       1,255       1,494       1,769  
Employee stock ownership plan (2)     (263 )     (307 )     (350 )     (401 )
Shares granted under stock-based benefit plans (3)     (526 )     (613 )     (701 )     (801 )
Options granted under stock-based benefit plans (6)     (490 )     (571 )     (653 )     (746 )
Pro forma net income   $ 6,558     $ 6,585     $ 6,611     $ 6,642  
                                 
Earnings per share:                                
Historical   $ 0.69     $ 0.59     $ 0.52     $ 0.45  
First Mutual of Richmond-MHC consolidation adjustment     (0.03 )     (0.03 )     (0.03 )     (0.02 )
Historical, as adjusted     0.66       0.56       0.49       0.43  
Reduction in expense from termination of Pentegra DB Plan     0.16       0.13       0.12       0.10  
Reduction in expense from redemption of subordinated debenture     0.02       0.02       0.01       0.01  
Income on net proceeds     0.12       0.13       0.14       0.14  
Employee stock ownership plan (2)     (0.03 )     (0.03 )     (0.03 )     (0.03 )
Shares granted under stock-based benefit plans (3)     (0.06 )     (0.06 )     (0.06 )     (0.06 )
Options granted under stock-based benefit plans (6)     (0.06 )     (0.06 )     (0.06 )     (0.06 )
Pro forma earnings per share   $ 0.81     $ 0.69     $ 0.61     $ 0.53  
                                 
Offering price to pro forma earnings per share     12.35 x     14.49 x     16.39 x     18.87 x
Number of shares used in earnings per share calculations (2)     8,198,190       9,563,400       10,928,610       12,498,602  
                                 
At December 31, 2018                                
Stockholders’ equity:                                
Historical (4)   $ 85,853     $ 85,853     $ 85,853     $ 85,853  
First Mutual of Richmond-MHC consolidation adjustment (5)     (6,035 )     (6,035 )     (6,035 )     (6,035 )
Historical, as adjusted     79,818       79,818       79,818       79,818  
Estimated net proceeds     81,359       95,998       110,637       127,472  
Termination of Pentegra DB Plan     (9,831 )     (9,831 )     (9,831 )     (9,831 )
Stock contribution to foundation     5,000       5,000       5,000       5,000  
After tax cost of foundation     (4,629 )     (4,629 )     (4,629 )     (4,629 )
Common stock acquired by employee stock ownership plan (2)     (7,098 )     (8,280 )     (9,462 )     (10,821 )
Common stock acquired by stock-based benefit plans (3)     (3,549 )     (4,140 )     (4,731 )     (5,411 )
Pro forma stockholders’ equity (7)   $ 141,070     $ 153,936     $ 166,802     $ 181,598  
Pro forma tangible stockholders’ equity   $ 141,070     $ 153,936     $ 166,802     $ 181,598  
                                 
Stockholders’ equity per share:                                
Historical   $ 9.68     $ 8.30     $ 7.26     $ 6.35  
First Mutual of Richmond-MHC consolidation adjustment     (0.68 )     (0.58 )     (0.51 )     (0.45 )
Historical, as adjusted     9.00       7.72       6.75       5.90  
Estimated net proceeds     9.17       9.27       9.35       9.42  
Termination of Pentegra DB Plan     (1.11 )     (0.95 )     (0.83 )     (0.73 )
Shares issued to foundation     0.56       0.48       0.42       0.37  
After tax cost of foundation     (0.52 )     (0.44 )     (0.39 )     (0.34 )
Common stock acquired by employee stock ownership plan (2)     (0.80 )     (0.80 )     (0.80 )     (0.80 )
Common stock acquired by stock-based benefit plans (3)     (0.40 )     (0.40 )     (0.40 )     (0.40 )
Pro forma stockholders’ equity per share (3)(7)   $ 15.90     $ 14.88     $ 14.10     $ 13.42  
Pro forma tangible stockholders’ equity per share   $ 15.90     $ 14.88     $ 14.10     $ 13.42  
                                 
Offering price as a percentage of pro forma stockholders’ equity per share     62.89 %     67.20 %     70.92 %     74.52 %
Offering price as a percentage of pro forma tangible stockholders’ equity per share     62.89 %     67.20 %     70.92 %     74.52 %
Number of shares outstanding for pro forma equity per share calculations     8,872,500       10,350,000       11,827,500       13,526,625  

 

 

(1) As adjusted to give effect to a 15% increase in the number of shares outstanding after the offering, which could occur due to an increase in the maximum of the independent valuation as a result of demand for the shares or changes in market conditions following the commencement of the offering.

 

  46  

 

 

(2) It is assumed that 8.0% of the shares outstanding following the offering (including shares of common stock contributed to the charitable foundation) will be purchased in the offering by the employee stock ownership plan at a price of $10.00 per share. For purposes of this table, the funds used to acquire such shares are assumed to have been borrowed by the employee stock ownership plan from Richmond Mutual Bancorporation-Maryland. The amount to be borrowed is reflected as a reduction of stockholders’ equity. First Bank Richmond intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the principal and interest requirement of the debt. First Bank Richmond’s total annual payment of the employee stock ownership plan debt is based upon 20 equal annual installments of principal and interest. The pro forma net earnings information makes the following assumptions: (i) First Bank Richmond’s contribution to the employee stock ownership plan is equivalent to the debt service requirement for the period presented and was made at the end of the period; (ii) the employee stock ownership plan acquires 709,800, 828,000, 946,200 and 1,082,130 shares, respectively, at the minimum, midpoint, maximum and adjusted maximum of the offering range; (iii) 35,490, 41,400, 47,310 and 54,107 shares, respectively, at the minimum, midpoint, maximum and adjusted maximum of the offering range (based on a 20-year loan term), were committed to be released during the year ended December 31, 2018 at an average fair value equal to the price for which the shares are sold in the offering; and (iv) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations, resulting in a reduction from total outstanding shares (which is also the number of shares outstanding for pro forma equity per share calculations) of 674,310, 786,600, 898,890 and 1,028,023 shares, respectively, at the minimum, midpoint, maximum and adjusted maximum of the offering range, to determine the number of shares outstanding for earnings per share calculations.
(3) Gives effect to one or more stock-based benefit plans expected to be adopted following the offering. We have assumed that these plans acquire a number of shares of common stock equal to 4.0% of the shares issued in the reorganization and offering (including shares of common stock contributed to the charitable foundation) either through open market purchases or from authorized but unissued shares of common stock of Richmond Mutual Bancorporation-Maryland, if any. Funds used by the stock-based benefit plans to purchase the shares will be contributed to the plan by Richmond Mutual Bancorporation-Maryland. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the shares were acquired by the plan in open market purchases at the beginning of the year presented for a purchase price equal to the price for which the shares are sold in the offering, and that 20% of the amount contributed was an amortized expense (based upon a five-year vesting period) during the year ended December 31, 2018. The actual purchase price of the shares granted under the stock-based benefit plans may not be equal to the subscription price of $10.00 per share. If shares are acquired from the issuance of authorized but unissued shares of common stock of Richmond Mutual Bancorporation-Maryland, there would be a dilutive effect of up to 3.8% on the ownership interest of persons who purchase common stock in the offering. The above table shows pro forma net income per share and pro forma stockholders’ equity per share, assuming all the shares to fund the stock-based benefit plans are obtained from authorized but unissued shares.
(4) Derived from our audited December 31, 2018 consolidated financial statements included elsewhere in this prospectus.
(5) To reflect adjustments required to consolidate the financial statements of First Mutual of Richmond-MHC with those of Richmond Mutual Bancorporation-Delaware’s consolidated financial statements presented in this prospectus.
(6) Gives effect to one or more stock-based benefit plans expected to be adopted following the offering. We have assumed that options will be granted to acquire common stock equal to 10.0% of the shares of common stock issued in the reorganization and offering (including shares of common stock contributed to the charitable foundation). In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the stock at the date of grant were $10.00 per share, the estimated grant-date fair value pursuant to the application of the Black-Scholes option pricing model was $2.95 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25% of the amortization expense (the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 25.9%. Under the above assumptions, the adoption of stock-based benefit plans will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. The actual exercise price of the stock options may not be equal to the $10.00 price per share. If a portion of the shares issued to satisfy the exercise of options under stock-based benefit plans are obtained from the issuance of authorized but unissued shares, our net income per share and stockholders’ equity per share will decrease. This will also have a dilutive effect of up to 9.1% on the ownership interest of persons who purchase common stock in the offering.
(7) The retained earnings of First Bank Richmond will continue to be substantially restricted after the offering. See “Regulation and Supervision – Indiana Banking Regulation.”

 

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COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT THE CHARITABLE FOUNDATION

 

As reflected in the table below, if the charitable foundation is not established and funded in connection with the reorganization and offering, RP Financial estimates that our pro forma valuation would be greater and, as a result, a greater number of shares of common stock would be issued in the offering. At the minimum, midpoint, maximum, and adjusted maximum of the valuation range, the amount of the stock sold in the offering is $83.7 million, $98.5 million, $113.3 million and $130.3 million, respectively, with the charitable foundation, as compared to $94.4 million, $111.0 million, $127.7 million and $146.8 million, respectively, without the charitable foundation. There is no assurance that if the charitable foundation were not formed, the appraisal prepared at that time would conclude that our pro forma market value would be the same as that estimated in the table below. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.

 

For comparative purposes only, set forth below are certain pricing ratios, financial data and ratios at and for the year ended December 31, 2018, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, assuming the offering was completed at the beginning of the period, with and without the charitable foundation.

 

   

Minimum of Offering Range

   

Midpoint of Offering Range

   

Maximum of Offering Range

   

Adjusted Maximum of
Offering Range

 
   

With
Foundation

   

Without
Foundation

   

With
Foundation

   

Without
Foundation

   

With
Foundation

   

Without
Foundation

   

With
Foundation

   

Without
Foundation

 
    (Dollars in thousands, except per share amounts)  
       
Estimated offering amount   $ 83,725     $ 94,350     $ 98,500     $ 111,000     $ 113,275     $ 127,650     $ 130,266     $ 146,798  
Pro forma market capitalization     88,725       94,350       103,500       111,000       118,275       127,650       135,266       146,798  
Total assets     910,870       920,346       923,736       934,845       936,602       949,344       951,398       966,017  
Total liabilities     769,800       769,800       769,800       769,800       769,800       769,800       769,800       769,800  
Pro forma stockholders’ equity     141,070       150,546       153,936       165,045       166,802       179,544       181,598       196,217  
Pro forma net income (1)     6,558       6,683       6,585       6,713       6,611       6,744       6,642       6,777  
Pro forma stockholders’ equity per share     15.90       15.96       14.88       14.86       14.10       14.06       13.42       13.37  
Pro forma net income per share     0.81       0.78       0.69       0.65       0.61       0.58       0.53       0.50  
                                                                 
Pro forma pricing ratios:                                                                
Offering price as a percentage of pro forma stockholders’ equity per share     62.89 %     62.66 %     67.20 %     67.29 %     70.92 %     71.12 %     74.52 %     74.79 %
Offering price as a multiple of pro forma price to earnings     12.35 x     12.82 x     14.49 x     15.38 x     16.39 x     17.24 x     18.87 x     20.00 x
                                                                 
Pro forma financial ratios:                                                                
Return on assets     0.72 %     0.73 %     0.71 %     0.72 %     0.71 %     0.71 %     0.70 %     0.70 %
Return on equity     4.65 %     4.44 %     4.28 %     4.07 %     3.96 %     3.76 %     3.66 %     3.45 %
Equity to assets     15.49 %     16.36 %     16.66 %     17.65 %     17.81 %     18.91 %     19.09 %     20.31 %
Total shares issued     8,872,500       9,435,000       10,350,000       11,100,000       11,827,500       12,765,000       13,526,625       14,679,750  

 

(footnote on following page) 

 

  48  

 

(1) The following table shows the estimated after-tax expense associated with the contribution to the charitable foundation, as well as pro forma net income (loss), pro forma net income (loss) per share, pro forma return on assets and pro forma return on stockholders’ equity assuming the contribution to the charitable foundation was expensed during the year ended December 31, 2018.

 

    Minimum of
Offering Range 		    Midpoint of
Offering Range 		    Maximum of
Offering Range 		    Adjusted
Maximum of
Offering Range 		 
                         
After-tax expense of stock and cash contribution to foundation   $ 4,629     $ 4,629     $ 4,629     $ 4,629  
Pro forma net income (loss)   $ 1,929     $ 1,956     $ 1,982     $ 2,013  
Pro forma net income (loss) per share   $ 0.24     $ 0.20     $ 0.18     $ 0.16  
Offering price to pro forma net income (loss) per share     41.67 x     50.00 x     55.56 x     62.50 x
Pro forma return on assets (annualized)     0.21 %     0.21 %     0.21 %     0.21 %
Pro forma return on equity (annualized)     1.37 %     1.27 %     1.19 %     1.11 %

 

 

  49  

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

Overview

 

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 first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases, commercial and industrial loans, and loans secured by commercial and multi-family real estate. We also obtain funds by utilizing 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.

 

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.

 

At December 31, 2018, on a consolidated basis, we had $849.6 million in assets, $654.8 million in loans, $620.6 million in deposits and $85.9 million in stockholders’ equity. Our total risk-based capital ratio at December 31, 2018 was 12.3%, exceeding the 10.0% requirement for a well-capitalized institution. The ratio of tangible common equity decreased to 11.3% as of December 31, 2018 compared to 11.8% at December 31, 2017 primarily due to growth in our loan and lease portfolio. For the year ended December 31, 2018, net income was $5.7 million, compared with net income of $2.7 million for 2017.

 

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.

 

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Mortgage Servicing Rights . 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 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 the Company has 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 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.

 

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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.

 

The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 reducing our federal corporate tax rate from 34% to 21%, effective January 1, 2018. At December 31, 2017, we completed our accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were re-assessed based on the rates expected to reverse in the future, which is now 21%. Based on this new law, we recorded an additional tax expense of $1.5 million due to the revaluation of our deferred tax asset.

 

Management Strategy

 

We are a community-oriented financial institution dedicated to serving the needs of customers in our primary market area. Our commitment is to offer a full array of consumer and commercial banking products and services to meet the needs of our customers. We offer mortgage lending products to qualified borrowers to give them the broadest access to home ownership in our markets. We offer commercial lending products and services tailored to complement their businesses. Our goal is to maintain asset quality while continuing to build our strong capital position while looking for growth opportunities in the markets we serve. To achieve these goals, we will focus on the following strategies:

 

Lending. We believe that commercial lending offers an opportunity to enhance our profitability while managing credit, interest rate and operational risk. We seek quality commercial loan opportunities in our existing markets and purchase loan participations that complement our existing portfolios. We will continue to focus our efforts on our existing markets as well as to further develop the Columbus, Ohio market through our loan production office. We anticipate that the majority of our commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million.

 

Deposit Services. Deposits are our primary source of funds for lending and investment. We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit greater than $250,000 and brokered certificates of deposit) in our primary market area, with a particular emphasis on non-interest bearing deposits. We will continue to enhance our offering of retail deposit products to maintain and increase our market share, while continuing to build our product offering of commercial deposit products to strengthen our relationships with our business customers. Core deposits represented 75.0% of our total deposits as of December 31, 2018.

 

Balance Sheet Growth . As a result of our efforts to build our management and infrastructure, we believe we are well-positioned to increase the size of our balance sheet without a proportional increase in overhead expense or operating risk. Accordingly, we intend to increase, on a managed basis, our assets and liabilities, particularly loans and deposits.

 

Asset Quality. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our non-performing loans to total loans ratio was 0.69% at December 31, 2018.

 

Capital Position. Our policy has always been to protect the safety and soundness of First Bank Richmond through credit and operational risk management, balance sheet strength, and sound operations. The end result of these activities has been a capital ratio in excess of the well-capitalized standards set by our regulators. We believe that maintaining a strong capital position safeguards the long-term interests of First Bank Richmond.

 

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Interest Rate Risk Management. Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities. As such, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities. In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.

 

Financial Condition at December 31, 2018 Compared to December 31, 2017

 

General. Total assets at December 31, 2018 were $849.6 million, reflecting a $96.0 million increase during the year, due to a $96.8 million, or 17.4% increase in the total loan and lease portfolio.

 

Cash and Investments . Cash and investments decreased $1.1 million from $159.6 million at year-end 2017 to $158.5 million at year-end 2018. At December 31, 2018, our investment portfolio consisted of $92.7 million in government-sponsored agency and government-sponsored entity mortgage-backed securities and collateralized mortgage obligations, $48.4 million in municipal securities and $2.5 million in corporate obligations and equity securities.

 

Loans and Leases . Our loan and lease portfolio increased $96.8 million, or 17.4%, during 2018, ending the year at $654.8 million. The majority of the growth occurred in the commercial real estate and the construction and development categories. Those two categories grew a combined $94.0 million during the year and at December 31, 2018 represented 43.4% of the total loan and lease portfolio. Much of this growth occurred in the Columbus, Ohio market as Columbus is currently experiencing strong economic growth. Our residential mortgage loan portfolio experienced a modest 2.9% growth during 2018 as we continued to sell longer term fixed-rate mortgage loans whenever possible, to reduce related interest rate risk. We generally retain the servicing rights on the fixed-rate mortgages sold in order to foster and to continue to develop customer relationships.

 

Our allowance for loan and lease losses increased 16.7% during 2018, from $4.8 million at December 31, 2017 to $5.6 million at December 31, 2018. At both December 31, 2018 and 2017, the allowance for loan and lease losses equaled 0.85% of total loans and leases outstanding. Loans individually evaluated for impairment decreased $935,000 , or 28.8% from December 31, 2017 while the allowance allocated to such loans decreased to $694,000. Net charge-offs during 2018 were $880,000, $1.1 million less than in 2017.

 

Premises and Equipment, Net. Premises and equipment, net increased $433,000, reflecting normal capital expenditures plus the purchase and refurbishing of a bank branch office in Piqua, OH that had been closed by another bank.

 

Deposits. Total deposits increased $60.2 million during 2018 to $620.6 million at December 31, 2018. This growth was primarily due to increases in certificates of deposit. Brokered certificates of deposit increased $38.8 million to $124.5 million as of December 31, 2018, while other certificates increased $19.3 million during 2018. This deposit growth was used to fund a portion of the loan growth experienced during 2018.

 

Borrowings. Total borrowings increased $32.1 million, or 30.9%, to $136.1 million at December 31, 2018. This increase was used to fund a portion of our loan growth in 2018 and to lengthen the duration of our liabilities.

 

Stockholders’ Equity. Stockholders’ equity was $85.9 million as of December 31, 2018, an increase of $4.1 million from December 31, 2017. The increase was primarily due to net income of $5.7 million, partially offset by an accumulated other comprehensive loss of $1.7 million resulting from an increase in market rates of interest during 2018. First Bank Richmond’s tangible common equity ratio and its risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of December 31, 2018.

 

Comparison of Results of Operations for the Years Ended December 31, 2018 and 2017.

 

General . Net income for 2018 was $5.7 million, compared to $2.7 million in 2017. The increase was primarily a result of a $3.6 million increase in net interest income and a $1.7 million decrease in income tax expense, partially offset by a $1.8 million increase in non-interest expense, a $310,000 increase in provision for loan and lease losses and a $221,000 decrease in non-interest income.

 

Interest Income . Total interest income for 2018 increased $6.1 million or 20.9% over 2017. The increase was primarily a result of the $100.4 million increase in the average balance of loans and leases outstanding year-over-year and a 17 basis point increase in average yield on loans and leases resulting in a $6.0 million increase in interest income. Interest on investment securities decreased $10,000 during 2018 primarily due to a $13.1 million decrease in the average balance of the portfolio, partially offset by an 18 basis point increase in the average yield on investment securities.

 

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Interest Expense . Total interest expense increased $2.5 million, or 47.7% to $7.8 million during 2018 compared to $5.2 million during 2017. The reason for this increase was an increase in the average rate paid and the average balance of certificates of deposit and FHLB advances. The average rate paid on certificates of deposit increased 37 basis points in 2018 compared to 2017, partially due to a 52 basis point increase in the average rate paid on brokered certificates of deposit. The rate paid on FHLB advances was 1.82% in 2018, an increase of 32 basis points over the average rate of 1.50% in 2017. The primary reason for these increases was an increase in market rates of interest. The average balance of certificates of deposit and FHLB advances in 2018 increased by $55.8 and $18.4 million, respectively, compared to those in 2017. The primary reason for these increases was to fund loan growth during 2018.

 

Net Interest Income . Net interest income before the provision for loan and lease losses increased $3.6 million, or 15.1% in 2018 compared to 2017. This was due to the increase in average earning assets. Our net interest margin in 2018 was 3.57%, an increase of nine basis points over 2017.

 

Provision for Loan and Lease Losses . The provision for loan and lease losses in 2018 was $1.7 million, a $310,000 increase over the $1.4 million provision in 2017. The increase in the provision was due to the growth of the loan and lease portfolio during 2018, despite lower net charge-offs than were experienced in 2017. Net charge-offs in 2018 were $1.1 million less than 2017, which allowed the allowance to remain at a level of 0.85% of the total loan and lease portfolio. Net charge-offs in 2018 equaled 0.14% of total average loans and leases outstanding compared to 0.38% of total average loans and leases outstanding in 2017. The decrease in net charge-offs was due to one large loan charge-off in 2017 with no similar charge-off during 2018.

 

Non-Interest Income . Total non-interest income decreased $221,000 from 2017 to 2018. Service charges on deposit accounts remained flat while card fee income increased $55,000, or 8.5%, from 2017 levels. Loan and lease servicing fees increased $127,000 due to a $2.1 million increase in our loan servicing portfolio during 2018. Net gains on securities declined $81,000 in 2018. Net gains on loan and lease sales declined $336,000, or 42.2%, from 2017 to 2018. In addition, in 2017, the Bank sold two lease portfolios for a total gain of $221,000 while there were no sales in 2018.

 

Non-Interest Expenses . Total non-interest expenses increased $1.8 million to $23.1 million in 2018 from 2017. $1.0 million of this increase was attributable to salaries and employee benefits. This increase reflected the hiring of additional personnel to support First Bank Richmond’s loan growth, as well as higher health insurance costs. Higher occupancy expenses of $72,000 reflected increased maintenance costs while equipment expense increased $150,000 due to equipment purchases and increased depreciation. Deposit insurance expense increased $280,000 primarily as a result of the increase in our asset size. Legal and professional fees increased $310,000 in 2018 compared to 2017 primarily as a result of expenses related to this offering.

 

Income Tax Expense . Income tax expense decreased in 2018 by $1.7 million compared to 2017. In 2017, we incurred a one-time income tax expense of $1.5 million during the fourth quarter, related to the remeasurement of our deferred tax assets and liabilities as a result of the Tax Act. We also recorded a $72,000 tax credit in 2018 associated with a low-income housing tax credit.

 

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Average 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.

 

    Years Ended December 31,  
    2018     2017     2016  
   

Average

Balance

Outstanding

   

Interest

Earned/

Paid

   

Yield/

Rate

   

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   $ 613,569     $ 31,559       5.14 %   $ 513,129     $ 25,523       4.97 %   $ 431,238     $ 22,554       5.23 %
Securities     142,140       3,167       2.23 %     155,250       3,177       2.05 %     189,515       3,798       2.00 %
Federal Reserve and FHLB stock     6,686       341       5.10 %     6,631       267       4.03 %     6,234       281       4.51 %
Other     5,771       132       2.29 %     11,250       137       1.22 %     17,732       53       0.30 %
Total interest-earning assets     768,166       35,199       4.58 %     686,261       29,104       4.24 %     644,720       26,686       4.14 %
                                                                         
Interest-bearing liabilities:                                                                        
Savings and money market accounts     161,111       884       0.55 %     157,926       784       0.50 %     147,826       706       0.48 %
Interest-bearing checking accounts     100,958       205       0.20 %     92,698       169       0.18 %     95,533       156       0.16 %
Certificate accounts     278,810       4,559       1.64 %     223,060       2,843       1.27 %     195,256       2,195       1.12 %
Borrowings     115,620       2,104       1.82 %     97,240       1,454       1.50 %     80,760       1,011       1.25 %
Total interest-bearing liabilities     656,499       7,752       1.18 %     570,924       5,250       0.92 %     519,375       4,068       0.78 %
                                                                         
Net interest income           $ 27,447                     $ 23,854                     $ 22,618          
Net earning assets   $ 111,667                     $ 115,337                     $ 125,345                  
Net interest rate spread (1)                     3.40 %                     3.32 %                     3.36 %
Net interest margin (2)                     3.57 %                     3.48 %                     3.51 %
Average interest-earning assets to average interest-bearing liabilities     117.01 %                     120.20 %                     124.13 %                

 

 

(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.

  

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Rate/Volume Analysis

 

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

 

    Years Ended
December 31, 		    Years Ended
December 31, 		 
    2018 vs. 2017     2017 vs. 2016  
    Increase/
(decrease)
due to 		    Total
increase/ 		    Increase/
(decrease)
due to 		    Total
increase/ 		 
    Volume     Rate     (decrease)     Volume     Rate     (decrease)  
    (In thousands)  
Interest-earning assets:                                                
                                                 
Loans and leases receivable   $ 5,142     $ 894     $ 6,036     $ 4,117     $ (1,148 )   $ 2,969  
Securities     (280 )     270       (10 )     (700 )     79       (621 )
Federal Reserve and FHLB stock     2       72       74       17       (31 )     (14 )
Other     (88 )     83       (5 )     (26 )     110       84  
                                                 
Total interest-earning assets   $ 4,776     $ 1,318     $ 6,095     $ 3,408     $ (990 )   $ 2,418  
                                                 
Interest-bearing liabilities:                                                
Savings and money market accounts   $ (152 )   $ 252     $ 100     $ 55     $ 23     $ 78  
Interest-bearing checking accounts     16       20       36       (5 )     18       13  
Certificate accounts     804       912       1,716       334       314       648  
Borrowings     303       347       650       227       216       443  
                                                 
Total interest-bearing liabilities   $ 971     $ 1,531     $ 2,502     $ 611     $ 571     $ 1,182  
                                                 
Change in net interest income                   $ 3,593                     $ 1,236  

 

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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 the ability of the Company 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 Board. On a long 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 can also generate funds from borrowings, primarily FHLB advances. In addition, we have historically sold eligible long-term, fixed-rate residential mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity.

 

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.

 

Funds 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 contractual obligations 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 December 31, 2018, we had $132.9 million in loan commitments and unused lines of credit.

 

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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. Richmond Mutual Bancorporation-Delaware is subject to minimum capital requirements imposed by the Federal Reserve Board, which are substantially similar to those imposed on First Bank Richmond, including guidelines for bank holding companies to be considered well-capitalized.

 

At December 31, 2018, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. In addition, at December 31, 2018, Richmond Mutual Bancorporation-Delaware‘s capital levels exceeded the FRB’s requirements, and Richmond Mutual Bancorporation-Delaware was considered well-capitalized under FRB guidelines. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.

 

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.

 

Management of Market Risk

 

Our most significant form of market risk is interest rate risk as the majority of our assets and liabilities are sensitive to changes in interest rates. A principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our balance sheet, for determining the appropriate level of risk given our business strategy, operating environment, capital and liquidity, and for managing this risk consistent with our policies and guidelines.

 

Our strategy attempts to manage the impact of changes in interest rates on net interest income, which is our primary source of earnings. Among the actions taken are:

 

· Originate commercial and commercial real estate loans, which generally have shorter terms and higher yields than owner-occupied one-to four-family residential real estate loans.

 

· Sell substantially all longer-term fixed-rate residential real estate loans in the secondary market.

 

· Cultivate stable deposit relationships with business and consumer customers.

 

· Acquire longer-term, fixed-rate borrowings when appropriate to reduce our sensitivity to changing interest rates.

 

Interest Rate Risk. The Asset/Liability Committee monitors First Bank Richmond’s interest rate risk (“IRR”) position and meets quarterly to review pricing, liquidity needs, and to assess our interest rate risk. We currently utilize a third-party modeling program prepared quarterly to evaluate our sensitivity to changing interest rates.

 

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The table below sets forth, as of December 31, 2018, the calculation of the estimated changes in our net interest income that results from the designated immediate changes in the United States Treasury yield curve.

 

Change in Interest Rates

(basis points) (1)

 

Net Interest Income

Year 1 Forecast

   

Year 1 Change

from Level

 
    (Dollars in thousands)        
+400   $ 27,789       2.48 %
+300     27,557       1.63  
+200     27,412       1.09  
+100     27,197       0.30  
Level     27,116       -  
-100     26,349       (2.83 )

 

 

(1) Assumes an immediate uniform change in interest rates at all maturities.

 

Economic Value of Equity. Interest rate risk is monitored through the use of a simulation model that also estimates the amounts by which the fair value of our assets and liabilities (Economic Value of Equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. The reports that are prepared quarterly in the simulation assist the Asset/Liability Committee in measuring and monitoring interest rate risk over a longer-term than the interest rate risk model does when looking at earnings simulations.

 

The table below sets forth, as of December 31, 2018, the estimated changes in our EVE that would result from instantaneous changes in market interest rates. This table assumes an instantaneous uniform change in interest rates at all maturities.

 

Basis Point (“bp”) Change in         Estimated Increase (Decrease) in EVE  

Interest Rates (1)

 

Estimated EVE (2)

    Amount     Percent  
    (Dollars in thousands)  
+400   $ 83,746     $ (26,531 )     (24.06 )%
+300     91,279       (18,998 )     (17.23 )
+200     99,156       (11,121 )     (10.08 )
+100     105,197       (5,080 )     (4.61 )
Level     110,277       -       -  
-100     113,350       3,073       2.79  

 

 

(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

 

In evaluating our exposure to interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing tables must be considered. For example, although certain assets and liabilities may have similar maturities or re-pricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed above. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring our exposure to interest rate risk.

 

The Asset/Liability committee annually reviews reinvestment rate assumptions, along with the betas used in the IRR and EVE modeling. We generally manage our balance sheet based on potential changes to net interest income under various rate scenarios. The EVE ratio is useful in long-term planning; but management gives more weight to changes in net interest income under various rate scenarios. IRR projections are tested annually, and the model is subject to a third party review every three years.

 

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BUSINESS OF RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND)

 

Richmond Mutual Bancorporation-Maryland was incorporated in February 2019. The offering of common stock by means of this prospectus is being made by Richmond Mutual Bancorporation-Maryland in connection with the reorganization of First Bank Richmond from the mutual holding company form of organization. Upon completion of the reorganization and offering, Richmond Mutual Bancorporation-Maryland will become the bank holding company for First Bank Richmond by owning all of the outstanding shares of capital stock of First Bank Richmond, and will be regulated by the Federal Reserve and the Indiana Department of Financial Institutions. Our corporate office is located at 31 North 9th Street, Richmond, Indiana, and our telephone number is (765) 962-2581.

 

To date, Richmond Mutual Bancorporation-Maryland has engaged in organizational activities only. Following the reorganization and offering, our primary business activity will relate to owning all of the outstanding shares of capital stock of First Bank Richmond. In the future, Richmond Mutual Bancorporation-Maryland, as the holding company of First Bank Richmond, will be authorized to pursue other business activities permitted by applicable laws and regulations for bank holding companies, which may include the acquisition of banking and financial services companies. We have no plans for any mergers or acquisitions, or other diversification of the activities of Richmond Mutual Bancorporation-Maryland at the present time.

 

Our cash flow will depend on earnings from the investment of the net proceeds received in the offering that we retain, and any dividends received from First Bank Richmond. Initially, Richmond Mutual Bancorporation-Maryland will neither own nor lease any property, but will instead use the premises, equipment and furniture of First Bank Richmond. At the present time, we intend to employ only persons who are officers of First Bank Richmond to serve as officers of Richmond Mutual Bancorporation-Maryland. We will also use the support staff of First Bank Richmond from time to time. These persons will not be separately compensated by Richmond Mutual Bancorporation-Maryland. Richmond Mutual Bancorporation-Maryland may hire additional employees, as appropriate, to the extent it expands its business in the future. The initial directors of Richmond Mutual Bancorporation-Maryland consist of the current directors of First Bank Richmond. See “Management.” 

 

BUSINESS OF FIRST BANK RICHMOND

 

General

 

First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The bank 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 bank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the 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’s holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio, which it operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when Mutual Federal Savings Bank 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 bank 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 Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation. At December 31, 2018, on a consolidated basis, we had total assets of $849.6 million, total deposits of $620.6 million and stockholders’ equity of $85.9 million.

 

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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. 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 $126.0 million at December 31, 2018.

 

Our corporate offices are located at 31 North 9th Street, Richmond, Indiana, and our telephone number is (765) 962-2581. Our website addresses are www.firstbankrichmond.com and http://www.mutualbancorp.com . Information on these websites should not be considered a part of this prospectus.

 

Market Area

 

Our primary market area includes Wayne and Shelby counties in Indiana and Shelby, Miami, and Franklin counties in Ohio. We conduct our business through 12 full service and one limited service banking offices, with seven full service and one limited service offices located in Indiana and five offices situated in Ohio. Our main full service banking office and four other branch offices are located in Richmond (Wayne County), Indiana. We operate two other offices in Wayne County in the towns of Cambridge City and Centerville, and one office in Shelbyville (Shelby County), Indiana, which is situated approximately 25 miles southeast of Indianapolis. Through Mutual Federal, a division of First Bank Richmond, we operate two offices in Sidney (Shelby County), Ohio, and two offices in Piqua and one office in Troy, Ohio (Miami County). We also operate a loan production office in Columbus (Franklin County), Ohio that focuses on commercial and multi-family real estate lending. Administrative, trust and wealth management services are provided at our Corporate Office/Financial Center located in Richmond, Indiana.

 

Indiana . Wayne County had an estimated population in 2019 of 65,600 with a median household income of approximately $56,500. The unemployment rate in December 2018 was 3.6% in Wayne County, as compared to the national and state unemployment rates of 3.7% and 3.4%, respectively. The top employers in Wayne County include Reid Health, Richmond Community Schools, Belden Wire & Cable, Sugar Creek Brandworthy Food Solutions, Richmond State Hospital, and Primex Plastics Corporation. First Bank Richmond operates seven banking offices in Wayne County including five in Richmond, which is the largest city in Wayne County.

 

Richmond is a city in east central Indiana and the county seat of Wayne County. Richmond represents our largest deposit concentration and branch office presence. Richmond had an estimated population of 35,000 in 2019 with a median household income of approximately $41,500. It is favorably located with excellent highway access and has over 6.0 million people within a 100-mile radius. Manufacturing is the primary source of employment, followed by health care and food service. The city is home to a regional hospital, Reid Health, as well as four higher educational institutions: Earlham College, Indiana University East, Purdue Polytechnic University-Richmond, and Ivy Tech Community College.

 

Within Wayne County, we also operate branches in Cambridge City and Centerville, which were initially opened in 1958 and 1959, respectively. Cambridge City is located in the western part of Wayne County approximately 15 miles west of Richmond, and had an estimated population of 1,760 with a median household income of approximately $43,500. The workforce in this community is primarily composed of factory workers and employees in the agricultural sector. Centerville had an estimated population of 2,650 with a median household income of approximately $53,300. It is a residential suburb to Richmond and home to many antique stores. While Wayne County experienced a 4.8% decline in population from 2010 to 2019, the population in Centerville increased by 3.5% during this period. The population growth in Centerville resulted in part from the influx of professionals and the appeal of its school system.

 

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Shelbyville, where we operate one branch, is the county seat of Shelby County, Indiana. Shelby County had an estimated population in 2019 of 44,500 with a median household income of approximately $58,600. Shelbyville, which had an estimated population of 19,800 with a median household income of $47,900, is located in central Indiana and within the Indianapolis metropolitan area. Manufacturing and retail trade are the largest employment sectors in Shelby County. The unemployment rate in Shelby County was 2.9% in December 2018.

 

Ohio. We operate two offices in Sidney (Shelby County), Ohio, and two offices in Piqua and one office in Troy (Miami County), Ohio. We also operate a loan production office in Columbus, Ohio (Franklin County) that focuses on commercial real estate lending.

 

Sidney is the largest city and the county seat of Shelby County. Sidney is located approximately 35 miles north of Dayton, Ohio and 75 miles west of Columbus, Ohio. Sidney had an estimated population in 2019 of 21,000 with a median household income of approximately $54,900. Manufacturing is the dominant industry among the employee workforce in Shelby County. Leading manufacturing employers in Shelby County include Honda of America Manufacturing, Emerson Climate Technologies, Airstream, NK Parts, and Plastipak Packaging. The unemployment rate in Shelby County was 4.1% in December 2018.

 

Miami County is located in west central Ohio and is part of the Dayton metropolitan area. Miami County had an estimated population in 2019 of 105,900 with a median household income of approximately $63,900. Within Miami County, we have offices in Troy, which is the county seat and most populous city, and Piqua. Troy is located 19 miles north of Dayton, while Piqua is located 27 miles north of Dayton. Troy had an estimated population in 2019 of 26,500 with a median household income of approximately $60,500, while Piqua had a population of 20,900 with a median household income of approximately $53,000. Manufacturing is the leading industry employment sector in Miami County, followed by retail trade and health care and social services. The largest employers in Miami County include Upper Valley Medical Center, Clopay Building Products, F&P America, UTC Aerospace Systems, Meijer Distribution Center, ConAgra Foods, American Honda, and Hobart Brothers. The unemployment rate in Miami County increased moderately from 3.9% in December 2017 to 4.2% in December 2018.

 

Columbus, Ohio, where we operate our loan production office, is the state capital of and most populous city in Ohio. Columbus ranked as the 14 th most populous city in the United States with an estimated population in 2019 of 897,000 and a median household income of approximately $54,400. Columbus is the county seat of Franklin County, which along with nine other counties comprises the Columbus metropolitan area. The city has a diverse economy based on education, government, insurance, banking, defense, aviation, food, clothing, logistics, steel, energy, medical research, health care, hospitality, retail, and technology. Columbus is home to The Ohio State University, one of the largest universities in the nation.

 

The Columbus metropolitan area had an estimated population of 2.1 million and ranked as the 31 st most populous metropolitan area in the United States and the second most populous metropolitan area in Ohio, just behind the Cincinnati metropolitan area and slightly ahead of the Cleveland metropolitan area. The unemployment rate in December 2018 was 4.0% for the entire Columbus metropolitan area and 3.9% for Franklin County.

 

Competition

 

We face significant competition within our market both in making loans and leases and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks and credit unions. Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms, equipment financing companies, consumer finance companies and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies.

 

As of June 30, 2018 (the most recent branch deposit data provided by the FDIC), First Bank Richmond’s share of deposits in Wayne and Shelby Counties, in Indiana, was approximately 33.9% and 5.7%, respectively, and in Shelby and Miami Counties, in Ohio, was approximately 7.2% and 2.8%, respectively. We do not accept deposits at our loan production office located in Columbus, Ohio.

 

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Lending Activities

 

We offer a full range of lending products, including multi-family and commercial real estate loans (including owner and non-owner occupied real estate loans), commercial and industrial loans (including equipment loans and working capital lines of credit), construction and development loans, residential real estate loans, including home equity loans and lines of credit, and consumer loans. We also engage in lease financing which consists of direct financing leases and is used by our commercial customers to finance purchases of equipment. We offer consumer loans, predominantly as an accommodation to our customers, secured by personal assets such as automobiles or recreational vehicles. Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Lending activities originate from the relationships and efforts of our bankers.

 

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Loan and Lease Portfolio Composition. The following table presents information concerning the composition of our loan and lease portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for loan and lease losses) as of the dates indicated.

 

   

At December 31,

 
   

2018

   

2017

   

2016

   

2015

   

2014

 
   

Amount

   

Percent

   

Amount

   

Percent

   

Amount

   

Percent

   

Amount

   

Percent

   

Amount

   

Percent

 
    (Dollars in thousands)  
Real estate loans:                                                                                
Residential (1)   $ 132,492       20.05 %   $ 128,773       22.86 %   $ 129,336       27.64 %   $ 130,482       32.14 %   $ 127,162       34.09 %
Home equity lines of credit     7,214       1.09       7,245       1.29       7,370       1.58       7,687       1.89       6,344       1.70  
Multi-family     43,816       6.63       63,701       11.31       32,624       6.97       20,028       4.93       13,533       3.63  
Commercial     211,237       31.97       162,218       28.80       120,098       25.67       89,750       22.10       74,286       19.92  
Construction and development     72,955       11.04       27,944       4.96       18,788       4.02       9,805       2.41       12,964       3.48  
Total real estate loans     467,714       70.78       389,881       69.22       308,216       65.88       257,752       63.47       234,289       62.82  
                                                                                 
Consumer loans     13,520       2.05       11,628       2.06       10,858       2.32       10,508       2.59       10,831       2.90  
                                                                                 
Commercial business loans and leases:                                                                                
                                                                                 
Commercial and industrial     71,854       10.87       61,753       10.97       55,352       11.83       50,269       12.38       52,034       13.95  
Direct financing leases     107,735       16.30       99,940       17.75       93,433       19.97       87,580       21.56       75,814       20.33  
Total commercial business loans and leases     179,589       27.17       161,693       28.72       147,785       31.80       137,849       33.94       127,848       34.28  
                                                                                 
Total loans and leases     660,823       100.00 %     563,202       100.00 %     467,859       100.00 %     406,109       100.00 %     372,968       100.00 %
                                                                                 
Less:                                                                                
Deferred fees and discounts     468               473               475               436               370          
Allowance for loan and lease losses     5,600               4,800               5,394               5,246               6,266          
Total loans and leases receivable, net   $ 654,755             $ 557,929             $ 461,990             $ 400,427             $ 366,332          

 

 

(1) Includes $5.1 million of loans secured by second mortgages on residential properties at December 31, 2018.

 

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Loan Maturity and Repricing. The following table sets forth certain information at December 31, 2018 regarding the dollar amount of loans maturing in our portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Loans with scheduled maturities are reported in the maturity category in which the loan is due. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan and lease losses.

 

    Consumer    

Commercial and

Industrial

    Total  

Due During Years Ending

December 31,

  Amount    

Weighted

Average

Rate

    Amount    

Weighted

Average

Rate

    Amount    

Weighted

Average

Rate

 
2019 (1)   $ 889       4.81 %   $ 31,928       5.59 %   $ 32,817       5.57 %
2020     1,688       5.61       2,628       5.15       4,316       5.33  
2021     1,838       5.50       3,512       4.83       5,350       5.06  
2022 and 2023     5,938       4.57       6,650       5.05       12,588       4.82  
2024 to 2028     3,080       4.01       22,090       4.89       25,170       4.78  
2029 to 2033     87       6.23       1,106       5.70       1,193       5.74  
2034 and following     —       —       3,940       5.09       3,940       5.09  
Total   $ 13,520       4.73 %   $ 71,854       5.25 %   $ 85,374       5.16 %

 

 

(1) Includes demand loans, loans having no stated maturity and overdraft loans.

 

The total amount of loans set forth in the table above due after December 31, 2019 which have pre-determined or fixed interest rates is $31.2 million, while the total amount of loans due after this date which have floating or adjustable interest rates is $21.3 million.

 

Residential Mortgage Lending . We make one- to four-family residential real estate loans and home equity loans and lines of credit secured by the borrower’s primary residence. In addition, we may periodically purchase residential loans, which we refer to as brokered mortgages, primarily during periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities, although we have not purchased any brokered mortgage loans in the last six years. Any such purchases are made generally consistent with our underwriting standards for residential mortgage loans. At December 31, 2018, $139.7 million, or 21.1%, of our total loan and lease portfolio was secured by residential real estate, consisting of $127.4 million of one- to four-family residential real estate loans, including $5.1 million of home equity loans and $7.2 million of home equity lines of credit. Brokered mortgage loans totaled $1.2 million of our total residential mortgage loan portfolio at December 31, 2018.

 

We originate both fixed-rate and adjustable-rate one- to four-family residential real estate loans. At December 31, 2018, 70.3% of our one- to four-family residential real estate loans were fixed-rate loans, and 29.7% of such loans were adjustable-rate loans. Most of our loans are underwritten using generally-accepted secondary market underwriting guidelines. We typically sell most of the conforming, fixed-rate one- to four-family loans we originate into the secondary market to Fannie Mae and, to a lesser extent, the FHLB of Indianapolis. Loans that are sold into the secondary market to Fannie Mae or the FHLB of Indianapolis are sold with the servicing retained to maintain the client relationship and to generate noninterest income. The sale of mortgage loans provides a source of non-interest income through the gain on sale, reduces our interest rate risk, provides a stream of servicing income, enhances liquidity and enables us to originate more loans at our current capital level than if we held the loans in our loan portfolio. Our pricing strategy for mortgage loans includes establishing interest rates that are competitive with other financial institutions and consistent with our internal asset and liability management objectives. During the year ended December 31, 2018, we originated $37.3 million one- to four-family fixed-rate mortgage loans and $6.7 million one- to four-family adjustable rate mortgage (“ARM”) loans, and sold $20.2 million of these loans without recourse to Fannie Mae and the FHLB of Indianapolis. See “- Loan Originations, Purchases, Sales, Repayments and Servicing.”

 

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We also make a limited amount of Federal Housing Administration (“FHA”) loans, U.S. Department of Veterans Affairs (“VA”) loans and U.S. Department of Agriculture (“USDA”) loans, all of which we originate for sale on a servicing-released, non-recourse basis in accordance with FHA, VA and USDA guidelines. During the year ended December 31, 2018, we originated and sold $465,000 in the aggregate of FHA, VA and USDA loans.

 

Substantially all of the one- to four-family residential mortgage loans we retain in our portfolio consist of fixed-rate loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or are adjustable-rate loans. Some of these loans are also originated to meet the needs of borrowers who cannot otherwise satisfy Fannie Mae credit requirements because of personal and financial reasons (i.e., bankruptcy, length of time employed, etc.), and other aspects, which do not conform to Fannie Mae’s guidelines. Such borrowers may have higher debt-to-income ratios, or the loans are secured by unique properties in rural markets for which there are no sales of comparable properties to support the value according to secondary market requirements. We may require additional collateral or lower loan-to-value ratios to reduce the risk of these loans. We believe that these loans satisfy the needs of borrowers in our market area. As a result, subject to market conditions, we intend to continue to originate these types of loans. We also retain jumbo loans which exceed the conforming loan limits and therefore are not eligible to be purchased by Fannie Mae. At December 31, 2018, $24.7 million or 18.6% of our one- to four-family loan portfolio consisted of jumbo loans.

 

We generally underwrite our one- to four-family loans based on the applicant’s employment and credit history and the appraised value of the subject property. We generally lend up to 89% of the lesser of the appraised value or purchase price for one- to four-family first mortgage loans and non-owner occupied first mortgage loans. For first mortgage loans with a loan-to-value ratio in excess of 89%, we may require private mortgage insurance or other credit enhancement to help mitigate the risk. Fixed-rate loans secured by one- to four-family residences may have contractual maturities of up to 30 years. All of these loans are fully amortizing, with payments due monthly. Properties securing our one- to four-family loans are typically appraised by independent fee appraisers who are selected in accordance with criteria approved by the Loan Committee. For loans that are less than $250,000, we may use an automated valuation model, in lieu of an appraisal. We require title insurance policies on all first mortgage real estate loans originated over $100,000. Homeowners, liability, fire and, if required, flood insurance policies are also required for one-to four-family loans. Our real estate loans generally contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property.

 

ARM loans are offered with annual adjustments and life-time rate caps that vary based on the product, generally with a maximum annual rate change of 2.0% and a maximum overall rate change of 6.0%. We generally use the rate on one-year Treasury Bills to re-price our ARM loans. As a consequence of using caps, the interest rates on ARM loans may not be as rate sensitive as our cost of funds. Furthermore, because loan indexes may not respond perfectly to changes in market interest rates, upward adjustments on loans may occur more slowly than increases in our cost of interest-bearing liabilities, especially during periods of rapidly increasing interest rates. Because of these characteristics, future yields on ARM loans may not be sufficient to offset increases in our cost of funds.

 

ARM loans generally pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower’s payment increases, which increases the potential for default. We continue to offer our fully amortizing ARM loans with a fixed interest rate for the first one, three, five or seven years, followed by a periodic adjustable interest rate for the remaining term.

 

The average balance of our one- to four-family residential loans secured by first mortgages was approximately $76,000 at December 31, 2018.

 

We originate fixed-rate home equity loans and fixed- and variable-rate lines of credit secured either by a first or second lien on the borrower’s primary residence. Our home equity loans are fixed rate fully amortizing loans with terms of up to 15 years and are generally originated in amounts, together with the amount of the existing first mortgage, of up to 89% of the appraised value of the subject property. Home equity loans originated with a loan to value ratio in excess of 80.0% are subject to a higher origination fee and higher interest rate than home equity loans with loan to value ratios of 80% or less. If the home equity loan is for home improvements, the improvements to be made to the property may be considered when calculating the loan to value ratio. If the loan to value ratio on the property is sufficient, regardless of the improvements to be made, the proceeds may be disbursed directly to the borrower. When the appraised value is dependent on the improvements to meet the loan to value requirement, the proceeds are held by us until we receive reasonable assurance that the improvements have been completed. The loan officers, at their discretion, may use a limited appraisal or a recertification of value on these types of loans. At December 31, 2018, home equity loans totaled $5.1 million, or 0.7% of our total loan and lease portfolio.

 

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Home equity lines of credit may be either fixed- or adjustable -rate and are typically originated in amounts, together with the amount of the existing first mortgage, of up to 89% of the appraised value of the subject property. Home equity lines of credit originated with a loan to value ratio in excess of 80% are subject to a higher interest rate than home equity lines of credit with loan to value ratios of 80% or less. Home equity lines of credit with an adjustable rate of interest adjust quarterly and are based on the Wall Street Journal Prime rate, plus a margin . Our fixed rate lines have a five year draw period and our adjustable rate lines have a 10 year draw period, during which time the funds may be paid down and redrawn up to the committed amount. Once the draw period has lapsed, the borrower either pays off the loan balance, or a new loan is negotiated. We charge an annual fee on each home equity line of credit and require a monthly payment of 0.9% of the outstanding balance drawn during the period, plus interest. At December 31, 2018, home equity lines of credit totaled $7.2 million, or 1.1% of our total loan and lease portfolio, with adjustable-rate home equity lines of credit totaling $5.5 million and fixed rate home equity lines making up the remaining balance. At December 31, 2018, unfunded commitments on home equity lines of credit totaled $10.8 million.

 

We do not engage in originating interest only, negative amortization, option adjustable rate or subprime loans and have no established program to originate or purchase these loans. Subprime loans are defined as loans that at the time of loan origination had a FICO credit score of less than 660. Of the $47.4 million in one- to four- family loans, including home equity loans and lines of credit, originated in 2018, only $2.6 million, or 5.5%, were to borrowers with a credit score under 660.

 

Multi-family and Commercial Real Estate Lending . We originate commercial real estate loans, including loans secured by multi-family residential properties, office buildings, hotels, industrial properties, retail buildings, medical and professional buildings, restaurants and various other commercial properties located principally in our primary market area. As of December 31, 2018, $255.1 million or 38.6% of our total loan and lease portfolio was secured by commercial and multi-family real estate, of which $74.5 million, or 11.3% of our total loan and lease portfolio, was secured by property located in the Columbus, Ohio market. Multi-family loans totaled $43.8 million of the $255.1 million commercial and multi-family real estate loan portfolio, or 6.6% of our total loan and lease portfolio, at December 31, 2018. Of the remaining $211.3 million of this portfolio, approximately $149.5 million was secured by income producing, or non-owner-occupied commercial real estate. We also purchase and participate, from time to time, in multi-family and commercial real estate loans from other financial institutions, which amounts are included in our multi-family and commercial real estate loan portfolios. Such loans are independently underwritten according to our policies. At December 31, 2018, our purchased multi-family and commercial real estate loan participations totaled $30.3 million, or 11.9% of our total multi-family and commercial real estate loan portfolios.

 

Multi-family and commercial real estate loans generally are priced at a higher rate of interest than one- to four-family residential loans. Typically, these loans have higher loan balances, are more difficult to evaluate and monitor, and involve a greater degree of risk than one- to four-family residential loans. Often payments on loans secured by commercial or multi-family properties are dependent on the successful operation and management of the property; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. We generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements and individual credit reports. In addition, the borrower’s and guarantor’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates.

 

Our commercial and multi-family real estate loans generally have initial terms of 10 to 20 years and amortization terms of up to 25 years, with a balloon payment at the end of the initial term, and may be fixed-rate or adjustable-rate loans. Our adjustable-rate multi-family and commercial real estate loans are generally tied to a margin above the prime rate or the applicable treasury rate. The maximum loan-to-value ratio of our multi-family and commercial real estate loans is generally 80% of the lower of cost or appraised value of the property securing the loan. At December 31, 2018, 16.1% of our multi-family and commercial real estate loans were fixed-rate loans and 83.9% were adjustable-rate loans.

 

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We consider a number of factors in originating multi-family and commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including project-level and global cash flows, credit history and management expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). We generally require a debt service ratio of at least 1.10x. All multi-family and commercial real estate loans in excess of $500,000 are appraised by outside independent appraisers. We require property and casualty insurance and also require flood insurance if the property is determined to be in a flood zone area.

 

In addition, we generally require a Phase I Environmental Audit as a condition of making all multi-family and commercial real estate loans in excess of $1.0 million, which audit is performed by a qualified environmental consulting firm. The Phase I Environmental Audit includes appropriate inquiry into previous ownership and uses of the real estate to satisfactorily comply with the “Innocent Landowner Defense Amendment” to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). The results and recommendations of the audit must be acceptable to us prior to loan closing. For loans less than $1.0 million but greater than $150,000, a full Phase I Environmental Audit is not be required, although an environmental investigation is typically performed by qualified bank personnel or a third party to determine if a full Phase I Environmental Audit should be done.

 

At December 31, 2018, the average loan size of our outstanding multi-family and commercial real estate loans was $720,000, and the largest of such loans was a $6.6 million loan secured by a first mortgage on a warehouse distribution facility located in the Columbus, Ohio metropolitan area. This loan was performing in accordance with its repayment terms at December 31, 2018. We had 22 other commercial and multi-family real estate loans with an outstanding balance in excess of $3.0 million at December 31, 2018, all of which were performing in accordance with their repayment terms at December 31, 2018. Our largest lending relationship at December 31, 2018 with one borrower was for $10.1 million consisting of four commercial real estate loans secured by four separate hotels, two in the Dayton, Ohio area and two in the Cincinnati, Ohio area, all with a common guarantor. All of these loans were performing in accordance with their repayment terms at December 31, 2018.

 

Multi-family and commercial real estate loans entail greater credit risks compared to one- to four-family residential real estate loans because they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the repayment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for multi-family and commercial real estate than residential properties. If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be a lengthy process with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on multi-family and commercial real estate loans can be unpredictable and substantial.

 

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The composition of, and location of the underlying collateral securing, our multi-family and commercial real estate loan portfolio at December 31, 2018 was as follows:

 

Type of Security   Indiana     Ohio     Other     Total    

% of Total

in Category

 
    (Dollars in thousands)  
                               
Office buildings   $ 9,790     $ 33,143     $ 3,633     $ 46,566       18.3 %
Multi-family/Apartment buildings     21,104       18,706       4,006       43,816       17.2  
Hotels     14,400       22,620       825       37,845       14.8  
Industrial building     12,632       17,295       575       30,502       12.0  
Retail     18,735       9,049       79       27,863       10.9  
Medical     14,772       3,596       —       18,368       7.2  
Automotive     10,454       919       —       11,373       4.5  
Restaurants     5,075       5,234       1,214       11,523       4.5  
Campgrounds/Golf Courses/Leisure Activities     6,266       1,463       2,612       10,341       4.0  
Agricultural     3,466       606       —       4,072       1.6  
Other     6,791       5,993       —       12,784       5.0  
Total     123,485       118,624       12,944       255,053       100.0 %

 

Commercial and Industrial Lending . We make secured and unsecured commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, letters of credit and other loan products, principally in our primary market area. These loans are made based primarily on historical and projected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. We take as collateral a lien on general business assets including, among other things, available real estate, accounts receivable, inventory and equipment and generally obtain a personal guaranty of the borrower or principal. Our operating lines of credit typically are limited to a percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually. As of December 31, 2018, we had $71.9 million of commercial and industrial loans, representing 10.9% of our total loan and lease portfolio.

 

The terms of our commercial and industrial loans vary by purpose and by type of underlying collateral. We typically make equipment loans for a term of five years or less at fixed or adjustable rates, with the loan fully amortized over the term. Terms greater than five years may be appropriate in some circumstances, based upon the useful life of the underlying asset being financed or if some form of credit enhancement, such as an SBA guarantee, is obtained. Loans to support working capital typically have terms not exceeding one year and are usually secured by accounts receivable, inventory and personal guarantees of the principals of the business. The interest rates charged on loans vary with the degree of risk and loan amount and are further subject to competitive pressures, money market rates, the availability of funds and government regulations. For loans secured by accounts receivable and inventory, principal is typically repaid as the assets securing the loan are converted into cash (monitored on a monthly or more frequent basis as determined necessary in the underwriting process), and for loans secured with other types of collateral, principal is typically due at maturity.

 

In general, commercial and industrial loans may involve increased credit risk and, therefore, typically yield a higher return. The increased risk in commercial and industrial loans derives from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan. In addition, the collateral securing commercial and industrial loans generally includes moveable property such as equipment and inventory, which may decline in value more rapidly than we anticipate, exposing us to increased credit risk. As a result of these additional complexities, variables and risks, commercial and industrial loans require extensive underwriting and servicing.

 

At December 31, 2018, the average loan size of our outstanding commercial and industrial loans was $183,000, and our largest outstanding commercial and industrial loan was a working capital loan totaling $4.5 million to a manufacturing company secured by a first lien on all business assets of the borrower and a second mortgage on a 350,000 square foot manufacturing plant located in Piqua, Ohio. This loan was performing in accordance with its repayment terms at December 31, 2018. We had three other commercial and industrial loans with an outstanding balance in excess of $3.0 million at December 31, 2018, all of which were performing in accordance with their repayment terms at December 31, 2018.

 

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Construction and Development Lending. We originate loans to finance the construction of commercial real estate projects, such as multi-family housing, industrial, office and retail centers. We also originate residential construction loans to borrowers and builders secured by single-family residences. On a much smaller scale, we may originate loans for the acquisition and development of residential or commercial land into buildable lots. At December 31, 2018, our construction and development loan portfolio totaled $73.0 million, or 11.0% of our total loan and lease portfolio, consisting of $68.3 million in commercial construction loans and $4.7 million in residential construction loans. At December 31, 2018, we had unfunded construction loan commitments totaling $28.2 million and $956,000 in commercial and residential construction loans, respectively.

 

Our commercial construction loans are typically made to builders/developers that have an established record of successful project completion and loan repayment. We conduct periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans based on the percentage of completion. Underwriting guidelines for our commercial construction loans are similar to those described above for our commercial real estate lending. General liability, builder’s risk hazard insurance, title insurance, and flood insurance (as applicable, for properties located or to be built in a designated flood hazard area) are also required on all construction and development loans.

 

Our commercial construction loans have terms that typically range from one to two years depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor. Commercial construction loans are typically structured with an interest only period during the construction phase. Commercial construction loans are underwritten to either mature, or transition to a traditional amortizing loan, at the completion of the construction phase. The loan-to-value ratio on our commercial construction loans, as established by independent appraisal, typically will not exceed 80% of the appraised value on a completed basis or the cost of completion, whichever is less. These loans generally include an interest reserve of 1% to 5% of the loan commitment amount. The average outstanding loan size in our commercial construction loan portfolio was approximately $1.7 million at December 31, 2018.

 

Commercial construction loans on property built for speculative purposes that has not sold in a period of eighteen months after completion will require re-margining at 89% of current appraised value and monthly amortization based on a 25 year payout. At December 31, 2018, $14.9 million, or 21.8%, of our total commercial construction loan portfolio consisted of speculative construction loans.

 

We finance the construction of pre-sold owner occupied, one- to four-family residential properties in our market areas to builders and prospective homeowners. Our residential construction loans are originated primarily on a construction/permanent basis with such loans converting to an amortizing loan following the completion of the construction phase. Our residential construction loans generally provide for the payment of interest only during the construction phase, which is typically up to nine months. We do not make speculative construction loans to a builder for homes that are not pre-sold. The average outstanding residential construction loan balance was approximately $203,000 at December 31, 2018.

 

Residential construction loans are made with a maximum loan-to-value ratio of the lower of 80% of the cost or appraised value at completion. Commitments to fund residential construction loans generally are made subject to an appraisal of the property by an independent licensed appraiser. Loan proceeds are disbursed after inspection by a third party inspector based on the percentage of completion method.

 

On a more limited basis, we also make land loans to developers, builders and individuals to finance the commercial development of improved lots or unimproved land. In making land loans, we follow underwriting policies and disbursement and monitoring procedures similar to those for commercial construction loans. These land loans also involve additional risks because the loan amount is based on the projected value of the lots after development. We make these loans for up to 65% of the estimated value of raw land and up to 75% of the estimated value of developed land, with a term of up to two years with interest only payments, payable monthly.

 

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Construction loans generally involve greater credit risk than long-term financing on improved, owner occupied real estate. In the event a loan is made on property that is not yet approved for the planned development or improvements, there is a risk that necessary approvals will not be granted or will be delayed. Risk of loss on a construction loan also depends upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also carry the risk that construction will not be completed on time in accordance with specifications and projected costs. In addition, repayment of these loans can be dependent on the sale or rental of the property to third parties, and the ultimate sale or rental of the property may not occur as anticipated. Other risks may include the fraudulent diversion of construction funds, the filing of mechanics liens by contractors, subcontractors or suppliers, or the contractor’s failure to complete the construction of the project.

 

We seek to address the forgoing risks associated with construction and development lending by developing and adhering to underwriting policies, disbursement procedures and monitoring practices. Specifically, we (i) seek to diversify loans in our market areas, (ii) evaluate and document the creditworthiness of the borrower and the viability of the proposed project, (iii) obtain an appraisal of the property by an independent licensed appraiser, (iv) limit loan-to-value ratios to specified levels, (v) control disbursements on construction loans on the basis of on-site inspections by third party inspectors, and (vi) monitor economic conditions in each market. No assurances, however, can be given that these practices will be successful in mitigating the risks of construction and development lending.

 

At December 31, 2018, our largest construction and land development loan had an outstanding balance of $6.4 million, with an additional $1.6 million available to the borrower to complete construction, and was secured by a first mortgage on a 96 unit multi-family real estate development in the Columbus, Ohio metropolitan area. At December 31, 2018, this loan was performing according to its repayment terms. We had nine other construction and development loans with an outstanding balance in excess of $3.0 million at December 31, 2018, all of which were performing in accordance with their repayment terms at December 31, 2018.

 

Lease Financing. We conduct our leasing operations through First Federal Leasing, a division of First Bank Richmond. Our lease financing operation consists of direct financing leases and are used by commercial customers to finance purchases such as medical, computer and manufacturing equipment, industrial assets, construction and transportation equipment, and a wide variety of other commercial equipment. We rely solely on brokers and other third party originators to generate our lease transactions. The nature of our business requires the use of brokers and third party originators as it focuses on transactions generally ranging between $2,500 and $200,000 (with an average size of $45,000) with terms of 24 to 72 months. Our risk management profile centers on internally rated “A” quality credits. At December 31, 2018, our direct finance leasing portfolio totaled $107.7 million, or 16.3% of our total loan and lease portfolio.

 

At lease inception, we record an asset (net investment) representing the aggregate future minimum lease payments and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment.

 

To generate deal flow, we work with over 100 brokers and third party originators across the country, some of which are one person shops and others more established companies, with most of the volume coming from less than 20 referral sources that we know well. We have operated with this model since we commenced leasing operations in 1989 and have developed strong procedures to minimize fraud and concentration risk. The leases are processed by us through our lease origination software, which allows brokers to populate the fields with customer information and attach credit documentation, streamlining the data collection process. There is no automated approval process. Each lease application is reviewed by a credit administrator and then sent to a credit underwriter for review and approval. We have procedures in place to check and underwrite all the data we receive from the brokers and third party originators, including ensuring that the potential lessee is operating from the location given and tracking the performance of each vendor.

 

The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant and generally require that the applicant have a minimum FICO score of 675. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.

 

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We generally file a UCC-1 financing statement on all of our lease transaction to perfect our interest in the equipment, except in the case of (i) titled equipment, where we would require the title in lieu of the UCC financing statement, (ii) transactions under $5,000 or (iii) for equipment with very little value, such as computer software. Perfection gives us a claim to the collateral that is superior to someone that obtains a lien through the judicial process subsequent to the perfection of a security interest.  The failure to perfect a security interest does not render the security interest unenforceable against the borrower. However, failure to perfect a security interest risks avoidance of the security interest in bankruptcy or subordination to the claims of third parties.

 

At December 31, 2018, our largest leasing relationship was with the State of Arkansas consisting of more than 3,000 leases totaling approximately $13.7 million in lease receivables, all of which were performing in accordance with the lease terms.

 

Consumer Lending. We offer a variety of secured and unsecured consumer loans to individuals who reside or work in our market area, including new and used automobile loans, motorcycle loans, boat loans, recreational vehicle loans, mobile home loans and loans secured by certificates of deposit. Most of our consumer loans are made as an accommodation to our existing customers. At December 31, 2018, our consumer loan portfolio totaled $13.5 million, or 2.1% of our total loan and lease portfolio, including $1.5 million of unsecured consumer loans.

 

Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

 

Originations, Sales and Purchases of Loans

 

Our loan originations are generated by our loan personnel operating at our office locations. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period. During the year ended December 31, 2018, we originated $141.6 million of fixed rate loans and $146.7 million of adjustable rate loans, broken down as follows:

 

    Fixed Rate    

Floating or

Adjustable Rate

    Total  
    (Dollars in thousands)  
Residential real estate (1)   $ 37,325     $ 6,673     $ 43,998  
Home equity lines of credit     1,714       1,720       3,434  
Multi-family and commercial real estate     16,473       75,246       91,719  
Construction and development     8,770       25,330       34,100  
Consumer     7,367       750       8,117  
Commercial and Industrial     16,284       36,954       53,238  
Direct finance leasing     53,686       —       53,686  
Total   $ 141,619     $ 146,673     $ 288,292  

 

 

(1) Includes $2.5 million of fixed-rate and no adjustable-rate loans secured by second mortgages on residential properties.

 

We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold residential loans we originate for investment or to sell these loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. We sell the majority of the fixed-rate conforming and eligible jumbo one- to four-family residential real estate loans that we originate, generally on a servicing-retained basis, while retaining some non-eligible fixed-rate and adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. All FHA, VA and USDA loans we originate are sold on a servicing-released, non-recourse basis in accordance with FHA, VA and USDA guidelines. For the years ended December 31, 2018 and 2017, we sold $20.7 million, and $21.1 million of one- to four-family residential real estate loans.

 

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We recognize, at the time of sale, the cash gain or loss on the sale of the loans based on the difference between the net cash proceeds received and the carrying value of the loans sold. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale income.

 

From time to time, we may purchase loan participations secured by properties within and outside of our primary lending market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2018, we had 18 loans totaling $30.3 million in which we were not the lead lender, all of which were performing in accordance with their original repayment terms. We also have sold portions of loans we originate that exceeded our loans-to-one borrower legal lending limit or for risk diversification. Historically, we have not purchased whole loans. Pursuant to our growth strategy, however, we may purchase whole loans in the future.

 

Loan Approval Procedures and Authority

 

Pursuant to Indiana law, the aggregate amount of loans that First Bank Richmond is permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of First Bank Richmond’s unimpaired capital and surplus. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2018, based on the 15% limitation, First Bank Richmond’s loans-to-one-borrower limit was approximately $13.4 million. As of December 31, 2018, First Bank Richmond was in compliance with the loans-to-one-borrower limitations. At December 31, 2018, our largest lending relationship with one borrower was for $10.1 million consisting of four commercial real estate loans secured by four separate hotels, two in the Dayton, Ohio area and two in the Cincinnati, Ohio area, all with a common guarantor. All of these loans were performing in accordance with their repayment terms at December 31, 2018. Our loan-to-one borrower limitation will increase following the completion of the offering due to the additional capital First Bank Richmond will receive.

 

Our lending is subject to written underwriting standards and origination procedures set forth in First Bank Richmond’s loan policy. Decisions on loan applications are made on the basis of detailed information submitted by the prospective borrower, credit histories that we obtain, and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan information is primarily designed to determine the borrower’s ability to repay the requested loan, and the more significant items are verified through use of credit reports, bank statements and tax returns. Loans containing a policy exception should have the exception noted in the credit file accompanied by a statement as to the reason for granting the exception. Exceptions must be approved in accordance with First Bank Richmond’s loan policy.

 

All loan approval amounts are based on the aggregate debt, including total balances of outstanding loans and the proposed loan to the individual borrower and any related entity. In compiling the aggregate debt for determining the adequacy of an officer’s loan authority for commercial lending and leases, the following may be excluded: (i) consumer debt not to exceed $100,000, as long as the collateral is in the primary borrower’s name; and (ii) permanent first mortgage on the borrower’s primary residence, as long as the primary residence is in the name of the borrower.

 

First Bank Richmond’s board of directors has the responsibility for approving, on an annual basis, specific lending authority for individual officers, combinations of officers, or loan committees. Garry Kleer, President and Chief Executive Officer of First Bank Richmond, has individual authorization to approve any loan up to $1.5 million. Dean Weinert, President of Mutual Federal, a division of First Bank Richmond based in Ohio, has individual authorization to approve residential mortgage, commercial and consumer loans up to $1.5 million. The lending authorities of our other officers range from $50,000 to $1.0 million, and is granted based upon the ability and experience and need of the individual loan officers, relative to the degree of risk and level of expertise required for handling the different types of loans. Loans that exceed the lending authority of the individual loan officer with exposure up to $1.5 million can be approved by the recommending loan officer and by any one of four designate senior loan officers. Additionally, loans in excess of $1.5 million and up to $2.5 million can be approved by the recommending loan officer and two designated senior loan officers.

 

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Loans in excess of $2.5 million up to $5.0 million must be approved by (i) a majority vote of the members of the Officer Loan Committee present at the meeting (which committee currently consists of 12 bank officers), or (ii) if occurring outside an Officer Loan Committee meeting, five individuals, two of whom must be Garry Kleer, Paul Witte or Dean Weinert, plus the recommending loan officer and two additional members of the Officer Loan Committee. All new loans or renewals to relationships graded “substandard” or below in the amount of (i) $250,000 or less must be approved by one of four designated senior loan officers and (ii) over $250,000 but up to and including $1.0 million must be approved by the Officer Loan Committee.

 

Loans in excess of $5.0 million up to our legal lending limit must be approved by (i) a majority vote of the members of the Executive Loan Committee present at the meeting (which committee consists of the First Bank Richmond board of directors (excluding Director Jeffery Jackson), Dean Weinert, Paul Witte and two members of the Mutual Federal Advisory Board), or (ii) if occurring outside an Executive Loan Committee meeting, five members of the Executive Loan Committee. All new loans or renewals to relationships graded “substandard” or below in excess of $1.0 million must be approved by the Executive Loan Committee.

 

Delinquencies and Non-Performing Assets

 

Delinquency Procedures for Owner Occupied One- to Four-Family Residential and Consumer Loans. Prior to an owner-occupied residential real estate or consumer loan payment reaching 30 days past due, our loan officers and/or members of our loan collection department typically will contact the customer. If a loan payment becomes 30 days past due, we mail a late notice and we also place telephone calls to the borrower. These loan collection efforts continue until a loan becomes more than 90 days past due, at which point we would generally refer the loan for foreclosure proceedings unless management determines that it is in the best interest of First Bank Richmond to work further with the borrower to arrange a workout plan. A workout plan generally is done if we believe that the borrower will be able to keep the loan current and in no event more often than one time per year, and two times in a three-year period.

 

Once the loan is more than 90 days past due, a demand notice will be sent to the borrower requiring payments to be brought current within 10 days for non-real estate secured loans and 30 days for real estate secured loans. The foreclosure process generally would begin when a loan becomes 120 days delinquent. From time to time we may accept deeds in lieu of foreclosure. Foreclosed real estate will be booked into other real estate owned. In most cases, the real estate will be listed with a realtor for sale if an accepted purchase offer is not received within 30 days of the bank taking title. For equipment and titled vehicles, if the borrower is unwilling to surrender the collateral voluntarily, a repossession company will be hired to repossess the collateral. Vehicles and other personal property will be sold in a commercially reasonable manner according to the property.

 

Delinquency Procedures for Commercial and Multi-family and Commercial Real Estate Loans and Leases. When a commercial loan or commercial or multi-family real estate loan or lease becomes 10 days past due, we contact the customer by mailing a late notice. The loan officer assigned to the account may also contact the borrower. If the loan continues past due, the loan officer will continue to contact the borrower to determine the cause of the past due payment(s) and arrange for payments. This information will be discussed with the commercial loan manager to determine the nature of the past due payment and, if necessary, to develop a plan to bring the past due payment(s) current and determine if the likelihood of repayment is in question. The loan will also be evaluated for a change to the risk rating. Depending on the circumstances, the lender and commercial loan manager may develop a plan to protect First Bank Richmond’s interest in the loan. If necessary, First Bank Richmond will engage an attorney to pursue further collection efforts.

 

Loan officers are required to complete a “problem loan workout report” on all loans over $500,000 that are rated as criticized or classified. The plans outlined in these reports detail the specific strategies proposed to resolve the defined credit weaknesses, the current condition of the relationship, identify the specific sources of repayment, give a current valuation of all collateral, the position we hold in all collateral, an analysis of all current financial information including cash flows, a timeline for specific actions to occur in the workout plan and set guidelines that would trigger consideration for grading changes. The reports also include an up to date accounting for any expenses that have been incurred on that account. Additional trigger dates for legal proceedings and or foreclosure action are generally discussed in the report in detail. In most cases a decision to foreclose or pursue other legal action on a problem credit will be determined at 120 days past due. In some cases, however, it may be in First Bank Richmond’s best interests to delay such action. The reason for delays are discussed and a trigger date established for final action.

 

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Loans and Leases Past Due and Nonperforming Assets . Loans and leases are reviewed on a regular basis. Management determines that a loan or lease is impaired or nonperforming when it is probable at least a portion of the loan or lease will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan or lease is determined to be impaired, the measurement of the loan or lease in the allowance for loan and lease losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans and leases are loans and leases for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans and leases that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection.

 

When we acquire real estate as a result of foreclosure, the real estate is classified as foreclosed assets or Other Real Estate Owned. Foreclosed assets are recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal, or evaluation when acceptable, to determine the current market value of the property. Any excess of the recorded value of the loan over the market value of the property is charged against the allowance for loan and lease losses, or, if the existing allowance is inadequate, charged to expense, in either case during the applicable period of such determination. After acquisition, all costs incurred in maintaining the property are expensed.

 

Delinquent Loans and Leases . The following table shows our delinquent loans and leases by the type of loan or lease and number of days delinquent as of December 31, 2018.

 

    Loans Delinquent For:  
    60-89 Days     90 Days and Over    

Total Loans Delinquent

60 Days or More

 
    Number     Amount    

Percent
of

Loan

Category

    Number     Amount    

Percent
of

Loan

Category

    Number     Amount    

Percent
of

Loan

Category

 
    (Dollars in thousands)  
Real Estate Loans:                                                                        
Residential (1)     10     $ 807       0.6 %     49     $ 2,193       1.7 %     59     $ 3,000       2.3 %
Home equity lines of credit     —       —       —       1       15       0.2       1       15       0.2  
Multi-family     —       —       —       —       —       —       —       —       —  
Commercial     2       412       0.2       1       78       0.0       3       490       0.2  
Construction or development     —       —       —       —       —       —       —       —       —  
Total Real Estate Loans     12       1,219       0.3       51       2,286       0.5       63       3,505       0.7  
                                                                         
Consumer     5       24       0.2       5       38       0.3       10       62       0.5  
Commercial and industrial     2       328       0.5       6       1,243       1.7       8       1,571       2.2  
Direct financing leases     3       89       0.1       —       —       —       3       89       0.1  
                                                                         
Total     22     $ 1,660       0.3 %     62     $ 3,567       0.5 %     84     $ 5,227       0.8 %

 

 

(1) Includes loans secured by first and second mortgages on residential properties.

 

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Nonperforming Loans and Leases. We generally cease accruing interest on our loans and leases when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan or lease is currently performing. A loan or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on nonaccrual loans and leases generally is applied against principal or interest and is recognized on a cash basis. Generally, loans and leases are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

 

Nonperforming loans and leases totaled $4.6 million, or 0.69% of total loans and leases, at December 31, 2018, $4.5 million, or 0.80% of total loans and leases, at December 31, 2017 and $7.6 million, or 1.62% of total loans and leases, at December 31, 2016.

 

Troubled Debt Restructurings. Loans are accounted for as troubled debt restructurings when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and First Bank Richmond grants a concession to the borrower that it would not otherwise consider. These concessions include a modification of terms, such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than current market rate for a new loan with similar risk, or some combination thereof to facilitate payment. Troubled debt restructurings are considered impaired loans. No additional loan commitments were outstanding to our troubled debt restructured borrowers at December 31, 2018.

 

Loans on non-accrual status at the date of modification are initially classified as non-accrual troubled debt restructurings. At December 31, 2018, we had $1.6 million in non-accrual troubled debt restructurings, none of which were in the process of foreclosure at December 31, 2018. Our policy provides that troubled debt restructured loans are returned to accrual status after a period of satisfactory and reasonable future payment performance under the terms of the restructuring. Satisfactory payment performance is generally no less than six consecutive months of timely payments. At December 31, 2018, we had no loans or leases classified as accruing troubled debt restructurings.

 

Foreclosed Assets . Foreclosed assets consist of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure, and are recorded at the lower of recorded investment or fair value less estimated costs to sell. Write-downs from recorded investment to fair value, which are required at the time of foreclosure, are charged to the allowance for loan and lease losses. After transfer, adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. We had $176,000 in foreclosed assets at December 31, 2018.

 

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Nonperforming Assets . The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. The improvement in total non-performing assets from 2014 through 2017 resulted primarily from the resolution of older non-performing commercial real estate loans most of which were secured by property located outside our primary market area. Foreclosed assets include assets acquired in settlement of loans.

 

    At December 31,  
    2018     2017     2016     2015     2014  
    (Dollars in thousands)  
Non-accruing loans and leases (1) :                                        
Residential (2)   $ 357     $ 320     $ 844     $ 1,359       1,214  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     743       181       2,032       8,937       13,506  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     1,177       2,609       2,557       1,343       2,109  
Direct financing leases     202       25       124       72       60  
Total non-accruing loans and leases     2,479       3,135       5,557       11,711       16,889  
                                         
Accruing loans and leases delinquent more than 90 days:                                        
Residential (2)     1,913       1,310       1,961       976       665  
Home equity lines of credit     15       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       —       116       399  
Construction and development     —       —       —       —       —  
Consumer     38       —       38       9       8  
Commercial and industrial     130       68       8       317       324  
Direct financing leases     —       —       —       —       —  
Total accruing loans and leases delinquent more than 90 days     2,096       1,378       2,007       1,418       1,396  
Total non-performing loans and leases     4,575       4,513       7,564       13,129       18,285  
                                         
Foreclosed assets:                                        
Residential (2)     176       34       72       301       411  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       3,672       793       560  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     —       —       —       —       —  
Direct financing leases     —       —       —       —       —  
Total foreclosed assets     176       34       3,744       1,094       971  
                                         
Total non-performing assets   $ 4,751     $ 4,547     $ 11,308     $ 14,223     $ 19,256  
                                         
Troubled debt restructurings (accruing):                                        
Residential (2)     —       —       —       70       54  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       —       —       —  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     —       —       152       170       181  
Direct financing leases     —       —       —       —       —  
Total trouble debt restructuring (accruing)   $ 0     $ 0     $ 152     $ 240     $ 235  
                                         
Total non-performing loans to total loans     0.69 %     0.80 %     1.62 %     3.23 %     4.90 %
Total non-performing assets to total assets     0.56 %     0.60 %     1.63 %     2.11 %     3.14 %
Total non-performing assets and troubled debt restructurings (accruing) to total assets     0.56 %     0.60 %     1.65 %     2.14 %     3.17 %

 

 

(1) Non-accrual loans and leases include $1.6 million, $2.7 million, $2.8 million, $6.5 million and $7.1 million, of troubled debt restructurings for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
(2) Includes loans secured by first and second mortgages on residential properties.

 

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Interest income that would have been recorded for the year ended December 31, 2018 had non-accruing loans been current according to their original terms amounted to $157,000, of which none was recorded.

 

Other Loans and Leases of Concern.    Other loans and leases of concern are those loans and leases that are currently accruing interest and are not considered impaired, but which we are monitoring because the financial information of the borrower causes us concerns as to their ability to comply with their loan repayment terms. Potential problem loans and leases, not included in the non-performing asset table above, totaled $3.2 million at December 31, 2018.

 

Classified Assets . Our regulators require that we classify loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

 

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan and lease losses in an amount deemed prudent by management and approved by the board of directors. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by our regulators, which may order the establishment of additional general or specific loss allowances.

 

In accordance with our loan policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently performing as agreed, or if the loan possesses weaknesses although currently performing. If a loan deteriorates in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.” Management reviews the status of each impaired loan on our watch list on a quarterly basis.

 

On the basis of this review of our assets, our classified assets at the dates indicated were as follows:

 

    At December 31,  
    2018     2017     2016  
                   
Watch and special mention   $ 3,782     $ 550     $ 1,940  
Substandard     7,695       7,378       10,092  
Doubtful     202       25       124  
Loss     —       —       —  
Total classified assets   $ 11,679     $ 7,953     $ 17,587  

 

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Allowance for Loan and Lease Losses

 

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan and lease portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan and lease portfolio and the related allowance may change materially in the near-term. The allowance is increased by a provision for loan and lease losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans and leases are charged or credited to the provision for loan and lease losses. Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, management’s ongoing review and grading of loans and leases, facts and issues related to specific loans and leases, historical loan and lease loss and delinquency experience, trends in past due and non-accrual loans and leases, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

 

As an integral part of their examination process, the Indiana Department of Financial Institutions and the FDIC will periodically review our allowance for loan and lease losses, and as a result of such reviews, we may have to adjust our allowance for loan and lease losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for loan and lease losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

 

  79  

 

 

Allowance for Loan and Lease Losses . The following table sets forth an analysis of our allowance for loan and lease losses at the dates and for the periods indicated.

 

    Years Ended December 31,  
    2018     2017     2016     2015     2014  
    (Dollars in thousands)  
Balance at beginning of period:   $ 4,800     $ 5,394     $ 5,246     $ 6,266     $ 6,860  
                                         
Charge-offs:                                        
Real estate loans:                                        
Residential (1)     121       1,842       772       376       1,790  
Home equity     —       —       —       —       24  
Multi-family     —       —       —       —       18  
Commercial     —       —       81       619       102  
Construction and development     —       —       15       —       1,226  
Total real estate loans     121       1,842       868       995       3,160  
                                         
Consumer loans     57       57       92       145       78  
                                         
Commercial business:                                        
Commercial and industrial     1,033       265       225       680       73  
Direct financing leases     454       304       345       534       184  
Total commercial business loans and leases     1,487       569       570       1,214       257  
Total charge offs     1,665       2,468       1,530       2,354       3,495  
                                         
Recoveries:                                        
Real estate loans:                                        
Residential (1)     137       101       57       53       67  
Home equity     2       2       2       —       11  
Multi-family             —       —       —       —  
Commercial     308       38       141       41       98  
Construction and development     17       35       17       12       19  
Total real estate loans     464       176       217       106       195  
                                         
Consumer loans     31       29       30       56       78  
                                         
Commercial business:                                        
Commercial and industrial     26       21       40       93       504  
Direct financing leases     264       278       236       249       324  
Total commercial business loans and leases     290       299       276       342       828  
Total recoveries     785       504       523       504       1,101  
                                         
Net charge-offs     880       1,964       1,007       1,850       2,394  
Additions charged to operations     1,680       1,370       1,155       830       1,800  
Balance at end of period   $ 5,600     $ 4,800     $ 5,394     $ 5,246     $ 6,266  
                                         
Net charge-offs during the period to average loans outstanding during the period     0.14 %     0.38 %     0.23 %     0.48 %     0.64 %
                                         
Net charge-offs during the period to average non-performing assets     18.93 %     24.77 %     7.89 %     11.05 %     11.45 %
                                         
Allowance as a percentage of non- performing assets     117.87 %     105.56 %     47.70 %     36.88 %     32.54 %
                                         
Allowance as a percentage of total gross loans and leases receivable (end of period)     0.85 %     0.85 %     1.15 %     1.29 %     1.68 %

 

 

(1) Includes loans secured by first and second mortgages on residential properties.

 

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Allocation of Allowance for Loan and Lease Losses. The following table sets forth the allowance for loan and lease losses allocated by category, the total balances by category, and the percent of loans and leases in each category to total loans and leases at the dates indicated. The allowance for loan and lease losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. At the dates indicated, we had no unallocated allowance for loan and lease losses.

 

    At December 31,  
    2018     2017     2016     2015     2014  
    Amount     Percent of
loans and
leases in
each
category to
total loans 		    Amount     Percent of
loans and
leases in
each
category to
total loans 		    Amount     Percent of
loans and
leases in
each
category to
total loans 		    Amount     Percent of
loans and
leases in
each
category to
total loans 		    Amount     Percent of
loans and
leases in
each
category to
total loans 		 
    (Dollars in thousands)  
Allocated at end of period to:                                                                                
                                                                                 
Real estate loans:                                                                                
Residential (1)   $ 139       17.8 %   $ 257       21.2 %   $ 359       25.9 %   $ 933       29.8 %   $ 1,295       31.0 %
Commercial (2)     3,147       54.4       2,424       48.2       1,829       39.8       1,956       33.1       2,687       31.7  
Total real estate loans     3,286       72.2       2,681       69.4       2,188       65.7       2,889       62.9       3,982       62.7  
                                                                                 
Consumer loans     108       2.5       119       2.6       128       2.8       120       3.2       24       3.6  
                                                                                 
Commercial loans and leases:                                                                                
Commercial and industrial     1,817       9.0       1,663       10.3       1,421       11.5       751       12.3       1,245       13.4  
Direct financing leases     389       16.3       337       17.7       1,657       20.0       1,486       21.6       1,015       20.3  
Total commercial loans and leases     2,206       25.3       2,000       28.0       3,078       31.5       2,237       33.9       2,260       33.7  
                                                                                 
Total loans and leases   $ 5,600       100.0 %   $ 4,800       100.0 %   $ 5,394       100.0 %   $ 5,246       100.0 %   $ 6,266       100.0 %

 

 

(1) Includes the allowance related to residential mortgage loans, home equity loans and lines of credit, and residential construction loans.
(2) Includes the allowance related to commercial and multi-family real estate loans and commercial construction loans.

 

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At December 31, 2018, our allowance for loan and lease losses represented 0.85% of total loans and leases and 122.4% of non-performing loans and leases. There were $880,000 in net loan charge-offs during the year ended December 31, 2018.

 

Although we believe that we use the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan and lease losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan or lease portfolio deteriorates as a result. Any material increase in the allowance for loan and lease losses may adversely affect our financial condition and results of operations.

 

Investment Activities

 

General . First Bank Richmond has the legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Indianapolis, certificates of deposit of federally insured institutions, investment grade corporate bonds and investment grade marketable equity securities. We also are required to maintain an investment in Federal Home Loan Bank of Indianapolis stock.

 

The objectives of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to maximize the rate of return on invested funds within the context of our interest rate and credit risk objectives. First Bank Richmond’s board of directors is responsible for adopting our investment policy. The strategies utilized to meet the objective of our investment policy are established by our Asset/Liability Committee, which consists of at least three board members, the President and Chief Executive Officer, and the Chief Financial Officer of First Bank Richmond. The Asset/Liability Committee meets quarterly, or more often if necessary, to insure that investment policies and strategies are consistent with both First Bank Richmond’s investment guidelines and market conditions. The Asset/Liability Committee reviews the investment policy at least annually and recommends any revisions, if necessary, to the board of directors of First Bank Richmond.

 

Our President and Chief Executive Officer and our Chief Financial Officer are responsible for the management of our investment portfolio, subject to the direction and guidance of the Asset/ Liability Committee. Various factors are considered when making decisions regarding our investment portfolio, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases. All investment transactions are reviewed at the next regularly scheduled meeting of the board of directors. Our investment securities are usually classified as available-for-sale; however, the purchasing officer has the option, at the time of purchase, to designate individual securities as held-to-maturity, available-for-sale, or trading. At December 31, 2018, we had $122.5 million of securities, at fair value, classified as available-for-sale, $21.1 million of securities, at cost, classified as held-to-maturity, and no securities classified as trading.

 

We may from time to time invest in “special situation” investments in order to earn profits or to hedge against interest rate risk. These investments may include interest rate swaps and/or interest rate caps. These investments are handled on a case-by-case basis requiring the advice and counsel of the Asset/Liability Committee. The President and/or Chief Financial Officer can act on his own authority for investments under $400,000. However, once this authority is utilized, it must be reauthorized at the next Asset/Liability Committee meeting. While we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at December 31, 2018.

 

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In connection with managing our investment securities portfolio, we will solicit and receive advice from approved broker/dealers, recognizing the extensive resources and valuable experience that they can provide. However, the final decision concerning all investment activities will be the responsibility of our President and the Chief Financial Officer with the approval of the Asset/Liability Committee. We evaluate each broker/dealer on its financial strength, expertise, and acceptable business practices. Annually, the Asset/Liability Committee will review and reaffirm the list of approved brokers/dealers. The Asset/Liability Committee, in addition to its annual review, may choose to make changes to this list throughout the year.

 

We held common stock of the FHLB of Indianapolis and the FHLB of Cincinnati in connection with our borrowing activities totaling $6.6 million at December 31, 2018. For the year ended December 31, 2018, First Bank Richmond received a total of $341,000 in dividends from these FHLBs. Our required investment in the stock of the FHLBs is based on a predetermined formula, carried at cost and evaluated for impairment. We may be required to purchase additional FHLB stock if we increase borrowings in the future. Prior to our conversion to a state-chartered commercial bank in 2017, we also held stock in the Federal Reserve Bank.

 

The table below sets forth information regarding the composition of our securities portfolio and other investments at the dates indicated. At December 31, 2018, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies.

 

    At December 31,  
    2018     2017     2016  
    Book
Value 		    Fair
Value 		    Book
Value 		    Fair
Value 		    Book
Value 		    Fair
Value 		 
    (In thousands)  
Securities available for sale:                                                
U.S. government and federal agency   $ 40,812     $ 38,010     $ 40,892     $ 38,726     $ 40,987     $ 38,285  
State and municipal obligations     30,531       29,789       24,011       23,364       34,995       33,696  
Government sponsored mortgage-backed securities     56,945       54,670       57,858       56,254       70,799       68,651  
Other     13       13       13       13       3,625       3,582  
Total securities available for sale     128,301       122,482       122,774       118,357       150,406       144,214  
                                                 
Securities held to maturity:                                                
State and municipal obligations     18,580       18,543       22,392       22,443       24,860       24,740  
Other (1)     2,500       5,110       2,500       5,132       2,500       5,103  
Total securities held to maturity     21,080       23,653       24,896       27,575       27,360       29,843  
                                                 
Federal Reserve and FHLB stock     6,561       6,561       6,717       6,717       6,224       6,224  
                                                 
Total investment securities   $ 155,942     $ 152,696     $ 154,383     $ 152,649     $ 183,990     $ 180,281  

 

 

(1) Consists of trust preferred securities issued by our mutual holding company, First Mutual of Richmond-MHC, through a statutory trust. Following completion of the reorganization and stock offering, Richmond Mutual Bancorporation-Maryland intends to utilize a portion of the net proceeds from the stock offering to redeem these trust preferred securities. See “Business of First Bank Richmond – Borrowed Funds.”

 

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Portfolio Maturities and Yields. The following table sets forth the stated maturities and weighted average yields of investment securities, excluding Federal Reserve and FHLB stock, at December 31, 2018. Weighted average yields on tax-exempt securities are presented on a tax-equivalent basis using a combined federal and state marginal tax rate of approximately 26.6%. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. Weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity.

 

   

1 year or less

   

Over 1 year to 5 years

   

Over 5 to 10 years

   

Over 10 years

   

Total Securities

 
   

Amortized
Cost

   

Weighted
Average
Yield

   

Amortized
Cost

   

Weighted
Average
Yield

   

Amortized
Cost

   

Weighted
Average
Yield

   

Amortized
Cost

   

Weighted
Average
Yield

   

Amortized
Cost

   

Weighted
Average
Yield

   

Fair
Value

 
    (Dollars in thousands)  
Securities available for sale:                                                                                        
U.S. government and federal agency   $ —       —%     $ 3,000       1.83 %   $ 37,812       2.07 %   $ —       —%     $ 40,812       2.05 %   $ 38,010  
State and municipal obligations     157       2.58       6,109       2.15       14,699       2.39       9,566       3.12       30,531       2.57       29,789  
Government sponsored mortgage backed securities     —       —       63       4.41       9,233       1.54       47,649       2.47       56,945       2.32       54,670  
Other     —       —       —       —       —       —       13       —       13       —       13  
Total securities available for sale     157       2.58       9,172       2.06       61,744       2.07       57,228       2.58       128,301       2.29       122,482  
                                                                                         
Securities held to maturity:                                                                                        
State and municipal obligations     2,540       2.05       9,448       2.63       5,095       3.29       1,497       5.55       18,580       2.97       18,543  
Other (1)     —       —               —       —       —       2,500       3.93       2,500       3.93       5,110  
Total securities held to maturity     2,540       2.05       9,448       2.63       5,095       3.29       3,997       4.54       21,080       3.08       23,653  
Total investment securities   $ 2,697       2.08 %   $ 18,620       2.35 %   $ 66,839       2.16 %   $ 61,225       2.71 %   $ 149,381       2.40 %   $ 146,135  

 

 

(1) Consists of trust preferred securities issued by our mutual holding company, First Mutual of Richmond-MHC, through a statutory trust. Following completion of the reorganization and stock offering, Richmond Mutual Bancorporation-Maryland intends to utilize a portion of the net proceeds from the stock offering to redeem these trust preferred securities. See “Business of First Bank Richmond – Borrowed Funds.”

 

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Sources of Funds

 

General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings, primarily FHLB advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, loan and mortgage-backed securities prepayments, maturities and calls of available-for-sale securities, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

 

Deposits. We offer deposit accounts to consumers and businesses having a wide range of interest rates and terms. Our deposits consist of savings deposit accounts, NOW and demand accounts and certificates of deposit. We solicit deposits in our market areas as well as online through our website. We also participate in reciprocal deposit services for our customers through the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) networks. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. We also accept brokered deposits from deposit brokers. At December 31, 2018, our brokered deposits totaled $124.5 million, or 20.1% of total deposits, with an average interest rate of 2.07% and a 13 month weighted-average maturity. Our reliance on brokered deposits may increase our overall cost of funds.

 

Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive markets in which we operate, which include numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. Additionally, we concentrate on gathering deposits from both existing commercial loan clients and new commercial prospects which positively impacts our lower cost deposits and assists in retaining full service clients. At December 31, 2018, our core deposits, which are deposits other than certificates of deposit in excess of $250,000 and brokered deposits, totaled $464.1 million, representing 74.8% of total deposits.

 

Our largest banking office based on deposits is our main office in Richmond, Indiana, which had total deposits of $146.5 million or 23.6% of our total deposits at December 31, 2018. Approximately 75.3% ($467.6 million) of our total deposits were held in our Wayne County, Indiana offices as of December 31, 2018, with 64.9% ($403.0 million) of those deposits held in our five Richmond, Indiana offices. Overall, $500.5 million or 80.6% of our total deposits were held in Indiana branches and $120.1 million or 19.4% were held in Ohio branches as of December 31, 2018.

 

The FRB requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, primarily checking, NOW and Super NOW checking accounts. At December 31, 2018, we were in compliance with these reserve requirements.

 

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The following table sets forth our total deposit activities for the periods indicated.

 

    Years Ended December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
                   
Beginning balance   $ 560,395     $ 516,302     $ 520,487  
Net deposits (withdrawals)     54,594       40,297       (7,242 )
Interest credited     5,648       3,796       3,057  
Ending balance   $ 620,637     $ 560,395     $ 516,302  
                         
Net increase (decrease)   $ 60,242     $ 44,093     $ (4,185 )
                         
Percent increase (decrease)     10.7 %     8.5 %     (0.8 )%

 

The following tables set forth the distribution of total deposit accounts, by account type, for the periods indicated.

 

    At December 31,  
    2018     2017     2016  
    Amount     Percent
of Total 		    Amount     Percent
of Total 		    Amount     Percent
of Total 		 
    (Dollars in thousands)  
Transaction and Savings Deposits:                                                
                                                 
Demand deposits   $ 159,460       25.7 %   $ 155,200       27.7 %   $ 154,022       29.8 %
Savings     68,627       11.0       66,782       11.9       65,240       12.7  
Money market     84,129       13.6       88,092       15.7       86,696       16.8  
                                                 
Total non-certificates     312,216       50.3       310,074       55.3       305,958       59.3  
                                                 
Certificates:                                                
                                                 
0.00 – 1.00%     28,266       4.6       44,562       8.0       96,043       18.6  
1.01 – 2.00%     135,637       21.9       193,703       34.5       100,448       19.4  
2.01 – 3.00%     143,327       23.0       11,746       2.1       13,494       2.6  
3.01 – 4.00%     1,191       0.2       310       0.1       315       0.1  
Over 4.00%     —       —       —       —       44       —  
                                                 
Total certificates     308,421       49.7       250,321       44.7       210,344       40.7  
                                                 
Total deposits   $ 620,637       100.0 %   $ 560,395       100.0 %   $ 516,302       100.0 %

 

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The following table indicates the time deposit accounts classified by rate and maturity at December 31, 2018.

 

   

0.00-

1.00%

   

1.01-

2.00%

   

2.01-

3.00%

   

Over

3.00%

    Total    

Percent

of
Total

 
    (Dollars in thousands)  
Certificate accounts maturing in quarter ending:                                    
                                     
March 31, 2019   $ 4,591     $ 20,232     $ 6,353     $ —     $ 31,176       10.1 %
June 30, 2019     6,676       20,755       829       —       28,260       9.2  
September 30, 2019     3,594       18,739       42,163       —       64,496       20.9  
December 31, 2019     5,760       11,868       56,339       —       73,967       24.0  
March 31, 2020     2,700       11,584       16,500       —       30,784       10.0  
June 30, 2020     2,568       5,473       1,725       17       9,783       3.2  
September 30, 2020     1,213       5,772       467       —       7,452       2.4  
December 31, 2020     756       13,574       1,680       1,134       17,144       5.6  
March 31, 2021     181       4,437       4,083       24       8,725       2.8  
June 30, 2021     47       5,538       601       —       6,186       2.0  
September 30, 2021     58       3,221       236       16       3,531       1.1  
December 31, 2021     80       2,937       686       —       3,703       1.2  
Thereafter     42       11,507       11,665       —       23,214       7.5  
                                                 
Total   $ 28,266     $ 135,637     $ 143,327     $ 1,191     $ 308,421       100.00 %
                                                 
Percent of total     9.2 %     44.0 %     46.4 %     0.4 %     100 %        

 

The following table indicates the amount of certificates of deposit by time remaining until maturity at December 31, 2018. Jumbo certificates of deposit require minimum deposits of $100,000.

 

    Maturity        
   

3 Months

or Less

   

Over

3 to 6

Months

   

Over

6 to 12

Months

   

Over

12 Months

    Total  
    (In thousands)  
                               
Certificates of deposit less than $100,000   $ 8,538     $ 13,163     $ 42,854     $ 34,202     $ 98,757  
Certificates of deposit of $100,000 or more     22,536       15,097       92,133       70,047       199,813  
Public funds (1)     102       —       3,478       6,271       9,851  
Total certificates of deposit   $ 31,176     $ 28,260     $ 138,465     $ 110,520     $ 308,421  

 

 

(1) Deposits from government and other public entities.

 

Borrowed Funds. We utilize borrowings as a source of funds, especially when they are less costly than deposits and can be invested at a positive interest rate spread, when we desire additional capacity to fund loan demand or when they meet our asset/liability management goals. Our borrowings historically have consisted of advances from the FHLB of Indianapolis. We may obtain advances from the FHLB of Indianapolis and the FHLB of Cincinnati upon the security of the capital stock we own in the FHLBs and certain of our mortgage loans and investment securities. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. We use such advances to provide short-term funding as a supplement to our deposits. To the extent such borrowings have different terms to repricing than our deposits, they can change our interest rate risk profile. At December 31, 2018, we had $136.1 million in FHLB advances outstanding. Based on current collateral levels, at December 31, 2018 we could borrow an additional $45.0 million from the FHLB of Indianapolis and $0 from the FHLB of Cincinnati at prevailing interest rates.

 

FHLB advances totaling $59.0 million at a weighted, fixed interest rate of 1.71% are subject to an option by the FHLB of Indianapolis to convert, at a specified date in the future, the entire fixed-rate advance to a periodic adjustable rate. The adjustable rate would be for the remaining term of the advance at a predetermined rate based on LIBOR (London Interbank Offer Rate). If the FHLB exercises its option to convert the advance to an adjustable rate, the advance will be pre-payable at our option, at par and without a penalty.

 

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We also have an available line of credit with the FHLB of Indianapolis totaling $10,000,000. The line of credit expires March 2019; however, it is renewed annually, and bears interest at a rate equal to the current variable advance rate. At December 31, 2018, the current interest rate was 2.87%. There were no amounts outstanding on the line at December 31, 2018 or 2017. We also are authorized to borrow from the Federal Reserve Bank of Chicago’s “discount window.” We have never borrowed from the Federal Reserve Bank and currently do not have any assets pledged to them for borrowing.

 

The following tables sets forth information concerning balances and interest rates on our borrowings at and for the periods shown. The tables include both long- and short-term borrowings.

 

    Years Ended December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
Maximum balance:                        
FHLB advances   $ 136,500     $ 115,300     $ 92,300  
                         
Average balances:                        
FHLB advances   $ 112,678     $ 95,102     $ 78,491  
                         
Weighted average interest rate:                        
FHLB advances     2.22 %     1.63 %     1.31 %

 

    At December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
Balance outstanding at end of period:                  
FHLB advances   $ 136,100     $ 104,000     $ 92,300  
                         
Weighted average interest rate:                        
FHLB advances     2.22 %     1.63 %     1.31 %

 

In connection with the reorganization and stock offering, Richmond Mutual Bancorporation-Maryland will acquire all of the assets and assume all of the liabilities of First Mutual of Richmond-MHC and Richmond Mutual Bancorporation-Delaware. Included among the liabilities to be assumed is $10.0 million of subordinated debentures issued by First Mutual of Richmond-MHC in connection with the issuance, through a statutory trust formed by First Mutual of Richmond-MHC, of $10.0 million of related trust preferred securities. The financial statements of First Mutual of Richmond-MHC are not consolidated with those of Richmond Mutual Bancorporation-Delaware, therefore, the $10.0 million of subordinate debentures issued by First Mutual of Richmond-MHC and the related trust preferred securities are not reflected as a liability in the consolidated financial statements of Richmond Mutual Bancorporation-Delaware contained in this prospectus. Included among the assets being acquired by Richmond Mutual Bancorporation-Maryland, however, is $5.1 million (fair market value) of the trust preferred securities issued by First Mutual of Richmond-MHC which was acquired by Richmond Mutual Bancorporation-Delaware in 2010 from a third party at a discount. These trust preferred securities are reflected as assets in the consolidated financial statement of Richmond Mutual Bancorporation-Delaware in this prospectus.

 

The subordinated debentures and related securities, which were issued in July 2007, mature on September 15, 2037 and currently may be redeemed at par, subject to any required regulatory approvals. Following completion of the reorganization and stock offering, Richmond Mutual Bancorporation-Maryland intends to redeem the outstanding subordinated debentures and related trust preferred securities, which is expected to result in a net use of proceeds from the stock offering of approximately $5.0 million.

 

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Trust and Financial Services

 

We provide a variety of fee-based financial services, including trust and estate administration, investment management services, retirement plan administration and private banking services, in our market areas. Trust services are provided to both individual and corporate customers, including personal trust and agency accounts, and employee benefit plans. We also manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $126.0 million at December 31, 2018. These activities provide an additional source of fee income to First Bank Richmond and in 2018 constituted 9.0% of our total non-interest income.

 

Properties

 

As of December 31, 2018, the net book value of our real properties, including land, was $12.3 million. The following is a list of our offices:

 

                  Lease     Net Book  
    Year   Square     Owned/   Expiration     Value at  
Location   Opened   Footage     Leased   Date     December 31, 2018  
                        (Dollars in thousands)  
Corporate Office/Financial Center:                                

31 North 9 th Street

Richmond, IN 47374 (1)

  2002     35,182     Owned     —     $ 3,583 (5)
                                 
Indiana Branch Offices:                                

200 W Main Street

Cambridge City, Indiana 47327 (2)

  2014     4,560     Owned     —       412  
                                 

119 East Main Street

Centerville, Indiana 47330 (2)

  1959     19,851     Owned     —       — (6)
                                 

20 North 9 th Street

Richmond, Indiana 47374 (2)

  1959     2,592     Owned     —       80  
                                 

3403 East Main Street

Richmond, Indiana 47374 (2)

  1991     3,321     Owned     —       502  
                                 

601 South A Street

Richmond, Indiana 47374 (3)

  1999     360     Leased     2023       160  
                                 

2499 Chester Boulevard

Richmond, Indiana 47374 (2)

  2003     2,467     Owned     —       618  
                                 

2929 National Road West

Richmond, Indiana 47374 (2)

  2006     2,365     Owned     —       1,191  
                                 

1835 Marketplace Boulevard

Shelbyville, Indiana 46176 (2)

  2016     3,096     Owned     —       1,948  

 

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                  Lease     Net Book  
    Year   Square     Owned/   Expiration     Value at  
Location   Opened   Footage     Leased   Date     December 31, 2018  
                        (Dollars in thousands)  
Ohio Branch Offices:                                

138 N Sunset Drive

Piqua, Ohio 45356 (2)

  1994     2,410     Owned     —       278  
                                 

126 W High Street

Piqua, Ohio 45356 (2)

  2019     3,140     Owned     —       346  
                                 

121 South Ohio Avenue

Sidney, Ohio 45365 (2)

  1922     8,627     Owned     —       1,168  
                                 

2601 Michigan St

Sidney, Ohio 45365 (2)

  2016     3,460     Owned     —       1,535  
                                 

1867 West Main Street

Troy, Ohio 45373 (2)

  2004     2,883     Owned     —       519  
                                 

8351 N High St, Suite 280

Columbus, Ohio 43235 (4)

  2015     1,117     Leased     2019       —  

 

 

(1) Administrative, trust and wealth management services provided at this location; no banking deposits are accepted.
(2) Full service brick and mortar office.
(3) Drive through facility for existing customer transaction purposes only.
(4) Loan production office. Subsequent to December 31, 2018, the lease term was extended until 2122.
(5) Represents the combined net book value at December 31, 2018 of our 31 North 9 th Street and 20 North 9 th Street locations.
(6) The net book value of these premises at December 31, 2018 is combined with the Corporate Office. See footnote 5 above.

 

Subsidiary and Other Activities

 

Upon completion of the reorganization, First Bank Richmond will become the wholly owned subsidiary of Richmond Mutual Bancorporation-Maryland. First Bank Richmond has no subsidiaries.

 

Legal Proceedings

 

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 December 31, 2018, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

 

Expense and Tax Allocation

 

First Bank Richmond will enter into an agreement with Richmond Mutual Bancorporation-Maryland to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, First Bank Richmond and Richmond Mutual Bancorporation-Maryland will enter into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

 

Personnel

 

As of December 31, 2018, we had 172 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.

 

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TAXATION

 

General . Richmond Mutual Bancorporation-Maryland and First Bank Richmond will be subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. Our federal and state tax returns have not been audited for the past five years.

 

The following discussion of federal and state taxation is intended only to summarize material income tax matters and is not a comprehensive description of the tax rules applicable to Richmond Mutual Bancorporation-Maryland and First Bank Richmond.

 

Federal Taxation

 

Method of Accounting. For federal income tax purposes, First Bank Richmond currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. Richmond Mutual Bancorporation-Maryland and First Bank Richmond will file a consolidated federal income tax return.

 

Tax Cuts and Jobs Act (“Tax Act”). The Tax Act was enacted on December 22, 2017 reducing our federal corporate tax rate from 34% to 21%, effective January 1, 2018. At December 31, 2018, we have substantially completed our accounting for the tax effects of enactment of the Tax Act. As Accounting Standards Codification 740, Income Taxes , requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted, we re-measured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is 21%. As a result, we recorded an additional tax expense of $1.46 million in 2017 due to the revaluation of our deferred tax asset. Included in this additional one-time income tax expense of $1.46 million was income tax expense of $537,000 related to the adjustment of the deferred tax asset for the net unrealized losses on available-for-sale securities.

 

Taxable Distributions and Recapture. Bad debt reserves created prior to the year ended December 31, 1997 were subject to recapture into taxable income if First Bank Richmond failed to meet certain thrift asset and definitional tests. Federal legislation eliminated these thrift recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should First Bank Richmond make certain non-dividend distributions or cease to maintain a bank charter.

 

Minimum Tax. For tax years beginning after December 31, 2017, corporate alternative minimum tax was repealed. The prior year minimum tax credit is continued to be allowed to offset the taxpayer’s regular tax liability for any tax year. For tax years beginning after 2017 and before 2022, the prior year minimum tax credit would be refundable in an amount equal to 50% (100% for tax years beginning in 2021) of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability. First Bank Richmond has approximately $80,000 available as minimum tax credits for carryover, as of December 31, 2018.

 

Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At December 31, 2018, we had no capital loss carryovers.

 

Corporate Dividends. Richmond Mutual Bancorporation-Maryland may generally exclude from its income 100% of dividends received from First Bank Richmond as a member of the same affiliated group of corporations.

 

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State Taxation

 

First Bank Richmond is subject to Indiana’s financial institutions tax, which is imposed at a flat rate as of December 31, 2018, of 6.5% on “adjusted gross income” apportioned to Indiana. “Adjusted gross income,” for purposes of the financial institutions tax, begins with taxable income as defined by Section 63 of the Internal Revenue Code and incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications including only considering members of the combined group which have Indiana nexus. The Indiana legislature started reducing the financial institutions tax from 8.5% to 6.5% in 0.5% increments over a four year period that commenced in 2014. The full rate reduction to 4.9% will be phased in fully by 2023. First Bank Richmond is not currently under audit with respect to its Indiana tax returns.

 

First Bank Richmond is also subject to Ohio taxation in the same general manner as other corporations. In particular, Richmond Mutual Bancorporation-Maryland and First Bank Richmond will be subject to the Ohio corporation franchise tax, which is an excise tax imposed on corporations for the privilege of doing business in Ohio, owning capital or property in Ohio, holding a charter or certificate of compliance authorizing the corporation to do business in Ohio, or otherwise having nexus with Ohio during a calendar year. The franchise tax is imposed on the value of a corporation's issued and outstanding shares of stock. Financial institutions determine the value of their issued and outstanding shares based upon the net worth of the shares. For Ohio franchise tax purposes, financial institutions are currently taxed at a rate equal to 0.8% of taxable net worth. First Bank Richmond is currently under audit with respect to its Ohio franchise tax returns, for the tax years 2015-2017.

 

Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes.

 

As a Maryland business corporation, Richmond Mutual Bancorporation-Maryland will be required to file an annual report with and pay franchise taxes to the State of Maryland.

 

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REGULATION AND SUPERVISION

 

General

 

First Bank Richmond is an Indiana-chartered commercial bank. Its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. First Bank Richmond is subject to extensive regulation by the Indiana Department of Financial Institutions, as its chartering agency, and by the Federal Deposit Insurance Corporation, as its deposit insurer. First Bank Richmond is required to file reports with, and is periodically examined by, the Federal Deposit Insurance Corporation and the Indiana Department of Financial Institutions concerning its activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. In addition, First Bank Richmond is a member of and owns stock in the FHLB of Indianapolis and the FHLB of Cincinnati, which are two of the 11 regional banks in the Federal Home Loan Bank System.

 

The regulations and supervision of First Bank Richmond establish a comprehensive framework of activities in which an institution can engage and are intended primarily for the protection of depositors and borrowers and, for purposes of the Federal Deposit Insurance Corporation, the protection of the insurance fund. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

 

As a bank holding company, Richmond Mutual Bancorporation-Maryland will be subject to examination and supervision by, and be required to file certain reports with, the Federal Reserve Board. Richmond Mutual Bancorporation-Maryland will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

 

Set forth below are certain material regulatory requirements that are applicable to First Bank Richmond and Richmond Mutual Bancorporation-Maryland. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on First Bank Richmond and Richmond Mutual Bancorporation-Maryland. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, could have a material adverse impact on Richmond Mutual Bancorporation-Maryland, First Bank Richmond and their operations.

 

Dodd-Frank Act

 

As noted above in “Risk Factors,” the Dodd-Frank Act made significant changes to the regulatory structure for depository institutions and their holding companies. However, the Dodd-Frank Act’s changes go well beyond that and affect the lending, investments and other operations of all depository institutions.

 

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as First Bank Richmond, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets continue to be examined for compliance by their applicable bank regulators. This legislation gave state attorneys general the ability to enforce applicable federal consumer protection laws.

 

In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, directed changes in the way that institutions are assessed for deposit insurance, mandated the imposition of tougher consolidated capital requirements on holding companies, required the issuance of regulations requiring originators of securitized loans to retain a percentage of the risk for the transferred loans, imposed regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and contained a number of reforms related to mortgage originations.

 

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Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. The implementation of the legislation is an ongoing process. The Dodd-Frank Act has resulted in, and may continue to result in, an increased regulatory burden and increased compliance, operating and interest expense for First Bank Richmond.

 

2018 Regulatory Reform

 

In May 2018 the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the EGRRCPA maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $10 billion and for large banks with assets of more than $50 billion. Many of these changes could result in meaningful regulatory changes for community banks such as First Bank Richmond, and their holding companies.

 

The EGRRCPA, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and simplifies the regulatory capital rules for financial institutions and their holding companies with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8 and 10 percent. Any qualifying depository institution or its holding company that exceeds the Community Bank Leverage Ratio will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered to be “well capitalized” under the prompt corrective action rules.

 

The EGRRCPA also expands the category of holding companies that may rely on the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement by raising the maximum amount of assets a qualifying bank holding company may have from $1 billion to $3 billion. A major effect of this change is to exclude such holding companies from the minimum capital requirements of the Dodd-Frank Act. In addition, the Act includes regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans.

 

It is difficult at this time to predict when or how any new standards under the EGRRCPA will ultimately be applied to us or what specific impact the EGRRCPA and the yet-to-be-written implementing rules and regulations will have on community banks.

 

Indiana Banking Regulation

 

First Bank Richmond, as an Indiana commercial bank, is regulated and supervised by the Indiana Department of Financial Institutions. The Indiana Department of Financial Institutions is required to regularly examine each state-chartered bank. The approval of the Indiana Department of Financial Institutions is required to establish or close branches, to merge with another bank, to issue stock and to undertake many other activities. Any Indiana bank that does not operate according to the regulations, policies and directives of the Indiana Department of Financial Institutions may be sanctioned.

 

The powers that Indiana-chartered banks can exercise under these laws include, but are not limited to, the following:

 

Lending Activities. An Indiana-chartered commercial bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, variable-rate loans, participation loans, graduated payment loans, construction and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made according to applicable regulations. Commercial loans may be made to corporations and other commercial enterprises with or without security. Consumer and personal loans may also be made with or without security.

 

Investment Activities. In general, First Bank Richmond may invest in certain types of debt securities, certain types of corporate equity securities, and certain other assets. However, these investment authorities are constrained by federal law. See “- Federal Banking Regulation — Investment Activities” for such federal restrictions.

 

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Loans to One Borrower Limitations. Under Indiana law, First Bank Richmond’s total loans or extensions of credit to a single borrower or group of related borrowers cannot exceed, with specified exceptions, 15% of its capital stock, surplus fund and undivided profits. First Bank Richmond may lend additional amounts up to 10% if the loans or extensions of credit are fully secured by readily-marketable collateral. At December 31, 2018, First Bank Richmond complied with these loans-to-one-borrower limitations. At December 31, 2018, First Bank Richmond’s largest aggregate amount of loans to one borrower was $10.1 million.

 

Dividends. Under Indiana law, First Bank Richmond, following the completion of the reorganization, will be permitted to declare and pay dividends out of its undivided profits. The prior approval of the Indiana Department of Financial Institutions is required if the total of all dividends declared in a calendar year would exceed the total of its net income for that year combined with its retained net income for the preceding two years. See “- Federal Banking Regulation — Capital Requirements,” “— Prompt Corrective Action” and “- Holding Company Regulation” for restrictions on dividends under federal law.

 

Assessments. As an Indiana state-chartered commercial bank, First Bank Richmond is required to pay to the Indiana Department of Financial Institutions a general assessment fee in connection with the regulation and supervision of First Bank Richmond. The Federal Deposit Insurance Corporation, as discussed below, charges all insured depository institutions deposit insurance assessments.

 

Regulatory Enforcement Authority. Any Indiana bank that does not operate according to the regulations, policies and directives of the Indiana Department of Financial Institutions may be subject to sanctions for non-compliance, including seizure of the property and business of the bank and suspension or revocation of its charter. The Indiana Department of Financial Institutions may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in a manner which is unsafe, unsound or contrary to the depositors interests or been negligent in the performance of their duties. In addition, upon finding that a bank has engaged in an unfair or deceptive act or practice, the Indiana Department of Financial Institutions may issue an order to cease and desist and impose a fine on the bank. Indiana consumer protection and civil rights statutes applicable to First Bank Richmond permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorney’s fees in the case of certain violations of those statutes.

 

Federal Banking Regulation

 

Capital Requirements. Federal regulations require FDIC-insured depository institutions, including state-chartered banks, to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets and a Tier 1 capital to total assets leverage ratio. These capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

 

The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6% and 8%, respectively. The regulations also establish a minimum required leverage ratio of at least 4% of Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised a one-time opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). First Bank Richmond did exercise the opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

 

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In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, an institution’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations based on the risk deemed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to certain equity interests, depending on certain specified factors. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of common equity Tier 1 capital to risk-weighted assets more than 2.5% above the amount necessary to meet its minimum risk-based capital requirements.

 

Legislation enacted in May 2018 requires the federal banking agencies, including the Federal Deposit Insurance Corporation, to establish for institutions with less than $10 billion of assets a “community bank leverage ratio” of between 8 to 10%. Institutions with capital meeting the specified requirement will be considered in compliance with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio is to be established by notice and comment rulemaking by the federal regulators.

 

At December 31, 2018, First Bank Richmond’s capital exceeded all applicable requirements including the applicable capital conservation buffer. See “Historical and Pro Forma Regulatory Capital Compliance.”

 

The Financial Accounting Standards Board has adopted a new accounting standard for US GAAP that will be effective for us beginning in 2020. This standard, referred to as Current Expected Credit Loss, or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses. Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital. The federal banking regulators, including the Federal Reserve and the FDIC, have adopted a rule that gives a banking organization the option to phase in over a three-year period the day-one adverse effects of CECL on its regulatory capital.

 

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

 

Investment Activities. All state-chartered Federal Deposit Insurance Corporation-insured banks, including commercial banks, are generally limited in their investment activities to principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law, subject to certain exceptions.

 

In addition, the Federal Deposit Insurance Corporation is authorized to permit such a state bank to engage in state-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if it meets all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund. The Federal Deposit Insurance Corporation has adopted procedures for institutions seeking approval to engage in such activities or investments. In addition, a nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

 

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Interstate Banking and Branching. Federal law permits well capitalized and well managed bank holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, the Dodd-Frank Act permits banks to establish de novo branches on an interstate basis provided that the branch location is permissible under the law of the host state for banks chartered by that state.

 

Prompt Corrective Action . Under the federal prompt corrective action rules, the Federal Deposit Insurance Corporation is required to take supervisory actions against undercapitalized institutions under its jurisdiction, the severity of which depends upon the institution’s level of capital. An institution that has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based ratio of 8.0% or more, a common equity Tier 1 ratio of 6.5% or more and a leverage ratio of 5.0% or more is considered “well capitalized,” provided that it is not subject to an agreement, order or directive issued by the Federal Deposit Insurance Corporation requiring it to meet and maintain a specific capital level. Institutions that are not well capitalized are subject to certain restrictions on brokered deposits and interest rates on deposits. An institution that meets the minimum capital ratios described under “Capital Requirements” above (but is not well capitalized) is considered to be “adequately capitalized.” An institution that has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than 4.5% or a leverage ratio of less than 4% is considered to be “undercapitalized.” An institution that has total risk-based capital of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a common equity Tier 1 ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be “significantly undercapitalized.” An institution that has a tangible equity ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.”

 

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the Federal Deposit Insurance Corporation to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

 

At December 31, 2018, First Bank Richmond met the criteria to be considered “well capitalized.”

 

Transaction with Affiliates and Regulation W of the Federal Reserve Regulations. Transactions between banks and their affiliates are governed by federal law. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank (although subsidiaries of the bank itself, except financial subsidiaries, are generally not considered affiliates). Generally, Section 23A of the Federal Reserve Act and the Federal Reserve Board’s Regulation W limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and with all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus. Section 23B applies to “covered transactions” as well as to certain other transactions and requires that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from, and issuance of a guarantee to an affiliate, and other similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a bank to an affiliate. In addition, loans or other extensions of credit by the financial institution to the affiliate are required to be collateralized according to the requirements set forth in Section 23A of the Federal Reserve Act.

 

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Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to a bank’s insiders, i.e., executive officers, directors and principal shareholders. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a greater than 10.0% shareholder of a financial institution, and certain affiliated interests of these, together with all other outstanding loans to such person and affiliated interests, may not exceed specified limits. Section 22(h) of the Federal Reserve Act also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons and also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus. Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers.

 

Enforcement. The Federal Deposit Insurance Corporation has extensive enforcement authority over insured state chartered banks that are not members of the Federal Reserve System (referred to as non-member banks), including First Bank Richmond. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The Federal Deposit Insurance Corporation is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” It may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including, among others: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

 

Insurance of Deposit Accounts. First Bank Richmond is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Deposit accounts in First Bank Richmond are insured up to a maximum of $250,000 for each separately insured depositor.

 

The Federal Deposit Insurance Corporation imposes an assessment for deposit insurance on all depository institutions. Under its risk-based assessment system, assessment rates for an insured institution with assets of less than $10 billion are based on the institution’s examination ratings. These assessment rates currently range from 3 to 30 basis points (subject to certain adjustments) applied to the institution’s total assets less tangible capital. The Federal Deposit Insurance Corporation may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking.

 

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation. It has recently exercised that discretion by establishing a long range fund ratio of 2%.

 

On September 30, 2018, the Deposit Insurance Fund reserve ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the September 30, 2020, deadline required under the Dodd-Frank Act. Federal Deposit Insurance Corporation regulations provide for two changes to deposit insurance assessments upon reaching the minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) will cease; and (2) small banks will receive assessment credits for the portion of their assessments that contributed to the growth in the reserve ratio from between 1.15 percent and 1.35 percent, to be applied when the reserve ratio is at or above 1.38 percent.

 

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The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of First Bank Richmond. Future insurance assessment rates cannot be predicted.

 

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of First Bank Richmond’s deposit insurance.

 

Privacy Regulations. Federal Deposit Insurance Corporation regulations generally require that First Bank Richmond disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, First Bank Richmond is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. First Bank Richmond currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

 

Community Reinvestment Act . Under the Community Reinvestment Act, or CRA, as implemented by the Federal Deposit Insurance Corporation, a state non-member bank, such as First Bank Richmond, has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the Federal Deposit Insurance Corporation, in connection with its examination of a state non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to acquire branches and other financial institutions. The CRA requires the Federal Deposit Insurance Corporation to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. First Bank Richmond’s latest Federal Deposit Insurance Corporation CRA rating was “Satisfactory.”

 

Consumer Protection and Fair Lending Regulations. Indiana chartered banks are subject to a variety of federal and Indiana statutes and regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes, including Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts and practices against consumers, authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations. The Dodd-Frank prohibits unfair, deceptive or abusive acts or practices against consumers, which can be enforced by the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation and state Attorneys General.

 

USA Patriot Act. First Bank Richmond is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act includes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies, and imposes affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act.

 

Other Regulations

 

Interest and other charges collected or contracted for by First Bank Richmond are subject to state usury laws and federal laws concerning interest rates. First Bank Richmond’s operations are also subject to state and federal laws applicable to credit and other transactions, such as the:

 

• Truth in Lending Act, which requires lenders to disclose the terms and conditions of consumer credit;

 

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• Real Estate Settlement Procedures Act, which requires lenders to disclose the nature and costs of the real estate settlement process and prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts;

 

• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

 

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

 

• Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and

 

• Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state laws.

 

The deposit operations of First Bank Richmond also are subject to, among others, the:

 

• Truth in Savings Act, which requires financial institutions to disclose the terms and conditions of their deposit accounts;

 

• Expedited Funds Availability Act, which requires banks to make funds deposited in transaction accounts available to their customers within specified time frames;

 

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

 

• Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

 

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

 

• Indiana banking laws and regulations governing deposit powers and other matters.

 

Federal Home Loan Bank System

 

First Bank Richmond is a member of the FHLB of Indianapolis and the FHLB of Cincinnati, two of the 11 regional FHLBs which provide a central credit facility primarily for member institutions. Member institutions are required to acquire and hold shares of capital stock in the FHLB. First Bank Richmond complied with this requirement at December 31, 2018. This stock has no quoted market value and is carried at cost. First Bank Richmond reviews the cost basis of the FHLB stock for ultimate recoverability regularly. At December 31, 2018, no impairment of the value of the stock has been recognized.

 

Acquisitions

 

An acquisition of Richmond Mutual Bancorporation-Maryland or First Bank Richmond, an acquisition of control of either, or an acquisition by either of another bank holding company or depository institution or control of such a company or institution would generally be subject to prior approval by applicable federal and state banking regulators, as would certain acquisitions by Richmond Mutual Bancorporation-Maryland or First Bank Richmond of other types of entities.  "Control" is defined in various ways for this purpose, including but not limited to control of 10% of outstanding voting stock of an entity. See “– Holding Company Regulation” below.

 

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Holding Company Regulation

 

Upon completion of the reorganization, Richmond Mutual Bancorporation-Maryland will be a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended. As such, Richmond Mutual Bancorporation-Maryland will be registered with the Federal Reserve Board and be subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over Richmond Mutual Bancorporation-Maryland and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank.

 

A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

 

The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

 

The Dodd-Frank Act required the Federal Reserve Board to establish for all bank and savings and loan holding companies, minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks apply to bank holding companies with less than $3.0 billion of consolidated assets.

 

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

 

The Federal Reserve Board has issued a policy statement regarding capital distributions, including dividends, by bank holding companies. In general, the policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks (referred to as the source of strength doctrine) by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of Richmond Mutual Bancorporation-Maryland to pay dividends or otherwise engage in capital distributions.

 

Under the Federal Deposit Insurance Act, depository institutions are liable to the Federal Deposit Insurance Corporation for losses suffered or anticipated by the Federal Deposit Insurance Corporation in connection with the default of a commonly controlled depository institution or any assistance provided by the Federal Deposit Insurance Corporation to such an institution in danger of default.

 

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The status of Richmond Mutual Bancorporation-Maryland as a registered bank holding company under the Bank Holding Company Act of 1956 will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

 

Federal Securities Laws

 

Richmond Mutual Bancorporation-Maryland’s common stock will be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Richmond Mutual Bancorporation-Maryland will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

 

Emerging Growth Company Status

 

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.” Richmond Mutual Bancorporation-Maryland qualifies as an emerging growth company under the JOBS Act.

 

An “emerging growth company” may choose not to hold non-binding advisory stockholder votes on annual executive compensation (more frequently referred to as “say-on-pay” votes) or on executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation; however, Richmond Mutual Bancorporation-Maryland will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under Securities and Exchange Commission regulations (generally less than $250 million of voting and non-voting equity held by non-affiliates). Finally, 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. Richmond Mutual Bancorporation-Maryland has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

 

A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.0 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

 

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MANAGEMENT

 

General

 

The boards of directors of First Mutual of Richmond-MHC and Richmond Mutual Bancorporation-Delaware currently consist of the same individuals who serve as directors of First Bank Richmond. See “—Directors of First Bank Richmond” below. In its current structure, First Mutual of Richmond-MHC owns all the issued and outstanding capital stock of Richmond Mutual Bancorporation-Delaware and Richmond Mutual Bancorporation-Delaware owns all the issued and outstanding capital stock of First Bank Richmond. As the holding company of First Bank Richmond, the board of directors of Richmond Mutual Bancorporation-Delaware elects the directors of First Bank Richmond. As the holding company of Richmond Mutual Bancorporation-Delaware, the board of directors of First Mutual of Richmond-MHC elects the directors of Richmond Mutual Bancorporation-Delaware, while the members of First Mutual of Richmond-MHC elect the directors of First Mutual of Richmond-MHC.

 

Following the reorganization and offering, Richmond Mutual Bancorporation-Maryland will own all the issued and outstanding capital stock of First Bank Richmond. As the holding company of First Bank Richmond, the board of directors of Richmond Mutual Bancorporation-Maryland will elect the directors of First Bank Richmond, while the shareholders of Richmond Mutual Bancorporation-Maryland will elect the directors of Richmond Mutual Bancorporation-Maryland.

 

The executive officers of First Bank Richmond are appointed annually by the board of directors and hold office until their respective successors have been appointed or until death, resignation or removal by the board of directors. The following individuals are executive officers of First Bank Richmond and hold the offices set forth below opposite their names.

 

Name   Age (1)   Position
         
Garry D. Kleer   63   President/Chief Executive Officer
Donald A. Benziger   65   Executive Vice President/Chief Financial Officer
Dean W. Weinert (2)   66   President of Mutual Federal (3)
Beth A. Brittenham   63   Sr. Vice President/Human Resources Director

Albert E. Fullerton, Jr. 

  55 Sr. Vice President/Chief Information Officer/Information Security Officer
Cathy J. Hays   62   Sr. Vice President/Chief Audit Executive/Training Director
Alan M. Spears   61   Sr. Vice President/Trust
Pamela S. Stoops   51   Sr. Vice President/Retail Lending Manager
Robin S. Weinert (2)   55   Sr. Vice President/Operations and Retail Banking
Paul J. Witte   47   Sr. Vice President/Commercial Lending Manager

 

 

(1) As of December 31, 2018.
(2) Dean Weinert and Robin Weinert are related by marriage.
(3) Mutual Federal, which operates in Ohio, is a division of First Bank Richmond.

 

Garry Kleer and Donald Benziger also serve as executive officers of First Mutual of Richmond-MHC and Richmond Mutual Bancorporation-Delaware, which entities will cease to exist following the reorganization and offering. We expect that Richmond Mutual Bancorporation-Maryland and First Bank Richmond will continue to have common executive officers until there is a business reason to establish separate management structures.

 

Richmond Mutual Bancorporation-Maryland will reimburse First Bank Richmond for services rendered by executive officers of First Bank Richmond on its behalf. It is not anticipated that separate compensation will be paid to the executive officers of Richmond Mutual Bancorporation-Maryland until such time as these persons devote significant time to the separate management of Richmond Mutual Bancorporation-Maryland’s affairs, which is not expected to occur until Richmond Mutual Bancorporation-Maryland becomes actively engaged in additional businesses other than holding the stock of First Bank Richmond. Richmond Mutual Bancorporation-Maryland may determine that such compensation is appropriate in the future.

 

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Information concerning the background and business experience of each of the directors and executive officers of Richmond Mutual Bancorporation-Maryland and First Bank Richmond is set forth under “—Directors of First Bank Richmond” and “— Executive Officers Who Are Not Directors.”

 

Directors of First Bank Richmond

 

The board of directors of First Bank Richmond consists of eight directors divided into three classes, with approximately one-third of the directors elected at each annual meeting of shareholders. The composition of the boards of directors of Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC is identical to that of First Bank Richmond.

 

The following table sets forth certain information regarding the board of directors of First Bank Richmond.

 

Name   Age (1)   Position  

Director

Since

 

Term of

Office

Expires (2)

                 
Garry D. Kleer   63   Chairman of the Board, President and Chief Executive Officer   2002   2020
E. Michael Blum   63   Director   1993   2019
Thomas L. Holthouse (2)   83   Director   1971   2019
Jeffrey A. Jackson   63   Director   2018   2021
Lindley S. Mann   73   Director   1998   2021
W. Ray Stevens, III   68   Director   1994   2020
Kathryn Cruz-Uribe   62   Director   2016   2020
M. Lynn Wetzel   69   Director   2016   2021

 

 

(1) As of December 31, 2018.
(2) Mr. Holthouse will retire from the boards of directors of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC in April 2019. As a result, the term of office of the remaining directors will be adjusted so that approximately one-third of the directors will be elected at each annual meeting of shareholders.

 

The composition of the board of directors of Richmond Mutual Bancorporation-Maryland is identical to that of First Bank Richmond, except for Mr. Holthouse. As stated above, Mr. Holthouse will retire as a director of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC in April 2019 and, therefore, has not been appointed to serve as a director of Richmond Mutual Bancorporation-Maryland. We greatly appreciate Mr. Holthouse’s 48 years of dedication and service to our organization.

 

The board of directors of Richmond Mutual Bancorporation-Maryland consists of seven directors and is divided into three classes, each of which contains approximately one-third of the members of the board. The directors of Richmond Mutual Bancorporation-Maryland will be elected by the stockholders of Richmond Mutual Bancorporation-Maryland generally for three-year terms, or until their successors are elected and qualified. One class of directors, consisting of W. Ray Stevens, III, Kathryn Cruz-Uribe and Lindley S. Mann has a term of office expiring in 2020. A second class of directors, consisting of M. Lynn Wetzel and Jeffrey A. Jackson, has a term of office expiring in 2021. The third class of directors, consisting of E. Michael Blum and Garry D. Kleer, has a term of office expiring in 2022.

 

Richmond Mutual Bancorporation-Maryland’s bylaws provide that no person 76 years of age or older shall be eligible for election, re-election, appointment or re-appointment to the Board of Directors. No director who has attained the age of 76 shall continue to serve as a director beyond the annual meeting of stockholders at which his or her term as a director expires.

 

The background and business experience for at least the past five years of each director of Richmond Mutual Bancorporation-Maryland is set forth below. The biographies also contain information regarding the person’s experience, qualifications, attributes or skills that caused the board of directors to determine that the person should serve as a director. Unless otherwise indicated, directors have held their positions for the past five years.

 

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Garry D. Kleer. Mr. Kleer joined First Bank Richmond in May 1994 and currently serves as Chairman of the Board, President and Chief Executive Officer of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC (collectively, the “First Bank Richmond Entities”).  Mr. Kleer also serves as a member of the Mutual Federal advisory board of directors. He has served as President and Chief Executive Officer of First Bank Richmond since 2001 and Richmond Mutual Bancorporation and First Mutual of Richmond since 2006.  He was appointed Chairman of the Board in January 2019.  Mr. Kleer began his banking career in 1978 at American Fletcher National Bank in the Career Associates Program and was promoted to Vice President and Branch Manager in 1983. In 1986, American Fletcher National Bank, the second largest banking company in Indiana at the time, was acquired by Bank One where Mr. Kleer served as a Vice President until he joined First Bank Richmond as Vice President of Commercial Lending.  His community involvement includes serving on the Boards of the Richmond Symphony Orchestra, Wayne County Revolving Loan Fund, Reid Health Foundation, Boys & Girls Club of Wayne County, Indiana Bankers Association and Wayne County Foundation.  Mr. Kleer has also served as Past President of the Boys and Girls Clubs of Wayne County.  He has been recognized with the Indiana University East Chancellor’s Medallion, Junior Achievement Business Hall of Fame, Richmond/Wayne County Distinguished Community Leader, and Boys and Girls Club Man and Youth Award.  Mr. Kleer earned a Bachelor of Science degree in Finance from Indiana University in 1978.  He attended the ABA Graduate School of Commercial Lending and graduated with honors from the Stonier Graduate School of Banking.  With 40 years of experience working in the banking industry, his service on the Boards of numerous community organizations and his extensive involvement in our community, Mr. Kleer brings outstanding leadership skills and a deep understanding of the local banking market and issues facing the banking industry.

 

E. Michael Blum. Mr. Blum has served as a board member of First Bank Richmond since 1993 and Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC since their formation in 1998. Mr. Blum, since 1987, is the President and Owner of Bullerdick, a furniture and mattress store located in Richmond Indiana, which has been in business since 1930. He is a member of the Richmond Redevelopment Commission and was a past president and director of Main Street Center City Development, a former community-based nonprofit organization dedicated to the revitalization of the historic downtown area of Richmond, Indiana. Mr. Blum’s years of work with and running Bullerdick has provided him with strong leadership, management, financial and administrative skills, which together with his 25 years of service as a bank director, brings valuable knowledge and skills to our organization. In addition, his participation in our local business community for over 30 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

Jeffrey A. Jackson. Mr. Jackson joined the board of directors of the First Bank Richmond Entities in November 2018. Mr. Jackson currently is a director at Brady Ware & Company, a regional accounting firm with more than 150 professional team members, serving clients throughout the Midwest and in Georgia in a variety of industries. He joined Brady Ware & Company in 1980 and became a director in the firm in 1989 and served on its executive committee until December 2018. Mr. Jackson serves a wide variety of industries including manufacturers, contractors, retailers, agricultural businesses and professionals, with a focus on tax and financial planning issues of business owners and their closely-held businesses. Mr. Jackson has served nearly ten years as a member of the Board of Directors of the Economic Development Corporation of Wayne County and also currently serves on the Business Advisory Council for IU East School of Business and Economics. He is also a member of the board of the Richmond Symphony Orchestra. Mr. Jackson’s past board service includes the Reid Health Foundation and the Forest Hills Country Club, where he also served as president. Mr. Jackson joined the United States Army upon graduation from high school and, following his military service, graduated Magna Cum Laude with a degree in accounting from Ball State University. Mr. Jackson, who will serve as our audit committee financial expert following the reorganization, is a Certified Public Accountant, a Certified Financial Planner and has received his Personal Financial Specialist credentials from the American Institute of Certified Public Accountants. Mr. Jackson was inducted into the eastern Indiana Junior Achievement Business Hall of Fame in 2017. Mr. Jackson’s qualifications to serve as a board member include his extensive and varied accounting experience, as well as his knowledge of and involvement in the communities we serve.

 

Lindley S. Mann. Mr. Mann has served as a board member of the First Bank Richmond Entities since 1998. Mr. Mann is president, since 1976, of EG Hill Co., a wholesale florist located in Richmond, Indiana. He also served as president of Hill Floral Products, a floral distributor, from 1992 until it was sold in 2002. Mr. Mann currently serves as a trustee on the board of the Boys and Girls Clubs of Wayne County and in the past was actively involved in the Wayne County Area Chamber of Commerce and the Richmond Art Museum. Mr. Mann received a degree in Business Administration from the University of Mississippi. Mr. Mann’s business and management experience in the retail space, as both an owner and operator, and his 21 years serving as a bank director give him a broad range of experience and knowledge which he draws upon for service on our board and his assigned committees. In addition, his participation in our local business community for over 40 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

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W. Ray Stevens, III. Mr. Stevens has served as a board member of First Bank Richmond since 1994 and Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC since their formation in 1998. Mr. Stevens was the President and Owner of Stevens Wire Products, a manufacturer of wire products, from 1986 until his retirement in 2016. He is a past board member of the Wire Fabricators Association, the Richmond YMCA, the Richmond Redevelopment Commission, the Wayne County Chamber of Commerce and the Forest Hills Country Club, and has supported and continues to support various not-for-profit organizations in our community. Mr. Stevens graduated with a Bachelor of Science degree from Indiana University. Mr. Stevens’ business experience as an owner and operator of a manufacturing company, including navigating the numerous business cycles which occurred over his more than 30 years in the industry, and his 25 years serving as a bank director helped him develop valuable skills which he draws upon for service on our board and his assigned committees. In addition, his participation in our local business community for over 30 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

Kathryn Cruz-Uribe. Ms. Cruz-Uribe has served as a board member of the First Bank Richmond Entities since 2016. Ms. Cruz-Uribe currently serves as the Chancellor/CEO of Indiana University East located in Richmond, Indiana, a growing, vibrant educational institution with a significant online presence and over 300 employees. As Chancellor, Ms. Cruz-Uribe exercises broad responsibilities for all aspects of the academic, student, financial, development and administrative operations of the campus in coordination with Indiana University central administration. Her responsibilities also include strategic planning, risk assessment (including Information Technology threats and security), federal and state regulatory compliance and maintenance of accreditation standards. Prior to joining Indiana University East in 2013, Ms. Cruz-Uribe was Provost and Vice President for Academic Affairs at California State University, Monterey Bay, from 2007 to 2013, leading all aspects of the academic operations of the university and serving as its second-in-command. Before that she was at Northern Arizona University from 1989 to 2006, serving four years as Dean of the College of Social and Behavioral Sciences. Ms. Cruz-Uribe serves on the board of the Wayne County Area Chamber of Commerce (past chair of the board), the Richmond Art Museum (second vice president), the Richmond Symphony Orchestra (vice president), the Wayne County Foundation and Reid Health. She earned her BA from Middlebury College, followed by an M.A. and Ph.D. from the University of Chicago. Ms. Cruz-Uribe’s extensive leadership, management and strategic planning experience, as well as her civic and community involvement, provide her with valuable skills beneficial to our board and the committees on which she serves.

 

M. Lynn Wetzel. Mr. Wetzel has served as a board member of the First Bank Richmond Entities since 2016. Mr. Wetzel began working in the automobile industry in 1973, purchasing his first dealership in Pittsburgh, Pennsylvania, a Mercedes-Benz dealership, in 1983. Mr. Wetzel currently owns and operates six dealerships in Richmond, Indiana, which include Honda and Dodge dealerships purchased in 1998, Chrysler and Jeep dealerships purchased in 2004, and Ford and Chevrolet dealerships purchased in 2007. He serves as a trustee on the board of the Boys and Girls Clubs of Wayne County, is a former board member of the Wayne County Area Chamber of Commerce, past president and former board member of the Pittsburgh Auto Dealers Trade Association and former board member of the Pennsylvania Automobile Dealers Association. Mr. Wetzel also actively supports multiple charitable causes in the community including sponsorship, in partnership with First Bank Richmond and the Wayne County Area Chamber of Commerce, of the “School is Cool” program which gives an automobile or scholarship annually to a senior high school student with perfect attendance during the school year. Mr. Wetzel’s business acumen, including his broad range of knowledge in the areas of finance, leasing, negotiations and day to day business operations resulting from his extensive career in the automobile industry makes him a valuable asset to our board and the committees on which he serves.

 

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Director Compensation

 

The directors of First Bank Richmond and Richmond Mutual Bancorporation-Delaware receive compensation for their service on the boards. The following table provides compensation information for each member of the board of directors of First Bank Richmond and Richmond Mutual Bancorporation-Delaware during the year ended December 31, 2018, except for Mr. Kleer, our President and Chief Executive Officer, whose compensation is presented in the Summary Compensation table under the caption “— Executive Compensation” below.

 

Name  

Fees Earned or

Paid in Cash

   

All Other

Compensation

    Total  
                   
Thomas L. Holthouse (1)   $ 67,700       —     $ 67,700  
E. Michael Blum     40,250       —       40,250  
Jeffrey A. Jackson (2)     1,750       —       1,750  
Lindley S. Mann     45,800       —       45,800  
W. Ray Stevens, III     40,950       —       40,950  
Kathryn Cruz-Uribe     39,000       —       39,000  
M. Lynn Wetzel     39,750       —       39,750  

 

 

(1) Served as Chairman during 2018. Retired in April 2019.
(2) Appointed to the Boards in November 2018.

 

In setting their compensation, the board of directors considers the significant amount of time and level of skill required for director service. During 2018, directors of Richmond Mutual Bancorporation-Delaware received an annual retainer of $12,000 for service on the Richmond Mutual Bancorporation-Delaware board, with no additional fees paid for attendance at any board or committee meetings. We anticipate that the directors of Richmond Mutual Bancorporation-Maryland will be compensated similarly to that of the directors of Richmond Mutual Bancorporation-Delaware.

 

During 2018, directors of First Bank Richmond, except for the Chairman of the Board, received an annual retainer of $14,500 for service on the First Bank Richmond board and $750 for each board meeting attended. In addition, each non-employee director of First Bank Richmond received $250 for each committee meeting attended and $300 per meeting for service as Committee Chair. The Chairman of the Board of First Bank Richmond received an annual retainer of $55,700, with no additional fees for attendance at board or committee meetings. In 2019, we combined the positions of Chief Executive Officer and Chairman into one position and eliminated the separate fee paid for serving as Chairman of the Board.

 

Directors of First Mutual of Richmond-MHC are not compensated for service as a director of First Mutual of Richmond-MHC.

 

Directors have the option to enroll in First Bank Richmond’s health insurance coverage on the same terms and conditions that are available generally to all salaried employees and are provided or reimbursed for travel and lodging and other customary out-of-pocket expenses incurred in attending industry conferences and continuing education seminars.

 

Director Independence

 

The rules of the Nasdaq Stock Market, as well as those of the SEC, impose several requirements with respect to the independence of our directors, including the requirement that at least a majority of the board be “independent” as that term is defined under the applicable rules. Our board of directors has undertaken a review of the independence of each director in accordance with these rules. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that E. Michael Blum, Jeffrey A. Jackson, Lindley S. Mann, W. Ray Stevens, III, Kathryn Cruz-Uribe and M. Lynn Wetzel do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the following relationships between us and our directors and executive officers, which are not required to be reported under “- Certain Relationships and Related Transactions — Transactions With Certain Related Persons” below. Mr. Jackson’s daughter is an employee in the leasing division of First Bank Richmond.

 

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Corporate Governance

 

Richmond Mutual Bancorporation-Maryland, incorporated under the laws of the State of Maryland, was organized by First Bank Richmond for the purpose of acquiring all of the outstanding capital stock of First Bank Richmond in connection with the reorganization and offering. Prior to completion of the reorganization, the board of directors of Richmond Mutual Bancorporation-Maryland will establish an Audit Committee, Compensation Committee and Governance/Nominating Committee. Each of the directors that will serve on the Audit, Compensation and Governance/Nominating Committees will be independent as defined in the listing standards of The Nasdaq Stock Market. Jeffrey A. Jackson is expected to serve on the Audit Committee and to be designated as the “audit committee financial expert,” as defined in the rules of the SEC.

 

The board of directors of Richmond Mutual Bancorporation-Maryland will also adopt written charters for the Audit, Compensation and Governance/Nominating Committees, as well as a code of business conduct and ethics. These charters will govern the composition and responsibilities of these committees and also address other matters that are required under applicable Nasdaq listing standards and that the board of directors believes to be good corporate governance practices. The code of business conduct and ethics, which will apply to all employees and directors, will address conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics will be designed to attempt to deter wrongdoing and to promote honest and ethical conduct; the avoidance of conflicts of interest; full and accurate disclosure; compliance with all applicable laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the code. We expect to post these committee charters and code of business conduct and ethics on our website following completion of the reorganization and offering.

 

Executive Officers Who Are Not Directors

 

The following sets forth information regarding our executive officers who are not directors.

 

Donald A. Benziger . Mr. Benziger joined First Bank Richmond in 2012 as Senior Vice President-Chief Financial Officer and has served as Executive Vice President-Chief Financial Officer since 2014. Mr. Benziger has more than 40 years of experience in the financial services industry. This experience has included serving as Chief Financial Officer at several public companies, including SEC registrants. His responsibilities include management and direction of the finance and accounting functions, asset-liability management, budgeting, investment management, and regulatory reporting. Mr. Benziger holds a Bachelor’s Degree from Ohio Northern University and an MBA in Finance from Bowling Green State University. He is also a graduate of the Stonier Graduate School of Banking.

 

Beth A. Brittenham. Ms. Brittenham, employed by First Bank Richmond since 1979, currently serves as Senior Vice President-Human Resources. Ms. Brittenham has served in various positions in the human resources department during her 40 year career at First Bank Richmond and as Senior Vice President-Human Resources since 2011. Her responsibilities include employee relations, payroll, benefits and the administration of all phases of the human resources area. In addition, Ms. Brittenham serves as corporate secretary to the First Bank Richmond Entities.

 

Albert E. Fullerton , Jr. Mr. Fullerton, employed by First Bank Richmond since 2005, currently serves as Senior Vice President-Chief Information Officer/Information Security Officer. Mr. Fullerton has served as Senior Vice President and Chief Information Officer/Information Security Officer since 2013. His responsibilities include managing the bank’s technology resources and coordinating the evaluation, deployment, and management of IT systems across the organization. In addition, Mr. Fullerton is responsible for the development of the cyber security-related policies and processes that reduce the organization’s operational risks. Mr. Fullerton received his graduate degree from the Graduate School of Banking at the University of Wisconsin - Madison. He earned a Certified Information Security Manager (CISM) designation from ISACA and a Certified Banking Security Manager (CBSM) designation from the SBS Cyber Security Institute.

 

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Cathy J. Hays . Ms. Hays, employed by First Bank Richmond since 1999, currently serves as Senior Vice President-Chief Audit Examiner and Training Director and has been employed in the financial services industry for 34 years. Her responsibilities include overseeing the bank’s internal audit program, FDICIA compliance, exam preparation for all regulators and external auditors, and coordinating and overseeing employee training. Ms. Hays received her BA from Indiana University East and, in 2004, received her designation as a BAI Certified Bank Auditor.

 

Alan M. Spears. Mr. Spears, since 2003, has served as Senior Vice President-Senior Trust Officer of First Bank Richmond. Mr. Spears has 29 years of experience in wealth management with a focus on investments and estate planning. He is responsible for investments, trust and estate administration and new business development. Mr. Spears holds a Bachelor’s Degree in Political Science and a Master’s in Public Administration from Indiana University, and a JD from the Indiana University Robert H. McKinney School of Law in Indianapolis.

 

Pamela S. Stoops. Ms. Stoops, since 2004, has served as Senior Vice President-Retail Lending Manager at First Bank Richmond.  Ms. Stoops has more than 33 years of experience in the financial services industry, primarily in residential lending. Her responsibilities include overseeing all aspects of our retail lending operations, including our secondary market operations. Ms. Stoops received her Associate’s Degree in Business from Indiana Wesleyan University and holds a life, accident and health insurance license.

 

Dean W. Weinert. Mr. Weinert served as the President and Chief Executive Officer of Mutual Federal Savings Bank, which operated independently from First Bank Richmond as a wholly owned bank subsidiary of Richmond Mutual Bancorporation-Delaware, from 2010 through 2016, and as Division President since 2016 when Mutual Federal Savings Bank was combined with First Bank Richmond through an internal merger transaction. Mr. Weinert also serves as a member of the Mutual Federal advisory board of directors. Prior to joining Mutual Federal and First Bank Richmond, Mr. Weinert served as a senior officer in the large corporate special assets division of PNC National Bank in Indianapolis (2008-2010), a senior commercial lending officer at Park National Bank in Columbus, Ohio (2006-2008), and as President of Eaton National Bank, Eaton, Ohio (2002-2006). In addition, over his 45 year career in banking, Mr. Weinert has held numerous commercial banking positions, including serving as a senior credit analyst, corporate lending officer, commercial lending division manager, special assets group manager, corporate banking manager and chief commercial credit officer, predominately with the Indiana National Bank in Indiana and its several successor entities through subsequent mergers. Mr. Weinert holds a BA in Economics from Wabash College and an MBA from Butler University.

 

Robin S. Weinert . Mrs. Weinert, employed by First Bank Richmond since 2006, currently serves as Senior Vice President-Operations/Retail Banking. Mrs. Weinert has served as Senior Vice President-Operations/Retail Banking of First Bank Richmond since 2015. Her responsibilities include overseeing our retail branches and marketing. She also is responsible for the overall planning and effectiveness of the retail branch initiatives related to the delivery of exceptional customer service and diversification strategies. Mrs. Weinert has over 30 years of experience in the financial services industry with an emphasis on retail, operations and sales. Mrs. Weinert is a graduate of the Graduate School of Banking at the University of Wisconsin-Madison. She has also completed Indiana University East’s Center for Leadership Development program and the Indiana Bankers Association’s Compliance School Operations and Deposit programs.

 

Paul J. Witte. Mr. Witte, employed by First Bank Richmond since 1996, currently serves as Senior Vice President of Commercial Lending and Commercial Leasing. Mr. Witte has served as Senior Vice President of Commercial Lending since 2014 and Commercial Leasing since 2006. Mr. Witte manages First Bank Richmond’s Commercial Lending Department and is co-chair of the Officer’s Loan Committee and member of the Executive Loan Committee. He also provides direction and oversight to the Leasing Department, as needed, and generally is responsible for the review of larger leasing credit applications. Mr. Witte is a graduate of Ball State University with a B.S. in Accounting, Corporate Finance and Institutional Finance. He is a Certified Public Accountant (currently inactive). He is a graduate of the Graduate School of Banking at the University of Wisconsin-Madison and has attended the Financial Managers School sponsored by the Graduate School of Banking at the University of Wisconsin-Madison.

 

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Executive Officer Compensation

 

Summary Compensation Table. The table below summarizes for the year ended December 31, 2018 the total compensation paid to or earned by our President and Chief Executive Officer, Garry Kleer, and our two other most highly compensated executive officers. Each individual listed in the table below is referred to as a “named executive officer.”

 

Summary Compensation Table
Name and principal position   Year    

Salary

($)

   

Bonus (1)

($)

   

All Other

Compensation (2)

($)

   

Total

($)

 
Garry D. Kleer
President and Chief Executive Officer 		    2018     $ 394,615     $ 31,900     $ 47,893     $ 474,408  
Donald A. Benziger
Executive Vice President/CFO 		    2018     $ 207,692     $ 6,900       —     $ 214,592  
Dean W. Weinert, President of Mutual Federal, a division of First Bank Richmond     2018     $ 195,154     $ 1,900     $ 10,912     $ 207,966  

 

 

(1) Amounts in this column represent a discretionary bonus.
(2) The amounts in this column reflect what First Bank Richmond paid for, or reimbursed, the applicable named executive officer for the various benefits and perquisites received. Includes: (i) $35,500 for Mr. Kleer’s service as a director on the boards of directors of First Bank Richmond and Richmond Mutual Bancorporation-Delaware, $5,000 for his service as an advisory director on the Mutual Federal advisory board and $7,393 in 401(k) plan matching contributions; and (ii) $5,000 for Mr. Weinert’s service as an advisory director on the Mutual Federal advisory board and $5,912 in 401(k) plan matching contributions.

 

Existing and Future Benefit Plans and Agreements

 

Medical Benefits. First Bank Richmond provides various health benefits to its employees, including medical, dental and vision insurance plans, and accidental death and dismemberment, life and long-term disability insurance.

 

401(k) Plan. First Bank Richmond maintains a 401(k) Savings Plan, a tax-qualified defined contribution plan for eligible employees (the “401(k) Plan”). The named executive officers are eligible to participate in the 401(k) Plan just like other eligible employees of First Bank Richmond. An eligible employee must complete 90 days of service and attain the age of 21 to be eligible to participate in the 401(k) Plan by making elective deferrals (including Roth elective deferrals) and are eligible for matching contributions from First Bank Richmond after one year of service.

 

Under the 401(k) Plan a participant may elect to defer, on a pre-tax basis, up to 50% of his or her total taxable compensation, subject to the maximum amount as permitted by the Internal Revenue Code. For 2019, the salary deferral contribution limit is $19,000, provided, however, that a participant over age 50 may contribute an additional $6,000 to the 401(k) Plan for a total of $25,000. In addition to salary deferral contributions, First Bank Richmond may make matching contributions to the 401(k) Plan. Currently, First Bank Richmond makes a matching contribution to the 401(k) Plan equal to 50% of a participant’s salary deferrals, up to the first six percent of the participant’s total taxable compensation.

 

A participant is always 100% vested in his or her salary deferral contributions. Participants are 100% vested in any matching contributions after the completion of three years of employment. Participants also become fully vested upon their death, disability or the attainment of their retirement age. Participants have the ability to direct the investment of their account balances among a number of investment alternatives. Participants in the 401(k) Plan will not be permitted to use their account balances under the plan to subscribe for stock in the offering. Generally, unless the participant elects otherwise, the participant’s account balance will be distributed as a result of the participant’s termination of employment. Participants are also permitted to receive distributions from the 401(k) Plan during employment under certain circumstances, including for hardship withdrawals and participant loans. Expense recognized in connection with the 401(k) Plan totaled approximately $191,000 for the fiscal year ended December 31, 2018.

 

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Defined Benefit Plan. First Bank Richmond participates in the Pentegra DB Plan which covers substantially all employees. The Pentegra DB Plan operates as a multiemployer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers. First Bank Richmond’s contribution to the Pentegra DB Plan totaled $1.6 million for the year ended December 31, 2018. Given the current interest rate environment, the lower asset valuations, and other factors impacting the operations of the Pentegra DB Plan, it is likely that the future funding obligations could increase. As a result, we intend to terminate our participation in the plan in 2019, which will require us to pay an amount based on the underfunded status of the plan, referred to as a withdrawal liability, which we estimate will be approximately $13.3 million ($9.8 million after taxes).

 

Nonqualified Deferred Compensation Plan. In January 2019, Richmond Mutual Bancorporation-Delaware and First Bank Richmond (the “Employers”) entered into a Nonqualified Deferred Compensation Plan (the “SERP”) with Garry Kleer, their President and Chief Executive Officer, in order to provide Mr. Kleer with supplemental retirement benefits. The SERP provides for the following: (i) a normal retirement benefit of $200,000 per year for a period of 15 years, payable in annual installments, if Mr. Kleer has a separation from service on or after age 68 other than for cause or death, (ii) an early termination benefit equal to the normal retirement benefit if he has a separation from service prior to age 68 other than for cause or death, with such benefit to commence after he reaches age 68, (iii) a lump sum death benefit equal to the amount of the SERP benefit accrued at the time of death under generally accepted accounting principles if Mr. Kleer dies while still employed and prior to a change in control or disability, (iv) a lump sum death benefit equal to the present value of any remaining installments if Mr. Kleer dies after an event triggering installment payments but prior to receiving all installment payments owed, (v) a lump sum disability benefit equal to the amount of the SERP benefit accrued at the time of disability under generally accepted accounting principles if Mr. Kleer becomes disabled while still employed, and (vi) a lump sum change in control benefit equal to the present value of his normal retirement benefit if a change in control (as defined in the SERP) occurs while Mr. Kleer is still employed and prior to any disability. In the event Mr. Kleer’s employment is terminated for cause (as defined in the SERP), he will forfeit any and all benefits to which he would otherwise be entitled to receive under the SERP. The SERP constitutes an unfunded, unsecured promise by the Employers to make payments to Mr. Kleer or his beneficiary in the future.

 

Proposed Employee Stock Ownership Plan. We intend to adopt a tax-qualified employee stock ownership plan for employees of Richmond Mutual Bancorporation-Maryland and First Bank Richmond to become effective upon completion of the reorganization. Employees of Richmond Mutual Bancorporation-Maryland and First Bank Richmond who have been credited with at least 1,000 hours of service during a twelve month period are eligible to participate in the employee stock ownership plan.

 

As part of the reorganization and offering, it is anticipated that the employee stock ownership plan will borrow funds from Richmond Mutual Bancorporation-Maryland. The employee stock ownership plan will use these funds to purchase a number of shares of common stock up to 8.0% of the shares of common stock to be outstanding after this offering. It is anticipated that this loan will equal 100% of the aggregate purchase price of the common stock acquired by the employee stock ownership plan. The loan to the employee stock ownership plan will be repaid primarily from First Bank Richmond’s contributions to the employee stock ownership plan over a period of 20 years, and from dividends on common stock held by the employee stock ownership plan. Collateral for the loan will be the common stock purchased by the employee stock ownership plan. The interest rate for the loan is expected to be set at the applicable long-term federal rate as published by the IRS in effect at the time the loan is funded. First Bank Richmond may, in any plan year, make additional discretionary contributions for the benefit of plan participants. These contributions may be made either in cash or in shares of common stock, which may be acquired through the purchase of outstanding shares in the market or from individual stockholders, or upon the original issuance of additional shares by Richmond Mutual Bancorporation-Maryland. The timing, amount and manner of future contributions to the employee stock ownership plan will be affected by various factors, including the terms of the employee stock ownership loan, prevailing regulatory policies, the requirements of applicable laws and regulations and market conditions.

 

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Shares purchased by the employee stock ownership plan with the proceeds of the loan will be held in a suspense account and released to participants’ accounts as debt service payments are made. Shares released from the employee stock ownership plan suspense account will be allocated to each eligible participant’s employee stock ownership plan account based on the ratio of each such participant’s eligible compensation to the total eligible compensation of all eligible employee stock ownership plan participants. An employee is eligible for an employee stock ownership allocation if he is credited with 1,000 or more hours of service during the plan year, and is actually employed on the last day of the plan year. Forfeitures will be reallocated among remaining participating employees in the same manner as an employee contribution. The account balances of participants within the employee stock ownership plan will become 100% vested upon completion of three years of service. Credit for eligibility and vesting is given for years of service with First Bank Richmond prior to adoption of the employee stock ownership plan. In the case of a “change in control,” as defined in the employee stock ownership plan, which triggers a termination of the employee stock ownership plan, participants immediately will become fully vested in their account balances. Benefits are payable upon retirement or other separation from service, or upon termination of the plan. First Bank Richmond contributions to the employee stock ownership plan are not fixed and the value of the common stock cannot be determined in advance, so benefits payable under the employee stock ownership plan cannot be estimated.

 

First Bankers Trust, Quincy, Illinois, is expected to serve as trustee of the employee stock ownership plan. Under the employee stock ownership plan, the trustee must vote all allocated shares held in the employee stock ownership plan in accordance with the instructions of the participating employees, and unallocated shares will be voted in the same ratio on any matter as those allocated shares for which instructions are given.

 

Generally accepted accounting principles require that any third party borrowing by the employee stock ownership plan be reflected as a liability on Richmond Mutual Bancorporation-Maryland’s statement of financial condition. Since the employee stock ownership plan is borrowing from Richmond Mutual Bancorporation-Maryland, such obligation is not treated as a liability, but will be excluded from stockholders’ equity. If the employee stock ownership plan purchases newly issued shares from Richmond Mutual Bancorporation-Maryland, total stockholders’ equity would neither increase nor decrease, but per share stockholders’ equity and per share net earnings would decrease as the newly issued shares are allocated to the employee stock ownership plan participants.

 

The employee stock ownership plan will be subject to the requirements of the Internal Revenue Code of 1986, Employment Retirement Income Security Act (“ERISA”), and the regulations of the IRS and the Department of Labor thereunder.

 

Proposed Stock-Based Incentive Plan . Following the offering, we intend to adopt a stock-based incentive plan that will be designed to attract and retain qualified personnel in key positions, provide directors, officers and key employees with a proprietary interest in Richmond Mutual Bancorporation-Maryland as an incentive to contribute to our success and reward key employees for outstanding performance. If the stock-based incentive plan is adopted within one year following the reorganization, the number of options granted and shares of restricted common stock awarded under stock-based benefit plans may not exceed 10.0% and 4.0%, respectively, of our total outstanding shares (including shares issued to our charitable foundation), provided that, if First Bank Richmond’s tangible capital at the time of adoption of the stock-based benefit plan is less than 10% of its assets, then the amount of shares of restricted common stock may not exceed 3.0% of our outstanding shares. Under applicable regulations, the exercise price of options granted within one year of the completion of the offering must be equal to the then fair market value of the common stock on the date the options are granted.

 

The stock-based incentive plan will not be established sooner than six months after the stock offering and if adopted within one year after the stock offering would require the approval by stockholders owning a majority of the outstanding shares of Richmond Mutual Bancorporation-Maryland common stock. If the stock-based incentive plan is established after one year after the stock offering, it would require the approval of our stockholders by a majority of votes actually cast. The following additional restrictions would apply to our stock-based incentive plan if the plan is adopted within one year after the offering:

 

· non-employee directors in the aggregate may not receive more than 30% of the options and shares of restricted common stock authorized under the plans;

 

· no non-employee director may receive more than 5% of the options and shares of restricted common stock authorized under the plans;

 

· no individual may receive more than 25% of the options and shares of restricted common stock authorized under the plans;

 

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· options and shares of restricted common stock may not vest more rapidly than 20% per year, beginning on the first anniversary of stockholder approval of the plans; and

 

· accelerated vesting is not permitted except for death, disability or upon a change in control of First Bank Richmond or Richmond Mutual Bancorporation-Maryland.

 

· our executive officers or directors must exercise or forfeit their options in the event that First Bank Richmond becomes critically undercapitalized under applicable regulatory capital requirements, is subject to enforcement action by the Federal Reserve or receives a capital directive under 12 C.F.R. § 263.83.

 

These restrictions do not apply to plans adopted after one year following the consummation of the offering.

 

We have not determined whether we will present a stock-based benefit plan for stockholder approval prior to or more than 12 months after the consummation of the stock offering. In the event federal regulators change their regulations or policies regarding stock-based benefit plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.

 

We may obtain the shares needed for our stock-based benefit plans by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.

 

Certain Relationships and Related Transactions

 

We may occasionally enter into transactions with certain “related persons.” Related persons include our executive officers, directors, 5% or more beneficial owners of our common stock, immediate family members of these persons and entities in which one of these persons has a direct or indirect material interest. We generally refer to transactions with these related persons as “related party transactions.”

 

Related Party Transaction Policy. Our board of directors will adopt a written policy governing the review and approval of transactions with related parties that will or may be expected to exceed $120,000 in any fiscal year. The policy will call for the related party transactions to be reviewed and, if deemed appropriate, approved or ratified by our audit committee. Upon determination by our audit committee that a transaction requires review under the policy, the material facts are required to be presented to the audit committee. In determining whether or not to approve a related party transaction, our audit committee will take into account, among other relevant factors, whether the related party transaction is in our best interests, whether it involves a conflict of interest and the commercial reasonableness of the transaction. In the event that we become aware of a related party transaction that was not approved under the policy before it was entered into, our audit committee will review such transaction as promptly as reasonably practical and will take such course of action as may be deemed appropriate under the circumstances. In the event a member of our audit committee is not disinterested with respect to the related party transaction under review, that member may not participate in the review, approval or ratification of that related party transaction.

 

Certain decisions and transactions are not subject to the related party transaction approval policy, including: (i) decisions on compensation or benefits relating to directors or executive officers and (ii) indebtedness to us in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to us and not presenting more than the normal risk of collectability or other unfavorable features.

 

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Transactions With Certain Related Persons. Federal law generally prohibits publicly traded companies from making loans to their executive officers and directors, but it contains a specific exemption from the prohibition for loans made by federally insured financial institutions, such as First Bank Richmond, to their executive officers and directors in compliance with federal banking regulations. At December 31, 2018, all of our loans to directors and executive officers were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to First Bank Richmond, and did not involve more than the normal risk of collectability or present other unfavorable features. These loans were performing according to their original repayment terms at December 31, 2018, and were made in compliance with federal banking regulations.

 

Robin Weinert serves as Senior Vice President/Operations & Retail Banking of First Bank Richmond. Mrs. Weinert is the spouse of Dean Weinert, who serves as President of Mutual Federal, a division of First Bank Richmond. As a result of her employment with First Bank Richmond, Mrs. Weinert received annual compensation of $135,192 in 2018, $128,332 in 2017 and $122,922 in 2016.

 

Except as stated above, we have not entered into any transactions since January 1, 2016 in which the amount involved exceeded $120,000 and in which any related persons had or will have a direct or indirect material interest.

 

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SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth information regarding intended common stock subscriptions by each of our directors and executive officers and their associates, and by all directors, officers and their associates as a group. However, there can be no assurance that any such person or group will purchase any specific number of shares of our common stock. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. Directors and officers will purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering. This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any stock awards or stock option grants that may be made no earlier than six months after the completion of the offering. Purchases by directors, officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering. The shares being acquired by the directors, executive officers and their associates are being acquired for investment purposes, and not with a view towards resale. Our directors and executive officers will be subject to the same minimum purchase requirements and purchase limitations as other participants in the offering set forth under “The Reorganization and Offering – Additional Limitations on Common Stock Purchases.”

 

Name and Title  

Number of
Shares (1)

   

Aggregate
Purchase
Price (1)

    Percent of
Outstanding
Shares at
Minimum of
Offering
Range 		 
                   
Garry D. Kleer, Chairman of the Board, President and CEO     25,000     $ 250,000       *  
E. Michael Blum, Director     15,000       150,000       *  
Thomas L. Holthouse, Director     10,000       100,000       *  
Jeffrey A. Jackson, Director     7,500       75,000       *  
Lindley S. Mann, Director     40,000       400,000       *  
W. Ray Stevens, III, Director     12,500       125,000       *  
Kathryn Cruz-Uribe, Director     25,000       250,000       *  
M. Lynn Wetzel, Director     30,000       300,000       *  
Donald A. Benziger, Executive Vice President/CFO     10,000       100,000       *  
Dean W. Weinert, President of Mutual Federal, a division of First Bank Richmond (2)     17,500       175,000       *  
Beth A. Brittenham, Sr. Vice President/Human Resources Director     1,000       10,000       *  
Albert E. Fullerton, Jr., Sr. Vice President/Chief Information Officer/Information Security Officer     1,000       10,000       *  
Cathy J. Hays, Sr. Vice President/Chief Audit Executive/Training Director     500       5,000       *  
Alan M. Spears, Sr. Vice President/Trust     100       1,000       *  
Pamela S. Stoops, Sr. Vice President/Retail Lending Manager     7,500       75,000       *  
Robin S. Weinert, Sr. Vice President/Operations and Retail Banking (2)     17,500       175,000       *  
Paul J. Witte, Sr. Vice President/Commercial Lending Manager     5,000       50,000       *  
All directors and executive officers as a group (17 persons)     225,100     $ 2,251,000       2.5 %

 

 

* Less than 1.0%.
(1) Includes purchases by the named individual’s spouse and other relatives of the named individual living in the same household. Other than as set forth above, the named individuals are not aware of any other purchases by a person who or entity that would be considered an associate of the named individuals under the plan of reorganization.
(2) Dean Weinert and Robin Weinert are related by marriage.

 

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THE REORGANIZATION AND OFFERING

 

The boards of directors of First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware and First Bank Richmond have approved the plan of reorganization and stock offering. The plan of reorganization and stock offering must also be approved by the members of First Mutual of Richmond-MHC (depositors and certain borrowers of First Bank Richmond). A special meeting of members of First Mutual of Richmond-MHC has been called for this purpose. The Federal Reserve Board has conditionally approved the plan of reorganization and stock offering; however, this approval does not constitute a recommendation or endorsement of the reorganization and stock offering by that agency.

 

General

 

Pursuant to the plan of reorganization and stock offering, our organization will convert from the mutual holding company form of organization to the full stock form. First Mutual of Richmond-MHC, the mutual holding company parent of Richmond Mutual Bancorporation-Delaware, will be merged into Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC will no longer exist. Richmond Mutual Bancorporation-Delaware, which owns 100% of First Bank Richmond, will be merged into Richmond Mutual Bancorporation-Maryland, a new Maryland corporation. As part of the reorganization, the 100% ownership interest of First Mutual of Richmond-MHC in Richmond Mutual Bancorporation-Delaware will be offered for sale in the offering by Richmond Mutual Bancorporation-Maryland. When the reorganization and stock offering are completed, all of the outstanding common stock of First Bank Richmond will be owned by Richmond Mutual Bancorporation-Maryland, and all of the outstanding common stock of Richmond Mutual Bancorporation-Maryland will be owned by public shareholders and our charitable foundation.

 

Richmond Mutual Bancorporation-Maryland intends to retain between $27.3 million and $39.6 million of the net proceeds, or $46.7 million if the offering range is increased by 15%, and to contribute the balance of the net proceeds to First Bank Richmond. The reorganization will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of reorganization and stock offering.

 

The plan of reorganization and stock offering provides that we will offer shares of common stock in a “subscription offering” in the following descending order of priority:

 

(1) First, to depositors with accounts at First Bank Richmond with aggregate balances of at least $50.00 at the close of business on December 31, 2017.

 

(2) Second, to our tax-qualified employee benefit plans (including First Bank Richmond’s employee stock ownership plan, but excluding our 401(k) plan) which may subscribe for, in the aggregate, up to 10% of the shares of common stock sold in the offering and contributed to the charitable foundation. We expect our employee stock ownership plan to purchase 8% of the shares of common stock sold in the offering and contributed to the charitable foundation.

 

(3) Third, to depositors with accounts at First Bank Richmond with aggregate balances of at least $50.00 at the close of business on [SERD].

 

(4) Fourth, to depositors of First Bank Richmond at the close of business on [VRD] and borrowers of First Bank Richmond as of October 16,1997 whose borrowings remained outstanding at the close of business on [VRD] to the extent not already included in a prior category.

 

Shares of common stock not purchased in the subscription offering will be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in Wayne, Fayette, Henry, Randolph, Shelby and Union counties, Indiana and Darke, Franklin, Miami, Preble and Shelby counties, Ohio. The community offering may commence concurrently with, during or promptly after the subscription offering. The community offering must be completed within 45 days of the end of the subscription offering, unless extended with Federal Reserve Board approval.

 

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In addition, any shares of our common stock not purchased in the subscription offering or community offering are expected to be offered for sale to the general public in a syndicated community offering through a syndicate of selected dealers. We may begin the syndicated community offering at any time following the commencement of the subscription offering. The syndicated community offering will be managed by KBW acting as our agent. In such capacity, KBW may form a syndicate of other broker-dealers. Neither KBW nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, KBW has agreed to use its best efforts in the sale of shares in any syndicated community offering. See “- Syndicated Community Offering.”

 

We have the right to accept or reject, in our sole discretion, any orders received in the community offering or the syndicated community offering.

 

We determined the number of shares of common stock to be offered in the offering based upon an independent valuation of the estimated pro forma market value of Richmond Mutual Bancorporation-Maryland. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock in the offering. The independent valuation will be updated and the final number of shares of common stock to be issued in the offering will be determined at the completion of the offering. See “- Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.

 

We have mailed to each member of First Mutual of Richmond-MHC eligible to vote at the special meeting a proxy statement containing information concerning the business purposes of the reorganization and the effects of the reorganization on voting rights, liquidation rights, existing savings accounts, deposit insurance, loans and First Bank Richmond’s business. The proxy statement also describes the manner in which the plan may be amended or terminated. Included with the proxy statement is a proxy card that can be used to vote on the plan of reorganization and stock offering.

 

The following is a brief summary of the reorganization and is qualified in its entirety by reference to the provisions of the plan of reorganization and stock offering. A copy of the plan of reorganization and stock offering is available for inspection at each banking office of First Bank Richmond. The plan of reorganization and stock offering is also filed as an exhibit to First Mutual of Richmond-MHC’s application filed with the Federal Reserve Board, of which this prospectus is a part, copies of which may be obtained from the Federal Reserve Board. The plan of reorganization and stock offering is also an exhibit to our registration statement on Form S-1, which is accessible on the Securities and Exchange Commission website, www.sec.gov. See “Where You Can Find Additional Information.”

 

Reasons for the Reorganization and Offering

 

Our board of directors decided at this time to convert to a public stock form of ownership and conduct the offering in order to increase our capital position. Completing the offering is necessary for us to continue to grow and execute our business strategy.

 

Our primary reasons for converting and raising additional capital through the offering are to:

 

• Enhance our capital base to support continued growth on a prudent basis. We intend to continue to grow our franchise, both organically and through strategic transactions as opportunities arise, on a prudent basis. While we currently exceed all regulatory capital requirements, the offering proceeds will strengthen our capital position and support our planned growth;

 

• Offer our customers, employees and directors an equity ownership interest in First Bank Richmond. We believe that offering stock to our depositors will provide them with an economic interest in our future success should they decide to invest. The offering will also further enable us to attract and retain directors, management and employees through various stock-based benefit plans, including an employee stock ownership plan and one or more equity incentive plans;

 

• Support our local communities through establishing and funding a charitable foundation. The contribution to the charitable foundation will complement our existing charitable activities, and should enable the communities that we serve to share in our long-term growth; and

 

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• Facilitate future mergers and acquisitions, if available, on a prudent basis. Although we do not currently have any understandings or agreements regarding any specific transactions, the additional capital raised in the offering may be used to finance mergers with, and acquisitions of, other financial institutions, asset portfolios and branch offices when and if attractive opportunities arise

 

We believe that the additional capital raised in the offering may enable us to take advantage of business opportunities that may not otherwise be available to us. As of December 31, 2018, First Bank Richmond was considered “well capitalized” for regulatory purposes and is not subject to a directive or a recommendation from the Federal Reserve Board, Indiana Department of Financial Institutions or Federal Deposit Insurance Corporation to raise capital.

 

Approvals Required — Plan of Reorganization and Stock Offering

 

The affirmative vote of a majority of the total eligible votes of the members of First Mutual of Richmond-MHC as of [VRD] is required to approve the plan of reorganization and stock offering. By their approval of the plan of reorganization and stock offering, the members of First Mutual of Richmond-MHC (comprised of depositors and certain borrowers of First Bank Richmond) will also be approving the merger of First Mutual of Richmond-MHC into Richmond Mutual Bancorporation-Delaware. The plan of reorganization and stock offering also must be approved by the Federal Reserve Board, which has given its conditional approval; however, this approval does not constitute a recommendation or endorsement of the plan of reorganization and stock offering by such agency.

 

Effects of the Reorganization on Depositors, Borrowers and Members

 

Continuity. While the reorganization is being accomplished, the normal business of First Bank Richmond of accepting deposits and making loans will continue without interruption. First Bank Richmond will continue to be an Indiana chartered commercial bank regulated by the Indiana Department of Financial Institutions. See “How We Are Regulated.” After the reorganization, First Bank Richmond will continue to offer existing services to depositors, borrowers and other customers. The directors and executive officers serving Richmond Mutual Bancorporation-Delaware at the time of the reorganization will be the directors and executive officers of Richmond Mutual Bancorporation-Maryland after the reorganization.

 

Effect on Deposit Accounts. Pursuant to the plan of reorganization and stock offering, each depositor of First Bank Richmond at the time of the reorganization will automatically continue as a depositor after the reorganization, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the reorganization. Each such account will be insured by the Federal Deposit Insurance Corporation to the same extent as before the reorganization. Depositors will continue to hold their existing certificates and other evidences of their accounts.

 

Effect on Loans. No loan outstanding from First Bank Richmond will be affected by the reorganization, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed prior to the reorganization.

 

Effect on Voting Rights of Members. At present, all depositors and certain borrowers of First Bank Richmond are members of, and have voting rights in, First Mutual of Richmond-MHC as to all matters requiring membership action. Upon completion of the reorganization, depositors and those certain borrowers will cease to be members of First Mutual of Richmond-MHC and will no longer have voting rights, unless they purchase shares of Richmond Mutual Bancorporation-Maryland’s common stock. Upon completion of the reorganization, all voting rights in First Bank Richmond will be vested in Richmond Mutual Bancorporation-Maryland as the sole shareholder of First Bank Richmond. The shareholders of Richmond Mutual Bancorporation-Maryland will possess exclusive voting rights with respect to Richmond Mutual Bancorporation-Maryland common stock.

 

Tax Effects. We have received an opinion of counsel or a tax advisor with regard to the federal and state income tax consequences of the reorganization to the effect that the reorganization will not be a taxable transaction for federal or state income tax purposes to First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware, members of First Mutual of Richmond-MHC, Eligible Account Holders, Supplemental Eligible Account Holders, or First Bank Richmond. See “- Material Income Tax Consequences.”

 

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Effect on Liquidation Rights. Each depositor in First Bank Richmond has both a deposit account in First Bank Richmond and a pro rata ownership interest in the net worth of First Mutual of Richmond-MHC based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This interest may only be realized in the event of a complete liquidation of First Mutual of Richmond-MHC and First Bank Richmond. Any depositor who opens a deposit account obtains a pro rata ownership interest in First Mutual of Richmond-MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of First Mutual of Richmond-MHC, which is lost to the extent that the balance in the account is reduced or closed.

 

Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that First Mutual of Richmond-MHC and First Bank Richmond are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of First Mutual of Richmond-MHC after other claims, including claims of depositors to the amounts of their deposits, are paid.

 

Under the plan of reorganization and stock offering, however, depositors will receive rights in a liquidation account maintained by Richmond Mutual Bancorporation-Maryland representing the amount of First Mutual of Richmond-MHC’s ownership interest in Richmond Mutual Bancorporation-Delaware’s total shareholders’ equity as of the date of the latest statement of financial condition used in this prospectus. Richmond Mutual Bancorporation-Maryland shall continue to hold the liquidation account for the benefit of Eligible Account Holders and Supplemental Account Holders who continue to maintain deposits in First Bank Richmond. The liquidation account is designed to provide payments to depositors of their liquidation interests in the event of a liquidation of Richmond Mutual Bancorporation-Maryland and First Bank Richmond. Specifically, in the unlikely event that Richmond Mutual Bancorporation-Maryland and First Bank Richmond were to liquidate after the reorganization, all claims of creditors, including those of depositors, would be paid first, followed by distribution to depositors as of December 31, 2017 and [SERD] of the liquidation account maintained by Richmond Mutual Bancorporation-Maryland. Also, in a complete liquidation of both entities, or of just First Bank Richmond, when Richmond Mutual Bancorporation-Maryland has insufficient assets to fund the liquidation account distribution due to Eligible Account Holders and Supplemental Eligible Account Holders and First Bank Richmond has positive net worth, First Bank Richmond shall immediately pay amounts necessary to fund Richmond Mutual Bancorporation-Maryland’s remaining obligations under the liquidation account maintained by Richmond Mutual Bancorporation-Maryland. The plan of reorganization and stock offering also provides that if Richmond Mutual Bancorporation-Maryland is completely liquidated or sold apart from a sale or liquidation of First Bank Richmond, then the rights of Eligible Account Holders and Supplemental Account Holders in the liquidation account maintained by Richmond Mutual Bancorporation-Maryland shall be surrendered and treated as a liquidation account in First Bank Richmond (the “bank liquidation account”) and depositors shall have an equivalent interest in the bank liquidation account and the same rights and terms as the liquidation account maintained by Richmond Mutual Bancorporation-Maryland.

 

Pursuant to the plan of reorganization and stock offering, after three years from the date of reorganization and upon the written request of the Federal Reserve Board, Richmond Mutual Bancorporation-Maryland will eliminate or transfer the liquidation account it maintains and the interests in such account to First Bank Richmond and the liquidation account maintained by Richmond Mutual Bancorporation-Maryland shall thereupon become the bank liquidation account maintained by First Bank Richmond and not subject in any manner to the claims of Richmond Mutual Bancorporation-Maryland’s creditors. Also, under the rules and regulations of the Federal Reserve Board, no post-reorganization merger, consolidation, or similar combination or transaction with another depository institution in which Richmond Mutual Bancorporation-Maryland or First Bank Richmond is not the surviving institution would be considered a liquidation and, in such a transaction, the liquidation accounts maintained by Richmond Mutual Bancorporation-Maryland or First Bank Richmond, as the case may be, would be assumed by the surviving institution. See “- Liquidation Rights.”

 

Stock Pricing and Number of Shares to be Issued

 

The plan of reorganization and stock offering and federal regulations require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. We have retained RP Financial to prepare an independent valuation appraisal. For its services in preparing the initial valuation, RP Financial will receive a fee of $100,000 and up to $10,000 for expenses and an additional $10,000 for each valuation update, as necessary. We have agreed to indemnify RP Financial and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from its negligence or bad faith.

 

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The independent valuation was prepared by RP Financial in reliance upon the information contained in this prospectus, including the consolidated financial statements of Richmond Mutual Bancorporation-Delaware. RP Financial also considered the following factors, among others:

 

· our present and projected operating results and financial condition;

 

· the economic and demographic conditions in our primary market area;

 

· pertinent historical, financial and other information relating to First Bank Richmond;

 

· a comparative evaluation of our operating and financial statistics with those of other financial institutions;

 

· the impact of the offering on our stockholders' equity and earnings potential;

 

· our proposed dividend policy; and

 

· the trading market for securities of comparable institutions and general conditions in the market for such securities.

 

The independent valuation is also based on an analysis of a peer group of publicly traded savings and loan holding companies that RP Financial considered comparable to Richmond Mutual Bancorporation-Maryland under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded savings institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Richmond Mutual Bancorporation-Maryland also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. In addition, RP Financial limited the peer group companies to institutions located in the all regions of the United States, except the Western Region, with assets between $500 million and $2.0 billion, tangible equity-to-assets ratios of less than 15% and core return on average equity ratios of less than 10%.

 

The independent valuation considered the pro forma effect of the offering. Consistent with regulatory appraisal guidelines, the appraisal applied three primary methodologies: (i) the pro forma price-to-book value approach applied to both reported book value and tangible book value; (ii) the pro forma price-to-earnings approach applied to reported and core earnings; and (iii) the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based on the current market valuations of the peer group companies. RP Financial placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value. RP Financial did not consider a pro forma price-to-assets approach to be as meaningful in preparing the appraisal, as this approach is more meaningful when a company has low equity or earnings. The price-to-assets approach is less meaningful for a company like us, as we have equity in excess of regulatory capital requirements and positive reported and core earnings.

 

In applying each of the valuation methods, RP Financial considered adjustments to the pro forma market value based on a comparison of Richmond Mutual Bancorporation-Maryland with the peer group. RP Financial made a slight upward adjustment for financial condition, a slight downward adjustment for profitability growth, market area and viability of earnings, a slight downward adjustment for primary market area and made no adjustments for: (i) asset growth: (ii) dividends; (iii) liquidity of the shares; (iv) marketing of the issue; (v) management; and (vi) effect of government regulations and regulatory reform. The slight upward adjustment applied for financial condition took into consideration Richmond Mutual Bancorporation-Maryland’s higher pro forma capital position and interest-earning assets/interest bearing liabilities ratio, similar earning asset structure, similar funding composition and favorable credit risk position in terms of levels of non-performing assets relative to the comparable peer group measures. The slight downward adjustment applied for profitability, growth and viability of earnings took into consideration Richmond Mutual Bancorporation-Maryland’s lower pro forma return on equity, similar levels of return on average assets, expense coverage and efficiency ratio, a higher level of operating expenses and higher level of net interest income relative to the comparable peer group measures. The slight downward adjustment for primary market area took into account the smaller population base, slower growth characteristics and lower income levels of Richmond Mutual Bancorporation-Maryland’s headquarters county relative to the comparable peer group measures.

 

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Included in RP Financial’ independent valuation were certain assumptions as to the pro forma earnings of Richmond Mutual Bancorporation-Maryland after the reorganization that were utilized in determining the appraised value. These assumptions included estimated expenses, an assumed after-tax rate of return on the net offering proceeds of 1.86% and purchases in the open market of the common stock issued in the offering by the stock-based incentive plan at the $10.00 per share purchase price. The independent valuation also took into account the consolidation of First Mutual of Richmond-MHC. See “Pro Forma Data” for additional information concerning these assumptions. The use of different assumptions may yield different results.

 

The independent valuation states that at February 8, 2019, the estimated pro forma market value of Richmond Mutual Bancorporation-Maryland was $103.5 million (inclusive of the shares to be contributed to the charitable foundation). Based on applicable regulations, this market value forms the midpoint of a range with a minimum of $88.7 million and a maximum of $118.3 million. The aggregate offering price of the shares will be equal to the valuation range multiplied by offering price of $10.00 per share. The number of shares offered will be equal to the aggregate offering price of the shares divided by the $10.00 price per share. Based on the valuation range and the $10.00 offering price per share, the minimum of the offering range is 8,372,500 shares, the midpoint of the offering range is 9,850,000 shares and the maximum of the offering range is 11,327,500 shares.

 

Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $135.3 million, without resoliciting subscribers, which will result in a corresponding increase of up to 15% in the maximum of the offering range, to up to 13,026,625 shares, to reflect changes in the market and financial conditions or demand for the shares. We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of subscribers. The offering price of $10.00 per share will remain fixed. See “- Additional Limitations on Common Stock Purchases” as to the method of distribution of additional shares to be issued upon an increase in the offering range to up to 13,026,625 shares.

 

The board of directors of Richmond Mutual Bancorporation-Maryland reviewed the independent valuation and, in particular, considered the following:

 

· our financial condition and results of operations;

 

· a comparison of financial performance ratios of Richmond Mutual Bancorporation-Delaware (on a consolidated basis with First Bank Richmond) to those of other financial institutions of similar size; and

 

· market conditions generally and in particular for financial institutions.

 

All of these factors are set forth in the independent valuation. The board of directors also reviewed the methodology and the assumptions used by RP Financial in preparing the independent valuation and the board believes that these assumptions were reasonable. The offering range may be amended with the approval of the Federal Reserve Board, if required, as a result of subsequent developments in the financial condition of (on a consolidated basis with First Bank Richmond)or market conditions generally. In the event the independent valuation is updated to amend the pro forma market value of Richmond Mutual Bancorporation-Maryland to less than $88.7 million or more than $135.3 million, the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Richmond Mutual Bancorporation-Maryland’s registration statement.

 

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The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP Financial did not independently verify our consolidated financial statements and other information that we provided to them, nor did RP Financial independently value our assets or liabilities. The independent valuation considers Richmond Mutual Bancorporation-Delaware (on a consolidated basis with First Bank Richmond) as a going concern and should not be considered as an indication of the liquidation value of Richmond Mutual Bancorporation-Delaware. Moreover, because the independent valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares of common stock at prices at or above the $10.00 price per share.

 

The independent valuation will be updated at the time of the completion of the offering. If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the offering range to more than $130.3 million, or a decrease in the minimum of the offering range to less than $83.7 million, then, after consulting with the Federal Reserve Board, we may terminate the plan of reorganization and stock offering, cancel deposit account withdrawal authorizations and return all funds promptly, with interest on payments made by check, certified or teller’s check, bank draft or money order. Alternatively, we may establish a new offering range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the Federal Reserve Board in order to complete the offering. In the event that a resolicitation is commenced due to a change in the independent valuation, all funds submitted for subscriptions will be promptly returned to investors, with interest at [•] % per annum from the date the stock order was received, and investors will be given the opportunity to place a new order for a period of time. A resolicitation, if any, following the conclusion of the subscription and community offerings would not exceed 45 days unless further extended by regulators for periods of up to 90 days not to extend beyond 24 months following the special meeting of members, or [Date 4] , 2021.

 

An increase in the number of shares of common stock to be issued in the offering would decrease both a purchaser’s ownership interest and Richmond Mutual Bancorporation-Maryland’s pro forma earnings and shareholders’ equity on a per share basis while increasing pro forma earnings and shareholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a purchaser’s ownership interest and Richmond Mutual Bancorporation-Maryland’s pro forma earnings and shareholders’ equity on a per share basis, while decreasing pro forma earnings and shareholders’ equity on an aggregate basis. For a presentation of the effects of these changes, see “Pro Forma Data.”

 

Copies of the independent valuation appraisal report prepared by RP Financial and the detailed memorandum setting forth the method and assumptions used in the appraisal report are available for inspection at the corporate offices of First Bank Richmond and as specified under “Where You Can Find Additional Information.”

 

No sale of shares of common stock may occur unless, prior to such sale, RP Financial confirms to us and the Federal Reserve Board that, to the best of its knowledge, nothing of a material nature has occurred that, taking into account all relevant factors, would cause RP Financial to conclude that the independent valuation is incompatible with its estimate of the pro forma market value of the common stock of Richmond Mutual Bancorporation -Maryland at the conclusion of the offering. Any change that would result in an aggregate purchase price that is below the minimum or above the maximum of the estimated valuation range would be subject to regulatory approval. If such confirmation is not received, we may extend the offering; reopen the offering or commence a new offering; establish a new estimated valuation range and commence a resolicitation of all purchasers with the approval of federal regulators; or take such other actions as permitted in order to complete the offering.

 

Subscription Offering and Subscription Rights

 

In accordance with the plan of reorganization and stock offering, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and subject to the minimum, maximum and overall purchase and ownership limitations set forth in the plan of reorganization and stock offering and as described below under “—Additional Limitations on Common Stock Purchases.”

 

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Priority 1: Eligible Account Holders. Each First Bank Richmond depositor with an aggregate deposit account balance of $50.00 or more (a “Qualifying Deposit”) at the close of business on December 31, 2017 (an “Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of: (i) $300,000 (30,000 shares) of our common stock; (ii) one-tenth of one percent of the total number of shares of common stock issued in the offering; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock offered by a fraction, the numerator of which is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator of which is the total amount of Qualifying Deposits of all Eligible Account Holders, subject to the overall purchase and ownership limitations. See “- Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess will be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.

 

To ensure proper allocation of our shares of common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she had an ownership interest on December 31, 2017. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. In the event of an oversubscription, the subscription rights of Eligible Account Holders who are also directors or executive officers of First Bank Richmond or their associates will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to increased deposits in the twelve months preceding December 31, 2017.

 

Priority 2: Tax-Qualified Plans. Our tax-qualified employee stock benefit plans (other than our 401(k) plan) will receive, without payment therefor, nontransferable subscription rights to purchase up to 10% of the shares of common stock sold in the offering and contributed to the charitable foundation. As a tax-qualified employee stock benefit plan, our employee stock ownership plan intends to purchase 8% of the shares of common stock sold in the offering. If market conditions warrant, in the judgment of its trustees and with the approval of the Federal Reserve Board, the employee stock ownership plan may elect to purchase shares in the open market following the completion of the reorganization. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of reorganization and stock offering.

 

Priority 3: Supplemental Eligible Account Holders . To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and our tax-qualified employee stock benefit plans, each First Bank Richmond depositor, other than directors and executive officers of First Bank Richmond or Richmond Mutual Bancorporation-Delaware, with a Qualifying Deposit at the close of business on [SERD] who is not an Eligible Account Holder (“Supplemental Eligible Account Holder”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of: (i) $300,000 (30,000 shares) of common stock; (ii) one-tenth of one percent of the total number of shares of common stock issued in the offering; or (iii) 15 times the product, rounded down to the nearest whole number, obtained by multiplying the total number of shares of common stock to be offered by a fraction, the numerator of which is the amount of the Qualifying Deposit of the Supplemental Eligible Account Holder and the denominator of which is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, subject to the overall purchase and ownership limitations. See “- Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will be allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Supplemental Eligible Account Holder whose subscription remains unfilled in the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unfilled.

 

To ensure proper allocation of common stock, each Supplemental Eligible Account Holder must list on the stock order form all deposit accounts in which he or she had an ownership interest at [SERD]. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

 

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Priority 4: Other Members. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each depositor of First Bank Richmond as of the close of business on [VRD] who is not an Eligible Account Holder or Supplemental Eligible Account Holder and each borrower of First Bank Richmond as of October 16, 1997 whose borrowings remained outstanding on [VRD] (“Other Members”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of $300,000 (30,000 shares) of common stock or one-tenth of one percent of the total number of shares of common stock issued in the offering, subject to the overall purchase and ownership limitations. See “- Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated so as to permit each Other Member to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Any remaining shares will be allocated among Other Members in the proportion that the amount of the subscription of each Other Member whose subscription remains unsatisfied bears to the total amount of subscriptions of all Other Members whose subscriptions remain unsatisfied.

 

To ensure proper allocation of common stock, each Other Member must list on the stock order form all applicable accounts in which he or she had an ownership interest at [VRD]. In the event of an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.

 

Expiration Date. The subscription offering will expire at 2:00 p.m., Eastern Time, on [Date 1] , 2019, unless extended by us for up to 45 days. This extension may be made without notice to you, except that extensions beyond [Date 2] , 2019 will require the approval of the Federal Reserve Board and a resolicitation of subscribers in the offering. We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint or maximum of the offering range. Subscription rights which have not been exercised prior to the expiration date will become void. Subscription rights will expire whether or not each eligible depositor can be located.

 

Community Offering

 

To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions of Eligible Account Holders, our tax-qualified employee stock benefit plans, Supplemental Eligible Account Holders and Other Members, we expect to offer shares pursuant to the plan of reorganization and stock offering to members of the general public in a community offering. Shares would be offered with a preference to natural persons (including trusts of natural persons) residing in Wayne, Fayette, Henry, Randolph, Shelby and Union counties, Indiana and Darke, Franklin, Miami, Preble and Shelby counties, Ohio, and then to other members of the general public.

 

Purchasers in the community offering may purchase up to $300,000 (30,000 shares) of common stock, subject to the overall purchase and ownership limitations. See “- Additional Limitations on Common Stock Purchases.” The minimum purchase is 25 shares. The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.

 

If we do not have sufficient shares of common stock available to fill the accepted orders of purchasers residing in Wayne, Fayette, Henry, Randolph, Shelby and Union counties, Indiana and Darke, Franklin, Miami, Preble and Shelby counties, Ohio, we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person. Thereafter, unallocated shares will be allocated among such persons residing in the areas listed above whose orders remain unsatisfied on an equal number of shares basis per order. In the event of an oversubscription among members of the general public, these same allocation procedures will also apply. In connection with the allocation process, unless the Federal Reserve Board permits otherwise, orders received for Richmond Mutual Bancorporation-Maryland common stock in the community offering will first be filled up to a maximum of two percent (2%) of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated.

 

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The term “residing” or “resident” as used in this prospectus with respect to Wayne, Fayette, Henry, Randolph, Shelby and Union counties, Indiana and Darke, Franklin, Miami, Preble and Shelby counties, Ohio means any person who occupies a dwelling within the local community, has a present intent to remain within such community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the local community together with an indication that this presence within the local community is something other than merely transitory in nature. We may utilize deposit or loan records, or other evidence provided to us to decide whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.

 

Expiration Date. The community offering, if any, may begin during or after the subscription offering, and is currently expected to terminate at the same time as the subscription offering. Richmond Mutual Bancorporation-Maryland may decide to extend the community offering for any reason and is not required to give purchasers notice of any such extension unless such period extends beyond [Date 2] , 2019, in which case we will resolicit purchasers in the offering.

 

Syndicated Community Offering

 

If feasible, our board of directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated community offering, subject to such terms, conditions and procedures as we may determine, in a manner that will achieve a wide distribution of our shares of common stock. If a syndicated community offering is held, KBW will serve as sole manager and will assist us in selling our common stock on a best efforts basis. In such capacity, KBW may form a syndicate of other broker-dealers who are Financial Industry Regulatory Authority member firms. Neither KBW nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering.

 

In the syndicated community offering, any person may purchase up to $300,000 (30,000 shares) of common stock, subject to the overall purchase and ownership limitations. See “- Additional Limitations on Common Stock Purchases.” We retain the right to accept or reject in whole or in part any orders in the syndicated community offering. Unless the Federal Reserve Board permits otherwise, accepted orders for Richmond Mutual Bancorporation-Maryland common stock in the syndicated community offering will first be filled up to a maximum of two percent (2%) of the shares sold in the offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all shares have been allocated. Unless the syndicated community offering begins during the community offering, the syndicated community offering will begin as soon as possible after the completion of the subscription and community offerings.

 

Order forms will be used to purchase shares of common stock in the syndicated community offering. Investors in the syndicated community offering must use a stock order form; however, payment must be made in immediately available funds (bank checks, money orders or deposit account withdrawal from accounts at First Bank Richmond). Investors in the syndicated community offering may also wire payment for their subscription directly to First Bank Richmond. Please call our Stock Information Center at (___) ___-____ to speak to a representative of KBW for wire transfer instructions. See also "– Procedure for Purchasing Shares in the Subscription and Community Offerings."

 

If for any reason we cannot affect a syndicated community offering of shares of common stock not purchased in the subscription and community offerings, or in the event that there are an insignificant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares, if possible. The Federal Reserve Board and Financial Industry Regulatory Authority must approve any such arrangements.

 

Additional Limitations on Common Stock Purchases

 

The plan of reorganization and stock offering includes the following limitations on the number of shares of common stock that may be purchased in the offering:

 

(1) No individual, or group of individuals exercising subscription rights through a single qualifying account held jointly, may purchase more than $300,000 (30,000 shares) in the offering;

 

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(2) Except for the employee stock ownership plan, as described above, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than $400,000 (40,000 shares) of common stock in all categories of the offering combined;

 

(3) Tax qualified employee benefit plans, including our employee stock ownership plan, may purchase in the aggregate up to 10% of the shares of common stock sold in the offering and contributed to the charitable foundation, including shares issued upon an increase in the offering range of up to 15%;

 

(4) No person may purchase fewer than 25 shares of common stock, to the extent those shares are available for purchase; and

 

(5) The maximum number of shares of common stock that may be purchased in all categories of the offering by executive officers and directors of First Bank Richmond and their associates, in the aggregate, may not exceed 25% of the shares of Richmond Mutual Bancorporation-Maryland common stock outstanding upon completion of the reorganization.

 

Depending upon market or financial conditions, our board of directors, with the approval of the Federal Reserve Board and without further approval of members of First Mutual of Richmond-MHC, may decrease or increase the purchase and ownership limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be given, and, in our sole discretion, some other large subscribers who through their subscriptions evidence a desire to purchase the maximum allowable number of shares may be given, the opportunity to increase their subscriptions up to the then applicable limit. The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by subscribers who choose to increase their subscriptions. In the event that the maximum purchase limitation is increased to 5% of the shares sold in the offering, this limitation may be further increased to 9.99%, provided that orders for Richmond Mutual Bancorporation-Maryland common stock exceeding 5% of the shares issued in the offering shall not exceed in the aggregate 10% of the total shares sold in the offering.

 

In the event of an increase in the offering range to up to 13,026,625 shares of common stock, shares will be allocated in the following order of priority in accordance with the plan of reorganization and stock offering:

 

(1) if there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of these subscribers according to their respective priorities;

 

(2) to fill the subscriptions of our tax-qualified employee benefit plans, specifically our employee stock ownership plan, for up to 10% of the total number of shares of common stock sold in the offering and contributed to the charitable foundation;

 

(3) if there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of these subscribers according to their respective priorities; and

 

(4) to fill unfilled subscriptions in the community offering, with preference given first to natural persons residing in Wayne, Fayette, Henry, Randolph, Shelby and Union counties in the state of Indiana, and Darke, Franklin, Miami, Preble and Shelby counties in the state of Ohio, and then to members of the general public.

 

The term “associate” of a person means:

 

(1) any corporation or organization (other than First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware, First Bank Richmond or a majority-owned subsidiary of any of those entities) of which the person is a senior officer, partner or beneficial owner, directly or indirectly, of 10% or more of any equity security;

 

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(2) any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; provided, however, that for the purposes of subscriptions in the offering and restrictions on the sale of stock after the reorganization, the term “associate” does not include a person who has a substantial beneficial interest in an employee stock benefit plan of First Bank Richmond, or who is a trustee or fiduciary of such plan, and for purposes of aggregating total shares that may be held by officers and directors of Richmond Mutual Bancorporation-Maryland or First Bank Richmond the term “associate” does not include any tax-qualified employee stock benefit plan of First Bank Richmond or Richmond Mutual Bancorporation-Maryland; and

 

(3) any blood or marriage relative of the person, who either has the same home as the person or who is a director or officer of Richmond Mutual Bancorporation-Maryland, First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware or First Bank Richmond.

 

The term “acting in concert” means:

 

(1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or

 

(2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

 

A person or company that acts in concert with another person or company shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether common stock held by the trustee and common stock held by the employee stock benefit plan will be aggregated. Persons or companies who file jointly a Schedule 13D or Schedule 13G with any regulatory agency will be deemed to be acting in concert.

 

We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.” Persons exercising subscription rights through a single qualifying deposit account held jointly, whether or not related, will be deemed to be acting in concert unless we determine otherwise.

 

Our directors are not treated as associates of each other solely because of their membership on the board of directors. Common stock purchased in the offering will be freely transferable except for shares purchased by executive officers and directors of Richmond Mutual Bancorporation-Maryland or First Bank Richmond and except as described below. Any purchases made by any associate of Richmond Mutual Bancorporation-Maryland or First Bank Richmond for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution. In addition, under Financial Industry Regulatory Authority guidelines, members of the Financial Industry Regulatory Authority and their associates are subject to certain restrictions on transfer of securities purchased in accordance with subscription rights and to certain reporting requirements upon purchase of these securities. For a further discussion of limitations on purchases of our shares of common stock at the time of reorganization and thereafter, see “- Certain Restrictions on Purchase or Transfer of Our Shares after Reorganization” and “Restrictions on Acquisition of Richmond Mutual Bancorporation-Maryland.”

 

Plan of Distribution and Marketing Arrangements

 

Offering materials for the offering initially have been distributed to certain persons by mail, with additional copies made available through our Stock Information Center and KBW.

 

To assist in the marketing of the common stock, we have retained KBW, which is a broker-dealer registered with the Financial Industry Regulatory Authority. In its role as financial advisor, KBW will:

 

(1) provide advice on the financial and securities market implications of the plan of reorganization and stock offering and any related corporate documents, including the plan of reorganization and offering;

 

(2) assist in structuring and marketing the offering;

 

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(3) serve as sole bookrunning manager in connection with the offering;

 

(4) review all offering documents, including this prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);

 

(5) assist us in preparing for and scheduling meetings with potential investors and broker-dealers, as necessary;

 

(6) assist us in analyzing proposals from outside vendors retained in connection with the offering, as needed;

 

(7) assist us in the drafting of press releases as required or appropriate in connection with the offering; and

 

(8) provide any other required financial advisory and investment banking services in connection with the reorganization and offering as may be agreed upon by us and KBW.

 

For these services, KBW will receive a management fee of $25,000 and a success fee of 1.00% of the aggregate dollar amount of the common stock sold in the subscription and community offerings, excluding shares purchased by the employee stock ownership plan, our tax-qualified or stock-based compensation or similar plans, or any shares contributed to the charitable foundation. The management fee, which has already been paid and is non-refundable, will be credited against the success fee payable upon the consummation of the reorganization and offering. In connection with the subscription offering, if, as a result of any resolicitation of subscribers, KBW reasonably determines that it is required or requested to provide significant services, KBW will be entitled to additional compensation for these services not to exceed $25,000.

 

The plan of reorganization and stock offering provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by KBW. In such capacity, KBW may form a syndicate of other broker-dealers. Neither KBW nor any other registered broker-dealer will have any obligation to take or purchase any shares of common stock in the syndicated community offering; however, KBW has agreed to use its best efforts in the sale of shares in any syndicated community offering. If there is a syndicated community offering, KBW will receive a fee not to exceed 6.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering. The success fee described above will be credited against the fees payable with respect to a syndicated community offering. Of this amount, KBW will pass on to selected broker-dealers, who assist in the syndicated community offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment.

 

We also will reimburse KBW for its reasonable out-of-pocket expenses associated with its marketing efforts, not to exceed $25,000. In addition, we will reimburse KBW for fees and expenses of its counsel not to exceed $125,000. The reasonable out-of-pocket expenses of KBW and the fees and expenses of its counsel may be increased by an additional $10,000 and $15,000, respectively, in the event of a delay, resolicitation or other unusual circumstance with the offerings. If the plan of reorganization and stock offering is terminated or if KBW’s engagement is terminated in accordance with the provisions of the agreement, KBW will only receive reimbursement of its reasonable out-of-pocket expenses and the management fee, and will return any amounts paid or advanced by us in excess of these amounts.

 

We will indemnify KBW against liabilities and expenses (including legal fees) incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering material for the common stock, including liabilities under the Securities Act of 1933, as amended.

 

KBW has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the stock to be sold. KBW expresses no opinion as to the prices at which the shares of common stock to be issued may trade.

 

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Our directors and executive officers may participate in the solicitation of offers to purchase shares of common stock. Other trained employees may participate in the offering in ministerial capacities, providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Other questions of prospective purchasers will be directed to executive officers or registered representatives. We will rely on Rule 3a4-1 of the Securities Exchange Act of 1934, as amended, so as to permit officers and directors, and employees to participate in the sale of shares of common stock. No officer, director or employee will be compensated for his participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the shares of common stock. KBW will solicit orders and conduct sales of the common stock of Richmond Mutual Bancorporation-Maryland in states in which our directors and executive officers are not permitted to offer and sell our shares of common stock. The offering will also comply with the requirements of Rule 10b-9 under the Securities Exchange Act of 1934, as amended.

 

We have also engaged KBW to act as our records agent in connection with the offering. In its role as records agent, KBW will provide, among others, the following services (i) consolidate accounts having the same ownership and separate the consolidated file information into necessary groupings to satisfy mailing requirements; (ii) create the master file of account holders; (iii) provide software for the operation of the Stock Information Center, including subscription management and proxy solicitation efforts; (iv) assist our financial printer with the imprinting of proxy materials for voting and subscribing for stock; (v) provide support for any follow-up mailings to members, as needed, including proxy grams and additional solicitation materials; (vi) proxy tabulation; (vii) assist the Inspector of Election for the special meeting of members, if requested; (viii) establish and manage the Stock Information Center; (ix) provide supporting account information to our legal counsel for “blue sky” research and applicable registration; (x) assist our transfer agent with the generation and mailing of stock ownership statements; and (xi) perform interest and refund calculations and provide a file to enable us to generate interest and refund checks.

 

For these services, KBW will receive a fee of $25,000. Of this fee for serving as records agent, $10,000 was paid on the signing of the engagement letter with the remainder to be paid upon completion of the offering. In the event of any material changes in applicable regulations or the plan of reorganization and stock offering, or delays requiring duplicate or replacement processing due to changes to the record dates, an additional fee not to exceed $10,000 may also be due to KBW. We also will reimburse KBW for its reasonable out-of-pocket expenses associated with its acting as records agent up to a maximum of $5,000. We will indemnify KBW against liabilities and expenses (including legal fees) related to or arising out of KBW’s engagement and performance of services as our records agent.

 

Offering Deadline

 

The subscription and community offerings will expire at 2:00 p.m., Eastern Time, on [Date 1] , 2019, unless extended, without notice to you, for up to 45 days. Any extension of the offerings beyond [Date 2] , 2019 would require the Federal Reserve Board’s approval. If the offering is extended beyond [Date 2] , 2019 we will resolicit subscribers. Subscribers would have the opportunity to maintain, change or cancel their stock orders within a specified period. If a subscriber does not respond during the resolicitation period, his or her stock order will be cancelled and his or her (i) deposit account withdrawal authorizations will be cancelled or (ii) funds submitted will be returned promptly with interest at [•] % from the date the stock order was processed. No single extension will exceed 90 days. Aggregate extensions may not go beyond [Date 4] , 2021, which is two years after the special meeting of members. We reserve the right in our sole discretion to terminate the offering at any time and for any reason, in which case we will cancel any deposit account withdrawal authorizations and promptly return all funds submitted, with interest at [•] % from the date of processing as described above.

 

We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of reorganization.

 

Prospectus Delivery

 

To ensure that each purchaser receives a prospectus at least 48 hours before the expiration date of the offering in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, as amended, we may not mail a prospectus any later than five days prior to the expiration date or hand deliver any later than two days prior to the expiration date. Execution of an order form will confirm receipt of delivery in accordance with Rule 15c2-8. Order forms will only be distributed with or preceded by a prospectus.

 

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In the syndicated community offering, a prospectus and stock order form in electronic format may be made available on Internet sites or through other online services maintained by KBW or one or more other members of the syndicate, or by their respective affiliates. In those cases, prospective investors may view offering terms online. The members of the syndicate may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made on the same basis as other allocations.

 

Other than the prospectus in electronic format, the information on the Internet sites referenced in the preceding paragraph and any information contained in any other Internet site maintained by any member of the syndicate is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or by KBW or any other member of the syndicate in its capacity as selling agent or syndicate member and should not be relied upon by investors.

 

Procedure for Purchasing Shares

 

Use of Stock Order Forms . In order to purchase shares of common stock in the offering, you must properly complete and sign an original stock order form and remit full payment. We will not be required to accept incomplete stock order forms, unsigned stock order forms, or orders submitted on photocopied or facsimiled stock order forms. All stock order forms must be received , not postmarked, prior to 2:00 p.m., Eastern Time, [Date 1] , 2019. We will not accept stock order forms that are not received by that time, are executed defectively or are received without full payment or without appropriate deposit account withdrawal instructions. We are not required to notify subscribers of incomplete or improperly executed stock order forms. We have the right to permit the correction of incomplete or improperly executed stock order forms. We do not represent, however, that we will do so. You may submit your stock order form and payment by mail using the stock order reply envelope provided, by overnight delivery to our Stock Information Center at the address indicated for that purpose on the stock order form, or by hand delivery to First Bank Richmond’s office located at 20 North 9 th Street, Richmond, Indiana. Once tendered, a stock order form cannot be modified or revoked without our consent. We reserve the absolute right, in our sole discretion, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time prior to completion of the offering.

 

Regardless of postmarks or the length of time you may allow for USPS delivery of your order, your order will be rejected if it is not received by the due date, [Date 1] , 2019. We encourage you to consider in-person or overnight delivery of your stock order form to increase the likelihood your order will be received before the deadline.

 

If you are ordering shares in the subscription offering, by signing the stock order form you are representing that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares. Our interpretation of the terms and conditions of the plan of reorganization and stock offering and of the acceptability of the stock order forms will be final.

 

By signing the stock order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by First Bank Richmond, Richmond Mutual Bancorporation-Maryland or any federal or state government, and that you received a copy of this prospectus. However, signing the stock order form will not cause you to waive your rights under the Securities Act of 1933, as amended. We have the right to reject any stock order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of reorganization and stock offering.

 

Payment for Shares. Payment for all shares of common stock will be required to accompany all completed original order forms for the purchase to be valid. You may not submit cash or wire transfers. Payment for shares may be made by:

 

(1) personal check, bank check or money order, made payable to “Richmond Mutual Bancorporation, Inc.”; or

 

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(2) authorization of withdrawal from the types of First Bank Richmond deposit accounts designated on the stock order form.

 

Appropriate means for designating withdrawals from deposit accounts at First Bank Richmond are provided on the order forms. The funds designated must be available in the account(s) at the time the stock order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contract rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate of deposit accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate of deposit will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest calculated at the current regular savings rate subsequent to the withdrawal. In the case of payments made by check or money order, these funds must be available in the account(s) and will be immediately cashed, placed in a segregated account at First Bank Richmond and will earn interest calculated at [•] % from the date payment is processed until the offering is completed or terminated, at which time a subscriber will be issued a check for interest earned.

 

You may not designate withdrawal from accounts at First Bank Richmond with check-writing privileges; instead, please submit a check. If you request that we directly withdraw the funds from an account with check writing privileges, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your account. Additionally, you may not remit First Bank Richmond line of credit checks, and we will not accept third-party checks, including those payable to you and endorsed over to First Bank Richmond. You may not designate on your stock order form a direct withdrawal from a First Bank Richmond retirement account. See "– Using Retirement Account Funds to Purchase Shares" for information on using such funds. Once we receive your executed stock order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by [Date 2] , 2019, in which event purchasers may be given the opportunity to increase, decrease or rescind their orders for a specified period of time.

 

Regulations prohibit First Bank Richmond from lending funds or extending credit to any persons to purchase shares of common stock in the offering.

 

We have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with a legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time prior to 48 hours before the completion of the reorganization. This payment may be made by wire transfer.

 

If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until consummation of the offering, provided that there is a loan commitment from an unrelated financial institution or Richmond Mutual Bancorporation-Maryland to lend to the employee stock ownership plan the necessary amount to fund the purchase.

 

Using Retirement Account Funds to Purchase Shares

 

If you are interested in using funds in your IRA or other retirement account to purchase shares of common stock, you must do so through an account offered by a custodian that can hold common stock. By regulation, First Bank Richmond’s retirement accounts are not capable of holding common stock. Therefore, if you wish to use funds that are currently in a retirement account held at First Bank Richmond, you may not designate on the stock order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will instead have to be transferred to an independent trustee or custodian, such as a brokerage firm, which offers the type of retirement accounts that can hold common stock. The purchase must be made through that account. If you do not have such an account, you will need to establish one before placing a stock order. A one-time and/or annual administrative fee may be payable to the independent trustee or custodian. You may select the IRA custodian of your choice. You may, but are under no obligation to, select KBW or one of its affiliated broker dealers, Stifel, Nicolaus & Company, Incorporated or Century Securities Associates as your IRA or other retirement account custodian. If you do purchase shares of Richmond Mutual Bancorporation-Maryland common stock using funds from a KBW, Stifel, Nicolaus & Company, Incorporated or Century Securities Associates IRA account, you acknowledge that KBW, Stifel, Nicolaus & Company, Incorporated or Century Securities Associates, as applicable, did not recommend or give you advice regarding such purchase. Other than the standard account fees and compensation associated with all IRA accounts, KBW, Stifel, Nicolaus & Company, Incorporated and Century Securities Associates do not receive additional fees or compensation as a result of the purchase of Richmond Mutual Bancorporation-Maryland common stock through a KBW, Stifel, Nicolaus & Company, Incorporated or Century Securities Associates IRA or retirement account. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Individuals interested in using funds in an individual retirement account or any other retirement account, whether held at First Bank Richmond or elsewhere, to purchase shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks before the [Date 1] , 2019 offering deadline. Processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.

 

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Delivery of Shares of Common Stock

 

All shares of Richmond Mutual Bancorporation-Maryland common stock being sold will be in book entry form. Paper stock certificates will not be issued. Information regarding shares of common stock sold in the subscription and community offerings will be mailed by regular mail to the persons entitled thereto at the registration address noted on the stock order form, as soon as practicable following completion of the reorganization and offering. It is possible that, until this information is delivered, purchasers may not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading.

 

Other Restrictions

 

Notwithstanding any other provision of the plan of reorganization and stock offering, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or would violate regulations or policies of the Financial Industry Regulatory Authority. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply: (a) a small number of persons otherwise eligible to subscribe for shares under the plan of reorganization and stock offering reside in the state; (b) the issuance of subscription rights or the offer or sale of shares of common stock to such persons would require us, under the securities laws of the state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify our securities for sale in the state; or (c) registration or qualification would be impracticable for reasons of cost or otherwise.

 

Restrictions on Transfer of Subscription Rights and Shares

 

Federal Reserve Board regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. When registering your stock purchase on the stock order form, you cannot add the name(s) of persons who do not have subscription rights or who qualify only in a lower purchase priority than you do. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all eligible accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation, in the event of an oversubscription.

 

Stock Information Center

 

Our banking office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the reorganization or offering, please call our Stock Information Center at 1-(877) ___-____ to speak to a representative of KBW. Representatives are available by telephone Monday through Friday, 10:00 a.m. to 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.

 

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Liquidation Rights

 

Liquidation prior to the reorganization. In the unlikely event of a complete liquidation of First Bank Richmond prior to the reorganization, all claims of creditors of First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware and First Bank Richmond, including those of depositors of First Bank Richmond (to the extent of their deposit balances), would be paid first. Thereafter, if there were any assets remaining, these assets would be distributed to the depositor members of First Mutual of Richmond-MHC (i.e., the depositors of First Bank Richmond) pro rata, based upon the deposit balances in their deposit account in First Bank Richmond immediately prior to liquidation.

 

Liquidation following the reorganization. In the unlikely event that Richmond Mutual Bancorporation-Maryland and First Bank Richmond were to liquidate after the reorganization, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” maintained by Richmond Mutual Bancorporation-Maryland pursuant to the plan of reorganization and stock offering to certain depositors, with any assets remaining thereafter distributed to Richmond Mutual Bancorporation-Maryland as the holder of First Bank Richmond capital stock.

 

The plan of reorganization and stock offering provides for the establishment, upon the completion of the reorganization, of a “liquidation account” by Richmond Mutual Bancorporation-Maryland for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to First Mutual of Richmond-MHC’s ownership interest in the total shareholder’s equity of Richmond Mutual Bancorporation-Delaware as of the date of its latest balance sheet contained in this prospectus. The plan of reorganization and stock offering also provides that Richmond Mutual Bancorporation-Maryland shall cause the establishment of a bank liquidation account to be maintained by First Bank Richmond.

 

The liquidation account to be established by Richmond Mutual Bancorporation-Maryland is designed to provide payments to depositors of their liquidation interests in the event of a liquidation of Richmond Mutual Bancorporation-Maryland and First Bank Richmond. Specifically, in the unlikely event that Richmond Mutual Bancorporation-Maryland and First Bank Richmond were to completely liquidate after the reorganization, all claims of creditors, including those of depositors, would be paid first, followed by a distribution to Eligible Account Holders and Supplemental Eligible Account Holders of the liquidation account maintained by Richmond Mutual Bancorporation-Maryland. In a liquidation of both entities, or of First Bank Richmond, when Richmond Mutual Bancorporation-Maryland has insufficient assets to fund the distribution due to Eligible Account Holders and Supplemental Eligible Account Holders and First Bank Richmond has positive net worth, First Bank Richmond shall pay amounts necessary to fund Richmond Mutual Bancorporation-Maryland’s remaining obligations under the liquidation account maintained by Richmond Mutual Bancorporation-Maryland. The plan of reorganization also provides that if Richmond Mutual Bancorporation-Maryland is sold or liquidated apart from a sale or liquidation of First Bank Richmond, then the rights of Eligible Account Holders and Supplemental Eligible Account Holders in the liquidation account maintained by Richmond Mutual Bancorporation-Maryland shall be surrendered and treated as a bank liquidation account maintained by First Bank Richmond.

 

Pursuant to the plan of reorganization and stock offering, after three years from the date of reorganization and upon the written request of the Federal Reserve Board, Richmond Mutual Bancorporation-Maryland will eliminate or transfer the liquidation account it maintains and the interests in such account to First Bank Richmond and the liquidation account maintained by Richmond Mutual Bancorporation-Maryland shall thereupon become the bank liquidation account maintained by First Bank Richmond and not be subject in any manner or amount to Richmond Mutual Bancorporation-Maryland’s creditors.

 

Also, under the rules and regulations of the Federal Reserve Board, no post-reorganization merger, consolidation, or similar combination or transaction with another depository institution in which Richmond Mutual Bancorporation-Maryland or First Bank Richmond is not the surviving institution would be considered a liquidation and, in such a transaction, the liquidation accounts maintained by Richmond Mutual Bancorporation-Maryland or First Bank Richmond, as the case may be, would be assumed by the surviving institution.

 

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Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account maintained by Richmond Mutual Bancorporation-Maryland for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50.00 or more held in First Bank Richmond on December 31, 2017 or [SERD]. Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account maintained by Richmond Mutual Bancorporation-Maryland for each such deposit account, based on the proportion that the balance of each such deposit account on December 31, 2017 or [SERD] bears to the balance of all deposit accounts in First Bank Richmond on such dates.

 

If, however, on any December 31 annual closing date commencing after the effective date of the reorganization, the amount in any such deposit account is less than the amount in the deposit account on December 31, 2017, or [SERD] or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and the interest will cease to exist if the deposit account is closed. In addition, no interest in the liquidation accounts maintained by Richmond Mutual Bancorporation-Maryland or First Bank Richmond, as the case may be, would ever be increased despite any subsequent increase in the related deposit account. The liquidation accounts maintained by Richmond Mutual Bancorporation-Maryland and First Bank Richmond reduce in amount corresponding to the reduction in the deposit account balances of eligible accountholders and supplemental eligible accountholders, as applicable, subsequent to the eligibility record date or supplemental eligibility record date, as applicable. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Richmond Mutual Bancorporation-Maryland as the sole shareholder of First Bank Richmond.

 

Material Income Tax Consequences

 

Although the reorganization may be effected in any manner approved by the Federal Reserve Board that is consistent with the purposes of the plan of reorganization and stock offering and applicable law, regulations and policies, it is intended that the reorganization will be effected through various mergers. Completion of the offering is conditioned upon the prior receipt of an opinion of counsel or a tax advisor with respect to federal and Indiana tax laws to the effect that no gain or loss will be recognized by First Mutual of Richmond-MHC, Richmond Mutual Bancorporation-Delaware or First Bank Richmond as a result of the reorganization or by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We have received an opinion from Silver, Freedman, Taff & Tiernan LLP as to the federal tax consequences of the reorganization. We have also received an opinion from BKD LLP to the effect that, more likely than not, the income tax consequences under Indiana law of the offering are not materially different than for federal income tax purposes.

 

Silver, Freedman, Taff & Tiernan LLP has issued an opinion to us that for federal income tax purposes:

 

(a) The merger of First Mutual of Richmond-MHC with and into Richmond Mutual Bancorporation-Delaware will qualify as a tax free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code.

 

(b) The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ voting and liquidation rights in First Mutual of Richmond-MHC for liquidation interests in Richmond Mutual Bancorporation-Delaware in the merger will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.

 

(c) First Mutual of Richmond-MHC will not recognize any gain or loss on the transfer of its assets to Richmond Mutual Bancorporation-Delaware and Richmond Mutual Bancorporation-Delaware’s assumption of its liabilities, if any, in constructive exchange for liquidation interests in Richmond Mutual Bancorporation-Delaware or on the constructive distribution of such liquidation interests to the members of First Mutual of Richmond-MHC who are Eligible Account Holders or Supplemental Eligible Account Holders of First Bank Richmond. (Sections 361(a), 361(c) and 357(a) of the Internal Revenue Code)

 

(d) No gain or loss will be recognized by Richmond Mutual Bancorporation-Delaware upon the receipt of the assets of First Mutual of Richmond-MHC in the merger in exchange for the constructive transfer of liquidation interests in Richmond Mutual Bancorporation-Delaware to the members of First Mutual of Richmond-MHC who are Eligible Account Holders and Supplemental Eligible Account Holders. (Section 1032(a) of the Internal Revenue Code)

 

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(e) Eligible Account Holders and Supplemental Eligible Account Holders will recognize no gain or loss upon the constructive receipt of liquidation interests in Richmond Mutual Bancorporation-Delaware in exchange for their voting and liquidation rights in First Mutual of Richmond-MHC. (Section 354(a) of the Internal Revenue Code)

 

(f) The basis of the assets of First Mutual of Richmond-MHC to be received by Richmond Mutual Bancorporation-Delaware in the merger will be the same as the basis of such assets in the hands of First Mutual of Richmond-MHC immediately prior to the transfer. (Section 362(b) of the Internal Revenue Code)

 

(g) The holding period of the assets of First Mutual of Richmond-MHC to be received by Richmond Mutual Bancorporation-Delaware in the merger will include the holding period of those assets in the hands of First Mutual of Richmond-MHC immediately prior to the transfer. (Section 1223(2) of the Internal Revenue Code)

 

(h) The merger of Richmond Mutual Bancorporation-Delaware with and into Richmond Mutual Bancorporation-Maryland will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code and will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code.

 

(i) The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ liquidation interests in Richmond Mutual Bancorporation-Delaware for interests in the liquidation account of Richmond Mutual Bancorporation-Maryland will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Federal Income Tax Regulations.

 

(j) Richmond Mutual Bancorporation-Delaware will not recognize any gain or loss on the transfer of its assets to Richmond Mutual Bancorporation-Maryland and Richmond Mutual Bancorporation-Maryland’s assumption of its liabilities in the merger pursuant to which Eligible Account Holders and Supplemental Eligible Account Holders will receive interests in the liquidation account of Richmond Mutual Bancorporation-Maryland in exchange for their liquidation interests in Richmond Mutual Bancorporation-Delaware. (Sections 361(a), 361(c) and 357(a) of the Internal Revenue Code)

 

(k) No gain or loss will be recognized by Richmond Mutual Bancorporation-Maryland upon the receipt of the assets of Richmond Mutual Bancorporation-Delaware in the merger. (Section 1032(a) of the Internal Revenue Code)

 

(l) Eligible Account Holders and Supplemental Eligible Account Holders will not recognize any gain or loss upon their constructive exchange of their liquidation interests in Richmond Mutual Bancorporation-Delaware for interests in the liquidation account of Richmond Mutual Bancorporation-Maryland. (Section 354 of the Internal Revenue Code)

 

(m) The basis of the assets of Richmond Mutual Bancorporation-Delaware to be received by Richmond Mutual Bancorporation-Maryland in the merger will be the same as the basis of those assets in the hands of Richmond Mutual Bancorporation-Delaware immediately prior to the transfer. (Section 362(b) of the Internal Revenue Code)

 

(n) The holding period of the assets of Richmond Mutual Bancorporation-Delaware to be received by Richmond Mutual Bancorporation-Maryland in the merger will include the holding period of those assets in the hands of Richmond Mutual Bancorporation-Delaware immediately prior to the transfer. (Section 1223(2) of the Internal Revenue Code)

 

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(o) It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Richmond Mutual Bancorporation-Maryland common stock is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Richmond Mutual Bancorporation-Maryland common stock. (Section 356(a) of the Internal Revenue Code) Gain, if any, realized by these account holders and members will not exceed the fair market value of the subscription rights distributed. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not recognize any gain as the result of the exercise by them of nontransferable subscription rights.

 

(p) It is more likely than not that the fair market value of the benefit provided by the liquidation account of First Bank Richmond supporting the payment of the liquidation account of Richmond Mutual Bancorporation-Maryland in the event Richmond Mutual Bancorporation-Maryland lacks sufficient net assets is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Richmond Mutual Bancorporation-Maryland or Eligible Account Holders and Supplemental Eligible Account Holders from the establishment or maintenance of the liquidation account of First Bank Richmond or the deemed distribution to Richmond Mutual Bancorporation-Maryland for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders of rights in, or deemed distribution to Eligible Account Holders and Supplemental Eligible Account Holders of rights, in the liquidation account of First Bank Richmond in the merger. (Section 356(a) of the Internal Revenue Code)

 

(q) It is more likely than not that the basis of the Richmond Mutual Bancorporation-Maryland common stock purchased in the offering through the exercise of nontransferable subscription rights will be the purchase price thereof. (Section 1012 of the Internal Revenue Code)

 

(r) The holding period of the Richmond Mutual Bancorporation-Maryland common stock purchased pursuant to the exercise of subscription rights will commence on the date on which the right to acquire this stock was exercised. (Section 1223(5) of the Internal Revenue Code)

 

(s) No gain or loss will be recognized by Richmond Mutual Bancorporation-Maryland on the receipt of money in exchange for Richmond Mutual Bancorporation-Maryland common stock sold in the offering. (Section 1032 of the Internal Revenue Code)

 

The tax opinion as to items (o) and (q) above is based on the position that subscription rights to be received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members do not have any economic value at the time of distribution or the time the subscription rights are exercised. In this regard, Silver, Freedman, Taff & Tiernan LLP noted that the subscription rights will be granted at no cost to the recipients, are legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. The firm also noted that the Internal Revenue Service has not in the past concluded that subscription rights have value. Based on the foregoing, Silver, Freedman, Taff & Tiernan LLP believes that it is more likely than not that the nontransferable subscription rights to purchase shares of common stock have no value. However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to those Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who exercise the subscription rights in an amount equal to the ascertainable value, and we could recognize gain on a distribution. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.

 

We also have received a letter from RP Financial stating its belief that the subscription rights do not have any ascertainable market value and that the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. This position is based on the fact that these rights are acquired by the recipients without cost, are nontransferable and of short duration, and afford the recipients the right only to purchase the common stock at the same price that will be paid by members of the general public in any community offering.

 

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The tax opinion as to item (p) above is based on the position that the benefit provided by the First Bank Richmond liquidation account supporting the payment, without duplication, of the liquidation account of Richmond Mutual Bancorporation-Maryland in the event Richmond Mutual Bancorporation-Maryland lacks sufficient net assets has a fair market value of zero. We understand that: (i) there is no history of any holder of a liquidation account receiving any payment attributable to a liquidation account; (ii) the interests in the liquidation accounts are not transferable; (iii) the amounts due under either liquidation account with respect to each Eligible Account Holder and Supplemental Eligible Account Holder will be reduced as their deposits in First Bank Richmond are reduced; and (iv) the First Bank Richmond liquidation account payment obligation arises only if Richmond Mutual Bancorporation-Maryland lacks sufficient net assets to fund the liquidation account maintained by Richmond Mutual Bancorporation-Maryland.

 

In addition, we have received a letter from RP Financial stating its belief that the benefit provided by the First Bank Richmond liquidation account supporting the payment of the liquidation account maintained by Richmond Mutual Bancorporation-Maryland in the event Richmond Mutual Bancorporation-Maryland lacks sufficient net assets does not have any economic value at the time of the merger of Richmond Mutual Bancorporation-Delaware and Richmond Mutual Bancorporation-Maryland. Based on the foregoing, Silver, Freedman, Taff & Tiernan LLP believes it is more likely than not that such rights in the First Bank Richmond liquidation account have no value. If these rights are subsequently found to have an economic value, income may be recognized by each Eligible Account Holder and Supplemental Eligible Account Holder in the amount of the fair market value as of the date of the merger of Richmond Mutual Bancorporation-Delaware and Richmond Mutual Bancorporation-Maryland.

 

We do not plan to apply for a private letter ruling from the Internal Revenue Service concerning the transactions described herein. Unlike private letter rulings issued by the Internal Revenue Service, opinions of counsel are not binding on the Internal Revenue Service or any state tax authority, and these authorities may disagree with the opinions. In the event of a disagreement, there can be no assurance that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.

 

The federal and state tax opinions have been filed with the Securities and Exchange Commission as exhibits to Richmond Mutual Bancorporation-Maryland’s registration statement.

 

Certain Restrictions on Purchase or Transfer of Our Shares after the Reorganization

 

All shares of common stock purchased in the offering by a director or an executive officer of First Bank Richmond generally may not be sold for a period of one year following the closing of the reorganization, except in the event of the death of the director or executive officer. We will provide our transfer agent with instructions to the effect that any transfer within this time period of any record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of Richmond Mutual Bancorporation-Maryland also will be restricted by the insider trading rules promulgated pursuant to the Securities Exchange Act of 1934, as amended.

 

Purchases of shares of our common stock by any of our directors, executive officers and their associates during the three-year period following the closing of the reorganization may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Federal Reserve Board. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to purchases of our common stock by our stock-based incentive plans or through any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans.

 

Federal Reserve Board regulations prohibit Richmond Mutual Bancorporation-Maryland from repurchasing its shares of common stock during the first year following the reorganization unless compelling business reasons exist for such repurchases. After one year, the Federal Reserve Board does not impose any repurchase restrictions.

 

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FIRST BANK RICHMOND, INC. COMMUNITY FOUNDATION

 

General

 

In furtherance of our commitment to the communities in our market area, the plan of reorganization and stock offering provides that we will establish a new charitable foundation, First Bank Richmond, Inc. Community Foundation, as a non-stock, nonprofit Indiana corporation in connection with the reorganization and offering. The charitable foundation will be funded with cash and shares of our common stock, as further described below. By further enhancing our visibility and reputation in the communities within our market area, we believe that the charitable foundation will enhance the long-term value of First Bank Richmond’s community banking franchise. The reorganization and offering present us with a unique opportunity to provide a substantial and continuing benefit to our community through the charitable foundation.

 

Purpose of the Charitable Foundation

 

In connection with the closing of the reorganization and stock offering, we intend to contribute a total of $6.25 million to the charitable foundation, consisting of $1.25 million of cash and $5.0 million (500,000 shares) of common stock. The purpose of the charitable foundation is to provide financial support to charitable organizations in our market areas and to enable the communities that we serve to share in our long-term growth. The charitable foundation will be dedicated completely to community activities and the promotion of charitable causes, and may be able to support such activities in ways that are not presently available to us.

 

Funding the charitable foundation with shares of our common stock is also intended to allow our communities to share in our potential growth and success after the offering is completed because the charitable foundation will benefit directly from any increases in the value of our shares of common stock. In addition, the charitable foundation will maintain close ties with First Bank Richmond, thereby forming a partnership within the communities in which First Bank Richmond operates.

 

Structure of the Charitable Foundation

 

The charitable foundation will be incorporated under Indiana law as a non-stock, nonprofit corporation. The articles of incorporation of the charitable foundation will provide that the corporation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. The articles of incorporation will further provide that no part of the net earnings of the charitable foundation will inure to the benefit of, or be distributable to, its members, directors or officers or to private individuals.

 

The charitable foundation will be governed by a board of directors, initially consisting of Garry D. Kleer, Thomas L. Holthouse and Kathryn Cruz-Uribe of First Bank Richmond and at least one other individual. We are required to select one person to serve on the initial board of directors who is not one of our officers or directors and who has experience with local charitable organizations and grant making. As of the date of this prospectus, we have not selected the individual to serve as the director to satisfy these requirements. For five years after the reorganization and offering, one seat on the charitable foundation’s board of directors will be reserved for a person from our local community who has experience with local community charitable organizations and grant making and who is not one of our officers, directors or employees, and at least one seat on the charitable foundation’s board of directors will be reserved for one of First Bank Richmond’s directors.

 

The board of directors of the charitable foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a nonprofit corporation, the directors of the charitable foundation will at all times be bound by their fiduciary duty to advance the charitable foundation’s charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which the charitable foundation is established. The directors also will be responsible for directing the activities of the charitable foundation, including the management and voting of the shares of our common stock held by the charitable foundation. However, as required by applicable regulations, all shares of our common stock held by the charitable foundation must be voted in the same ratio as all other shares of our common stock on all proposals considered by our shareholders.

 

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The charitable foundation’s place of business will be located at our corporate offices. The board of directors of the charitable foundation will appoint such officers and employees as may be necessary to manage its operations. To the extent applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and applicable Federal Reserve Board regulations governing transactions between First Bank Richmond and the charitable foundation.

 

The charitable foundation will receive working capital from the initial cash contribution and:

 

(1) any dividends that may be paid on our shares of common stock in the future to the extent that it continues to own shares of our common stock;

 

(2) within the limits of applicable federal and state laws, loans collateralized by the shares of common stock; and

 

(3) the proceeds of the sale of any of the shares of common stock in the open market from time to time.

 

As a private foundation under Section 501(c)(3) of the Internal Revenue Code, the charitable foundation will be required to distribute annually in grants or donations a minimum of 5% of the average fair market value of its net investment assets.

 

Tax Considerations

 

We believe that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and should be classified as a private foundation. As long as the charitable foundation files an application for tax-exempt status within 27 months of the last day of the month in which it was organized, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. We have not received a tax opinion as to whether the charitable foundation’s tax-exempt status will be affected by the regulatory requirement that all shares of our common stock held by it must be voted in the same ratio as all other outstanding shares of our common stock on all proposals considered by our shareholders.

 

We believe that our contribution of shares of our common stock to the charitable foundation should not constitute an act of self-dealing and that we should be entitled to a deduction in the amount of the fair market value of the stock at the time of the contribution. We are permitted to deduct for charitable purposes only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five-year period following the contribution to the charitable foundation. We estimate that all of the contribution should be deductible over the six-year period ( i.e. , the year in which the contribution is made and the succeeding five-year period). However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the charitable foundation. In such event, our contribution to the charitable foundation would be expensed without a tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. Furthermore, even if the contribution is deductible, we may not have sufficient earnings to be able to use the deduction in full. Any such decision to continue to make additional contributions to the charitable foundation in the future would be based on an assessment of, among other factors, our financial condition at that time, the interests of our shareholders and depositors, and the financial condition and operations of the foundation.

 

As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 1%. The charitable foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. The charitable foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation’s managers and a concise statement of the purpose of each grant.

 

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Regulatory Requirements Imposed on the Charitable Foundation

 

The Federal Reserve Board requires that, before our board of directors adopted the plan of reorganization and stock offering, the board of directors had to identify its members that will serve on the charitable foundation’s board, and these directors could not participate in our board’s discussions concerning contributions to the charitable foundation, and could not vote on the matter. Our board of directors complied with this regulation in adopting the plan of reorganization and stock offering.

 

The Federal Reserve Board will generally not object if a well-capitalized financial institution contributes to a charitable foundation an aggregate amount of 8% or less of the shares or proceeds issued in an offering. First Bank Richmond qualifies as a well-capitalized financial institution for purposes of this limitation, and the contribution to the charitable foundation will not exceed this limitation.

 

The Federal Reserve Board imposes the following additional requirements on the establishment of the charitable foundation:

 

• the charitable foundation’s primary purpose must be to serve and make grants in our local community;

 

• the Federal Reserve Board may examine the charitable foundation at the foundation’s expense;

 

• the charitable foundation must comply with all supervisory directives imposed by the Federal Reserve Board;

 

• the charitable foundation must provide annually to the Federal Reserve Board a copy of the annual report that the charitable foundation submits to the Internal Revenue Service;

 

• the charitable foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy;

 

• the charitable foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt status under the Internal Revenue Code; and

 

• the charitable foundation must vote its shares of our common stock in the same ratio as all of the other shares voted on each proposal considered by our shareholders.

 

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RESTRICTIONS ON ACQUISITION OF RICHMOND MUTUAL
BANCORPORATION, INC. (MARYLAND)

 

Although we are not aware of any effort that might be made to obtain control of Richmond Mutual Bancorporation-Maryland after the reorganization and offering, we believe that it is appropriate to include certain provisions as part of Richmond Mutual Bancorporation-Maryland’s articles of incorporation and bylaws to protect the interests of Richmond Mutual Bancorporation-Maryland and its shareholders from takeovers which our board of directors might conclude are not in the best interests of First Bank Richmond or Richmond Mutual Bancorporation-Maryland’s shareholders.

 

The following discussion is a general summary of the material provisions of Richmond Mutual Bancorporation-Maryland’s articles of incorporation and bylaws, First Bank Richmond’s charter and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect. The following description of certain of these provisions is necessarily general and is not intended to be a complete description of the document or regulatory provision in question. Richmond Mutual Bancorporation-Maryland’s articles of incorporation and bylaws are included as part of First Mutual of Richmond-MHC’s application filed with the Federal Reserve Board and Richmond Mutual Bancorporation-Maryland’s registration statement filed with the SEC. See “Where You Can Find Additional Information.”

 

Articles of Incorporation and Bylaws of Richmond Mutual Bancorporation-Maryland

 

Richmond Mutual Bancorporation-Maryland’s articles of incorporation and bylaws contain a number of provisions relating to corporate governance and rights of shareholders that may discourage future takeover attempts. As a result, shareholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions will also render the removal of the board of directors or management of Richmond Mutual Bancorporation-Maryland more difficult.

 

Directors. The board of directors will be divided into three classes. The members of each class generally will be elected for a term of three years and only one class of directors will be elected annually. Thus, it would take at least two annual elections to replace a majority of our board of directors. Further, the bylaws impose advance notice and information requirements in connection with the nomination by shareholders of candidates for election to the board of directors or the proposal by shareholders of business to be acted upon at an annual meeting of shareholders.

 

Restrictions on Call of Special Meetings. The bylaws provide that special meetings of shareholders can be called by the Chairman of the Board, the Chief Executive Officer, by a majority of the whole board of directors or upon the written request of shareholders entitled to cast at least a majority of all votes entitled to vote at the meeting.

 

Prohibition of Cumulative Voting. The articles of incorporation prohibit cumulative voting for the election of directors.

 

Limitation of Voting Rights. The articles of incorporation provide that in no event will any person who beneficially owns more than 10% of the then-outstanding shares of common stock be entitled or permitted to vote any of the shares of common stock held in excess of the 10% limit.

 

Restrictions on Removing Directors from Office. The articles of incorporation provide that directors may be removed only for cause, and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of our then-outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”) voting together as a single class.

 

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Authorized but Unissued Shares . After the reorganization and offering, Richmond Mutual Bancorporation-Maryland will have authorized but unissued shares of common and preferred stock. See “Description of Capital Stock of Richmond Mutual Bancorporation-Maryland following the Reorganization.” The articles of incorporation authorize 10,000,000 shares of serial preferred stock. Richmond Mutual Bancorporation-Maryland is authorized to issue preferred stock from time to time in one or more series subject to applicable provisions of law, and the board of directors is authorized to fix the designations and relative preferences, limitations, voting rights, if any, including without limitation, offering rights of such shares (which could be multiple or as a separate class). In the event of a proposed merger, tender offer or other attempt to gain control of Richmond Mutual Bancorporation-Maryland that the board of directors does not approve, it might be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of the transaction. An effect of the possible issuance of preferred stock therefore may be to deter a future attempt to gain control of Richmond Mutual Bancorporation-Maryland. The board of directors has no present plan or understanding to issue any preferred stock.

 

Amendments to Articles of Incorporation and Bylaws. Amendments to the articles of incorporation generally must be approved by our board of directors and also by the holders of a majority of the outstanding shares of our voting stock; provided, however, that the articles of incorporation provide that the articles may be amended by our board of directors without a shareholder vote to change the number of shares of authorized capital stock; and provided, further, that approval by the holders of at least 80% of the voting power of all of our then-outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”), voting together as a single class, is required to amend the following provisions:

 

(1) The limitation on voting rights of persons who directly or indirectly beneficially own more than 10% of the outstanding shares of common stock;

 

(2) The division of the board of directors into three staggered classes;

 

(3) The filling of vacancies on the board;

 

(4) The requirement that at least two-thirds of the votes eligible to be cast by shareholders must vote to remove directors, and can only remove directors for cause;

 

(5) The ability of the board of directors and shareholders to amend and repeal the bylaws;

 

(6) The authority of the board of directors to provide for the issuance of, and fix the terms of, serial preferred stock;

 

(7) The validity and effectiveness of any action lawfully authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes of stock outstanding and entitled to vote thereon, notwithstanding any provision of law setting a higher vote requirement, provided that a higher vote requirement for that particular matter is not contained in the articles of incorporation;

 

(8) The number of shareholders constituting a quorum;

 

(9) The indemnification of current and former directors and officers, as well as employees and other agents, by Richmond Mutual Bancorporation-Maryland;

 

(10) The limitation of liability of officers and directors to Richmond Mutual Bancorporation-Maryland or its shareholders for money damages;

 

(11) The inability of shareholders to cumulate their votes in the election of directors;

 

(12) The advance notice requirements for shareholder proposals and nominations;

 

(13) The provision regarding “business combinations” with “interested shareholders” (see “Business Combinations with Interested Shareholders” below);

 

(14) The provision designed to prevent greenmail (see “—Prevention of Greenmail” below); and

 

(15) The provision of the articles of incorporation requiring approval of at least 80% of the outstanding voting stock to amend the provisions of the articles of incorporation provided in (1) through (14) of this list.

 

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The articles of incorporation also provide that the bylaws may be amended by the affirmative vote of a majority of Richmond Mutual Bancorporation-Maryland’s directors or by the shareholders by the affirmative vote of at least 80% of the voting power of all of our then-outstanding shares of capital stock entitled to vote generally in the election of directors (after giving effect to the limitation on voting rights discussed above in “—Limitation of Voting Rights”), voting together as a single class. As noted above, any amendment of this super-majority requirement for amendment of the bylaws by shareholders would also require the approval of 80% of the outstanding voting stock.

 

Business Combinations with Interested Shareholders . The articles of incorporation generally require the approval of the holders of at least 80% of the voting power of the then-outstanding shares of stock entitled to vote in the election of directors, voting together as a single class, to approve certain “business combinations” with an “interested shareholder.” This supermajority voting requirement will not apply in cases where the proposed transaction has been approved by a majority of those members of Richmond Mutual Bancorporation-Maryland’s board of directors who are unaffiliated with the interested shareholder and who were directors before the time when the interested shareholder became an interested shareholder or if the proposed transaction meets certain conditions that are designed to afford the shareholders a fair price in consideration for their shares.

 

The term “interested shareholder” includes any individual, group acting in concert, corporation, partnership, association or other entity (other than Richmond Mutual Bancorporation-Maryland or its subsidiary) who or which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of voting stock of Richmond Mutual Bancorporation-Maryland.

 

A “business combination” includes:

 

· any merger or consolidation of Richmond Mutual Bancorporation-Maryland or any of its subsidiaries with any interested shareholder or affiliate of an interested shareholder or any corporation which is, or after such merger or consolidation would be, an affiliate of an interested shareholder;

 

· any sale or other disposition to or with any interested shareholder of the assets of Richmond Mutual Bancorporation-Maryland or any subsidiary with an aggregate fair market value of 25% or more of the combined assets of Richmond Mutual Bancorporation-Maryland and its subsidiaries;

 

· the issuance or transfer to any interested shareholder or its affiliate by Richmond Mutual Bancorporation-Maryland (or any subsidiary) of any securities of Richmond Mutual Bancorporation-Maryland (or any subsidiary) in exchange for cash, securities or other property the aggregate fair market value of which equals or exceeds 25% of the combined assets of Richmond Mutual Bancorporation-Maryland and its subsidiaries, except pursuant to an employee benefit plan of Richmond Mutual Bancorporation-Maryland or any subsidiary;

 

· the adoption of any plan for the liquidation or dissolution of Richmond Mutual Bancorporation-Maryland proposed by or on behalf of any interested shareholder or its affiliate; and

 

· any reclassification of securities, recapitalization, merger or consolidation of Richmond Mutual Bancorporation-Maryland with any of its subsidiaries or any other transaction which has the effect of increasing the proportionate share of common stock or any class of equity or convertible securities of Richmond Mutual Bancorporation-Maryland or any subsidiary owned directly or indirectly, by an interested shareholder or its affiliate.

 

Prevention of Greenmail. Richmond Mutual Bancorporation-Maryland’s articles of incorporation generally prohibit Richmond Mutual Bancorporation-Maryland from acquiring any of its own equity securities from a beneficial owner of 5% or more of our voting stock unless: (i) the acquisition is approved by the holders of at least 80% of the voting power of the then-outstanding shares of stock entitled to vote in the election of directors, that is not owned by the seller, voting together as a single class; (ii) the acquisition is made as part of a tender or exchange offer by Richmond Mutual Bancorporation-Maryland or a subsidiary of Richmond Mutual Bancorporation-Maryland to purchase securities of the same class on the same terms to all holders of such securities; (iii) the acquisition is pursuant to an open market purchase program approved by a majority of the board of directors, including a majority of the directors who are unaffiliated with the seller and who were directors before the time when the seller became a 5% or greater stockholder; or (iv) the acquisition is at or below the market price of the equity securities to be purchased and is approved by a majority of the board of directors, including a majority of the directors who are unaffiliated with the seller and who were directors before the time when the seller became a 5% or greater stockholder.

 

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Control Share Acquisitions . The Maryland General Corporation Law provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights unless approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror or by the corporation’s officers or directors who are employees of the corporation. Control shares are shares of voting stock which, if aggregated with all other shares of stock previously acquired, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

 

· 10% or more but less than 33⅓%;

 

· 33⅓% or more but less than a majority; or

 

· a majority of all voting power.

 

Control shares do not include shares of stock an acquiring person is entitled to vote as a result of having previously obtained shareholder approval. A control share acquisition generally means the acquisition of, ownership of or the power to direct the exercise of voting power with respect to, control shares.

 

A person who has made or proposes to make a “control share acquisition,” under specified conditions, including an undertaking to pay expenses, may require the board of directors to call a special shareholders’ meeting to consider the voting rights of the shares. The meeting must be held within 50 days of the demand. If no request for a meeting is made, the corporation may itself present the question at any shareholders’ meeting.

 

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as permitted by the statute, the corporation generally may redeem any or all of the control shares, except those for which voting rights have previously been approved. This redemption of shares must be for fair value, determined without regard to the absence of voting rights as of the date of the last control share acquisition or of any shareholders’ meeting at which the voting rights of the shares are considered and not approved. If voting rights for “control shares” are approved at a shareholders’ meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the stock determined for purposes of appraisal rights may not be less than the highest price per share paid in the control share acquisition. The limitations and restrictions otherwise applicable to the exercise of dissenters’ rights do not apply in the context of a “control share acquisition.”

 

The control share acquisition statute does not apply to stock acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to an acquisition previously approved or exempted by a provision in the charter or bylaws of the corporation. The bylaws of Richmond Mutual Bancorporation-Maryland include a provision opting out of this provision of Maryland General Corporation Law.

 

Evaluation of Offers. The articles of incorporation of Richmond Mutual Bancorporation-Maryland provide that its board of directors, when evaluating a transaction that would or may involve a change in control of Richmond Mutual Bancorporation-Maryland (whether by purchases of its securities, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of its assets, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of Richmond Mutual Bancorporation-Maryland and its shareholders and in making any recommendation to the shareholders, give due consideration to all relevant factors, including, but not limited to:

 

· the economic effect, both immediate and long-term, upon Richmond Mutual Bancorporation-Maryland’s shareholders, including shareholders, if any, who do not participate in the transaction;

 

· the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, Richmond Mutual Bancorporation-Maryland and its subsidiaries and on the communities in which Richmond Mutual Bancorporation-Maryland and its subsidiaries operate or are located;

 

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· whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of Richmond Mutual Bancorporation-Maryland;

 

· whether a more favorable price could be obtained for Richmond Mutual Bancorporation-Maryland’s stock or other securities in the future;

 

· the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of Richmond Mutual Bancorporation-Maryland and its subsidiaries;

 

· the future value of the stock or any other securities of Richmond Mutual Bancorporation-Maryland or the other entity to be involved in the proposed transaction;

 

· any antitrust or other legal and regulatory issues that are raised by the proposal;

 

· the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and

 

· the ability of Richmond Mutual Bancorporation-Maryland to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.

 

If the board of directors determines that any proposed transaction should be rejected, it may take any lawful action to defeat such transaction.

 

Purpose and Anti-Takeover Effects of Richmond Mutual Bancorporation-Maryland’s Articles of Incorporation and Bylaws . Our board of directors believes that the provisions described above are prudent and will reduce our vulnerability to takeover attempts and certain other transactions that have not been negotiated with and approved by our board of directors. These provisions also will assist us in the orderly deployment of the offering proceeds into productive assets during the initial period after the reorganization and offering. Our board of directors believes these provisions are in the best interests of Richmond Mutual Bancorporation-Maryland and its shareholders. Our board of directors believes that it will be in the best position to determine the true value of Richmond Mutual Bancorporation-Maryland and to negotiate more effectively for what may be in the best interests of its shareholders. Accordingly, our board of directors believes that it is in the best interests of Richmond Mutual Bancorporation-Maryland and its shareholders to encourage potential acquirers to negotiate directly with the board of directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the view of our board of directors that these provisions should not discourage persons from proposing a merger or other transaction at a price reflective of the true value of Richmond Mutual Bancorporation-Maryland and that is in the best interests of all shareholders.

 

Takeover attempts that have not been negotiated with and approved by our board of directors present the risk of a takeover on terms that may be less favorable than might otherwise be available. A transaction that is negotiated and approved by our board of directors, on the other hand, can be carefully planned and undertaken at an opportune time in order to obtain maximum value of Richmond Mutual Bancorporation-Maryland for our shareholders, with due consideration given to matters such as the management and business of the acquiring corporation and maximum strategic development of Richmond Mutual Bancorporation-Maryland’s assets.

 

Although a tender offer or other takeover attempt may be made at a price substantially above the current market price, these offers are sometimes made for less than all of the outstanding shares of a target company. As a result, shareholders may be presented with the alternative of partially liquidating their investment at a time that may be disadvantageous, or retaining their investment in an enterprise that is under different management and whose objectives may not be similar to those of the remaining shareholders.

 

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Despite our belief as to the benefits to shareholders of these provisions of Richmond Mutual Bancorporation-Maryland’s articles of incorporation and bylaws, these provisions may also have the effect of discouraging a future takeover attempt that would not be approved by our board of directors, but pursuant to which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have any opportunity to do so. These provisions will also make it more difficult to remove our board of directors and management. Our board of directors, however, has concluded that the potential benefits outweigh the possible disadvantages.

 

Following the reorganization and offering pursuant to applicable law and, if required, following the approval by shareholders, we may adopt additional anti-takeover provisions in our articles of incorporation and bylaws or other devices regarding the acquisition of our equity securities that would be permitted for a Maryland business corporation.

 

The cumulative effect of the restrictions on acquisition of Richmond Mutual Bancorporation-Maryland contained in our articles of incorporation and bylaws and in Maryland law may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain shareholders of Richmond Mutual Bancorporation-Maryland may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests.

 

Federal Banking Law

 

Under the Change in Bank Control Act, no person may acquire control of a bank holding company unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition.

 

Control, as defined under federal law, means ownership, control, or holding with power to vote, of 25% or more of any class of voting stock. Federal regulations establish a rebuttable presumption of control upon ownership, control, or holding with power to vote of 10% or more of a class of voting stock where (i) the company has registered securities under Section 12 of the Securities Exchange Act of 1934 or (ii) no other person will own control or hold the power to vote a greater percentage of that class of voting securities.

 

The Federal Reserve Board may deny an acquisition of control if it finds, among other things, that:

 

• the acquisition would result in a monopoly or substantially lessen competition;

 

• the financial condition of the acquiring person might jeopardize the financial stability of the institution;

 

• the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person; or

 

• the acquisition would have an adverse effect on the Deposit Insurance Fund.

 

For a period of three years following completion of the offering, Federal Reserve Board regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of Richmond Mutual Bancorporation-Maryland or First Bank Richmond without the Federal Reserve Board’s prior approval.

 

  146  

 

  

DESCRIPTION OF CAPITAL STOCK OF RICHMOND MUTUAL
BANCORPORATION, INC. (MARYLAND)

 

General

 

Under its articles of incorporation, Richmond Mutual Bancorporation-Maryland is authorized to issue 90,000,000 shares of common stock, par value of $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. The articles of incorporation provide that they may be amended by the board of directors without a shareholder vote to change the number of authorized shares of stock. Richmond Mutual Bancorporation-Maryland currently expects to issue in the offering up to a maximum of 11,327,500 shares of common stock or 13,026,625 shares of common stock in the event that the maximum of the offering range is increased by 15%. Richmond Mutual Bancorporation-Maryland will not issue shares of preferred stock in the offering. Each share of Richmond Mutual Bancorporation-Maryland common stock will have the same relative rights as, and will be identical in all respects to, each other share of common stock. Upon payment of the subscription price for the common stock, in accordance with the plan of reorganization, all of the shares of common stock will be duly authorized, fully paid and nonassessable.

 

The shares of common stock of Richmond Mutual Bancorporation-Maryland will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC or any other government agency.

 

Common Stock

 

Dividends . Richmond Mutual Bancorporation-Maryland may pay dividends up to an amount equal to the excess of our capital surplus over payments that would be owed upon dissolution to shareholders whose preferential rights upon dissolution are superior to those receiving the dividend, and up to an amount that would not make us insolvent, as and when declared by our board of directors. The payment of dividends by Richmond Mutual Bancorporation-Maryland is subject to limitations that are imposed by law and applicable regulation. The holders of common stock of Richmond Mutual Bancorporation-Maryland will be entitled to receive and share equally in dividends as may be declared by our board of directors out of funds legally available therefor. If Richmond Mutual Bancorporation-Maryland issues shares of preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

 

Voting Rights . Upon consummation of the reorganization and offering, the holders of common stock of Richmond Mutual Bancorporation-Maryland will have exclusive voting rights in Richmond Mutual Bancorporation-Maryland. They will elect Richmond Mutual Bancorporation-Maryland’s board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Generally, each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. Any person who beneficially owns more than 10% of the then-outstanding shares of Richmond Mutual Bancorporation-Maryland’s common stock, however, will not be entitled or permitted to vote any shares of common stock held in excess of the 10% limit. If Richmond Mutual Bancorporation-Maryland issues shares of preferred stock, holders of the preferred stock may also possess voting rights. Certain matters require an 80% shareholder vote.

 

As an Indiana state chartered commercial bank, corporate powers and control of First Bank Richmond are vested in its board of directors, who elect the officers of First Bank Richmond and who fill any vacancies on the board of directors. Voting rights of First Bank Richmond are vested exclusively in the owners of the shares of capital stock of First Bank Richmond, which will be Richmond Mutual Bancorporation-Maryland, and voted at the direction of Richmond Mutual Bancorporation-Maryland’s board of directors. Consequently, the holders of the common stock of Richmond Mutual Bancorporation-Maryland will not have direct control of First Bank Richmond.

 

Liquidation . In the event of any liquidation, dissolution or winding up of First Bank Richmond, Richmond Mutual Bancorporation-Maryland, as the holder of 100% of First Bank Richmond’s capital stock, would be entitled to receive all assets of First Bank Richmond available for distribution, after payment or provision for payment of all debts and liabilities of First Bank Richmond, including all deposit accounts and accrued interest thereon, and after distribution of the balance in the liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders. In the event of liquidation, dissolution or winding up of Richmond Mutual Bancorporation-Maryland, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Richmond Mutual Bancorporation-Maryland available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

 

  147  

 

  

Preemptive Rights . Holders of the common stock of Richmond Mutual Bancorporation-Maryland will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

 

Preferred Stock

 

None of the shares of Richmond Mutual Bancorporation-Maryland’s authorized preferred stock will be issued as part of the offering or the reorganization. Preferred stock may be issued with preferences and designations as our board of directors may from time to time determine. Our board of directors may, without shareholder approval, issue shares of preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control. Any issuance of preferred stock will be approved by a majority of our independent directors who do not have an interest in the transaction and who have access, at our expense, to our legal counsel or independent legal counsel.

 

TRANSFER AGENT AND REGISTRAR

 

The transfer agent and registrar for Richmond Mutual Bancorporation-Maryland common stock will be _______________.

 

EXPERTS

 

The consolidated financial statements of Richmond Mutual Bancorporation-Delaware and its subsidiary as of December 31, 2018 and 2017, and for each year in the two-year period ended December 31, 2018 included in this prospectus and in the registration statement have been audited by BKD, LLP, an independent registered public accounting firm, as stated in its report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

RP Financial has consented to the publication herein of the summary of its report to First Bank Richmond setting forth its opinion as to the estimated pro forma market value of the Richmond Mutual Bancorporation-Maryland common stock and its letter with respect to subscription rights.

 

LEGAL AND TAX OPINIONS

 

The legality of the common stock issued in the offering and the federal income tax consequences of the reorganization have been passed upon for Richmond Mutual Bancorporation-Maryland and First Bank Richmond by Silver, Freedman, Taff & Tiernan LLP, Washington, D.C., special counsel to Richmond Mutual Bancorporation-Maryland and First Bank Richmond. The Indiana income tax consequences of the reorganization and offering have been passed upon for Richmond Mutual Bancorporation-Maryland and First Bank Richmond by BKD, LLP, Indianapolis, Indiana. Certain legal matters regarding the reorganization and the offering will be passed upon for Keefe, Bruyette & Woods, Inc. by Luse Gorman, P.C., Washington, D.C.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

Richmond Mutual Bancorporation-Maryland has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933, with respect to the common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. This information, including the appraisal report which is an exhibit to the registration statement, is available through the Securities and Exchange Commission’s website on the internet at http://www.sec.gov. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions thereof and are not necessarily complete but do contain all material information regarding the documents; each statement is qualified by reference to the contract or document.

 

  148  

 

  

Richmond Mutual Bancorporation-Maryland and First Bank Richmond have filed applications with the Federal Reserve Board and the Indiana Department of Financial Institutions with respect to the reorganization and offering. Pursuant to the rules and regulations of the Federal Reserve Board, this prospectus omits certain information contained in such applications. To obtain a copy of non-confidential portions of the applications filed with the Federal Reserve Board or the Indiana Department of Financial Institutions, you may contact Assistant Vice President of the Federal Reserve Bank of Chicago, at (312) 322-6846 or the Indiana Department of Financial Institutions at (317) 232-3955, respectively.

 

A copy of the charter and bylaws of Richmond Mutual Bancorporation-Maryland is available without charge from First Bank Richmond.

 

REGISTRATION REQUIREMENTS

 

In connection with the offering, Richmond Mutual Bancorporation-Maryland will register its common stock with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934. Upon this registration, Richmond Mutual Bancorporation-Maryland and the holders of its shares of common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on stock purchases and sales by directors, officers and greater than 10% stockholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934. Under the plan of reorganization, Richmond Mutual Bancorporation-Maryland has undertaken that it will not terminate this registration for a period of at least three years following the reorganization.

 

  149  

 

 

Index to Financial Statements

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets, December 31, 2018 and 2017 F-3
   
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018 and 2017 F-4 – F-5
   
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018 F-6
   
Consolidated Statements of Cash Flows for the  Years Ended December 31, 2018 and 2017 F-7
   
Notes to Consolidated Financial Statements for the  Years Ended December 31, 2018 and 2017 F-8 - F-48

 

(1) All schedules are omitted because the required information is not applicable or included in the consolidated financial statements and related notes.

 

(2) The financial statements of Richmond Mutual Bancorporation-Maryland have been omitted because Richmond Mutual Bancorporation has not yet issued any stock, has no assets or liabilities, and has not conducted any business other than that of an organizational nature.

 

  F- 1  

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders, Board of Directors and Audit Committee Richmond

Mutual Bancorporation, Inc.

Richmond, Indiana 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Richmond Mutual Bancorporation, Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 

 

BKD, LLP

 

We have served as the Company’s auditor since at least 1990; however, an earlier year cannot be reliably determined.

 

Indianapolis, Indiana

March 6, 2019

 

 

  F- 2  

 

 

Richmond Mutual Bancorporation, Inc.

Consolidated Balance Sheets
December 31, 2018 and 2017

 

    2018     2017  
             
Assets                
                 
Cash and due from banks   $ 10,112,422     $ 9,883,088  
Interest-bearing demand deposits     4,858,748       6,286,666  
Cash and cash equivalents     14,971,170       16,169,754  
Interest-bearing time deposits     -       200,000  
Investment securities - available for sale     122,482,487       118,356,869  
Investment securities - held to maturity     21,079,974       24,892,334  
Loans and leases, net of allowance for losses of $5,600,000 and  $4,800,000, respectively     654,755,066       557,929,014  
Premises and equipment, net     14,025,476       13,592,274  
Federal Reserve and Federal Home Loan Bank stock     6,560,600       6,716,700  
Interest receivable     2,686,010       2,268,090  
Mortgage-servicing rights     1,227,356       1,042,386  
Cash surrender value of life insurance     3,718,219       3,597,276  
Other assets     8,112,005       8,856,180  
                 
Total assets   $ 849,618,363     $ 753,620,877  
                 
Liabilities                
Non-interest bearing deposits   $ 58,044,369     $ 58,922,097  
Interest bearing deposits     562,592,451       501,472,847  
Total deposits     620,636,820       560,394,944  
Federal Home Loan Bank advances     136,100,000       104,000,000  
Advances by borrowers for taxes and insurance     543,527       501,438  
Interest payable     550,749       237,693  
Other liabilities     5,934,235       6,688,979  
Total liabilities     763,765,331       671,823,054  
                 
Commitments and Contingent Liabilities                
                 
Stockholders' Equity                
Preferred stock, $.01 par value                
Authorized - 500 shares                
Issued and outstanding - 0 shares     -       1  
Common stock, $.01 par value                
Authorized - 500 shares                
Issued and outstanding - 100 shares     1       1  
Additional paid-in capital     12,750,999       12,757,998  
Retained earnings     77,480,318       71,765,677  
Accumulated other comprehensive loss     (4,378,286 )     (2,725,854 )
Total stockholders' equity     85,853,032       81,797,823  
                 
Total liabilities and stockholders' equity   $ 849,618,363     $ 753,620,877  

 

See Notes to Consolidated Financial Statements

 

  F- 3  

 

 

Richmond Mutual Bancorporation, Inc.

Consolidated Statements of Income
Years Ended December 31, 2018 and 2017

 

    2018     2017  
Interest Income                
Loans and leases   $ 31,559,268     $ 25,523,463  
Investment securities     3,507,674       3,444,124  
Other     132,308       136,852  
Total interest income     35,199,250       29,104,439  
                 
Interest Expense                
Deposits     5,648,261       3,796,077  
Borrowings     2,104,058       1,453,922  
Total interest expense     7,752,319       5,249,999  
                 
Net Interest Income     27,446,931       23,854,440  
Provision for losses on loans and leases     1,680,000       1,370,000  
                 
Net Interest Income After Provision for Losses on Loans and Leases     25,766,931       22,484,440  
                 
Other Income                
Service charges on deposit accounts     1,115,308       1,110,983  
Card fee income     698,435       643,919  
Loan and lease servicing fees     335,412       208,165  
Net gains on securities (includes $14,857 and $96,048 for the years ended December 31, 2018 and 2017, respectively, related to accumulated other comprehensive loss reclassifications)     14,857       96,048  
Net gains on loan and lease sales     458,618       794,171  
Other loan fees     561,974       1,046,348  
Other income     1,109,456       615,417  
Total other income     4,294,060       4,515,051  
                 
Other Expenses                
Salaries and employee benefits     13,802,299       12,799,272  
Net occupancy expenses     1,113,005       1,041,380  
Equipment expenses     986,141       836,467  
Data processing fees     1,478,463       1,445,402  
Deposit insurance expense     600,000       320,500  
Printing and office supplies     144,702       137,901  
Legal and professional fees     874,689       564,570  
Advertising expense     543,845       527,745  
Bank service charges     106,855       101,968  
Real estate owned expense     60,891       107,316  
Loss on sale of real estate owned     7,737       482,388  
Loan tax and insurance expense     512,406       208,079  
Other expenses     2,873,769       2,738,972  
Total other expenses     23,104,802       21,311,960  
                 
Income Before Income Tax Expense     6,956,189       5,687,531  
Provision for income taxes (includes $3,883 and $38,045 for the years ended December 31, 2018 and 2017, respectively, related to income tax expense from reclassification of items.)     1,278,238       2,972,190  
                 
Net Income   $ 5,677,951     $ 2,715,341  

 

See Notes to Consolidated Financial Statements

 

  F- 4  

 

 

Richmond Mutual Bancorporation, Inc.

Consolidated Statements of Comprehensive Income
Years Ended December 31, 2018 and 2017

 

    2018     2017  
             
Net Income   $ 5,677,951     $ 2,715,341  
                 
Other Comprehensive Income (Loss)                
Unrealized appreciation (depreciation) on available-for-sale securities, net of tax expense (benefit) of ($282,375) and  $679,043 for the years ended December 31, 2018 and 2017, respectively     (1,104,768 )     1,035,279  
Less:  reclassification adjustment for realized gains included in  net income, net of tax expense of $3,883 and $38,045 for the  years ended December 31, 2018 and 2017, respectively     10,974       58,003  
      (1,115,742 )     977,276  
                 
Comprehensive Income   $ 4,562,209     $ 3,692,617  

 

See Notes to Consolidated Financial Statements

  

  F- 5  

 

 

Richmond Mutual Bancorporation, Inc.

Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2018 and 2017

 

                                        Accumulated        
    Preferred Stock     Common Stock     Additional           Other        
    Shares           Shares           Paid-in     Retained     Comprehensive        
    Outstanding     Amount     Outstanding     Amount     Capital     Earnings     Loss     Total  
                                                 
Balances, December 31, 2016     80     $ 1       100     $ 1     $ 12,757,998     $ 69,050,336     $ (3,703,130 )   $ 78,105,206  
Net income                                             2,715,341               2,715,341  
Other comprehensive income                                                     977,276       977,276  
                                                                 
Balances, December 31, 2017     80       1       100       1       12,757,998       71,765,677       (2,725,854 )     81,797,823  
Cumulative effect per ASU 2018-02                                             536,690       (536,690 )     -  
Redemption of preferred stock     (80 )   $ (1 )                   $ (6,999 )                     (7,000 )
Net income                                             5,677,951               5,677,951  
Dividend                                             (500,000 )             (500,000 )
Other comprehensive loss                                                     (1,115,742 )     (1,115,742 )
                                                                 
Balances, December 31, 2018     -     $ -       100     $ 1     $ 12,750,999     $ 77,480,318     $ (4,378,286 )   $ 85,853,032  

  

See Notes to Consolidated Financial Statements

 

  F- 6  

 

 

Richmond Mutual Bancorporation, Inc.

Consolidated Statements of Cash Flows
Years Ended December 31, 2018 and 2017

 

    2018     2017  
Operating Activities                
Net income   $ 5,677,951     $ 2,715,341  
Items not requiring (providing) cash                
Provision for loan losses     1,680,000       1,370,000  
Depreciation and amortization     895,318       876,604  
Deferred income tax     938,000       2,168,789  
Investment securities (accretion) amortization, net     987,330       1,247,145  
Investment securities gains     (14,857 )     (96,048 )
Gain on sale of loans and leases held for sale     (458,618 )     (794,171 )
Loss on sale of real estate owned     7,737       482,388  
Amortization of loan origination fees     (188,066 )     (196,566 )
Amortization of core deposit intangible     -       137,479  
Amortization of mortgage-servicing rights     216,882       210,312  
Increase in cash surrender value of life insurance     (120,943 )     (120,062 )
Loans originated for sale     (21,727,372 )     (21,679,725 )
Proceeds on loans sold     21,523,222       21,180,745  
Net change in                
Interest receivable     (417,920 )     (120,035 )
Other assets     (381,847 )     (534,251 )
Other liabilities     (469,532 )     (472,588 )
Interest payable     313,056       (159,936 )
Net cash provided by operating activities     8,460,341       6,215,421  
                 
Investing Activities                
Net change in interest-bearing time deposits     200,000       1,294,975  
Purchases of securities available for sale     (22,340,455 )     (3,356,665 )
Proceeds from maturities and paydowns of securities available for sale     10,056,658       12,820,971  
Proceeds from sales of securities available for sale     5,871,002       17,127,454  
Proceeds from maturities and paydowns of securities held to maturity     3,726,110       2,355,000  
Net change in loans     (97,988,206 )     (96,251,588 )
Proceeds from sales of real estate owned     111,421       3,458,265  
Purchases of premises and equipment     (1,328,520 )     (534,860 )
Redemption (Purchase) of FHLB stock     156,100       (493,000 )
Net cash used in investing activities     (101,535,890 )     (63,579,448 )
                 
Financing Activities                
Net change in                
Demand and savings deposits     2,142,113       4,115,040  
Certificates of deposit     58,099,763       39,978,019  
Advances by borrowers for taxes and insurance     42,089       15,969  
Redemption of preferred stock     (7,000 )     -  
Proceeds from FHLB advances     459,800,000       169,500,000  
Repayment of FHLB advances     (427,700,000 )     (157,800,000 )
Dividends paid     (500,000 )     -  
Net cash provided by financing activities     91,876,965       55,809,028  
                 
Net Change in Cash and Cash Equivalents     (1,198,584 )     (1,554,999 )
                 
Cash and Cash Equivalents, Beginning of Period     16,169,754       17,724,753  
                 
Cash and Cash Equivalents, End of Period   $ 14,971,170     $ 16,169,754  
                 
Additional Cash Flows and Supplementary Information                
Interest paid   $ 7,439,263     $ 5,409,935  
Income tax paid     658,245       137,000  
Transfers from loans to other real estate owned     260,524       230,850  

 

See Notes to Consolidated Financial Statements

 

  F- 7  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 1: Nature of Operations and Summary of Significant Accounting Policies

 

The accounting and reporting policies of Richmond Mutual Bancorporation, Inc. (Company), which is a wholly owned subsidiary of First Mutual of Richmond, Inc. (Mutual), and the Company’s wholly owned subsidiary, First Bank Richmond (First Bank), conform to accounting principles generally accepted in the United States of America and reporting practices followed by the banking industry. The more significant of the policies are described below.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, loan servicing rights, and fair values of financial instruments.

 

The Company is a bank holding company whose principal activity is the ownership and management of First Bank. First Bank operates under an Indiana state bank charter and provides full banking services. As a state bank, First Bank is subject to regulation by the Indiana Department of Financial Institutions (DFI) and the Federal Deposit Insurance Corporation (FDIC). In 2016, Mutual Federal Savings Bank’s charter (a subsidiary of the Company) was collapsed into First Bank's charter. In doing so, Mutual Federal Savings Bank became "Mutual Federal, a division of First Bank Richmond" (Mutual Federal or MFSB).

 

First Bank generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana; and Shelby, Miami, and Franklin Counties, in Ohio. First Bank’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets.

 

Consolidation - The consolidated financial statements include the accounts of the Company and First Bank after elimination of all material intercompany transactions.

 

Cash Equivalents - The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.

 

  F- 8  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Investment Securities - Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity or included in the trading account and marketable equity securities not classified as trading are classified as available for sale. Securities available for sale are carried at fair value with unrealized gains and losses reported separately in accumulated other comprehensive income (loss), net of tax. Equity securities available for sale are carried at fair value with changes in unrealized gains and losses recognized through net income. Trading account securities are held for resale in anticipation of short-term market movements and are valued at fair value. Gains and losses, both realized and unrealized, are included in other income.

 

The Company accounts for recognition and presentation of other-than-temporary impairment in accordance with ASC 320-10. When the Company does not intend to sell a debt security, and it is more likely than not, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive loss. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive loss for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

 

Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific-identification method.

 

Purchased premiums and discounts on collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and other mortgage related securities are amortized or accreted using the effective interest method. The period of amortization used is estimated based on anticipated principal prepayments. Differences between anticipated and actual prepayments result in adjustments which are charged or credited to income as an adjustment to yield. For classification purposes, REMICs are grouped with mortgage-backed securities.

 

Direct financing leases are carried at cost. Cost is defined as the total minimum lease payments receivable and the estimated residual value of the leased property, less the amount of unearned income. Unearned income on direct financing leases is recognized as income over the term of the lease using a method that approximates the interest method.

 

Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

 

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

 

  F- 9  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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.

 

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

 

For all loan portfolio segments except residential and consumer loans, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

 

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.

 

  F- 10  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Allowance for loan and lease losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan 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.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years. Management believes the three year historical loss experience methodology, on a weighted basis, is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due based on the loan’s current payment status and the borrower’s financial condition including available sources of cash flows. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for nonhomogeneous type loans such as commercial, nonowner residential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Company utilizes the discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

 

  F- 11  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The fair values of collateral dependent impaired loans are based on independent appraisals of the collateral. In general, the Company acquires an updated appraisal upon identification of impairment and annually thereafter for commercial, commercial real estate and multi-family loans. If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of comparable values or other reasons, the existing appraisal is utilized and discounted based on the age of the appraisal, condition of the subject property, and overall economic conditions. After determining the collateral value as described, the fair value is calculated based on the determined collateral value, less selling expenses. The potential for outdated appraisal values is considered in the determination of the allowance for loan losses through an analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc. and the related qualitative adjustments assigned by the Company.

 

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

 

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment plan.

 

It is the Company’s policy to have any restructured loans, which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance at which time management would consider its return to accrual status. If a loan was accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate to continue the accrual of interest on the restructured loan.

 

With regard to determination of the amount of the allowance for credit losses, troubled debt restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

 

Premises and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

 

  F- 12  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Federal Reserve and Federal Home Loan Bank stock are required investments for institutions that are members of the Federal Reserve (FRB) and Federal Home Loan Bank (FHLB) systems. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

 

Core deposit intangible was being amortized on the straight-line basis over ten years. The core deposit intangible asset was periodically evaluated as to the recoverability of the carrying value.

 

Foreclosed Assets Held for Sale - Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

 

Mortgage-servicing rights on originated loans that have been sold are initially recorded at fair value. Capitalized servicing rights, which include purchased servicing rights, are amortized in proportion to and over the period of estimated servicing revenues. Impairment of mortgage-servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans. The predominant characteristic currently used for stratification is type of loan. The amount of impairment recognized is the amount by which the capitalized mortgage-servicing rights for a stratum exceed their fair value.

 

Long-lived Asset Impairment - The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended December 31, 2018 and 2017.

 

Reclassifications - Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 financial statement presentation. These reclassifications had no effect on net income.

 

Income tax in the consolidated statements of operations includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes. The Company files consolidated income tax returns with its parent and subsidiary.

 

In February of 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company had approximately $537,000 stranded tax effects included in accumulated other comprehensive income and reclassified into retained earnings during 2018.

 

  F- 13  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Uncertain Tax Positions - The Company has adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes , concerning the accounting and disclosures for uncertain tax positions, previously deferred by ASC 740-10-65. As part of the implementation of this standard, management evaluated its current tax positions and determined the adoption of this standard had no material impact on the consolidated financial statements of the Company.

 

Note 2: Accounting Pronouncements

 

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 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:

 

- 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 FASB issued 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 inform 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. The ASU is effective for Securities and Exchange Commission (SEC) filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. All entities may adopt the amendments in this ASU earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. While the Company expects that the implementation of this ASU will increase the balance of the allowance for loan losses, it is continuing to evaluate the potential impact on the Company’s results of operations and financial position. The Company has established a workgroup to review and produce different methodologies to best estimate future loan losses.

 

  F- 14  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands) 

 

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. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. 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 amendments (ASU No. 2018-11) which provide entities with 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.

 

Note 3: Restriction on Cash and Due From Banks

 

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2018 was $6,900,000.

 

At December 31, 2018, the Company’s cash accounts exceeded federally insured limits by approximately $559,000. The Company’s cash balances with the Federal Reserve Bank and the Federal Home Loan Bank, which are not federally insured, totaled approximately $5,580,000 at December 31, 2018.

 

  F- 15  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 4: Investment Securities

 

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

 

    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  

  

    2017  
          Gross     Gross        
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
Available for sale                                
Federal agencies   $ 40,892     $ -     $ 2,166     $ 38,726  
State and municipal obligations     24,011       9       656       23,364  
Mortgage-backed securities - government-sponsored enterprises GSE residential     57,858       10       1,614       56,254  
Equity securities     13       -       -       13  
      122,774       19       4,436       118,357  
Held to maturity                                
State and municipal obligations     22,392       143       92       22,443  
Corporate obligations     2,500       2,632       -       5,132  
      24,892       2,775       92       27,575  
                                 
Total investment securities   $ 147,666     $ 2,794     $ 4,528     $ 145,932  

 

  F- 16  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The amortized cost and fair value of securities at December 31, 2018, 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   $ 157     $ 156     $ 2,540     $ 2,535  
One to five years     9,109       8,862       9,448       9,405  
Five to ten years     52,511       49,414       5,095       5,082  
After ten years     9,566       9,367       3,997       6,631  
      71,343       67,799       21,080       23,653  
Mortgage-backed securities -                                
GSE residential     56,945       54,670       -       -  
Equity securities     13       13       -       -  
                                 
Totals   $ 128,301     $ 122,482     $ 21,080     $ 23,653  

 

Securities with a carrying value of $86,267,000 and $84,545,000 were pledged at December 31, 2018 and 2017, respectively, to secure certain deposits and for other purposes as permitted or required by law.

 

Proceeds from sales of securities available for sale during year ended December 31, 2018 and 2017 were $5,871,000 and $17,127,000, respectively. Gross gains of $15,000 and $97,000 resulting from sales of available-for-sale securities were realized for the year ended December 31, 2018 and 2017, respectively. Gross losses of $0 and $1,000 were realized from sales of available-for-sale securities for the year ended December 31, 2018 and 2017, respectively.

 

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
December 31, 2018 and 2017 was $126,736,000 and $127,855,000, which is approximately 88% and 89%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio. These declines primarily resulted from recent changes in market interest rates.

 

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.

 

  F- 17  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following tables show the Company’s investments’ 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 December 31, 2018 and 2017:

 

    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  

 

    2017  
    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   $ -     $ -     $ 38,726     $ 2,166     $ 38,726     $ 2,166  
State and municipal obligations     4,651       73       17,270       583       21,921       656  
Mortgage-backed securities -                                                
GSE residential     3,986       45       51,890       1,569       55,876       1,614  
Total available-for-sale     8,637       118       107,886       4,318       116,523       4,436  
                                                 
Held-to-maturity                                                
State and municipal obligations     9,671       59       1,661       33       11,332       92  
                                                 
Total temporarily impaired securities   $ 18,308     $ 177     $ 109,547     $ 4,351     $ 127,855     $ 4,528  

 

  F- 18  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 December 31, 2018.

 

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 December 31, 2018.

 

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 bases 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 December 31, 2018.

 

  F- 19  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 5: Loans, Leases and Allowance

 

Categories of loans at December 31, 2018 and 2017 include:

 

    2018     2017  
             
Commercial mortgage   $ 211,237     $ 162,218  
Commercial and industrial     71,854       61,753  
Construction and development     72,955       27,944  
Multi-family     43,816       63,701  
Residential mortgage     132,492       128,773  
Home equity     7,214       7,245  
Direct financing leases     107,735       99,940  
Consumer     13,520       11,628  
      660,823       563,202  
Less                
Allowance for loan and lease losses     5,600       4,800  
Deferred loan fees     468       473  
                 
    $ 654,755     $ 557,929  

 

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 December 31, 2018 and 2017:

 

    2018  
          Commercial                          
    Commercial     and     Residential                    
    Mortgage     Industrial     Mortgage     Leases     Consumer     Total  
                                     
Allowance for loan losses:                                                
Balance, January 1   $ 2,424     $ 1,663     $ 257     $ 337     $ 119     $ 4,800  
Provision charged to expense     403       1,161       (141 )     242       15       1,680  
Charge-offs     (7 )     (1,033 )     (114 )     (454 )     (57 )     (1,665 )
Recoveries     327       26       137       264       31       785  
                                                 
Balance, December 31   $ 3,147     $ 1,817     $ 139     $ 389     $ 108     $ 5,600  
                                                 
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  

 

  F- 20  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

    2017  
          Commercial                          
    Commercial     and     Residential                    
    Mortgage     Industrial     Mortgage     Leases     Consumer     Total  
                                     
Allowance for loan losses:                                                
Balance, January 1   $ 1,829     $ 1,421     $ 359     $ 1,657     $ 128     $ 5,394  
Provision charged to  expense     2,046       486       113       (1,294 )     19       1,370  
Charge-offs     (1,540 )     (265 )     (302 )     (304 )     (57 )     (2,468 )
Recoveries     89       21       87       278       29       504  
                                                 
Balance, December 31   $ 2,424     $ 1,663     $ 257     $ 337     $ 119     $ 4,800  
                                                 
Individually evaluated for impairment   $ -     $ 927     $ -     $ -     $ -     $ 927  
Collectively evaluated  for impairment     2,424       736       257       337       119       3,873  
                                                 
Balance, December 31   $ 2,424     $ 1,663     $ 257     $ 337     $ 119     $ 4,800  
                                                 
Loans:                                                
Individually evaluated for impairment   $ 181     $ 2,744     $ 319     $ -     $ -     $ 3,244  
Collectively evaluated  for impairment     271,009       55,218       118,931       99,940       14,860       559,958  
Ending balance:                                                
December 31   $ 271,190     $ 57,962     $ 119,250     $ 99,940     $ 14,860     $ 563,202  

 

First Bank 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 DFI/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 DFI/FDIC regulations.

 

  F- 21  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 noncollateral 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.

 

  F- 22  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 affected 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.

 

  F- 23  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

 

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'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.

  

  F- 24  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2018 and 2017:

 

        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  

 

        2017  
              Commercial     Construction                                      
        Commercial     and     and     Multi-     Residential     Home                    
        Mortgage     Industrial     Development     Family     Mortgage     Equity     Leases     Consumer     Total  
                                                           
1-4   Pass   $ 161,979     $ 56,780     $ 27,944     $ 63,701     $ 126,124     $ 7,188     $ 99,912     $ 11,621     $ 555,249  
5   Special Mention     -       58       -       -       492       -       -       -       550  
6   Substandard     239       4,915       -       -       2,157       57       3       7       7,378  
7   Doubtful     -       -       -       -       -       -       25       -       25  
8   Loss     -       -       -       -       -       -       -       -       -  
                                                                             
        $ 162,218     $ 61,753     $ 27,944     $ 63,701     $ 128,773     $ 7,245     $ 99,940     $ 11,628     $ 563,202  

 

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

 

  F- 25  

 

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2018 and 2017:

 

    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     -       -       -       -       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  

 

    2017  
    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   $ 570     $ -     $ 78     $ 648     $ 161,570     $ 162,218     $ -  
Commercial and industrial     818       -       2,231       3,049       58,704       61,753       68  
Construction     -       -       -       -       27,944       27,944       -  
Multi-family     -       -       -       -       63,701       63,701       -  
Residential mortgage     1,369       717       1,629       3,715       125,058       128,773       1,310  
Home Equity     58       -       -       58       7,187       7,245       -  
Leases     54       -       -       54       99,886       99,940       -  
Consumer     108       6       -       114       11,514       11,628       -  
                                                         
Totals   $ 2,977     $ 723     $ 3,938     $ 7,638     $ 555,564     $ 563,202     $ 1,378  

 

  F- 26  

 

  

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following tables present the Company’s impaired loans as of December 31, 2018 and 2017:

 

    2018  
                      Average        
          Unpaid           Investment in     Interest  
    Recorded     Principal     Specific     Impaired     Income  
    Balance     Balance     Allowance     Loans     Recognized  
Loans without a specific valuation allowance                                        
Commercial mortgage   $ 397     $ 453     $ -     $ 266     $ 21  
Commercial and industrial     485       829       -       509       15  
Residential mortgage     389       688       -       344       14  
                                         
    $ 1,271     $ 1,970     $ -     $ 1,119     $ 50  
                                       
Loans with a specific valuation allowance                                        
Commercial mortgage   $ 346     $ 387     $ 300     $ 362     $ 16  
Commercial and industrial     692       2,495       394       1,411       34  
                                         
    $ 1,038     $ 2,882     $ 694     $ 1,773     $ 50  
                                         
Total impaired loans                                        
Commercial mortgage   $ 743     $ 840     $ 300     $ 628     $ 37  
Commercial and industrial     1,177       3,324       394       1,920       49  
Residential mortgage     389       688       -       344       14  
                                         
Total impaired loans   $ 2,309     $ 4,852     $ 694     $ 2,892     $ 100  

 

  F- 27  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

    2017  
                      Average        
          Unpaid           Investment in     Interest  
    Recorded     Principal     Specific     Impaired     Income  
    Balance     Balance     Allowance     Loans     Recognized  
Loans without a specific valuation allowance                                        
Commercial mortgage   $ 181     $ 897     $ -     $ 437     $ 52  
Commercial and industrial     906       1,405       -       1,570       50  
Construction     -       88       -       35          
Multi-family     -       9       -       2       1  
Residential mortgage     319       4,198       -       2,159       173  
                                         
    $ 1,406     $ 6,597     $ -     $ 4,203     $ 276  
                                       
Loans with a specific valuation allowance                                        
Commercial and industrial   $ 1,838     $ 2,497     $ 927     $ 1,157     $ 25  
                                         
    $ 1,838     $ 2,497     $ 927     $ 1,157     $ 25  
                                         
Total impaired loans                                        
Commercial mortgage   $ 181     $ 897     $ -     $ 437     $ 52  
Commercial and industrial     2,744       3,902       927       2,727       75  
Construction     -       88       -       35       -  
Multi-family     -       9       -       2       1  
Residential mortgage     319       4,198       -       2,159       173  
                                         
Total impaired loans   $ 3,244     $ 9,094     $ 927     $ 5,360     $ 301  

 

  F- 28  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following table presents the Company’s nonaccrual loans at December 31, 2018 and 2017:

 

    2018     2017  
             
Commercial mortgage   $ 743     $ 181  
Commercial and industrial     1,177       2,609  
Residential mortgage     357       320  
Leases     202       25  
                 
    $ 2,479     $ 3,135  

 

During 2018, there were no newly classified troubled debt restructured loans.

 

At December 31, 2017, the Company had two loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

 

The following table presents information regarding troubled debt restructurings by class for the years ended December 31, 2017.

 

Newly classified troubled debt restructurings:

 

    2017  
          Pre-     Post-  
          Modification     Modification  
    Number of     Recorded     Recorded  
    Loans     Balance     Balance  
                   
Commercial mortgage     -     $ -     $ -  
Commercial and industrial     2       1,713       1,713  
Residential mortgage     -       -       -  
                         
      2     $ 1,713     $ 1,713  

 

The troubled debt restructurings described above did not increase the allowance for loan losses and did not result in charge-offs during the year ended December 31, 2017.

 

  F- 29  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Newly restructured loans by type of modification:

 

    2017  
    Interest                    
    Only     Term     Combination     Balance  
                         
Commercial mortgage   $ -     $ -     $ -     $ -  
Commercial and industrial     -       1,713       -       1,713  
Residential mortgage     -       -       -       -  
                                 
    $ -     $ 1,713     $ -     $ 1,713  

 

No troubled debt restructurings modified in the past 12 months have subsequently defaulted.

 

At December 31, 2018 and 2017, the balance of real estate owned includes $176,000 and $34,000, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At December 31, 2018 and 2017, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $342,000 and $188,000, respectively.

 

The following lists the components of the net investment in direct financing leases:

 

    2018     2017  
             
Total minimum lease payments to be received   $ 118,752     $ 110,417  
Initial direct costs     5,459       4,856  
      124,211       115,273  
Less:  Unearned income     (16,476 )     (15,333 )
                 
Net investment in direct financing leases   $ 107,735     $ 99,940  

 

The amount of leases serviced by First Bank for the benefit of others was approximately $2,752,000 and $6,325,000 at December 31, 2018 and 2017, respectively. Additionally, certain leases have been sold with partial recourse. First Bank estimates and records its obligation based upon historical loss percentages. At December 31, 2018 and 2017, First Bank has recorded a recourse obligation on leases sold with recourse of $0, and has a maximum exposure of $875,000 and $941,000, respectively, for these leases.

 

  F- 30  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

The following summarizes the future minimum lease payments receivable in subsequent years:

 

2019   $ 44,120  
2020     34,235  
2021     23,109  
2022     12,338  
2023     4,242  
Thereafter     708  
         
    $ 118,752  

 

Note 6: Premises and Equipment

  

    2018     2017  
Cost                
Land   $ 3,045     $ 3,045  
Buildings     14,524       14,191  
Furniture and equipment     7,544       6,955  
Computer software     1,927       1,881  
Construction in progress     516       147  
Total cost     27,556       26,219  
Accumulated depreciation and amortization     (13,531 )     (12,627 )
                 
Net   $ 14,025     $ 13,592  

 

Note 7: Core Deposit Intangible

 

The carrying basis and accumulated amortization of the recognized core deposit intangible at December 31, 2018 and 2017 were:

 

    2018     2017  
             
Gross carrying amount   $ -     $ 3,499  
Accumulated amortization     -       (3,499 )
                 
Core deposit intangible   $ -     $ -  

 

Amortization expense for years ended December 31, 2018 and 2017 was $0 and $137,000, respectively.

 

  F- 31  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 8: Loan Servicing

 

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others totaled $131,327,000 and $129,269,000 at December 31, 2018 and 2017, respectively.

 

The aggregate fair value of capitalized servicing rights at December 31, 2018, 2017 and 2016 totaled approximately $1,227,000, $1,042,000 and $997,000, respectively. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage-servicing rights.

 

    2018     2017  
Servicing Rights                
Balances, beginning of period   $ 1,391     $ 1,400  
Servicing rights capitalized     158       201  
Amortization of servicing rights     (217 )     (210 )
Balances, end of period     1,332       1,391  
                 
Valuation allowances                
Balances, beginning of period     349       403  
Additions     -       -  
Reductions     (244 )     (54 )
Balances, end of period     105       349  
                 
Servicing Rights, net   $ 1,227     $ 1,042  

 

  F- 32  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 9: Deposits

 

    2018     2017  
             
Demand deposits   $ 243,589     $ 243,292  
Savings deposits     68,627       66,782  
Brokered certificates     124,477       85,676  
Certificates and other time deposits of $250,000 or more     32,037       27,589  
Other certificates and time deposits     151,907       137,056  
                 
    $ 620,637     $ 560,395  

 

Certificates maturing in years ending December 31:

 

2019   $ 197,901  
2020     65,163  
2021     22,145  
2022     17,264  
2023     4,165  
Thereafter     1,783  
         
    $ 308,421  

 

Note 10: Federal Home Loan Bank Advances

 

First Bank has Federal Home Loan Bank advances, with interest rates ranging from 1.06% to 3.28%.

 

The maturities of these borrowings at December 31, 2018 are as follows:

 

    FHLB  
    Advances  
       
2019   $ 52,100  
2020     11,000  
2021     8,000  
2022     2,000  
2023     2,000  
Thereafter     61,000  
         
    $ 136,100  

 

First mortgage loans and investment securities totaling $272,358,000 and $257,682,000 were pledged as collateral for FHLB advances at December 31, 2018 and 2017, respectively. Certain advances are subject to restrictions or penalties in the event of prepayment.

 

  F- 33  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

FHLB advances totaling $59,000,000 are subject to an option by the FHLB to put the entire advance to a periodic adjustable rate on the lock-out date. The adjustable rate would be for the remaining term at a predetermined rate based on LIBOR (London Interbank Offer Rate). If the FHLB exercises its option to convert the advance to an adjustable rate, the advance will be prepayable at the Company’s option, at par and without a penalty.

 

The Bank has an available line of credit with the FHLB totaling $10,000,000. The line of credit expires March 2019; however, it is renewed annually, and bears interest at a rate equal to the current variable advance rate. At December 31, 2018, the current interest rate was 2.87%. There were no amounts outstanding on the line at December 31, 2018 or 2017.

 

Note 11: Income Tax

  

    2018     2017  
Income tax expense                
Currently payable                
Federal   $ 319     $ 850  
State     21       (46 )
Deferred                
Federal     699       1,906  
State     239       262  
                 
Total income tax expense   $ 1,278     $ 2,972  
                 
Reconciliation of federal statutory to actual tax expense                
Federal statutory income tax at 21% and 34%   $ 1,461     $ 1,934  
Tax-exempt interest     (322 )     (516 )
Effect of state income taxes     205       142  
Cash surrender value - life insurance     (25 )     (33 )
Impact of Tax Cuts and Jobs Act     -       1,461  
Low Income Housing Tax Credit     (72 )     -  
Other     31       (16 )
                 
Actual tax expense   $ 1,278     $ 2,972  

 

  F- 34  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

A cumulative deferred tax asset is included in other assets. The components of the asset are as follows:

 

    2018     2017  
Assets                
Allowance for loan losses   $ 1,354     $ 1,161  
Net operating loss carryforward     137       571  
Nonaccrual interest     165       128  
Investment basis     4       5  
Alternative minimum tax carryover     -       821  
Accrued directors fees     48       79  
Unrealized loss on securities available for sale     1,441       1,155  
Other     433       311  
Total assets     3,582       4,231  
                 
Liabilities                
FHLB stock dividend     177       177  
Purchase accounting adjustments     -       -  
State taxes     87       130  
Mortgage-servicing rights, purchased     297       252  
Other     13       11  
Total liabilities     574       570  
                 
Net deferred tax asset   $ 3,008     $ 3,661  

 

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, and a repeal of the corporate Alternative Minimum Tax. As a result of enactment of the legislation, the Company incurred additional one-time income tax expense of $1,461,000 during the fourth quarter of 2017, related to the remeasurement of the Company's deferred tax assets and liabilities. Included in this additional one-time income tax expense of $1,461,000 is income tax expense of $537,000 related to the adjustment of the deferred tax asset for net unrealized losses on available-for-sale securities.

 

As of December 31, 2018, the Company has $4,300,000 of net operating loss carryforwards for Indiana franchise tax purposes, which will begin to expire in 2025. As of December 31, 2017, the Company had approximately $821,000 of alternative minimum tax credit carryforwards. As a result of the repeal of the corporate AMT under the Tax Cuts and Jobs Act the Company is able to use these credits to reduce its tax liability in 2018.

 

  F- 35  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

At December 31, 2018 and 2017, the Company determined that it is more likely than not that the deferred tax assets will be realized, largely based on available tax planning strategies and its projections of future taxable income. Therefore, no valuation reserve was recorded at
December 31, 2018 and 2017. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning the evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies and assessments of current and future economic and business conditions. Positive evidence includes current positive earnings trends and the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Failure to achieve sufficient projected taxable income might affect the ultimate realization of the net deferred tax assets.

 

Note 12: Accumulated Other Comprehensive Loss

 

The components of accumulated other comprehensive loss, included in stockholder’ equity, are as follows:

 

 

    2018     2017  
             
Net unrealized loss on available-for-sale securities   $ (5,819 )   $ (4,417 )
Tax effect     1,441       1,691  
Net-of-tax amount     (4,378 )     (2,726 )

 

Note 13: Commitments and Contingent Liabilities

 

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. First Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. First Bank uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated statements of financial condition.

 

Financial instruments whose contract amounts represent credit risk as of December 31, 2018 and 2017 were as follows:

 

    2018     2017  
             
Commitments to extend credit   $ 132,913     $ 142,265  
Standby letters of credit     628       591  

 

  F- 36  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the subsidiary upon extension of credit, is based on management's credit evaluation. Collateral held varies, but may include residential real estate, income-producing commercial properties, or other assets of the borrower.

 

Standby letters of credit are conditional commitments issued by the subsidiary to guarantee the performance of the customer to a third party.

 

The Company is also subject to other claims and lawsuits which arise primarily in the ordinary course of business. None of these matters are expected to have a material adverse effect on the Company's financial position.

 

Note 14: Benefit Plans

 

The Company has a retirement savings 401(k) plan, in which substantially all employees may participate. The Company matches employees' contributions at the rate of 50 percent for the first 6 percent of base salary contributed by participants. The Company’s expense for the plan was $191,000 and $179,000 for the years ended December 31, 2018 and 2017, respectively.

 

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Plan), an industry-wide, tax-qualified defined-benefit pension plan. The Pentegra Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra Plan operates as a multi-employer plan for accounting purposes and as a multi-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra Plan. The Pentegra Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities.

 

The risks of participating in a multi-employer plan are different from a single-employer plan in the following aspects:

 

1. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

 

2. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

 

3. If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

 

The Pentegra Plan has not required and does not require a financial improvement plan (FIP) or a rehabilitation plan (RP).

 

  F- 37  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Total contributions by all employer participants in the Pentegra Plan, as reported on Form 5500, totaled $126.2 million and $182.1 million, respectively, for the plan years ended June 30, 2018 and 2017. The Company’s contributions to the Pentegra Plan totaled $1,724,000 and $1,734,000, respectively, for the years ended December 31, 2018 and 2017 and do not represent more than 5% of the total contributions made by all employer participants in the Pentegra Plan. There have been no significant changes that affect the comparability of December 31, 2018 and 2017 contributions. Given the current interest rate environment, the lower asset valuations, and other factors impacting the operations of the Pentegra Plan, it is likely that the future funding obligations could increase.

 

Note 15: Dividend and Capital Restrictions

 

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. Generally, the Bank's payment of dividends is limited to net income for the current year plus the two preceding calendar years, less capital distributions paid over the comparable time period.

 

Note 16: Regulatory Capital

 

First Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, First Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

 

Quantitative measures established by regulatory capital standards to ensure capital adequacy require First Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2018, that First Bank meets all capital adequacy requirements to which it is subject.

 

As of December 31, 2018, the most recent notification from the regulators categorized First Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, First Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier I risk-based capital and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed First Bank’s category.

 

  F- 38  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

First Bank’s actual and required capital amounts and ratios are as follows:

 

                Required for     To Be Well  
    Actual           Adequate Capital 1     Capitalized 1  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
As of December 31, 2018                                    
Total capital 1 (to risk-weighted assets)                                                
First Bank   $ 89,850       12.3 %   $ 58,640       8.0 %   $ 73,300       10.0 %
Tier I capital 1 (to risk-weighted assets)                                                
First Bank     84,250       11.5       43,980       6.0       58,640       8.0  
Common Equity Tier I capital 1 (to risk-weighted assets)                                                
First Bank     84,250       11.5       32,985       4.5       47,645       6.5  
Tier I capital 1 (to average assets)                                                
First Bank     84,250       10.1       33,511       4.0       41,888       5.0  
                                                 
As of December 31, 2017                                                
Total capital 1 (to risk-weighted assets)                                                
First Bank   $ 81,200       12.6 %   $ 51,682       8.0 %   $ 64,603       10.0 %
Tier I capital 1 (to risk-weighted assets)                                                
First Bank     76,400       11.8       38,762       6.0       51,682       8.0  
Common Equity Tier I capital 1 (to risk-weighted assets)                                                
First Bank     76,400       11.8       29,071       4.5       41,992       6.5  
Tier I capital 1 (to average assets)                                                
First Bank     76,400       10.3       29,695       4.0       37,119       5.0  

 

  F- 39  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Basel III Capital Rules

 

In July 2013, the three federal bank regulatory agencies jointly published final rules (the Basel III Capital Rules) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework known as “Basel III” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. These rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. These rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules were effective for First Bank on January 1, 2015 (subject to a four-year phase-in period).

 

The Basel III Capital Rules, among other things, (i) introduce a new capital measure called “Common Equity Tier 1” (CET1), (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments as compared to existing regulations.

 

The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by 2019. The capital conservation buffer was 1.875% at December 31, 2018. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

 

Note 17: Related Party Transactions

 

The Company has entered into transactions with certain directors, executive officers and its affiliates or associates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers. The aggregate amount of loans to such related parties at December 31, 2018 and 2017 was approximately $7,723,000 and $8,053,000, respectively.

 

Annual activity consisted of the following:

 

    2018     2017  
             
Balance, beginning of the year   $ 8,053     $ 13,355  
Change in composition     327       (3,535 )
Repayments     (657 )     (1,767 )
Balance, end of the year   $ 7,723     $ 8,053  

 

  F- 40  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Deposits from related parties held by the Company at December 31, 2018 and 2017 totaled $5,017,000 and $4,761,000, respectively.

 

Note 18: Fair Values 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 liabilities

 

Level 2 Observable 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 3 Unobservable inputs supported by little or no market activity and 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 December 31, 2018 and 2017:

 

          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     $ -  

 

  F- 41  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

          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, 2017                                
Available-for-sale securities                                
Federal agencies   $ 38,726     $ -     $ 38,726     $ -  
State and municipal obligations     23,364       -       23,364       -  
Mortgage-backed securities -                                
GSE residential     56,254       -       56,254       -  
Equity securities     13       13       -       -  
                                 
    $ 118,357     $ 13     $ 118,344     $ -  

 

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 year ended December 31, 2018.

 

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.

 

  F- 42  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 December 31, 2018 and 2017:

 

          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                                
Impaired loans, collateral dependent   $ 344     $ -     $ -     $ 344  
Mortgage-servicing rights     1,227       -       -       1,227  
                                 
December 31, 2017                                
Impaired loans, collateral dependent   $ 912     $ -     $ -     $ 912  
Mortgage-servicing rights     1,042       -       -       1,042  

 

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.

 

  F- 43  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

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 yearly basis by obtaining 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 December 31, 2018 and 2017:

 

    Fair Value at                
    December 31,     Valuation   Unobservable      
    2018     Technique   Inputs   Range  
                     
Collateral-dependent impaired loans   $ 344     Appraisal   Marketability discount     0% - 70 %
                         
Mortgage-servicing rights   $ 1,227     Discounted cash flow   Discount rate     10 %

 

    Fair Value at                
    December 31,     Valuation   Unobservable      
    2017     Technique   Inputs   Range  
                     
Collateral-dependent impaired loans   $ 912     Appraisal   Marketability discount     15 %
                         
Mortgage-servicing rights   $ 1,042     Discounted cash flow   Discount rate     10 %

 

  F- 44  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Fair Value of Financial Instruments

 

The following tables present estimated fair values of the Company’s financial instruments at December 31, 2018 and 2017.

 

          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       -       122,482       -  
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       -  

 

          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, 2017                                
Financial assets                                
Cash and cash equivalents   $ 16,170     $ 16,170     $ -     $ -  
Interest-earning time deposits     200       200       -       -  
Available-for-sale securities     118,357       -       118,357       -  
Held-to-maturity securities     24,892       -       27,575       -  
Loans and leases receivable, net     557,929       -       -       552,081  
Federal Reserve and FHLB stock     6,717       -       6,717       -  
Interest receivable     2,268       -       2,268       -  
                                 
Financial liabilities                                
Deposits     560,395       -       560,976       -  
FHLB advances     104,000       -       103,762       -  
Interest payable     238       -       238       -  

 

  F- 45  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

While these estimates of fair value are based on management’s judgement of the most appropriate factors, there is no assurance that were the Company to have disposed of such items at December 31, 2018 and 2017, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 2018 and 2017 should not necessarily be considered to apply at subsequent dates.

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

 

Cash and Cash Equivalents, Interest-Earning Time Deposits and Federal Reserve and Federal Home Loan Bank Stock – The carrying amount approximates fair value.

 

Held-to-Maturity Securities – Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

Loans and Leases – The fair value of loans and leases is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

 

Deposits – Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

 

Interest Receivable and Interest Payable – The carrying amount approximates fair value.

 

Federal Home Loan Bank Advances – Rates currently available to the Company for borrowings with similar terms and remaining maturities are used to estimate the fair value of existing debt.

 

  F- 46  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Note 19: Condensed Financial Information (Parent Company Only)

 

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:

 

Condensed Balance Sheets            
    2018     2017  
Assets                
Cash and cash equivalents   $ 1,535     $ 2,046  
Investment in subsidiaries     80,857       75,967  
Other assets     4,888       4,074  
                 
Total assets   $ 87,280     $ 82,087  
                 
Other Liabilities   $ 1,427     $ 290  
                 
Stockholders' Equity     85,853       81,797  
                 
Total liabilities and stockholders' equity   $ 87,280     $ 82,087  

 

Condensed Statements of Income and Comprehensive Income            
             
    2018     2017  
             
Other income   $ 313     $ 157  
                 
Expenses - other expenses     641       598  
               
Income before equity in undistributed  net income of subsidiaries     (328 )     (441 )
                 
Equity in undistributed net income of subsidiaries     6,006       3,156  
                 
Net Income   $ 5,678     $ 2,715  
                 
Comprehensive Income   $ 4,562     $ 3,693  

 

  F- 47  

 

 

Richmond Mutual Bancorporation, Inc.

Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(Table Dollar Amounts in Thousands)

 

Condensed Statements of Cash Flows            
             
    2018     2017  
             
Operating Activities                
Net income   $ 5,678     $ 2,715  
Items not providing cash     (5,682 )     (2,981 )
Net cash provided by operating activities     (4 )     (266 )
                 
Financing Activities                
Dividends paid     (500 )     -  
Redemption of preferred stock     (7 )     -  
Net cash used in financing activities     (507 )     -  
                 
Net Change in Cash and Cash Equivalents     (511 )     (266 )
                 
Cash and Cash Equivalents at Beginning of Year     2,046       2,312  
                 
Cash and Cash Equivalents at End of Year   $ 1,535     $ 2,046  

 

Note 20: Significant Estimates and Concentrations

 

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk. Other significant estimates and concentrations not discussed in those footnotes include:

 

General Litigation

 

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

 

Note 21: Subsequent Events

 

Subsequent events have been evaluated through March 6, 2019, which is the date the consolidated financial statements were available to be issued.

 

  F- 48  

 

 

 

 

No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by Richmond Mutual Bancorporation, Inc. or First Bank Richmond. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of Richmond Mutual Bancorporation, Inc. or First Bank Richmond since any of the dates as of which information is furnished herein or since the date hereof.

 

Up to 11,327,500 Shares

(Subject to Increase to up to 13,026,625 shares)

 

RICHMOND MUTUAL BANCORPORATION, INC.

 

(Proposed Holding Company for

First Bank Richmond)

 

COMMON STOCK

par value $0.01 per share

 

 

 

PROSPECTUS

 

 

 

 

_____, 2019

 

These securities are not deposits or accounts and are not federally insured or guaranteed.

 

 

 

Until [Date 2], 2019 all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

 

 

 

PART II: INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

    Estimated Amount  
Registrant’s Legal Fees and Expenses   $ 735,000  
Registrant’s Accounting Fees and Expenses     235,000  
Marketing Agent Fees (1)     1,194,450  
Marketing Expenses (including legal fees and expenses)     175,000  
Records Management Fees and Expenses     31,000  
Appraisal Fees and Expenses     120,000  
Printing, Postage, Mailing and EDGAR Fees     135,000  
Filing Fees (NASDAQ, FINRA, SEC)     90,000  
Transfer Agent Fees and Expenses     20,000  
Business Plan Fees and Expenses     52,000  
Other     7,000  
Total   $ 2,784,450  

 

 

 

(1) Richmond Mutual Bancorporation-Maryland has retained Keefe, Bruyette & Woods, Inc. to assist in the sale of common stock on a best efforts basis in the offerings. Estimated at the adjusted maximum of the offering range, assuming 100% of the shares are sold in the subscription offering (excluding shares sold to the Employee Stock Ownership Plan and shares contributed to the charitable foundation).

 

Item 14. Indemnification of Directors and Officers

 

Articles 12 and 13 of the Articles of Incorporation of Richmond Mutual Bancorporation, Inc. (the “Corporation”) set forth circumstances under which directors, officers, employees and agents of the Corporation may be insured or indemnified against liability which they incur in their capacities as such and under which directors and officers of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages:

 

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the Maryland General Corporation Law (the “MGCL”) now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

 

B. Procedure. If a claim under Section A of this Article 12 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 12 or otherwise shall be on the Corporation.

 

 

 

 

C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 12 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Charter, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

 

D. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the MGCL.

 

E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 12 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 12 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators.

 

Any repeal or modification of this Article 12 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 12 is in force.

 

ARTICLE 13. Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (B) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

 

Item 15. Recent Sales of Unregistered Securities

 

Not Applicable.

 

Item 16. Exhibits and Financial Statement Schedules

 

The exhibits and financial statement schedules filed as part of this registration statement are:

 

(a) List of Exhibits

 

1.1 Engagement Letter between First Mutual of Richmond, Inc., Richmond Mutual Bancorporation, Inc., First Bank Richmond and Keefe Bruyette & Woods, Inc., a Stifel Company
   
1.2 Form of Agency Agreement*
   
2 Plan of Reorganization and Stock Offering of First Mutual of Richmond, Inc.
   
3.1 Charter of Richmond Mutual Bancorporation, Inc.
   
3.2 Bylaws of Richmond Mutual Bancorporation, Inc.
   
4 Form of Common Stock Certificate of Richmond Mutual Bancorporation, Inc.
   
5 Opinion of Silver, Freedman, Taff & Tiernan LLP regarding legality of securities being registered
   
8.1 Federal Income Tax Opinion of Silver, Freedman, Taff & Tiernan LLP
   
8.2 State Income Tax Opinion of BKD LLP
   
10.1 Form of Non-Qualified Deferred Compensation Plan for Garry Kleer
   
21 Subsidiaries of Richmond Mutual Bancorporation, Inc.
   
23.1 Consent of Silver, Freedman, Taff & Tiernan LLP (contained in Opinions included as Exhibits 5 and 8.1 )
   
23.2 Consent of RP Financial, LC
   
23.3 Consent of BKD LLP
   
24 Power of Attorney (set forth on signature page)
   
99.1 Engagement letter with RP Financial, LC to serve as appraiser
   
99.2 Letter of RP Financial, LC with respect to value of Subscription Rights
   
99.3 Letter of RP Financial, LC with respect to value of Liquidation Rights
 
99.4 Appraisal Report of RP Financial, Inc.
   
99.5 Marketing Materials*
   
99.6 Stock Order and Certification Form*

 

* To be filed by amendment.

 

 

 

  

(b) Financial Statement Schedules

 

No financial statement schedules are filed because the required information is inapplicable or is included in the consolidated financial statements and related notes.

 

Item 17. Undertakings

 

The undersigned Registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(5) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

 

 

  

(6) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(7) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

(8) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

 

 

   

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Richmond, State of Indiana on March 11, 2019.

 

  RICHMOND MUTUAL BANCORPORATION, INC., a
Maryland corporation
     
  By: /s/ Garry D. Kleer
    Garry D. Kleer
   

Chairman of the Board, President and Chief

Executive Officer

    (Duly Authorized Representative)

 

POWER OF ATTORNEY

 

We, the undersigned directors and officers of Richmond Mutual Bancorporation, Inc. a Maryland corporation (the “Corporation”) hereby severally constitute and appoint Garry D. Kleer as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said individual may deem necessary or advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Corporation’s common stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below, the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said individual shall do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signatures   Title   Date
         

/s/ Garry D. Kleer

Garry D. Kleer

  Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)   March 11, 2019
         

/s/ Donald A. Benziger

Donald A. Benziger

 

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

  March 11, 2019
         

/s/ E. Michael Blum

E. Michael Blum

  Director   March 11, 2019
         

/s/ Thomas L. Holthouse

Thomas L. Holthouse

  Director   March 11, 2019
         

/s/ Jeffrey A. Jackson

Jeffrey A. Jackson

  Director   March 11, 2019
       

/s/ Lindley S. Mann

Lindley S. Mann

  Director   March 11, 2019
       

/s/ W. Ray Stevens, III

W. Ray Stevens, III

  Director   March 11, 2019
         

/s/ Kathryn Cruz-Uribe

Kathryn Cruz-Uribe

  Director   March 11, 2019
         
/s/ M. Lynn Wetzel   Director   March 11, 2019
M. Lynn Wetzel    

 

 

 

 

Exhibit 1.1

 

 

August 28, 2018

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

20 North 9 th St.,

Richmond, IN 47375

 

Attention: Mr. Garry D. Kleer

President & Chief Executive Officer

 

Ladies and Gentlemen:

 

This letter confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) to act as the financial advisor to First Mutual of Richmond, Inc. (“First Mutual”), First Bank Richmond (“First Bank”) and Richmond Mutual Bancorporation, Inc. (collectively the “Bank”) in connection with the proposed conversion of the Bank from the mutual holding company form of organization to the stock form of organization pursuant to the Bank’s proposed Plan of Conversion (the “Conversion”), including the offer and sale of certain shares of the common stock (the “Common Stock”) of a new holding company (the “Holding Company”) to be formed by the Bank to eligible customers in a subscription offering (the “Subscription Offering”), with any remaining shares offered to the general public in a community offering (the “Community Offering”) (the Subscription Offering(s), the Community Offering(s) and the Syndicated Community Offering(s) (as defined herein) are collectively referred to herein as the “Offerings”). In addition, KBW will act as Conversion Agent and Data Processing Records Management Agent in connection with the Offerings pursuant to the terms of a separate agreement between the Bank and KBW. The Bank and the Holding Company are collectively referred to herein as the “Company”. This letter sets forth the terms and conditions of our engagement.

 

1. Advisory/Offering Services

 

As the Company's financial advisor, KBW will provide financial and logistical advice to the Company and will assist the Company’s management, legal counsel, accountants and other advisors in connection with the Conversion and the Offerings, and related issues. We anticipate our services will include the following, each as may be necessary and as the Company may reasonably request:

 

1. Providing advice on the financial and securities market implications of the Conversion and any related corporate documents, including the Plan of Conversion;
2. Assisting in structuring the Offerings, including developing and assisting in implementing a marketing strategy for the Offerings;
3. Serving as sole bookrunning manager in connection with the Offerings;

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 2 of 10

 

4. Reviewing all offering documents related to the Offerings, including the prospectus (the “Prospectus”) and any related offering materials, stock order forms, letters, brochures and other related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel);
5. Assisting the Company in preparing for and scheduling meetings with potential investors and broker-dealers, as necessary;
6. Assisting the Company in analyzing proposals from outside vendors retained in connection with the Offerings, including printers, transfer agents and appraisal firms;
7. Assisting the Company in the drafting and distribution of press releases as required or appropriate in connection with the Offerings;
8. Meeting with the board of directors of the Company (the “Board of Directors”) and/or management of the Company to discuss any of the above services; and
9. Performing such other financial advisory and investment banking services in connection with the Conversion and the Offerings as may be agreed upon by KBW and the Company.

 

2. Due Diligence Review

 

The Company acknowledges and agrees that KBW’s obligation to perform the services contemplated by this Agreement shall be subject to the satisfactory completion of such investigations and inquiries relating to the Company, and its directors, officers, agents and employees, as KBW and their counsel in their sole discretion may deem appropriate under the circumstances (the “Due Diligence Review”).

 

The Company agrees it will make available to KBW all information, whether or not publicly available, which KBW reasonably requests (the “Information”), and will permit KBW to discuss with the Board of Directors and management the operations and prospects of the Company. KBW will treat all Confidential Information (as defined herein) as confidential in accordance with the provisions of Section 9 hereof. The Company recognizes and confirms that KBW (a) will use and rely on and assume the accuracy and completeness of the Information in performing the services contemplated by this Agreement without having independently verified or analyzed the accuracy or completeness of same, and (b) does not assume responsibility or liability for the accuracy or completeness of the Information or to conduct any independent verification or any appraisal or physical inspection of properties or assets. The Company acknowledges and agrees that KBW will rely upon Company management as to the reasonableness and achievability of any financial and operating forecasts and projections provided to KBW or which KBW is directed to use, and that KBW will assume, at the Company’s direction, that all financial forecasts and projections have been reasonably prepared by Company management on a basis reflecting the best then currently available estimates and judgments of management as to the expected future financial performance of the Company, and that such forecasts and projections will be realized in the amounts and in the time periods currently estimated.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 3 of 10

 

3. Regulatory Filings

 

The Company will cause the registration statement (the “Registration Statement”) and the Prospectus to be filed with the Securities and Exchange Commission (the “SEC”) and will cause all other offering documents in respect of the Conversion and the Offerings to be filed, as necessary or appropriate, with applicable regulatory agencies including the SEC, the Financial Industry Regulatory Authority ("FINRA”), and the appropriate federal and/or state bank regulatory agencies. In addition, the Company and KBW agree that the Company’s counsel shall serve as counsel with respect to blue sky matters in connection with the Offerings, and that the Company shall cause such counsel to prepare a Blue Sky Memorandum related to the Offerings including KBW’s participation therein and shall furnish KBW a copy thereof addressed to KBW or upon which counsel shall state KBW may rely.

 

4. Fees

 

For the services hereunder, the Company shall pay the following non-refundable cash fees to KBW, in the amounts and at the times set forth below:

 

(a) Management Fee: A non-refundable cash fee in an amount of $25,000 (the “Management Fee”) shall be payable by the Company to KBW, as follows: (i) $12,500 shall be paid immediately upon the execution of this Agreement and (ii) the remaining $12,500 shall be paid immediately upon the initial filing of the Registration Statement (whether or not such filing is publicly available). Each payment in respect of the Management Fee shall be deemed to have been earned in full when due. Should the Offerings or this Agreement be terminated for any reason, KBW shall be deemed to have earned in full, and be entitled to be paid in full, all fees then due and payable as of such date of termination.

 

(b) Success Fee: A Success Fee shall be paid based on 1% of the aggregate purchase price of Common Stock sold in the Subscription Offering and 1% of the aggregate purchase price of Common Stock sold in the Community Offering, excluding shares purchased by the Company’s ESOP, tax-qualified or stock based compensation plans or similar plan created by the Company for some or all of its directors or employees, or any charitable foundation established by the Company (or any shares contributed to such a foundation) and shall be paid upon the completion of the Offerings. The Management Fee described in 4(a), to the extent then already paid, will be credited against the Success Fee. The obligation to pay to KBW the full Success Fee upon completion of the Subscription Offering and any Community Offering shall survive any termination of this agreement, including any termination occurring prior to the completion of such Offerings.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 4 of 10

 

(c) Fees for Syndicated Community Offering : If any shares of the Common Stock remain unsold after the completion of the Subscription Offering and any Community Offering, at the request of the Company, KBW will seek to form a syndicate of registered broker-dealers (a “Syndicated Community Offering”), to assist on a best efforts basis, subject to the terms and conditions set forth in a selected dealers agreement to be entered into by and between the Company and KBW. KBW will endeavor to distribute the Common Stock among broker-dealers in a fashion which best meets the distribution objectives of the Company and the Conversion. In the event of a Syndicated Community Offering, KBW will be paid a transaction fee not to exceed 6% of the aggregate purchase price of the shares of Common Stock sold in the Syndicated Community Offering. The Success Fee described in 4(b) will be credited against the transaction fee payable pursuant to this 4(c). From this fee, KBW will pass onto selected broker-dealers (if any) who assist in the Syndicated Community Offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment. Fees with respect to purchases effected with the assistance of a broker/dealer other than KBW shall be transmitted by KBW to such broker/dealer.

 

(d) In connection with the Subscription Offering, if, as a result of any resolicitation of subscribers undertaken by the Company, KBW reasonably determines that it is required or requested to provide significant services, KBW will be entitled to additional compensation for such services, which additional compensation will not exceed $25,000.

 

The terms of any Agency Agreement (as defined herein) to be entered into between the Company and KBW in connection with the Offerings shall contain fee provisions no less favorable to KBW than those set forth above. To the extent required under applicable FINRA rules and regulations, the payment of compensation by the Company to KBW pursuant to this Section 4 is subject to FINRA’s review thereof.

 

5. Additional Services

 

KBW further agrees to provide general financial advisory assistance to the Company that is not in the context of any contemplated transaction, for a period of three years following completion of the Offerings, including general strategic planning, the creation of a capital management strategy designed to enhance the value of the Company, including the formation of a dividend policy and share repurchase program, assistance with shareholder relations matters, general advice on mergers and acquisitions, and other related financial matters, without the payment by the Company of any fees in addition to those set forth in Section 4 hereof. Nothing in this Agreement shall require the Company to obtain such services from KBW. If KBW acts as a financial advisor to the Company in connection with any specific transactions, the terms of such engagement will be set forth in a separate agreement between the Company and KBW.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 5 of 10

 

6. Expenses

 

The Company will bear all expenses of the proposed Offerings customarily borne by issuers, including, without limitation, regulatory filing fees, SEC, "Blue Sky," and FINRA filing and registration fees; the fees of the Company's accountants, attorneys, appraiser, business plan consultant, transfer agent and registrar, printing, mailing and marketing and syndicate expenses associated with the Offerings; the fees set forth in Section 4; and fees for "Blue Sky" legal work. If KBW incurs any expenses on behalf of Company in connection with the matters contemplated by this Agreement, the Company will reimburse KBW for such expenses.

 

KBW will also be reimbursed for its reasonable out-of-pocket expenses, not to exceed $25,000 (subject to the provisions of this paragraph), related to the Offerings, including, but not limited to, costs of travel, meals and lodging, clerical assistance, photocopying, telephone, facsimile, and couriers. KBW will also be reimbursed for fees and expenses of its counsel not to exceed $125,000 (subject to the provisions of this paragraph). These expense caps assume no unusual circumstances or delays, and no resolicitation in connection with the Offerings. The Company acknowledges and agrees that, in the event unusual circumstances arise or a delay or resolicitation occurs (including but not limited to a delay in the Offerings which would require an update of the financial information in tabular form to reflect a period later than that set forth in the original filing of the offering documents), such expense caps may be increased by additional amounts, not to exceed an additional $10,000 in the case of additional out-of-pocket expenses of KBW and an additional $15,000 in the case of additional fees and expenses of KBW’s legal counsel. In no event shall out-of-pocket expenses, including fees and expenses of counsel, exceed $175,000. The provisions of this paragraph shall not apply to or in any way impair or limit the indemnification or contribution provisions contained herein.

 

7. Limitations

 

The Company acknowledges that all opinions and advice (written or oral) given by KBW to the Company in connection with KBW’s engagement are intended solely for the benefit and use of the Company for the purposes of its evaluation of the proposed Offerings. Unless otherwise expressly stated in an opinion letter issued by KBW or otherwise expressly agreed, no one other than the Company is authorized to rely upon this engagement of KBW or any statements or conduct by KBW. The Company agrees that any such opinion or advice, as well as this Agreement (including any of the terms hereof) shall not be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to KBW be made by the Company or any of its representatives, without the prior written consent of KBW.

 

It is expressly understood and agreed that KBW is not undertaking to provide any advice relating to legal, regulatory, accounting or tax matters. In furtherance thereof, the Company acknowledges and agrees that (a) it and its affiliates have relied and will continue to rely on the advice of its own legal, tax and accounting advisors for all matters relating to the Conversion and the Offerings, and all other matters and (b) neither it, or any of its affiliates, has received, or has relied upon, the advice of KBW or any of its affiliates regarding matters of law, regulation, taxation or accounting.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 6 of 10

 

The Company acknowledges and agrees that KBW has been retained to act solely as financial advisor to the Company and not as an advisor to or agent of any other person, and the Company’s engagement of KBW is not intended to confer rights upon any person not a party to this Agreement (including shareholders, employees or creditors of the Company) as against KBW or its affiliates, or their respective directors, officers, employees or agents. In such capacity, KBW shall act as an independent contractor, and any duties arising out of its engagement shall be owed solely to the Company. It is understood that KBW’s responsibility to the Company is solely contractual in nature and KBW does not owe the Company, or any other party, any fiduciary duty as a result of this Agreement.

 

The Company acknowledges that KBW is a securities firm engaged in securities trading and brokerage activities and providing investment banking and financial advisory services. In the ordinary course of business, KBW and its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in the Company's debt or equity securities, or the debt or equity securities of the Company's affiliates or other entities that may be involved in the transactions contemplated by this Agreement. In addition, KBW and its affiliates may from time to time perform various investment banking and financial advisory services for other clients and customers who may have conflicting interests with respect to the Company. The Company acknowledges that KBW and its affiliates have no obligation to use in connection with this engagement or to furnish the Company confidential information obtained from other companies.

 

8. Benefit

 

This Agreement shall inure to the benefit of the parties hereto and their respective successors, and the obligations and liabilities assumed hereunder by the parties hereto shall be binding upon their respective successors; provided, however, that this Agreement shall not be assignable without the mutual consent of KBW and the Bank.

 

9. Confidentiality

 

KBW acknowledges that a portion of the Information provided to it in connection with its engagement hereunder may contain confidential and proprietary business information concerning the Company (such Information, the “Confidential Information”). KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, it will treat as confidential all Confidential Information; provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have been instructed to be bound by the terms and conditions of this paragraph. As used herein, the term “Confidential Information” shall not include information which (a) is or becomes available to the public other than as a result of a disclosure by KBW or its representatives in violation of this Agreement, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW or its representatives by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not known to KBW to be bound not to disclose such information pursuant to a contractual obligation of confidentiality to the Company.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 7 of 10

 

The Company hereby acknowledges and agrees that all presentation materials and financial models used by KBW in performing its services hereunder have been developed by and are proprietary to KBW. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of KBW.

 

10. Advertisements

 

The Company agrees that, following the closing of the Offerings, KBW has the right to place advertisements in financial and other newspapers and journals at its own expense, describing its services to the Company and a general description of such offering. In addition, the Company agrees to include in any press release or public announcement announcing any such offering a reference to KBW’s role as financial advisor and sole bookrunning manager with respect to such offering, provided that the Company will submit a copy of any such press release or public announcement to KBW for its prior approval, which approval shall not be unreasonably withheld or delayed.

 

11. Indemnification

 

As KBW will be acting on behalf of the Company in connection with the Conversion and the Offerings, the Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise related to or arising out of the Conversion or the Offerings or the engagement of KBW pursuant to, or the performance by KBW of the services contemplated by, this Agreement, and will reimburse any Indemnified Party for all expenses (including legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (a) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by KBW expressly for use therein or (b) to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s gross negligence or bad faith of KBW.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 8 of 10

 

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however , in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

 

The Company also agrees that neither KBW, nor any of its affiliates nor any officer, director, employee or agent of KBW or any of its affiliates, nor any person controlling KBW or any of its affiliates, shall have any liability to the Company for or in connection with such engagement except for any such liability for losses, claims, damages, liabilities or expenses incurred by the Company which are finally judicially determined to have resulted primarily from KBW’s bad faith or gross negligence. The foregoing agreement shall be in addition to any rights that KBW, the Company or any Indemnified Party may have at common law or otherwise, including, but not limited to, any right to contribution. For the sole purpose of enforcing and otherwise giving effect to the indemnification and contribution provisions of this agreement, the Company hereby consents to personal jurisdiction and service and venue in any court in which any claim which is subject to this agreement is brought against KBW or any other indemnified party.

 

The Company agrees that it will not, without the prior written consent of KBW, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not KBW is an actual or potential party to such claim, action, suit, or proceeding) unless such settlement, compromise or consent includes an unconditional release of KBW from all liability arising out of such claim, action, suit or proceeding.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 9 of 10

 

12. Definitive Agreement

 

This Agreement reflects KBW's present intention of proceeding to work with the Company on the proposed Offerings. No legal and binding obligation is created on the part of the Company or KBW with respect to the subject matter hereof, except as to (i) the agreement to maintain the confidentiality of Confidential Information set forth in Section 9, (ii) the payment of certain fees as set forth in Section 4, (iii) the payment of expenses as set forth in Section 6, (iv) the limitations set forth in Section 7, (v) the limitations of liability, the indemnification and contribution obligations and the other provisions set forth in Section 11 and (iv) those terms as may be set forth in a mutually agreed upon agency agreement between KBW and the Company to be executed prior to commencement of the Offerings (the “Agency Agreement”), all of which, notwithstanding anything to the contrary that may be contained herein, shall constitute the binding obligations of the parties hereto and which shall survive any termination of this Agreement or the completion of the services furnished hereunder and shall remain operative and in full force and effect.

 

The Company acknowledges and agrees that KBW’s provision of services in connection with the Conversion and the Offerings, as contemplated herein, is expressly subject to (a) satisfactory completion of Due Diligence Review by KBW, (b) the preparation of a Registration Statement and Prospectus and other offering materials that are satisfactory to KBW in form and substance, (c) compliance with all applicable legal and regulatory requirements to the reasonable satisfaction of KBW and its counsel, (d) market conditions (including at the time of any of the proposed Offerings), (e) approval of KBW’s internal committee and (f) any other conditions that KBW may deem appropriate for the transactions contemplated hereby.

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this Agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 10 of 10

 

If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning an original copy of this Agreement to the undersigned.

 

Very truly yours,

 

KEEFE, BRUYETTE & WOODS, INC.    
       
By: /s/ Harold T Hanley Date: October 3, 2018
  Harold T Hanley III    
  Managing Director    

 

FIRST MUTUAL OF RICHMOND, INC.    
RICHMOND MUTUAL BANCORPORATION, INC.    
FIRST BANK RICHMOND    
     
By: /s/ Garry D. Kleer Date: October 19, 2018
  Garry D. Kleer  
 

President & Chief Executive Officer

 

 

 

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

August 28, 2018

 

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

20 North 9 th St.,

Richmond, IN 47375

 

Attention: Mr. Garry D. Kleer

President & Chief Executive Officer

 

Re: Services of Conversion Agent and Data Processing Records Management Agent

 

Ladies and Gentlemen:

 

This letter agreement (this “Agreement”) confirms the engagement of Keefe, Bruyette & Woods, Inc. (“KBW”) by First Mutual of Richmond, Inc. (“First Mutual”), First Bank Richmond (“First Bank”) and Richmond Mutual Bancorporation, Inc., (collectively the “Bank”) on behalf of both itself and the Company (as defined herein), to act as the conversion agent and the data processing records management agent (KBW in such capacities, the “Agent”) to the Company in connection with the Bank’s proposed conversion from the mutual holding company form of organization to stock form of organization pursuant to the Bank’s proposed Plan of Conversion (the “Conversion”), including the offer and sale of certain shares of the common stock (the “Common Stock”) of a holding company (the “Holding Company”) to be formed by the Bank to eligible customers in a subscription offering (the “Subscription Offering”), with any remaining shares offered to the general public in a community offering (the “Community Offering”) and if necessary, through a syndicate of broker-dealers organized by KBW (a “Syndicated Community Offering”) (the Subscription Offering(s), the Community Offering(s) and the Syndicated Community Offering(s) are collectively referred to herein as the “Offerings”). In addition, KBW will act as Conversion Agent in connection with the Offerings pursuant to the terms of a separate agreement between the Bank and KBW. The Bank and the New Holding Company are collectively referred to herein as the “Company”.

 

This Agreement sets forth the terms and conditions of KBW’s engagement solely in its capacity as Agent. It is acknowledged that the terms of KBW’s engagement by the Company as financial advisor in the Conversion and as sole bookrunning manager in the Offerings is set forth in a separate agreement entered into by and between KBW and the Bank (on behalf of both itself and the Company) on or about the date hereof (such separate agreement, the “Advisory Agreement”).

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 2 of 13

 

1. Description of Services.

 

As Agent, and as the Company may reasonably request, KBW will provide the services further described below (the “Services”):

 

1. Consolidation of Accounts and Development of a Central File, including, but not limited to the following:
· Consolidate accounts having the same ownership and separate the consolidated file information into necessary groupings to satisfy mailing requirements;
· Create the master file of account holders as of key record dates; and
· Create software for the operation of the Company’s Stock Information Center, including subscription management and proxy solicitation efforts.

 

2. Preparation of Proxy Forms; Proxy Solicitation and Special Meeting Services, including, but not limited to the following:
· Assist the Company’s financial printer with labeling of proxy materials for voting;
· Provide support for any follow-up mailings to members, as needed, including proxy grams and additional solicitation materials;
· Proxy tabulation; and
· Support the Inspector of Election for the Company’s special meeting of members, assuming the election is not contested.

 

3. Subscription Services, including, but not limited to the following:
· Assist the Company in establishing and managing a Stock Information Center;
· Provide the physical location of the Stock Information Center including materials required;
· Assist in educating Company personnel;
· Establish recordkeeping and reporting procedures;
· Manage the Stock Information Center during the Offerings;
· Assist the Company’s financial printer with labeling of offering materials for subscribing for shares of Common Stock;
· Provide support for any follow-up mailings to members, as needed, including additional solicitation materials;
· Common Stock order form processing and production of daily reports and analysis;
· Provide supporting account information to the Company’s legal counsel for “blue sky” research and applicable registration;
· Assist the Company’s transfer agent with the generation and mailing of stock certificates or statements of ownership;
· Perform interest and refund calculations and provide a file to enable the Company or its transfer agent to generate interest and refund checks.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 3 of 13

 

4. Records Processing Services: KBW will provide records processing services (the “Records Processing Services”) contemplated hereby. The parties hereto expressly acknowledge and agree that KBW expects to subcontract certain Records Processing Services, including without limitation certain integral data processing functions, to any one or more of its affiliates or to any other party (including non-affiliate third parties).

 

2. Duties and Obligations.

 

KBW, as Agent, hereby agrees to perform the Services in a commercially reasonable manner and to comply with all timely, appropriate and lawful instructions received from duly authorized representatives of the Company. KBW makes no warranties regarding the rendering of the Services (including, without limitation, warranties of merchantability, security, accuracy, non-infringement, and fitness for a particular purpose), and no additional warranties may be implied from the terms of this Agreement. The Company will: (i) inform all of its authorized representatives, which may include attorneys, agents and advisors, that KBW shall act as the Agent and that they are authorized and directed to communicate with KBW and to promptly provide KBW with all information that is reasonably requested; (ii) cause KBW to have adequate notice of, and permit KBW to attend, meetings (whether in person or otherwise) where KBW’s attendance is, in the discretion of KBW, relevant, advisable or necessary; (iii) cause KBW to receive, as they become available, copies of the documents relating to the Plan of Conversion, the Conversion and the Offerings, to the extent KBW believes that such documents are necessary or appropriate for it to perform the Services and (iv) cause KBW to have adequate advance notice of any proposed changes to the Plan of Conversion, the proposed Services or the timetable of the Offerings. Failure by the Company to keep KBW timely and adequately informed or to provide KBW with complete and accurate necessary information on a timely basis shall excuse KBW’s delay in the performance of its Services and may be grounds for KBW to terminate the Services pursuant to this Agreement.

 

The actions to be taken by KBW hereunder are deemed by the parties to be ministerial only and not discretionary. KBW, in its capacity as Agent under this Agreement, shall not be called upon at any time to give any advice regarding implementing the Plan of Conversion. The Company shall have the sole responsibility to make any and all decisions with respect to implementing the Plan of Conversion, including but not limited to decisions regarding which customer bank accounts are to be included in accountholder records provided to KBW.

 

KBW expects to subcontract certain data processing functions integral to the Services with any one or more of its affiliates or with any other party. The fees and expenses of such subcontractor shall not be billed to the Company, unless otherwise agreed to by the parties hereto in writing. Such subcontractor shall agree to comply with the provisions of this Agreement set forth under the heading “Confidentiality and Consumer Privacy.”

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 4 of 13

 

3. Fees Payable to KBW.

 

For the Services described above, the Company agrees to pay KBW a non-refundable cash fee of $26,000 (the “Services Fee”) . Such fee is based upon the requirements of current banking regulations, the Company’s Plan of Conversion as currently contemplated, and the expectation that member data will be processed as of three key record dates. Any material changes in applicable regulations or the Plan of Conversion, or delays requiring duplicate or replacement processing due to changes to record dates, may result in additional fees not exceeding $10,000 payable to KBW. The Services Fee shall be payable as follows: (i) $10,000 shall be payable immediately upon execution of this Agreement, which shall be non-refundable and deemed to be earned in full when paid and (ii) all remaining amounts shall be payable immediately upon the completion of the Offerings.

 

4. Costs and Expenses; Reimbursement.

 

The Company will bear all expenses in connection with the Offerings and the matters contemplated by this Agreement. The Company shall also reimburse KBW for its reasonable out-of-pocket expenses incurred in connection with the Services, regardless of whether the Offerings are consummated, provided that such out-of-pocket expenses shall not exceed $5,000 without the Company’s written consent, which shall not be unreasonably withheld, conditioned or delayed. Typical expenses include, but are not limited to, additional programming costs, postage, overnight delivery, telephone and travel. Not later than two days before the closing of the Offerings, KBW will provide the Company with documentation of all reimbursable expenses of KBW, to be paid at closing. The provisions of this paragraph shall not apply to or in any way impair the indemnification, contribution or liability limitation provisions set forth in this Agreement.

 

5. Reliance on Information Provided.

 

The Company agrees to provide KBW with such information as KBW may reasonably require to carry out the Services under this Agreement (all such information so provided, the “Information”). The Company recognizes and confirms that KBW (a) will use and rely on and assume the accuracy and completeness of such Information in performing the Services contemplated by this Agreement without having independently verified or analyzed the accuracy or completeness of the same, and (b) does not assume responsibility or liability for the accuracy or completeness of the Information (including, without limitation, accountholder records provided or processed) or to conduct any independent verification or any appraisal or physical inspection of properties or assets.

 

KBW, as Agent, may further rely upon the instructions and representations (whether oral or in writing) of the Company’s duly authorized representatives, without inquiry or investigation. KBW shall not be responsible for any action taken in reliance upon any signature, endorsement, assignment, certificate, order, request, notice or instruction (whether written or oral), or other instrument or document reasonably believed by it to be valid, genuine and sufficient in carrying out its duties hereunder. KBW shall not be liable or responsible, and shall be fully authorized and protected for, acting or failing to act in accordance with any oral instructions or requests.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 5 of 13

 

KBW may consult with legal counsel chosen in good faith as to KBW’s obligations or performance under this Agreement, and KBW shall not incur any liability in acting in good faith in accordance with any advice from such counsel with respect to KBW’s obligations or performance under this Agreement.

 

6. Confidentiality and Consumer Privacy.

 

KBW acknowledges that a portion of the Information provided to it in connection with its engagement hereunder may contain confidential and proprietary business information concerning the Company (such Information, the “Confidential Information”). KBW agrees that, except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation or legal process, it will treat as confidential all Confidential Information; provided, however, that KBW may disclose such Confidential Information to its agents and advisors who are assisting or advising KBW in performing its services hereunder and who have been instructed to be bound by the terms and conditions of this paragraph. As used herein, the term “Confidential Information” shall not include information which (a) is or becomes available to the public other than as a result of a disclosure by KBW or its representatives in violation of this Agreement, (b) was available to KBW on a non-confidential basis prior to its disclosure to KBW or its representatives by the Company, or (c) becomes available to KBW on a non-confidential basis from a person other than the Company who is not known to KBW to be bound not to disclose such information pursuant to a contractual obligation of confidentiality to the Company. It is understood by the parties hereto that the receiving party shall be deemed to have satisfied its obligation to hold the Confidential Information confidential if it exercises the same care as it takes to preserve the confidentiality of its own similar information.

 

KBW further acknowledges that a portion of the Information provided to it in connection with its engagement hereunder will include nonpublic personal data regarding Company customers and bank account records. KBW agrees that such information shall be deemed to be “Confidential Information” under this Agreement and shall not be used or disclosed except in accordance with the terms of this Agreement.

 

If at any time KBW is served with any judicial or administrative order, judgment, decree, motion, writ, or other form of judicial or administrative process which in any way affects any property of the Company, KBW is authorized to comply therewith in any reasonable manner as it or its legal counsel of its own choosing deems appropriate; provided that the Agent shall, if permissible by law or regulation, endeavor to give notice thereof to the Company. If KBW complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, KBW shall not be liable to any of the parties, or to any other person or entity, even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 6 of 13

 

7. Limitations of Responsibilities.

 

KBW, as Agent, (a) shall have no duties or obligations other than the contractual obligations specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form or any stock certificates or statements of ownership or the shares of Common Stock represented thereby, and will not be required to and will make no representations as to the validity, value or genuineness of any offer in connection with the Offerings or otherwise; (c) shall not be obliged to take any legal action hereunder which might in its sole judgment involve any expense or liability, unless it shall have been furnished with indemnity satisfactory to it; and (d) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties.

 

The duties, responsibilities and obligations of KBW, as Agent, shall be limited to those expressly set forth herein, and no duties, responsibilities or obligations shall be inferred or implied. KBW, in its capacity as Agent, shall not be subject to, nor required to comply with, any other agreement between or among any or all of the parties hereto and/or any other person or entity, even though reference thereto may be made herein or therein, or to comply with any direction or instruction (other than those contained herein or delivered in accordance with this Agreement) from any person or entity other than the Company. Except as may otherwise specifically be set forth herein, KBW shall not be required to, and shall not, expend or risk any of its own funds or otherwise incur any financial liability in the performance of its duties hereunder.

 

KBW, as Agent in furnishing services to the Company under this Agreement, is acting only as an independent contractor and is not a fiduciary of, nor will its entering into this Agreement give rise to fiduciary duties to, the Company. KBW does not undertake by this Agreement or otherwise to perform any obligation of the Company, whether regulatory, contractual, or otherwise. KBW has the sole right and obligation to supervise, manage, contract, direct, procure, perform or cause to be performed, all work to be performed by it under this Agreement unless otherwise provided in this Agreement. The Company understands and agrees that KBW may perform services substantially similar to those to be performed hereunder for others, and nothing herein is intended to restrict or prohibit KBW from performing such services for others.

 

No implied duties or obligations shall be read into this Agreement against KBW, and KBW, in its capacity as such, shall not be bound by any provision of any agreement between the Company and any other person or entity other than this Agreement, and KBW shall have no duty to inquire into, or to take into account its knowledge of, the terms and conditions of any agreement made or entered into in connection with this Agreement.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 7 of 13

 

8. Indemnification; Contribution; Limitations of Liability .

 

The Company agrees to indemnify and hold harmless KBW and its affiliates, the respective partners, directors, officers, employees, and agents of KBW and its affiliates and each other person, if any, controlling KBW or any of its affiliates and each of their successors and assigns (KBW and each such person being an “Indemnified Party”) to the fullest extent permitted by law, from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, and reasonably related to or arising out of the engagement of KBW pursuant to, and the performance by KBW of the services contemplated by, this Agreement , and will reimburse any Indemnified Party for all expenses (including legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation, preparing for or defending any such action or claim whether or not in connection with pending or threatened litigation, or any action or proceeding arising therefrom, whether or not KBW is a party. The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from KBW’s bad faith or gross negligence.

 

If the indemnification provided for in the foregoing paragraph is judicially determined to be unavailable (other than in accordance with the terms hereof) to any person otherwise entitled to indemnity in respect of any losses, claims, damages or liabilities referred to herein, then, in lieu of indemnifying such person hereunder, the Company shall contribute to the amount paid or payable by such person as a result of such losses, claims, damages or liabilities (and expenses relating thereto) (i) in such proportion as is appropriate to reflect the relative benefits to the Company, on the one hand, and KBW, on the other hand, of the engagement provided for in this Agreement or (ii) if the allocation provided for in clause (i) above is not available, in such proportion as is appropriate to reflect not only the relative benefits referred to in such clause (i) but also the relative fault of each of the Company and KBW, as well as any other relevant equitable considerations; provided, however , in no event shall KBW's aggregate contribution to the amount paid or payable exceed the aggregate amount of fees actually received by KBW under this Agreement. For the purposes of this Agreement, the relative benefits to the Company and to KBW of the engagement under this Agreement shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid or received or contemplated to be received by the Company in the Conversion and the Offerings that are the subject of the engagement hereunder, whether or not consummated, bears to (b) the fees paid or to be paid to KBW under this Agreement.

 

The Company also agrees that neither KBW, nor any of its affiliates nor any officer, director, employee or agent of KBW or any of its affiliates, nor any person controlling KBW or any of its affiliates, shall have any liability to the Company for or in connection with such engagement except for any such liability for losses, claims, damages, liabilities or expenses incurred by the Company which are finally judicially determined to have resulted primarily from KBW’s bad faith or gross negligence. The foregoing agreement shall be in addition to any rights that KBW, the Company or any Indemnified Party may have at common law or otherwise, including, but not limited to, any right to contribution. For the sole purpose of enforcing and otherwise giving effect to the provisions of this Agreement, the Company hereby consents to personal jurisdiction and service and venue in any court in which any claim which is subject to this agreement is brought against KBW or any other Indemnified Party.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 8 of 13

 

KBW shall not be responsible nor liable for delays, errors or omissions arising from, relating to or made in connection with circumstances beyond its reasonable control, including but not limited to, acts or omissions of the Company or any of its advisors or agents, acts of governmental authorities, acts of civil commotion or riot, insurrection, acts of military authority, war or acts of war or terrorism, national emergencies, labor difficulties, fire, flood, weather-related problems, acts of God or nature, mechanical or electrical breakdown, computer problems, failure or unavailability of communications or power supply or any change in law or regulation materially affecting KBW or the Company.

 

In no event shall KBW be liable for: (i) acting in accordance with or relying upon any instruction, request, notice, demand, certificate, order or document from the Company or any authorized representative acting on its behalf or (ii) for any consequential, indirect, incidental, punitive, exemplary or special damages of any kind whatsoever (including but not limited to lost profits) even if KBW has been advised of the possibility of such damages. Any liability of KBW shall be limited to the amount of fees paid to KBW for the Services performed by KBW as Agent pursuant to this Agreement. A claim by Company for a return of fees paid to KBW by the Company for the Services performed as Agent pursuant to this Agreement shall be the sole and exclusive remedy for any damages. This limitation of liability is intended to apply to the full extent allowed by law, regardless of the grounds or nature of any claim asserted.

 

The Company agrees that it will not, without the prior written consent of KBW, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not KBW is an actual or potential party to such claim, action, suit, or proceeding) unless such settlement, compromise or consent includes an unconditional release of KBW from all liability arising out of such claim, action, suit or proceeding.

 

It is understood that KBW’s engagement referred to above may be embodied in one or more separate written agreements and that, in connection with such engagement, KBW may also be requested to provide additional services or to act for the Company in one or more additional capacities. The indemnification provided hereunder shall apply to said engagement, any such additional services or activities and any modification, and shall remain in full force and effect following the completion or termination of KBW’s engagement or this Agreement.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 9 of 13

 

9. Commencement and Termination.

 

This Agreement shall commence immediately upon execution hereof by all parties and shall continue in force until the consummation or termination of the Conversion or the Offerings or the termination of this Agreement. This Agreement may only be terminated by the Company for cause due to action by KBW constituting a material violation of applicable law or a material breach of this Agreement, which breach remains uncured for ten (10) business days after written notice of such breach is delivered by the Company to KBW. This Agreement may only be terminated by KBW in the event of one or more of the following: (i) termination of the Advisor Agreement; (ii) circumstances described in this Agreement in the second paragraph under the heading “Miscellaneous”; (iii) action by the Company constituting a material violation of applicable law or a material breach of this Agreement (including as described in this Agreement in the first paragraph under the heading “Duties and Obligations” or failure to pay the fees and expenses of KBW as set forth herein), which breach remains uncured for ten (10) business days after written notice of breach is delivered by KBW to the Company or (iv) any proceeding in bankruptcy, reorganization, rehabilitation, guaranty fund action, receivership or insolvency is commenced by or against the Company, the Company shall become insolvent, or cease paying its obligations as they become due.

 

10. Survival of Obligations.

 

The covenants and agreements of the parties hereto, including those set forth under “Indemnification; Contribution; Limitations of Liability” above, will remain in full force and effect and will survive the consummation of the Conversion and the Offerings or the termination of this Agreement, and KBW, its affiliates, the officers, directors, employees and agents of KBW and any of its affiliates, and any person controlling KBW and any of its affiliates, shall be entitled to the benefit of the covenants and agreements thereafter.

 

11. Miscellaneous.

 

The parties hereto acknowledge that there are no third party beneficiaries to this Agreement, which is for the exclusive benefit of the parties hereto. No other person or entity or their respective heirs, successors and assigns shall be deemed to have any legal or equitable right, remedy or claim hereto.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 10 of 13

 

In the event of any ambiguity or uncertainty hereunder or in any notice, instruction or other communication received by KBW hereunder, KBW will provide the Company a reasonable opportunity to resolve such uncertainty or ambiguity and in the event that such uncertainty or ambiguity is unresolved KBW may, in its sole discretion, take any action it deems appropriate or refrain from taking any action unless and until KBW receives written instructions from the Company clarifying the ambiguity or uncertainty, and KBW shall not be liable for acting or the failure to take any action during this period. In the event of any disagreement between the Company and any other person or entity resulting in adverse claims and demands being made herein or affected hereby, KBW shall be entitled to refuse to comply with any such claims or demands as long as such disagreement may continue, and in so refusing, shall make no delivery or other disposition under this Agreement, and in so doing shall be entitled to continue to refrain from acting until: (i) the right of adverse claimants shall have been finally settled by binding arbitration or finally adjudicated in a court of competent jurisdiction or (ii) all differences shall have been settled by agreement among the adverse claimants and the Company or other persons or entities and KBW shall have been notified in writing of such agreement signed by the Company and the adverse person(s) or entity(ies). In the event of such disagreement, KBW may, but need not, tender into the registry or custody of any court of competent jurisdiction all property in KBW’s possession pursuant to the terms of this Agreement, together with such legal proceedings as KBW deems appropriate, and thereupon KBW shall be discharged from all further duties under this Agreement. The filing of any such legal proceeding shall not deprive KBW of compensation or expenses paid or payable hereunder for Services, and KBW shall not be liable with respect to any suspension of performance, delay or otherwise as a result of the tendering of such property. KBW shall have no obligation to take any legal action in connection with this Agreement or towards its enforcement, or to appear in, prosecute or defend any action or legal proceeding which would or might involve KBW in any cost, expense, loss or liability unless indemnification, satisfactory to KBW, in its sole discretion, shall be furnished by the Company. KBW shall be indemnified for all reasonable costs (including employee time at the employee’s hourly rate determined by his annual salary) and reasonable attorneys’ fees and expenses in connection with any such action.

 

This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement supersedes any other agreements, either oral or written, among the parties hereto with respect to the specific subject matter hereof, but not any engagement, underwriting, agency or other agreements among the parties pursuant to which KBW is acting as the Company’s financial advisor, underwriter, placement agent, investment banker or in any similar capacity, including without limitation the Advisory Agreement. Except as specifically set forth herein, each party hereto acknowledges that no representation, inducement, promise or agreement, written, oral or otherwise, has been made by any party, or anyone acting on behalf of any party, which is not embodied or expressly stated herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding in relation to the Services. The Company hereby acknowledges and agrees that: (i) KBW has made full and complete disclosure to the Company of the possibility or existence of any conflict of interest resulting from KBW serving as both data processing records management agent pursuant to this Agreement and as financial advisor, underwriter, placement agent, investment banker or in any similar capacity pursuant to the Advisory Agreement or any other separate agreement and (ii) having received full disclosure thereof, the Company hereby waives any such conflict of interest and consents to KBW serving in such dual capacity.

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. Any right to trial by jury with respect to any claim or action arising out of this Agreement or conduct in connection with the engagement is hereby waived by the parties hereto.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 11 of 13

 

This Agreement may be executed in several counterparts, which taken together, shall constitute one and the same document. All section headings used herein are for convenience and ease of reference only and do not constitute part of this Agreement and shall not be referred to for the purpose of defining, interpreting, construing or enforcing any of the provisions of this Agreement. All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the party or parties to this Agreement may require.

 

This Agreement may not be assigned by any party without the prior written consent of the other parties hereto and any purported assignment made in violation of the foregoing shall be void and have no legal effect; except that consent is not required for an assignment to a KBW affiliate or successor in interest. This Agreement may be modified only by a written amendment signed by all of the parties hereto and no waiver of any provision hereof shall be effective unless expressed in a writing signed by the party to be charged. No waiver of the breach of any provision or term of this Agreement shall be deemed or construed to be a waiver of any other or subsequent breach.

 

Should any term or provision, or portion of such provision, of this Agreement be invalid or unenforceable, the scope thereof or the period covered thereby or otherwise, such term, provision, or portion of such provision, shall be deemed to be reduced and limited to enable KBW or the Company, as applicable, to enforce it to the maximum extent permissible under the laws and public policies applied under the jurisdiction in which enforcement is sought. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement which shall be construed to preserve, to the maximum extent permissible, the intent and purposes of this Agreement. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such terms or provisions in any other jurisdiction.

 

All media releases, public announcements and public disclosures by either party or its agents relating to this Agreement or the subject matter of this Agreement, but not including any announcement intended solely for internal distribution at such party or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of such party, shall be coordinated with and approved by the other party prior to the release thereof, which approval shall not be unreasonably withheld.

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 12 of 13

 

12. Notices.

 

Except as otherwise contemplated by this Agreement, all notices, demands, requests or other communications which may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement, other than in the normal course of conducting the Services, can be by certified or registered mail, personal delivery or transmitted by any standard form of telecommunication with proof of delivery addressed as follows:

 

(a) If to the Agent:

Keefe, Bruyette & Woods, Inc.

70 W Madison, Suite 2401

Chicago, IL 60602

Attn: Harold T. Hanley III

Telephone: (312) 423-8270

Fax: (312) 423-8232

 

If to the Company:

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

20 North 9 th St.,

Richmond, IN 47375

Attn: Garry D. Kleer

 

Each party may designate by notice in writing a new address/addressee to which any notice, demand, request or communication may thereafter be provided. If the foregoing correctly sets forth our mutual understanding, please so indicate by signing and returning the original copy of this letter to the undersigned.

 

Very truly yours,

 

KEEFE, BRUYETTE & WOODS, INC.

 

By: /s/ Harold T. Hanley Date: October 3, 2018
  Harold T. Hanley III  
  Managing Director  

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

First Mutual of Richmond

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

August 28, 2018

Page 13 of 13

 

FIRST MUTUAL OF RICHMOND, INC.

RICHMOND MUTUAL BANCORPORATION, INC.

FIRST BANK RICHMOND

 

By: /s/ Garry D. Kleer Date: October 19, 2018
  Garry D. Kleer  
  President & Chief Executive Officer  

 

Keefe, Bruyette & Woods • 70 West Madison, Suite 2401 • Chicago, IL 60602

312.423.8200 • 800.929.6113 • Fax 312.423.8232 • www.kbw.com

 

 

 

 

Exhibit 2.0

 

PLAN OF REORGANIZATION

 

AND STOCK OFFERING

 

OF

 

FIRST MUTUAL OF RICHMOND, INC.

 

as adopted on:

February 6, 2019

 

   

 

  

TABLE OF CONTENTS

 

    PAGE
1. INTRODUCTION 1
2. DEFINITIONS 1
3. PROCEDURES FOR CONVERSION 7
4. HOLDING COMPANY APPLICATIONS AND APPROVALS 9
5. SALE OF CONVERSION STOCK 9
6. PURCHASE PRICE AND NUMBER OF SHARES OF CONVERSION STOCK 10
7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY 11
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY) 11
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY) 12
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY) 12
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY) 13
12. COMMUNITY OFFERING 13
13. SYNDICATED COMMUNITY OFFERING AND/OR FIRM COMMITMENT UNDERWRITTEN OFFERING 14
14. ADDITIONAL LIMITATIONS ON PURCHASES 15
15. PAYMENT FOR CONVERSION STOCK 16
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS 17
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT 18
18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES 19
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT AND BANK LIQUIDATION ACCOUNT 19
20. VOTING RIGHTS OF STOCKHOLDERS 21
21. CONTRIBUTION TO THE FOUNDATION 22
22. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION 22
23. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION 23
24. TRANSFER OF DEPOSIT ACCOUNTS 23
25. REGISTRATION AND MARKETING 24
26. TAX RULINGS OR OPINIONS 24
27. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS 24
28. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY 25
29. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK 25
30. ARTICLES OF INCORPORATION AND BYLAWS 26
31. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE 26
32. EXPENSES OF CONVERSION 26
33. AMENDMENT OR TERMINATION OF PLAN 26
34. CONDITIONS TO CONVERSION 26
35. INTERPRETATION 27

  

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EXHIBIT A   AGREEMENT AND PLAN OF MERGER BY AND AMONG RICHMOND MUTUAL BANCORPORATION, INC. (DELAWARE), FIRST MUTUAL OF RICHMOND, INC. AND RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND)
     
EXHIBIT B   ARTICLES OF INCORPORATION OF THE HOLDING COMPANY
     
EXHIBIT C   BYLAWS OF THE HOLDING COMPANY

  

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PLAN OF REORGANIZATION AND STOCK OFFERING OF

FIRST MUTUAL OF RICHMOND, INC.

 

1. INTRODUCTION

 

This Plan of Reorganization and Stock Offering (the “Plan”) provides for the conversion of First Mutual of Richmond, Inc., a Delaware non-stock mutual holding company (the “Mutual Holding Company”), into the capital stock form of organization. The Mutual Holding Company currently owns 100% of the common stock of Richmond Mutual Bancorporation, Inc, a Delaware chartered stock corporation (the “Mid-Tier Holding Company”) which owns 100% of the common stock of First Bank Richmond (the “Bank”), an Indiana chartered stock commercial bank. A new Maryland stock holding company (the “Holding Company”) will be established as part of the Conversion and will succeed to all the rights and obligations of the Mutual Holding Company and the Mid-Tier Holding Company and issue Holding Company Common Stock in the Offering. The purpose of the Conversion is to convert the Mutual Holding Company to the capital stock form of organization which will provide the Bank and the Holding Company with additional capital to grow and to respond to changing regulatory and market conditions and with greater flexibility to effect corporate transactions, including mergers, acquisitions and branch expansions. The Holding Company Common Stock will be offered in the Offering upon the terms and conditions set forth herein. The subscription rights granted to Participants in the Subscription Offering are set forth in Sections 8 through 11 hereof. All sales of Holding Company Common Stock in the Community Offering, the Syndicated Community Offering, the Firm Commitment Underwritten Offering, or in any other manner permitted by the Bank Regulators, will be at the sole discretion of the Boards of Directors of the Bank and the Holding Company. The Conversion will have no impact on depositors, borrowers or other customers of the Bank. After the Conversion, the Bank’s insured deposits will continue to be insured by the FDIC to the extent provided by applicable law.

 

In furtherance of the Bank’s commitment to its community, this Plan provides for a contribution of Holding Company Common Stock and/or cash, subject to regulatory limitations, to the Foundation. The funding of the Foundation is intended to enhance the Bank’s existing community reinvestment activities in a manner that will allow the Bank’s local communities to share in the growth and profitability of the Holding Company and the Bank over the long term.

 

This Plan has been adopted by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank. This Plan also must be approved by at least (i) a majority of the total number of outstanding votes entitled to be cast by Voting Members at the Special Meeting of Members and (ii) the Mutual Holding Company, as the sole stockholder of the Mid-Tier Holding Company. The Federal Reserve must approve this Plan before it is presented to Voting Members and the Stockholder of the Mid-Tier Holding Company for their approval.

 

2. DEFINITIONS

 

For the purposes of this Plan, the following terms have the following meanings:

 

Account Holder — Any Person holding a Deposit Account in the Bank.

 

 

 

 

Acting in Concert — The term Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person who acts in concert with another Person (“other party”) shall also be deemed to be Acting in Concert with any Person who is also Acting in Concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be Acting in Concert with its trustee or a Person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated.

 

Affiliate — Any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another Person.

 

Appraised Value Range — The range of the estimated consolidated pro forma market value of the Holding Company, which shall also be equal to the estimated pro forma market value of the total number of shares of Conversion Stock to be issued in the Conversion, as determined by the Independent Appraiser prior to the Subscription Offering and as it may be amended from time to time thereafter. The maximum and minimum of the Appraised Value Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Appraised Value Range.

 

Articles of Combination — The Articles of Combination filed with the Federal Reserve and any similar documents filed with the Bank Regulators in connection with the consummation of any merger relating to the Conversion.

 

Articles of Merger – The Articles of Merger filed with the Maryland Department and any similar documents filed in connection with the consummation of any merger relating to the Conversion.

 

Associate — The term Associate when used to indicate a relationship with any Person, means (i) any corporation or organization (other than the Mutual Holding Company, the Mid-Tier Holding Company, the Bank or a majority-owned subsidiary of the Mutual Holding Company, the Mid-Tier Holding Company or the Bank) if the Person is a senior officer or partner or beneficially owns, directly or indirectly, 10% or more of any class of equity securities of the corporation or organization, (ii) any trust or other estate, if the Person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate except that for the purposes of this Plan relating to subscriptions in the Offering and the sale of Conversion Stock following the Conversion, a Person who has a substantial beneficial interest in any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan, or who is a trustee or fiduciary of such plan, is not an Associate of such plan, and except that, for purposes of aggregating total shares that may be held by Officers and Directors the term “Associate” does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any person who is related by blood or marriage to such person and (A) who lives in the same home as such person or (B) who is a Director or Officer of the Mutual Holding Company, the Mid-Tier Holding Company, the Bank or the Holding Company, or any of their parents or subsidiaries.

 

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Bank — First Bank Richmond, Richmond, Indiana.

 

Bank Liquidation Account – The account established by the Bank representing the liquidation interests received by Eligible Account Holders and Supplemental Eligible Account Holders in connection with the Conversion.

 

Bank Regulators — The applicable Federal and state bank regulatory agency or agencies, if any, responsible for reviewing and approving the Conversion, including the ownership of the Bank by the Holding Company and the mergers required to effect the Conversion. It is expected that the Bank Regulators will be the Federal Reserve and the Indiana Department of Financial Institutions.

 

Code — The Internal Revenue Code of 1986, as amended.

 

Community — Wayne, Fayette, Henry, Randolph, Shelby and Union counties in the state of Indiana, and Darke, Franklin, Miami, Preble and Shelby counties in the state of Ohio.

 

Community Offering — The offering of Conversion Stock not subscribed for in the Subscription Offering for sale to certain members of the public directly by the Holding Company. The Community Offering may occur concurrently with the Subscription Offering and any Syndicated Community Offering or both, or upon conclusion of the Subscription Offering.

 

Control — (including the terms “controlling,” “controlled by,” and “under common control with”) means the direct or indirect power to direct or exercise a controlling influence over the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise as described in 12 C.F.R. Part 238.

 

Conversion — The conversion and reorganization of the Mutual Holding Company to stock form pursuant to this Plan, and all steps incident or necessary thereto, including the Offering.

 

Conversion Stock — Shares of Holding Company Common Stock offered for sale in the Offering.

 

Deposit Account — Any withdrawable account, including, without limitation, savings, time, demand, NOW accounts, money market, certificate and passbook accounts.

 

Director — A member of the Board of Directors of the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company, as appropriate in the context.

 

Eligible Account Holder — Any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the Liquidation Account and the Bank Liquidation Account.

 

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Eligibility Record Date — The date for determining Eligible Account Holders of the Bank, which is December 31, 2017.

 

Employees — All Persons who are employed by the Bank, the Mid-Tier Holding Company, the Holding Company or the Mutual Holding Company or any of their Affiliates.

 

Employee Plans — Any one or more Tax-Qualified Employee Stock Benefit Plans of the Bank or the Holding Company, including any ESOP and 401(k) Plan.

 

ESOP — The Bank’s Employee Stock Ownership Plan and related trust.

 

FDIC — The Federal Deposit Insurance Corporation.

 

Federal Reserve — The Board of Governors of the Federal Reserve System.

 

Firm Commitment Underwritten Offering — The offering, at the sole discretion of the Holding Company, of Conversion Stock not subscribed for in the Subscription Offering and any Community Offering and/or Syndicated Community Offering, to members of the general public through one or more underwriters. A Firm Commitment Underwritten Offering may occur following the Subscription Offering and any Community Offering and/or Syndicated Community Offering.

 

Foundation – First Bank Richmond, Inc. Community Foundation, a new charitable foundation intended to qualify as an exempt organization under Code Section 501(c)(3) that will receive Holding Company Common Stock and/or cash in connection with the Offering.

 

Foundation Shares – Shares of Holding Company Common Stock issued to the Foundation in connection with the Conversion.

 

Holding Company — The Maryland corporation formed for the purpose of acquiring all of the shares of capital stock of the Bank in connection with the Conversion.

 

Holding Company Common Stock — The common stock, par value $0.01 per share, of the Holding Company.

 

Independent Appraiser — The appraiser retained by the Mutual Holding Company, Mid-Tier Holding Company and the Bank to prepare an appraisal of the pro forma market value of the Holding Company.

 

Liquidation Account — The account established by the Holding Company representing the liquidation interests received by Eligible Account Holders and Supplemental Eligible Account Holders in exchange for their interest in the Mutual Holding Company in connection with the Conversion.

 

Maryland Department — The Maryland Department of Assessments and Taxation.

 

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Meeting of the Stockholder — The special or annual meeting of the sole stockholder of the Mid-Tier Holding Company and any adjournments thereof, or a written consent in lieu thereof, to consider and vote upon this Plan.

 

MHC Merger — The merger of the Mutual Holding Company with and into the Mid-Tier Holding Company, with the Mid-Tier Holding Company as the surviving entity, which Merger shall occur immediately prior to completion of the Conversion, as set forth in this Plan.

 

Mid-Tier Holding Company — Richmond Mutual Bancorporation, Inc., the Delaware corporation that owns 100% of the Bank’s common stock, and any successor thereto.

 

Mid-Tier Merger — The merger following the MHC Merger of the Mid-Tier Holding Company and the Holding Company in which the Holding Company is the resulting entity.

 

Mutual Holding Company — First Mutual of Richmond, Inc., the Delaware non-stock mutual holding company of the Mid-Tier Holding Company.

 

Offering — The offering and issuance, pursuant to this Plan, of Holding Company Common Stock in a Subscription Offering, Community Offering, Syndicated Community Offering and/or Firm Commitment Underwritten Offering, as the case may be.

 

Offering Range — The range of the number of shares of Holding Company Common Stock offered for sale in the Offering multiplied by the Subscription Price. The Offering Range shall be equal to the Appraised Value Range. The maximum and minimum of the Offering Range may vary as much as 15% above and 15% below, respectively, the midpoint of the Offering Range.

 

Officer — The term Officer means the president, any vice-president (but not an assistant vice-president, second vice-president, or other vice president having authority similar to an assistant or second vice-president), the secretary, the treasurer, the comptroller, and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. The term Officer also includes the chairman of the Board of Directors if the chairman is authorized by the charter or bylaws of the organization to participate in its operating management or if the chairman in fact participates in such management.

 

Order Form — Any form (together with any cover letter and acknowledgments) sent to any Person containing, among other things, a description of the alternatives available to such Person under the Plan and by which any such Person may make elections regarding subscriptions for Conversion Stock.

 

Other Member — A Voting Member who is not an Eligible Account Holder or Supplemental Eligible Account Holder.

 

Participant — Any Eligible Account Holder, Employee Plan, Supplemental Eligible Account Holder or Other Member.

 

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Person — An individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government.

 

Plan — This Plan of Reorganization and Stock Offering of the Mutual Holding Company as it exists on the date hereof and as it may hereafter be amended in accordance with its terms.

 

Prospectus — The one or more documents used in offering the Conversion Stock.

 

Qualifying Deposit — The aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, or (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.

 

Resident — Any Person who occupies a dwelling within the Community, has a present intent to remain within the Community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the Community together with an indication that such presence within the Community is something other than merely transitory in nature. To the extent the Person is a corporation or other business entity, the place of business or headquarters shall be in the Community. To the extent a Person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Mutual Holding Company and the Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a Person is a resident. In all cases, however, such a determination shall be in the sole discretion of the Mutual Holding Company and the Bank. A Person must be a “Resident” for purposes of determining whether such Person “resides” in the Community as such term is used in this Plan.

 

SEC — The U.S. Securities and Exchange Commission.

 

Special Meeting of Members — The special or annual meeting of Voting Members of the Mutual Holding Company and any adjournments thereof held to consider and vote upon this Plan.

 

Stockholder — The Mutual Holding Company, as the sole owner of outstanding common stock of the Mid-Tier Holding Company.

 

Subscription Offering — The offering of Conversion Stock to Participants.

 

Subscription Price — The price per share of Conversion Stock to be paid by Participants and others in the Offering. The Subscription Price will be determined by the Board of Directors of the Holding Company and fixed prior to the commencement of the Subscription Offering.

 

Supplemental Eligible Account Holder — Any Person, other than Directors and Officers of the Mutual Holding Company, the Bank and the Mid-Tier Holding Company (unless the Bank Regulators grant a waiver permitting a Director or Officer to be included) and their Associates, holding a Qualifying Deposit on the Supplemental Eligibility Record Date.

 

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Supplemental Eligibility Record Date — The date for determining Supplemental Eligible Account Holders, which shall be the last day of the calendar quarter preceding Bank Regulators approval of the application for Conversion. The Supplemental Eligibility Record Date will only occur if the Bank Regulators have not approved the Conversion within 15 months after the Eligibility Record Date.

 

Syndicated Community Offering — The offering, at the sole discretion of the Holding Company, of Conversion Stock not subscribed for in the Subscription Offering and the Community Offering, to members of the general public through a syndicate of broker-dealers. The Syndicated Community Offering may occur concurrently with the Subscription Offering and any Community Offering.

 

Tax-Qualified Employee Stock Benefit Plan — Any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Internal Revenue Code. The Bank may make scheduled discretionary contributions to a tax-qualified employee stock benefit plan, provided such contributions do not cause the Bank to fail to meet its regulatory capital requirements. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution plan which is not so qualified.

 

Voting Member — Any Person holding a Deposit Account in the Bank as of the Voting Record Date or who is a borrower of the Bank with a continuously outstanding balance as of October 16, 1997 and the Voting Record Date.

 

Voting Record Date — The date fixed by the Directors for determining eligibility to vote at the Special Meeting of Members.

 

3. PROCEDURES FOR CONVERSION

 

A.          After approval of the Plan by the Boards of Directors of the Bank, the Mid-Tier Holding Company and the Mutual Holding Company, the Plan, together with all other requisite material, shall be submitted to the Bank Regulators for approval. Notice of the adoption of the Plan by the Boards of Directors of the Bank, the Mutual Holding Company and the Mid-Tier Holding Company will be published in a newspaper having general circulation in each community in which an office of the Bank is located, and copies of the Plan will be made available at each office of the Bank for inspection by members. The Mutual Holding Company will publish a notice of the filing with the Bank Regulators of an application to convert in accordance with the provisions of the Plan as well as notices required in connection with any holding company merger or other applications required to complete the Conversion.

 

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B.          Promptly following approval by the Bank Regulators, the Plan will be submitted to a vote of the Voting Members at the Special Meeting of Members. The Mutual Holding Company will mail to all Voting Members, at their last known address appearing on the records of the Bank, a proxy statement in either long or summary form describing the Plan, which will be submitted to a vote of Voting Members at the Special Meeting of Members. The Mutual Holding Company, as the sole stockholder of the Mid-Tier Holding Company, will consider and vote on the Plan at the Meeting of the Stockholder. The Holding Company also will mail to all Participants a Prospectus and Order Form for the purchase of Conversion Stock. In addition, all Participants will receive, or will be given the opportunity to request by either telephone or by letter addressed to the Bank’s Secretary, a copy of the Plan as well as the articles of incorporation and bylaws of the Holding Company. The Plan must be approved by at least (i) a majority of the total number of votes entitled to be cast by Voting Members at the Special Meeting of Members and (ii) the Mutual Holding Company as the sole stockholder of the Mid-Tier Holding Company. Upon such approval of the Plan, the Holding Company, the Mutual Holding Company, the Mid-Tier Holding Company and the Bank will take all other necessary steps pursuant to applicable laws and regulations to consummate the Conversion. The Conversion must be completed within 24 months of the approval of the Plan by Voting Members, unless a longer time period is permitted by governing laws and regulations.

 

C.          The period for the Subscription Offering will be not less than 20 days nor more than 45 days from the date Participants are first mailed a Prospectus and Order Form, unless extended. Any shares of Conversion Stock for which subscriptions have not been received in the Subscription Offering may be issued in a Community Offering, a Syndicated Community Offering, a Firm Commitment Underwritten Offering or in any other manner permitted by the Bank Regulators. All sales of Conversion Stock must be completed within 45 days after the last day of the Subscription Offering, unless the offering period is extended by the Mutual Holding Company and the Holding Company with the approval of the Bank Regulators.

 

D.          The Conversion will be effected as follows, or in any other manner that is consistent with the purposes of this Plan and applicable laws and regulations. The choice of which method to use to effect the Conversion will be made by the Board of Directors of the Mutual Holding Company immediately prior to the closing of the Conversion. Each of the steps set forth below shall be deemed to occur in such order as is necessary to consummate the Conversion pursuant to the Plan, the intent of the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank, and applicable regulations and policies. Approval of the Plan by Voting Members and the Stockholder also shall constitute approval of each of the transactions necessary to implement the Plan.

 

(1) The Mid-Tier Holding Company will establish the Holding Company as a first-tier Maryland-chartered stock holding company subsidiary.

 

(2) The Mutual Holding Company will merge with and into the Mid-Tier Holding Company (the "MHC Merger") pursuant to the Agreement and Plan of Merger attached hereto as Exhibit A.

 

(3) Immediately after the MHC Merger, the Mid-Tier Holding Company will merge with and into the Holding Company (the "Mid-Tier Merger") with the Holding Company as the resulting entity pursuant to the Agreement and Plan of Merger attached hereto as Exhibit A. As part of the Mid-Tier Merger, the liquidation interests in Mid-Tier Holding Company constructively received by the members of Mutual Holding Company in the MHC Merger will automatically, without further action on the part of the holders thereof, be exchanged for an interest in the Liquidation Account.

 

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(4) Immediately after the Mid-Tier Merger, the Holding Company will complete the sale of its Holding Company Common Stock in the Offering.

 

(5) The Holding Company will contribute at least 50% of the net proceeds of the Offering to the Bank in exchange for common stock of the Bank.

 

E.          The Holding Company shall register the Conversion Stock with the SEC and any appropriate state securities authorities.

 

F.          All assets, rights, interests, privileges, powers, franchises and property (real, personal and mixed) of the Mid-Tier Holding Company and the Mutual Holding Company shall be automatically transferred to and vested in the Holding Company by virtue of the Conversion without any deed or other document of transfer. The Holding Company, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, and interests and powers were held or enjoyed by the Mid-Tier Holding Company and the Mutual Holding Company. The Holding Company shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company and the Mutual Holding Company immediately prior to the Conversion, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company and the Mutual Holding Company, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company and the Mutual Holding Company.

 

G.        The Articles of Incorporation and Bylaws of the Holding Company shall read in the form of Exhibit B and Exhibit C, respectively.

 

H.        The home office and branch offices of the Bank shall be unaffected by the Conversion. The executive offices of the Holding Company shall be located at the current offices of the Mutual Holding Company and Mid-Tier Holding Company.

 

4. HOLDING COMPANY APPLICATIONS AND APPROVALS

 

The Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank will take all necessary steps to convert the Mutual Holding Company to stock form, form the Holding Company and complete the Offering. The Mutual Holding Company, Mid-Tier Holding Company, Bank and Holding Company shall make timely applications to the Bank Regulators and filings with the SEC for any requisite regulatory approvals to complete the Conversion.

 

5. SALE OF CONVERSION STOCK

 

The Conversion Stock will be offered simultaneously in the Subscription Offering to the Participants in the respective priorities set forth in this Plan. The Subscription Offering may begin as early as the mailing of the proxy statement for the Special Meeting of Members. The Conversion Stock will not be insured by the FDIC. The Bank will not extend credit to any Person to purchase shares of Conversion Stock.

 

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Any shares of Conversion Stock for which subscriptions have not been received in the Subscription Offering may be issued in the Community Offering, subject to the terms and conditions of this Plan. The Community Offering, if any, will involve an offering of all unsubscribed shares of Conversion Stock directly to the general public with a preference to those natural persons and trusts of natural persons residing in the Community. The Community Offering may begin simultaneously or later than the Subscription Offering. The offer and sale of Conversion Stock prior to the Special Meeting of Members, however, is subject to the approval of the Plan by the Voting Members and the Stockholder.

 

If feasible, any shares of Conversion Stock remaining unsold after the Subscription Offering period and the Community Offering period (should one be conducted) may be sold in a Syndicated Community Offering, a Firm Commitment Underwritten Offering or in any manner approved by the Bank Regulators that will achieve a widespread distribution of the Conversion Stock. The issuance of Conversion Stock in the Subscription Offering and any Community Offering will be consummated simultaneously on the date the sale of Conversion Stock in any Syndicated Community Offering and/or Firm Commitment Underwritten Offering is consummated, and only if the required minimum number of shares of Conversion Stock has been issued.

 

6. PURCHASE PRICE AND NUMBER OF SHARES OF CONVERSION STOCK

 

The total number of shares of Conversion Stock to be offered in the Conversion will be determined jointly by the Boards of Directors of the Mutual Holding Company, the Mid-Tier Holding Company and the Holding Company immediately prior to the commencement of the Subscription Offering, and will be based on the Appraised Value Range and the Subscription Price. The Offering Range will be equal to the Appraised Value Range. The estimated pro forma consolidated market value of the Holding Company will be subject to adjustment within the Appraised Value Range if necessitated by market or financial conditions, with the receipt of any required approvals of the Bank Regulators, and the maximum of the Appraised Value Range may be increased by up to 15% subsequent to the commencement of the Subscription Offering to reflect changes in market and financial conditions or demand for the shares. The number of shares of Conversion Stock issued in the Offering will be equal to the estimated pro forma consolidated market value of the Holding Company, as may be amended, divided by the Subscription Price.

 

In the event that the Subscription Price multiplied by the number of shares of Conversion Stock to be issued in the Conversion is below the minimum of the Appraised Value Range, or materially above the maximum of the Appraised Value Range, a resolicitation of purchasers may be required, provided that up to a 15% increase above the maximum of the Appraised Value Range will not be deemed material so as to require a resolicitation. Any such resolicitation shall be effected in such manner and within such time as the Mutual Holding Company, the Mid-Tier Holding Company and the Holding Company shall establish, if all required regulatory approvals are obtained.

 

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Notwithstanding the foregoing, shares of Conversion Stock will not be issued unless, prior to the consummation of the Conversion, the Independent Appraiser confirms to the Mid-Tier Holding Company, the Mutual Holding Company, the Holding Company and the Bank Regulators, that, to the best knowledge of the Independent Appraiser, nothing of a material nature has occurred which, taking into account all relevant factors, would cause the Independent Appraiser to conclude that the number of shares of Conversion Stock issued in the Conversion multiplied by the Subscription Price is incompatible with its estimate of the aggregate consolidated pro forma market value of the Holding Company. If such confirmation is not received, the Holding Company may cancel the Offering, extend the Offering and establish a new Subscription Price and/or Appraised Value Range, or hold a new Offering or take such other action as the Bank Regulators may permit.

 

The Conversion Stock to be issued in the Offering shall be fully paid and nonassessable.

 

7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY

 

The Holding Company may retain up to 50% of the net proceeds of the Offering. The Holding Company believes that the Offering proceeds will provide economic strength to the Holding Company and the Bank for the future in a highly competitive and regulated financial services environment, and would support growth in the operations of the Holding Company and the Bank through increased lending, acquisitions of financial service organizations, continued diversification into other related businesses and other business and investment purposes, including the possible payment of dividends and possible future repurchases of the Holding Company Common Stock as permitted by applicable regulations and policies.

 

8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)

 

A.         Each Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 30,000 shares of Conversion Stock, 0.10% of the total number of shares of Conversion Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of shares of Conversion Stock offered in the Offering by a fraction of which the numerator is the amount of the Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders, in each case on the Eligibility Record Date, subject to the purchase limitations specified in Section 14.

 

B.         In the event that Eligible Account Holders exercise subscription rights for a number of shares of Conversion Stock in excess of the total number of such shares eligible for subscription, the Conversion Stock shall be allocated among the subscribing Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation of Conversion Stock equal to the lesser of 100 shares or the number of shares for which such Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each Eligible Account Holder whose subscription remains unsatisfied bears to the total amount of the Qualifying Deposits of all Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

 

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C.         Subscription rights as Eligible Account Holders received by Directors and Officers and their Associates that are based on deposits made by such persons during the 12 months preceding the Eligibility Record Date shall be subordinated to the subscription rights of all other Eligible Account Holders, except as permitted by the Bank Regulators.

 

9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)

 

The Employee Plans of the Holding Company and the Bank (excluding the 401(k) Plan) shall have subscription rights to purchase in the aggregate up to 10% of the Conversion Stock issued in the Offering (including shares issued to the Foundation), including any Conversion Stock to be issued as a result of an increase in the maximum of the Offering Range after commencement of the Subscription Offering and prior to completion of the Conversion. Alternatively, if permitted by the Bank Regulators, the Employee Plans may purchase all or a portion of such shares in the open market after completion of the Conversion. Consistent with applicable laws and regulations and practices and policies, the Employee Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such subscription rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirements. The Employee Plans shall not be deemed to be Associates or Affiliates of, or Persons Acting in Concert with, any Director or Officer of the Holding Company or the Bank.

 

10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)

 

A.         Each Supplemental Eligible Account Holder shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 30,000 shares of Conversion Stock, 0.10% of the total number of shares of Conversion Stock issued in the Offering, or fifteen times the product (rounded down to the next whole number) obtained by multiplying the number of shares of Conversion Stock offered in the Offering by a fraction of which the numerator is the amount of the Supplemental Eligible Account Holder’s Qualifying Deposit and the denominator is the total amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in each case on the Supplemental Eligibility Record Date, subject to the availability of sufficient shares after filling in full all subscription orders of the Eligible Account Holders and Employee Plans and subject to the purchase limitations specified in Section 14.

 

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B.         In the event that Supplemental Eligible Account Holders exercise subscription rights for a number of shares of Conversion Stock in excess of the total number of such shares eligible for subscription following subscriptions by Eligible Account Holders and Employee Plans, the Conversion Stock shall be allocated among the subscribing Supplemental Eligible Account Holders so as to permit each such subscribing Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Conversion Stock equal to the lesser of 100 shares or the number of shares for which each such Supplemental Eligible Account Holder has subscribed. Any remaining shares will be allocated among the subscribing Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in the proportion that the amount of the Qualifying Deposit of each such Supplemental Eligible Account Holder bears to the total amount of the Qualifying Deposits of all Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If the amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated (one or more times as necessary) among those Supplemental Eligible Account Holders whose subscriptions are still not fully satisfied on the same principle until all available shares have been allocated.

 

11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)

 

A.         Each Other Member shall have nontransferable subscription rights to subscribe for in the Subscription Offering up to the greater of 30,000 shares of Conversion Stock or 0.10% of the total number of shares of Conversion Stock issued in the Offering, subject to the availability of sufficient shares after filling in full all subscription orders of Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders and subject to the purchase limitations specified in Section 14.

 

B.          In the event that such Other Members subscribe for a number of shares of Conversion Stock which, when added to the Conversion Stock subscribed for by the Eligible Account Holders, Employee Plans and Supplemental Eligible Account Holders, is in excess of the total number of shares of Conversion Stock to be issued, the available shares will be allocated among Other Members so as to permit each such subscribing Other Member, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation of Conversion Stock equal to the lesser of 100 shares or the number of shares for which each such Other Member has subscribed. Any remaining shares will be allocated among the subscribing Other Members whose subscriptions remain unsatisfied in the proportion that the amount of the subscription of each such Other Member bears to the total amount of the subscriptions of all Other Members whose subscriptions remain unsatisfied.

 

12. COMMUNITY OFFERING

 

If subscriptions are not received for all the shares of Conversion Stock offered for sale in the Subscription Offering, shares for which subscriptions have not been received may be offered for sale in the Community Offering through a direct community marketing program which may use a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions’ securities. Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof. In the event orders for Conversion Stock in the Community Offering exceed the number of shares available for sale, shares may be allocated (to the extent shares remain available) first to cover orders of natural persons (including trusts of natural persons) residing in the Community, and thereafter to cover orders of other members of the general public. In the event orders for Conversion Stock exceed the number of shares available for sale in a category pursuant to the distribution priorities described above, shares will be allocated within the category so that each member of that category will receive the lesser of 100 shares or their ordered amount and thereafter remaining shares will be allocated on an equal number of shares basis per order. In addition, orders received for Conversion Stock in the Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. The Mutual Holding Company and the Holding Company shall use their best efforts consistent with this Plan to distribute Conversion Stock sold in the Community Offering in such a manner as to promote the widest distribution practicable of such stock. The Holding Company reserves the right to reject any or all orders, in whole or in part, that are received in the Community Offering. Any Person may purchase up to 30,000 shares of Conversion Stock in the Community Offering, subject to the purchase limitations specified in Section 14.

 

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13. SYNDICATED COMMUNITY OFFERING AND/OR FIRM COMMITMENT UNDERWRITTEN OFFERING

 

If feasible, the Boards of Directors of the Mutual Holding Company and the Holding Company may determine to offer Conversion Stock not sold in the Subscription Offering or the Community Offering, if any, for sale in a Syndicated Community Offering using a broker, dealer, consultant or investment banking firm experienced and expert in the sale of savings institutions securities. Such entities may be compensated on a fixed fee basis or on a commission basis, or a combination thereof. The Syndicated Community Offering shall be conducted, subject to such terms, conditions and procedures as may be determined by the Mutual Holding Company and the Holding Company, in a manner that will achieve the widest distribution of Conversion Stock, subject to the right of the Holding Company to accept or reject in whole or in part any orders received in the Syndicated Community Offering. In the Syndicated Community Offering, any Person may purchase up to 30,000 shares of Conversion Stock, subject to the purchase limitations specified in Section 14. In addition, unless otherwise approved or permitted by the Bank Regulators, orders received for Conversion Stock in the Syndicated Community Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. Provided that the Subscription Offering has begun, the Holding Company may begin the Syndicated Community Offering at any time. The Holding Company reserves the right to reject any or all orders, in whole or in part, that are received in the Syndicated Community Offering.

 

If feasible, the Boards of Directors of the Mutual Holding Company and the Holding Company may determine to offer Conversion Stock not sold in the Subscription Offering or any Community Offering or Syndicated Community Offering, for sale in a Firm Commitment Underwritten Offering subject to such terms, conditions and procedures as may be determined by the Mutual Holding Company and the Holding Company, subject to the right of the Holding Company to accept or reject in whole or in part any orders in the Firm Commitment Underwritten Offering. In the Firm Commitment Underwritten Offering, any Person may purchase up to   30,000 shares of Conversion Stock, subject to the purchase limitations specified in Section 14.  In addition, unless otherwise approved or permitted by the Bank Regulators, orders received for Conversion Stock in the Firm Commitment Underwritten Offering will first be filled up to a maximum of two percent (2%) of the shares sold in the Offering, and thereafter any remaining shares will be allocated on an equal number of shares basis per order. Provided the Subscription Offering has begun, the Holding Company may begin the Firm Commitment Underwritten Offering at any time. The Holding Company reserves the right to reject any or all orders, in whole or in part, that are received in the Firm Commitment Underwritten Offering.

 

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If for any reason a Syndicated Community Offering or Firm Commitment Underwritten Offering of shares of Conversion Stock not sold in the Subscription Offering or any Community Offering cannot be effected, or in the event that any insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering or any Community Offering, Syndicated Community Offering or Firm Commitment Underwritten Offering, the Holding Company will use its best efforts to make other arrangements for the disposition of unsubscribed shares aggregating at least the minimum of the Offering Range. Such other purchase arrangements will be subject to receipt of any required approval of the Bank Regulators.

 

14. ADDITIONAL LIMITATIONS ON PURCHASES

 

In addition to the limitations set forth elsewhere in this Plan, the following limitations shall apply to all purchases and issuances of shares of Conversion Stock:

 

A.         The maximum number of shares of Conversion Stock that may be purchased in the Subscription Offering through a single Deposit Account is 30,000 shares.

 

B.          The maximum number of shares of Conversion Stock that may be subscribed for or purchased in all categories in the Offering by any Person or Participant, together with any Associate or group of Persons Acting in Concert, shall not exceed 40,000 shares of the Holding Company Common Stock outstanding immediately upon completion of the Conversion, except that the Employee Plans may subscribe for up to 10% of the Conversion Stock sold in the Offering (including shares sold in the Offering in the event of an increase in the maximum of the Offering Range of up to 15%).

 

C.          The maximum number of shares of Conversion Stock that may be issued to or purchased in all categories of the Offering by Officers and Directors and their Associates in the aggregate shall not exceed 25% of the shares of Holding Company Common Stock issued in the Conversion.

 

D.         A minimum of 25 shares of Conversion Stock must be purchased by each Person or Participant purchasing shares in the Offering to the extent those shares are available; provided, however , that in the event the minimum number of shares of Conversion Stock purchased times the Subscription Price exceeds $500, then such minimum purchase requirement shall be reduced to such number of shares which when multiplied by the price per share shall not exceed $500, as determined by the Boards of the Mutual Holding Company and the Holding Company.

 

E.          If the number of shares of Conversion Stock otherwise allocable pursuant to Sections 8 through 13, inclusive, to any Person or that Person’s Associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares of Conversion Stock allocated to each such person shall be reduced to the lowest limitation applicable to that Person, and then the number of shares allocated to each group consisting of a Person and that Person’s Associates shall be reduced so that the aggregate allocation to that Person and his or her Associates complies with the above limits.

 

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Depending upon market or financial conditions, the Boards of Directors of the Holding Company and the Mutual Holding Company, with the receipt of any required approvals of the Bank Regulators and without further approval of Voting Members, may decrease or increase the purchase limitations in this Plan, provided that the maximum purchase limitations may not be increased to a percentage in excess of 5% of the shares issued in the Offering except as provided below. If the Mutual Holding Company and the Holding Company increase the maximum purchase limitations, the Mutual Holding Company and the Holding Company are only required to resolicit Persons who subscribed for the maximum purchase amount in the Subscription Offering and may, in the sole discretion of the Mutual Holding Company and the Holding Company, resolicit certain other large subscribers. In the event that the maximum purchase limitation is increased to 5% of the shares issued in the Offering, such limitation may be further increased to 9.99% of the number of shares issued in the Offering, including shares issued to the Foundation, provided that orders for Conversion Stock exceeding 5% of the shares of Conversion Stock issued in the Offering shall not exceed in the aggregate 10% of the total shares of Conversion Stock issued in the Offering, including shares issued to the Foundation. Requests to purchase additional shares of the Conversion Stock in the event that the purchase limitation is so increased will be determined by the Boards of Directors of the Holding Company and the Mutual Holding Company in their sole discretion.

 

In the event of an increase in the total number of shares offered in the Offering due to an increase in the maximum of the Offering Range of up to 15% (the “Adjusted Maximum”), the additional shares may be used to fill the Employee Plans orders before all other orders and then will be allocated in accordance with the priorities set forth in this Plan.

 

For purposes of this Section 14, (i) Directors, Officers and Employees of the Bank, the Mid-Tier Holding Company, the Mutual Holding Company and the Holding Company or any of their subsidiaries shall not be deemed to be Associates or a group affiliated with each other or otherwise Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in paragraphs A. and B. of this Section 14, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Bank qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

 

Each Person purchasing Conversion Stock shall be deemed to confirm that such purchase does not conflict with the above purchase limitations contained in this Plan.

 

15. PAYMENT FOR CONVERSION STOCK

 

All payments for Conversion Stock subscribed for in the Subscription Offering and Community Offering must be delivered in full to the Bank or Holding Company, together with a properly completed and executed Order Form, on or prior to the expiration date of the Offering; provided, however , that if the Employee Plans subscribe for shares in the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Conversion Stock subscribed for by such plans at the Subscription Price upon consummation of the Conversion. Subscription funds will be held in a segregated account at the Bank or, at the discretion of the Mutual Holding Company, at another insured depository institution.

 

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Payment for Conversion Stock subscribed for shall be made by check, money order or bank draft. Alternatively, subscribers in the Subscription and Community Offerings may pay for the shares for which they have subscribed by authorizing the Bank on the Order Form to make a withdrawal from the designated types of Deposit Accounts at the Bank in an amount equal to the aggregate Subscription Price of such shares. Such authorized withdrawal shall be without penalty as to premature withdrawal. If the authorized withdrawal is from a certificate account, and the remaining balance does not meet the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the statement rate. Funds for which a withdrawal is authorized will remain in the subscriber’s Deposit Account but may not be used by the subscriber during the Offering. Thereafter, the withdrawal will be given effect only to the extent necessary to satisfy the subscription (to the extent it can be filled) at the Subscription Price per share. Interest will continue to be earned on any amounts authorized for withdrawal until such withdrawal is given effect. Interest on funds received by check or money order will be paid by the Bank at not less than the statement rate. Such interest will be paid from the date payment is received by the Bank until consummation or termination of the Offering. If for any reason the Offering is not consummated, all payments made by subscribers in the Subscription and Community Offerings will be refunded to them, with interest.

 

In case of amounts authorized for withdrawal from Deposit Accounts, refunds will be made by canceling the authorization for withdrawal. The Bank is prohibited by regulation from knowingly making any loans or granting any lines of credit for the purchase of stock in the Offering, and therefore will not do so.

 

16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS

 

As soon as practicable after the registration statement prepared by the Holding Company has been declared effective by the SEC and the stock offering materials have been approved by the Bank Regulators, Order Forms will be distributed to Participants at their last known addresses appearing on the records of the Bank for the purpose of subscribing for Conversion Stock and will be made available for use by those Persons to whom a Prospectus is delivered. Each Order Form will be preceded or accompanied by a Prospectus describing the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company, the Bank, the Holding Company Common Stock and the Offering. Each Order Form will contain, among other things, the following:

 

A.         A specified date by which all Order Forms must be received by the Holding Company or its agent, which date shall be not less than 20 days, nor more than 45 days, following the date on which the Order Forms are first mailed by the Mutual Holding Company or the Holding Company, and which date will constitute the termination of the Subscription Offering unless extended;

 

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B.         The Subscription Price per share for shares of Holding Company Common Stock to be sold in the Offering;

 

C.         A description of the minimum and maximum number of shares of Conversion Stock which may be subscribed for pursuant to the exercise of subscription rights or otherwise purchased in the Offering;

 

D.         Instructions as to how the recipient of the Order Form is to indicate thereon the number of shares of Conversion Stock for which such Person elects to subscribe and the available alternative methods of payment therefor;

 

E.         An acknowledgment that the recipient of the Order Form has received a copy of the Prospectus prior to execution of the Order Form;

 

F.         A statement to the effect that all subscription rights are nontransferable, will be void at the end of the Subscription Offering, and can only be exercised by delivering to the Holding Company or its agent within the subscription period such properly completed and executed Order Form, together with payment in the full amount of the aggregate purchase price as specified in the Order Form for the shares of Conversion Stock subscribed for in the Offering (or by authorizing on the Order Form that the Bank withdraw said amount from the subscriber’s Deposit Accounts at the Bank); and

 

G.         A statement to the effect that the executed Order Form, once received by the Mutual Holding Company or the Holding Company, may not be modified or amended by the subscriber without the consent of the Holding Company.

 

Notwithstanding the above, the Mutual Holding Company and the Holding Company reserve the right in their sole discretion to accept or reject orders received on photocopied or facsimiled order forms.

 

17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT

 

In the event Order Forms (a) are not delivered or are not timely delivered by the United States Postal Service, (b) are not received back by the Holding Company, or are received by the Holding Company or its agent after the expiration date specified therein, (c) are defectively filled out or executed, (d) are not accompanied by the full required payment, unless waived by the Holding Company, for the shares of Conversion Stock subscribed for (including cases in which Deposit Accounts from which withdrawals are authorized are insufficient to cover the amount of the required payment), or (e) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the subscription rights of the Person to whom such rights have been granted will lapse as though such Person failed to return the completed Order Form within the time period specified thereon; provided, however , that the Holding Company may, but will not be required to, waive any immaterial irregularity on any Order Form or require the submission of corrected Order Forms or the remittance of full payment for subscribed shares by such date as the Holding Company may specify. The interpretation of the Holding Company of terms and conditions of this Plan and of the Order Forms will be final, subject to the authority of the Bank Regulators.

 

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18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES

 

The Holding Company will make reasonable efforts to comply with the securities laws of all states in the United States in which Persons entitled to subscribe for shares of Conversion Stock pursuant to this Plan reside. However, no such Person will be issued subscription rights or be permitted to purchase Conversion Stock in the Offering if such Person resides in a foreign country; or in a state of the United States with respect to which any of the following apply: (a) a small number of Persons otherwise eligible to subscribe for shares under the Plan reside in such state; (b) the issuance of subscription rights or the offer or sale of Conversion Stock to such Persons would require the Holding Company, under the securities laws of such state, to register as a broker, dealer, salesman or agent or to register or otherwise qualify its securities for sale in such state; or (c) such registration or qualification would be impracticable for reasons of cost or otherwise.

 

19. ESTABLISHMENT OF LIQUIDATION ACCOUNT AND BANK LIQUIDATION ACCOUNT

 

The Holding Company shall establish in connection with the Conversion, a Liquidation Account in an amount equal to the Mid-Tier Holding Company’s total stockholders’ equity as reflected in the latest statement of financial condition contained in the final Prospectus used in the Conversion, plus the value of the net assets of the Mutual Holding Company as reflected in the latest statement of financial condition of the Mutual Holding Company prior to the effective date of the Conversion (excluding its ownership of Mid-Tier Holding Company common stock). Following the Conversion, the Liquidation Account will be maintained by the Holding Company for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder shall, with respect to his or her Deposit Account, hold a related inchoate interest in a portion of the Liquidation Account balance, in relation to his or her Deposit Account balance at the Eligibility Record Date or Supplemental Eligibility Record Date, respectively, or to such balance as it may be subsequently reduced, as hereinafter provided. As a result of the transactions described in Section 3.D of this Plan, the Holding Company shall also cause the Bank to establish and maintain the Bank Liquidation Account for the benefit of the Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their Deposit Accounts at the Bank. The Liquidation Account and the Bank Liquidation Account reduce in amount corresponding to the reduction in the Deposit Account balances of Eligible Account Holders and Supplemental Eligible Account Holders, as applicable, subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, as applicable.

 

In the unlikely event of a complete liquidation of (i) the Bank or (ii) the Bank and the Holding Company (and only in such event) following all liquidation payments to creditors (including those to Account Holders to the extent of their Deposit Accounts), each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the adjusted subaccount balance for such Account Holders before any liquidation distribution may be made to any holders of the Holding Company’s capital stock.

 

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In the unlikely event of a complete liquidation of (i) the Bank or (ii) the Bank and the Holding Company (and only in such event) following all liquidation payments to creditors of the Bank (including those to Account Holders to the extent of their Deposit Accounts), at a time when the Bank has a positive net worth, and the Holding Company does not have sufficient assets (other than the stock of the Bank) at the time of the liquidation to fund the distribution due with respect to the Liquidation Account, the Bank with respect to the Bank Liquidation Account shall immediately pay directly to Eligible Account Holders and Supplemental Eligible Account Holders an amount necessary to fund the Holding Company's remaining obligations under the Liquidation Account, before any liquidation distribution may be made to any holders of the Bank's capital stock and without making such amount subject to the Holding Company's creditors. Each Eligible Account Holder and Supplemental Eligible Account Holder shall be entitled to receive a distribution from the Bank Liquidation Account in the amount of the then-adjusted subaccount balance for his or her Deposit Account then held, before any liquidation distribution may be made to any holders of the Holding Company’s or Bank’s capital stock. A merger, consolidation, or similar combination with another depository institution, in which the Holding Company is not the surviving institution, is not a complete liquidation for this purpose. In such transactions, the Liquidation Account or Bank Liquidation Account, as applicable, shall be assumed by the surviving holding company or institution.

 

In the event of the complete liquidation of the Holding Company where the Bank is not also completely liquidating, or in the event of a sale or other disposition of the Holding Company apart from the Bank, each Eligible Account Holder and Supplemental Eligible Account Holder shall be treated as surrendering such Person’s rights to his or her Liquidation Account and receiving from the Holding Company an equivalent interest in the Bank Liquidation Account. Each such holder's interest in the Bank Liquidation Account shall be subject to the same rights and terms as if the Bank Liquidation Account was the Liquidation Account (except that the Holding Company shall cease to exist).

 

The initial subaccount balance for a Deposit Account held by an Eligible Account Holder or a Supplemental Eligible Account Holder shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, the numerator of which is the amount of the Qualifying Deposits of such Eligible Account Holder or Supplemental Eligible Account Holder, as applicable, and the denominator of which is the total amount of all Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Account on each such record date. Such initial subaccount balance shall not be increased, but shall be subject to downward adjustment as described below.

 

If, at the close of business on any December 31 annual closing date, commencing on or after the effective date of the Conversion, the deposit balance in the Deposit Account of an Eligible Account Holder or Supplemental Eligible Account Holder is less than the lesser of (i) the balance in the Deposit Account at the close of business on any other annual closing date subsequent to the Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying Deposit in such Deposit Account as of the Eligibility Record Date or Supplemental Eligibility Record Date, then the subaccount balance for such Deposit Account shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account. If any such Deposit Account is closed, the related subaccount shall be reduced to zero.

 

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The creation and maintenance of the Liquidation Account and the Bank Liquidation Account shall not operate to restrict the use or application of any of the equity accounts of the Holding Company or the Bank, except that neither the Holding Company nor the Bank shall declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its equity to be reduced below (i) the amount required for the Liquidation Account or Bank Liquidation Account, as applicable; or (ii) the regulatory capital requirements of the Holding Company (to the extent applicable) or the Bank. Neither the Holding Company nor the Bank shall be required to set aside funds in connection with its obligations hereunder relating to the Liquidation Account and the Bank Liquidation Account, respectively.  Eligible Account Holders and Supplemental Eligible Account Holders do not retain any voting rights in either the Holding Company or the Bank based on their interests in the Liquidation Account or the Bank Liquidation Account.

 

The amount of the Bank Liquidation Account shall equal at all times the amount of the Liquidation Account and the Bank Liquidation Account shall be reduced by the same amount and upon the same terms as any reduction in the Liquidation Account. In no event will any Eligible Account Holder or Supplemental Eligible Account Holder be entitled to a distribution exceeding such holder’s subaccount balance in the Liquidation Account.

 

For the three-year period following the completion of the Conversion, the Holding Company will not, except with the prior written approval of the applicable Bank Regulators, (i) liquidate or sell the Holding Company, or (ii) cause the Bank to be liquidated or sold. Thereafter, upon the written request of the applicable Bank Regulators, the Holding Company shall eliminate or transfer the Liquidation Account to the Bank and the Liquidation Account shall be assumed by the Bank, at which time the interests of Eligible Account Holders and Supplemental Eligible Account Holders will be solely, exclusively and directly in the Bank Liquidation Account. In the event such transfer occurs, the Holding Company shall be deemed to have transferred the Liquidation Account to the Bank and the Liquidation Account shall be subsumed by the Bank Liquidation Account and shall not be subject in any manner or amount to the claims of the Holding’s Company’s creditors. In the event the Liquidation Account is eliminated instead of transferred, the Bank Liquidation Account will be substituted therefore. Approval of the Plan shall constitute approval of the transactions described herein by the members of the Mutual Holding Company and any other person or entity required to approve the Plan.

 

20. VOTING RIGHTS OF STOCKHOLDERS

 

Following consummation of the Conversion, the holders of the voting capital stock of the Holding Company shall have the exclusive voting rights with respect to the Holding Company and the Holding Company exclusively shall hold and exercise voting rights as the holder of 100% of the Bank’s voting common stock.

 

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21. Contribution to the Foundation

 

As part of the Conversion, the Holding Company and the Bank intend to donate shares of Holding Company Common Stock and cash to the Foundation, in such amounts, subject to regulatory limits, as shall be approved by the Board of Directors. This contribution to the Foundation is intended to enhance the Bank’s existing community reinvestment activities, and to share with the communities in which the Bank conducts its business a part of the Bank’s financial success as a community minded, financial services institution. The contribution of Holding Company Common Stock to the Foundation may further this goal as it may enable the community to share in the growth and profitability of the Holding Company and the Bank over the long term.

 

The Foundation is dedicated to the promotion of charitable purposes including community development, grants or donations to support housing assistance, not-for-profit community groups and other types of organizations or civic-minded projects. The Foundation will annually distribute total grants to assist charitable organizations or to fund projects within its local community of not less than 5% of the average fair market value of Foundation assets each year, less certain expenses. In order to serve the purposes for which it was formed and to maintain its qualification under Code Section 501(c)(3), the Foundation may sell, on an annual basis, a portion of the Foundation Shares.

 

For a period of five years following the Conversion, except for temporary periods resulting from death, resignation, removal or disqualification, (i) at least one director of the Foundation will be an independent director who is unaffiliated with the Holding Company and the Bank who is from the Bank’s local community and who has experience with local community charitable organizations and grant making, and (ii) at least one director shall be a person who is also a member of the Board of Directors of the Bank. The board of directors of the Foundation will be responsible for establishing the policies of the Foundation, including a conflicts of interest policy, consistent with the stated purposes of the Foundation.

 

The contribution to the Foundation as part of the Conversion must be approved by a majority of the total number of votes eligible to be cast by Voting Members. The decision to proceed with the formation and/or grant of Holding Company Common Stock and/or cash to the Foundation will be at the sole discretion of the Board of Directors.

 

22. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION

 

A.         All Conversion Stock purchased by Directors or Officers of the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company or the Bank shall be subject to the restriction that, except as provided in this Section or as may be approved by the Bank Regulators, no interest in such shares may be sold or otherwise disposed of for value for a period of one year following the date of purchase in the Offering.

 

B.         The restriction on disposition of Conversion Stock set forth above in this Section shall not apply to the following:

 

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(1) Any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the appropriate federal regulatory agency; and

 

(2) Any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of the Plan.

 

C.         With respect to all Conversion Stock subject to restrictions on resale or subsequent disposition, each of the following provisions shall apply:

 

(1) Each certificate representing shares restricted by this Section shall bear a legend giving notice of the restriction;

 

(2) Instructions shall be issued to the stock transfer agent for the Holding Company not to recognize or effect any transfer of any certificate or record of ownership of any such shares in violation of the restriction on transfer; and

 

(3) Any shares of capital stock of the Holding Company issued as a result of a stock dividend, stock split, or otherwise with respect to ownership of outstanding Conversion Stock subject to the restriction on transfer hereunder shall be subject to the same restriction as is applicable to such Conversion Stock.

 

23. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION

 

For a period of three years following the Conversion, no Officer, Director or their Associates shall purchase, without the prior written approval of the Bank Regulators, any outstanding shares of Holding Company Common Stock except from a broker-dealer registered with the SEC. This provision shall not apply to negotiated transactions involving more than 1% of the outstanding shares of Holding Company Common Stock, the exercise of any options pursuant to a stock option plan or purchases of Holding Company Common Stock made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Bank or the Holding Company (including the Employee Plans) which may be attributable to any Officer or Director. As used herein, the term “negotiated transaction” means a transaction in which the securities are offered and the terms and arrangements relating to any sale are arrived at through direct communications between the seller or any person acting on its behalf and the purchaser or his investment representative. The term “investment representative” shall mean a professional investment advisor acting as agent for the purchaser and independent of the seller and not acting on behalf of the seller in connection with the transaction.

 

24. TRANSFER OF DEPOSIT ACCOUNTS

 

Each person holding a Deposit Account at the Bank at the time of Conversion shall retain an identical Deposit Account at the Bank following Conversion in the same amount and subject to the same terms and conditions (except as to voting and liquidation rights) applicable to such Deposit Account in the Bank immediately preceding consummation of the Conversion.

 

  23  

 

 

25. REGISTRATION AND MARKETING

 

Within the time period required by applicable laws and regulations, the Holding Company will register the securities issued in connection with the Conversion pursuant to the Securities Exchange Act of 1934 and will not deregister such securities for a period of at least three years thereafter, except that the maintenance of registration for three years requirement may be fulfilled by any successor to the Holding Company. In addition, the Holding Company will use its best efforts to encourage and assist a market-maker to establish and maintain a market for the Conversion Stock and to list those securities on a national or regional securities exchange.

 

26. TAX RULINGS OR OPINIONS

 

Consummation of the Conversion is expressly conditioned upon prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank of either a ruling, an opinion of counsel, or a letter of advice from their tax advisor with respect to applicable federal and state tax laws, to the effect that consummation of the transactions contemplated by the Conversion and this Plan will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any adverse tax consequences to the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company or the Bank, or the account holders receiving subscription rights before or after the Conversion, except in each case to the extent, if any, that subscription rights are deemed to have value on the date such rights are issued.

 

27. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

 

A.       The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation, an ESOP. Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Holding Company Common Stock in the Offering, to the extent permitted by the terms of such benefit plans and this Plan.

 

B.       The Holding Company and the Bank are authorized to adopt stock option plans, restricted stock award plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that such plans conform to any applicable regulations. The Holding Company and the Bank intend to implement a stock option plan and a restricted stock award plan no earlier than six months after completion of the Conversion. Stockholder approval of these plans will be required. If adopted within 12 months following the completion of the Conversion, the stock option plan will reserve a number of shares equal to up to 10% of the shares sold in the Offering and the restricted stock award plan will reserve a number of shares equal to up to 4% of the shares sold in the Offering (unless the Bank’s tangible capital is less than 10% upon completion of the Offering, in which case the restricted stock award plan will reserve a number of shares equal to up to 3% of the shares sold in the Offering) for awards to Employees and Directors at no cost to the recipients. Shares for such plans may be issued out of authorized but unissued shares, treasury shares or repurchased shares. Any stock option plan, restricted stock award plan or other Non-Tax-Qualified Employee Stock Benefit Plan implemented more than 12 months following the completion of the Conversion will not be subject to the foregoing restrictions.

 

  24  

 

 

C.         The Holding Company and the Bank are authorized to enter into employment agreements and/or change in control agreements with their executive officers.

 

28. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY

 

A.         For a period of three years from the date of consummation of the Conversion, no person, other than the Holding Company, shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of the Bank without the prior written consent of the Bank Regulators.

 

B.         The Articles of Incorporation of the Holding Company may contain a provision stipulating that in no event shall any record owner of any outstanding shares of Holding Company Common Stock who beneficially owns in excess of 10% of such outstanding shares be entitled or permitted to any vote with respect to any shares held in excess of 10%. In addition, the Articles of Incorporation and Bylaws of the Holding Company may contain provisions which provide for staggered terms of the directors, noncumulative voting for directors, limitations on the calling of special meetings, a fair price provision for certain business combinations, certain notice requirements and supermajority voting requirements for certain matters.

 

C.         For the purposes of this Section:

 

(1) The term “person” includes an individual, a firm, a corporation or other entity;

 

(2) The term “offer” includes every offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value;

 

(3) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise; and

 

(4) The term “security” includes non-transferable subscription rights issued pursuant to a plan of conversion as well as a “security” as defined in 15 U.S.C. § 77b(a)(1).

 

29. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK

 

A.         The Holding Company shall comply with any applicable regulation in the repurchase of any shares of its capital stock following consummation of the Conversion.

 

B.         The Bank shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its regulatory capital to be reduced below (i) the amount required for the Liquidation Account or Bank Liquidation Account, as applicable, or (ii) applicable regulatory capital requirements.

 

  25  

 

 

30. ARTICLES OF INCORPORATION AND BYLAWS

 

By voting to adopt this Plan, Voting Members and the Stockholder will be voting to adopt the Articles of Incorporation and Bylaws for the Holding Company attached as Exhibits B and C to this Plan.

 

31. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE

 

The Effective Date of the Conversion shall be the date upon which the Articles of Combination shall be filed with Bank Regulators and the Articles of Merger shall be filed with the Maryland Department. The Articles of Combination and the Articles of Merger shall be filed after all requisite regulatory, Voting Member and Stockholder approvals have been obtained, all applicable waiting periods have expired, and sufficient subscriptions and orders for Conversion Stock have been received. The closing of the sale of all shares of Conversion Stock shall occur simultaneously on the effective date of the closing.

 

32. EXPENSES OF CONVERSION

 

The Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Holding Company may retain and pay for the services of legal, financial and other advisors to assist in connection with any or all aspects of the Conversion, including the Offering, and such parties shall use their best efforts to assure that such expenses shall be reasonable.

 

33. AMENDMENT OR TERMINATION OF PLAN

 

If deemed necessary or desirable, this Plan may be substantively amended as a result of comments from the Bank Regulators or otherwise at any time prior to solicitation of proxies from Voting Members to vote on this Plan by the Board of Directors of the Mutual Holding Company, and at any time thereafter by the Board of Directors of the Mutual Holding Company with the concurrence of the Bank Regulators. Any amendment to this Plan made after approval by Voting Members with the approval of the Bank Regulators shall not necessitate further approval by Voting Members unless otherwise required by the Bank Regulators. The Board of Directors of the Mutual Holding Company may terminate this Plan at any time prior to the Special Meeting of Members to vote on this Plan, and at any time thereafter with the concurrence of the Bank Regulators.

 

By adoption of the Plan, Voting Members of the Mutual Holding Company authorize the Board of Directors of the Mutual Holding Company to amend or terminate the Plan under the circumstances set forth in this Section.

 

34. CONDITIONS TO CONVERSION

 

Consummation of the Conversion pursuant to this Plan is expressly conditioned upon the following:

 

A.         Prior receipt by the Mutual Holding Company, the Mid-Tier Holding Company, the Holding Company and the Bank of rulings of the United States Internal Revenue Service and the state taxing authorities, or opinions of counsel or tax advisers as described in Section 25 hereof;

 

  26  

 

 

B.          The issuance of the Conversion Stock; and

 

C.          The completion of the Conversion within the time period specified in Section 3 of this Plan.

 

35. INTERPRETATION

 

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Mutual Holding Company shall be final, subject to the authority of the Bank Regulators.

 

Dated: February 6, 2019

 

  27  

 

 

EXHIBIT A

 

AGREEMENT AND PLAN OF MERGER BY AND AMONG

RICHMOND MUTUAL BANCORPORATION, INC. (DELAWARE), FIRST MUTUAL OF RICHMOND, INC. AND

RICHMOND MUTUAL BANCORPORATION, INC. (MARYLAND)

 

THIS AGREEMENT AND PLAN OF MERGER (this “Merger Agreement”) dated as of _________________, 2019, is made by and among Richmond Mutual Bancorporation, Inc., a Delaware corporation (the “Mid-Tier Holding Company”), First Mutual of Richmond, Inc., a Delaware non-stock mutual holding company (the “Mutual Holding Company”), and Richmond Mutual Bancorporation, Inc., a corporation organized under the laws of Maryland and wholly owned subsidiary of Mid-Tier Holding Company (“Maryland Holding Company”). Capitalized terms have the respective meanings given them in the Plan of Reorganization and Stock Offering (the “Plan”) of First Mutual of Richmond, Inc. dated ____________, 2019, unless otherwise defined herein.

 

RECITALS:

 

1. The Mid-Tier Holding Company is a Delaware corporation that owns 100% of the common stock of First Bank Richmond (the “Bank”).

 

2. The Mutual Holding Company is a Delaware non-stock mutual association which owns 100% of the common stock of the Mid-Tier Holding Company.

 

3. The Maryland Holding Company is a corporation organized under the laws of the State of Maryland and 100% of its outstanding common stock is owned by the Mid-Tier Holding Company.

 

4. The Mutual Holding Company will merge with and into the Mid-Tier Holding Company with the Mid Tier Holding Company as the surviving entity.

 

5. Immediately thereafter, the Mid-Tier Holding Company will merge with and into Maryland Holding Company with Maryland Holding Company as the surviving entity.

 

6. At least two-thirds of the members of the boards of directors of the Mid-Tier Holding Company, Mutual Holding Company and Maryland Holding Company have approved this Merger Agreement, and have authorized the execution and delivery thereof.

 

NOW, THEREFORE , in consideration of the premises and mutual agreements contained herein, the parties hereto have agreed as follows:

 

1. Mergers. At and on the Effective Date of the Conversion, (the “Effective Date”) (i) the Mutual Holding Company will merge with and into Mid-Tier Holding Company (the “MHC Merger”) with the Mid-Tier Holding Company as the resulting entity, and (ii) immediately thereafter the Mid-Tier Holding Company will merge with and into Maryland Holding Company (the “Mid-Tier Merger”) with Maryland Holding Company as the resulting entity (the “Resulting Corporation”).

 

  A- 1  

 

 

2. Exchange of Equity Interests . In the MHC Merger, members of the Mutual Holding Company who are Eligible Account Holders and Supplemental Eligible Account Holders will, by virtue of the MHC Merger and this Merger Agreement, constructively receive liquidation interests in the Mid-Tier Holding Company equivalent to, and in cancellation of, their equity/liquidation rights in the Mutual Holding Company and all of the outstanding stock of Mid-Tier Holding Company held by Mutual Holding Company will be cancelled. In the Mid-Tier Merger: (a) Eligible Account Holders and Supplemental Eligible Account Holders will receive an interest in the Liquidation Account of Maryland Holding Company (and indirectly rights in the Bank Liquidation Account held by Maryland Holding Company for their benefit) in exchange for and in cancellation of their constructive liquidation interests in the Mid-Tier Holding Company; and (b) all of the outstanding common stock of Maryland Holding Company held by the Mid-Tier Holding Company prior to the Mid-Tier Merger will be cancelled in the Mid-Tier Merger.

 

3. Required Approvals . This Merger Agreement shall not be effective until and unless the Plan is approved by the Bank Regulators after approval by (i) the Mutual Holding Company as the sole stockholder of the Mid-Tier Holding Company and (ii) at least a majority of the eligible votes of Voting Members, and this Merger Agreement shall have been filed with the Bank Regulators with respect to the Mid-Tier Merger. Approval of the Plan by the Voting Members shall constitute approval of the Merger Agreement by the equity holders of the Mutual Holding Company. Approval of the Plan by the sole stockholder of the Mid-Tier Holding Company shall constitute approval of this Merger Agreement by the stockholder of the Mid-Tier Holding Company.

 

4. Name. The name of the Resulting Corporation is Richmond Mutual Bancorporation, Inc.

 

5. Offices. The main office of the Resulting Corporation shall be 31 North 9 th Street, Richmond, Indiana 47374.

 

6. Directors and Officers. The directors and officers of the Mid-Tier Holding Company immediately prior to the Effective Date shall be the directors and officers of the Resulting Corporation after the Effective Date.

 

7. Rights and Duties of the Resulting Corporation. The Resulting Corporation, without any order or action on the part of any court or otherwise and without any documents of assumption or assignment, shall hold and enjoy all of the properties, franchises and interests, including appointments, powers, designations, nominations and all other rights and interests as the agent or other fiduciary in the same manner and to the same extent as such rights, franchises, interests and powers were held or enjoyed by the Mutual Holding Company and the Mid-Tier Holding Company. The Resulting Corporation shall be responsible for all of the liabilities, restrictions and duties of every kind and description of the Mid-Tier Holding Company immediately prior to the Mid-Tier Merger, including liabilities for all debts, obligations and contracts of the Mid-Tier Holding Company and Mutual Holding Company matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of accounts or records of the Mid-Tier Holding Company or the Mutual Holding Company. All rights of creditors and other obligees and all liens on property of the Mid-Tier Holding Company and Mutual Holding Company shall be preserved and shall not be released or impaired.

 

8 . Incorporation of Other Terms. The Plan is incorporated herein by this reference and made a part hereof to the extent necessary or appropriate to effect and consummate the terms of this Merger Agreement.

 

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 

  A- 2  

 

 

IN WITNESS WHEREOF , the Mid-Tier Holding Company, the Mutual Holding Company and the Maryland Holding Company have caused this Merger Agreement to be executed as of the date first above written.

 

    Richmond Mutual Bancorporation, Inc.
    (a Delaware corporation)
ATTEST:    
      By:  
Beth Brittenham
Corporate Secretary 		    Garry D. Kleer  
President and Chief Executive Officer
         
    First Mutual of Richmond, Inc.
ATTEST:      
    By:  
Beth Brittenham
Corporate Secretary 		    Garry D. Kleer  
President and Chief Executive Officer
     
    Richmond Mutual Bancorporation, Inc.
    (a Maryland corporation)
ATTEST:    
      By:  
Beth Brittenham
Corporate Secretary 		    Garry D. Kleer  
President and Chief Executive Officer
           

 

  A- 3  

 

 

EXHIBIT B

 

ARTICLES OF INCORPORATION
OF
RICHMOND MUTUAL BANCORPORATION, INC.

 

The undersigned, Garry Kleer, whose address is 31 N. 9 th Street, Richmond, Indiana 47374, being at least eighteen years of age, acting as sole incorporator, does hereby form a corporation under the general laws of the State of Maryland, having the following Articles of Incorporation (the “Articles”):

 

ARTICLE 1. Name. The name of the corporation is Richmond Mutual Bancorporation, Inc. (herein the “Corporation”).

 

ARTICLE 2. Principal Office. The address of the principal office of the Corporation in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202.

 

ARTICLE 3. Purpose. The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.

 

ARTICLE 4. Resident Agent. The name and address of the registered agent of the Corporation in the State of Maryland is CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

 

ARTICLE 5.

 

A. Capital Stock. The total number of shares of capital stock of all classes which the Corporation has authority to issue is one hundred million (100,000,000) shares, consisting of:

 

1.           Ten million (10,000,000) shares of preferred stock, par value one cent ($.01) per share (the “Preferred Stock”); and

 

2.          Ninety million (90,000,000) shares of common stock, par value one cent ($.01) per share (the “Common Stock”).

 

The aggregate par value of all the authorized shares of capital stock is one million dollars ($1,000,000). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of the stockholders of the Corporation. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor which funds shall include, without limitation, the Corporation’s unreserved and unrestricted capital surplus . If shares of one class of stock are classified or reclassified into shares of another class of stock by the Board of Directors pursuant to this Article 5, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Corporation has authority to issue shall not be more than the total number of shares of stock set forth in the first sentence of this paragraph. The Board of Directors, with the approval of a majority of the entire Board of Directors, and without action by the stockholders, may amend the Articles to increase or decrease the aggregate number of shares of stock of the Corporation or the number of shares of stock of any class or series that the Corporation has authority to issue.

 

  B- 1  

 

 

The Board of Directors may classify or reclassify any unissued shares of stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption of such shares.

 

B. Common Stock. Except as provided under the terms of any series of Preferred Stock and as limited by Section D of this Article 5, the exclusive voting power shall be vested in the Common Stock, the holders thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation. Subject to any rights and preferences of any series of Preferred Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after payment or provision for payment of all debts and liabilities of the Corporation, distributions or provision for distributions in settlement of the liquidation account established for certain depositors of First Bank Richmond (the “Bank”) in connection with its mutual to stock conversion, and payment or provision for payment of any amounts owed to the holders of any series of Preferred Stock having preference over the Common Stock on distributions on liquidation, dissolution or winding up of the Corporation.

 

C. Preferred Stock. The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required by law or pursuant to the terms of such Preferred Stock.

 

D. Restrictions on Voting Rights of the Corporation’s Equity Securities.

 

1.          Notwithstanding any other provision of these Articles, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast after giving effect to the provisions hereof, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit.

 

2.          The following definitions shall apply to this Section D of this Article 5.

 

(a)         An “affiliate” of a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

  B- 2  

 

 

(b)         “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on the filing date of these Articles; provided, however , that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock:

 

(1)       which such person or any of its affiliates beneficially owns, directly or indirectly; or

 

(2)       which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the Corporation to effect any transaction which is described in any one or more of the clauses of Section A of Article 9 hereof) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or

 

(3)       which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation;

 

and provided further, however, that (i) no director or officer of the Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of the Corporation or any subsidiary of the Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

 

(c)       A “person” shall mean any individual, firm, corporation, or other entity.

 

  B- 3  

 

 

(d)       The Board of Directors shall have the power to construe and apply the provisions of this Section D and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section D to the given facts, or (v) any other matter relating to the applicability or effect of this Section.

 

3.         The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) (a "Holder in Excess") supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence.

 

4.         Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section D in good faith and based on such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders.

 

5.         In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section D shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.

 

E. Majority Vote. With respect to those actions as to which any provision of the Maryland General Corporation Law (the “MGCL”) requires stockholder authorization by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, any such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in these Articles.

 

F. Quorum. Except as otherwise provided by law or expressly provided in these Articles, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast one-third of the votes (after giving effect, if required, to the provisions of Article 5, Section D) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

 

  B- 4  

 

 

ARTICLE 6. Preemptive Rights . No holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series, or carrying any right to purchase stock of any class or series, except such as may be established by the Board of Directors.

 

ARTICLE 7. Directors. The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

 

A. Management of the Corporation. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under the authority of the Board of Directors, except as conferred on or as reserved to the stockholders by law or by these Articles or the Bylaws of the Corporation.

 

B. Number, Class and Terms of Directors; Cumulative Voting. The number of directors constituting the Board of Directors of the Corporation shall initially be seven, which number may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class ("Class I") to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class ("Class II") to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class ("Class III") to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

 

The names of the individuals who will serve as directors of the Corporation until their successors are elected and qualify are as follows:

 

(1) Class I directors:

 

Name   Term to Expire in
     
Lindley S. Mann   2020
     
W. Ray Stevens, III   2020
     
Kathryn Cruz-Uribe   2020

 

(2) Class II directors:

 

Name   Term to Expire in
     
M. Lynn Wetzel   2021
     
Jeffrey A. Jackson   2021

 

  B- 5  

 

 

(3) Class III directors:

 

Name   Term to Expire in
     
E. Michael Blum   2022
     
Garry D. Kleer   2022

 

Stockholders shall not be permitted to cumulate their votes in the election of directors.

 

C. Vacancies. Any vacancies in the Board of Directors may be filled in the manner provided in the Bylaws of the Corporation.

 

D. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof) voting together as a single class.

 

E. Stockholder Proposals and Nominations of Directors. Notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

 

ARTICLE 8. Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of directors the Corporation would have if there were no vacancies on the Board of Directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof), voting together as a single class, shall be required for the adoption, amendment or repeal of any provisions of the Bylaws of the Corporation by the stockholders.

 

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ARTICLE 9. Approval of Certain Business Combinations.

 

A. Super-majority Voting Requirement; Business Combination Defined. In addition to any affirmative vote required by law or by these Articles, and except as otherwise expressly provided in this Section:

 

1.          any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

 

2.          any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

 

3.          the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

 

4.          the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or

 

5.          any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder (a "Disproportionate Transaction"); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Stockholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally;

 

shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), after giving effect to the provisions of Article 5 hereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles (including those applicable to any class or series of capital stock) or in any agreement with any national securities exchange or quotation system or otherwise.

 

The term “Business Combination” as used in this Article 9 shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article 9.

 

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B. Exception to Super-majority Voting Requirement. The provisions of Section A of this Article 9 shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by these Articles, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 and 2 are met:

 

1.          The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

 

2.          All of the following conditions shall have been met:

 

(a)       The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following:

 

(1)       (if applicable) the Highest Per Share Price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; and

 

(2)       the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article 9 as the “Determination Date”), whichever is higher.

 

(b)       The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

 

(1)       (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher;

 

(2)       (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and

 

(3)       the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

 

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(c)       The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with Section B.2. of this Article 9 shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

 

(d)       After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (ii) there shall have been (X) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (Y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

 

(e)       After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

 

(f)       A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

 

C.         Certain Definitions. For the purposes of this Article 9:

 

1.       A “Person” shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group or entity formed to acquire, hold or dispose of securities.

 

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2.          “Interested Stockholder” shall mean any Person (other than the Corporation or any holding company or Subsidiary thereof) who or which:

 

(a)       is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

 

(b)       is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then-outstanding Voting Stock; or

 

(c)       is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

 

3.          A Person shall be a “beneficial owner” of any Voting Stock:

 

(a)       which such Person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles; or

 

(b)       which such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or

 

(c)       which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting Stock;

 

provided, however, that, in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan.

 

4.          To determine whether a Person is an Interested Stockholder pursuant to Section C.2., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section C.3. but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

 

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5.          “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles.

 

6.          “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however , that for the purposes of the definition of Interested Stockholder set forth in Section C.2., the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

 

7.          “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

 

8.          “Fair Market Value” means: (a) in the case of stock, the highest closing sale price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the Nasdaq System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or in combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

 

9.          Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

 

10.         In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Sections B.2.(a) and B.2.(b) of this Article 9 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

 

D. Construction and Interpretation. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article 9, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article 9.

 

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E. Fiduciary Duty. Nothing contained in this Article 9 shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

 

F. Maryland Business Combination Statute. Notwithstanding any contrary provision of law, the provisions of Sections 3-601 through 3-604 of the MGCL, as now and hereafter in force, shall not apply to any "business combination" (as defined in Section 3-601(e) of the MGCL, as now and hereafter in force), of the Corporation.

 

ARTICLE 10. Evaluation of Certain Offers . The Board of Directors, when evaluating (i) any offer of another Person (as defined in Article 9 hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or (ii) any other actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market, or otherwise, tender offer, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to the Corporation’s stockholders, give due consideration to all relevant factors, including, but not limited to: (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, who do not participate in the transaction; (B) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation or the other entity to be involved in the proposed transaction; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; (H) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and (I) the ability of the Corporation to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations. If the Board of Directors determines that any proposed transaction of the type described in clause (i) or (ii) of the immediately preceding sentence should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; increasing the authorized stock of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or granting options or rights with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity. This Article 10 does not create any inference concerning factors that may be considered by the Board of Directors regarding any proposed transaction of the type described in clause (i) or (ii) of the first sentence of this Article 10.

 

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ARTICLE 11. Acquisitions of Equity Securities from Interested Persons.

 

A. Super-majority Voting Requirement. Except as set forth in Section B of this Article 11, in addition to any affirmative vote of stockholders required by law or these Articles, any direct or indirect purchase or other acquisition by the Corporation of any Equity Security (as hereinafter defined) of any class from any Interested Person (as hereinafter defined) shall require the affirmative vote of the holders of at least 80% of the Voting Stock of the Corporation that is not beneficially owned (for purposes of this Article 11 beneficial ownership shall be determined in accordance with Section D.2(b) of Article 5 hereof) by such Interested Person, after giving effect to the provisions of Article 5 hereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles (including those applicable to any class or series of capital stock) or in any agreement with any national securities exchange or quotation system, or otherwise. Certain defined terms used in this Article 11 are as set forth in Section C below.

 

B. Exceptions. The provisions of Section A of this Article 11 shall not be applicable with respect to:

 

1.          any purchase or other acquisition of securities made as part of a tender or exchange offer by the Corporation or a Subsidiary (which term, as used in this Article 11, is as defined in the first clause of Section C.6 of Article 9 hereof) of the Corporation to purchase securities of the same class made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provision replacing such Act, rules or regulations);

 

2.          any purchase or acquisition made pursuant to an open market purchase program approved by a majority of the Board of Directors, including a majority of the Disinterested Directors (which term, as used in this Article 11, is as defined in Article 9 hereof); or

 

3.          any purchase or acquisition which is approved by a majority of the Board of Directors, including a majority of the Disinterested Directors, and which is made at no more than the Market Price (as hereinafter defined), on the date that the understanding between the Corporation and the Interested Person is reached with respect to such purchase (whether or not such purchase is made or a written agreement relating to such purchase is executed on such date), of shares of the class of Equity Security to be purchased.

 

C. Certain Definitions. For the purposes of this Article 11:

 

(i)          The term Interested Person shall mean any Person (other than the Corporation, Subsidiaries of the Corporation, pension, profit sharing, employee stock ownership or other employee benefit plans of the Corporation and its Subsidiaries, entities organized or established by the Corporation or any of its Subsidiaries pursuant to the terms of such plans and trustees and fiduciaries with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner of 5% or more of the Voting Stock of the Corporation, and any Affiliate or Associate of any such person. For purposes of this Article 11, the terms “Affiliate” and “Associate” shall have the definitions given them in Article 9 hereof.

 

(ii)         The Market Price of shares of a class of Equity Security on any day shall mean the highest sale price of shares of such class of Equity Security on such day, or, if that day is not a trading day, on the trading day immediately preceding such day, on the national securities exchange or the Nasdaq System or any other system then in use on which such class of Equity Security is traded.

 

(iii)        The term Equity Security shall mean any security described in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on the filing date of these Articles, which is traded on a national securities exchange or the Nasdaq System or any other system then in use.

 

(iv)       For purposes of this Article 11, all references to the term Interested Stockholder in the definition of Disinterested Director shall be deemed to refer to the term Interested Person.

 

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ARTICLE 12. Indemnification, etc. of Directors and Officers.

 

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

 

B. Procedure. If a claim under Section A of this Article 12 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 12 or otherwise shall be on the Corporation.

 

C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 12 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

 

D. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether the Corporation would have the power to indemnify such person against such expense, liability or loss under the MGCL.

 

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E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 12 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 12 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators.

 

Any repeal or modification of this Article 12 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 12 is in force.

 

ARTICLE 13. Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (B) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

 

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

 

ARTICLE 14. Amendment of these Articles. The Corporation reserves the right to amend or repeal any provision contained in these Articles in the manner prescribed by the MGCL, including any amendment altering the terms or contract rights, as expressly set forth in these Articles, of any of the Corporation’s outstanding stock by classification, reclassification or otherwise, and all rights conferred upon stockholders are granted subject to this reservation; provided, however , that, notwithstanding any other provision of these Articles or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5), voting together as a single class, shall be required to amend or repeal this Article 14, Section C, D or E of Article 5, Article 7, Article 8, Article 9, Article 11, Article 12 or Article 13; provided, further , that as provided in Article 5, the Board of Directors, with the approval of a majority of the entire Board of Directors, and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock of the Corporation or the number of shares of stock of any class or series that the Corporation has authority to issue.

 

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IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be my act, on __________________, 2019.

 

Witness:

 

     
    Garry Kleer

 

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Consent of Resident Agent

 

THE UNDERSIGNED hereby consents to act as resident agent in Maryland for the entity named in the attached instrument.

 

CSC-Lawyers Incorporating Service Company

 

By:    

 

Printed Name:    

 

Its:    

 

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EXHIBIT C

 

BYLAWS

OF

RICHMOND MUTUAL BANCORPORATION, INC.

 

ARTICLE I

 

STOCKHOLDERS

 

Section 1.             Annual Meeting .

 

The Corporation shall hold an annual meeting of its stockholders to elect directors to succeed those whose terms expire and to transact any other business within its powers, at such place, on such date, and at such time as the Board of Directors shall each year fix. Except as provided otherwise by the Corporation’s Charter or Bylaws, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice. Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid corporate act.

 

Section 2.             Special Meetings .

 

Special meetings of stockholders of the Corporation may be called by the Chairman, the Chief Executive Officer or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting. Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting, and shall be delivered at the principal office of the Corporation addressed to the President or the Secretary. The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting. The Board of Directors shall have the sole power to fix (1) the record date for determining stockholders entitled to request a special meeting of stockholders and the record date for determining stockholders entitled to notice of and to vote at the special meeting and (2) the date, time and place of the special meeting and the means of remote communication, if any, by which stockholders and proxy holders may be considered present in person and may vote at the special meeting.

 

Section 3.             Notice of Meetings; Adjournment .

 

Not less than ten nor more than 90 days before each stockholders’ meeting, the Secretary shall give notice in writing or by electronic transmission of the meeting to each stockholder entitled to vote at the meeting and to each other stockholder entitled to notice of the meeting. The notice shall state the time and place of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and may vote at the meeting, and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder’s usual place of business, mailed to the stockholder at his or her address as it appears on the records of the Corporation, or transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. If the Corporation has received a request from a stockholder that notice not be sent by electronic transmission, the Corporation may not provide notice to the stockholder by electronic transmission. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if such person, before or after the meeting, delivers a written waiver or waiver by electronic transmission which is filed with the records of the stockholders’ meetings, or is present at the meeting in person or by proxy.

 

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A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than 120 days after the original record date. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

 

As used in these Bylaws, the term “electronic transmission” shall have the meaning given to such term by Section 1-101(k-1) of the Maryland General Corporation Law (the “MGCL”) or any successor provision.

 

Section 4.             Quorum .

 

At any meeting of the stockholders, the holders of at least one-third of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Unless the Charter of the Corporation provides otherwise, where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.

 

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may, in accordance with Section 3 of this Article I, adjourn the meeting to another place, date or time.

 

Section 5.           Organization and Conduct of Business .

 

Such person as the Board of Directors may have designated or, in the absence of such a person, the Chief Executive Officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order.

 

Section 6.            Advance Notice Provisions for Business to be Transacted at Annual Meetings and Elections of Directors .

 

(a)       At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) as specified in the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting, and (2) complies with the notice procedures set forth in this Section 6(a). For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for action by stockholders.

 

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To be timely, a stockholder's notice must be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90th day prior to the first anniversary of the date of the preceding year's annual meeting and not earlier than the close of business on the 120th day prior to the first anniversary of the date of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year's annual meeting, or in the event the annual meeting is the first annual meeting of stockholders of the Corporation, notice by the stockholder to be timely must be so received not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of (A) the 90th day prior to the date of such annual meeting or (B) the tenth day following the first to occur of (i) the day on which notice of the date of the annual meeting was mailed or otherwise transmitted or (ii) the day on which public announcement of the date of the annual meeting was first made by the Corporation. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice hereunder.

 

A stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

 

Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

 

At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of the meeting.

 

(b)        Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or a committee thereof or (ii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(b) and on the record date for the determination of stockholders entitled to vote at such meeting, and (2) complies with the notice procedures set forth in this Section 6(b). Such nominations, other than those made by or at the direction of the Board of Directors or a committee thereof, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not less than 90 days or more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days' notice or public announcement of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or otherwise transmitted or the day on which public announcement of the date of the meeting was first made by the Corporation, whichever shall first occur. A stockholder's notice must be in writing and set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

 

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(c)        For purposes of subsections (a) and (b) of this Section 6, the term “public announcement” shall mean disclosure (i) in a press release reported by a nationally recognized news service, (ii) in a document publicly filed or furnished by the Corporation with the U.S. Securities and Exchange Commission or (iii) on a website maintained by the Corporation.

 

Section 7.             Proxies and Voting .

 

Unless the Charter of the Corporation provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid. In all elections for directors, directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Charter of the Corporation, all other matters voted on by stockholders shall be determined by a majority of the votes cast on the matter.

 

A stockholder may vote the stock the stockholder owns of record either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder’s authorized agent signing the writing or causing the stockholder’s signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as the proxy to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

 

Section 8.             Consent of Stockholders in Lieu of Meeting .

 

Except as provided in the following sentence, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each stockholder entitled to vote on the matter and is filed in paper or electronic format with the records of stockholder meetings. Unless the Charter of the Corporation requires otherwise, the holders of any class of the Corporation's stock other than common stock, entitled to vote generally in the election of directors, may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting of the stockholders if the Corporation gives notice of the action so taken to each stockholder not later than ten days after the effective time of the action.

 

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Section 9.             Conduct of Voting.

 

The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. At all meetings of stockholders, the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided or determined by the inspector of elections . All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy or the chairman of the meeting, a written vote shall be taken. Every written vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. No candidate for election as a director at a meeting shall serve as an inspector at such meeting.

 

Section 10.           Control Share Acquisition Act .

 

Notwithstanding any other provision of the Charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the MGCL (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section 10 may be repealed, in whole or in part, at any time, whether before or after an acquisition of Control Shares (as defined in Section 3-701(d) of the MGCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as defined in Section 3-701(e) of the MGCL, or any successor provision).

 

ARTICLE II

 

BOARD OF DIRECTORS

 

Section 1.             General Powers, Number and Term of Office .

 

The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall, by virtue of the Corporation's election made hereby to be governed by Section 3-804(b) of the MGCL, be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The Board of Directors shall annually elect a Chairman of the Board and a President from among its members and shall designate, when present, either the Chairman of the Board or the President to preside at its meetings.

 

The directors, other than those who may be elected by the holders of any series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

 

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Section 2.             Vacancies and Newly Created Directorships .

 

By virtue of the Corporation's election made hereby to be subject to Section 3-804(c) of the MGCL, any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a director may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

Section 3.             Regular Meetings .

 

Regular meetings of the Board of Directors shall be held at such place or places or by means of remote communication, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Any regular meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

 

Section 4.             Special Meetings .

 

Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the Chairman of the Board or the Chief Executive Officer and shall be held at such place or by means of remote communication, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five days before the meeting or by telegraphing or telexing or by facsimile or electronic transmission of the same not less than 24 hours before the meeting. Any director may waive notice of any special meeting, either before or after such meeting, by delivering a written waiver or a waiver by electronic transmission that is filed with the records of the meeting. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any special meeting of the Board of Directors need be specified in the notice of such meeting. Any special meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

 

Section 5.             Quorum .

 

At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

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Section 6.             Participation in Meetings By Conference Telephone .

 

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at such meeting.

 

Section 7.             Conduct of Business .

 

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided in these Bylaws, the Corporation’s Charter or required by law. Action may be taken by the Board of Directors without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the Board of Directors and filed in paper or electronic form with the minutes of proceedings of the Board of Directors.

 

Section 8.             Powers .

 

All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Corporation’s Charter or these Bylaws. Consistent with the foregoing, the Board of Directors shall have, among other powers, the unqualified power:

 

(i)         To declare dividends from time to time in accordance with law;

 

(ii)        To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

 

(iii)       To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;

 

(iv)       To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

 

(v)        To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

 

(vi)       To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

 

(vii)       To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and

 

(viii)      To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs.

 

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Section 9.             Compensation of Directors .

 

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

 

Section 10.            Resignation .

 

Any director may resign at any time by giving written notice of such resignation to the President or the Secretary at the principal office of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof.

 

Section 11.           Presumption of Assent .

 

A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to such action unless such director announces his dissent at the meeting and (a) such director's dissent is entered in the minutes of the meeting, (b) such director files his written dissent to such action with the secretary of the meeting before the adjournment thereof, or (c) such director forwards his written dissent within 24 hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation. Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his dissent known at the meeting.

 

Section 12.           Mandatory Retirement .

 

No person 76 years of age or older shall be eligible for election, re-election, appointment or re-appointment to the Board of Directors. No director who has attained the age of 76 shall continue to serve as a director beyond the annual meeting of stockholders at which his or her term as a director expires.

 

ARTICLE III

 

COMMITTEES

 

Section 1.             Committees of the Board of Directors .

 

The Board of Directors may appoint from among its members an Executive Committee and other committees composed of one or more directors and delegate to these committees any of the powers of the Board of Directors, except the power to authorize dividends on stock (except as provided in Section 2-309(d) of the MGCL), issue stock other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval (other than the election of directors), amend these Bylaws, or approve any merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number or the maximum aggregate offering price of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors under Sections 2-203 and 2-208 of the MGCL. Any committee so designated may exercise the power and authority of the Board of Directors if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide.

 

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Section 2.             Conduct of Business .

 

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the committee and filed in paper or electronic form with the minutes of the proceedings of such committee. The members of any committee may conduct any meeting thereof by conference telephone or other communications equipment in accordance with the provisions of Section 6 of Article II.

 

Section 3.             Nominating Committee .

 

The Board of Directors may appoint a Nominating Committee of the Board, consisting of at least three members. The Nominating Committee shall have authority (i) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(b) of Article I of these Bylaws in order to determine compliance with such Bylaw, (ii) to recommend to the Whole Board nominees for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing; and (iii) to take such other actions as may be authorized by the Board of Directors.

 

ARTICLE IV

 

OFFICERS

 

Section 1.             Generally .

 

(a)       The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer and from time to time may choose such other officers as it may deem proper. Any number of offices may be held by the same person, except that no person may concurrently serve as both President and Vice President of the Corporation.

 

(b)       The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors.

 

(c)       All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof.

 

Section 2.             Chairman of the Board of Directors .

 

The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and stockholders of the Corporation.

 

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Section 3.             Chief Executive Officer .

 

Subject to the control of the Board of Directors, the Chief Executive Officer shall have general power over the management and oversight of the administration and operation of the Corporation’s business and affairs and shall be the Corporation’s chief policy making officer. He or she shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The Chief Executive Officer shall also have the general powers and duties of management usually vested in the chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

 

Section 4.             President .

 

Subject to the control of the Board of Directors and subject to the powers granted to the Chief Executive Officer (to the extent the President is not also the Chief Executive Officer), the President shall have general power over the management and oversight of the administration and operation of the Corporation's business and affairs. The President shall also have the general powers and duties of management usually vested in the president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

 

Section 5.             Vice President .

 

The Vice President or Vice Presidents, if any, shall perform the duties of the President in the President’s absence or during his or her disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 6.             Secretary .

 

The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 7.             Treasurer .

 

The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate. The Treasurer shall sign or countersign such instruments as require his or her signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him or her by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, and may be required to give bond for the faithful performance of his or her duties in such sum and with such surety as may be required by the Board of Directors.

 

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Section 8.             Assistant Secretaries and Other Officers .

 

The Board of Directors may appoint one or more assistant secretaries and one or more assistants to the Treasurer, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 9.             Action with Respect to Securities of Other Corporations

 

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the Chief Executive Officer, the President, a Vice-President, or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

 

ARTICLE V

 

STOCK

 

Section 1.             Certificates of Stock; Uncertificated Shares .

 

The Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation. For certificated stock, each stockholder is entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall also include on its face or back (a) a statement of any restrictions on transferability and a statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation is authorized to issue, and of the differences in the relative rights and preferences between the shares of each series of preferred stock which the Corporation is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of preferred stock or (b) a statement which provides in substance that the Corporation will furnish a full statement of such information to any stockholder on request and without charge. Such request may be made to the Secretary or to the Corporation’s transfer agent. For uncertificated shares of capital stock, upon request by a stockholder, the Corporation shall send the stockholder, without charge, a written statement of the same information required above on stock certificates. Each stock certificate shall be in such form, not inconsistent with law or with the Corporation’s Charter, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. A certificate may not be issued until the stock represented by it is fully paid.

 

Section 2.             Transfers of Stock .

 

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by one or more transfer agents designated to transfer shares of the stock of the Corporation.

 

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Section 3.             Record Dates or Closing of Transfer Books .

 

The Board of Directors may, and shall have the power to, set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be prior to the close of business on the day the record date is fixed nor, subject to Section 3 of Article I, more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting. Any shares of the Corporation’s own stock acquired by the Corporation between the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders and the time of the meeting may be voted at the meeting by the holder of record as of the record date and shall be counted in determining the total number of outstanding shares entitled to be voted at the meeting.

 

Section 4.             Lost, Stolen or Destroyed Certificates .

 

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate or uncertificated shares in place of a stock certificate which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may require the owner of the lost, stolen or destroyed certificate to give a bond, with sufficient surety, to indemnify the Corporation against any loss or claim arising as a result of the issuance of a new certificate or uncertificated shares. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate or uncertificated shares without the order of a court having jurisdiction over the matter.

 

Section 5.             Stock Ledger .

 

The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock or, if none, at the principal executive office of the Corporation.

 

Section 6.             Regulations .

 

The issue, transfer, conversion and registration of shares of stock shall be governed by such other regulations as the Board of Directors may establish.

 

ARTICLE VI

 

MISCELLANEOUS

 

Section 1.             Facsimile Signatures .

 

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

 

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Section 2.             Corporate Seal .

 

The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.

 

Section 3.             Annual Statement of Affairs .

 

The Chief Executive Officer, President or Chief Financial Officer shall prepare annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within 20 days after the meeting, placed on file at the Corporation’s principal office, in written form or in any other form that may be converted within a reasonable time into written form for visual inspection.

 

Section 4.             Books and Records .

 

The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of these Bylaws shall be kept at the principal office of the Corporation.

 

Section 5.             Reliance upon Books, Reports and Records .

 

Each director, each member of any committee designated by the Board of Directors, and each officer and agent of the Corporation shall, in the performance of his or her duties, in addition to any protections conferred upon him or her by law, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, officer or agent reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

Section 6.             Fiscal Year .

 

The fiscal year of the Corporation shall be as fixed by the Board of Directors.

 

Section 7.             Time Periods .

 

In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

 

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Section 8.             Checks, Drafts, Etc .

 

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President, a Vice President, an Assistant Vice President, the Treasurer or an Assistant Treasurer.

 

Section 9.             Mail .

 

Any notice or other document which is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

 

Section 10.           Contracts and Agreements .

 

To the extent permitted by applicable law, and except as otherwise prescribed by the Charter or these Bylaws, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

 

ARTICLE VII

 

AMENDMENTS

 

These Bylaws may be adopted, amended or repealed as provided in the Charter of the Corporation.

 

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Exhibit 3.1

 

ARTICLES OF INCORPORATION

OF

RICHMOND MUTUAL BANCORPORATION, INC.

 

The undersigned, Garry Kleer, whose address is 31 N. 9 th Street, Richmond, Indiana 47374, being at least eighteen years of age, acting as sole incorporator, does hereby form a corporation under the general laws of the State of Maryland, having the following Articles of Incorporation (the “Articles”):

 

ARTICLE 1. Name. The name of the corporation is Richmond Mutual Bancorporation, Inc. (herein the “Corporation”).

 

ARTICLE 2. Principal Office. The address of the principal office of the Corporation in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202.

.

ARTICLE 3. Purpose. The purpose for which the Corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.

 

ARTICLE 4. Resident Agent. The name and address of the registered agent of the Corporation in the State of Maryland is CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

 

ARTICLE 5.

 

A. Capital Stock. The total number of shares of capital stock of all classes which the Corporation has authority to issue is one hundred million (100,000,000) shares, consisting of:

 

1.          Ten million (10,000,000) shares of preferred stock, par value one cent ($.01) per share (the “Preferred Stock”); and

 

2.          Ninety million (90,000,000) shares of common stock, par value one cent ($.01) per share (the “Common Stock”).

 

The aggregate par value of all the authorized shares of capital stock is one million dollars ($1,000,000). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of the stockholders of the Corporation. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor which funds shall include, without limitation, the Corporation’s unreserved and unrestricted capital surplus . If shares of one class of stock are classified or reclassified into shares of another class of stock by the Board of Directors pursuant to this Article 5, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Corporation has authority to issue shall not be more than the total number of shares of stock set forth in the first sentence of this paragraph. The Board of Directors, with the approval of a majority of the entire Board of Directors, and without action by the stockholders, may amend the Articles to increase or decrease the aggregate number of shares of stock of the Corporation or the number of shares of stock of any class or series that the Corporation has authority to issue.

 

 

 

 

The Board of Directors may classify or reclassify any unissued shares of stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of redemption of such shares.

 

B. Common Stock. Except as provided under the terms of any series of Preferred Stock and as limited by Section D of this Article 5, the exclusive voting power shall be vested in the Common Stock, the holders thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation. Subject to any rights and preferences of any series of Preferred Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after payment or provision for payment of all debts and liabilities of the Corporation, distributions or provision for distributions in settlement of the liquidation account established for certain depositors of First Bank Richmond (the “Bank”) in connection with its mutual to stock conversion, and payment or provision for payment of any amounts owed to the holders of any series of Preferred Stock having preference over the Common Stock on distributions on liquidation, dissolution or winding up of the Corporation.

 

C. Preferred Stock. The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required by law or pursuant to the terms of such Preferred Stock.

 

D. Restrictions on Voting Rights of the Corporation’s Equity Securities.

 

1.          Notwithstanding any other provision of these Articles, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast after giving effect to the provisions hereof, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit.

 

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2.          The following definitions shall apply to this Section D of this Article 5.

 

(a)          An “affiliate” of a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

 

(b)          “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on the filing date of these Articles; provided, however , that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock:

 

(1)         which such person or any of its affiliates beneficially owns, directly or indirectly; or

 

(2)         which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with the Corporation to effect any transaction which is described in any one or more of the clauses of Section A of Article 9 hereof) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or

 

(3)         which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation;

 

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and provided further, however, that (i) no director or officer of the Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (ii) neither any employee stock ownership or similar plan of the Corporation or any subsidiary of the Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by the Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

 

(c)          A “person” shall mean any individual, firm, corporation, or other entity.

 

(d)          The Board of Directors shall have the power to construe and apply the provisions of this Section D and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock beneficially owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of this Section D to the given facts, or (v) any other matter relating to the applicability or effect of this Section.

 

3.          The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) (a "Holder in Excess") supply the Corporation with complete information as to (i) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (ii) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence.

 

4.          Any constructions, applications, or determinations made by the Board of Directors pursuant to this Section D in good faith and based on such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders.

 

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5.          In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section D shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.

 

E. Majority Vote. With respect to those actions as to which any provision of the Maryland General Corporation Law (the “MGCL”) requires stockholder authorization by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, any such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in these Articles.

 

F. Quorum.  Except as otherwise provided by law or expressly provided in these Articles, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast one-third of the votes (after giving effect, if required, to the provisions of Article 5, Section D) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

 

ARTICLE 6. Preemptive Rights . No holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series, or carrying any right to purchase stock of any class or series, except such as may be established by the Board of Directors.

 

ARTICLE 7. Directors. The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

 

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A. Management of the Corporation. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under the authority of the Board of Directors, except as conferred on or as reserved to the stockholders by law or by these Articles or the Bylaws of the Corporation.

 

B. Number, Class and Terms of Directors; Cumulative Voting. The number of directors constituting the Board of Directors of the Corporation shall initially be seven, which number may be increased or decreased in the manner provided in the Bylaws of the Corporation; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class ("Class I") to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class ("Class II") to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class ("Class III") to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

 

The names of the individuals who will serve as directors of the Corporation until their successors are elected and qualify are as follows:

 

(1) Class I directors:

 

Name   Term to Expire in
     
Lindley S. Mann   2020
     
W. Ray Stevens, III   2020
     
Kathryn Cruz-Uribe   2020

 

(2) Class II directors:

 

Name   Term to Expire in
     
M. Lynn Wetzel   2021
     
Jeffrey A. Jackson   2021

 

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(3) Class III directors:

 

Name

 

Term to Expire in
     
E. Michael Blum   2022
     
Garry D. Kleer   2022

 

Stockholders shall not be permitted to cumulate their votes in the election of directors.

 

C. Vacancies. Any vacancies in the Board of Directors may be filled in the manner provided in the Bylaws of the Corporation.

 

D. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof) voting together as a single class.

 

E. Stockholder Proposals and Nominations of Directors. Notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

 

ARTICLE 8. Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of directors the Corporation would have if there were no vacancies on the Board of Directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5 hereof), voting together as a single class, shall be required for the adoption, amendment or repeal of any provisions of the Bylaws of the Corporation by the stockholders.

 

ARTICLE 9. Approval of Certain Business Combinations.

 

A. Super-majority Voting Requirement; Business Combination Defined. In addition to any affirmative vote required by law or by these Articles, and except as otherwise expressly provided in this Section:

 

1.          any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

 

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2.          any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

 

3.          the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

 

4.          the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or

 

5.          any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder (a "Disproportionate Transaction"); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Stockholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally;

 

shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), after giving effect to the provisions of Article 5 hereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles (including those applicable to any class or series of capital stock) or in any agreement with any national securities exchange or quotation system or otherwise.

 

The term “Business Combination” as used in this Article 9 shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article 9.

 

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B. Exception to Super-majority Voting Requirement. The provisions of Section A of this Article 9 shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by these Articles, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 and 2 are met:

 

1.          The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

 

2.          All of the following conditions shall have been met:

 

(a)          The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following:

 

(1)         (if applicable) the Highest Per Share Price, including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher; and

 

(2)         the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article 9 as the “Determination Date”), whichever is higher.

 

(b)          The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

 

(1)         (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher;

 

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(2)         (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and

 

(3)         the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

 

(c)          The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with Section B.2. of this Article 9 shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

 

(d)          After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (ii) there shall have been (X) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (Y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

 

(e)          After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

 

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(f)          A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

 

C. Certain Definitions. For the purposes of this Article 9:

 

1.          A “Person” shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group or entity formed to acquire, hold or dispose of securities.

 

2.          “Interested Stockholder” shall mean any Person (other than the Corporation or any holding company or Subsidiary thereof) who or which:

 

(a)          is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

 

(b)          is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then-outstanding Voting Stock; or

 

(c)          is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

 

3.           A Person shall be a “beneficial owner” of any Voting Stock:

 

(a)          which such Person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles; or

 

(b)          which such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or

 

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(c)          which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting Stock;

 

provided, however, that, in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan.

 

4.          To determine whether a Person is an Interested Stockholder pursuant to Section C.2., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Section C.3. but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

 

5.          “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the filing date of these Articles.

 

6.          “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however , that for the purposes of the definition of Interested Stockholder set forth in Section C.2., the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

 

7.          “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

 

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8.          “Fair Market Value” means: (a) in the case of stock, the highest closing sale price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the Nasdaq System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or in combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

 

9.          Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

 

10.         In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Sections B.2.(a) and B.2.(b) of this Article 9 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

 

D. Construction and Interpretation. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article 9, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article 9.

 

E. Fiduciary Duty. Nothing contained in this Article 9 shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

 

F. Maryland Business Combination Statute. Notwithstanding any contrary provision of law, the provisions of Sections 3-601 through 3-604 of the MGCL, as now and hereafter in force, shall not apply to any "business combination" (as defined in Section 3-601(e) of the MGCL, as now and hereafter in force), of the Corporation.

 

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ARTICLE 10. Evaluation of Certain Offers . The Board of Directors, when evaluating (i) any offer of another Person (as defined in Article 9 hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation or (ii) any other actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market, or otherwise, tender offer, merger, consolidation, share exchange, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation or otherwise), may, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to the Corporation’s stockholders, give due consideration to all relevant factors, including, but not limited to: (A) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, who do not participate in the transaction; (B) the social and economic effect on the present and future employees, creditors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (C) whether the proposal is acceptable based on the historical, current or projected future operating results or financial condition of the Corporation; (D) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (E) the reputation and business practices of the other entity to be involved in the transaction and its management and affiliates as they would affect the employees of the Corporation and its subsidiaries; (F) the future value of the stock or any other securities of the Corporation or the other entity to be involved in the proposed transaction; (G) any antitrust or other legal and regulatory issues that are raised by the proposal; (H) the business and historical, current or expected future financial condition or operating results of the other entity to be involved in the transaction, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the proposed transaction, and other likely financial obligations of the other entity to be involved in the proposed transaction; and (I) the ability of the Corporation to fulfill its objectives as a financial institution holding company and on the ability of its subsidiary financial institution(s) to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations. If the Board of Directors determines that any proposed transaction of the type described in clause (i) or (ii) of the immediately preceding sentence should be rejected, it may take any lawful action to defeat such transaction, including, but not limited to, any or all of the following: advising stockholders not to accept the proposal; instituting litigation against the party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; increasing the authorized stock of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or granting options or rights with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity. This Article 10 does not create any inference concerning factors that may be considered by the Board of Directors regarding any proposed transaction of the type described in clause (i) or (ii) of the first sentence of this Article 10.

 

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ARTICLE 11. Acquisitions of Equity Securities from Interested Persons.

 

A. Super-majority Voting Requirement. Except as set forth in Section B of this Article 11, in addition to any affirmative vote of stockholders required by law or these Articles, any direct or indirect purchase or other acquisition by the Corporation of any Equity Security (as hereinafter defined) of any class from any Interested Person (as hereinafter defined) shall require the affirmative vote of the holders of at least 80% of the Voting Stock of the Corporation that is not beneficially owned (for purposes of this Article 11 beneficial ownership shall be determined in accordance with Section D.2(b) of Article 5 hereof) by such Interested Person, after giving effect to the provisions of Article 5 hereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles (including those applicable to any class or series of capital stock) or in any agreement with any national securities exchange or quotation system, or otherwise. Certain defined terms used in this Article 11 are as set forth in Section C below.

 

B. Exceptions. The provisions of Section A of this Article 11 shall not be applicable with respect to:

 

1.          any purchase or other acquisition of securities made as part of a tender or exchange offer by the Corporation or a Subsidiary (which term, as used in this Article 11, is as defined in the first clause of Section C.6 of Article 9 hereof) of the Corporation to purchase securities of the same class made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provision replacing such Act, rules or regulations);

 

2.          any purchase or acquisition made pursuant to an open market purchase program approved by a majority of the Board of Directors, including a majority of the Disinterested Directors (which term, as used in this Article 11, is as defined in Article 9 hereof); or

 

3.          any purchase or acquisition which is approved by a majority of the Board of Directors, including a majority of the Disinterested Directors, and which is made at no more than the Market Price (as hereinafter defined), on the date that the understanding between the Corporation and the Interested Person is reached with respect to such purchase (whether or not such purchase is made or a written agreement relating to such purchase is executed on such date), of shares of the class of Equity Security to be purchased.

 

C. Certain Definitions. For the purposes of this Article 11:

 

(i)          The term Interested Person shall mean any Person (other than the Corporation, Subsidiaries of the Corporation, pension, profit sharing, employee stock ownership or other employee benefit plans of the Corporation and its Subsidiaries, entities organized or established by the Corporation or any of its Subsidiaries pursuant to the terms of such plans and trustees and fiduciaries with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner of 5% or more of the Voting Stock of the Corporation, and any Affiliate or Associate of any such person. For purposes of this Article 11, the terms “Affiliate” and “Associate” shall have the definitions given them in Article 9 hereof.

 

(ii)         The Market Price of shares of a class of Equity Security on any day shall mean the highest sale price of shares of such class of Equity Security on such day, or, if that day is not a trading day, on the trading day immediately preceding such day, on the national securities exchange or the Nasdaq System or any other system then in use on which such class of Equity Security is traded.

 

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(iii)        The term Equity Security shall mean any security described in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on the filing date of these Articles, which is traded on a national securities exchange or the Nasdaq System or any other system then in use.

 

(iv)        For purposes of this Article 11, all references to the term Interested Stockholder in the definition of Disinterested Director shall be deemed to refer to the term Interested Person.

 

ARTICLE 12. Indemnification, etc. of Directors and Officers.

 

A. Indemnification. The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force, including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

 

B. Procedure. If a claim under Section A of this Article 12 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit. It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard for indemnification set forth in the MGCL. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 12 or otherwise shall be on the Corporation.

 

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C. Non-Exclusivity. The rights to indemnification and to the advancement of expenses conferred in this Article 12 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, these Articles, the Corporation’s Bylaws, any agreement, any vote of stockholders or the Board of Directors, or otherwise.

 

D. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether the Corporation would have the power to indemnify such person against such expense, liability or loss under the MGCL.

 

E. Miscellaneous. The Corporation shall not be liable for any payment under this Article 12 in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder. The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article 12 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators.

 

Any repeal or modification of this Article 12 shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article 12 is in force.

 

ARTICLE 13. Limitation of Liability. An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (A) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (B) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (C) to the extent otherwise provided by the MGCL. If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the MGCL, as so amended.

 

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

 

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ARTICLE 14. Amendment of these Articles. The Corporation reserves the right to amend or repeal any provision contained in these Articles in the manner prescribed by the MGCL, including any amendment altering the terms or contract rights, as expressly set forth in these Articles, of any of the Corporation’s outstanding stock by classification, reclassification or otherwise, and all rights conferred upon stockholders are granted subject to this reservation; provided, however , that, notwithstanding any other provision of these Articles or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by these Articles, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of Article 5), voting together as a single class, shall be required to amend or repeal this Article 14, Section C, D or E of Article 5, Article 7, Article 8, Article 9, Article 11, Article 12 or Article 13; provided, further , that as provided in Article 5, the Board of Directors, with the approval of a majority of the entire Board of Directors, and without action by the stockholders, may amend these Articles to increase or decrease the aggregate number of shares of stock of the Corporation or the number of shares of stock of any class or series that the Corporation has authority to issue.

 

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IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be my act, on February 15, 2019.

 

Witness:

 

/s/Donald A. Benziger   /s/Garry D. Kleer
Donald A. Benziger   Garry D. Kleer

 

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Exhibit 3.2

 

BYLAWS

OF

RICHMOND MUTUAL BANCORPORATION, INC.

 

ARTICLE I

 

STOCKHOLDERS

 

Section 1.           Annual Meeting .

 

The Corporation shall hold an annual meeting of its stockholders to elect directors to succeed those whose terms expire and to transact any other business within its powers, at such place, on such date, and at such time as the Board of Directors shall each year fix. Except as provided otherwise by the Corporation’s Charter or Bylaws, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice. Failure to hold an annual meeting does not invalidate the Corporation’s existence or affect any otherwise valid corporate act.

 

Section 2.           Special Meetings .

 

Special meetings of stockholders of the Corporation may be called by the Chairman, the Chief Executive Officer or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting. Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting, and shall be delivered at the principal office of the Corporation addressed to the President or the Secretary. The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting. The Board of Directors shall have the sole power to fix (1) the record date for determining stockholders entitled to request a special meeting of stockholders and the record date for determining stockholders entitled to notice of and to vote at the special meeting and (2) the date, time and place of the special meeting and the means of remote communication, if any, by which stockholders and proxy holders may be considered present in person and may vote at the special meeting.

 

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Section 3.           Notice of Meetings; Adjournment .

 

Not less than ten nor more than 90 days before each stockholders’ meeting, the Secretary shall give notice in writing or by electronic transmission of the meeting to each stockholder entitled to vote at the meeting and to each other stockholder entitled to notice of the meeting. The notice shall state the time and place of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and may vote at the meeting, and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a stockholder when it is personally delivered to the stockholder, left at the stockholder’s usual place of business, mailed to the stockholder at his or her address as it appears on the records of the Corporation, or transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. If the Corporation has received a request from a stockholder that notice not be sent by electronic transmission, the Corporation may not provide notice to the stockholder by electronic transmission. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if such person, before or after the meeting, delivers a written waiver or waiver by electronic transmission which is filed with the records of the stockholders’ meetings, or is present at the meeting in person or by proxy.

 

A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than 120 days after the original record date. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

 

As used in these Bylaws, the term “electronic transmission” shall have the meaning given to such term by Section 1-101(k-1) of the Maryland General Corporation Law (the “MGCL”) or any successor provision.

 

Section 4.           Quorum .

 

At any meeting of the stockholders, the holders of at least one-third of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Unless the Charter of the Corporation provides otherwise, where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.

 

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may, in accordance with Section 3 of this Article I, adjourn the meeting to another place, date or time.

 

Section 5.           Organization and Conduct of Business .

 

Such person as the Board of Directors may have designated or, in the absence of such a person, the Chief Executive Officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order.

 

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Section 6.           Advance Notice Provisions for Business to be Transacted at Annual Meetings and Elections of Directors .

 

(a)      At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) as specified in the Corporation’s notice of the meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(a) and on the record date for the determination of stockholders entitled to vote at such annual meeting, and (2) complies with the notice procedures set forth in this Section 6(a). For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the immediately preceding sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for action by stockholders.

 

To be timely, a stockholder's notice must be delivered or mailed to and received by the Secretary at the principal executive office of the Corporation by not later than the close of business on the 90th day prior to the first anniversary of the date of the preceding year's annual meeting and not earlier than the close of business on the 120th day prior to the first anniversary of the date of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the anniversary date of the preceding year's annual meeting, or in the event the annual meeting is the first annual meeting of stockholders of the Corporation, notice by the stockholder to be timely must be so received not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of (A) the 90th day prior to the date of such annual meeting or (B) the tenth day following the first to occur of (i) the day on which notice of the date of the annual meeting was mailed or otherwise transmitted or (ii) the day on which public announcement of the date of the annual meeting was first made by the Corporation. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice hereunder.

 

A stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business; and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

 

Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(a). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(a) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

 

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At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation’s notice of the meeting.

 

(b)       Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or a committee thereof or (ii) by any stockholder of the Corporation who (1) is a stockholder of record on the date of giving the notice provided for in this Section 6(b) and on the record date for the determination of stockholders entitled to vote at such meeting, and (2) complies with the notice procedures set forth in this Section 6(b). Such nominations, other than those made by or at the direction of the Board of Directors or a committee thereof, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received by the Secretary at the principal executive offices of the Corporation not less than 90 days or more than 120 days prior to the date of the meeting; provided, however, that in the event that less than 100 days' notice or public announcement of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or otherwise transmitted or the day on which public announcement of the date of the meeting was first made by the Corporation, whichever shall first occur. A stockholder's notice must be in writing and set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor rule or regulation; and (b) as to the stockholder giving the notice: (i) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner; (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder; (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice; and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor rule or regulation. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this Section 6(b). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

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(c)       For purposes of subsections (a) and (b) of this Section 6, the term “public announcement” shall mean disclosure (i) in a press release reported by a nationally recognized news service, (ii) in a document publicly filed or furnished by the Corporation with the U.S. Securities and Exchange Commission or (iii) on a website maintained by the Corporation.

 

Section 7.          Proxies and Voting .

 

Unless the Charter of the Corporation provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid. In all elections for directors, directors shall be determined by a plurality of the votes cast, and except as otherwise required by law or as provided in the Charter of the Corporation, all other matters voted on by stockholders shall be determined by a majority of the votes cast on the matter.

 

A stockholder may vote the stock the stockholder owns of record either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder’s authorized agent signing the writing or causing the stockholder’s signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as the proxy to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for as long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities.

 

Section 8.           Consent of Stockholders in Lieu of Meeting .

 

Except as provided in the following sentence, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each stockholder entitled to vote on the matter and is filed in paper or electronic format with the records of stockholder meetings. Unless the Charter of the Corporation requires otherwise, the holders of any class of the Corporation's stock other than common stock, entitled to vote generally in the election of directors, may take action or consent to any action by delivering a consent in writing or by electronic transmission of the stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting of the stockholders if the Corporation gives notice of the action so taken to each stockholder not later than ten days after the effective time of the action.

 

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Section 9.           Conduct of Voting.

 

The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more persons as inspectors of election, to act at the meeting or any adjournment thereof and make a written report thereof, in accordance with applicable law. At all meetings of stockholders, the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided or determined by the inspector of elections . All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy or the chairman of the meeting, a written vote shall be taken. Every written vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballot shall be counted by an inspector or inspectors appointed by the chairman of the meeting. No candidate for election as a director at a meeting shall serve as an inspector at such meeting.

 

Section 10.          Control Share Acquisition Act .

 

Notwithstanding any other provision of the Charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the MGCL (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section 10 may be repealed, in whole or in part, at any time, whether before or after an acquisition of Control Shares (as defined in Section 3-701(d) of the MGCL, or any successor provision) and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent Control Share Acquisition (as defined in Section 3-701(e) of the MGCL, or any successor provision).

 

ARTICLE II

 

BOARD OF DIRECTORS

 

Section 1.           General Powers, Number and Term of Office .

 

The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation shall, by virtue of the Corporation's election made hereby to be governed by Section 3-804(b) of the MGCL, be fixed from time to time exclusively by vote of the Board of Directors; provided, however, that such number shall never be less than the minimum number of directors required by the MGCL now or hereafter in force. The Board of Directors shall annually elect a Chairman of the Board and a President from among its members and shall designate, when present, either the Chairman of the Board or the President to preside at its meetings.

 

The directors, other than those who may be elected by the holders of any series of preferred stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the first annual meeting, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election or for such shorter period of time as the Board of Directors may determine, with each director to hold office until his or her successor shall have been duly elected and qualified.

 

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Section 2.           Vacancies and Newly Created Directorships .

 

By virtue of the Corporation's election made hereby to be subject to Section 3-804(c) of the MGCL, any vacancies in the Board of Directors resulting from an increase in the size of the Board of Directors or the death, resignation or removal of a director may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

Section 3.           Regular Meetings .

 

Regular meetings of the Board of Directors shall be held at such place or places or by means of remote communication, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Any regular meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

 

Section 4.           Special Meetings .

 

Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the Chairman of the Board or the Chief Executive Officer and shall be held at such place or by means of remote communication, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five days before the meeting or by telegraphing or telexing or by facsimile or electronic transmission of the same not less than 24 hours before the meeting. Any director may waive notice of any special meeting, either before or after such meeting, by delivering a written waiver or a waiver by electronic transmission that is filed with the records of the meeting. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except where the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any special meeting of the Board of Directors need be specified in the notice of such meeting. Any special meeting of the Board of Directors may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement.

 

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Section 5.           Quorum .

 

At any meeting of the Board of Directors, a majority of the authorized number of directors then constituting the Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

 

Section 6.           Participation in Meetings By Conference Telephone .

 

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at such meeting.

 

Section 7.           Conduct of Business .

 

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided in these Bylaws, the Corporation’s Charter or required by law. Action may be taken by the Board of Directors without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the Board of Directors and filed in paper or electronic form with the minutes of proceedings of the Board of Directors.

 

Section 8.           Powers .

 

All powers of the Corporation may be exercised by or under the authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Corporation’s Charter or these Bylaws. Consistent with the foregoing, the Board of Directors shall have, among other powers, the unqualified power:

 

(i)        To declare dividends from time to time in accordance with law;

 

(ii)       To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

 

(iii)      To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;

 

(iv)      To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

 

(v)       To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

 

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(vi)      To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

 

(vii)     To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and

 

(viii)    To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs.

 

Section 9.           Compensation of Directors .

 

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

 

Section 10.         Resignation .

 

Any director may resign at any time by giving written notice of such resignation to the President or the Secretary at the principal office of the Corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof.

 

Section 11.         Presumption of Assent .

 

A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to such action unless such director announces his dissent at the meeting and (a) such director's dissent is entered in the minutes of the meeting, (b) such director files his written dissent to such action with the secretary of the meeting before the adjournment thereof, or (c) such director forwards his written dissent within 24 hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Corporation. Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his dissent known at the meeting.

 

Section 12.         Mandatory Retirement .

 

No person 76 years of age or older shall be eligible for election, re-election, appointment or re-appointment to the Board of Directors. No director who has attained the age of 76 shall continue to serve as a director beyond the annual meeting of stockholders at which his or her term as a director expires.

 

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ARTICLE III

 

COMMITTEES

 

Section 1.           Committees of the Board of Directors .

 

The Board of Directors may appoint from among its members an Executive Committee and other committees composed of one or more directors and delegate to these committees any of the powers of the Board of Directors, except the power to authorize dividends on stock (except as provided in Section 2-309(d) of the MGCL), issue stock other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval (other than the election of directors), amend these Bylaws, or approve any merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number or the maximum aggregate offering price of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors under Sections 2-203 and 2-208 of the MGCL. Any committee so designated may exercise the power and authority of the Board of Directors if the resolution which designated the committee or a supplemental resolution of the Board of Directors shall so provide.

 

Section 2.           Conduct of Business .

 

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if a unanimous consent which sets forth the action is given in writing or by electronic transmission by each member of the committee and filed in paper or electronic form with the minutes of the proceedings of such committee. The members of any committee may conduct any meeting thereof by conference telephone or other communications equipment in accordance with the provisions of Section 6 of Article II.

 

Section 3.           Nominating Committee .

 

The Board of Directors may appoint a Nominating Committee of the Board, consisting of at least three members. The Nominating Committee shall have authority (i) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(b) of Article I of these Bylaws in order to determine compliance with such Bylaw, (ii) to recommend to the Whole Board nominees for election to the Board of Directors to replace those directors whose terms expire at the annual meeting of stockholders next ensuing; and (iii) to take such other actions as may be authorized by the Board of Directors.

 

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ARTICLE IV

 

OFFICERS

 

Section 1.          Generally .

 

(a)      The Board of Directors as soon as may be practicable after the annual meeting of stockholders shall choose a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer and from time to time may choose such other officers as it may deem proper. Any number of offices may be held by the same person, except that no person may concurrently serve as both President and Vice President of the Corporation.

 

(b)      The term of office of all officers shall be until the next annual election of officers and until their respective successors are chosen, but any officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of directors then constituting the Board of Directors.

 

(c)      All officers chosen by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof.

 

Section 2.          Chairman of the Board of Directors .

 

The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and stockholders of the Corporation.

 

Section 3.          Chief Executive Officer .

 

Subject to the control of the Board of Directors, the Chief Executive Officer shall have general power over the management and oversight of the administration and operation of the Corporation’s business and affairs and shall be the Corporation’s chief policy making officer. He or she shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The Chief Executive Officer shall also have the general powers and duties of management usually vested in the chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

 

Section 4.          President .

 

Subject to the control of the Board of Directors and subject to the powers granted to the Chief Executive Officer (to the extent the President is not also the Chief Executive Officer), the President shall have general power over the management and oversight of the administration and operation of the Corporation's business and affairs. The President shall also have the general powers and duties of management usually vested in the president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

 

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Section 5.           Vice President .

 

The Vice President or Vice Presidents, if any, shall perform the duties of the President in the President’s absence or during his or her disability to act. In addition, the Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 6.           Secretary .

 

The Secretary or an Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, shall perform such other duties and exercise such other powers as are usually incident to such offices and/or such other duties and powers as are properly assigned thereto by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 7.           Treasurer .

 

The Treasurer shall have charge of all monies and securities of the Corporation, other than monies and securities of any division of the Corporation which has a treasurer or financial officer appointed by the Board of Directors, and shall keep regular books of account. The funds of the Corporation shall be deposited in the name of the Corporation by the Treasurer with such banks or trust companies or other entities as the Board of Directors from time to time shall designate. The Treasurer shall sign or countersign such instruments as require his or her signature, shall perform all such duties and have all such powers as are usually incident to such office and/or such other duties and powers as are properly assigned to him or her by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, and may be required to give bond for the faithful performance of his or her duties in such sum and with such surety as may be required by the Board of Directors.

 

Section 8.           Assistant Secretaries and Other Officers .

 

The Board of Directors may appoint one or more assistant secretaries and one or more assistants to the Treasurer, or one appointee to both such positions, which officers shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 9.           Action with Respect to Securities of Other Corporations

 

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the Chief Executive Officer, the President, a Vice-President, or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

 

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ARTICLE V

 

STOCK

 

Section 1.           Certificates of Stock; Uncertificated Shares .

 

The Board of Directors may determine to issue certificated or uncertificated shares of capital stock and other securities of the Corporation. For certificated stock, each stockholder is entitled to certificates which represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall also include on its face or back (a) a statement of any restrictions on transferability and a statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation is authorized to issue, and of the differences in the relative rights and preferences between the shares of each series of preferred stock which the Corporation is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of preferred stock or (b) a statement which provides in substance that the Corporation will furnish a full statement of such information to any stockholder on request and without charge. Such request may be made to the Secretary or to the Corporation’s transfer agent. For uncertificated shares of capital stock, upon request by a stockholder, the Corporation shall send the stockholder, without charge, a written statement of the same information required above on stock certificates. Each stock certificate shall be in such form, not inconsistent with law or with the Corporation’s Charter, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. A certificate may not be issued until the stock represented by it is fully paid.

 

Section 2.           Transfers of Stock .

 

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by one or more transfer agents designated to transfer shares of the stock of the Corporation.

 

Section 3.           Record Dates or Closing of Transfer Books .

 

The Board of Directors may, and shall have the power to, set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be prior to the close of business on the day the record date is fixed nor, subject to Section 3 of Article I, more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten days before the date of the meeting. Any shares of the Corporation’s own stock acquired by the Corporation between the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders and the time of the meeting may be voted at the meeting by the holder of record as of the record date and shall be counted in determining the total number of outstanding shares entitled to be voted at the meeting.

 

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Section 4.           Lost, Stolen or Destroyed Certificates .

 

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate or uncertificated shares in place of a stock certificate which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may require the owner of the lost, stolen or destroyed certificate to give a bond, with sufficient surety, to indemnify the Corporation against any loss or claim arising as a result of the issuance of a new certificate or uncertificated shares. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate or uncertificated shares without the order of a court having jurisdiction over the matter.

 

Section 5.           Stock Ledger .

 

The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock or, if none, at the principal executive office of the Corporation.

 

Section 6.           Regulations .

 

The issue, transfer, conversion and registration of shares of stock shall be governed by such other regulations as the Board of Directors may establish.

 

ARTICLE VI

 

MISCELLANEOUS

 

Section 1.           Facsimile Signatures .

 

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

  14  

 

 

Section 2.           Corporate Seal .

 

The Board of Directors may provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. If the Corporation is required to place its corporate seal to a document, it is sufficient to meet the requirement of any law, rule, or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.

 

Section 3.           Annual Statement of Affairs .

 

The Chief Executive Officer, President or Chief Financial Officer shall prepare annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within 20 days after the meeting, placed on file at the Corporation’s principal office, in written form or in any other form that may be converted within a reasonable time into written form for visual inspection.

 

Section 4.           Books and Records .

 

The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders and Board of Directors and of any committee when exercising any of the powers of the Board of Directors. The books and records of the Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of these Bylaws shall be kept at the principal office of the Corporation.

 

Section 5.           Reliance upon Books, Reports and Records .

 

Each director, each member of any committee designated by the Board of Directors, and each officer and agent of the Corporation shall, in the performance of his or her duties, in addition to any protections conferred upon him or her by law, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member, officer or agent reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

Section 6.           Fiscal Year .

 

The fiscal year of the Corporation shall be as fixed by the Board of Directors.

 

  15  

 

 

Section 7.           Time Periods .

 

In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded and the day of the event shall be included.

 

Section 8.           Checks, Drafts, Etc .

 

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President, a Vice President, an Assistant Vice President, the Treasurer or an Assistant Treasurer.

 

Section 9.           Mail .

 

Any notice or other document which is required by these Bylaws to be mailed shall be deposited in the United States mail, postage prepaid.

 

Section 10.         Contracts and Agreements .

 

To the extent permitted by applicable law, and except as otherwise prescribed by the Charter or these Bylaws, the Board of Directors may authorize any officer, employee or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge, or verify an instrument required by law to be executed, acknowledged, or verified by more than one officer.

 

ARTICLE VII

 

AMENDMENTS

 

These Bylaws may be adopted, amended or repealed as provided in the Charter of the Corporation.

 

  16  

 

Exhibit 4.0

 

INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

 

No. RICHMOND MUTUAL BANCORPORATION, INC . Shares
     
    CUSIP:

 

FULLY PAID) AND NON-ASSESSABLE
PAR VALUE $0.01 PER SHARE

 

THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO
RESTRICTIONS, SEE REVERSE SIDE

 

THIS CERTIFIES that is the owner of

 

SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
of

Richmond Mutual Bancorporation, Inc.

a Maryland corporation

 

The shares evidenced by this certificate are transferable only on the books of Richmond Mutual Bancorporation, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. THE CAPITAL STOCK EVIDENCED HEREBY IS NOT AN ACCOUNT OF AN INSURABLE TYPE AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY.

 

IN WITNESS WHEREOF, Richmond Mutual Bancorporation, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its seal to be hereunto affixed.

 

By:   [SEAL] By:  
  Beth A. Brittenham     Garry D. Kleer
  CORPORATE SECRETARY     CHAIRMAN, PRESIDENT AND CHIEF
        EXECUTIVE OFFICER

 

 

 

 

Richmond Mutual Bancorporation, Inc. (the “Company”) will furnish to any stockholder on request and without charge a full statement of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the stock of each class which the Company is authorized to issue, of the differences in the relative rights and preferences between the shares of each series of preferred or special class which the Company is authorized to issue, to the extent they have been set, and of the authority of the Board of Directors to set the relative rights and preferences of subsequent series of a preferred or special class of stock. Such request may be made to the Secretary of the Company.

 

The shares evidenced by this certificate are subject to a limitation contained in the Company’s Charter to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit

 

The shares represented by this certificate may not be cumulatively voted on any matter. The Company’s Charter requires that, with limited exceptions, no amendment, addition, alteration, change or repeal of the Charter shall be made, unless such is first approved by the Board of Directors of the Company and approved by the stockholders by a majority of the total shares entitled to vote, or in certain circumstances approved by the affirmative vote of up to 80% of the shares entitled to vote, provided that the Board of Directors, with the approval of a majority of the entire Board of Directors, and without action by the stockholders, may amend the Charter to increase or decrease the aggregate number of shares of stock of the Company or the number of shares of stock of any class or series that the Company has authority to issue.

 

The following abbreviations when used in the inscription on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations.

 

     

__________ Custodian ___________

TEN COM

- as tenants in common

 

UNIF GIFT MIN ACT
(Cuss) 		(Minor)
TEN ENT - as tenants by the entireties   Under Uniform Gifts to Minors Act
       
TI TEN

- as joint tenants with right of survivorship and not as tenants in common

 

  (State)

 

Additional abbreviations may also be used though not in the above list

 

For value received,                                                                   hereby sell, assign and transfer unto

 

PLEASE INSERT SOCIAI SECURITY NUMBER OR OTHER IDENTIFYING NUMBER

 

 

(please print or typewrite name and address including postal zip code of assignee)

 

 

 

Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.

 

Dated    

 

In the presence of   Signature:
     
     

 

NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDERS) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

 

 

 

 

Exhibit 5

 

LAW OFFICES

Silver, Freedman, Taff & Tiernan LLP

A LIMITED LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS

3299 K Street, N.W., SUITE 100

WASHINGTON, D.C. 20007

PHONE: (202) 295-4500

FAX: (202) 337-5502 or (202) 337-5503

WWW.SFTLAW.COM

 

March 11, 2019

 

VIA EDGAR

 

Richmond Mutual Bancorporation, Inc.

31 North 9 th Street

Richmond, Indiana 47374

 

Ladies and Gentlemen:

 

We have acted as special counsel to Richmond Mutual Bancorporation, Inc., a Maryland corporation (the “Company”), in connection with the registration under the Securities Act of 1933, as amended, of shares of the Company’s common stock, par value $0.01 per share (the “Shares”), as described in the Company’s Registration Statement on Form S-1 (the “Registration Statement”). In this regard, we have examined the Company’s Articles of Incorporation and Bylaws, the Registration Statement, resolutions of the Board of Directors of the Company, and such other documents and matters of law as we deemed appropriate for the purpose of this opinion.

 

Based upon the foregoing, we are of the opinion that the Shares, upon the declaration of the effectiveness of the Registration Statement and when issued in accordance with the terms of the Plan of Reorganization and Stock Offering of First Mutual of Richmond, Inc., a Delaware chartered non-stock mutual holding company, upon the receipt of the consideration required thereby, will be legally issued, fully paid and non-assessable.

 

We assume no obligation to advise you of any event that may hereafter be brought to our attention that may affect any statement made in the foregoing paragraph after the declaration of effectiveness of the Registration Statement.

 

We hereby consent to the filing of this opinion as an exhibit to the Company’s Registration Statement and to the references to Silver, Freedman, Taff & Tiernan LLP under the heading “Legal and Tax Opinions” in the Prospectus contained in the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended or the rules and regulations of the Securities and Exchange Commission thereunder.

 

 

Very truly yours,

 

/s/ Silver, Freedman, Taff & Tiernan LLP

 

SILVER, FREEDMAN, TAFF & TIERNAN LLP

 

 

 

 

Exhibit 8.1

  

Law Offices

 

Silver, Freedman, Taff & Tiernan LLP

A Limited Liability Partnership Including Professional Corporations

 

 

 

3299 K STREET, N.W., SUITE 100

WASHINGTON, D.C. 20007

(202) 295-4500

WWW.SFTTLAW.COM

 

TELECOPIER NUMBER
(202) 337-5502

 

 

 

 

March 11, 2019

 

Boards of Directors

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

31 N. 9 th Street

Richmond, Indiana 47374

 

Ladies and Gentlemen:

 

You have requested our opinion regarding the material federal income tax consequences resulting from the proposed conversion of First Mutual of Richmond, Inc., a Delaware non-stock mutual holding company (the “Mutual Holding Company”), into the capital stock form of organization (the “Conversion”) to be effected pursuant to the terms of the Plan of Reorganization and Stock Offering of the Mutual Holding Company dated February 6, 2019 (the “Plan”). This opinion is being issued pursuant to Section 26 of the Plan. Capitalized terms not defined herein shall have the meaning ascribed to such terms in the Plan.

 

Current Structure

 

At the present time, the Mutual Holding Company owns all of the outstanding common stock of the Mid-Tier Holding Company. The Mid-Tier Holding Company owns all of the outstanding common stock of the Bank. The only outstanding equity securities of the Mid-Tier Holding Company and the Bank are shares of common stock. The Mutual Holding Company is a mutual form of organization without authority to issue capital stock, with its depositors and certain borrowers being entitled to voting rights and with its depositors entitled to liquidation proceeds, after payment of creditors, upon the complete liquidation of the Mutual Holding Company.

 

Proposed Transactions

 

It is proposed, through a two-step merger process and the Offering, that the Holding Company will become the owner of 100% of the outstanding common stock of the Bank and that the Holding Company will be owned by the persons acquiring Holding Company Common Stock in the Offering, with Eligible Account Holders and Supplemental Eligible Account Holders possessing rights in the Liquidation Account of the Holding Company, including indirect rights in the Bank Liquidation Account.

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 2

 

Steps in the Proposed Transaction

 

1.                   The Mid-Tier Holding Company will form the Holding Company as a first-tier Maryland-chartered stock corporation.

 

2.                   The Bank will amend its governing documents to provide for the Bank Liquidation Account.

 

3.                   The Mutual Holding Company will merge with and into the Mid-Tier Holding Company (the “MHC Merger”) pursuant to the Agreement and Plan of Merger attached as Exhibit A to the Plan (the “Plan of Merger”). In the MHC Merger and pursuant to the Plan of Merger, the ownership rights/liquidation interests of depositor members (the Eligible Account Holders and Supplemental Eligible Account Holders) in the Mutual Holding Company will be constructively exchanged for equivalent liquidation interests in the Mid-Tier Holding Company, and all of the outstanding common stock of the Mid-Tier Holding Company held by the Mutual Holding Company, representing all of the outstanding capital stock of the Mid-Tier Holding Company, will be cancelled.

 

4.                   Immediately after the MHC Merger, the Mid-Tier Holding Company will merge with and into the Holding Company (the “Mid-Tier Merger”) pursuant to the Plan of Merger. As part of the Mid-Tier Merger, the liquidation interests constructively received by the Eligible Account Holders and Supplemental Eligible Account Holders in the Mid-Tier Holding Company in the MHC Merger will automatically, without any action on the part of the holders thereof, be exchanged for an interest in the Liquidation Account of the Holding Company (and indirectly for an interest in the Bank Liquidation Account), and all of the outstanding common stock of Holding Company held by the Mid-Tier Holding Company, representing all of the outstanding capital stock of the Holding Company, will be cancelled.

 

5.                   In connection with the transactions contemplated by the Plan, the Holding Company will offer for sale and sell a number of shares of Holding Company Common Stock in the Offering (“Conversion Stock”) that will represent ownership by the purchasers thereof of all of the outstanding capital stock of the Holding Company after completion of the Offering.

 

6.                   The Holding Company will contribute at least 50% of the net proceeds of the Offering to the Bank in exchange for common stock of the Bank.

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 3

 

Consequences of the Proposed Transaction

 

The Conversion Stock will be owned 100% by the purchasers of shares in the Offering, and Eligible Account Holders and Supplemental Eligible Account Holders will possess interests in the Liquidation Account and indirectly in the Bank Liquidation Account.

 

The Liquidation Account will be maintained by the Holding Company for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their deposit accounts with the Bank. The Liquidation Account will have an initial balance equal to (a) the Mid-Tier Holding Company’s total stockholders’ equity as reflected in its latest statement of financial condition contained in the final Prospectus utilized in the Conversion plus (b) the value of the net assets of the Mutual Holding Company as reflected in its latest statement of financial condition prior to the Conversion (excluding in the case of this clause (b) the value of its ownership of Mid-Tier Holding Company common stock). All outstanding equity securities of the Holding Company will at all times be subject to the superior liquidation rights in the Liquidation Account of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their deposit accounts with the Bank.

 

The Holding Company will own all of the common stock of the Bank subject to the superior liquidation rights in the Bank Liquidation Account of Eligible Account Holders and Supplemental Eligible Account Holders who continue to maintain their deposit accounts with the Bank. Any additional equity securities issued by the Bank in the future will likewise be subject to such superior liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders.

 

Opinions

 

In connection with the opinions expressed below, we have examined and relied upon originals, or copies certified or otherwise indentified to our satisfaction, of the Plan, the Plan of Merger and such other corporate documents of the Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the Holding Company as we have deemed appropriate. We have also relied, without independent verification, upon the factual representations of the Mutual Holding Company, the Mid-Tier Holding Company and the Bank in a tax representation to us dated as of the date hereof. We have assumed that such representations are true and that the parties making such representations (as well as the Holding Company) will act in accordance with the Plan, and that the Plan, the Plan of Merger, and all other documents entered into to effect the transactions contemplated by the Plan have been duly adopted or approved by all required action and that each of the mergers described above will be consummated as a statutory merger resulting in the consequences described above. We express no opinion concerning the effects, if any, of variations of the foregoing.

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 4

 

In issuing the opinions set forth below, we have referred solely to existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury Regulations thereunder, current administrative rulings, notices, procedures and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions are subject to change at any time. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change after the date hereof.

 

Based upon and subject to the foregoing and the qualifications and limitations set forth herein below, the following is our opinion for federal income tax purposes as of the date hereof:

 

1.       The MHC Merger of the Mutual Holding Company with and into the Mid-Tier Holding Company will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code.

 

2.       The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ voting and liquidation rights in the Mutual Holding Company for liquidation interests in the Mid-Tier Holding Company in the MHC Merger will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Treasury Regulations. (See Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54.)

 

3.       The Mutual Holding Company will not recognize any gain or loss on the transfer of its assets to the Mid-Tier Holding Company and the Mid-Tier Holding Company’s assumption of its liabilities, if any, in constructive exchange for liquidation interests in the Mid-Tier Holding Company or on the constructive distribution of such liquidation interests to the members of Mutual Holding Company who are Eligible Account Holders or Supplemental Eligible Account Holders of the Bank. (Sections 361(a), 361(c) and 357(a) of the Code.)

 

4.       No gain or loss will be recognized by the Mid-Tier Holding Company upon the receipt of the assets of the Mutual Holding Company in the MHC Merger in exchange for the constructive transfer of liquidation interests in the Mid-Tier Holding Company to the members of Mutual Holding Company who are Eligible Account Holders and Supplemental Eligible Account Holders. (Section 1032(a) of the Code.)

 

5.       Eligible Account Holders and Supplemental Eligible Account Holders will recognize no gain or loss upon the constructive receipt of liquidation interests in the Mid-Tier Holding Company in exchange for their voting and liquidation rights in the Mutual Holding Company. (Section 354(a) of the Code.)

 

6.       The basis of the assets of the Mutual Holding Company to be received by the Mid-Tier Holding Company in the MHC Merger will be the same as the basis of such assets in the hands of the Mutual Holding Company immediately prior to the transfer. (Section 362(b) of the Code.)

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 5

 

7.       The holding period of the assets of the Mutual Holding Company to be received by the Mid-Tier Holding Company in the MHC Merger will include the holding period of those assets in the hands of the Mutual Holding Company immediately prior to the transfer. (Section 1223(2) of the Code.)

 

8.       The Mid-Tier Merger of the Mid-Tier Holding Company with and into the Holding Company will constitute a mere change in identity, form or place of organization within the meaning of Section 368(a)(1)(F) of the Code and will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Code.

 

9.       The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ liquidation interests in the Mid-Tier Holding Company for interests in the Liquidation Account of the Holding Company will satisfy the continuity of interest requirement of Section 1.368-1(b) of the Treasury Regulations (See Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).

 

10.       The Mid-Tier Holding Company will not recognize any gain or loss on the transfer of its assets to the Holding Company and the Holding Company’s assumption of its liabilities in the Mid-Tier Merger pursuant to which Eligible Account Holders and Supplemental Eligible Account Holders will receive interests in the Liquidation Account of the Holding Company in exchange for their liquidation interests in the Mid-Tier Holding Company. (Sections 361(a), 361(c) and 357(a) of the Code.)

 

11.       No gain or loss will be recognized by the Holding Company upon the receipt of the assets of the Mid-Tier Holding Company in the Mid-Tier Merger. (Section 1032(a) of the Code.)

 

12.       Eligible Account Holders and Supplemental Eligible Account Holders will not recognize any gain or loss upon their constructive exchange of their liquidation interests in Mid-Tier Holding Company for interests in the Liquidation Account of Holding Company. (Section 354 of the Code.)

 

13.       The basis of the assets of the Mid-Tier Holding Company to be received by the Holding Company in the Mid-Tier Merger will be the same as the basis of such assets in the hands of the Mid-Tier Holding Company immediately prior to the transfer. (Section 362(b) of the Code.)

 

14.       The holding period of the assets of the Mid-Tier Holding Company to be received by the Holding Company in the Mid-Tier Merger will include the holding period of those assets in the hands of the Mid-Tier Holding Company immediately prior to the transfer. (Section 1223(2) of the Code.)

 

15.       It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Conversion Stock is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Conversion Stock. (Section 356(a) of the Code.) Gain, if any, realized by the aforesaid account holders and members will not exceed the fair market value of the subscription rights distributed. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not recognize any gain as the result of the exercise by them of nontransferable subscription rights. (Rev. Rul. 56-572, 1956-2 C.B. 182.)

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 6

 

16.       It is more likely than not that the fair market value of the benefit provided by the Bank Liquidation Account supporting the payment of the Liquidation Account in the event the Holding Company lacks sufficient net assets is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by the Holding Company or Eligible Account Holders and Supplemental Eligible Account Holders from the establishment or maintenance of the Bank Liquidation Account or the deemed distribution to the Holding Company for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders of rights in, or deemed distribution to Eligible Account Holders and Supplemental Eligible Account Holders of rights in, the Bank Liquidation Account in the Mid-Tier Merger. (Section 356(a) of the Code.)

 

17.       It is more likely than not that the basis of the Conversion Stock purchased in the Offering through the exercise of the nontransferable subscription rights will be the purchase price thereof. (Section 1012 of the Code.)

 

18.       The holding period of the Conversion Stock purchased pursuant to the exercise of subscription rights will commence on the date on which the right to acquire such stock was exercised. (Section 1223(5) of the Code.)

 

19.       No gain or loss will be recognized by the Holding Company on the receipt of money in exchange for Conversion Stock sold in the Offering. (Section 1032 of the Code.)

 

The reasoning in support of our opinions under paragraphs 15 and 17 above is set forth below. We understand that the subscription rights will be granted at no cost to the recipients, will be legally nontransferable and of short duration, and will provide the recipient with the right only to purchase shares of Conversion Stock at the same price to be paid by purchasers in the Offering. We also note that the Internal Revenue Service has not in the past concluded that subscription rights have any value. In addition, we are relying on a letter from RP Financial, LC. to you stating its belief that subscription rights will have no ascertainable market value and that the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase Conversion Stock have no value.

 

If the subscription rights are subsequently found to have an ascertainable market value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised) and the Holding Company and/or the Bank may be taxed on the distribution of the subscription rights.

 

 

Boards of Directors
First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

Richmond Mutual Bancorporation, Inc. (Md.)

March 11, 2019

Page 7

 

The reasoning in support of our opinion under paragraph 16 above is set forth below. We understand that: (i) there is no history of any holder of a liquidation account receiving any payment attributable to a liquidation account; (ii) the interests in the Liquidation Account and the Bank Liquidation Account are not transferable; (iii) the amounts due under the Liquidation Account with respect to each Eligible Account Holder and Supplemental Eligible Account Holder (and corresponding amounts due under the Bank Liquidation Account) will be reduced as their deposits in the Bank are reduced as described in the Plan; and (iv) the Bank Liquidation Account payment obligation arises only if the Holding Company lacks sufficient net assets to fund the Liquidation Account. In addition, we are relying on a letter from RP Financial, LC. to you stating its belief that the benefit provided by the Bank Liquidation Account supporting the payment of the Liquidation Account in the event the Holding Company lacks sufficient net assets does not have any economic value at the time of the Mid-Tier Merger or upon completion of the Conversion. Based on the foregoing, we believe it is more likely than not that such rights in the Bank Liquidation Account have no value.

 

If such Bank Liquidation rights are subsequently found to have an economic value, income may be recognized by each Eligible Account Holder and Supplemental Eligible Account Holder in the amount of such fair market value as of the effective date of the Mid-Tier Merger.

 

We hereby consent to the filing of the opinion as an exhibit to the Mutual Holding Company’s Application for Conversion filed with the Bank Regulators and to the Holding Company’s Registration Statement on Form S-1 as filed with the SEC. We also consent to the references to our firm in the Prospectus contained in the Application for Conversion and Form S-1 under the captions “The Reorganization and Offering - Material Income Tax Consequences” and “Legal Matters.”

 

Sincerely,

 

/s/ Silver, Freedman, Taff & Tiernan LLP

 

SILVER, FREEDMAN, TAFF & TIERNAN LLP

 

 

 

Exhibit 8.2

 

 

 

 

 

March 11, 2019

 

 

 

Boards of Directors
First Mutual of Richmond, Inc.
Richmond Mutual Bancorporation, Inc.
First Bank Richmond
Richmond Mutual Bancorporation, Inc. (Md.)
31 N. 9 th Street
Richmond, Indiana 47374  

 

Ladies and Gentlemen:

 

You have requested our opinion regarding the Indiana income tax consequences, which will result from the conversion of First Mutual of Richmond, Inc., a Delaware non-stock mutual holding company (the Mutual Holding Company) into the capital stock form of organization (the Conversion) to be effected pursuant to the terms of the Plan of Reorganization and Stock Offering of the Mutual Holding Company dated February 6, 2019 (the Plan), and the integrated transactions described in the Federal Tax Opinion (the Federal Opinion) prepared by Silver, Freedman, Taff & Tiernan, LLP (Counsel).

 

Our opinion is limited solely to Indiana state income tax consequences and will not apply to any other taxes, jurisdictions, transactions or issues.

 

In rendering the opinion set forth below, we have relied on the Federal Opinion of Counsel related to the federal tax consequences of the Conversion and the Plan, without undertaking to verify the federal tax consequences by independent investigation. Our opinion is subject to the truth and accuracy of certain representations made by you to us and Counsel and the consummation of the proposed conversion in accordance with the terms of the Plan. All capitalized terms used, but not defined herein, shall have the meanings assigned to them in the Plan.

 

Should it finally be determined the facts and federal income tax consequences are not as outlined in the Federal Opinion, the Indiana income tax consequences and our Indiana Income Tax Opinion could differ from what is contained herein.

 

Our opinion is based upon the existing provisions of the Indiana Code (the Ind. Code) Title 6, Article 5.5, and regulations thereunder, and existing court decisions (collectively, the Current Tax Law), any of which could be changed at any time. Any such changes may be retroactive and could significantly modify the statements and opinions expressed herein. Similarly, any change in the facts and assumptions stated below, upon which this opinion is based, could modify the conclusions. This opinion is as of the date hereof, and as of the effective date of the Registration Statement filed by the Holding Company with the SEC, assuming there is no change in the Current Tax Law or in any of the facts and assumptions set forth in this opinion. We assume no obligation to advise you of any change in any matter considered herein.

 

This opinion is being furnished only for you and your respective shareholders who purchase shares in the offering in connection with the Conversion, and may not be used or relied upon for any other purpose and may not be circulated, quoted or otherwise referred to for any other purpose without our express written consent.

 

We opine only as to the matters we expressly set forth, and no opinions should be inferred as to any other matters or as to the tax treatment of the transactions that we do not specifically address. We express no opinion as to laws and regulations of any jurisdictions other than Indiana or as to factual or legal matters other than as set forth herein.

 

 

 

 

 

 

Boards of Directors

March 11, 2019

Page 2

 

 

Discussion Related to Indiana Tax Consequences

 

Indiana tax law does not specifically adopt any tax-free reorganization or tax-free capital contribution provisions of the Internal Revenue Code of 1986, as amended (the Code). However, Indiana defines, as referenced in their Articles, the term “Internal Revenue Code” as the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11) Therefore, Indiana, per its definition of the Internal Revenue Code, conforms to the rules of Internal Revenue Code §368. Indiana imposes a tax measured by the “adjusted gross income” of each corporation, the beginning point of which is taxable income, as defined by §63 of the Internal Revenue Code. (Ind. Code §6-5.5-1-2) The Federal Opinion, which states no income or loss is recognized for federal income tax purposes by any of the parties participating in the conversion described above, provides the basis upon which we conclude the aforementioned Indiana statutes and regulations hold that such Conversion results in no gain or loss. In addition, as it relates to individual taxpayers, Indiana imposes tax on “adjusted gross income”, which is equal to taxable income as defined by Section 62 of the Internal Revenue Code, with certain modifications. (Ind. Code §6-3-1-3.5)

 

Opinions

 

Accordingly, based upon the facts and representation stated herein and the existing law, it is the opinion of BKD, LLP regarding the Indiana income tax consequences of the planned conversion and reorganization:

 

1. The MHC Merger of the Mutual Holding Company with and into the Mid-Tier Holding Company will qualify as a tax-free reorganization within the meaning of IRC §368(a)(1)(A). Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

2. The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ voting and liquidation rights in the Mutual Holding Company for liquidation interests in the Mid-Tier Holding Company in the MHC Merger will satisfy the continuity of interest requirement of §1.368-1(b) of the Treasury Regulations. (See Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

3. The Mutual Holding Company will not recognize any gain or loss on the transfer of its assets to the Mid-Tier Holding Company and the Mid-Tier Holding Company's assumption of its liabilities, if any, in constructive exchange for liquidation interests in the Mid-Tier Holding Company or on the constructive distribution of such liquidation interests to the members of Mutual Holding Company who are Eligible Account Holders or Supplemental Eligible Account Holders of the Bank. (IRC §§361(a), 361(c) and 357(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

4. No gain or loss will be recognized by the Mid-Tier Holding Company upon the receipt of the assets of the Mutual Holding Company in the MHC Merger in exchange for the constructive transfer of liquidation interests in the Mid-Tier Holding Company to the members of Mutual Holding Company who are Eligible Account Holders and Supplemental Eligible Account Holders. (IRC §1032(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

5. Eligible Account Holders and Supplemental Eligible Account Holders will recognize no gain or loss upon the constructive receipt of liquidation interests in the Mid-Tier Holding Company in exchange for their voting and liquidation rights in the Mutual Holding Company. (IRC §354(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

 

 

 

Boards of Directors

March 11, 2019

Page 3

 

 

6. The basis of the assets of the Mutual Holding Company to be received by the Mid-Tier Holding Company in the MHC Merger will be the same as the basis of such assets in the hands of the Mutual Holding Company immediately prior to the transfer. (IRC §362(b)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

7. The holding period of the assets of the Mutual Holding Company to be received by the Mid-Tier Holding Company in the MHC Merger will include the holding period of those assets in the hands of the Mutual Holding Company immediately prior to the transfer. (IRC §1223(2)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

8. The Mid-Tier Merger of the Mid-Tier Holding Company with and into the Holding Company will constitute a mere change in identity, form or place of organization within the meaning of IRC §368(a)(1)(F) and will qualify as a tax-free reorganization within the meaning of IRC §368(a)(1)(F). Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

9. The constructive exchange of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ liquidation interests in the Mid-Tier Holding Company for interests in the Liquidation Account of the Holding Company will satisfy the continuity of interest requirement of §1.368-1(b) of the Treasury Regulations (See Rev. Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54). Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

10. The Mid-Tier Holding Company will not recognize any gain or loss on the transfer of its assets to the Holding Company and the Holding Company's assumption of its liabilities in the Mid-Tier Merger pursuant to which Eligible Account Holders and Supplemental Eligible Account Holders will receive interests in the Liquidation Account of the Holding Company in exchange for their liquidation interests in the Mid-Tier Holding Company. (IRC §§361(a), 361(c) and 357(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

11. No gain or loss will be recognized by the Holding Company upon the receipt of the assets of the Mid-Tier Holding Company in the Mid-Tier Merger. (IRC §1032(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

12. Eligible Account Holders and Supplemental Eligible Account Holders will not recognize any gain or loss upon their constructive exchange of their liquidation interests in Mid-Tier Holding Company for interests in the Liquidation Account of Holding Company. (IRC §354) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11) Also, in the case of all individuals, adjusted gross income is equal to taxable income as defined by IRC §62, with certain modifications. (Ind. Code §6-3-1-3.5) ) Indiana’s statutes do not provide for a modification related to IRC §354.

 

13. The basis of the assets of the Mid-Tier Holding Company to be received by the Holding Company in the Mid-Tier Merger will be the same as the basis of such assets in the hands of the Mid-Tier Holding Company immediately prior to the transfer. (IRC §362(b)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

 

 

 

Boards of Directors

March 11, 2019

Page 4

 

 

14. The holding period of the assets of the Mid-Tier Holding Company to be received by the Holding Company in the Mid-Tier Merger will include the holding period of those assets in the hands of the Mid-Tier Holding Company immediately prior to the transfer. (IRC §1223(2)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

15. It is more likely than not that the fair market value of the nontransferable subscription rights to purchase Conversion Stock is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Conversion Stock. (Section 356(a) of the Code.) Gain, if any, realized by the aforesaid account holders and members will not exceed the fair market value of the subscription rights distributed. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not recognize any gain as the result of the exercise by them of nontransferable subscription rights. (Rev. Rul. 56-572, 1956-2 C.B. 182.) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11) Also, in the case of all individuals, adjusted gross income is equal to taxable income as defined by IRC §62, with certain modifications. (Ind. Code §6-3-1-3.5) Indiana’s statutes do not provide for a modification related to IRC §356(a).

 

16. It is more likely than not that the fair market value of the benefit provided by the Bank Liquidation Account supporting the payment of the Liquidation Account in the event the Holding Company lacks sufficient net assets is zero. Accordingly, it is more likely than not that no gain or loss will be recognized by the Holding Company or Eligible Account Holders and Supplemental Eligible Account Holders from the establishment or maintenance of the Bank Liquidation Account or the deemed distribution to the Holding Company for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders of rights in, or deemed distribution to Eligible Account Holders and Supplemental Eligible Account Holders of rights in, the Bank Liquidation Account in the Mid-Tier Merger. (IRC §356(a)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11) Also, in the case of all individuals, adjusted gross income is equal to taxable income as defined by IRC §62, with certain modifications. (Ind. Code §6-3-1-3.5) Indiana’s statutes do not provide for a modification related to IRC §356(a).

 

17. It is more likely than not that the basis of the Conversion Stock purchased in the Offering through the exercise of the nontransferable subscription rights will be the purchase price thereof. (IRC §1012) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

18. The holding period of the Conversion Stock purchased pursuant to the exercise of subscription rights will commence on the date on which the right to acquire such stock was exercised. (IRC §1223(5)) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

19. No gain or loss will be recognized by the Holding Company on the receipt of money in exchange for Conversion Stock sold in the Offering. (IRC §1032) Indiana conforms to the Internal Revenue Code of 1986, as amended and in effect on February 11, 2018. (Ind. Code §6-3-1-11)

 

If any of the facts contained in this opinion letter change it is imperative we be notified, in order to determine the effect on the Indiana income tax consequences, if any.

 

 

/s/ BKD, LLP

 

BKD, LLP

 

 

 

 

Exhibit 10.1

 

 RICHMOND MUTUAL BANCORPORATION, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

 

This Nonqualified Deferred Compensation Plan (the “Plan”), adopted effective January 16, 2019, is by and among Richmond Mutual Bancorporation, Inc. (the “Corporation”), First Bank Richmond (the “Bank”). a wholly-owned subsidiary of the Corporation, and Garry Kleer (the “Executive”).

 

RECITALS:

 

A.            The Executive is employed by the Corporation and the Bank, and the Corporation and the Bank are collectively referred to herein as the “Employers”.

 

B.            The Employers recognize the valuable services the Executive has performed for the Employers in the past and wish to encourage the Executive’s continued employment and to provide the Executive with additional incentive to achieve corporate objectives.

 

C.            The Employers wish to provide the terms and conditions upon which the Employers shall pay additional retirement benefits to the Executive.

 

D.            The Employers intend this Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded nonqualified deferred compensation arrangement, maintained primarily to provide supplemental retirement benefits for the Executive, a member of a select group of management or highly compensated employees of the Corporation and its Affiliates; and as such, is intended to be exempt from the provisions of Parts 2, 3, and 4 of Title I of the Employee Retirement Income Security Act of 1974 by operation of Sections 201(2), 301(a)(3) and 401(a)(1) thereof.

 

E.            The Employers and the Executive intend this Plan shall at all times comply in form and operation with all applicable law, including, to the extent applicable, the requirements of Internal Revenue Code Section 409A and will be administered, operated and construed in accordance with this intention.

 

NOW, THEREFORE , in consideration of the mutual promises contained herein, the Employers and the Executive agree as follows:

 

ARTICLE I

DEFINITIONS

 

The following Article provides definitions of terms used throughout this Plan, and whenever used herein in a capitalized form, except as otherwise expressly provided, the terms shall be deemed to have the following meanings:

 

1.1            “Accrual Balance” shall mean the liability accrued by the Employers in accordance with generally accepted accounting principles in the United States with respect to the Employers’ obligations to the Executive under this Agreement.

 

1.2            “Affiliate” shall mean any business entity with whom the Employers would be considered a single employer under Sections 414(b) and 414(c) of the Internal Revenue Code. Such term shall be interpreted in a manner consistent with the definition of “service recipient” contained in Section 409A of the Internal Revenue Code.

 

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1.3            “Bank” shall mean First Bank Richmond and its successors and assigns unless otherwise provided in this Plan, or any other entity which, with the consent of the Employers or any of their respective successors or assigns, assumes the Bank’s obligations under this Plan, or any Affiliate which agrees, with the consent of the Employers or any of their respective successors or assigns, to become a party to the Plan.

 

1.4            “Beneficiary” or “Beneficiaries” shall mean the person(s), trust(s) or other entity or entities designated by the Executive, in accordance with the procedures established by the Plan Administrator, to receive applicable payments in the event of the death of the Executive prior to the Executive’s receipt of the entire amount credited to his Account.

 

1.5             “Beneficiary Designation Form”   shall mean the form established from time to time by the Plan Administrator that the Executive completes, signs, and returns to the Plan Administrator to designate one or more Beneficiaries.

 

1.6            “Board” shall mean the Board of Directors of the Corporation.         

 

1.7            “Cause” shall mean conduct by the Executive determined by the Employers to be: (a) personal dishonesty or willful misconduct causing material harm to the Corporation or any of its Affiliates; (b) breach of fiduciary duty involving personal profit; (c) intentional failure to perform stated duties; or (d) willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order.         

 

1.8            “Change in Control” shall mean and shall include a change in ownership or effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, within the meaning of Internal Revenue Code Section 409A and as described in Treasury Regulation §§1.409A-3(i)(5)(v), (vi) and (vii); provided, however, a Change in Control shall not be deemed to have occurred in connection with a conversion of First Mutual of Richmond, Inc. or any Affiliate thereof from mutual to stock form.         

 

1.9            “Claimant” shall mean the Executive or a Beneficiary who believes that he or she is entitled to a benefit under this Plan or is being denied a benefit to which he or she is entitled hereunder.

 

1.10          “Code” shall mean the U.S. Internal Revenue Code of 1986 and the Treasury Regulations or other authoritative guidance issued thereunder, as amended from time to time.

 

1.11         “ Company ” shall mean First Mutual of Richmond, Inc., Richmond Mutual Bancorporation, Inc. or any other entity which owns at least a majority of the outstanding common stock of the Bank immediately following a conversion of First Mutual of Richmond, Inc. or any Affiliate thereof from mutual to stock form.

 

1.12         “Corporation” shall mean Richmond Mutual Bancorporation, Inc. and its successors and assigns unless otherwise provided in this Plan, or any other corporation or business organization which, with the consent of the Employers or any of their respective successors or assigns, assumes the Corporation’s obligations under this Plan, or any Affiliate which agrees, with the consent of the Employers or any of their respective successors or assigns, to become a party to the Plan.

 

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1.13          “Disability” or “Disabled” shall be defined as a condition of the Executive whereby he either: (a) has been deemed totally disabled by the Social Security Administration or (b) has been determined to be disabled in accordance with a disability insurance program of the Corporation or any of its Affiliates, provided that the program covers the Executive and the definition of disability applied under such program complies with Code Section 409A. Upon the request of the Plan Administrator, the Executive must submit proof to the Plan Administrator of the Social Security Administration’s or insurance provider’s determination.

 

1.14          “Effective Date” shall mean January 16, 2019.

 

1.15          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and the regulations and guidance promulgated thereunder.

 

1.16          “Normal Retirement Benefit” shall mean a benefit of $200,000 per year. The annual Normal Retirement Benefit shall be payable for 15 years in annual installments, unless otherwise provided herein.

 

1.17         “Plan” shall mean the Richmond Mutual Bancorporation, Inc. Nonqualified Deferred Compensation Plan, which shall be evidenced by this instrument, as amended from time to time. For purposes of applying Code Section 409A requirements, the benefit of the Executive under this Plan is a nonaccount balance plan under Treasury Regulation §1.409A-1(c)(2)(i)(C).

 

1.18          “Plan Administrator” shall mean the Corporation or its designee. The Executive may not vote in any Corporation decision relating solely to his individual benefits under this Plan.

 

1.19          “Plan Year” shall mean, for the first Plan Year, the period beginning on the Effective Date of the Plan and ending December 31 of such calendar year; and thereafter shall mean a twelve (12) month period beginning January 1 of each calendar year and continuing through December 31 of such calendar year.

 

1.20          “Retirement Age” shall mean age sixty-eight (68).

 

1.21          “Section 409A” shall mean Code Section 409A and the Treasury Regulations or other authoritative guidance issued thereunder.

 

1.22          “Separation from Service” or “Separates from Service” shall mean the Executive has experienced a termination of employment or service with the Corporation for any reason other than death or Disability. Whether a termination of employment or service has occurred is determined based on whether the facts and circumstances indicate that the Corporation and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period during which the Executive performed services for the Corporation, if that is less than thirty-six (36) months). Such determination shall take into account all of the facts and circumstances, special rules and presumptions set forth in Treasury Regulation §1.409A-1(h), with references to the Corporation in this section to also include its Affiliates.

 

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1.23          “Specified Employee” shall mean the Executive meets the definition of a “key employee” as such term is defined in Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5)). However, the Executive is not a Specified Employee unless any stock of the Company or the Bank is publicly traded on an established securities market or otherwise, as defined in Treasury Regulation §1.897-1(m). If the Executive is a key employee at any time during the twelve (12) months ending on December 31, the identification date, then the Executive shall be deemed to be a Specified Employee for the twelve (12) month period beginning on the first day of the fourth month following the identification date. The determination of the Executive as a Specified Employee shall be made by the Plan Administrator in accordance with Code Section 416(i) and the “specified employee” requirements of Section 409A.

 

1.24          “Treasury Regulation” or “Treasury Regulations” shall mean regulations promulgated by the Internal Revenue Service for the U.S. Department of the Treasury, as they may be amended from time to time.

 

ARTICLE II

PAYMENT OF BENEFITS

 

2.1          Payments in General.

 

(a)           Source of Payments. All payments made under the Plan shall be made in cash from the general assets of the Employers. Both the Corporation and the Bank shall be jointly and severally liable, without duplication, for the benefits to be paid under the Plan.

 

(b)          The Executive shall be 100% vested in his Normal Retirement Benefit as of the Effective Date.

 

(c)           Subsequent Deferral Elections. If approved by the Employers, the Executive may delay the time of a payment or change the form of a payment as expressly provided under this Section and Section 409A (a “Subsequent Deferral Election”). Notwithstanding the foregoing, a Subsequent Deferral Election cannot accelerate any payment. A Subsequent Deferral Election which delays the time of a payment or changes the form of a payment is permitted only if all of the following requirements are met:

 

(i)          The Subsequent Deferral Election does not take effect until at least twelve (12) months after the date on which the Subsequent Deferral Election is made and approved by the Plan Administrator;

 

(ii)         If the Subsequent Deferral Election relates to a payment based on Separation from Service, Change in Control, or at a specified time, the election must result in payment being deferred for a period of not less than five (5) years from the date such payment would otherwise have been paid (or in the case of installment payments treated as a single payment, not less than five (5) years from the date the first amount was scheduled to be paid);

 

(iii)        If the Subsequent Deferral Election relates to a payment at a specified time or pursuant to a fixed schedule, the Subsequent Deferral Election must be made not less than twelve (12) months before the date the payment is scheduled to be paid (or in the case of installment payments treated as a single payment, not less than twelve (12) months before the date the first amount was scheduled to be paid).

 

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For purpose of applying the Subsequent Deferral Election requirements, installment payments shall be treated as a “single payment.” Any Subsequent Deferral Election made pursuant to this Section shall be made on such election forms or electronic media as is required by the Plan Administrator, in accordance with the rules established by the Plan Administrator and shall comply with all requirements of Section 409A.

 

2.2          Separation from Service Benefit.

 

(a)           Prior to Retirement Age. In the event the Executive Separates from Service (other than for Cause or death) prior to Retirement Age, the Employers shall pay to the Executive an early termination benefit equal to his Normal Retirement Benefit. This early termination benefit shall be paid each year for a period of fifteen (15) years in annual installments, with the first annual installment paid on the first day of the month immediately following the Executive’s Retirement Age, subject to Section 2.6 below, and with subsequent installments being paid on the anniversary of the first installment.

 

(b)           On or After Retirement Age. In the event the Executive Separates from Service (other than for Cause or death) on or after Retirement Age, the Employers shall pay to the Executive his Normal Retirement Benefit each year for a period of fifteen (15) years, with the payments to be made in annual installments. The first installment shall be paid on the first day of the second month immediately following the Executive’s Separation from Service, subject to Section 2.6 below, with subsequent installments being paid on the anniversary of the first installment.

 

2.3         Disability Benefit. In the event the Executive becomes Disabled while employed with the Corporation or any of its Affiliates, the Employers shall pay to the Executive a disability benefit equal to his Accrual Balance as of the date of the Disability, with such payment to be made in a lump sum on the first day of the second month immediately following the Executive’s Disability.

 

2.4         Change in Control Benefit. In the event of a Change in Control while employed with the Corporation or any of its Affiliates, prior to becoming Disabled, the Employers shall calculate the discounted present value of the Executive’s Normal Retirement Benefit as of the date of the Change in Control, assuming the annual installments commenced as of the first day of the month immediately following the Executive’s Retirement Age or, if later, as of the first day of the second month immediately following the Change in Control. The present value of the fifteen (15) annual installments that would otherwise be paid as part of the Normal Retirement Benefit shall be discounted to present value using a discount rate of 3.80% compounded annually, which is equal to 120% of the long-term applicable federal rate as of the Effective Date. The discounted present value amount shall be paid to the Executive in a lump sum within thirty (30) days following the completion of the Change in Control.

 

2.5         Death Benefit.

 

(a)           While Employed. In the event of the Executive’s death while employed with the Corporation or any of its Affiliates and prior to a Change in Control or Disability, the Employers shall pay to the Executive’s Beneficiary the Accrual Balance, calculated as of the date of the Executive’s death, in a lump sum on the first day of the second month immediately following the Executive’s death.

 

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(b)           Death During Installments. In the event of the Executive’s death after an event triggering installment payments under this Article II has occurred but prior to receiving all installments owed hereunder, the Employers shall pay the present value of any remaining installments to the Executive’s Beneficiary in a lump sum within ninety (90) days following the date of the Executive’s death, with the present value of the remaining installments calculated using a discount rate of 3.80% compounded annually.

 

2.6          Restrictions on Time of Payment . Solely to the extent necessary to avoid penalties under Section 409A, payments to be made as a result of a Separation from Service (excluding death) under this Article may not commence earlier than six (6) months after the Executive’s Separation from Service if, pursuant to Section 409A, the Executive is considered a Specified Employee. In the event a distribution is delayed pursuant to this paragraph, any amounts otherwise payable during the six months shall be accumulated and paid in a lump sum on the first day of the seventh month following Separation from Service. Interest will accrue on any withheld payment at the rate of 6% per annum and shall be paid at the time that the withheld payments are paid. With respect to installment payments, all remaining payments shall be paid as originally scheduled, based on the date the first annual installment would have been paid absent the six-month delay of the first installment.

 

2.7          Accelerations. Except as specifically permitted herein or in other sections of this Plan, no acceleration of the time or schedule of any payment may be made hereunder. Notwithstanding the foregoing, payments may be accelerated hereunder by the Employers (without any direct or indirect election on the part of the Executive), in accordance with the provisions of Treasury Regulation §1.409A-3(j)(4) and any subsequent guidance issued by the United States Treasury Department. Accordingly, payments may be accelerated, in accordance with the provisions of Treasury Regulation §1.409A-3(j)(4) in the following circumstances: (a) in limited cashouts (but not in excess of the limit under Code Section 402(g)(1)(B)); (b) to pay employment-related taxes; or (c) to pay any taxes that may become due at any time that the Plan fails to meet the requirements of Section 409A (but in no case shall such payments exceed the amount to be included in income as a result of the failure to comply with the requirements of Section 409A).

 

2.8          Rights of Executive and Beneficiary.

 

(a)           Creditor Status of Executive and Beneficiary. The Plan constitutes an unfunded, unsecured promise of the Employers to make payments to the Executive or his Beneficiary in the future and shall be a liability solely against the general assets of the Employers. The Employers shall not be required to segregate, set aside or escrow any amounts for the benefit of the Executive or his Beneficiary. The Executive and his Beneficiary shall have the status of a general unsecured creditor of the Employers and may look only to the Employers and their general assets for payment of benefits under the Plan.

 

(b)           Investments. In its sole discretion, the Employers may acquire insurance policies, annuities or other financial vehicles for the purpose of providing future assets of the Employers to meet their anticipated liabilities under the Plan. Such policies, annuities or other investments shall at all times be and remain unrestricted general property and assets of the Employers. The Executive and his designated Beneficiary shall have no rights, other than as general creditors, with respect to such policies, annuities or other acquired assets. In the event that the Employers purchase an insurance policy or policies insuring the life of the Executive or another employee, to allow the Employers to recover or meet the cost of providing benefits, in whole or in part, hereunder, neither the Executive nor his Beneficiary shall have any rights whatsoever in said policy or the proceeds therefrom.

 

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2.9           Discharge of Obligations. The payment to the Executive or his Beneficiary of the Account in full, pursuant to this Article II, shall discharge all obligations of the Employers to the Executive or his Beneficiary under the Plan with respect to the Executive’s Account.

 

ARTICLE III
FORFEITURES / TAXES

 

3.1           Forfeiture. Notwithstanding any other provision to the contrary herein, in the event the Executive’s employment is terminated for Cause, no benefits of any kind will be due or payable by the Employers under the terms of this Plan and all rights of the Executive, his Beneficiary, executors or administrators, or any other person, to receive payments hereunder shall be forfeited.

 

3.2           Removal. Notwithstanding any provision of this Plan to the contrary, the Employers shall not distribute any benefit under this Plan if the Executive is subject to a final removal or prohibition order issued by an appropriate banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.

 

3.3           Taxes and Withholding. The present value of the Executive’s Normal Retirement Benefit shall be subject to tax withholding under the Federal Insurance Contribution Act (FICA) and the Federal Unemployment Tax Act (FUTA) to the extent provided under applicable Code provisions. Benefits paid under the Plan shall be subject to all applicable federal, state, city, income, employment or other taxes as may be required to be withheld or paid.

 

ARTICLE IV

BENEFICIARY DESIGNATION

 

4.1           Designation of Beneficiaries.

 

(a)          The Executive may designate any person or persons (who may be named contingently or successively) to receive any benefits payable under the Plan upon the Executive’s death, and the designation may be changed from time to time by the Executive by filing a new designation. Each designation will revoke all prior designations by the Executive, shall be in the form prescribed by the Plan Administrator, and shall be effective only when filed with the Plan Administrator during the Executive’s lifetime.

 

(b)          In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Executive, the Employers shall pay the benefit payment to the Executive’s spouse, if then living, and if the spouse is not then living to the Executive’s then living descendants, if any, per stirpes , and if there are no living descendants, to the Executive’s estate. In determining the existence or identity of anyone entitled to a benefit payment, the Employers may rely conclusively upon information supplied by the Executive’s personal representative, executor or administrator.

 

(c)          The Executive’s designation of a Beneficiary will not be revoked or changed automatically by any future marriage or divorce. Should the Executive wish to change the designated Beneficiary in the event of a future marriage or divorce, the Executive will have to do so by means of filing a new Beneficiary Designation Form with the Plan Administrator.

 

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(d)          If a question arises as to the existence or identity of anyone entitled to receive a death benefit payment under the Plan, or if a dispute arises with respect to any death benefit payment under the Plan, the Employers may distribute the payment to the Executive’s estate without liability for any tax or other consequences, or may take any other action which the Employers deem to be appropriate.

 

4.2           Information to be Furnished by Executive and Beneficiary; Inability to Locate Executive or Beneficiary. Any communication, statement or notice addressed to the Executive or to a Beneficiary at his or her last post office address as shown on the Employers’ records shall be binding on the Executive or Beneficiary for all purposes of the Plan. The Employers shall not be obliged to search for the Executive or Beneficiary beyond the sending of a registered letter to such last known address.

 

4.3          Facility of Payment. If the Plan Administrator determines in its discretion that a benefit is to be paid to a minor, to a person legally declared incompetent, or to a person legally deemed incapable of handling the disposition of that person’s property, the Plan Administrator may direct payment of such benefit to the guardian, legal representative or person having care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to payment of the benefit. Any distribution of a benefit shall be a distribution for the account of the Executive and the Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such distribution amount.

 

ARTICLE V

PLAN ADMINISTRATION

 

5.1           Plan Administrator Duties. The Plan Administrator shall be responsible for the management, operation, and administration of the Plan. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by the Employers, Executive or Beneficiary. No provision of this Plan shall be construed as imposing on the Plan Administrator any fiduciary duty under ERISA or other law, or any duty similar to any fiduciary duty under ERISA or other law.

 

5.2           Plan Administrator Authority. The Plan Administrator shall enforce this Plan in accordance with its terms, shall be charged with the general administration of this Plan, and shall have all powers necessary to accomplish its purposes.

 

5.3           Binding Effect of Decisions. The decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Plan and the rules and regulations promulgated hereunder shall be final, conclusive, and binding upon all persons having any interest in this Plan.

 

5.4            Compensation, Expenses, and Indemnity. The Plan Administrator shall serve without compensation for services rendered hereunder. The Plan Administrator is authorized at the expense of the Employers to employ such legal counsel and/or Plan recordkeeper as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of this Plan shall be paid by the Employers.

 

5.5           Employer Information. To enable the Plan Administrator to perform its functions, the Employers shall supply full and timely information to the Plan Administrator, on all matters relating to the Executive’s death, Disability or Separation from Service, the occurrence of a Change in Control, and such other pertinent information as the Plan Administrator may reasonably require.

 

  8  

 

 

5.6          Compliance with Section 409A.

 

(a)           Notwithstanding anything contained herein to the contrary, the interpretation and distribution of the Executive’s benefits under the Plan shall be made in a manner and at such times as to comply with all applicable provisions of Section 409A and the regulations and guidance promulgated thereunder, or an exception or exclusion therefrom to avoid the imposition of any accelerated or additional taxes. Any defined terms shall be construed consistent with Section 409A and any terms not specifically defined shall have the meaning set forth in Section 409A.

 

(b)          The intent of this Section is to ensure that the Executive is not subject to any tax liability or interest penalty, by reason of the application of Code Section 409A(a)(1) as a result of any failure to comply with all the requirements of Section 409A, and this Section shall be interpreted in light of, and consistent with, such requirements. This Section shall apply to distributions under the Plan, but only to the extent required in order to avoid taxation of, or interest penalties on, the Executive under Section 409A. These rules shall also be deemed modified or supplemented by such other rules as may be necessary, from time to time, to comply with Section 409A.

 

ARTICLE VI

AMENDMENT AND TERMINATION

 

6.1            Amendment. This Plan may be amended only by a written agreement signed by the Employers and the Executive. However, the Employers may unilaterally amend this Plan to ensure that the Plan is characterized as a “top-hat” plan of deferred compensation maintained for a select group of management or highly compensated employees as described under ERISA Sections 201(2), 301(a)(3), and 401(a)(1), or to conform the Plan to the provisions of Section 409A or to conform the Plan to the requirements of any other applicable law (including but not limited to ERISA, banking regulations, and the Code).

 

6.2            Plan Suspension. Although the Employers anticipate that they will continue the Plan for an indefinite period of time, there is no guarantee they will do so. The Employers reserve the right to suspend the operation of the Plan for a fixed or indeterminate period of time, in their sole discretion. In the event of a suspension of the Plan, during the period of the suspension, the Employers shall continue all aspects of the Plan. Payments of distributions will continue to be made during the period of the suspension in accordance with Article II.

 

6.3            Plan Termination in General. The Employers reserve the right to terminate the Plan at any time without the consent of the Executive. The benefit payable in the event of a Plan termination shall be the Executive’s Accrual Balance calculated as of the date the Plan is terminated. Except as provided in Section 6.4, the termination of this Plan shall not cause a distribution of benefits under this Plan. Rather, after such termination, benefit distributions will be made at the earliest distribution event permitted under Article II.

 

  9  

 

 

6.4           Plan Termination and Liquidation under Section 409A . Notwithstanding anything to the contrary in Sections 6.2 or 6.3, the Employers may terminate and liquidate the Plan as described under Treasury Regulation §1.409A-3(j)(4)(ix). Any acceleration of the payment of benefits due to Plan termination and liquidation shall comply with the following subparagraphs, but only as permitted in accordance with Section 409A and Treasury Regulation §1.409A-3(j)(4)(ix). In the event of such termination and liquidation, the Employers shall pay to the Executive his Accrual Balance as of the date of termination. The payment of benefits hereunder to the Executive may be accelerated in the circumstances set forth below:

 

(a)          If the Employers elect to terminate and liquidate this Plan, together with all other agreements and arrangements that would be aggregated with this Plan pursuant to Treasury Regulation §1.409A-1(c) (“Similar Arrangements”), provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Corporation and its Affiliates; (ii) all termination distributions are made no earlier than twelve (12) months following the date the Employers take all necessary action to irrevocably terminate and liquidate the Plan, other than payments that would be payable under the Plan if the action to terminate the Plan had not occurred; (iii) all termination distributions are made no later than twenty-four (24) months following the date the Employers take all necessary action to irrevocably terminate and liquidate the Plan; and (iv) neither the Corporation nor any Affiliate thereof adopts any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Employers take all necessary action to irrevocably terminate and liquidate the Plan; or

 

(b)          If the Employers elect to terminate and liquidate this Plan within 12 months of a dissolution taxed under Code Section 331, or with the approval of a bankruptcy court, provided that the amounts deferred under the Plan are included in the Executive’s gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Plan terminates; (ii) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.

 

ARTICLE VII

CLAIMS PROCEDURE

 

7.1         Claims Procedure. This Article is based on Department of Labor Regulation Section 2560.503-1. If any provision of this Article conflicts with the requirements of those regulations, the requirements of those regulations will prevail. A Claimant who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows:

 

(a)           Initiation - Written Claim. The Claimant initiates a claim by submitting a written request for the benefits to the Plan Administrator. The Plan Administrator will, upon written request of a Claimant, make available copies of all forms and instructions necessary to file a claim for benefits or advise the Claimant where such forms and instructions may be obtained. If the claim relates to Disability benefits, then the Plan Administrator shall designate a sub-committee to conduct the initial review of the claim (and applicable references below to the Plan Administrator shall mean such sub-committee). The Plan Administrator shall ensure that all written Disability claims and appeals for Disability related benefits are judged in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.

 

  10  

 

 

(b)           Timing of Plan Administrator Response. The Plan Administrator shall respond to such Claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days by notifying the Claimant in writing prior to the end of the initial 90-day period that an additional period is required. In the event that the claim for benefits pertains to Disability, the Plan Administrator shall provide written response within forty-five (45) days, but can extend this response period by an additional thirty (30) days, if necessary, due to circumstances beyond the Plan Administrator’s control. If, prior to the end of the first thirty (30) day extension period, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to an additional thirty (30) days. Any notice of extension must set forth the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render its decision. The extension notice shall specifically explain the standards on which entitlement to a Disability benefit is based, the unresolved issues that prevent a decision on the claim and the additional information needed from the Claimant to resolve those issues, and the Claimant shall be afforded at least forty-five (45) days within which to provide the specified information.

 

(c)         Notice of Decision . If the Plan Administrator denies the claim, in whole or in part, the Plan Administrator shall notify the Claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the Claimant, including in a culturally and linguistically appropriate manner as described in Department of Labor Regulation Section 2560.503-1(o) to the extent applicable. The notification shall set forth:

 

(i) The specific reasons for the denial;

 

(ii) A reference to the specific provisions of the Plan on which the denial is based;

 

(iii) A description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed;

 

(iv) Notice that the Claimant has a right to request a review of the claim denial and an explanation of the Plan's review procedures and the time limits applicable to such procedures;

 

(v) A statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review, and a description of any time limit that applies under the Plan for bringing such an action;

 

(vi) a discussion of the decision, including an explanation of the basis for disagreeing with or not following with respect to a claim for Disability benefits: (a) the views presented by the Claimant of health care professionals treating the Claimant and vocational professionals who evaluated the Claimant; (b) the views of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with a Claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and (c) a disability determination regarding the Claimant presented by the Claimant made by the Social Security Administration;

 

(vii) if the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request;

 

  11  

 

 

(viii) either the specific internal rules, guidelines, protocols, standards or other similar criteria of the Plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the Plan do not exist; and

 

(ix) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. Whether a document, record or other information is relevant to a claim for benefits shall be determined by Department of Labor Regulation Section 2560.503-1(m)(8).

 

7.2          Review Procedure. If the Plan Administrator denies the claim, in whole or in part, the Claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial, as follows:

 

(a)           Initiation - Written Request. To initiate the review, the Claimant, within sixty (60) days after receiving the Plan Administrator’s notice of denial, must file with the Plan Administrator a written request for review.

 

(b)           Review of a Disability Benefit Claim. If the Claimant’s initial claim is for Disability benefits, any review of a denied claim shall be made by members of the Plan Administrator other than the original decision maker(s) and such person(s) shall not be a subordinate of the original decision maker(s). Prior to such review of the denied claim, the Claimant shall be given, free of charge, any new or additional evidence considered, relied upon, or generated by the Plan, insurer or other person making the benefit determination in connection with the claim, or any new or additional rationale, as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided, to give the Claimant a reasonable opportunity to respond prior to that date.

 

(c)           Additional Submissions - Information Access . The Claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits.

 

(d)           Considerations on Review . In considering the review, the Plan Administrator shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. Additional considerations shall be required in the case of a claim for Disability benefits. For example, the claim will be reviewed without deference to the initial adverse benefits determination and, if the initial adverse benefit determination was based in whole or in part on a medical judgment, the Plan Administrator will consult with a health care professional with appropriate training and experience in the field of medicine involving the medical judgment. The health care professional who is consulted on appeal will not be the same individual who was consulted during the initial determination or the subordinate of such individual. If the Plan Administrator obtained the advice of medical or vocational experts in making the initial adverse benefits determination (regardless of whether the advice was relied upon), the Plan Administrator will identify such experts.

 

  12  

 

 

(e)           Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such Claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional sixty (60) days by notifying the Claimant in writing, prior to the end of the initial 60-day period that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision. For Disability claims, all references to sixty (60) days in this Section 7.2(e) shall be changed to forty-five (45) days.

 

(f)           Notice of Decision. The Plan Administrator shall notify the Claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner calculated to be understood by the Claimant, including in a culturally and linguistically appropriate manner as described in Department of Labor Regulation Section 2560.503-1(o) to the extent applicable. The notification shall set forth:

 

(i) The specific reasons for the denial;

 

(ii) A reference to the specific provisions of the Plan on which the denial is based;

 

(iii) A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits; and

 

(iv) A statement of the Claimant's right to bring a civil action under ERISA Section 502(a), which shall describe any applicable contractual limitations period that applies to the Claimant’s right to bring such an action, including the calendar date on which the contractual limitations period expires for the claim;

 

(v) a discussion of the decision with respect to Disability claims, including an explanation of the basis for disagreeing with or not following: (a) the views presented by the Claimant of health care professionals treating the Claimant and vocational professionals who evaluated the Claimant; (b) the views of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with a Claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and (c) a disability determination regarding the Claimant presented by the Claimant made by the Social Security Administration;

 

(vi) if the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request; and

 

(vii) either the specific internal rules, guidelines, protocols, standards or other similar criteria of the Plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the Plan do not exist.

 

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7.3            Calculation of Time Periods. For purposes of the time periods specified in this Article, the period of time during which a benefit determination is required to be made begins at the time a claim is filed in accordance with the Plan procedures without regard to whether all the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant's failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimant responds.

 

7.4            Exhaustion of Remedies. A Claimant must follow the claims review procedures under this Plan and exhaust his or her administrative remedies before taking any further action with respect to a claim for benefits.

 

7.5            Failure of Plan to Follow Procedures. If the Plan fails to establish or follow the claims procedures required by this Article, a Claimant shall be deemed to have exhausted the administrative remedies available under the Plan and shall be entitled to immediately pursue any available remedy under ERISA Section 502(a) on the basis that the Plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim, except where the violation was: (a) de minimis; (b) non-prejudicial; (c) attributable to good cause or matters beyond the Plan’s control; (d) in the context of an ongoing good-faith exchange of information; and (e) not reflective of a pattern or practice of noncompliance.. The Claimant may request a written explanation of the violation from the Plan, and the Plan must provide such explanation within ten (10) days, including a specific description of its bases, if any, for asserting that the violation should not cause the administrative remedies to be deemed exhausted. If a court rejects the Claimant’s request for immediate review on the basis that the Plan met the standards for the exception, the claim shall be considered as re-filed on appeal upon the Plan’s receipt of the decision of the court. Within a reasonable time after the receipt of the decision, the Plan shall provide the claimant with notice of the resubmission.

 

ARTICLE VIII

MISCELLANEOUS

 

8.1            Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

 

8.2             Nonassignability. Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

 

8.3              Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Employers and the Executive. Nothing in this Plan shall be deemed to give the Executive the right to be retained in the service of the Employers as an employee or to interfere with the right of the Employers to discipline or discharge the Executive at any time.

 

8.4             Governing Law . The Plan shall be administered, construed and governed in all respects under and by the laws of the State of Indiana, without reference to the principles of conflicts of law (except and to the extent preempted by applicable federal law).

 

  14  

 

 

8.5              Notice . Any notice, consent or demand required or permitted to be given to the Employers or Plan Administrator under this Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Employers’ principal business office. Any notice, consent or demand required or permitted to be given to the Executive or Beneficiary under this Plan shall be sufficient if in writing and hand delivered, or sent by mail to the last known address of the Executive or Beneficiary, as appropriate. Any notice or filing shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification.

 

8.6            Coordination with Other Benefits . The benefits provided for the Executive or his Beneficiary under this Plan are in addition to any other benefits available to the Executive under any other plan or program for employees of the Employers. This Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided herein.

 

8.7             Unclaimed Benefits. In the case of a benefit payable on behalf of the Executive, if the Plan Administrator is unable to locate the Executive or Beneficiary to whom such benefit is payable, such Plan benefit may be forfeited to the Employers upon the Plan Administrator’s determination. Notwithstanding the foregoing, if, subsequent to any such forfeiture, the Executive or Beneficiary to whom such Plan benefit is payable makes a valid claim for such Plan benefit, such forfeited Plan benefit shall be paid by the Plan Administrator to the Executive or Beneficiary, without interest, from the date it would have otherwise been paid.

 

IN WITNESS WHEREOF, the parties hereto execute this Plan as of the date first written above.

 

  RICHMOND MUTUAL
  BANCORPORATION, INC.
   
  By:  
  Name:                                     
  Title:  
     
  FIRST BANK RICHMOND
     
  By:  
  Name:    
     
     
  EXECUTIVE
     
  By:  
  Name: Garry Kleer
  Title: President and CEO

 

  15  

 

 

EXHIBIT 21

 

 

SUBSIDIARIES OF THE REGISTRANT

 

 

Subsidiary Ownership

State of

Incorporation

or

Organization

     
First Bank Richmond Wholly owned subsidiary of the Registrant Indiana

 

     

 

Exhibit 23.2

 

 

March 11, 2019

 

Boards of Directors

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

31 North 9 th Street

Richmond, Indiana 47374

 

We hereby consent to the use of our firm’s name in the Registration Statement on Form S-1, and any amendments thereto, to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates and our statements concerning subscription rights and liquidation rights in such filings including the prospectus of Richmond Mutual Bancorporation, Inc. We also consent to the reference to our firm under the heading “Experts” in the prospectus.

 

  Sincerely,
  RP ® FINANCIAL, LC.
 

 

   
4250 North Fairfax Drive, Suite 600 Telephone:  (703) 528-1700
Arlington, VA 22203 Fax No.:  (703) 528-1788
www.rpfinancial.com Toll-Free No.:  (866) 723-0594
  E-Mail:  mail@rpfinancial.com

 

 

 

 

Exhibit 23.3

 

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the inclusion in this Registration Statement on Form S-1 of Richmond Mutual Bancorporation, Inc. (i) of our report dated March 6, 2019 on our audits of the consolidated financial statements of Richmond Mutual Bancorporation, Inc., appearing in the Prospectus, which is part of this Registration Statement and (ii) our state tax opinion, which is an exhibit to this Registration Statement. We also consent to the references to our firm under the caption “Experts” in the Prospectus.

 

 

/s/ BKD, LLP

BKD, LLP

 

Indianapolis, Indiana

March 11, 2019

 

 

 

 

 

Exhibit 99.1

 

RP ® FINANCIAL, LC.  
Advisory | Planning | Valuation  

 

October 15, 2018

 

Mr. Garry D. Kleer

President and Chief Executive Officer

First Bank Richmond

31 North 9 th Street

Richmond, Indiana 47374

 

Dear Mr. Kleer:

 

This letter sets forth the agreement between First Bank Richmond, Richmond, Indiana (the “Bank”), the wholly-owned subsidiary of Richmond Mutual Bancorporation, Inc. (the mid-tier stock holding company), which in turn is wholly-owned by First Mutual of Richmond, Inc. (the mutual holding company), and RP ® Financial, LC. (“RP Financial”). In this regard, the Bank has engaged RP Financial to provide the conversion appraisal services in conjunction with the second step stock offering whereby the Bank will become a wholly-owned subsidiary of a fully public stock bank holding company (the “Company”). The scope, timing and fee structure for these appraisal services are described below.

 

These appraisal services will be directed by the undersigned, with the assistance at least one Director, and as many as two Associates.

 

Description of Appraisal Services

 

RP Financial will conduct financial due diligence, including on-site interviews of senior management and reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors impacting the Bank and its subsidiaries. This review will be considered in determining the pro forma market value of the Company in accordance with the applicable regulatory appraisal guidelines. RP Financial will prepare a detailed written valuation report that will be fully consistent with applicable regulatory appraisal guidelines and standard pro forma valuation practices, taking into consideration the intended stock offering. The appraisal report will include an analysis of the Bank’s financial condition and operating results, as well as an assessment of the key risks and operating strategy. The appraisal report will incorporate an evaluation of the Bank’s business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to certain relatively comparable publicly-traded banking companies will be conducted for the purpose of determining appropriate valuation adjustments for the Company relative to the peer group’s pricing ratios.

 

We will review pertinent sections of the prospectus and conduct discussions with the Bank and the Bank’s representatives to obtain key information for the appraisal report, including key deal elements such as dividend policy and related regulatory requirements, use of proceeds, reinvestment rate, tax rate, offering expenses, stock plans characteristics (such as employee stock ownership plan and stock grant plan), and, if applicable, a charitable foundation contribution.

 

   
Ronald S. Riggins   Main: (703) 528-1700
President & Managing Director Direct: (703) 647-6543
RP ® Financial, LC.      Cell: (703) 989-4665
rriggins@rpfinancial.com www.rpfinancial

 

 

 

 

Mr. Garry D. Kleer

October 15, 2018
Page 2

 

The original appraisal report will establish a midpoint pro forma market value in accordance with the applicable regulatory requirements. The appraisal report will provide the valuation basis for the size of the stock offering. The appraisal report may be periodically updated during the application and offering process, and, in accordance with the applicable regulations, there will be at least one updated appraisal prepared at the closing of the stock offering to determine the number of shares to be issued. In the event of a syndicated community offering, it may be necessary to file an update in conjunction with the close of the subscription offering and prior to the pricing phase in the syndicated community offering. In the event of a syndicated community offering phase, RP Financial will participate in the various all hands calls regarding the offering results, pricing discussions and timing.

 

RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Bank at the above address, in conjunction with the filing of the regulatory applications and amendments thereto. With prior approval by the Bank, subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such appraisal updates pursuant to regulatory guidelines. Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the original appraisal report and subsequent updates. RP Financial will also prepare the pro forma presentations for inclusion in the prospectus, reflecting the original appraisal and subsequent updates, as appropriate.

 

RP Financial expects to formally present the original appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review prior to the filing with the regulatory application. If appropriate, RP Financial will present subsequent updates to the Board. It is understood that this appraisal review may be presented either in person or telephonically depending upon timing and other circumstances.

 

Fee Structure and Payment Schedule

 

The Bank agrees to pay RP Financial the following fees for preparation and delivery of the original appraisal report and subsequent appraisal updates, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:

 

· $15,000 upon execution of this letter of agreement engaging RP Financial’s appraisal services;

 

· $85,000 upon delivery of the completed original appraisal report; and

 

· $10,000 upon delivery of each subsequent appraisal update report required in conjunction with the regulatory application and stock offering. It is anticipated that there will be at least one appraisal update report, specifically the update to be prepared in conjunction with the completion of the stock offering.

 

 

 

 

Mr. Garry D. Kleer

October 15, 2018
Page 3

 

The Bank will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the original appraisal and subsequent updates. Such out-of-pocket expenses will likely include travel, printing, communications, shipping, reasonable counsel fees, computer and data services, and will not exceed $10,000 in the aggregate, without the Bank’s authorization to exceed this level.

 

In the event the Bank shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report or subsequent updates and payment of the corresponding fees, the Bank agrees to compensate RP Financial according to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out-of-pocket expenses, subject to the cap on such expenses as set forth above. RP Financial’s standard billing rates range from $75 per hour for Associates to $450 per hour for Managing Directors.

 

If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Bank and RP Financial. Such unforeseen events shall include, but not be limited to, material changes to the structure of the transaction such as inclusion of a simultaneous business combination transaction, material changes in the applicable regulations, appraisal guidelines or processing procedures as they relate to such appraisals, material changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of applications by the regulators such that completion of the transaction requires the preparation by RP Financial of a new appraisal.

 

Covenants, Representations and Warranties

 

The Bank and RP Financial agree to the following:

 

1.          The Bank agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include, but not be limited to: annual audited and unaudited internal financial statements and management reports, business plan and budget, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, and other corporate books and records. All information provided by the Bank to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the reorganization and stock offering is not consummated, or the services of RP Financial are terminated hereunder, RP Financial shall promptly return to the Bank the original and any copies of such information.

 

2.          RP Financial represents that it will comply with any and all federal, state and local laws, regulations and ordinances governing or relating to the privacy, security, confidentiality or integrity of personal information, data, and confidential information (“Privacy Laws”). RP Financial shall implement such physical, administrative and technical safeguards as shall be necessary to ensure the security and confidentiality of any personal information, data, and confidential information it receives, including maintaining written policies and procedures detailing its compliance with any applicable Privacy Laws. Such written policies and procedures shall be made available to the Bank for review upon request. The Bank represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Bank’s knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.

 

 

 

 

Mr. Garry D. Kleer

October 15, 2018
Page 4

 

3.            (a)      The Bank agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable attorney’s fees, and all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Bank to RP Financial, either orally or in writing; (ii) the omission of a material fact from the financial statements or other information furnished or otherwise made available by the Bank to RP Financial; or (iii) any action or omission to act by the Bank, or the Bank’s respective officers, directors, employees or agents, which action or omission is undertaken in bad faith or is negligent. The Bank will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which RP Financial is deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Bank at the normal hourly professional rate chargeable by such employee.

 

Notwithstanding anything in this agreement to the contrary, RP Financial shall notify the Bank immediately via telephone, to be followed up in writing, of any actual, suspected or threatened security breach incident involving confidential information, and shall cooperate fully in investigating and responding to each successful or attempted security breach. RP Financial will defend, indemnify and hold the Bank harmless from and against all third party claims, losses, damages and liabilities arising out of a security breach and shall pay for all costs associated with responding to such breach, including without limitation, all legal, forensic, public relations, consultancy and other expert fees incurred by the Bank, the costs of any and all notifications that the Bank sends to individuals whose information was affected by any incident, and the cost of an annual credit monitoring services subscription for all such individuals.

 

(b)    RP Financial shall give written notice to the Bank of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter. In the event the Bank elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Bank shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Bank hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement of the Bank or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Bank does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Bank’s receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Bank of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof.

 

 

 

 

Mr. Garry D. Kleer

October 15, 2018
Page 5

 

(c)     Subject to the Bank’s right to contest under Section 3(b) hereof, the Bank shall pay for or reimburse the reasonable expenses, including reasonable attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Bank: (1) a written statement of RP Financial’s good faith belief that it is entitled to indemnification hereunder; (2) a written undertaking to repay the advance if it ultimately is determined in a final, non-appealable adjudication of such proceeding that it or he is not entitled to such indemnification; and (3) a detailed invoice of the expenses for which reimbursement is sought.

 

(d)     In the event the Bank does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.

 

This agreement constitutes the entire understanding of the Bank and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and construed in accordance with the State of Indiana. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.

 

The Bank and RP Financial are not affiliated, and neither the Bank nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be “independent” within the meaning of the conversion regulations of the federal banking agencies or otherwise prohibit or restrict in anyway RP Financial from serving in the role of independent appraiser for the Bank.

 

* * * * * * * * * * *

 

 

 

 

Mr. Garry D. Kleer

October 15, 2018
Page 6

 

Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the engagement fee of $15,000.

 

  Sincerely,
   
  /s/ Ronald S. Riggins
  Ronald S. Riggins
  President and Managing Director

 

Agreed to and Accepted by: /s/ Garry D. Kleer  
  President and Chief Executive Officer  

 

Upon Authorization by the Board of Directors for:    First Bank Richmond
  Richmond, Indiana

 

Date Executed: October 22, 2018  

 

 

 

 

Exhibit 99.2

 

 

  March 11, 2019

 

Boards of Directors

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

31 North 9 th Street

Richmond, Indiana 47374

 

All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Reorganization and Stock Offering of First Mutual of Richmond, Inc. (the “Plan”) adopted by the Board of Directors of First Mutual of Richmond, Inc. (the “MHC”), Richmond Mutual Bancorporation, Inc. and First Bank Richmond. The Plan provides for the reorganization of the MHC into the capital stock form of organization. Pursuant to the Plan, a new Maryland stock holding company named Richmond Mutual Bancorporation, Inc. (the “Company”) will be organized and will sell shares of common stock in a public offering. When the reorganization is completed, all of the capital stock of First Bank Richmond will be owned by the Company and all of the common stock of the Company will be owned by public stockholders (including the First Bank Richmond, Inc. Community Foundation).

 

We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) Tax-Qualified Plans, (3) Supplemental Eligible Account Holders; and, (4) Other Members. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community and syndicated community offerings, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter:

 

(1) the subscription rights will have no ascertainable market value; and,

 

(2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance.

 

Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift or bank stocks as a whole or the Company’s value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering

 

  Sincerely,
  RP ® FINANCIAL, LC.
   

 

4250 North Fairfax Drive, Suite 600 Telephone:  (703) 528-1700
Arlington, VA 22203 Fax No.:  (703) 528-1788
www.rpfinancial.com Toll-Free No.:  (866) 723-0594
  E-Mail:  mail@rpfinancial.com

 

 

 

 

 

Exhibit 99.3

 

 

 

March 11, 2019

 

Boards of Directors

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

31 North 9 th Street

Richmond, Indiana 47374

 

Re: Plan of Reorganization and Stock Offering

 

Members of the Boards of Directors:

 

All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Reorganization and Stock Offering of First Mutual of Richmond, Inc. (the “Plan”) adopted by the Board of Directors of First Mutual of Richmond, Inc. (the “MHC”), Richmond Mutual Bancorporation, Inc. and First Bank Richmond. The Plan provides for the reorganization of the MHC into the capital stock form of organization. Pursuant to the Plan, a new Maryland stock holding company named Richmond Mutual Bancorporation, Inc. (the “Company”) will be organized and will sell shares of common stock in a public offering. When the reorganization is completed, all of the capital stock of First Bank Richmond will be owned by the Company and all of the common stock of the Company will be owned by public stockholders (including the First Bank Richmond, Inc. Community Foundation).

 

We understand that in accordance with the Plan, depositors will receive rights in a liquidation account maintained by the Company. The Company shall continue to hold the liquidation account for the benefit of Eligible Account Holders and Supplemental Account Holders who continue to maintain deposits in First Bank Richmond. The liquidation account is designed to provide payments to depositors of their liquidation interests in the event of a liquidation of the Company and First Bank Richmond.

 

Specifically, in the unlikely event that the Company and First Bank Richmond were to liquidate after the reorganization, all claims of creditors, including those of depositors, would be paid first, followed by distribution to Eligible Account Holders and Supplemental Account Holders of the liquidation account maintained by the Company.

 

 

 

4250 North Fairfax Drive, Suite 600 Telephone:  (703) 528-1700
Arlington, VA 22203 Fax No.:  (703) 528-1788
www.rpfinancial.com Toll Free No.:  (866) 723-0594
  E-Mail:  mail@rpfinancial.com

  

 

 

  

Boards of Directors
March 11, 2019
Page 2

 

Based upon our review of the Plan and our observations that the liquidation rights are non-transferable and become payable only upon the unlikely event of the liquidation of the Company and First Bank Richmond at a time when the Company is solvent, the amounts credited under the liquidation account will be subject to downward adjustment as an applicable depositor’s deposit balance is reduced, but will not be increased when such depositor’s account balance increases, and that after three years from the date of stock issuance and upon written request of the Federal Reserve Board, the Company will eliminate or transfer the liquidation account and depositors’ interest in such account to First Bank Richmond and the liquidation account shall thereupon become the liquidation account of First Bank Richmond no longer subject to the Company’s creditors, we are of the belief that: the benefit provided by the liquidation account does not have any economic value at the time of the transaction contemplated in the first paragraph above. We note that we have not undertaken any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue.

 

  Sincerely,
   
   
   
  RP ® Financial, LC.

  

 

 

 

Exhibit 99.4

 

 

 

 

 

 

 

 

February 8, 2019

 

Boards of Directors

First Mutual of Richmond, Inc.

Richmond Mutual Bancorporation, Inc.

First Bank Richmond

31 North 9 th Street

Richmond, Indiana 47374

 

Members of the Boards of Directors:

 

At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of the common stock which is to be issued in connection with the Plan of Reorganization and Stock Offering (the “Plan”). The Plan contemplates a stock offering (the “Offering”), which is part of a stock issuance (the “Stock Issuance”). The Stock Issuance includes the sale of common stock in the Offering and issuance of common stock to a foundation, as defined below.

 

This Appraisal is furnished pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” (the “Valuation Guidelines”) as originally issued by the Office of Thrift Supervision (“OTS”) and accepted by the Federal Reserve Board (“FRB”), and applicable regulatory interpretations thereof.

 

Description of Plan of Reorganization and Stock Offering

 

The Boards of First Mutual of Richmond, Inc. (the “MHC”), Richmond Mutual Bancorporation, Inc. and First Bank Richmond (“First Bank” or the “Bank”) have approved the Plan. Upon completing the proposed stock conversion and reorganization, the MHC will merge into newly-formed Richmond Mutual Bancorporation, a Maryland corporation (the “Company”), and the common stock will be held by public shareholders, including the First Bank Richmond, Inc. Community Foundation (the “Foundation”). For purposes of this document, the existing mid-tier holding company and prospective top-tier holding company will also hereinafter be referred to as the “Company”, unless otherwise noted, and such reference will include the subsidiary Bank unless otherwise noted.

 

The Company’s initial activity will be full ownership of its subsidiary, the Bank, investment of the net cash proceeds retained at the holding company level and extending a loan to the employee stock ownership plan (the “ESOP”). In the future, the Company may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.

 

 

4250 N. Fairfax Dr., Suite 600 Main:  (703) 528-1700
Arlington, VA  22203 Fax:  (703) 528-1788
mail@rpfinancial.com www.rpfinancial.com

 

 

 

 

Board of Directors

February 8, 2019

Page 2

 

The Company will offer its common stock in a subscription offering to Eligible Account Holders, Tax-Qualified Plans, Supplemental Eligible Account Holders and Other Members as such terms are defined for purposes of applicable regulatory guidelines governing stock offerings by mutual institutions. To the extent that common stock remains available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares will be offered for sale to the general public in a community offering. In addition, any shares of common stock not purchased in the subscription offering or community offering are expected to be offered for sale to the general public in a syndicated community offering through a syndicate of selected dealers.

 

The Plan provides for the establishment of a new charitable foundation, the First Bank Richmond, Inc. Community Foundation (the “Foundation”). The Foundation’s contribution will be funded with 500,000 shares of common stock issued in the Stock Issuance and $1,250,000 of cash funded by the net proceeds retained by the Company. The purpose of the Foundation is to provide financial support to charitable organizations in the communities in which First Bank operates and to enable those communities to share in the Company’s long-term growth. The Foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which the Company operates.

 

RP ® Financial, LC.

 

RP ® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for the Appraisal, we are independent of the MHC, the Company, First Bank and the other parties engaged by the MHC, the Company or First Bank to assist in the Stock Issuance process.

 

Valuation Methodology

 

In preparing our Appraisal, we have reviewed the regulatory applications of the MHC, the Company and the Bank, including the prospectus as filed with the FRB, the Federal Deposit Insurance Corporation, the Indiana Department of Financial Institutions and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of the MHC, the Company and First Bank that has included a review of audited financial information for the fiscal years ended December 31, 2014 through December 31, 2018, a review of various unaudited and internal financial reports and information through December 31, 2018, and due diligence related discussions with the Company’s management; BKD, LLP, the Company’s independent auditor; Silver, Freedman, Taff and Tiernan, LLP, the Company’s counsel for the Stock Issuance and Keefe Bruyette & Woods, a Stifel Company, the Company’s marketing advisor in connection with the Offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.

 

 

 

 

Board of Directors

February 8, 2019

Page 3

 

We have investigated the competitive environment within which the Company operates and have assessed the Company’s relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential impact on the Company and the industry as a whole. We have analyzed the potential effects of the Stock Issuance on the Company’s operating characteristics and financial performance as they relate to the pro forma market value of the Company. We have reviewed the economic and demographic characteristics of the Company’s primary market area. We have compared the Company’s financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing thrift issues and initial public offerings by thrifts and thrift holding companies. We have excluded from such analysis thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics.

 

The Appraisal is based on the Company’s representation that the information contained in the regulatory applications and additional information furnished to us by the Company and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by the Company, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of the Company. The valuation considers the Company only as a going concern and should not be considered as an indication of the Company’s liquidation value.

 

Our appraised value is predicated on a continuation of the current operating environment for the Company and for all thrifts and their holding companies. Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of the Company’s stock alone. It is our understanding that there are no current plans for selling control of the Company following completion of the stock offering. To the extent that such factors can be foreseen, they have been factored into our analysis.

 

The estimated pro forma market value is defined as the price at which the Company’s common stock, immediately upon completion of the Offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

 

Valuation Conclusion

 

It is our opinion that, as of February 8, 2019, the estimated aggregate pro forma market value of the shares to be issued as a result of the Stock Issuance, equaled $103,500,000 at the midpoint, reflecting 10,350,000 shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% valuation range indicates a minimum value of $88,725,000 and a maximum value of $118,275,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 8,872,500 at the minimum and 11,827,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $135,266,250 without a resolicitation. Based on the $10.00 per share offering price, the super maximum value would result in total shares outstanding of 13,526,625. Based on this valuation range, the offering range (excluding the Foundation shares) is as follows: $83,725,000 at the minimum, $98,500,000 at the midpoint, $113,275,000 at the maximum and $130,266,250 at the super maximum. Based on the $10.00 per share offering price, the number of offering shares is as follows: 8,372,000 at the minimum, 9,850,000 at the midpoint, 11,327,500 at the maximum and 13,026,625 at the super maximum.

 

 

 

 

Board of Directors

February 8, 2019

Page 4

 

Limiting Factors and Considerations

 

The Appraisal is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such Appraisal is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the Offering will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The Appraisal reflects only a valuation range as of this date for the pro forma market value of the Company immediately upon the Stock Issuance and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the Stock Issuance.

 

RP Financial’s valuation was based on the financial condition and operations of the Company, inclusive of the consolidation of the net assets of the MHC, as of December 31, 2018, the date of the financial data included in the prospectus.

 

RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions.

 

This valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of the Company and the MHC, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the Appraisal will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. The valuation will also be updated at the completion of the Company’s Offering.

 

  Respectfully submitted,
  RP Financial, LC.
   
   
   
  Ronald S. Riggins
  Managing Director
   
   
   
  James J. Oren
  Director

 

 

RP ® Financial, LC. TABLE OF CONTENTS
     i

 

TABLE OF CONTENTS

RICHMOND MUTUAL BANCORPORATION, INC.

FIRST BANK RICHMOND

Richmond, Indiana

 

    PAGE
DESCRIPTION   NUMBER
     
CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS    
     
Introduction   I.1
Plan of Conversion   I.2
Strategic Overview   I.3
Balance Sheet Trends   I.5
Income and Expense Trends   I.8
Interest Rate Risk Management   I.11
Lending Activities and Strategy   I.12
Loan Originations and Sales   I.16
Asset Quality   I.16
Funding Composition and Strategy   I.17
Subsidiary Operations   1.17
Legal Proceedings   I.18
     
CHAPTER TWO MARKET AREA    
     
Introduction   II.1
National Economic Factors   II.1
Interest Rate Environment   II.4
Demographic and Economic Trends   II.4
Local Economy   II.7
Market Area Largest Employers   II.7
Market Area Unemployment Data   II.9
Deposit Trends   II.10
Competition   II.11
     
CHAPTER THREE PEER GROUP ANALYSIS    
     
Peer Group Selection   III.1
Financial Condition   III.5
Income and Expense Components   III.7
Loan Composition   III.10
Credit Risk   III.10
Interest Rate Risk   III.13
Summary   III.13

 

 

RP ® Financial, LC. TABLE OF CONTENTS
     ii

   

TABLE OF CONTENTS

RICHMOND MUTUAL BANCORPORATION, INC.

FIRST BANK RICHMOND

Richmond, Indiana

(continued)

 

            PAGE
DESCRIPTION   NUMBER
             
CHAPTER FOUR   VALUATION ANALYSIS    
             
Introduction   IV.1
Appraisal Guidelines   IV.1
RP Financial Approach to the Valuation   IV.1
Valuation Analysis   IV.2
  1. Financial Condition   IV.2
  2. Profitability, Growth and Viability of Earnings   IV.4
  3. Asset Growth   IV.5
  4. Primary Market Area   IV.5
  5. Dividends   IV.6
  6. Liquidity of the Shares   IV.7
  7. Marketing of the Issue   IV.7
      A. The Public Market   IV.8
      B. The New Issue Market   IV.11
      C. The Acquisition Market   IV.13
  8. Management   IV.13
  9. Effect of Government Regulation and Regulatory Reform   IV.14
Summary of Adjustments   IV.14
Valuation Approaches   IV.14
Additional Factors Included   IV.16
Valuation Determination   IV.16
  1. Price-to-Earnings (“P/E”)   IV.16
  2. Price-to-Book (“P/B”)   IV.19
  3. Price-to-Assets (“P/A”)   IV.19
Comparison to Recent Offerings   IV.19
Valuation Conclusion   IV.20

 

 

RP ® Financial, LC. LIST OF TABLES
     iii

 

LIST OF TABLES

RICHMOND MUTUAL BANCORPORATION, INC.

FIRST BANK RICHMOND

Richmond, Indiana

 

TABLE        
Number   DESCRIPTION   page
         
1.1   Historical Balance Sheet Data   I.6
1.2   Historical Income Statements   I.9
         
2.1   Summary Demographic/Economic Data   II.5
2.2   Primary Market Area Employment Sectors   II.7
2.3   Market Area Largest Employers   II.8
2.4   Unemployment Trends   II.9
2.5   Deposit Summary   II.11
2.6   Market Area Deposit Competitors   II.13
         
3.1   Peer Group of Publicly-Traded Thrifts   III.3
3.2   Balance Sheet Composition and Growth Rates   III.6
3.3   Income as a Pct. of Avg. Assets and Yields, Costs, Spreads   III.8
3.4   Loan Portfolio Composition and Related Information   III.11
3.5   Interest Rate Risk Measures and Net Interest Income Volatility   III.12
3.6   Credit Risk Measures and Related Information   III.14
         
4.1   Market Area Unemployment Rates   IV.6
4.2   Pricing Characteristics and After-Market Trends   IV.12
4.3   Valuation Adjustments   IV.14
4.4   Derivation of Consolidated Reported and Core Earnings   IV.17
4.5   Public Market Pricing Versus Peer Group   IV.18

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 1  

 

I. Overview and Financial Analysis

 

Introduction

 

Current and Post-Conversion Organization

 

First Bank Richmond (“First Bank” or the “Bank”) is an Indiana-chartered commercial bank headquartered in Richmond, Indiana. The Bank is a wholly-owned subsidiary of Richmond Mutual Bancorporation, a Delaware corporation that is a mid-tier “non-stock” holding company, which in turn is wholly-owned by First Mutual of Richmond, Inc., which is a mutual holding company (“MHC”). Upon completing the proposed stock conversion and reorganization, the MHC will merge into newly-formed Richmond Mutual Bancorporation, a Maryland corporation (the “Company”), and the common stock will be held by public shareholders, including First Bank Richmond, Inc. Community Foundation (the “Foundation”). In addition, all of the outstanding trust preferred securities (“TruPS”) issued by the First Mutual of Richmond Statutory Trust (the “Trust”), which is wholly-owned by the MHC, will be redeemed with the proceeds from the offering, after which the Trust will be dissolved. For purposes of this document, the existing mid-tier holding company and prospective top-tier holding company will also hereinafter be referred to as the “Company”, unless otherwise noted, and such reference will include the subsidiary Bank unless otherwise noted.

 

Name and Charter Changes

 

The Bank was established in 1887 as a state chartered mutual savings and loan association and subsequently operated under various savings and loan charters and names until 1998, at which time the Bank, in connection with a non-stock mutual holding company (“MHC”) reorganization, converted to a national bank charter. At that time, the Bank become the wholly-owned subsidiary of the Company. Simultaneously, First Mutual, a top-tier mutual holding company, was formed to hold a 100% ownership interest in the Company, the mid-tier holding company. In 2017, the Bank converted to an Indiana state-chartered commercial bank and adopted its current name.

 

Markets Served

 

The Bank serves the east-central Indiana and west-central Ohio region through seven full-service offices and one limited-service office in Wayne and Shelby Counties in Indiana, and five full service offices in Miami and Shelby Counties in Ohio. In addition, the Bank operates a loan production office (“LPO”) in Columbus, Ohio, serving the central part of the state. In 2007, the Company acquired Mutual Federal Savings Bank, Sydney, Ohio (“Mutual Federal”). The merger consideration paid was all in cash given the Company’s mutual. The Mutual Federal operations in Ohio were maintained as a separate subsidiary of the Company until 2016, at which time the two banking subsidiaries were merged. Mutual Federal’s Ohio operations continue to operate as a division of the Bank. A map of the Bank’s branch office locations is provided in Exhibit I-1.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 2  

 

Regulatory

 

The Bank’s primary regulator is the Indiana Department of Financial Institutions as the chartering agency and by the Federal Deposit Insurance Corporation (“FDIC”) for deposit insurance. Currently the Company is a Delaware corporation, but on a post-conversion basis the Company will be a Maryland corporation. The Bank is also a member of the Federal Home Loan Bank (“FHLB”) system. The MHC and the Company are subject to supervision and regulation by the Federal Reserve Board.

 

The Trust

 

In connection with the reorganization and stock offering, the Company will acquire all of the assets and assume all of the liabilities of the MHC, including $10 million of subordinated debentures issued by the Trust in connection with the issuance of TruPS. These securities were issued in July 2007, and mature September 2037, and may currently be redeemed at par subject to any regulatory approvals. The issuance of such securities was to strengthen the capital of the Bank. The MHC assets are not consolidated with Company at the present time, thus such securities are not reflected as a liability of the Company. Included in the assets of the Company on a pro forma basis is $5.1 million of TruPS acquired by the Company in 2010 from a third party at a discount. Following completion of the reorganization and stock offering, the Company intends to redeem the outstanding subordinated debentures and related TruPS, reflecting net use of proceeds from the stock offering of approximately $5.0 million.

 

At December 31, 2018, the Company reported total consolidated assets of $849.6 million, deposits of $620.6 million, and equity of $85.9 million or 10.11% of assets. The Company is considered well-capitalized. For the year ended December 31, 2018, net income was $5.7 million. Audited financial statements for the most recent period are included by reference as Exhibit I-2.

 

Plan of Conversion

 

The Boards of Directors of the MHC, the Company and the Bank have approved the plan of reorganization and stock offering (the “Reorganization”), whereby the MHC will convert to stock form. As a result, the Company will be succeeded by a Maryland corporation with the same name, the MHC’s assets and liabilities will be consolidated into the Company, and the MHC will no longer exist.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 3  

 

The Company will offer its common stock, representing the 100% ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Tax-Qualified Plans including the Bank’s newly-formed employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and to Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to the public at large in a community offering, and subsequently in a syndicated offering. In addition, the Company plans to establish a charitable foundation that will be funded with cash and stock to further the Company’s community activities. Post-conversion the Company will be 100% owned by public shareholders (including insiders and stock benefit plans) and the Foundation. The Company anticipates down-streaming at least 50% of the net offering proceeds to the subsidiary Bank.

 

Post-conversion, the holding company activities contemplated are 100% ownership of the Bank, holding a loan to enable stock purchases by the newly-formed ESOP, and the reinvestment of the conversion proceeds (initially to be deposited into the Bank). In the future, the Company may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends to shareholders and/or repurchase its stock, although there are no specific plans to undertake such activities at the present time.

 

Strategic Overview

 

The Bank has been serving the primary market area as a locally-owned and operated financial institution since its founding in 1887. Following a long history of serving the local market area through offices in Richmond and Centerville, Indiana, the Bank began expanding its branch office network in 1991, and by the early 2000s had expanded its market area coverage in Wayne and Shelby Counties in west-central Indiana. In 2007, the Bank completed the acquisition of Mutual Federal, which expanded operations into west-central Ohio with five office locations in two counties. Initially held as a separate subsidiary, Mutual Federal was merged with the Bank to enhance operating efficiencies but continued to operate as a division for marketing purposes. The Bank expanded Ohio operations through establishing an LPO in Columbus, which has since become a significant source of commercial real estate, multi-family and commercial construction loans.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 4  

 

The Bank’s branches are located in four relatively small rural counties characterized by slow, stable or negative population growth. The overall limited population base and lack of growth has caused the Bank to expand operations into Ohio and subsequently the Columbus, Ohio market. However, the strong lending function, supported by the Columbus LPO, has led the Bank to utilize borrowed funds and brokered deposits to supplement deposits raised through the branches.

 

The Bank’s primary business consists of attracting retail and commercial deposits, supplemented by wholesale funds in the form of FHLB advances and brokered deposits, and investing those funds into to owner-occupied 1-4 family loans, direct financing leases (begun in 1989), commercial and industrial (“C&I”) loans and loans secured by commercial and multifamily real estate. Funds not invested in loans are generally invested in investment securities, including mortgage-backed and mortgage-related securities and agency and municipal bonds.

 

The equity from the stock offering will increase liquidity, growth and diversification capacity, and overall financial strength and reduce interest rate risk. The anticipated use of proceeds is highlighted below.

 

· The Company. The Company is expected to retain 50% of the net conversion proceeds, to be initially invested primarily into short-term liquid investments, extend the loan to fund the ESOP and redeem the TruPS. Over time, the funds may be utilized for various corporate purposes, including share repurchases, paying cash dividends and, if necessary, down-streaming capital to Bank.

 

· The Bank. An estimated 50% of the net conversion proceeds will be infused into the Bank as cash and equity. Such cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) will be reinvested into loans and securities and be used to terminate the Bank’s current Pentegra defined benefit plan.

 

Post-conversion, the Company intends to continue its current strategies to grow and expand in a profitable manner.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 5  

 

Balance Sheet Trends

 

Table 1.1 presents the Company’s historical balance sheet data for the most recent five fiscal years. Over this period, total assets have increased at an 8.5% annual rate, as loans receivable increased at a higher 15.6% annual rate, while cash and investments declined. This strategy was intended to increase the long-term earnings potential.

 

The Columbus, Ohio LPO loan origination volume has been a key driver for loan growth and loan portfolio diversification. Loan growth has been funded with the use of available cash and investments, along with increases in retail deposits and wholesale funding in the form of brokered deposits and borrowings. Investment securities declined by $51 million, or 25%, since 2014, while deposits and borrowings expanded 6.9% and 24.0% annually, respectively, over the period. Profitability resulted in an annual increase in equity of 3.1%, which reached $85.9 million at December 31, 2018, or 10.11% of assets. A summary of the Company’s key operating ratios for the past five years is presented in Exhibit I-3.

 

The Bank’s loan portfolio totaled $654.8 million, or 77.1% of assets, at December 31, 2018, an increase from $366.3 million, or 59.6% of assets, as of December 31, 2014. The combination of the more rapid increase in loans receivable than deposit funds resulted in the loan/deposit ratio increasing from 77.1% at December 31, 2014 to 105.5% at December 31, 2018.

 

The success of the loan diversification strategy is evidenced by the reduced concentration in 1-4 family residential mortgage loans and greater proportion of commercial lending (including multi-family), both real estate and non-real estate secured, commercial construction/development lending, and lease financing. The loan diversification has increased yields and reduced interest rate risk, but has also increased the risk weighted assets ratio. The 1-4 family residential loan portfolio comprised 20% of total loans as of December 31, 2018, a decline from 34.1% in 2014, while the commercial and construction/land portfolio equaled 49.6% of total loans as of the same date, an increase from 27.0% as of 2014. The Company generally sells conforming residential loans, typically on a servicing retained basis and maintains a portfolio of loans serviced for others at December 31, 2018. The Company has not emphasized consumer loan originations.

 

The cash and investments policy is to provide adequate liquidity and to generate a favorable return within the context of supporting the cash operating needs and meeting the credit and interest rate risk objectives. Historically, the level of cash and equivalents has remained in the range of 1.5% to 3.0% of assets, and equaled 1.8% of assets at December 31, 2018. As of December 31, 2018 the Company maintained a relatively diversified portfolio of federal agency, municipal, mortgage-backed securities and corporate bonds, along with FHLB stock. Approximately 13% of the portfolio is classified as held-to-maturity, consisting of securities purchased a number of years ago. New investments in recent years have been designated as available-for-sale (“AFS”). As noted above, the investment securities portfolio has declined since 2014 as portfolio cash flow has been used in part for lending activities. Details of the Company’s investment securities portfolio are presented in Exhibit I-4. The level of cash and investments is anticipated to increase initially following conversion, pending gradual redeployment into higher yielding loans.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 6  

 

Table 1.1

Richmond Mutual Bancorporation, Inc.

Historical Balance Sheets

 

                                                                12/31/14-  
                                                                12/31/18  
    As of December 31,     Annualized  
    2014     2015     2016     2017     2018     Growth Rate  
    Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)     Pct  
    ($000)     (%)     ($000)     (%)     ($000)     (%)     ($000)     (%)     ($000)     (%)     (%)  
Total Amount of:                                                                                        
Assets   $ 614,198       100.00 %   $ 674,637       100.00 %   $ 693,956       100.00 %   $ 753,621       100.00 %   $ 849,618       100.00 %     8.45 %
                                                                                         
Cash and equivalents     16,792       2.73 %     19,072       2.83 %     19,220       2.77 %     16,370       2.17 %     14,971       1.76 %     -2.83 %
Investment Securities/FHLB Stock     201,046       32.73 %     223,792       33.17 %     177,798       25.62 %     149,966       19.90 %     150,123       17.67 %     -7.04 %
Loans receivable (net)     366,332       59.64 %     400,427       59.35 %     461,990       66.57 %     557,929       74.03 %     654,755       77.06 %     15.62 %
                                                                                         
Bank owned life insurance     3,231       0.53 %     3,354       0.50 %     3,477       0.50 %     3,597       0.48 %     3,718       0.44 %     3.57 %
Premises and equipment (net)     10,320       1.68 %     12,933       1.92 %     13,934       2.01 %     13,592       1.80 %     14,025       1.65 %     7.97 %
Mortgage Servicing Rights     1,560       0.25 %     1,112       0.16 %     997       0.14 %     1,042       0.14 %     1,227       0.14 %     -5.82 %
Core Deposit Intangible     609       0.10 %     373       0.06 %     137       0.02 %     0       0.00 %     0       0.00 %     -100.00 %
Other Real Estate Owned     934       0.15 %     1,040       0.15 %     3,744       0.54 %     34       0.00 %     176       0.02 %     -34.11 %
Other Assets     13,373       2.18 %     12,533       1.86 %     12,659       1.82 %     11,090       1.47 %     10,622       1.25 %        
                                                                                         
Deposits   $ 475,161       77.36 %   $ 520,487       77.15 %   $ 516,302       74.40 %   $ 560,395       74.36 %   $ 620,637       73.05 %     6.91 %
Borrowings     57,600       9.38 %     71,600       10.61 %     92,300       13.30 %     104,000       13.80 %     136,100       16.02 %     23.98 %
Other Liabilities     5,139       0.84 %     4,973       0.74 %     7,249       1.04 %     7,428       0.99 %     7,022       0.83 %     8.12 %
                                                                                         
Total stockholders’ equity   $ 75,920       12.36 %   $ 77,576       11.50 %   $ 78,105       11.26 %   $ 81,798       10.85 %   $ 85,860       10.11 %     3.12 %
Tangible stockholders’ equity     75,311       12.26 %     77,203       11.44 %     77,967.727       11.24 %     81,797.823       10.85 %     85,860       10.11 %     3.33 %
                                                                                         
MEMO: AFS Adjustment   $ (230 )     -0.04 %   $ (1,328 )     -0.20 %   $ (3,703 )     -0.53 %   $ (2,725 )     -0.36 %   $ (4,378 )     -0.52 %        
                                                                                         
Loans/deposits     77.10 %             76.93 %             89.48 %             99.56 %             105.50 %                
Offices open     12               11               11               12               12                  

 

(1) Ratios are as a percent of ending assets.

Source: Richmond Mutual Bancorporation, Inc. audit reports, preliminary prospectus.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 7  

 

The Company owns all but one of the office facilities. The headquarters office was originally occupied in 2002 and was carried at a net book value of $3.6 million at December 31, 2018. This office, along with investment in the other branch offices (including land, buildings, and furniture, fixtures and equipment), totaled $14.0 million, or 1.7% of assets. The investment in fixed assets has increased since fiscal 2014 as the Company renovated or relocated to improve branch performance, and has also made additional investments in furniture, fixtures and equipment, including information technology.

 

The Bank has an investment in bank owned life insurance (“BOLI”), covering the lives of certain officers and former directors. BOLI provides funding for employee benefit plans and the life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of December 31, 2018, the cash surrender value of the Company’s BOLI equaled $3.7 million.

 

The mortgage servicing rights (“MSRs”) asset equaled $1.2 million as of December 31, 2018, reflecting loans sold on a servicing retained basis and is subject to periodic impairment testing.

 

Other real estate owned (“OREO”) was $176,000 at December 31, 2018, down from a high of $3.7 million as of December 31, 2016, as a result of resolutions of existing properties and improved credit quality.

 

Over the past five years, funding needs have been addressed through a combination of deposits, borrowings and equity. Deposits have grown over the five-year period including retail and brokered deposits. Transaction and savings account deposits comprised 50.0% of total deposits at December 31, 2018, versus 59.3% of total deposits at fiscal 2016. Recent growth in certificates of deposit (“CDs”) reflects increased brokered deposits. Given the more rapid growth in assets over the period, the proportion of assets funded with deposits declined from 77.4% to 73.1%, with increased funding through borrowings.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 8  

 

Over the period, borrowings increased at an annual rate of 24.0%, from $57.6 million, or 9.4% of assets, at year end 2014 to $136.1 million, or 16.0% of assets, at year end 2018. As noted, the $10.0 million of subordinated debentures issued by the MHC will be redeemed concurrent with the offering.

 

Despite the recent move in the negative market value adjustment of AFS investment securities, the Company’s equity has increased due to profitable operations, and totaled $85.9 million at December 31, 2018. The equity ratio has been leveraged as the growth in assets exceeded the growth in equity, as the equity-to-assets ratio decreased from 12.36% at year-end 2014 to 10.11% at December 31, 2018. All of the Company’s equity is tangible, and the Bank maintained surpluses relative to all regulatory capital requirements at December 31, 2018. Incorporating the consolidating impact of the subdebt at the MHC level, the pre-conversion equity is $79.8 million at the same date. The addition of stock proceeds will serve to strengthen the Company’s equity position and support growth opportunities.

 

Income and Expense Trends

 

Several factors have supported the growth in earnings and profitability over the period while the net interest margin was relatively flat: (1) asset growth; (2) improved efficiency as operating expenses were leveraged; (3) asset quality improved; and (4) for 2018, the income tax rate was lower. Table 1.2 presents the Company’s income and expense trends over the past five fiscal years. Net income has ranged from a low of $2.7 million, or 0.38% of average assets, for fiscal 2017 to a high of $5.6 million, or 0.71% of average assets, for fiscal 2018, with the 2018 income due in part to tax-related actions taken in that year. Noninterest income, especially net gains on the sale of loans and investments, have had a significant impact on pre-tax income over the period. Also the loan and lease servicing fees have had a variable impact on earnings, with a loss in 2015 and peak level earnings contribution in 2018. The level of loan loss provisions has also been a varying factor on earnings. Some of these key trends are addressed below.

 

Net interest income as a percent of average assets has fluctuated within a narrow range and increased from a low of 3.32% during fiscal 2016 to a high of 3.43% for fiscal 2018. The slight increase in net interest income ratio has been supported by: (1) the increased proportion of loans to assets; (2) increased diversification into higher yielding commercial and construction-related loans; (3) the increased lease finance activity with higher yields; (4) reduced levels of nonperforming assets; and, (5) until recently, the prevailing low interest rate environment, which kept funding costs low. The Company limited raising deposit offering rates until the past year when market interest rates increased following interest rate actions by the Federal Reserve. The Company’s interest rate spreads and yields and costs for the past three years are set forth in Exhibits I-3 and I-5.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 9  

 

Table 1.2

Richmond Mutual Bancorporation, Inc.

Historical Income Statements

 

    For the Fiscal Year Ended December 31,  
    2014     2015     2016     2017     2018  
    Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)     Amount     Pct(1)  
    ($000)     (%)     ($000)     (%)     ($000)     (%)     ($000)     (%)     ($000)     (%)  
                                                             
Interest income   $ 25,586       4.08 %   $ 25,561       3.97 %   $ 26,686       3.92 %   $ 29,104       4.07 %   $ 35,199       4.40 %
Interest expense     (4,090 )     -0.65 %     (3,631 )     -0.56 %     (4,068 )     -0.60 %     (5,250 )     -0.73 %     (7,752 )     -0.97 %
Net interest income     21,496       3.43 %     21,931       3.41 %     22,618       3.32 %     23,854       3.34 %     27,447       3.43 %
Provisions for loan losses     (1,800 )     -0.29 %     (830 )     -0.13 %     (1,155 )     -0.17 %     (1,370 )     -0.19 %     (1,680 )     -0.21 %
Net interest income after provisions     19,696       3.14 %     21,101       3.28 %     21,463       3.15 %     22,484       3.15 %     25,767       3.22 %
                                                                                 
Non-interest income     4,574       0.73 %     2,947       0.46 %     3,406       0.50 %     3,625       0.51 %     3,820       0.48 %
Gain on sale of loans     298       0.05 %     375       0.06 %     711       0.10 %     794       0.11 %     459       0.06 %
Non-interest expense     (20,583 )     -3.28 %     (20,253 )     -3.15 %     (21,440 )     -3.15 %     (20,830 )     -2.92 %     (23,365 )     -2.92 %
Net operating income     3,985       0.64 %     4,169       0.65 %     4,140       0.61 %     6,074       0.85 %     6,681       0.84 %
                                                                                 
Non-operating income/exp.                                                                                
Gains on sale of securities     527       0.08 %     1,567       0.24 %     473       0.07 %     96       0.01 %     15       0.00 %
Loss on sale of OREO     (126 )     -0.02 %     (31 )     0.00 %     (134 )     -0.02 %     (482 )     -0.07 %     (8 )     0.00 %
Gain on Prepayment of FHLB advances     0       0.00 %     0       0.00 %     0       0.00 %     0       0.00 %     268       0.03 %
Net non-operating income/exp.     401       0.06 %     1,536       0.24 %     339       0.05 %     (386 )     -0.05 %     275       0.03 %
                                                                                 
Income before taxes     4,386       0.70 %     5,705       0.89 %     4,479       0.66 %     5,688       0.80 %     6,956       0.87 %
Provision for taxes     (1,437 )     -0.23 %     (1,651 )     -0.26 %     (1,075 )     -0.16 %     (2,972 )     -0.42 %     (1,278 )     -0.16 %
Net income (loss)   $ 2,948       0.47 %   $ 4,054       0.63 %   $ 3,404       0.50 %   $ 2,715       0.38 %   $ 5,678       0.71 %
                                                                                 
Memo:                                                                                
Expense Coverage Ratio (%)     104.43 %             108.28 %             105.50 %             114.52 %             117.47 %        
Efficiency Ratio (%)     78.06 %             80.20 %             80.19 %             73.67 %             73.65 %        
Return on Average Equity (%)     4.03 %             5.28 %             4.28 %             3.36 %             6.89 %        
Effective Tax Rate (%)     32.77 %             28.94 %             24.00 %             52.26 %             18.38 %        

 

(1) Ratios are as a percent of average assets.
(2) The Tax Cuts and Jobs Act (“Tax Act”) enacted December 22, 2017, reduced the Federal corporate tax rate from 34% to 21%, effective January 1, 2018. As a result, the 2018 net income was positively impacted, while the provision for taxes in 2019 was negative impacted by an additional $1.5 million related to an adjustment to the deferred tax asset.

Source: Richmond Mutual Bancorporation, Inc. audit reports, preliminary prospectus.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 10  

 

Noninterest income has been a volatile factor in the Company’s profitability. Service charges on deposit accounts have declined over the period while card fee income has been relatively stable and other noninterest income has increased over the last few years. The Company provides trust and wealth management services, with approximately $126 million in assets in portfolio, from which fee income is earned – in 2018 such income represented 9.0% of total noninterest income. Before considering net gains on sale, FY18 other income totaled $3.8 million, or 0.48% of average assets. Net gains on the sale of loans has been a part of the Company’s earnings as loans are sold on a servicing retained basis, but the level has varied with volume and market conditions. The FY18 level is much lower than the prior two years. The gains on the sale of securities has been a very volatile source of income, peaking at $1.6 million in 2015 while the 2018 level was negligible.

 

Although noninterest expense has grown, the ratio to average assets has declined given the growth in the balance sheet. Total operating expenses equaled $23.4 million, or 2.92% of average assets, during FY18. Upward pressure will be placed on the Company’s noninterest expense ratio following the stock offering, due to expenses associated with operating as a publicly-traded company and expenses related to the stock benefit plans.

 

The Bank participates in the Pentegra defined benefit plan, which covers substantially all employees, and the 2018 contribution totaled $1.6 million. Given the current interest rate environment, the lower asset valuations, and other factors impacting the operations of the Pentegra defined benefit plan, it is likely that the future funding obligations could increase. As a result, the Bank intends to terminate participation in the plan in 2019 concurrent with the conversion, which will require payment of the underfunded status (the “withdrawal liability”) estimated at $13.3 million pre-tax and $9.8 million after tax. This termination payment will be reflected as a use of proceeds, and the annual contribution expense will be eliminated, which will favorably impact earnings post-conversion.

 

 

RP ® Financial, LC. OVERVIEW AND FINANCIAL ANALYSIS
  1. 11  

 

The trends in the net interest income and operating expenses since fiscal 2014 have caused the expense coverage ratio (net interest income divided by operating expenses) to increase favorably from a low of 104.4% in fiscal 2014 to 117.5% in fiscal 2018. Similarly, the efficiency ratio (operating expenses, net of amortization of intangibles, as a percent of the sum of net interest income and other operating income) has favorably decreased from 80.2% for fiscal 2015 to 73.7% for fiscal 2018.

 

The level of loan loss provisions has varied with the level of charge-offs, loan portfolio growth and composition and factors impacting the adequacy of the allowance for loan and lease losses (“ALLLs”). See Exhibit I-6 for loan loss allowance activity.

 

Non-operating items have impacted profitability over the period, comprised of losses on the resolution of OREO, gains on the sale of securities and gain on the repayment of FHLB advances. For valuation purposes, we have excluded non-operating items in determining core earnings.

 

As noted in Table 1.2, the Company’s effective tax rate declined in 2018 due to the 2017 Tax Act. The effective tax rate has ranged from a high of 52.3% in fiscal 2017 (given the adjustment to the deferred tax asset from the Tax Act), to a low of 18.4% in fiscal 2018 (reflecting the lower corporate income tax rate). The Company’s marginal effective statutory tax rate approximates 25.9%, and this is the rate utilized to calculate the net reinvestment benefit from the offering proceeds.

 

Interest Rate Risk Management

 

Based on the analysis of the Bank’s interest rate risk performed by a third party, the repricing characteristics of the balance sheet has been relatively matched to limit exposure to rising interest rates. The Bank measures interest rate risk by use of the economic value of equity (“EVE”) methodology, assuming instantaneous changes in the U.S. treasury yield curve. As of December 31, 2018, based on a 2.0% instantaneous and sustained increase in interest rates, the EVE model indicates that the EVE would decrease by 10.1% (see Exhibit I-7). Further, the analysis indicates that the forecasted change in net interest income for the immediate 12 months under a 2.0% instantaneous and sustained increase in interest rates would approximate 1.1%.

 

The Company manages interest rate risk by limiting the repricing mismatch between interest rate sensitive assets and liabilities. The Company manages interest rate risk through: (1) originating commercial, commercial real estate and construction loans, which generally have shorter terms and/or higher yields than owner-occupied one-to four-family residential real estate loans; (2) building a portfolio of lease financing receivables, which have higher yields and effective terms of less than five years; (3) selling substantially all longer-term fixed-rate residential real estate loans into the secondary market; (4) limiting the amount of long-term investment securities; (5) cultivating savings and transaction accounts which are less interest rate sensitive, (6) acquiring longer-term, fixed-rate borrowings when appropriate to reduce sensitivity to changing interest rates; and (7) maintaining strong equity.

 

 

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Highlights to these strategies include core deposits (transaction and savings accounts) comprised 50.3% of total deposits, loans with adjustable rates comprising 40.6% of loans due after December 31, 2019 (see Exhibit I-8). The infusion of the stock proceeds will serve to further limit interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the increased capital will lessen the proportion of interest rate sensitive liabilities funding assets.

 

Lending Activities and Strategy

 

The Company offers a full range of lending products, including commercial real estate/multi-family loans, C&I loans, construction and development loans, residential real estate loans and consumer loans. The Company also conducts lease financing which consists of direct financing leases for commercial customers to finance purchases of equipment. In recent periods, the Company has increased its focus on commercial and construction lending in an effort to diversify its overall loan portfolio, shorten the term-to-maturity or repricing, and increase the overall yield earned on loans. The Company offers consumer loans predominantly as an accommodation to customers, both unsecured and loans secured by personal assets such as automobiles or recreational vehicles. Details of the loan portfolio composition are shown in Exhibit I-9, while Exhibit I-10 provides details of the loan portfolio by contractual maturity date.

 

Residential Real Estate Lending

 

The Company originates first and second position fixed- and adjustable-rate 1-4 family residential real estate loans, in the regional market served, the majority of which are underwritten using generally-accepted secondary market underwriting guidelines. The Company typically sells most of the conforming, fixed-rate 1-4 family loans on a servicing retained basis to Fannie Mae and, to a lesser extent, the Federal Home Loan Bank of Indianapolis. The Company retains nonconforming loans as part of its community bank strategy. As of December 31, 2018, first position 1-4 family residential loans totaled $120.2 million (with an average balance of $76,000), of which approximately 70% were fixed rate loans and 30% carried adjustable rates. The Company also originates to a more limited extent second position home equity loans and home equity lines of credit (“HELOCs”). As of December 31, 2018, home equity loans equaled $5.1 million and HELOCs totaled $7.2 million. As shown in Exhibit I-9, the balance of residential mortgage loans has declined since December 31, 2014, given the increased focus on other lending activities and active secondary market sales.

 

 

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Loan-to-value ratios (“LTV”) are generally limited to 89% of the lesser of the appraised value or the purchase price, whichever is lower, or above 90% if the loans carry private mortgage insurance. Terms of 1-4 family residential real estate loans typically are up to 30 years. The Company does not offer “interest only”, “negative amortization” or “subprime” loans. Adjustable rate loans are offered with a maximum annual rate change of 2.0% and a maximum overall rate change of 6.0%, and generally reprice to the one-year Treasury bill rate.

 

Home equity loans are originated as fixed rate loans that are fully-amortizing with terms of up to 15 years with LTVs up to 89%, including any first position loan. If the LTV is greater than 80%, the loan is generally subject to a higher interest rate and additional fees. HELOCs can be either fixed-rate or adjustable-rate, and the fixed rate lines have a five-year draw, while the adjustable rate lines have a 10-year draw credit and rates that adjust quarterly and are based on the Wall Street Journal Prime rate, plus a margin.

 

Commercial Real Estate/Multi-Family Lending

 

As of December 31, 2018, commercial real estate/multi-family loans totaled $255.1 million, or 38.6% of the total loan portfolio. The Company has emphasized growth in this portfolio to increase yield, shorten duration and increase adjustable rate loans. An increasing proportion of these loans have been originated through the Columbus LPO. As of December 31, 2018, 16% of the commercial real estate loan portfolio were fixed rate loans and 84% carried adjustable rate features. Adjustable rate commercial real estate loans generally adjust every five years and have an amortization term of 20 years. The maximum LTVs are generally 80% of the lower of cost or appraised value of the property securing the loan. Debt service coverage ratios are generally required at 1.10x.

 

Given that the payment of commercial real estate loans are dependent on successful operations and management of the property, the Company evaluates the qualifications and financial condition of the borrower, as well as the value and condition of the property securing the loan. The Company generally requires and obtains personal guarantees from the principals. The commercial real estate loans are generally secured by office buildings, retail/wholesale facilities, hotels, industrial facilities, medical and professional buildings, restaurants, churches, and multifamily residential properties located in the primary market area. As of December 31, 2018, the largest commercial real estate loan was a $6.6 million loan secured by a warehouse distribution facility and which was performing according to the loan terms.

 

 

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Construction/Development Loans

 

Construction/development loans totaled $73.0 million, or 11.0% of loans outstanding, at December 31, 2018, of which $67.8 million were commercial and $5.2 million were residential. Most of the recent construction/development loans have been originated through the Columbus LPO to larger commercial builders with whom it has relationships and have successful track records. These loans are usually structured as interest-only during the construction phase, which is usually one to two years. LTV ratios typically do not exceed 80% of the appraised value on a completed basis, or the cost of completion. The average loan size of the commercial construction portfolio was $1.8 million as of December 31, 2018.

 

The residential construction loans are originated on pre-sold, owner-occupied 1-4 family properties to both builders and the end homeowner. These loans are generally originated on a construction/permanent basis and provide for payment of interest during the construction phase, which is usually up to nine months. The Company currently does not originate speculative construction loans. The average residential construction loan balance was $192,000 as of December 31, 2018.

 

Construction loans generally involve greater credit risk than improved owner-occupied real estate lending. The Company reviews and inspects each property before disbursement of loan funds, and also requires detailed cost estimates to complete the construction project and an appraisal of the property.

 

Commercial and Industrial Lending

 

The Company originates secured and unsecured C&I loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, letters of credit and other loan products, in the primary market area. The Company originates C&I loans to small businesses, professionals and sole proprietorships. As of December 31, 2018, the Company had $71.9 million of C&I loans in portfolio, equal to 10.9% of total loans, an increase from $52.0 million of loans as of December 31, 2014. The Company encourages such borrowers to maintain their primary deposit accounts with the Company.

 

 

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C&I loan terms are specific to the loan type and typically have personal guarantees. Equipment loans are generally amortizing loans with terms of no more than five years and carry fixed or adjustable rates. Working capital loans have terms not exceeding one year, and are secured by accounts receivable, inventory and personal guarantees, and the interest rates vary based on the level of risk, loan amount and competition. C&I loans have greater credit risk compared to 1-4 family residential real estate loans, because the availability of funds for the repayment of such loans are dependent on the success of the business and the general economic environment of the Company’s market area.

 

Lease Financing

 

The Company’s lease financing is conducted through First Federal Leasing, a division of the Bank. Lease financing is short-term in nature (generally less than five years) and carries higher yields (approximately 6%). The lease financing operation consists of direct financing leases with commercial customers to finance purchases of medical, computer and manufacturing equipment, industrial assets, construction and transportation equipment, and a wide variety of other commercial equipment. The Company utilizes approximately 180 brokers and other third-party originators to generate the lease transactions, which are generally sourced through the specific equipment vendor. Lease financings are conducted throughout the lower 48 states, and generally range between $2,500 and $200,000. As of December 31, 2018, the direct finance leasing portfolio totaled $107.7 million, or 16.3% of total loans and leases. Credit risk is managed through continuous analysis and verification of the performance of the brokers that supply the lease transactions for approval, as the initial (or preliminary) lease underwriting and processing is performed by the broker. Over time, the Company has established the overall credit and lease administration framework that provides for acceptable credit quality performance of the portfolio. Procedures are in place to minimize fraud and concentration risk.

 

Consumer Lending

 

The Company originates a variety of consumer loans primarily to accommodate individual customers in the region, including loans secured by new and used automobiles, motorcycles, boats, recreational vehicles, mobile homes and CDs. As of December 31, 2018, consumer loans totaled $13.5 million, or 2.1% of total loans. Such loans are attractive since they tend to have shorter maturities and higher interest rates than mortgage loans. These loans also help to expand and create stronger customer relationships and opportunities for cross-marketing. Consumer loans have greater risk compared to mortgage loans, due to their dependence on the borrower’s continuing financial stability.

 

 

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Loan Originations and Sales

 

All lending activities are conducted by Company personnel located at the branch or LPO locations, and underwritten or otherwise approved pursuant to approved policies and procedures. Loan sources typically include loan officers, lease brokers, marketing efforts, existing customers, and walk-in customers, as well as referrals from real estate brokers, builders and attorneys. The Company occasionally purchases participations from third parties to supplement internal loan production, with such loans originated both within or outside the primary market area. Further, the Company may sell participation interests in loans that exceed the loans-to-one borrower legal lending limit. Exhibit I-11 presents information regarding the Company’s loan origination and sales activities, indicating that during fiscal 2018, the Company originated a total of $288.3 million of loans, including $91.7 million of commercial real estate/multifamily loans and $53.7 million of lease financings. The Company sold $20.7 million of 1-4 family residential loans during the year ended December 31, 2018.

 

Asset Quality

 

Since fiscal 2014 the level of non-performing assets (“NPAs”) has declined, consisting of non-accruing loans, accruing loans greater than 90 days delinquent, OREO and performing troubled debt restructured loans. NPAs have ranged from a high of $19.3 million as of December 31, 2014 to a low of $4.8 million at December 31, 2018. At the current date, the balance consists non-accruing loans, accruing loans greater than 90 days delinquent, and a small balance of OREO. The non-accruing loans were comprised of 1-4 family loans (14%), commercial real estate loans (30%) and C&I loans (56%). Exhibit I-12 presents a history of NPAs for the Company since 2014.

 

To track the Company’s asset quality and the adequacy of valuation allowances, the Company has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Detailed asset classifications are reviewed quarterly by senior management and the Board. Pursuant to these procedures, when needed, the Company establishes additional valuation allowances to cover anticipated losses in classified or non-classified assets. As of December 31, 2018, the Company maintained ALLLs of $5.6 million, equal to 0.85% of total loans receivable and 225.90% of non-accruing loans.

 

 

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Net charge offs have averaged $1.6 million over the past five years and totaled $880,000 for fiscal 2018. The ALLL/loans ratio has declined in recent year as net additions have not kept pace with loan growth and asset quality has improved. Exhibit I-6 sets forth the Company’s allowance for loan loss activity during the past five years.

 

Funding Composition and Strategy

 

At December 31, 2018, deposits equaled $620.6 million. Exhibit I-13 sets forth the Company’s deposit composition for the past three years and Exhibit I-14 provides the maturity composition of CDs at December 31, 2018. CDs constitute the largest and an increasing portion of the deposit base, totaling 49.7% of deposits at December 31, 2018 versus 40.7% of deposits, as of December 31, 2016. Checking and savings accounts equaled $228.1 million, or 36.7% of total deposits, as of December 31, 2018, versus $219.3 million, or 42.5% of total deposits at December 31, 2016. Based on funding needs, the Company has utilized brokered deposits supplementally. As of December 31, 2018, the deposit portfolio contained $124.5 million, or 20.1% of brokered deposits. These funds had an average interest rate of 2.07% and a 13-month weighted average maturity term.

 

The Company’s current CD composition reflects a concentration of short-term CDs (maturities of one year or less). As of December 31, 2018, the CD portfolio totaled $308.4 million, including $199.8 million of CDs with balances in excess of $100,000. Of the CDs with balances greater than $100,000, 19.3% of the CDs were scheduled to mature in one year or less.

 

The Company has increasingly utilized borrowings to fund the growing loan portfolio. Borrowings totaled $136.1 million at December 31, 2018, and consisted entirely of FHLB advances. The borrowings include certain fixed rate advances subject to an option by the FHLB of Indianapolis to convert the advances to a periodic adjustable rate. If such advances are converted to adjustable rates, the Company has the option to pre-pay the advances at par, without a penalty. At December 31, 2018, the FHLB borrowings had a weighted average rate of 2.22%. The Company also maintains a $10.0 million line of credit with the FHLB of Indianapolis. Exhibit I-15 presents additional information regarding the Company’s borrowings as of December 31, 2018.

 

Subsidiary Operations

 

The Bank is the wholly-owned subsidiary of the Company and will continue as such after completion of the conversion. The Bank current does not have any subsidiaries.

 

 

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Legal Proceedings

 

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management to be immaterial to the financial condition, results of operations and cash flows of the Company.

 

 

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II. OPERATING ENVIRONMENT AND MARKET AREA

 

Introduction

 

The Company is headquartered in Richmond, Indiana, in east-central Indiana close to the Ohio state border. The Company operates a community banking business through its corporate office and 13 branch and loan production office locations in Wayne and Shelby Counties in Indiana and Miami and Shelby Counties in Ohio. The Bank opened a new branch in Ohio in early 2019. A map of the Company’s office locations is included as Exhibit I-1 and Exhibit II-1 contains details regarding the office properties.

 

The Company focuses on providing personal service while meeting the needs of its retail and business customer base, emphasizes personalized banking services to retail customers and offers a broad array of deposit services including demand deposits, regular savings accounts, money market deposits, certificates of deposit and individual retirement accounts. The Company’s office locations are generally in rural sections of Indiana and Ohio, but the Company’s market area coverage for lending operations includes larger metropolitan areas such as Columbus, Ohio and Indianapolis, Indiana.

 

Future growth opportunities for the Company depend on the future growth trends of the local and regional economy, demographic growth trends and the nature and intensity of the competitive environment. These factors have been briefly examined to help determine the growth potential that exists for the Company, the relative economic health of the Company’s market area, and the resultant impact on value.

 

National Economic Factors

 

The business potential of a financial institution is partially dependent on the future operating environment and growth opportunities for the financial services industry and the economy as a whole. In recent years, economic growth in terms of gross domestic product growth (“GDP”) has ranged from a low of 1.6% in calendar year 2011 to a high of 2.6% in calendar year 2017. Annualized GDP growth was 3.3% for the first nine months of 2018, indicating continued steady growth for the US economy. The federal tax law changes that went into effect in late 2017 have been cited as one of the reasons for the stronger economic growth in 2018. The economy has also recorded steady job growth in recent years, with an average of 2.4 million jobs added annually over the 2015-2018 time period, indicating a steady and notable growth period.

 

 

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For the 11 months ended November 2018, the annualized national inflation rate was 2.49%, which was somewhat higher than the 2.13% inflation rate for calendar year 2017 and the 1.26% rate for 2016. Economists have been focused in recent periods on the national unemployment rate, which has been at levels considered to be “full employment” for approximately one year. The unemployment rate equaled 3.9% as of December 2018, and also averaged 3.9% for all of 2018, compared to an average of 4.4% for the 12 months ended December 2017. Longer term impacts on job growth are expected to include the aging of the employment base, further loss of the working age population base as baby boomers begin to retire, an overall slower rate of population growth compared to prior generations, and that, as previously noted, the economy is generally considered to be at full employment level nationally. The Federal Reserve has raised interest rates nine times since late 2015 and the potential exists to raise rates two more times in 2019, based on informal indications and expected economic growth and trends in wages and prices. Limiting the increases in interest rates is expected to remain a focus in order to support continued strength of the economy in general and the housing sector specifically.

 

In 2018, the major stock exchange indices experienced their first down year since 2015, as the stock markets reacted in part to actions taken by the federal government in terms of international relations, tariffs, and other actions that were thought to negatively impact the national economy. Additional concern was evident about the continued increases in market interest rates by the Federal Reserve and the potential impact on economic growth. Finally, the government’s partial shutdown in late 2018 added to the uncertainty of the national economy. As an indication of the changes in the nation’s stock markets, on December 31, 2018, the DJIA closed at 23,327.46, a decrease of 5.63% since December 31, 2017. On December 31, 2018, the NASDAQ Composite Index closed at 6635.28, a decrease of 3.9% since December 31, 2017. Finally, the S&P 500 index was 2,506.84 at year end 2018, versus 2,673.61 on December 31, 2017, a decrease of 6.24%. Federal Reserve forecasts indicates a declining growth rate in economic growth through 2020, with annual GDP growth projected to be 2.3% in 2019, declining to 2.0% in 2020, but remaining in the targeted 2% to 3% range.

 

Such market trends were also evident in banking industry-related stock indices. For the year ended December 31, 2018, the SNL US Thrift index declined by 17.7%, while the SNL US Bank index declined by 18.6%. These indexes consist of all banks or thrifts that are listed on major exchanges (NASDAQ, NYSE, NYSE American) that are covered by S&P Global Market Intelligence, with the component companies weighted by market capitalization.

 

 

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Regarding factors that most directly impact the banking and financial services industries, the residential real estate industry has been relatively healthy in recent years, as new and previously-owned home sales have increased, and residential housing prices have continued to trend upward in most metropolitan areas of the country. Homebuilders continue to report positive trends for new home construction with housing starts projected to increase by almost 9% in 2018 compared to 2017 and in the range of 2% to 4% in 2019 and 2020. National home price indices have reached new all-time highs, with the national median home price reaching $257,700 in November 2018 versus a generational low of $169,000 in March 2009.

 

According to the December 2018 housing forecast from the Mortgage Bankers Association (the “MBA”), 2018 existing home sales are projected to decrease by 2.8% and new home sales are expected to increase by 0.6% from 2017 levels. The MBA forecast also showed increases in the median sales prices for existing homes and new homes of 4.4% in 2019, followed by a somewhat lower 2.4% increase in 2020. Total mortgage production is forecasted to decrease in 2019 to $1.605 trillion compared to $1.627 trillion in 2018 and a much higher $1.8 trillion in 2017. The decline in 2018 and 2019 originations is due in part to a projected rise in 30-year fixed rate 1-4 family mortgage rates to 4.6% in 2018, from an average of 4.0% for 2017. Such rates are projected to further increase to 4.8% for calendar years 2019 and 2020. The decline in mortgage originations in 2019 is expected to be concentrated in the decline in refinancings, from $0.650 trillion in 2017 to $0.461 trillion in 2018. Refinancing volumes are projected to further decline to $0.413 trillion by 2019 and to $0.404 trillion in 2020.

 

Based on the information released by the Federal Reserve, the economy is poised for moderating growth in 2019, with GDP growth forecasted at 2.3% for the year. The forecast reveals the U.S. economy should grow at a slower 2.0% rate in 2020. The Federal Reserve expects that the unemployment rate will decline incrementally, from 3.9% in December 2018 to 3.5% by the end of 2019, and increase to 3.6% by the end of 2020. On average, the Federal Reserve forecasts an increase in the federal funds target rate from 2.50% at the end of 2018 to 3.00% by the end of 2019, and then no change to this rate in 2020. Annual inflation pressures were forecasted to approximate 2.0% through the end of 2020 and the price of oil was expected to approximate $61 a barrel through the end of 2019.

 

 

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Interest Rate Environment

 

The Federal Reserve manages interest rates in order to promote economic growth and to avoid inflationary periods. Through 2015, a relatively low interest rate environment had been maintained since the great recession of 2007-2009 as part of a strategy to stimulate the economy by keeping both personal and business borrowing costs as low as possible. In more recent periods, the Federal Reserve has acted to increase interest rates somewhat as a reaction to an improving rate of economic growth, a more full-employment situation, and certain indications of increased wages and overall inflation. Since late 2015, the Federal Reserve has increased its baseline interest rate nine times by a total of 2.25%. In late 2018, The Federal Reserve released information that projects one or two more rate increases as being likely during calendar year 2019, although the Federal Reserve intends to carefully monitor economic data and trends in terms of deciding on the number and timing of further interest rate increases.

 

As of December 31, 2018, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 2.63% and 2.69%, respectively, versus 1.76% and 2.40% at December 31, 2017. The narrowing difference between the one- and ten-year treasury yields places additional strain on yield-cost spreads for financial institutions, based on yields on longer term assets and the costs of shorter term funding sources. While in many cases asset yields remain under pressure from competitive factors, the recent and numerous increases in market interest rates has caused liability costs to begin increasing as institutions seek funds for lending activities. Institutions who originate substantial volumes of prime-based loans have benefited from the rise in rates as the prime rate has increased from 3.25% in late 2015 to the current 5.50% as of December 31, 2018. Exhibit II-2 presents historical interest rate trends.

 

Demographic and Economic Trends

 

Table 2.1 presents information regarding the demographic and economic trends for the Company’s market area from 2014 to 2019 and projected through 2024, with additional detail shown in Exhibit II-3. Data for the nation and the state of Indiana are included for comparative purposes. The size and scope of the market area is evidenced by the demographic data, which shows that as of 2019 the total population of the four market area counties was 265,000, indicative of the rural nature of the market area. The data also indicates the relatively slow growth characteristic of the market area, a common statistic found in rural sections of the country and in particular the Midwestern region of the United States. The state of Indiana recorded annual population growth of 0.4% over the last five years, lower than the national growth rate of 0.7%. Wayne County, IN and Shelby County, OH both recorded population declines over the past five years, while the remaining two counties recorded only minimal change. These population trends act to limit the growth potential for financial institutions, given the lack of growth of the potential customer base and resulting lower demand for housing and other related products and services. Over the next projected five years, the state and market area counties are expected to continue to experience either modest population decreases (Wayne County), or only limited growth, compared to higher projected population growth for the country, indicating a continued challenging operating environment for financial institutions.

 

 

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Table 2.1

Richmond Mutual Bancorporation, Inc.

Summary Demographic Data

 

                      Growth Rate  
    Year     (Annualized)  
    2014     2019     2024     2014-2019     2019-2024  
                      (%)     (%)  
Population (000)                                        
USA     317,199       329,236       340,950       0.7 %     0.7 %
Indiana     6,567       6,707       6,848       0.4 %     0.4 %
Wayne, IN     68       66       65       -0.7 %     -0.3 %
Shelby, IN     44       44       45       0.0 %     0.2 %
Shelby, OH     49       49       49       -0.1 %     0.0 %
Miami, OH     103       106       108       0.5 %     0.4 %
                                         
Households (000)                                        
USA     120,163       125,019       129,684       0.8 %     0.7 %
Indiana     2,537       2,597       2,654       0.5 %     0.4 %
Wayne, IN     27       26       26       -0.7 %     -0.3 %
Shelby, IN     17       18       18       0.1 %     0.3 %
Shelby, OH     18       18       18       0.0 %     0.0 %
Miami, OH     42       43       44       0.6 %     0.5 %
                                         
Median Household Income ($)                                        
USA     51,579       63,174       68,744       4.1 %     1.7 %
Indiana     47,121       57,531       63,530       4.1 %     2.0 %
Wayne, IN     36,798       48,663       56,536       5.7 %     3.0 %
Shelby, IN     49,088       58,575       62,379       3.6 %     1.3 %
Shelby, OH     50,195       63,245       67,799       4.7 %     1.4 %
Miami, OH     47,105       63,862       70,251       6.3 %     1.9 %
                                         
Per Capita Income ($)                                        
USA     27,721       34,902       38,568       4.7 %     2.0 %
Indiana     24,337       30,376       33,881       4.5 %     2.2 %
Wayne, IN     20,142       28,141       32,323       6.9 %     2.8 %
Shelby, IN     27,721       28,568       30,804       0.6 %     1.5 %
Shelby, OH     27,721       29,587       32,319       1.3 %     1.8 %
Miami, OH     27,721       31,985       36,436       2.9 %     2.6 %

 

    0-14 Yrs.     15-34 Yrs.     35-54 Yrs.     55-69 Yrs.     70+ Yrs.  
2019 Age Distribution (%)                                        
USA     18.6       26.9       25.3       18.5       10.7  
Indiana     19.3       27.0       24.7       18.6       10.4  
Wayne, IN     17.7       24.7       24.1       20.4       13.1  
Shelby, IN     18.2       24.2       25.1       21.1       11.4  
Shelby, OH     20.3       24.7       24.3       19.9       10.8  
Miami, OH     18.5       23.6       24.8       20.7       12.4  

 

    Less Than     $25,000 to     $50,000 to              
    25,000     50,000     100,000     $100,000+        
2019 HH Income Dist. (%)                                        
USA     19.6       21.5       29.2       29.7          
Indiana     20.1       24.3       31.7       23.9          
Wayne, IN     24.7       26.7       30.0       18.6          
Shelby, IN     18.4       24.7       34.7       22.2          
Shelby, OH     14.8       23.5       36.9       24.7          
Miami, OH     16.9       21.4       35.7       26.0          

 

Source: S&P Global Market Intelligence

 

 

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Changes in the number of households in the market area have generally paralleled trends with respect to population, although at slightly more favorable rates of change. This reflects a national trend towards smaller average household sizes. These stable or slowly growing trends in households also will act to limit business opportunities for community financial institutions such as RMB and result in increased levels of competition for available retail and commercial banking business.

 

Table 2.1 also provides certain median age distribution figures for the market area, the state of Indiana and the nation. The data reveals that the state and the market area counties all contained somewhat older population bases than the nation and the state of Indiana. The lack of population growth provides for a gradual aging of the population base as younger residents tend to leave the area for employment opportunities elsewhere. Wayne County in particular, reported the highest overall median age figures.

 

Table 2.1 contains data concerning household and per capita income levels, which are important indicators of a market area’s health and attractiveness in terms of housing and economic activity. The 2019 median household incomes ranged from a low of $48,663 in Wayne County to a high of $63,862 in Miami County, with the Miami County figure comparable to the national average of $63,274 as of 2019. The Indiana average for median household income was lower than the national average, given the mostly rural nature of the state. Income growth has been highest in Wayne and Miami Counties, and the table indicates that future income growth will continue to be focused in those two areas. Per capita incomes generally tracked the household income data, with Wayne County recording the lowest per capita income of all comparative areas. Household income distribution patterns shown in Table 2.1 also provide support for earlier statements regarding the nature of RMB’s market as approximately 49% of Wayne County households had income levels in excess of $50,000 annually in 2019 while the ratio was 62% for Miami County and 54% for the Indiana state average.

 

 

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Local Economy

 

The Company’s primary market area has an economy that is similar to many Midwest region markets with employment concentrated in services, manufacturing, education/healthcare/social services and wholesale/retail trade. Manufacturing has long been a notable part of the employment base and reflects the historical basis of the four-county market area, particularly in the Ohio market area counties. The distribution of employment exhibited in the primary market area is indicative of a relatively diverse economic environment with a level of dependence on manufacturing, which typically has higher overall wages compared to other economic sectors.

 

Table 2.2

Richmond Mutual Bancorporation, Inc.

Primary Market Area Employment Sectors

(Percent of Labor Force)

 

                Wayne     Shelby (IN)     Shelby (OH)     Miami  
Employment Sector   Indiana     Ohio     County     County     County     County  
    (%)     (%)     (%)     (%)     (%)     (%)  
                                     
Services     21.7 %     23.1 %     19.4 %     20.8 %     17.9 %     22.1 %
Education,Healthcare, Soc. Serv.     22.5 %     24.0 %     27.8 %     18.3 %     17.7 %     19.4 %
Government     3.4 %     3.8 %     2.9 %     3.4 %     3.0 %     4.5 %
Wholesale/Retail Trade     14.2 %     14.5 %     16.0 %     11.2 %     11.1 %     12.5 %
Finance/Insurance/Real Estate     5.3 %     6.4 %     3.2 %     3.7 %     2.8 %     4.5 %
Manufacturing     19.2 %     15.8 %     18.0 %     28.2 %     33.3 %     25.6 %
Construction     5.8 %     5.1 %     5.5 %     6.8 %     5.8 %     5.7 %
Information     1.6 %     1.7 %     1.3 %     0.7 %     1.1 %     1.6 %
Transportation/Utility     5.1 %     4.9 %     4.2 %     5.4 %     5.2 %     3.5 %
Agriculture     1.2 %     0.8 %     1.7 %     1.6 %     2.0 %     0.6 %
      100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %

 

Source: S&P Global Market Intelligence

 

Market Area Largest Employers

 

The significance of the manufacturing sector to the local economy is also reflected in Table 2.3, as manufacturers comprise a large portion of the largest employers in the market area, along with other representation in sectors such as healthcare, government, education and trade. No single manufacturing employer is responsible for a disproportionate share of the manufacturing employment base, and the market area is not overly dependent on any particular industry for its continued manufacturing employment health. Market area manufacturers produce automotive components, plastics, metals, and aerospace. The significant manufacturing labor force supports employment in healthcare, retail trade, information technology, food processing, and transportation, distribution, and logistics. As shown in Table 2.4, the market area’s largest employer is a regional hospital, Reid Health that reported approximately 2,600 employees. Shelby County, Indiana, while not reporting employee levels, maintained large employers as follows: Indiana Downs (racing, casino), Major Medical Group, Inc. (healthcare), Knauf Insulation (manufacturing), Penske Logistics (trade) and MHP Major Hospital (healthcare).

 

 

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Table 2.3

Richmond Mutual Bancorporation, Inc.

Largest Employers in Market Area

 

Company/Institution   Industry   Employees  
           
Wayne County            
Reid Health   Healthcare     2,600  
Richmond Community Schools   Education     723  
Belden Wire & Cable   Wire Product Manufacturer     707  
Sugar Creek Brandworthy Food Solutions   Food Processor     500  
Richmond State Hospital   Hospital     435  
Primex Plastics Corporation   Plastic Sheeting Manufacturer     420  
Wayne County Government   Municipality     400  
City of Richmond   Municipality     400  
Earlham College   Higher Education     388  
Color Box   Packaging     370  
             
Miami County, OH            
Upper Valley Medical Center   Healthcare     1,600  
Clopay Building Products   Manufacturing     935  
F&P America   Manufacturing     920  
UTC Aerospace Systems   Manufacturing     814  
Meifer Distribution Center   Logistics     800  
ConAgra Foods   Manufacturing     734  
American Honda   Logistics     631  
Hobart Brothers   Manufacturing     568  
             
Shelby County, OH            
Honda of America   Manufacturing     3,000  
Emerson Climate Technologies   HVAC/Electrical Products     1,590  
Airstream   Recreational Vehicles     994  
UTC Aerospace Systems   Manufacturing     814  
Plastipak Holdings, Inc.   Plastics     920  
NK Parts Industries   Logistics     716  
Wilson Health   Healthcare     700  
Norcold   Refrigeration     435  

 

Source: Economic Development Corporation of Wayne County, Indiana, Miami and Shelby County, OH county websites.

 

 

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Market Area Unemployment Data

 

Recent comparative unemployment rates for the market area counties are shown in Table 2.4. The unemployment data reveals that the Company’s markets have current unemployment rates that are lower than respective statewide averages, with the exception of Wayne County, which has a slightly higher rate than the state of Indiana. The strongest employment situation is in Shelby County, IN, which reported an unemployment rate of 2.9%. The slow growth or population declines recorded in the market area counties tend to suppress unemployment rates, as there are fewer new residents seeking employment. The employment situation is somewhat more favorable in the Indiana counties, which have the lower unemployment rates, both of which are below the national average.

 

Table 2.4

Richmond Mutual Bancorporation, Inc.

Unemployment Trends

 

    Unemployment Rate     Net  
    Dec. 2017     Dec. 2018     Change  
Region                        
USA     3.9 %     3.7 %     -0.2 %
Indiana     3.1 %     3.4 %     0.3 %
Ohio     4.5 %     4.8 %     0.3 %
                         
Market Area Counties                        
Wayne, IN     3.2 %     3.6 %     0.4 %
Shelby, IN     2.8 %     2.9 %     0.1 %
Shelby, OH     3.8 %     4.1 %     0.3 %
Miami, OH     3.9 %     4.2 %     0.3 %

 

Source: S&P Global Market Intelligence.

 

 

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Deposit Trends

 

The competitive environment for financial institution products and services on a national, regional and local level can be expected to become even more competitive going into the future. Consolidation amongst the bank and thrift industries provides economies of scale to larger institutions, while the heightened availability of investment options provides consumers with attractive alternatives to the deposit products offered by financial institutions. The Company’s market area for deposits includes primarily other local and regional commercial banks and credit unions.

 

Table 2.5 displays deposit market trends and deposit market share, respectively, for commercial banks and savings institutions for the States of Indiana and Ohio and the four market area counties from June 30, 2014 to June 30, 2018. Deposit growth trends serve as indicators of a market area’s current and future prospects for growth and attractiveness for financial institutions. Indiana state deposits grew at a rate of 4.6% over the four-year time period shown in Table 2.5, while Ohio deposits expanded at a 5.9% annual rate. Commercial banks increased deposits at an annual rate of 5.2% in Indiana, while savings institutions saw their deposits decline at a rate of 8.3%, due in part to acquisitions of savings institutions by commercial banks or charter conversions to commercial banks. Commercial banks continue to dominate the deposit market in Indiana, with an aggregate market share equal to 96.5% of total bank and thrift deposits in market.

 

Deposits within the four market area counties grew over the four-year period, ranging from 2.3% annually in Miami County to 4.1% annually in Shelby County, Ohio. Consistent with statewide trends, savings institutions continue to experience declining deposits in both Ohio counties, but have increased deposit balances in the Indiana counties. Savings institutions held somewhat stronger market share positions in the market area counties as of June 30, 2018, ranging from 9% to 15%.

 

As of June 30, 2018, the Company maintained a deposit market share of 33.9% in Wayne County, a strong market share position, and reported market shares of less than 6% in the other three counties. Except for Wayne County, these deposit market share figures are indicative of RMB’s less competitive market positioning, however future deposit gains and market share gains may be likely given the Company’s low market penetration. Since June 30, 2014, the Company has increased deposits at an annualized rates ranging from 8.9% in Shelby County, Indiana to 2.05 in Shelby county, Ohio. The Company’s deposit growth rates have exceeded the corresponding county growth rate in all but Shelby County, Ohio., which indicates that RMB has been successful in expanding its deposit market share position.

 

 

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Table 2.5

Richmond Mutual Bancorporation, Inc.

Deposit Summary

 

    As of June 30,        
    2013     2018     Deposit  
          Market     No. of           Market     No. of     Growth Rate  
    Deposits     Share     Branches     Deposits     Share     Branches     2013-2018  
    (Dollars in Thousands)     (%)  
                                           
Indiana   $ 105,191,000       100.0 %     2,284     $ 131,505,000       99.9 %     2,012       4.6 %
Commercial Banks     98,280,000       93.4 %     2,114       126,917,000       96.5 %     1,910       5.2 %
Savings Institutions     6,910,000       6.6 %     170       4,488,000       3.4 %     102       -8.3 %
                                                         
Ohio   $ 257,967,000       100.0 %     3,977     $ 343,200,000       100.0 %     3,598       5.9 %
Commercial Banks     225,266,000       87.3 %     3,520       316,444,000       92.2 %     3,287       7.0 %
Savings Institutions     32,701,000       12.7 %     457       26,757,000       7.8 %     311       -3.9 %
                                                         
Wayne County   $ 1,122,000       100.0 %     35     $ 1,365,000       100.0 %     234       4.0 %
Commercial Banks     951,000       84.8 %     31       1,168,000       85.6 %     168       4.2 %
Savings Institutions     171,000       15.2 %     4       197,000       14.4 %     66       2.9 %
First Bank Richmond     360,974       32.2 %     6       462,665       33.9 %     6       5.1 %
                                                         
Shelby County (IN)   $ 495,000       100.2 %     14     $ 589,000       100.0 %     13       3.5 %
Commercial Banks     455,000       91.9 %     13       537,000       91.2 %     12       3.4 %
Savings Institutions     41,000       8.3 %     1       52,000       8.8 %     1       4.9 %
First Bank Richmond     21,786       4.4 %     1       33,410       5.7 %     1       8.9 %
                                                         
Shelby County (OH)   $ 831,000       100.0 %     25     $ 1,016,000       100.0 %     25       4.1 %
Commercial Banks     662,000       79.7 %     18       916,000       90.2 %     20       6.7 %
Savings Institutions     169,000       20.3 %     7       100,000       9.8 %     5       -10.0 %
First Bank Richmond     52,089       6.3 %     2       56,339       5.5 %     2       2.0 %
                                                         
Miami County (OH)   $ 1,357,000       100.0 %     39     $ 1,517,000       100.1 %     35       2.3 %
Commercial Banks     1,180,000       87.0 %     32       1,366,000       90.0 %     28       3.0 %
Savings Institutions     177,000       13.0 %     7       152,000       10.0 %     7       -3.0 %
First Bank Richmond     36,776       2.7 %     2       42,588       2.8 %     2       3.7 %

 

Source: FDIC.

 

Competition

 

Competition among financial institutions in the market area is significant. Among the Company’s competitors are much larger and more diversified institutions, which have greater resources and offer more products and services than maintained by the Company. Financial institution competitors in the Company’s market area include primarily commercial banks, including banks with a national and regional presence. There are also a number of smaller community-based banks and credit unions that pursue similar operating strategies as the Company. From a competitive standpoint, the Company benefits from its status of a locally-owned financial institution, longstanding customer relationships, and continued efforts to offer competitive products and services. However, competitive pressures will also likely continue to build as the financial services industry continues to consolidate and as additional non-bank investment options for consumers become available. A total of seven banking institutions operate in Wayne County, while a total of 15 operate in Miami County, Ohio.

 

 

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Table 2.6 lists the Bank’s largest competitors in the four counties currently served, based on deposit market share as noted. Going forward, it will be important to maintain the market share lead in Wayne County through continuing the strong ties to the community and operational planning to continue deposit and loan growth. Additionally, there is room to expand regionally in the four county market area despite the relatively stagnant economic and demographic environment, based on current deposit market shares maintained.

 

 

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Table 2.6

Richmond Mutual Bancorporation, Inc.

Market Area Deposit Competitors - As of June 30, 2018

 

Location   Name   Market
Share 		    Rank
        (%)      
               
Wayne, IN   First Mutual of Richmond Inc. (IN)     33.91     1 out of 7
    U.S. Bancorp (MN)     26.04      
    West End Indiana Bancshares (IN)     14.41      
    JPMorgan Chase & Co. (NY)     10.93      
    Waytru Bancorp (IN)     9.40      
    First Financial Bancorp. (OH)     3.61      
    First Merchants Corp. (IN)     1.70      
                 
Shelby, IN   First Financial Bancorp. (OH)     20.47      
    PNC Financial Services Group (PA)     17.10      
    First Merchants Corp. (IN)     16.94      
    KeyCorp (OH)     13.19      
    JPMorgan Chase & Co. (NY)     9.73      
    First FS&LA of Greensburg (IN)     8.77      
    Fifth Third Bancorp (OH)     7.79      
    First Mutual of Richmond Inc. (IN)     5.67     8 out of 9
    Woodforest Financial Grp Inc. (TX)     0.34      
                 
Shelby, OH   U.S. Bancorp (MN)     40.72      
    JPMorgan Chase & Co. (NY)     17.06      
    Peoples-Sidney Financial Corp. (OH)     9.38      
    Fifth Third Bancorp (OH)     7.31      
    First Mutual of Richmond Inc. (IN)     7.20     5 out of 10
    Minster Financial Corp. (OH)     6.18      
    First NB in New Bremen (OH)     5.64      
    OSB Bancorp Inc. (OH)     4.10      
    PNC Financial Services Group (PA)     1.99      
    Peoples S&L Co. (OH)     0.44      
                 
Miami, OH   Fifth Third Bancorp (OH)     27.96      
    U.S. Bancorp (MN)     14.80      
    Park National Corp. (OH)     13.07      
    JPMorgan Chase & Co. (NY)     11.54      
    First Financial Bancorp. (OH)     7.53      
    PNC Financial Services Group (PA)     5.39      
    Huntington Bancshares Inc. (OH)     3.49      
    Covington Financial Corp. MHC (OH)     3.46      
    Monroe FS&LA (OH)     2.90      
    First Mutual of Richmond Inc. (IN)     2.82     10 out of 15

 

Source: S&P Global Market Intelligence

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 1

 

III. PEER GROUP ANALYSIS

 

This chapter presents an analysis of the Company’s operations versus a group of comparable savings institutions (the “Peer Group”) selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of the Company is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to the Company, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.

 

Peer Group Selection

 

The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on the NYSE or NASDAQ, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on the NYSE or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks is typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies those under acquisition or subject to rumored acquisition and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.

 

Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally- or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 55 fully-converted publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will be comprised of institutions with relatively comparable characteristics. To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since the Company will be a fully-converted public company upon completion of the offering, we considered only fully-converted public companies to be viable candidates for inclusion in the Peer Group. From the universe of publicly-traded thrifts, we selected 10 institutions with characteristics similar to those of the Company. In the selection process, we applied the following “screens” or criteria to the universe of all public thrifts that were eligible for consideration:

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 2

 

o Savings institutions (excluding institutions in the western region of the United States), with assets between $500 million and $2.0 billion, equity/assets ratios less than 15%, and trailing 12 month return on equity ratios between 0% and 12% and having been fully converted for at least one year. Ten companies met the criteria for the screen and were included in the Peer Group.

 

Table 3.1 shows the general characteristics of each of the 10 Peer Group companies and Exhibit III-2 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and the Company, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of the Company’s financial condition, income and expense trends, loan composition, credit risk and interest rate risk versus the Peer Group as of the most recent publicly available date. Comparative data for all publicly-traded thrifts have been included in the Chapter III tables as well.

 

A summary description of the key comparable characteristics of each of the Peer Group companies relative to the Company is detailed below.

 

· Elmira Savings Bank of New York. Comparable due to equity/assets ratio, yield/cost spread, earning asset concentration in loans, and level of other non-interest income and operating expenses.

 

· ESSA Bancorp, Inc. of Pennsylvania. Comparable due to equity/assets ratio, funding composition, loan loss provisions, and asset quality (excluding performing troubled debt restructured loans).

 

· HMN Financial, Inc. of Minnesota. Comparable due to earning asset composition, return on assets, loan portfolio composition, reserve coverage ratios, and risk-weighted assets.

 

· IF Bancorp, Inc. of Illinois. Comparable due to cash and investments level, funding structure and cost of funds, loans receivable, operating expense level, and asset quality (excluding performing troubled debt restructured loans).

 

· MSB Financial Corp. of New Jersey. Comparable due to funding composition, strong asset growth, return on assets, net interest income and yield/cost spread, loan portfolio diversification, and asset quality (excluding performing troubled debt restructured loans).

 

· Prudential Bancorp, Inc. of Pennsylvania. Comparable due to funding structure, strong asset growth, return on assets, construction and multi-family loans, and loss reserve ratio.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 3

 

Table 3.1

Peer Group of Publicly-Traded Thrifts

As of September 30, 2018

 

                                    As of  
                                    February 8, 2019  
                    Total           Fiscal   Stock     Market  
Ticker   Financial Institution   Exchange   City   State   Assets     Offices     Year End   Price     Value  
                    ($Mil)               ($)     ($Mil)  
                                             
ESBK   Elmira Savings Bank   NASDAQ   Elmira   NY     571       13     Dec     18.68       65.47  
ESSA   ESSA Bancorp, Inc.   NASDAQ   Stroudsburg   PA     1,834       23     Sep     15.25       167.65  
HMNF   HMN Financial, Inc.   NASDAQ   Rochester   MN     737       14     Dec     19.55       89.55  
IROQ   IF Bancorp, Inc.   NASDAQ   Watseka   IL     655       8     Jun     20.75       69.95  
MSBF   MSB Financial Corp.   NASDAQ   Millington   NJ     590       4     Dec     17.80       92.73  
PBIP   Prudential Bancorp, Inc.   NASDAQ   Philadelphia   PA     1,081       11     Sep     18.01       160.16  
SVBI   Severn Bancorp, Inc.   NASDAQ   Annapolis   MD     889       6     Dec     8.85       112.58  
STXB   Spirit of Texas Bancshares, Inc.   NASDAQ   Conroe   TX     1,102       23     Dec     21.70       262.65  
STND   Standard AVB Financial Corp.   NASDAQ   Monroeville   PA     983       19     Dec     30.49       141.22  
WEBK   Wellesley Bancorp, Inc.   NASDAQ   Wellesley   MA     837       6     Dec     32.00       77.42  

 

Source: S&P Global Market Intelligence

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 4

 

· Severn Bancorp, Inc. of Maryland. Comparable due to balance sheet composition, equity/assets ratio, asset growth, return on assets, net interest income, operating expenses and yield on earning assets, loan composition, asset quality (excluding performing troubled debt restructured loans).

 

· Spirit of Texas Bancshares, Inc. of Texas. Comparable due to deposits level, return on assets, non-interest income, loan portfolio diversification, risk-weighted assets, asset quality, and reserve coverage ratios.

 

· Standard AVB Financial Corp. of Pennsylvania. Comparable due to balance sheet structure, equity/assets ratio, return on assets, non-interest income ratio, asset quality, and reserve coverage ratios.

 

· Wellesley Bancorp, Inc. of Massachusetts. Comparable due to equity/assets ratio, asset growth, interest expense and cost of funds ratios, loan portfolio composition, asset quality, and reserve coverage ratios.

 

In aggregate, the Peer Group companies maintained a similar level of equity as the industry average (11.54% of assets versus 11.67% for all fully-converted public thrifts), and also recorded a similar level of profitability as a percent of average assets and equity. The Peer Group’s median price/tangible book (“P/TB”) ratio and price/core earnings (“P/CE”) multiple were similar to the industry medians.

 

    All Fully-Converted        
    Public Thrifts     Peer Group  
             
Financial Characteristics (Medians)                
Assets ($Mil)   $ 1,468     $ 922  
Market capitalization ($Mil)   $ 227     $ 103  
Equity/assets (%)     11.67 %     11.54 %
Return on average assets (%)     0.87 %     0.87 %
Return on average equity (%)     7.33 %     7.15 %
                 
Pricing Ratios (Medians)(1)                
Price/core earnings (x)     14.63 x     14.99 x
Price/tangible book (%)     129.35 %     126.60 %
Price/assets (%)     14.82 %     13.27 %

 

(1) Based on market prices as of February 8, 2019.

 

Source: S&P Global Market Intelligence.

 

Ideally, the Peer Group companies would be comparable to the Company in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to the Company, as will be highlighted in the following comparative analysis. Key differences will lead to valuation adjustments in the next section.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 5

 

Financial Condition

 

Table 3.2 shows comparative balance sheet measures for the Company and the Peer Group. The Company’s and Peer Group ratios reflect balances as of December 31, 2018 while the Peer Group’s information is as of September 30, 2018. The Company’s equity-to-assets ratio of 9.39% was somewhat lower than the Peer Group’s median equity ratio of 11.35%. [Note: After consolidation of the MHC, the Company’s equity-to-assets ratio approximated 9.39%]. Tangible equity-to-assets ratios for the Company and the Peer Group equaled 10.11% and 10.78% (median), respectively. The increase in the Company’s pro forma capital position will be favorable relative to the Peer Group from a risk perspective and in terms of future earnings potential through future leverage. At the same time, the Company’s higher pro forma capitalization will depress the pro forma return on equity (“ROE”) relative to the Peer Group. The capital ratios for both reflect capital surpluses with respect to the regulatory capital requirements, with the Company’s ratios currently lower than the Peer Group. On a pro forma basis, the Company will enjoy larger regulatory surpluses.

 

The interest-earning asset compositions for the Company and the Peer Group were similar, with loans constituting the bulk of interest-earning assets for both. The Company’s loans-to-assets ratio of 77.06% was similar to the comparable Peer Group median ratio of 78.71%. Comparatively, the Company’s cash and investments-to-assets ratio of 18.66% was higher than the median ratio for the Peer Group of 13.48%. The Peer Group reported a higher proportion of BOLI investment than the Company. Overall, the Company’s interest-earning assets (excludes BOLI) amounted to 96.16% of assets, which was higher than the comparable Peer Group median ratio of 93.92%.

 

The Company’s funding reflects similarities to the Peer Group, however, the Company’s deposits/asset ratio of 73.05% falls below the Peer Group’s median ratio of 76.47%, given the Company’s higher level of borrowings.

 

Total interest-bearing liabilities maintained by the Company and the Peer Group, as a percent of assets, equaled 89.07% and 87.70%, respectively. Following the increase in equity provided by the net proceeds of the stock offering, the Company’s ratio of interest-bearing liabilities ratio will decline favorably in comparison to the Peer Group.

 

Presently, the Company’s IEA/IBL ratio is similar to the Peer Group’s ratio, based on IEA/IBL ratios of 107.96% and 107.09%, respectively. The additional equity realized from stock proceeds will serve to strengthen the Company’s IEA/IBL ratio versus the Peer Group.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 6

 

Table 3.2

Balance Sheet Composition and Growth Rates

Comparable Institution Analysis

As of September 30, 2018

 

            Balance Sheet as a Percent of Assets     Balance Sheet Annual Growth Rates     Regulatory Capital  
            Cash &     MBS &           Net           Borrowed     Sub.     Total     Goodwill     Tangible           MBS, Cash &                 Borrows.     Total     Tangible     Tier 1     Tier 1     Risk-Based  
            Equivalents     Invest     BOLI     Loans (1)     Deposits     Funds     Debt     Equity     & Intang     Equity     Assets     Investments     Loans     Deposits     &Subdebt     Equity     Equity     Leverage     Risk-Based     Capital  
                                                                                                                                 
Richmond Mutual Bancorporation, Inc.   IN                                                                                                                                                                
December 31, 2018         1.76 %     16.90 %     0.44 %     77.06 %     73.05 %     16.02 %     0.00 %     10.11 %     0.00 %     10.11 %     12.74 %     -0.68 %     17.35 %     10.75 %     30.87 %     4.97 %     4.97 %     10.00 %     11.42 %     12.18 %
                                                                                                                                                                         
All Public Companies                                                                                                                                                                    
Averages         4.66 %     13.88 %     1.63 %     76.31 %     74.05 %     11.41 %     0.46 %     12.91 %     1.00 %     11.90 %     7.95 %     4.71 %     11.79 %     9.79 %     -5.17 %     11.75 %     10.42 %     11.46 %     16.76 %     17.83 %
Medians         3.19 %     10.66 %     1.76 %     78.14 %     75.20 %     10.74 %     0.00 %     11.88 %     0.30 %     10.78 %     5.66 %     -3.18 %     7.76 %     6.18 %     -4.39 %     2.49 %     2.92 %     11.26 %     15.15 %     15.96 %
                                                                                                                                                                         
Comparable Group                                                                                                                                                                    
Averages         4.36 %     13.55 %     1.49 %     77.03 %     77.71 %     9.94 %     0.35 %     11.26 %     0.78 %     10.48 %     6.97 %     15.91 %     5.29 %     9.22 %     -0.98 %     3.66 %     3.69 %     10.51 %     14.72 %     15.22 %
Medians         3.66 %     9.82 %     1.73 %     78.71 %     76.47 %     11.23 %     0.00 %     11.35 %     0.38 %     10.78 %     7.26 %     15.20 %     5.53 %     6.63 %     -9.49 %     -1.36 %     -1.26 %     10.75 %     13.79 %     14.61 %
                                                                                                                                                                         
Comparable Group                                                                                                                                                                    
ESBK   Elmira Savings Bank   NY     3.19 %     6.82 %     2.51 %     81.48 %     83.12 %     5.78 %     0.00 %     10.08 %     2.16 %     7.92 %     1.02 %     -21.56 %     4.40 %     4.31 %     -10.81 %     -12.32 %     -15.16 %     8.59 %     12.23 %     13.36 %
ESSA   ESSA Bancorp, Inc.   PA     2.40 %     20.96 %     2.11 %     71.17 %     72.90 %     16.28 %     0.00 %     9.77 %     0.83 %     8.94 %     2.72 %     -4.04 %     5.53 %     4.86 %     -4.21 %     -1.94 %     -1.84 %     9.28 %     12.70 %     13.59 %
HMNF   HMN Financial, Inc.   MN     6.52 %     10.91 %     0.00 %     79.76 %     88.34 %     0.00 %     0.00 %     10.85 %     0.15 %     10.70 %     2.91 %     17.11 %     0.44 %     3.57 %     NA       -0.79 %     -0.68 %     10.49 %     12.65 %     13.91 %
IROQ   IF Bancorp, Inc.   IL     1.35 %     19.81 %     1.35 %     73.91 %     74.88 %     11.73 %     0.00 %     12.37 %     0.00 %     12.37 %     7.10 %     15.20 %     3.98 %     8.39 %     13.31 %     -4.32 %     -4.32 %     11.30 %     16.90 %     18.10 %
MSBF   MSB Financial Corp.   NJ     3.74 %     7.98 %     2.45 %     83.82 %     74.12 %     13.56 %     0.00 %     11.86 %     0.00 %     11.86 %     8.98 %     30.47 %     7.28 %     10.08 %     17.11 %     -3.49 %     -3.49 %     10.50 %     NA       NA  
PBIP   Prudential Bancorp, Inc.   PA     4.60 %     34.56 %     2.65 %     55.77 %     72.54 %     14.31 %     0.00 %     11.88 %     0.62 %     11.26 %     20.19 %     53.85 %     5.53 %     23.31 %     35.31 %     -5.71 %     -5.90 %     11.86 %     19.74 %     20.58 %
SVBI   Severn Bancorp, Inc.   MD     11.26 %     6.63 %     0.58 %     77.66 %     78.06 %     8.26 %     2.32 %     10.78 %     0.12 %     10.66 %     10.98 %     46.93 %     6.60 %     16.96 %     -17.49 %     4.20 %     4.24 %     NA       NA       NA  
STXB   Spirit of Texas Bancshares, Inc.   TX     4.03 %     3.48 %     0.04 %     86.50 %     79.17 %     6.80 %     0.00 %     13.69 %     1.00 %     12.69 %     7.42 %     NA       10.65 %     3.49 %     -9.49 %     52.72 %     54.30 %     NA       14.66 %     15.31 %
STND   Standard AVB Financial Corp.   PA     3.57 %     15.65 %     2.28 %     74.08 %     73.82 %     11.92 %     0.00 %     13.77 %     2.90 %     10.87 %     -0.28 %     10.60 %     -2.59 %     1.93 %     -12.89 %     1.52 %     2.96 %     11.10 %     15.94 %     16.63 %
WEBK   Wellesley Bancorp, Inc.   MA     2.90 %     8.74 %     0.92 %     86.12 %     80.12 %     10.74 %     1.17 %     7.53 %     0.00 %     7.53 %     8.71 %     -5.35 %     11.12 %     15.30 %     -19.65 %     6.74 %     6.74 %     10.99 %     12.92 %     10.26 %

 

(1) Includes loans held for sale.

(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

 

Source: S&P Global Market Intelligence and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

 

Copyright (c) 2019 by RP ® Financial, LC.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 7

 

The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. The Company’s assets grew at 12.74%, higher than the Peer Group’s median asset growth of 7.26%. The Company’s cash and investments declined by 0.68% over the past year, while loans increased 17.35%. The asset growth for the Peer Group reflected growth in cash/investments and loans. The Company funded its strong loan growth from a deposit increase of 10.75%, and a larger increase in borrowings of 30.87%. In comparison, the Peer Group indicated an increase in deposits but a decrease in borrowings.

 

The Company’s equity increased at a 4.97% annual rate, versus a reduction in equity of 1.36% for the Peer Group. The Peer Group’s reduction in part was due to the reportable period ending September 30, 2018, which included the year-end 2017 deferred tax adjustment pursuant to the Tax Cuts and Jobs Act of 2017. The stock proceeds will likely depress the Company’s post-conversion equity growth rate, and result in a lower ROE. Dividend payments and stock repurchases, like the Peer Group companies, could also potentially slow the Company’s post-conversion equity growth rate.

 

Income and Expense Components

 

Table 3.3 displays statements of operations for the Company and the Peer Group, with the income ratios based on earnings for the 12 months ended December 31, 2018 for the Company and September 30, 2018 for the Peer Group.

 

The Company reported profitability of 0.71% of average assets for the 12 months ended December 31, 2018, equal to the Peer Group median. The Company’s higher level of net interest income was offset by a higher level of operating expense compared to the Peer Group. In comparison, after the MHC consolidation, the Company’s net income approximated 0.67% of average assets.

 

The Company’s net interest income ratio was higher than the Peer Group’s ratio, due to a much higher level of interest income despite a somewhat higher level of interest expense. The Company’s interest income is supported by certain lending and leasing emphasis activities which carry higher yields. The Company’s overall yield earned on interest-earning assets of 4.52% was higher than the 4.11% median ratio for the Peer Group. The Company’s cost of funds was somewhat higher than the Peer Group of 1.21% and 1.08%, respectively, reflecting the Company’s greater wholesale funding. Overall, the Company has a higher net interest income ratio than the Peer Group, at 3.43% and 3.01% of assets, respectively.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 8

 

Table 3.3

Income as Percent of Average Assets and Yields, Costs, Spreads

Comparable Institution Analysis

For the 12 Months Ended September 30, 2018

 

                  Net Interest Income           Non-Interest Income           Non-Op. Items           Yields, Costs, and Spreads              
                                    Loss     NII     Gain     Other     Total                 Provision                       MEMO:     MEMO:  
            Net                       Provis.     After     on Sale of     Non-Int     Non-Int     Net Gains/     Extrao.     for     Yield     Cost     Yld-Cost     Assets/     Effective  
            Income     Income     Expense     NII     on IEA     Provis.     Loans     Income     Expense     Losses (1)     Items     Taxes     On IEA     Of IBL     Spread     FTE Emp.     Tax Rate  
            (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)           (%)  
Richmond Mutual Bancorporation, Inc.   IN                                                                                                                                        
December 31, 2018         0.71 %     4.40 %     0.97 %     3.43 %     0.21 %     3.22 %     0.06 %     0.48 %     2.89 %     0.00 %     0.00 %     0.16 %     4.52 %     1.21 %     3.31 %   $ 4,940       18.38 %
                                                                                                                                                 
All Public Companies                                                                                                                                            
Averages         0.78 %     3.90 %     0.81 %     3.09 %     0.08 %     3.01 %     0.43 %     0.52 %     2.80 %     0.02 %     0.00 %     0.40 %     4.14 %     1.12 %     3.01 %   $ 8,386       36.57 %
Medians         0.75 %     3.71 %     0.87 %     2.97 %     0.07 %     2.90 %     0.02 %     0.41 %     2.66 %     0.00 %     0.00 %     0.39 %     3.99 %     1.18 %     2.81 %   $ 6,302       34.48 %
                                                                                                                                                 
Comparable Group                                                                                                                                            
Averages         0.66 %     3.99 %     0.84 %     3.15 %     0.09 %     3.06 %     0.14 %     0.46 %     2.62 %     -0.01 %     0.00 %     0.37 %     4.22 %     1.01 %     3.01 %   $ 7,422       35.25 %
Medians         0.71 %     3.88 %     0.90 %     3.01 %     0.09 %     2.93 %     0.03 %     0.43 %     2.46 %     0.00 %     0.00 %     0.39 %     4.11 %     1.08 %     2.98 %   $ 6,302       39.20 %
                                                                                                                                                 
Comparable Group                                                                                                                                            
ESBK   Elmira Savings Bank   NY     0.85 %     3.70 %     0.76 %     2.95 %     0.14 %     2.81 %     0.30 %     0.52 %     2.86 %     0.00 %     0.00 %     -0.08 %     4.18 %     1.00 %     3.18 %   $ 4,461       -10.24 %
ESSA   ESSA Bancorp, Inc.   PA     0.36 %     3.55 %     0.90 %     2.66 %     0.22 %     2.44 %     0.00 %     0.42 %     2.17 %     -0.02 %     0.00 %     0.31 %     3.83 %     NA       NA       -       46.45 %
HMNF   HMN Financial, Inc.   MN     0.87 %     4.07 %     0.28 %     3.79 %     -0.06 %     3.85 %     0.31 %     0.76 %     3.50 %     0.00 %     0.00 %     0.54 %     4.16 %     0.42 %     3.74 %   $ 4,051       38.47 %
IROQ   IF Bancorp, Inc.   IL     0.27 %     3.79 %     0.99 %     2.80 %     0.10 %     2.71 %     0.04 %     0.62 %     2.69 %     0.00 %     0.00 %     0.40 %     3.92 %     1.22 %     2.70 %   $ 6,302       59.87 %
MSBF   MSB Financial Corp.   NJ     0.69 %     4.04 %     0.87 %     3.17 %     0.08 %     3.09 %     0.00 %     0.14 %     2.10 %     0.00 %     0.00 %     0.46 %     4.21 %     1.08 %     3.13 %   $ 10,006       39.93 %
PBIP   Prudential Bancorp, Inc.   PA     0.72 %     3.57 %     1.04 %     2.53 %     0.08 %     2.45 %     0.00 %     0.29 %     1.60 %     -0.04 %     0.00 %     0.38 %     3.75 %     1.23 %     2.52 %   $ 13,505       34.38 %
SVBI   Severn Bancorp, Inc.   MD     0.69 %     4.42 %     0.99 %     3.43 %     -0.04 %     3.47 %     0.29 %     0.68 %     3.11 %     0.00 %     0.00 %     0.63 %     4.63 %     NA       NA       -       47.70 %
STXB   Spirit of Texas Bancshares, Inc.   TX     0.76 %     5.02 %     0.90 %     4.12 %     0.20 %     3.91 %     0.46 %     0.43 %     3.71 %     -0.03 %     0.00 %     0.31 %     5.48 %     NA       NA       -       28.72 %
STND   Standard AVB Financial Corp.   PA     0.86 %     3.72 %     0.70 %     3.01 %     0.07 %     2.95 %     0.02 %     0.42 %     2.22 %     0.00 %     0.00 %     0.30 %     3.96 %     0.98 %     2.98 %   $ 6,173       25.59 %
WEBK   Wellesley Bancorp, Inc.   MA     0.57 %     3.98 %     0.96 %     3.01 %     0.09 %     2.92 %     0.01 %     0.27 %     2.23 %     0.00 %     0.00 %     0.40 %     4.06 %     1.12 %     2.84 %   $ 7,457       41.61 %

 

(1) Net gains/losses includes gain/loss on sale of securities and nonrecurring income and expense.

(2) Ratios are based on the date of the most recent financial statements disclosed in the offering prospectus.

 

Source: S&P Global Market Intelligence and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

 

Copyright (c) 2019 by RP ® Financial, LC.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 9

 

The Company reported a higher ratio of operating expenses, 2.89% of average assets versus the Peer Group average of 2.46%. The Company maintained a comparatively higher number of employees relative with an assets per full-time equivalent employee level of $4.9 million versus $6.3 million for the Peer Group. On a post-offering basis, the Company’s operating expenses will be impacted in two key ways – higher expense with the stock benefit plans and public company expenses and lower expenses from the termination of the defined benefit plan concurrent with conversion. At the same time, the Company will have greater capacity to leverage operating expenses given its stronger pro forma capital position.

 

When viewed together, net interest income and operating expenses provide considerable insight into a bank’s earnings strength, since those sources of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage ratios (net interest income divided by operating expenses), the Company’s ratio was similar to the Peer Group, at 1.19x for the Company and 1.22x for the Peer Group. A ratio greater than 1.00x indicates that an institution more than covers operating expenses with the net margin and that additional profitability would be realized from non-interest sources.

 

Sources of non-interest operating income provided a similar contribution to the Company’s earnings as to the Peer Group. Non-interest operating income equaled 048% and 0.43% of average assets for the Company and the Peer Group, respectively. Taking non-interest operating income into account, the Company’s efficiency ratio (operating expenses, net of amortization of intangibles, as a percent of the sum of non-interest operating income and net interest income) of 73.9% was slightly less favorable than the Peer Group’s efficiency ratio of 71.5%. Both the Company and the Peer Group recorded small amounts of gains on the sale of loans.

 

Loan loss provisions had larger impact on the Company’s earnings than for the Peer Group, at 0.21% and 0.09% of average assets, respectively.

 

For the 12 months ended December 31, 2018, neither the Company or the Peer Group reported significant net non-operating income. The Company did record a minimal $15,000 of gains on the sale of securities. Typically, gains and losses generated from non-operating items are viewed as non-recurring in nature, particularly to the extent that such gains and losses result from the sale of investments or other assets that are not considered to be part of an institution’s core operations. Extraordinary items were not a factor in either the Company’s or the Peer Group’s earnings.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 10

 

On average, the Peer Group reported an average effective tax rate of 39.20%, while the Company reported an effective tax rate of 18.37%, although the Peer Group’s historical tax rate continues to be impacted by the pre-federal tax law change that occurred in late 2017 and caused a number of companies to adjust deferred tax assets at year end 2017. As indicated in the prospectus, the Company’s effective marginal tax rate is assumed to equal 25.9% when calculating the after-tax return on conversion proceeds.

 

Loan Composition

 

Table 3.4 presents data related to the Company’s and the Peer Group’s loan portfolio compositions (including any investment in MBS). The Company’s loan portfolio composition reflected a lower concentration of investment in 1-4 family property secured assets (permanent mortgage loans and MBS) than maintained by the Peer Group at 22.92% of assets and 35.03% of assets, respectively. The Company maintained a larger portfolio of loans serviced for others, while only four members of the Peer Group maintained a loan servicing portfolio.

 

The Company’s greater loan diversification is underscored by the proportion of loans other than 1-4 family and MBS, at 61.76% of assets and 33.87% of assets, respectively. Commercial real estate/multi-family loans represented the most significant area of lending diversification for the Company (25.00% of assets), followed by commercial business loans and leases (21.28% of assets), which reflected the lease portfolio. The Peer Group’s lending diversification consisted primarily also of commercial real estate/multi-family loans (18.20% of assets), followed by construction loans (5.96% of assets). The loan mix indicates that the Company has a higher risk profile. This is highlighted by the Company’s higher risk weighted assets-to-assets ratio at 86.75% versus the Peer Group at 74.43%.

 

Credit Risk

 

Although the Company has a higher risk-weighted assets ratio, the Company’s asset quality appears to be somewhat more favorable to that of the Peer Group. As shown in Table 3.5, the Company’s non-performing assets/assets ratios (including and excluding performing troubled debt restructured loans) and foreclosed real estate/assets equaled 0.56% and 0.56%, respectively, versus the Peer Group median measures of 0.93% and 0.66%. Also, the Company recorded a lower non-performing loans/loans ratio than the Peer Group, at 0.38% and 0.97% respectively, in part reflecting the Company’s non-performing assets consisting of loans greater than 90 days delinquent and still accruing. The Company maintained higher lower reserve coverage ratios, loss reserves as a percent of total nonperforming loans (“NPLs”) and nonperforming assets (“NPAs”). Despite these advantages, the Company’s loss reserves maintained as a percent of net loans receivable was lower at 0.85% versus 0.92% for the Peer Group. Also, net loan charge-offs were higher for the Company than the Peer Group, based on ratios of 0.13% and 0.02% of net loans receivable, respectively.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 11

 

Table 3.4

Loan Portfolio Composition and Related Information

Comparable Institution Analysis

As of September 30, 2018 or the Most Recent Date Available.

 

        Portfolio Composition as a Percent of Assets              
              1-4     Constr.     Multi-           Commerc.           RWA/     Servicing  
        MBS     Family     & Land     Family     Comm RE     Business     Consumer     Assets     Assets  
        (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     ($000)  
Richmond Mutual Bancorporation, Inc.                                                                            
December 31, 2018         6.47 %     16.45 %     8.63 %     5.19 %     25.00 %     21.28 %     1.66 %     86.75 %   $ 1,227  
                                                                             
Comparable Group                                                                            
Averages         6.68 %     34.28 %     7.34 %     5.10 %     19.90 %     7.12 %     2.01 %     75.12 %   $ 525  
Medians         3.58 %     31.45 %     5.96 %     3.75 %     18.20 %     5.67 %     0.29 %     74.43 %   $ 334  
                                                                             
Comparable Group                                                                            
Elmira Savings Bank   NY     1.76 %     52.93 %     1.85 %     5.41 %     10.63 %     4.34 %     7.05 %     68.45 %   $ 1,263  
ESSA Bancorp, Inc.   PA     14.11 %     36.36 %     3.71 %     2.74 %     14.39 %     2.86 %     7.91 %     72.40 %   $ 206  
HMN Financial, Inc.   MN     1.11 %     21.85 %     8.21 %     4.59 %     31.71 %     9.89 %     3.09 %     82.21 %   $ 1,845  
IF Bancorp, Inc.   IL     14.37 %     21.32 %     2.62 %     16.42 %     18.63 %     9.04 %     1.15 %     77.28 %   $ 894  
MSB Financial Corp.   NJ     4.20 %     30.06 %     3.68 %     8.76 %     27.28 %     12.10 %     0.10 %     87.21 %   $ 0  
Prudential Bancorp, Inc.   PA     18.29 %     29.85 %     9.79 %     3.17 %     11.04 %     2.34 %     0.09 %     60.80 %   $ 0  
Severn Bancorp, Inc.   MD     2.95 %     32.84 %     14.59 %     0.78 %     26.33 %     3.38 %     0.21 %     74.39 %   $ 482  
Spirit of Texas Bancshares, Inc.   TX     2.37 %     22.21 %     14.14 %     1.62 %     27.44 %     15.87 %     0.38 %     86.66 %   $ 0  
Standard AVB Financial Corp.   PA     5.76 %     46.12 %     1.77 %     3.44 %     17.76 %     4.53 %     0.13 %     67.30 %   $ 461  
Wellesley Bancorp, Inc.   MA     1.84 %     49.25 %     13.04 %     4.06 %     13.83 %     6.81 %     0.01 %     74.46 %   $ 96  

 

Note: Bank level data

Source: S&P Global Market Intelligence and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reilable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2019 by RP ® Financial, LC.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 12

 

Table 3.5

Credit Risk Measures and Related Information

Comparable Institution Analysis

As of September 30, 2018 or the Most Recent Date Available.

 

              NPAs &     Adj NPAs &                       Rsrves/              
        REO/     90+Del/     90+Del/     NPLs/     Rsrves/     Rsrves/     NPAs &     Net Loan     NLCs/  
        Assets     Assets (1)     Assets (2)     Loans (3)     Loans HFI     NPLs (3)     90+Del (1)     Chargeoffs (4)     Loans  
        (%)     (%)     (%)     (%)     (%)     (%)     (%)     ($000)     (%)  
Richmond Mutual Bancorporation, Inc.                                                                            
December 31, 2018         0.02 %     0.56 %     0.56 %     0.38 %     0.85 %     225.90 %     117.87 %   $ 880       0.13 %
                                                                             
Comparable Group                                                                            
Averages         0.11 %     1.01 %     0.63 %     1.18 %     0.99 %     158.08 %     134.57 %   $ 502       0.08 %
Medians         0.04 %     0.93 %     0.66 %     0.97 %     0.92 %     124.20 %     87.93 %   $ 77       0.02 %
                                                                             
Comparable Group                                                                            
Elmira Savings Bank   NY     0.01 %     0.79 %     0.79 %     0.94 %     0.95 %     100.00 %     98.24 %   $ 775       0.17 %
ESSA Bank & Trust   PA     0.06 %     1.00 %     0.64 %     1.30 %     0.89 %     68.31 %     64.04 %   $ 1,598       0.13 %
Home Federal Savings Bank   MN     0.06 %     0.86 %     0.80 %     1.00 %     1.48 %     148.39 %     138.76 %   $ 0       0.00 %
Iroquois Federal Savings and Loan Association   IL     0.76 %     1.21 %     0.79 %     0.55 %     1.26 %     230.38 %     77.62 %   $ 1,526       0.34 %
Millington Bank   NJ     0.00 %     2.06 %     0.47 %     2.42 %     1.13 %     46.79 %     46.40 %   $ 40       0.01 %
Prudential Bank   PA     0.09 %     1.39 %     1.33 %     2.31 %     0.85 %     36.80 %     34.30 %   $ 99       0.02 %
Severn Savings Bank, FSB   MD     0.03 %     1.91 %     0.68 %     2.38 %     1.16 %     48.27 %     47.46 %   $ -380     -0.06 %
Spirit of Texas Bank, SSB   TX     0.02 %     0.38 %     0.33 %     0.37 %     0.65 %     174.10 %     145.53 %   $ 1,311       0.16 %
Standard Bank, PaSB   PA     0.05 %     0.31 %     0.30 %     0.34 %     0.62 %     184.73 %     150.31 %   $ 56       0.01 %
Wellesley Bank   MA     0.00 %     0.14 %     0.14 %     0.17 %     0.90 %     542.99 %     542.99 %   $ 0       0.00 %

 

(1) NPAs are defined as nonaccrual loans, performing TDRs, and OREO.

(2) Adjusted NPAs are defined as nonaccrual loans and OREO (performing TDRs are excluded).

(3) NPLs are defined as nonaccrual loans and performing TDRs.

(4) Net loan chargeoffs are shown on a last twelve month basis.

 

Source: S&P Global Market Intelligence and RP ® Financial, LC. calculations. The information provided in this table has been obrained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

 

Copyright (c) 2019 by RP ® Financial, LC.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 13

 

Interest Rate Risk

 

Table 3.6 reflects various key ratios highlighting the relative interest rate risk exposure of the Company versus the Peer Group. In terms of balance sheet ratios, the Company’s interest rate risk characteristics were considered to be similar to that of the Peer Group. The Company’s equity-to-assets and IEA/IBL ratios were somewhat lower than the Peer Group, thereby implying a greater dependence on the yield-cost spread to sustain the net interest margin for the Company. The Company reported a lower level of non-interest earning assets, which provides an indication of the earnings capabilities and interest rate risk of the balance sheet. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Company with more favorable balance sheet interest rate risk characteristics than currently maintained by the Peer Group, particularly with respect to the increases that will be realized in the Company’s equity-to-assets and IEA/IBL ratios.

 

To analyze interest rate risk associated with the net interest margin, quarterly changes in net interest income as a percent of average assets were measured for the Company and the Peer Group. The relative fluctuations in the Company’s net interest income to average assets ratio were considered to be similar to that of the Peer Group during the period analyzed. The stability of the Company’s net interest margin should be enhanced marginally by the infusion of stock proceeds, as the increase in capital will improve the IEA/IBL ratio.

 

Summary

 

Based on the above analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of the Company. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary.

 

 

RP ® Financial, LC. PEER GROUP ANALYSIS
   III. 14

 

Table 3.6

Interest Rate Risk Measures and Net Interest Income Volatility

Comparable Institution Analysis

As of September 30, 2018 or the Most Recent Date Available.

 

            Balance Sheet Measures                                      
            Tangible     Avg     Non-Earn.     Quarterly Change in Net Interest Income  
            Equity/     IEA/     Assets/                                      
        Assets     Avg IBL     Assets     9/30/2018     6/30/2018     3/31/2018     12/31/2017     9/30/2017     6/30/2017  
            (%)     (%)     (%)     (change in net interest income is annualized in basis points)  
Richmond Mutual Bancorporation, Inc.                                                                        
December 31, 2018         10.1 %     108.0 %     4.6 %     3       -1       4       -1       5       9  
                                                                                 
Comparable Group                                                                            
Average         10.3 %     125.4 %     6.5 %     1       -1       1       -2       1       11  
Median         10.7 %     123.3 %     6.4 %     -1       -2       -3       -3       -2       9  
                                                                                 
Comparable Group                                                                            
ESBK   Elmira Savings Bank   NY     8.1 %     117.1 %     12.6 %     -3       -10       5       14       -14       1  
ESSA   ESSA Bancorp, Inc.   PA     9.0 %     116.7 %     7.1 %     -15       15       1       3       3       -2  
HMNF   HMN Financial, Inc.   MN     10.7 %     148.5 %     2.8 %     21       6       22       -27       -2       12  
IROQ   IF Bancorp, Inc.   IL     12.4 %     115.5 %     4.4 %     -1       -4       -10       -3       -6       -1  
MSBF   MSB Financial Corp.   NJ     11.9 %     120.3 %     6.4 %     20       1       -5       -6       3       6  
PBIP   Prudential Bancorp, Inc.   PA     11.3 %     NA       6.3 %     -23       -8       -3       -9       -5       25  
SVBI   Severn Bancorp, Inc.   MD     10.7 %     128.8 %     10.3 %     12       -5       13       13       17       20  
STND   Standard AVB Financial Corp.   PA     11.2 %     130.2 %     6.9 %     -4       -1       -3       -7       19       24  
WEBK   Wellesley Bancorp, Inc.   MA     7.5 %     126.4 %     1.6 %     1       -2       -11       3       -4       9  

 

NA=Change is greater than 100 basis points during the quarter.

(1) As of June 30, 2018 or the latest date available.

Source: S&P Global Market Intelligence and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2018 by RP ® Financial, LC.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 1

 

IV. VALUATION ANALYSIS

 

Introduction

 

This chapter presents the valuation analysis and methodology prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Company’s conversion transaction.

 

Appraisal Guidelines

 

The federal regulatory appraisal guidelines as originally issued by the Office of Thrift Supervision and utilized by the FRB specify the pro forma market value methodology for estimating the pro forma market value of a converting thrift. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered.

 

RP Financial Approach to the Valuation

 

The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes “fundamental analysis” techniques. Additionally, the valuation incorporates a “technical analysis” of recently completed stock conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day.

 

The pro forma market value determined herein is a preliminary value for the Company’s to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in the Company’s operations and financial condition; (2) monitor the Company’s operations and financial condition relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings (including those in the offering phase), both regionally and nationally. If material changes should occur during the conversion process, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 2

 

The appraised value determined herein is based on the current market and operating environment for the Company and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including the Company’s value, or the Company’s value alone. To the extent a change in factors impacting the Company’s value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis.

 

Valuation Analysis

 

A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Company and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Company relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, in particular new issues, to assess the impact on value of the Company coming to market at this time.

 

1. Financial Condition

 

The financial condition of an institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The financial strengths comparison is summarized below:

 

§ Overall A/L Composition . In comparison to the Peer Group, the Company’s interest-earning asset composition showed a similar concentration of loans and a slightly higher concentration of investments. The Company’s loan portfolio composition reflected a greater degree of diversification into higher risk and higher yielding loans. Overall, the Company’s interest-earning asset composition indicates a higher yield on interest-earning assets and a higher risk weighted assets ratio. The Company’s funding composition reflected a comparatively lower level of deposits and a higher level of borrowings, which translated into a slightly higher cost of funds. Overall, the Company maintained both a higher level of interest-earning assets and a higher level of interest-bearing liabilities, which resulted in a similar IEA/IBL ratio as the Peer Group. After factoring in the net stock proceeds, the Company’s IEA/IBL ratio should exceed the Peer Group’s average. On balance, RP Financial concluded that asset/liability composition was a neutral factor in our adjustment for financial condition.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 3

 

§ Credit Quality. The Company’s ratios for non-performing assets and loans were more favorable than the comparable Peer Group ratios. Loss reserves as a percent of non-performing loans were higher, but slightly lower as a percent of loans relative to the comparable Peer Group ratios. Net loan charge-offs were a larger factor for the Company. As noted above, the Company’s risk weighted assets ratio was comparatively higher. Overall, RP Financial concluded that credit quality was a positive factor in our adjustment for financial condition.

 

§ Balance Sheet Liquidity . The Company operates with a higher level of cash and investments, and this will further increase on a post-conversion basis. Given the higher level of borrowings, the Company’s borrowing capacity is currently more limited than the Peer Group, although this disadvantage should diminish on a post-conversion basis. Overall, RP Financial concluded that balance sheet liquidity was a slightly positive factor in our adjustment for financial condition.

 

§ Funding Liabilities . The Company’s interest-bearing liabilities composition reflected a comparatively lower level of deposits and a higher level of borrowings, which translated into the Company’s slightly higher cost of funds. The Company also relied on brokered deposits to support recent loan growth. Total interest-bearing liabilities as a percent of assets were comparatively higher for the Company, which was attributable to the current lower capital position. On a pro forma basis, this lower capital position will be reversed. Overall, RP Financial concluded that funding liabilities were a slightly negative factor in our adjustment for financial condition.

 

§ Equity . The Company currently operates with a lower equity ratio than the Peer Group, but this will be reversed post-conversion, providing the Company with greater leverage potential. At the same time, the Company’s more significant capital surplus will likely result in a lower ROE. On balance, RP Financial concluded that capital strength was a slightly positive factor in our adjustment for financial condition.

 

On balance, the Company’s financial condition was considered to be more favorable than the Peer Group’s and, thus, a slight upward adjustment was applied for financial condition.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 4

 

2. Profitability, Growth and Viability of Earnings

 

Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institution’s earnings stream and the prospects and ability to generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors considered in the valuation are described below.

 

§ Reported Earnings . The Company’s reported earnings were similar to the Peer Group’s on a ROAA basis. The Company maintained more favorable net interest income and non-interest income ratios, which was offset by the Peer Group’s more favorable ratios for loan loss provisions and operating expenses. Although the net reinvestment benefit from the conversion proceeds will be limited given current interest rates and the stock benefits plans expense, the concurrent TruPs redemption and termination of the defined benefit plan will strengthen earnings. At the same time, the full year’s lower tax rate for the Peer Group will improve their after-tax profitability over that reported. On balance, RP Financial concluded that reported earnings were a neutral factor in our adjustment for profitability, growth and viability of earnings.

 

§ Core Earnings . Net interest income, operating expenses, non-interest operating income and loan loss provisions were reviewed in assessing the relative strengths and weaknesses of the Company’s and the Peer Group’s core earnings. The Company’s higher ratios for net interest income and operating expenses translated into a comparatively lower expense coverage ratio. The Company’s efficiency ratio was less favorable than the Peer Group. Loan loss provisions had a slightly larger impact on the Company’s earnings. As noted in the preceding analysis of reported earnings, the net earnings impact from the conversion, TruPs redemption and defined benefit plan termination should strengthen core profitability. By comparison, the Peer Group’s profitability should increase with a full year of lower income taxes. Therefore, RP Financial concluded that this was a neutral factor in our adjustment for profitability, growth and viability of earnings.

 

§ Interest Rate Risk . Net interest income ratio volatility was similar for the Company and the Peer Group. Other measures of interest rate risk, such as tangible equity/assets and IEA/IBL ratios were more favorable for the Peer Group, while the ratio of non-interest earning assets/assets was slightly more favorable for the Company. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Company with tangible equity and IEA/IBL ratios similar to the Peer Group. On balance, RP Financial concluded that interest rate risk was a neutral factor in our adjustment for profitability, growth and viability of earnings.

 

§ Credit Risk . Loan loss provisions were a larger factor in the Company’s earnings. Although the Peer Group had a higher loans/assets ratio, the Company’s greater loan diversification led to a higher risk-weighted assets ratio. The Company had more favorable credit quality measures and a reserve coverage ratio despite lower reserves to loans. Overall, RP Financial concluded that credit risk was a slightly favorable factor in our adjustment for profitability, growth and viability of earnings.

 

§ Earnings Growth Potential . The Company maintains a higher interest rate spread, which should support earnings growth as the Company leverages its strong capital position. The TruPS redemption and termination of the defined benefit plan strengthens earnings going forward. At the same time, a full year of lower taxes strengthens Peer Group profitability and retained earnings. Overall, earnings growth potential was considered to be a neutral factor in our adjustment for profitability, growth and viability of earnings.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 5

 

§ Return on Equity . Currently, the Company’s core ROE is lower than the Peer Group’s core ROE, even though the Peer Group’s earnings do not reflect a full year’s lower tax benefit. With the significant increase in capital post-conversion, the Company’s pro forma core ROE will be at a further disadvantage. This was a moderately negative factor in the adjustment for profitability, growth and viability of earnings.

 

On balance, the Company’s pro forma earnings strength was considered to be less favorable than the Peer Group’s and, thus, a slight downward adjustment was applied for profitability, growth and viability of earnings.

 

3. Asset Growth

 

For the most recent 12-month period, the Company grew faster than the Peer Group, led by loans largely funded by borrowings and brokered deposits. The Peer Group’s asset growth was primarily sustained by both loan and cash and investments growth. On a pro forma basis, the Company’s greater tangible equity provides for greater asset growth potential. The Company’s greater reliance on wholesale funding and the Peer Group’s generally more favorable market areas were considered offsetting factors. On balance, no adjustment was applied for asset growth.

 

4. Primary Market Area

 

The general condition of an institution’s market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served. The Company’s Indiana market area is characterized as rural and slow growing, while the Ohio market, especially the Columbus LPO, has provided strong loan growth opportunity. In general, the branch network has not generated sufficient retail and commercial deposits to support the strong loan growth, so the Company has turned to greater wholesale funding. The Peer Group companies generally operate in markets with larger populations that are more affluent with higher per capita and household income levels.

 

The Company has garnered a comparatively larger deposit market share in its primary market, but the slow growth market limits future growth in retail and commercial deposits. In contrast, the Peer Group companies operate in faster growing markets that support stronger deposit growth despite the competition and smaller market share. Summary demographic and deposit market share data for the Company and the Peer Group companies is provided in Exhibit III-2. As shown in Table 4.1, the average unemployment rate for the primary market area counties served by the Peer Group companies was similar to the unemployment rate reflected for Wayne County.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 6

 

Table 4.1

Market Area Unemployment Rates

Richmond Mutual Bancorporation, Inc. and the Peer Group Companies (1)

 

        December 2018  
    County   Unemployment  
           
Richmond Mutual Bancorp. - IN   Wayne     3.6 %
             
Peer Group Average         3.6 %
             
Elmira Savings Bank – NY   Chemung     4.0 %
ESSA Bancorp, Inc. – PA   Erie     4.4  
HMN Financial, Inc. – MN   Olmsted     2.5  
IF Bancorp, Inc. - IL   Iroquois     5.3  
MSB Financial Corp. – NJ   Morris     2.8  
Prudential Bancorp, Inc. – PA   Philadelphia     4.9  
Severn Bancorp, Inc. – MD   Anne Arundel     2.8  
Spirit of Texas Bancshares, Inc. - TX   Montgomery     3.4  
Standard AVB Financial Corp. – PA   Allegheny     3.7  
Wellesley Bancorp, Inc. – MA   Norfolk     2.4  

 

(1) Unemployment rates are not seasonally adjusted.

 

Source: U.S. Bureau of Labor Statistics.

 

On balance, we concluded that a slight downward adjustment was appropriate for the Company’s market area.

 

5. Dividends

 

At this time the Company has not established a dividend policy. Future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.

 

Seven out of the ten Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 0.69% to 4.92%. The average dividend yield on the stocks of the Peer Group institutions equaled 1.64% as of February 8, 2019. As of the same date, the average dividend yield on the stocks of all fully-converted publicly-traded thrifts equaled 2.00%.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 7

 

While the Company has not established a definitive dividend policy prior to converting, it appears that the Company has similar dividend paying capacity as the Peer Group. On balance, we concluded that no adjustment was warranted for this factor.

 

6. Liquidity of the Shares

 

The Peer Group is by definition composed of companies that are traded in the public markets. All ten of the Peer Group members trade on the NASDAQ. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $65.5 million to $262.7 million as of February 8, 2019, with average and median market values of $123.9 million and $102.7 million, respectively. The shares issued and outstanding of the Peer Group companies ranged from 2.5 million to 12.7 million, with average and median shares outstanding of 7.0 million and 5.1 million, respectively. The Company’s stock offering is expected to have a pro forma market value that will be similar to the Peer Group’s median market value, while the Company’s pro forma shares outstanding will be in the upper end of the comparable Peer Group range of shares outstanding. It is anticipated that the Company’s stock will be quoted on the NASDAQ. Overall, we anticipate that the Company’s stock will have a comparable trading market as the Peer Group companies on average and, therefore, concluded no adjustment was necessary for this factor.

 

7. Marketing of the Issue

 

We believe that three separate markets exist for thrift stocks, including those coming to market such as the Company: (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted publicly-held company and stock trading history; and (3) the acquisition market for thrift franchises in Indiana. All three of these markets were considered in the valuation of the Company’s to-be-issued stock.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 8

 

A. The Public Market

 

The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays various stock price indices as of February 8, 2019.

 

In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed in recent quarters. Strong job growth reflected in the June 2018 employment report and signs that U.S. trade tensions with Europe may be easing propelled the stock market higher at the start of the third quarter of 2018. Technology stocks led a broader stock market rally in mid-July, with the NASDAQ closing at a new record high. Some favorable second quarter earnings reports continued the upward trend in the broader stock market heading into the second half of July. Comparatively, technology stocks led the stock market lower at the end of July, as some technology companies posted disappointing second quarter earnings. Strong earnings growth by some of America’s biggest companies contributed to a rebound in the stock market in early-August. Energy shares led the broader stock market lower going into mid-August 2018, which was attributed to a decline in oil prices. Upbeat data for the U.S. economy, deal activity and signs of cooperation between the U.S. and China contributed to stocks rallying higher during the second half of August, as the NASDAQ soared past 8000 to a new record high. Comparatively, stocks retreated at the end of August through the first part of September, in which technology shares led the market lower on worries about trade and regulation. Manufacturer and financial shares helped stocks to rebound going into the second half of September, as new tariffs announced by the U.S. and China were less than expected. After the Dow Jones Industrial Average (“DJIA”) and S&P 500 closed at record highs, shares of industrial companies led the market lower in late-September. Heightened trade tensions and the Federal Reserve’s rate hike, along with signaling a continued path of rate hikes, were noted factors that stoked caution among investors.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 9

 

Stocks rebounded at the end of September and the beginning of October 2018, as manufacturer shares led the DJIA to a new record high following completion of a new North American trade pact. A sell-off in Treasury bonds prompted a broader stock market downturn at the end of the first week of October, as investors reacted to the September employment report which showed the national unemployment rate hitting a 50-year low. The sell-off in stocks deepened in the second week of October, with the DJIA recording a two-day decline of 5.2% before rebounding at the end of the week. Volatility continued to prevail in the broader stock market during the second half of October, as investors reacted to mixed third quarter earnings reports and signs of softer global economic growth. Following a sell-off heading into late-October 2018, stocks rebounded sharply higher at the end of October and at the start of November. The rebound in the stock market was led by technology shares, based on some favorable third quarter earnings reports. Stocks continued to surge higher following the mid-term elections, as a congressional power divide eased worries about swift policy changes. Following the mid-term election rally, stocks trended sharply lower through late-November. Factors contributing to the sell-off included U.S.-China trade tensions, concerns about the health of the technology sector, worries about slowing global growth and oil prices dropping to a three-year low. Stocks rebounded in the last week of November, with the DJIA and the S&P 500 erasing their November declines after the Federal Reserve Chairman eased investor worries about aggressively increasing interest rates. A strong retail sales report for the Thanksgiving weekend and a trade truce between the U.S. and China also contributed to the stock market rally at the end of November. Energy shares led the stock market higher at the start of December, as oil prices rounded after an easing of geopolitical concerns. Stocks tumbled lower to close out the first trading week of December, as investors’ doubts about the U.S.-China trade truce and a flattening yield curve raised fears of an economic slowdown. A rally in technology shares helped the broader stock market to edge higher going into mid-December, which was followed by a mid-December sell-off prompted by signs that China’s economy may be slowing. The stock market route deepened going into the second half of December, as investors reacted to the Federal Reserve’s rate hike and possible government shutdown. After four days of sharp declines, the DJIA logged its biggest daily point gain which was led by a rebound in energy shares. The positive trend in the broader stock market continued in the final trading days of 2018, although 2018 was the worst yearly decline for stocks since 2008.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 10

 

Volatility continued to prevail in the broader stock market at the start of 2019. Soft economic data for U.S. December manufacturing activity prompted a sharp sell-off, which was followed a robust rally on strong job growth reported for December. The rally in the broader stock market gained momentum through mid-January, which was supported signs of progress in the U.S.- China trade talks and the Federal Reserve signaling its willingness to slow its pace of interest rate increases. The broad-based stock market rally paused in late-January, as stocks retreated on signs that a slow down in China’s economy was hurting corporate profits in the U.S. Stocks soared higher after the Federal Reserve concluded its end of January policy meeting, in which it elected to hold interest rates steady and stated that is was done raising interest rates for a while. Overall, stocks posted their best January in three years, which was led by the biggest laggards during the fourth quarter sell-off. Strong job growth reflected in the January employment report helped to sustain stock market gains at the start of February, which was followed by a pullback related to China trade tensions. On February 8, 2019, the DJIA closed at 25106.33, an increase of 3.8% from one year ago and an increase of 7.6% year-to-date, and the NASDAQ closed at 7,298.20, an increase of 6.2% from one year ago and an increase of 19.4% year-to-date. The S&P 500 Index closed at 2707.88 on February 8, 2019, an increase of 3.4% from one year ago and an increase of 8.0% year-to-date.

 

The performance of thrift stocks has also been uneven in recent quarters. The strong jobs report for June boosted thrift stocks at the start of the third quarter of 2018, which was followed by a slight decline in thrift shares ahead of third quarter earnings reports. After trading in a narrow range through the release of second earnings reports, concerns of rising inflation pressured thrift shares lower in late-July and into early-August. After drifting lower during the first half of August, signs of a strong labor market and a pick-up in consumer spending contributed to gains in the thrift sector going into the second half of August. Following the upturn, thrift shares trended lower through the end of August as thrift stocks were negatively impacted by July housing data showing a decline in new and existing home sales. Thrift stocks traded in a narrow range during the first half of September, followed by a pullback in thrift stocks by month end.

 

The decline in thrift shares became more pronounced in the first week of October 2018, as the shares of mortgage-based lenders were negatively impacted by the rise in long-term Treasury yields and concerns that higher mortgage rates could further deter home buyers in a slumping housing market. Financial shares were among the worst performers in the market sell-off that occurred during second week of October, as investors dumped bank stocks heading into third quarter earnings season. The downturn in thrift stocks continued into the second half of October, as third quarter earnings reports showed a trend of net interest margin compression among mortgage-based lenders. After easing lower through mid-November 2018, comments by the Federal Reserve Chairman signaling a less aggressive approach to raising interest rates spurred a rally in thrift shares at the end of November. Thrift shares reversed course during the first half of December, as financial shares experienced a broad-based sell-off on concerns about the flattening yield curve and slower economic growth translating into weaker demand for bank loans. The sell-off in thrift shares accelerated in the closing weeks of 2018, as financial shares were among the hardest hit in the stock market route that occurred in the second half of December.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 11

 

The favorable jobs report for December 2018 helped thrift stocks to start 2019 out trending higher. Thrift shares continued to rally through mid-January, as some favorable fourth quarter earnings posted by some large banks served to lift financial shares in general. Expectations that the Federal Reserve would slow down it pace of rate increases helped to sustain the positive trend in thrift shares through the second half of January. The favorable jobs report for January, the Federal Reserve’s indication that it was taking a pause in raising interest rates and consolidation in the banking sector contributed to sustaining the rebound in thrift shares through the first week of February. On February 8, 2019, the SNL Index for all publicly-traded thrifts closed at 864.5, a decrease of 7.1% from one year ago and an increase of 12.0% year-to-date.

 

B. The New Issue Market

 

In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Bank’s pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (“P/B”) ratio in that the P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market for existing thrifts the P/B ratio often reflects a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.

 

As shown in Table 4.2, two first-step MHC offerings were completed during the past three months. Rhinebeck Bancorp’s first-step offering was closed at the top of its offering range and 1895 Bancorp’s first-step offering closed slightly above the minimum of its offering range. The average closing fully-converted pro forma price/tangible book ratio of the two recent first-step offerings equaled 68.0%. On average, the two recent first-step MHC offerings reflected price appreciation of 7.9% after the first week of trading. As of February 8, 2019, the two recent first-step offerings reflected a 4.6% increase in price on average.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 12

 

Table 4.2

Pricing Characteristics and After-Market Trends

Conversions Completed in the Last Three Months

 

Institutional Information   Pre-Conversion Data     Offering Information     Contribution to   Insider Purchases           Pro Forma Data           Post-IPO Pricing Trends  
            Financial Info.     Asset Quality                             Char.  Found.   % Off Incl. Fdn.+Merger Shares           Pricing Ratios(2)(5)     Financial Charac.           Closing Price:  
                                    Excluding Foundation         % of   Benefit Plans           Initial                                               First           After           After                    
    Conversion             Equity/     NPAs/     Res.     Gross     %     % of     Exp./         Public Off.         Recog.     Stk     Mgmt.&     Div.           Core           Core           Core     IPO     Trading     %     First     %     First     %     Thru     %  
Institution   Date   Ticker   Assets     Assets     Assets     Cov.     Proc.     Offer     Mid.     Proc.     Form   Inc. Fdn.   ESOP     Plans     Option     Dirs.     Yield     P/TB     P/E     P/A     ROA     TE/A     ROE     Price     Day     Chg     Week(3)     Chg     Month(4)     Chg     2/8/2019     Chg  
            ($Mil)     (%)     (%)     (%)     ($Mil.)     (%)     (%)     (%)         (%)   (%)     (%)     (%)     (%)(1)     (%)     (%)     (x)     (%)     (%)     (%)     (%)     ($)     ($)     (%)     ($)     (%)     ($)     (%)     ($)     (%)  
                                                                                                                                                                                         
Standard Conversions                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                 
Second Step Conversions                                                                                                                                                                                                                                        
                                                                                                                                                                                                                                                 
Mutual Holding Companies                                                                                                                                                                                                                                        
Rhinebeck Bancorp, Inc.   1/17/19   RBKB-NASDAQ   $ 820       6.96 %     1.25 %     74 %   $ 47.9       43 %     132 %     3.7 %   N.A.   N.A.     9.1 %     4.6 %     11.4 %     3.8 %     0.00 %     74.0 %     40.3 x     12.2 %     0.3 %     16.5 %     1.8 %   $ 10.00     $ 11.75       17.50 %   $ 11.58       15.8 %   $ 11.44       14.4 %   $ 11.44       14.4 %
1895 Bancorp of Wisconsin, Inc. (PyraMax Bank)   1/9/19   BCOW-NASDAQ   $ 483       7.82 %     0.34 %     199 %   $ 21.5       44 %     89 %     7.0 %   C/S   2.2%     8.7 %     4.4 %     10.9 %     2.1 %     0.00 %     62.0 %     NM       9.3 %     -0.4 %     15.0 %     -2.5 %   $ 10.00     $ 9.60       -4.0 %   $ 10.00       0.0 %   $ 9.48       -5.2 %   $ 9.48       -5.2 %
                                                                                                                                                                                                                                                 
    Averages - MHC Conversions:   $ 651       7.39 %     0.80 %     136 %   $ 34.7       44 %     110 %     5.3 %   N.A.   N.A.     8.9 %     4.5 %     11.1 %     3.0 %     0.00 %     68.0 %     40.3 x     10.7 %     0.0 %     15.8 %     -0.4 %   $ 10.00     $ 10.68       6.8 %   $ 10.79       7.9 %   $ 10.46       4.6 %   $ 10.46       4.6 %
    Medians - MHC Conversions:   $ 651       7.39 %     0.80 %     136 %   $ 34.7       44 %     110 %     5.3 %   N.A.   N.A.     8.9 %     4.5 %     11.1 %     3.0 %     0.00 %     68.0 %     40.3 x     10.7 %     0.0 %     15.8 %     -0.4 %   $ 10.00     $ 10.68       6.8 %   $ 10.79       7.9 %   $ 10.46       4.6 %   $ 10.46       4.6 %
                                                                                                                                                                                                                                                 
                                                                                                                                                                                                                                                 
    Averages - All Conversions:   $ 651       7.39 %     0.80 %     136 %   $ 34.7       44 %     110 %     5.3 %   N.A.   N.A.     8.9 %     4.5 %     11.1 %     3.0 %     0.00 %     68.0 %     40.3 x     10.7 %     0.0 %     15.8 %     -0.4 %   $ 10.00     $ 10.68       6.8 %   $ 10.79       7.9 %   $ 10.46       4.6 %   $ 10.46       4.6 %
    Medians - All Conversions:   $ 651       7.39 %     0.80 %     136 %   $ 34.7       44 %     110 %     5.3 %   N.A.   N.A.     8.9 %     4.5 %     11.1 %     3.0 %     0.00 %     68.0 %     40.3 x     10.7 %     0.0 %     15.8 %     -0.4 %   $ 10.00     $ 10.68       6.8 %   $ 10.79       7.9 %   $ 10.46       4.6 %   $ 10.46       4.6 %

 

Note: * - Appraisal performed by RP Financial; BOLD = RP Financial assisted in the business plan preparation, “NT” - Not Traded; “NA” - Not Applicable, Not Available; C/S-Cash/Stock.

 

(1) As a percent of MHC offering for MHC transactions.
(2) Does not take into account the adoption of SOP 93-6.
(3) Latest price if offering is less than one week old.
(4) Latest price if offering is more than one week but less than one month old.
(5) Mutual holding company pro forma data on full conversion basis.
(6) Simultaneously completed acquisition of another financial institution.
(7) Simultaneously converted to a commercial bank charter.
(8) Former credit union.

 

2/8/2019

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 13

 

C. The Acquisition Market

 

Also considered in the valuation was the potential impact on the Company’s pro forma market value of recently completed and pending acquisitions of other thrift institutions operating in Indiana. As shown in Exhibit IV-4, there were nine Indiana thrift acquisitions completed from the beginning of 2010 through February 8, 2019. The recent acquisition activity involving Indiana savings institutions may imply a certain degree of acquisition speculation for the Company’s stock. To the extent that acquisition speculation may impact the Company’s offering, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable level of acquisition activity as the Company’s market and, thus, are subject to the same type of acquisition speculation that may influence the Company’s stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in the Company’s stock would tend to be less compared to the stocks of the Peer Group companies.

 

*  *  *  *  *  *  *  *  *  *  *

 

In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for thrift conversions and the local acquisition market for thrift stocks. Taking these factors and trends into account, RP Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.

 

8. Management

 

The Company’s management team appears to have experience and expertise in all of the key areas of the Company’s operations. Exhibit IV-5 provides summary resumes of the Company’s Board of Directors and senior management. The financial characteristics of the Company suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed by the Company’s present organizational structure. The Company currently does not have any senior management positions that are vacant.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 14

 

Similarly, the returns, equity positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.

 

9. Effect of Government Regulation and Regulatory Reform

 

In summary, as a fully-converted, FDIC insured institution, the Company will operate in substantially the same regulatory environment as the Peer Group members — all of whom are adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Company’s pro forma regulatory capital ratios. On balance, no adjustment has been applied for the effect of government regulation and regulatory reform.

 

Summary of Adjustments

 

Overall, based on the factors discussed above, we concluded that the Company’s pro forma market value should reflect the following valuation adjustments relative to the Peer Group:

 

Table 4.3

Richmond Mutual Bancorporation, Inc.

Valuation Adjustments

 

Key Valuation Parameters:   Valuation Adjustment
     
Financial Condition   Slight Upward
Profitability, Growth and Viability of Earnings   Slight Downward
Asset Growth   No Adjustment
Primary Market Area   Slight Downward
Dividends   No Adjustment
Liquidity of the Shares   No Adjustment
Marketing of the Issue   No Adjustment
Management   No Adjustment
Effect of Govt. Regulations and Regulatory Reform   No Adjustment

 

Valuation Approaches

 

In applying the accepted valuation methodology promulgated by the FRB and the Department, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing the Company’s to-be-issued stock – price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) approaches – all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in the Company’s prospectus for reinvestment rate, effective tax rate, stock benefit plan assumptions, expenses and the Foundation (summarized in Exhibits IV-7 and IV-8).

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 15

 

In our estimate of value, we assessed the relationship of the pro forma pricing ratios relative to the Peer Group and recent conversion offerings.

 

RP Financial’s valuation placed an emphasis on the following:

 

· P/E Approach . The P/E approach is generally the best indicator of long-term value for a stock. Given the similarities between the Company’s and the Peer Group’s operating strategies, earnings composition and overall financial condition, the P/E approach was carefully considered in this valuation. At the same time, since reported earnings for both the Company and the Peer Group included certain non-recurring items, we also made adjustments to earnings to arrive at core earnings estimates for the Company and the Peer Group and resulting price/core earnings ratios.

 

· P/B Approach . P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of an initial public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a useful indicator of pro forma value, taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach.

 

· P/A Approach . P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community’s willingness to pay market multiples for earnings or book value when ROE is expected to be low.

 

The Company will adopt “Employers’ Accounting for Employee Stock Ownership Plans” (“ASC 718-40”), which will cause earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of the adoption of ASC 718-40 in the valuation.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 16

 

Additional Factors Included

 

Based on information as presented in the preliminary prospectus, we also included certain other assumptions regarding the proposed transaction that necessarily impacted the valuation. As detailed in the prospectus, we took into account the impact on assets, equity and earnings of the consolidation of the MHC into the Company, which will occur prior to the conversion. The primary impact of this consolidation was a reduction in the Company’s equity from $85.9 million to $79.8 million, which was due mostly to the consolidation of the $5.0 million of subordinated debentures held by third parties. The Company’s trailing 12-month net income was adjusted downward to reflect the MHC’s net loss for the period, which was primarily due to the interest expense paid to the third-party holders of the $5.0 million of subordinated debentures.

 

Further, we adjusted net proceeds and pro forma income calculations for the offering to reflect certain actions presented in the preliminary prospectus that the Company intends to complete, as follows: (1) The Company intends to redeem the above-referenced $5.0 million of subordinated debentures that are owned by third parties, using a portion of the net conversion proceeds. In connection with this, the pro forma earnings calculation was adjusted to reflect the elimination of this expense in the Company’s income statement, along with a reduction in income from net conversion proceeds; and, (2) utilizing a portion of the net proceeds down-streamed to First Bank, the Bank intends to utilize $13.3 million of cash proceeds to terminate the Bank’s defined benefit plan, which will result in an after-tax expense of $9.8 million. We adjusted pro forma equity and earnings for this action, including the elimination of the prior defined benefit plan cost in the Bank’s historical statements, which will be eliminated going forward.

 

Valuation Determination

 

Based on the application of the three valuation approaches, taking into consideration the above discussion and valuation adjustments and the dilutive impact of the stock contribution to the Foundation, RP Financial concluded that, as of February 8, 2019, the pro forma market value of the Company’s conversion stock was $103,500,000 at the midpoint, equal to 10,350,000 shares at $10.00 per share.

 

1.        Price-to-Earnings (“P/E”) . The application of the P/E valuation method requires calculating the Company’s pro forma market value by applying a valuation P/E multiple to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. To determine a level of recurring earnings, as disclosed in the preliminary prospectus, the operations of the MHC are first consolidated into the net income of the Company for the 12 months ended December 31, 2018. Based on this adjustment, the consolidated pre-conversion reported net income was determined to equal $5,395,000. In deriving the Company’s consolidated core earnings for valuation purposes, we eliminated two non-recurring items that occurred during fiscal 2018: the Bank prepaid certain FHLB advances at a discount, thus recording a gain on the transaction. Further, the Bank sold certain investment securities, recording a small gain on sale. Therefore, as shown below, on a tax-effected basis, assuming an effective marginal tax rate of 25.9% for the earnings adjustment, the Company’s core earnings for valuation purposes were determined to equal $5.185 million for the 12 months ended December 31, 2018.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 17

 

Table 4.4

Richmond Mutual Bancorporation, Inc.

Derivation of Consolidated Reported and Core Earnings

 

    Amount  
    ($000)  
       
Net income (Company)   $ 5,678  
Net impact of consolidation of the MHC into the Company     (283 )
    $ 5,395  
Less: impact of non-recurring items (1)(2)     (210 )
Core earnings estimate   $ 5,185  

 

(1) Non-recurring items consist of gain recorded on repayment of FHLB advances and gain on sale of securities.
(2) Tax effected at 25.9%.

 

Based on the Company’s reported and estimated core earnings and incorporating the impact of the pro forma assumptions discussed previously, the Company’s pro forma reported and core P/E multiples at the $103.5 million midpoint value equaled 15.63 times and 16.13 times, respectively, which provided for a discount of 6.5% and a premium of 2.3% relative to the Peer Group’s average reported and core P/E multiples of 16.71 times and 15.77 times, respectively (see Table 4.5). In comparison to the Peer Group’s median reported and core earnings multiples which equaled 15.83 times and 14.99 times, respectively, the Company’s pro forma reported and core P/E multiples at the midpoint value indicated a discount of 1.3% and a premium of 7.6%, respectively. The Company’s pro forma P/E ratios based on reported earnings at the minimum and the supermaximum equaled 13.51x and 20.41x, respectively, and based on core earnings at the minimum and the supermaximum equaled 13.89x and 20.83x, respectively.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 18

 

Table 4.5

Public Market Pricing Versus Peer Group

As of February 8, 2019

 

                Market     Per Share Data                                                                                                  
                Capitalization     Core     Book                                   Dividends(4)     Financial Characteristics(6)  
                Price/     Market     12 Month     Value/     Pricing Ratios(3)     Amount/           Payout     Total     Equity/     Tang. Eq./     NPAs/     Reported     Core  
            Share(1)     Value     EPS(2)     Share     P/E     P/B     P/A     P/TB     P/Core     Share     Yield     Ratio(5)     Assets     Assets     T. Assets     Assets     ROAA     ROAE     ROAA     ROAE  
                ($)     ($Mil)     ($)     ($)     (x)     (%)     (%)     (%)     (x)     ($)     (%)     (%)     ($Mil)     (%)     (%)     (%)     (%)     (%)     (%)     (%)  
Richmond Mutual Bancorporation, Inc.                                                                                                                                                                
Supermaximum   $ 10.00     $ 135.27     $ 0.48     $ 13.42       20.41       74.52       14.22       74.52       20.83     $ 0.00       0.00       0.00     $ 951       19.09       19.09       0.50       0.70       3.66       0.68       3.54  
Maximum     10.00       118.28       0.54       14.10       17.86       70.92       12.63       70.92       18.52       0.00       0.00       0.00       937       17.81       17.81       0.51       0.71       3.96       0.68       3.84  
Midpoint     10.00       103.50       0.62       14.88       15.63       67.20       11.20       67.20       16.13       0.00       0.00       0.00       924       16.66       16.66       0.51       0.71       4.28       0.69       4.14  
Minimum     10.00       88.73       0.72       15.90       13.51       62.89       9.74       62.89       13.89       0.00       0.00       0.00       911       15.49       15.49       0.52       0.72       4.65       0.70       4.50  
                                                                                                                                                                             
All Non-MHC Savings Institutions(6)                                                                                                                                                                
Averages   $ 22.01     $ 618.58     $ 1.56     $ 17.59       15.92       125.94 %     15.02 %     140.56 %     17.00     $ 0.40       2.00 %     45.56 %   $ 4,355       12.84 %     11.86 %     0.97 %     0.91 %     7.71 %     0.88 %     7.00 %
Median   $ 16.88     $ 227.31     $ 0.98     $ 15.59       14.88       117.19 %     14.82 %     129.35 %     14.63     $ 0.34       1.83 %     40.80 %     1,468       11.67 %     10.59 %     0.79 %     0.87 %     7.33 %     0.83 %     7.13 %
                                                                                                                                                                             
Comparable Group                                                                                                                                                                
Averages   $ 20.31     $ 123.94     $ 1.39     $ 18.78       16.71       116.62 %     13.15 %     127.09 %     15.77     $ 0.33       1.64 %     46.06 %   $ 981       11.17 %     10.24 %     1.30 %     0.83 %     7.43 %     0.74 %     7.58 %
Medians   $ 19.12     $ 102.66     $ 1.13     $ 16.52       15.83       115.44 %     13.27 %     126.60 %     14.99     $ 0.22       1.20 %     41.65 %   $ 922       11.54 %     11.19 %     1.37 %     0.87 %     7.15 %     0.74 %     7.13 %
                                                                                                                                                                             
Comparable Group                                                                                                                                                                
ESBK   Elmira Savings Bank   (7)   NY   $ 18.68     $ 65.47     $ 1.21     $ 16.52       15.44 x     113.07 %     11.10 %     143.63 %     15.46 x   $ 0.92       4.92 %     76.03 %   $ 590       9.82 %     7.90 %     0.78 %     0.75 %     7.37 %     0.75 %     7.38 %
ESSA   ESSA Bancorp, Inc.   (7)   PA   $ 15.25     $ 167.65     $ 1.05     $ 15.63       14.95 x     97.55 %     9.68 %     106.23 %     14.52 x   $ 0.40       2.62 %     36.27 %   $ 1,863       9.92 %     9.18 %     NA       0.61 %     6.21 %     0.63 %     6.39 %
HMNF   HMN Financial, Inc.   (7)   MN   $ 19.55     $ 89.55       NA     $ 17.19       11.37 x     113.70 %     13.27 %     115.17 %     NM     $ 0.00       0.00 %     NA     $ 712       11.67 %     11.54 %     NA       1.14 %     9.88 %     NA       NA  
IROQ   IF Bancorp, Inc.   (7)   IL   $ 20.75     $ 69.95       NA     $ 21.71       23.58 x     95.57 %     11.30 %     95.57 %     NM     $ 0.25       1.20 %     25.57 %   $ 664       11.82 %     11.82 %     NA       0.50 %     3.95 %     NA       NA  
MSBF   MSB Financial Corp.   (7)   NJ   $ 17.80     $ 92.73     $ 0.90     $ 12.37       19.78 x     143.93 %     16.41 %     143.93 %     19.78 x   $ 0.00       0.00 %     100.56 %   $ 585       11.40 %     11.40 %     NA       0.85 %     6.88 %     0.85 %     6.88 %
PBIP   Prudential Bancorp, Inc.   (7)   PA   $ 18.01     $ 160.16       NA     $ 14.69       18.38 x     122.56 %     14.36 %     129.12 %     NM     $ 0.20       1.11 %     56.12 %   $ 1,115       11.72 %     11.19 %     1.37 %     0.88 %     6.98 %     NA       NA  
SVBI   Severn Bancorp, Inc.   (7)   MD   $ 8.85     $ 112.58       NA       NA       13.21 x     117.19 %     NA       118.55 %     NM     $ 0.12       1.36 %     17.91 %   $ 974       10.11 %     10.00 %     1.73 %     1.01 %     9.46 %     NA       NA  
STXB   Spirit of Texas Bancshares, Inc.   (7)   TX   $ 21.70     $ 262.65       NA     $ 16.42       20.87 x     132.12 %     17.89 %     157.36 %     NM       NA       NA       NA     $ 1,468       13.54 %     11.62 %     NA       0.90 %     7.33 %     NA       NA  
STND   Standard AVB Financial Corp.   (7)   PA   $ 30.49     $ 141.22       NA     $ 28.65       16.22 x     106.42 %     15.10 %     137.21 %     NM     $ 0.88       2.90 %     47.02 %   $ 972       14.19 %     NA       NA       0.90 %     6.55 %     NA       NA  
WEBK   Wellesley Bancorp, Inc.   (7)   MA   $ 32.00     $ 77.42     $ 2.40     $ 25.79       13.33 x     124.08 %     9.27 %     124.08 %     13.33 x   $ 0.22       0.69 %     8.96 %   $ 871       7.47 %     7.47 %     NA       0.72 %     9.66 %     0.72 %     9.66 %

 

(1) Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%.

(2) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x.

(3) Indicated 12 month dividend, based on last quarterly dividend declared.

(4) Indicated 12 month dividend as a percent of trailing 12 month earnings.

(5) ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances.

(6) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics.

(7) Financial information is as of or for the twelve months ended September 30, 2018.

 

Source: S&P Market Intelligence, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

Copyright (c) 2018 by RP ® Financial, LC.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 19

 

2.        Price-to-Book (“P/B”) . The application of the P/B valuation method requires calculating the Company’s pro forma market value by applying a valuation P/B ratio, as derived from the Peer Group’s P/B ratio, to the Company’s pro forma book value. Based on the $103.5 million midpoint valuation, the Company’s pro forma P/B and P/TB ratios equaled 67.20%. In comparison to the average P/B and P/TB ratios for the Peer Group of 116.62% and 127.09%, the Company’s ratios reflected a discount of 42.4% on a P/B basis and a discount of 47.1% on a P/TB basis. In comparison to the Peer Group’s median P/B and P/TB ratios of 115.44% and 126.60%, respectively, the Company’s pro forma P/B and P/TB ratios at the midpoint value reflected discounts of 41.8% and 46.9%, respectively. At the supermaximum of the valuation range, the Company’s P/B and P/TB ratios equaled 74.52%. In comparison to the Peer Group’s average P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the top of the supermaximum reflected discounts of 36.1% and 41.4%, respectively. In comparison to the Peer Group’s median P/B and P/TB ratios, the Company’s P/B and P/TB ratios at the top of the supermaximum reflected discounts of 35.5% and 41.1%, respectively. RP Financial considered the discounts under the P/B approach to be reasonable, given the nature of the calculation of the P/B ratio which mathematically results in a ratio discounted to book value.

 

3.        Price-to-Assets (“P/A”) . The P/A valuation methodology determines market value by applying a valuation P/A ratio to the Company’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the $103.5 million midpoint of the valuation range, the Company’s value equaled 11.20% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 13.15%, which implies a discount of 14.8% has been applied to the Company’s pro forma P/A ratio. In comparison to the Peer Group’s median P/A ratio of 13.27%, the Company’s pro forma P/A ratio at the midpoint value reflects a discount of 15.6%.

 

Comparison to Recent Offerings

 

As indicated at the beginning of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings cannot be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals). In comparison to the two recently completed first-step offerings average closing pro forma P/TB fully converted ratio of 68.0%, the Bank’s P/TB ratio of 67.2% at the midpoint value reflects an implied discount of premium of 1.1%. At the supermaximum of the valuation range, the Bank’s P/TB ratio of 74.52% reflects an implied premium of 9.6% relative to average closing pro forma P/TB ratio of the two recently completed first-step offerings.

 

 

RP ® Financial, LC. VALUATION ANALYSIS
   IV. 20

 

Valuation Conclusion

 

Based on the foregoing, it is our opinion that, as of February 8, 2019, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion, including shares to be issued to the Foundation, equaled $103,500,000 at the midpoint, equal to 10,350,000 shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% valuation range indicates a minimum value of $88,725,000 and a maximum value of $118,275,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 8,872,500 at the minimum and 11,827,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a supermaximum value of $135,266,250 without a resolicitation. Based on the $10.00 per share offering price, the supermaximum value would result in total shares outstanding of 13,526,625. Based on this valuation range, the offering range is as follows: $83,725,000 at the minimum, $98,500,000 at the midpoint, $113,275,000 at the maximum and $130,266,250 at the supermaximum. Based on the $10.00 per share offering price, the number of offering shares is as follows: 8,372,500 at the minimum, 9,850,000 at the midpoint, 11,327,500 at the maximum and 13,026,625 at the supermaximum. The pro forma valuation calculations relative to the Peer Group are shown in Table 4.5 and are detailed in Exhibit IV-7 and Exhibit IV-8.

 

 

RP ® Financial, LC. LIST OF EXHIBITS

 

EXHIBITS

 

 

RP ® Financial, LC. LIST OF EXHIBITS

 

LIST OF EXHIBITS

 

Exhibit    
Number    Description
I-1   Map of Office Locations
     
I-2   Audited Financial Statements
     
I-3   Key Operating Ratios
     
I-4   Investment Portfolio Composition
     
I-5   Yields and Costs
     
I-6   Loan Loss Allowance Activity
     
I-7   Interest Rate Risk Analysis
     
I-8   Fixed and Adjustable Rate Loans
     
I-9   Loan Portfolio Composition
     
I-10   Contractual Maturity by Loan Type
     
I-11   Loan Originations, Purchases, Sales and Repayments
     
I-12   Non-Performing Assets
     
I-13   Deposit Composition
     
I-14   Maturity of Time Deposits
     
I-15   Borrowing Activity
     
II-1   Description of Office Properties
     
II-2   Historical Interest Rates
     
II-3   Demographic and Economic Information

 

 

RP ® Financial, LC. LIST OF EXHIBITS

 

LIST OF EXHIBITS (continued)

 

Exhibit    
Number   Description
     
III-1   General Characteristics of Publicly-Traded Institutions
     
III-2   Peer Group Market Area Comparative Analysis
     
IV-1   Stock Prices:  As of February 8, 2019
     
IV-2   Historical Stock Price Indices
     
IV-3   Stock Indices as of February 8, 2019
     
IV-4   Market Area Acquisition Activity
     
IV-5   Director and Senior Management Summary Resumes
     
IV-6   Pro Forma Regulatory Capital Ratios
     
IV-7   Pro Forma Analysis Sheet
     
IV-8   Pro Forma Effect of Conversion Proceeds
     
     
V-1   Firm Qualifications Statement

 

 

 

 

EXHIBIT I-1

Richmond Mutual Bancorporation, Inc.

Map of Office Locations

 

 

 

 

Exhibit I-1
Richmond Mutual Bancorporation, Inc.

Map of Office Locations

 

 

Source: SNL Financial LC

 

 

 

 

EXHIBIT I-2

 

Richmond Mutual Bancorporation, Inc.

Audited Financial Statements

[Incorporated by Reference]

 

 

 

 

EXHIBIT I-3

Richmond Mutual Bancorporation, Inc.

Key Operating Ratios

 

 

 

 

Exhibit I-3
Richmond Mutual Bancorporation, Inc.

Key Operating Ratios

 

    At or For the  
    Years Ended December 31,  
    2018     2017     2016     2015     2014  
Selected Financial Ratios and Other Data:                                        
Performance ratios:                                        
Return on average assets (ratio of net income (loss) to average total assets)     0.71 %     0.38 %     0.50 %     0.63 %     0.47 %
Return on average equity (ratio of net income (loss) to average equity)     6.89 %     3.36 %     4.28 %     5.28 %     4.03 %
Yield on interest-earning assets     4.64 %     4.36 %     4.27 %     4.26 %     4.33 %
Rate paid on interesting-bearing liabilities     1.18 %     0.92 %     0.78 %     0.76 %     0.90 %
Interest rate spread information:                                        
Average during period     3.40 %     3.32 %     3.36 %     3.43 %     3.40 %
End of period     3.11 %     3.21 %     3.27 %     3.36 %     3.45 %
Net interest margin (1)     3.57 %     3.48 %     3.51 %     3.59 %     3.61 %
Operating expense to average total assets     2.89 %     2.96 %     3.18 %     3.16 %     3.30 %
Average interest-earning assets to average interest-bearing liabilities     117.01 %     120.20 %     124.13 %     127.18 %     131.52 %
Efficiency ratio (2)     71.84 %     73.22 %     78.20 %     78.79 %     77.37 %
                                         
Asset quality ratios:                                        
Non-performing assets to total assets (3)     0.59 %     0.63 %     1.67 %     2.21 %     3.07 %
Non-performing loans and leases to total gross loans and leases (4)     0.69 %     0.80 %     1.62 %     3.24 %     4.91 %
Allowance for loan and lease losses to non-performing loans and leases (4)     122.40 %     106.36 %     71.31 %     39.96 %     34.27 %
Allowance for loan and lease losses to loans and leases receivable, net     0.85 %     0.85 %     1.15 %     1.29 %     1.68 %
Net charge-offs to average outstanding loans and leases during the period     0.14 %     0.38 %     0.23 %     0.49 %     0.64 %
                                         
Capital ratios: (5)                                        
Common equity tier 1 capital (to risk weighted assets)     11.42 %     11.80 %     13.10 %     15.30 %     16.80 %
Tier 1 leverage (core) capital (to adjusted tangible assets)     10.00 %     10.30 %     9.80 %     10.30 %     10.50 %
Tier 1 risk-based capital (to risk weighted assets)     11.42 %     11.80 %     13.10 %     15.30 %     16.80 %
Total risk-based capital (to risk weighted assets)     12.18 %     12.60 %     14.10 %     16.50 %     18.00 %
Equity to total assets at end of period     10.11 %     10.85 %     11.26 %     11.50 %     12.36 %
Average equity to average assets     11.26 %     11.40 %     11.35 %     11.28 %     10.85 %
                                         
Other data:                                        
Number of full service offices     12       12       11       11       12  
Full-time equivalent employees     172       174       173       170       180  

 

 

(1) Net interest income (on a tax equivalent basis) divided by average interest earning assets.
(2) Total other (non-interest) expenses as a percentage of net interest income (on a tax equivalent basis) and total other (non-interest) income, excluding net securities transactions.
(3) Non-performing assets consist of non-accruing loans and leases, accruing loans and leases more than 90 days past due and foreclosed assets.
(4) Non-performing loans and leases consist of non-accruing loans and leases and accruing loans and leases more than 90 days past due.
(5) Capital ratios are for First Bank Richmond.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-4

Richmond Mutual Bancorporation, Inc.

Investment Portfolio Composition

 

 

 

 

Exhibit I-4
Richmond Mutual Bancorporation, Inc.

Investment Portfolio Composition

 

    1 year or less     Over 1 year to 5 years     Over 5 to 10 years     Over 10 years     Total Securities  
    Amortized
Cost 		    Weighted
Average
Yield 		    Amortized
Cost 		    Weighted
Average
Yield 		    Amortized
Cost 		    Weighted
Average
Yield 		    Amortized
Cost 		    Weighted
Average
Yield 		    Amortized
Cost 		    Weighted
Average
Yield 		    Fair
Value 		 
    (Dollars in thousands)  
Securities available for sale:                                                                                        
U.S. government and federal agency   $ —       —%     $ 3,000       1.83 %   $ 37,812       2.07 %   $ —       —%     $ 40,812       2.05 %   $ 38,010  
State and municipal obligations     157       2.58       6,109       2.15       14,699       2.39       9,566       3.12       30,531       2.57       29,790  
Government sponsored mortgage backed securities     —       —       63       4.41       9,233       1.54       47,649       2.47       56,945       2.32       54,670  
Other     —       —       —       —       —       —       13       —       13       —       13  
Total securities available for sale     157       2.58       9,172       2.06       61,744       2.07       57,228       2.58       128,301       2.29       122,483  
                                                                                         
Securities held to maturity:                                                                                        
State and municipal obligations     2,540       2.05       9,448       2.63       5,095       3.29       1,497       5.55       18,580       2.97       18,543  
Other (1)     —       —               —       —       —       2,500       3.93       2,500       3.93       5,110  
Total securities held to maturity     2,540       2.05       9,448       2.63       5,095       3.29       3,997       4.54       21,080       3.08       23,653  
Total investment securities   $ 2,697       2.08 %   $ 18,620       2.35 %   $ 66,839       2.16 %   $ 61,225       2.71 %   $ 149,381       2.40 %   $ 146,136  

 

 

(1) Consists of trust preferred securities issued by our mutual holding company, First Mutual of Richmond-MHC, through a statutory trust. Following completion of the reorganization and stock offering, Richmond Mutual Bancorporation-Maryland intends to utilize a portion of the net proceeds from the stock offering to redeem these trust preferred securities. See “Business of First Bank Richmond – Borrowed Funds.”

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-5

 

Richmond Mutual Bancorporation, Inc.

Yields and Costs

 

 

 

Exhibit I-5
Richmond Mutual Bancorporation, Inc.

Yields and Costs

 

    Years Ended December 31,  
    2018     2017     2016  
   

Average

Balance

Outstanding

   

Interest

Earned/

Paid

   

Yield/

Rate

   

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   $ 613,569     $ 31,559       5.14 %   $ 513,129     $ 25,523       4.97 %   $ 431,238     $ 22,554       5.23 %
Securities     142,140       3,167       2.23 %     155,250       3,177       2.05 %     189,515       3,798       2.00 %
Federal Reserve and FHLB stock     6,686       341       5.10 %     6,631       267       4.03 %     6,234       281       4.51 %
Other     5,771       132       2.29 %     11,250       137       1.22 %     17,732       53       0.30 %
Total interest-earning assets     768,166       35,199       4.58 %     686,261       29,104       4.24 %     644,720       26,686       4.14 %
                                                                         
Interest-bearing liabilities:                                                                        
Savings and money market accounts     161,111       884       0.55 %     157,926       784       0.50 %     147,826       706       0.48 %
Interest-bearing checking accounts     100,958       205       0.20 %     92,698       169       0.18 %     95,533       156       0.16 %
Certificate accounts     278,810       4,559       1.64 %     223,060       2,843       1.27 %     195,256       2,195       1.12 %
Borrowings     115,620       2,104       1.82 %     97,240       1,454       1.50 %     80,760       1,011       1.25 %
Total interest-bearing liabilities     656,499       7,752       1.18 %     570,924       5,250       0.92 %     519,375       4,068       0.78 %
                                                                         
Net interest income           $ 27,447                     $ 23,854                     $ 22,618          
Net earning assets   $ 111,667                     $ 115,337                     $ 125,345                  
Net interest rate spread (1)                     3.40 %                     3.32 %                     3.49 %
Net interest margin (2)                     3.57 %                     3.48 %                     3.64 %
Average interest-earning assets to average interest-bearing liabilities     117.01 %                     120.20 %                     124.13 %                

 

 

(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.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-6

 

Richmond Mutual Bancorporation, Inc.

Loan Loss Allowance Activity

 

 

 

 

Exhibit I-6
Richmond Mutual Bancorporation, Inc.

Loan Loss Allowance Activity

 

    Years Ended December 31,  
    2018     2017     2016     2015     2014  
    (Dollars in thousands)  
Balance at beginning of period:   $ 4,800     $ 5,394     $ 5,246     $ 6,266     $ 6,860  
                                         
Charge-offs:                                        
Real estate loans:                                        
Residential (1)     121       1,842       772       376       1,790  
Home equity     —       —       —       —       24  
Multi-family     —       —       —       —       18  
Commercial     —       —       81       619       102  
Construction and development     —       —       15       —       1,226  
Total real estate loans     121       1,842       868       995       3,160  
                                         
Consumer loans     57       57       92       145       78  
                                         
Commercial business:                                        
Commercial and industrial     1,033       265       225       680       73  
Direct financing leases     454       304       345       534       184  
Total commercial business loans and leases     1,487       569       570       1,214       257  
Total charge offs     1,665       2,468       1,530       2,354       3,495  
                                         
Recoveries:                                        
Real estate loans:                                        
Residential (1)     137       101       57       53       67  
Home equity     2       2       2       —       11  
Multi-family             —       —       —       —  
Commercial     308       38       141       41       98  
Construction and development     17       35       17       12       19  
Total real estate loans     464       176       217       106       195  
                                         
Consumer loans     31       29       30       56       78  
                                         
Commercial business:                                        
Commercial and industrial     26       21       40       93       504  
Direct financing leases     264       278       236       249       324  
Total commercial business loans and leases     290       299       276       342       828  
Total recoveries     785       504       523       504       1,101  
                                         
Net charge-offs     880       1,964       1,007       1,850       2,394  
Additions charged to operations     1,680       1,370       1,155       830       1,800  
Balance at end of period   $ 5,600     $ 4,800     $ 5,394     $ 5,246     $ 6,266  
                                         
Net charge-offs during the period to average loans outstanding during the period     0.14 %     0.38 %     0.23 %     0.48 %     0.64 %
                                         
Net charge-offs during the period to average non-performing assets     18.93 %     24.77 %     7.89 %     11.05 %     11.45 %
                                         
Allowance as a percentage of non- performing assets     117.87 %     105.56 %     47.70 %     36.88 %     32.54 %
                                         
Allowance as a percentage of total gross loans and leases receivable (end of period)     0.85 %     0.85 %     1.15 %     1.29 %     1.68 %

 

 

(1) Includes loans secured by first and second mortgages on residential properties.

 

Source: Richmond Mutual Bancorporation’s Prospectus.

 

 

 

 

EXHIBIT I-7

Richmond Mutual Bancorporation, Inc.

Interest Rate Risk Analysis

 

 

 

 

Exhibit I-7
Richmond Mutual Bancorporation, Inc.

Interest Rate Risk Analysis

 

          Estimated Increase (Decrease) in EVE  

Basis Point (“bp”) Change in
Interest Rates (1)

 

Estimated EVE (2)

    Amount     Percent  
    (Dollars in thousands)  
+400   $ 83,746     $ (26,531 )     (24.06 )%
+300     91,279       (18,998 )     (17.23 )
+200     99,156       (11,121 )     (10.08 )
+100     105,197       (5,080 )     (4.61 )
Level     110,277       -       -  
-100     113,350       3,073       2.79  

 

 

(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-8

Richmond Mutual Bancorporation, Inc.

Fixed and Adjustable Rate Loans

 

 

 

 

Exhibit I-8
Richmond Mutual Bancorporation, Inc.

Fixed and Adjustable Rate Loans

 

    Fixed Rate     Floating or
Adjustable Rate 		    Total  
    (Dollars in thousands)  
Residential real estate (1)   $ 37,325     $ 6,673     $ 43,998  
Home equity lines of credit     1,714       1,720       3,434  
Multi-family and commercial real estate     16,473       75,246       91,719  
Construction and development     8,770       25,330       34,100  
Consumer     7,367       750       8,117  
Commercial and Industrial     16,284       36,954       53,238  
Direct finance leasing     53,686       —       53,686  
Total   $ 141,619     $ 146,673     $ 288,292  

 

 

(1) Includes $2.5 million of fixed-rate and no adjustable-rate loans secured by second mortgages on residential properties.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-9

Richmond Mutual Bancorporation, Inc.

Loan Portfolio Composition

 

 

 

 

Exhibit I-9
Richmond Mutual Bancorporation, Inc.

Loan Portfolio Composition

 

    At December 31,  
    2018     2017     2016     2015     2014  
    Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent     Amount     Percent  
    (Dollars in thousands)  
Real estate loans:                                                                                
Residential (1)   $ 132,492       20.05 %   $ 128,773       22.86 %   $ 129,336       27.64 %   $ 130,482       32.14 %   $ 127,162       34.09 %
Home equity lines of credit     7,214       1.09       7,245       1.29       7,370       1.58       7,687       1.89       6,344       1.70  
Multi-family     43,816       6.63       63,701       11.31       32,624       6.97       20,028       4.93       13,533       3.63  
Commercial     211,237       31.97       162,218       28.80       120,098       25.67       89,750       22.10       74,286       19.92  
Construction and development     72,955       11.04       27,944       4.96       18,788       4.02       9,805       2.41       12,964       3.48  
Total real estate loans     467,714       70.78       389,881       69.22       308,216       65.88       257,752       63.47       234,289       62.82  
                                                                                 
Consumer loans     13,520       2.05       11,628       2.06       10,858       2.32       10,508       2.59       10,831       2.90  
                                                                                 
Commercial business loans and leases:                                                                                
                                                                                 
Commercial and industrial     71,854       10.87       61,753       10.97       55,352       11.83       50,269       12.38       52,034       13.95  
Direct financing leases     107,735       16.30       99,940       17.75       93,433       19.97       87,580       21.56       75,814       20.33  
Total commercial business loans and leases     179,589       27.17       161,693       28.72       147,785       31.80       137,849       33.94       127,848       34.28  
                                                                                 
Total loans and leases     660,823       100.00 %     563,202       100.00 %     467,859       100.00 %     406,109       100.00 %     372,968       100.00 %
                                                                                 
Less:                                                                                
Deferred fees and discounts     468               473               475               436               370          
Allowance for loan and lease losses     5,600               4,800               5,394               5,246               6,266          
Total loans and leases receivable, net   $ 564,755             $ 557,929             $ 461,990             $ 400,427             $ 366,332          

 

 

(1) Includes balances of loans secured by second mortgages on residential properties at December 31, 2018.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-10

Richmond Mutual Bancorporation, Inc.

Contractual Maturity by Loan Type

 

 

 

 

Exhibit I-10
Richmond Mutual Bancorporation, Inc.

Contractual Maturity by Loan Type

 

    Consumer     Commercial and Industrial     Total  

Due During Years Ending

December 31,

  Amount     Weighted
Average
Rate 		    Amount     Weighted
Average
Rate 		    Amount     Weighted
Average
Rate 		 
2019 (1)   $ 889       4.81 %   $ 31,928       5.59 %   $ 32,817       5.57 %
2020     1,688       5.61       2,628       5.15       4,316       5.33  
2021     1,838       5.50       3,512       4.83       5,350       5.06  
2022 and 2023     5,938       4.57       6,650       5.05       12,588       4.82  
2024 to 2028     3,080       4.01       22,090       4.89       25,170       4.78  
2029 to 2033     87       6.23       1,106       5.70       1,193       5.74  
2034 and following     —       —       3,940       5.09       3,4940       5.09  
Total   $ 13,520       4.73 %   $ 71,854       5.25 %   $ 85,374       5.16 %

 

 

(1) Includes demand loans, loans having no stated maturity and overdraft loans.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-11

Richmond Mutual Bancorporation, Inc.

Loan Originations, Purchases, Sales and Repayments

 

 

 

 

Exhibit I-11
Richmond Mutual Bancorporation, Inc.

Loan Originations, Purchases, Sales and Repayments

 

    Fixed Rate     Floating or
Adjustable Rate 		    Total  
    (Dollars in thousands)  
Residential real estate (1)   $ 37,325     $ 6,673     $ 43,998  
Home equity lines of credit     1,714       1,720       3,434  
Multi-family and commercial real estate     16,473       75,246       91,719  
Construction and development     8,770       25,330       34,100  
Consumer     7,367       750       8,117  
Commercial and Industrial     16,284       36,954       53,238  
Direct finance leasing     53,686       —       53,686  
Total   $ 141,619     $ 146,673     $ 288,292  

 

 

(1) Includes $2.5 million of fixed-rate and no adjustable-rate loans secured by second mortgages on residential properties.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-12

Richmond Mutual Bancorporation, Inc.

Non-Performing Assets

 

 

 

 

Exhibit I-12
Richmond Mutual Bancorporation, Inc.

Non-Performing Assets

 

    At December 31,  
    2018     2017     2016     2015     2014  
    (Dollars in thousands)  
Non-accruing loans and leases (1) :                                        
Residential (1)   $ 357     $ 320     $ 844     $ 1,359       1,214  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     743       181       2,032       8,937       13,506  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     1,177       2,609       2,557       1,343       2,109  
Direct financing leases     202       25       124       72       60  
Total non-accruing loans and leases     2,479       3,135       5,557       11,711       16,889  
                                         
Accruing loans and leases delinquent more than 90 days:                                        
Residential (1)     1,913       1,310       1,961       976       665  
Home equity lines of credit     15       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       —       116       399  
Construction and development     —       —       —       —       —  
Consumer     38       —       38       9       8  
Commercial and industrial     130       68       8       317       324  
Direct financing leases     —       —       —       —       —  
Total accruing loans and leases delinquent more than 90 days     2,096       1,378       2,007       1,418       1,396  
Total non-performing loans and leases     4,575       4,513       7,564       13,129       18,285  
                                         
Foreclosed assets:                                        
Residential (1)     176       34       72       301       411  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       3,672       793       560  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     —       —       —       —       —  
Direct financing leases     —       —       —       —       —  
Total foreclosed assets     176       34       3,744       1,094       971  
                                         
Total non-performing assets   $ 4,751     $ 4,547     $ 11,308     $ 14,223     $ 19,256  
                                         
Troubled debt restructurings (accruing):                                        
Residential (1)     —       —       —       70       54  
Home equity lines of credit     —       —       —       —       —  
Multi-family     —       —       —       —       —  
Commercial real estate     —       —       —       —       —  
Construction and development     —       —       —       —       —  
Consumer     —       —       —       —       —  
Commercial and industrial     —       —       152       170       181  
Direct financing leases     —       —       —       —       —  
Total trouble debt restructuring (accruing)   $ 0     $ 0     $ 152     $ 240     $ 235  
                                         
Total non-performing loans to total loans     0.69 %     0.80 %     1.62 %     3.23 %     4.90 %
Total non-performing assets to total assets     0.56 %     0.60 %     1.63 %     2.11 %     3.14 %
Total non-performing assets and troubled debt restructurings (accruing) to total assets     0.56 %     0.60 %     1.65 %     2.14 %     3.17 %

 

 

(1) Non-accrual loans include $1.6 million, $2.7 million, $2.8 million, $6.5 million and $7.1 million, of troubled debt restructurings for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
(2) Includes loans secured by first and second mortgages on residential properties.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-13

Richmond Mutual Bancorporation, Inc.

Deposit Composition

 

 

 

 

Exhibit I-13
Richmond Mutual Bancorporation, Inc.

Deposit Composition

 

    At December 31,  
    2018     2017     2016  
    Amount     Percent
of Total 		    Amount     Percent
of Total 		    Amount     Percent
of Total 		 
    (Dollars in thousands)  
Transaction and Savings Deposits:                                                
                                                 
Demand Deposits   $ 159,460       25.7 %   $ 155,200       27.4 %   $ 154,022       29.8 %
Savings     68,627       11.0       66,782       11.9       65,240       12.7  
Money market     84,129       13.6       88,092       15.7       86,696       16.8  
                                                 
Total non-certificates     312,216       50.3       310,074       55.3       305,958       59.3  
                                                 
Certificates:                                                
                                                 
0.00 – 1.00%     28,266       4.6       44,562       8.0       96,043       18.6  
1.01 – 2.00%     135,637       21.9       193,703       34.5       100,448       19.4  
2.01 – 3.00%     143,327       23.0       11,746       2.1       13,494       2.6  
3.01 – 4.00%     1,191       0.2       310       0.1       315       0.1  
Over 4.00%     —       —       —       —       44       —  
                                                 
Total certificates     308,421       49.7       250,321       44.7       210,344       40.7  
                                                 
Total deposits   $ 620,637       100.0 %   $ 560,395       100.0 %   $ 516,302       100.0 %

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-14

Richmond Mutual Bancorporation, Inc.

Maturity of Time Deposits

 

 

 

 

Exhibit I-14
Richmond Mutual Bancorporation, Inc.

Maturity of Time Deposits

 

   

0.00-

1.00%

   

1.01-

2.00%

   

2.01-

3.00%

   

Over

3.00%

    Total    

Percent
of
Total

 
    (Dollars in thousands)  
Certificate accounts maturing in quarter ending:                                                
                                                 
March 31, 2019   $ 4,591     $ 20,232     $ 6,353     $ —     $ 31,176       10.1 %
June 30, 2019     6,676       20,755       829       —       28,260       9.2  
September 30, 2019     3,594       18,739       42,163       —       64,496       20.9  
December 31, 2019     5,760       11,868       56,339       —       73,967       24.0  
March 31, 2020     2,700       11,584       16,500       —       30,784       10.0  
June 30, 2020     2,568       5,473       1,725       17       9,783       3.2  
September 30, 2020     1,213       5,772       467       —       7,452       2.4  
December 31, 2020     756       13,574       1,680       1,134       17,144       5.6  
March 31, 2021     181       4,437       4,083       24       8,725       2.8  
June 30, 2021     47       5,538       601       —       6,186       2.0  
September 30, 2021     58       3,221       236       16       3,531       1.1  
December 31, 2021     80       2,937       686       —       3,703       1.2  
Thereafter     42       11,507       11,665       —       23,214       7.5  
                                                 
Total   $ 28,266     $ 135,637     $ 143,327     $ 1,191     $ 308,421       100.00 %
                                                 
Percent of total     9.2 %     44.0 %     46.4 %     0.4 %     100 %        

 

    Maturity        
   

3 Months

or Less

   

Over

3 to 6

Months

   

Over

6 to 12

Months

   

Over

12 Months

    Total  
    (In thousands)  
                               
Certificates of deposit less than $100,000   $ 8,538     $ 13,163     $ 42,854     $ 34,202     $ 98,757  
                                         
Certificates of deposit of $100,000 or more     22,536       15,097       92,133       70,047       199,813  
                                         
Public funds (1)     102       —       3,478       6,271       9,851  
                                         
Total certificates of deposit   $ 31,176     $ 28,260     $ 138,465     $ 110,520     $ 308,421  

 

 

(1) Deposits from government and other public entities.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT I-15

Richmond Mutual Bancorporation, Inc.

Borrowing Activity

 

 

 

 

Exhibit I-15
Richmond Mutual Bancorporation, Inc.

Borrowing Activity

 

    Years Ended December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
Maximum balance:                        
FHLB advances   $ 136,500     $ 115,300     $ 92,300  
                         
Average balances:                        
FHLB advances   $ 112,678     $ 95,102     $ 78,491  
                         
Weighted average interest rate:                        
FHLB advances     2.22 %     1.63 %     1.31 %

 

    At December 31,  
    2018     2017     2016  
    (Dollars in thousands)  
Balance outstanding at end of period:                        
FHLB advances   $ 136,100     $ 104,000     $ 92,300  
                         
Weighted average interest rate:                        
FHLB advances     2.22 %     1.63 %     1.31 %

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT II-1

Richmond Mutual Bancorporation, Inc.

Description of Office Properties

 

 

 

 

Exhibit II-1
Richmond Mutual Bancorporation, Inc.

Description of Office Properties

 

Location   Year
Opened 		  Square
Footage 		    Owned/
Leased 		  Lease
Expiration
Date 		    Net Book
Value at
December 31, 2018 		 
                        (Dollars in thousands)  
Corporate Office/Financial Center:                                
31 North 9 th Street
Richmond, IN 47374 (1) 		  2002     35,182     Owned     —     $ 3,583 (5)
Indiana Branch Offices:                                
200 W Main Street
Cambridge City, Indiana  47327 (2) 		  2014     4,560     Owned     —       412  
119 East Main Street
Centerville, Indiana  47330 (2) 		  1896     19,851     Owned     —       — (6)
20 North 9 th Street
Richmond, Indiana  47374 (2) 		  1959     2,592     Owned     —       80  
3403 East Main Street
Richmond, Indiana  47374 (2) 		  1991     3,321     Owned     —       502  
601 South A Street
Richmond, Indiana  47375 (3) 		  1999     360     Leased     2023       160  
2499 Chester Boulevard
Richmond, Indiana  47374 (2) 		  2003     2,467     Owned     —       618  
2929 National Road West
Richmond, Indiana  47374 (2) 		  2006     2,365     Owned     —       1,191  
1835 Marketplace Boulevard
Shelbyville, Indiana  46176 (2) 		  2016     3,096     Owned     —       1,948  
Ohio Branch Offices:                                
138 N Sunset Drive
Piqua, Ohio  45356 (2) 		  1994     2,410     Owned     —       278  
126 W High Street
Piqua, Ohio  45356 (2) 		  2019     3,140     Owned     —       346  
121 South Ohio Avenue
Sidney, Ohio  45365 (2) 		  1922     8,627     Owned     —       1,168  
2601 Michigan St
Sidney, Ohio  45365 (2) 		  2016     3,460     Owned     —       1,535  
1867 West Main Street
Troy, Ohio  45373 (2) 		  2004     2,883     Owned     —       519  
8351 N High St, Suite 280
Columbus, Ohio  43235 (4) 		  2015     1,117     Leased     2019       —  

 

 

(1) Administrative, trust and wealth management services provided at this location; no banking deposits are accepted.
(2) Full service brick and mortar office.
(3) Drive through facility for existing customer transaction purposes only.
(4) Loan production office. Subsequent to December 31, 2018, the lease term was extended until 2122.
(5) Represents the combined net book value at December 31, 2018 of our 31 North 9 th Street and 20 North 9 th Street locations.
(6) The net book value of these premises at December 31, 2018 is combined with the Corporate Office. See footnote 5 above.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT II-2
Richmond Mutual Bancorporation, Inc.

Historical Interest Rates

 

 

 

 

Exhibit II-2
Richmond Mutual Bancorporation, Inc.

Historical Interest Rates

 

        Prime     90 Day     One Year     10 Year  
Year/Qtr. Ended   Rate     T-Note     T-Note     T-Note  
                             
2010:   Quarter 1     3.25 %     0.16 %     0.41 %     3.84 %
    Quarter 2     3.25 %     0.18 %     0.32 %     2.97 %
    Quarter 3     3.25 %     0.18 %     0.32 %     2.97 %
    Quarter 4     3.25 %     0.12 %     0.29 %     3.30 %
                                     
2011:   Quarter 1     3.25 %     0.09 %     0.30 %     3.47 %
    Quarter 2     3.25 %     0.03 %     0.19 %     3.18 %
    Quarter 3     3.25 %     0.02 %     0.13 %     1.92 %
    Quarter 4     3.25 %     0.02 %     0.12 %     1.89 %
                                     
2012:   Quarter 1     3.25 %     0.07 %     0.19 %     2.23 %
    Quarter 2     3.25 %     0.09 %     0.21 %     1.67 %
    Quarter 3     3.25 %     0.10 %     0.17 %     1.65 %
    Quarter 4     3.25 %     0.05 %     0.16 %     1.78 %
                                     
2013:   Quarter 1     3.25 %     0.07 %     0.14 %     1.87 %
    Quarter 2     3.25 %     0.04 %     0.15 %     2.52 %
    Quarter 3     3.25 %     0.02 %     0.10 %     2.64 %
    Quarter 4     3.25 %     0.07 %     0.13 %     3.04 %
                                     
2014:   Quarter 1     3.25 %     0.05 %     0.13 %     2.73 %
    Quarter 2     3.25 %     0.04 %     0.11 %     2.53 %
    Quarter 3     3.25 %     0.02 %     0.13 %     2.52 %
    Quarter 4     3.25 %     0.04 %     0.25 %     2.17 %
                                     
2015:   Quarter 1     3.25 %     0.03 %     0.26 %     1.94 %
    Quarter 2     3.25 %     0.01 %     0.28 %     2.35 %
    Quarter 3     3.25 %     0.00 %     0.33 %     2.06 %
    Quarter 4     3.50 %     0.16 %     0.65 %     2.27 %
                                     
2016:   Quarter 1     3.50 %     0.21 %     0.59 %     1.78 %
    Quarter 2     3.50 %     0.26 %     0.45 %     1.49 %
    Quarter 3     3.50 %     0.29 %     0.59 %     1.60 %
    Quarter 4     3.75 %     0.51 %     0.85 %     2.45 %
                                     
2017:   Quarter 1     4.00 %     0.76 %     1.03 %     2.40 %
    Quarter 2     4.25 %     1.03 %     1.24 %     2.31 %
    Quarter 3     4.25 %     1.06 %     1.31 %     2.33 %
    Quarter 4     4.50 %     1.39 %     1.76 %     2.40 %
                                     
2018:   Quarter 1     4.75 %     1.73 %     2.09 %     2.74 %
    Quarter 2     5.00 %     1.93 %     2.33 %     2.85 %
    Quarter 3     5.25 %     2.19 %     2.59 %     3.05 %
    Quarter 4     5.50 %     2.45 %     2.63 %     2.69 %
As of Feb. 8, 2019     5.50 %     2.43 %     2.54 %     2.63 %

 

(1) End of period data.

 

Sources: Federal Reserve and The Wall Street Journal.

 

 

 

 

EXHIBIT II-3

Demographic and Economic Data

 

 

 

 

Exhibit II-3

Demographic and Economic Data

 

Demographic Detail: US

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     308,745,538       329,236,175       340,950,101       6.64       3.56  
0-14 Age Group (%)     19.83       18.61       18.08       0.05       0.63  
15-34 Age Group (%)     27.43       26.93       26.18       4.69       0.68  
35-54 Age Group (%)     27.88       25.30       24.71       (3.22 )     1.14  
55-69 Age Group (%)     15.84       18.51       19.12       24.56       6.97  
70+ Age Group (%)     9.01       10.66       11.91       26.06       15.75  
Median Age (actual)     37.1       38.5       39.5       3.77       2.60  
                                         
Female Population (actual)     156,964,212       167,139,967       173,027,484       6.48       3.52  
Male Population (actual)     151,781,326       162,096,208       167,922,617       6.80       3.59  
                                         
Population Density (#/ sq miles)     87.50       93.31       96.63       6.64       3.56  
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     12.61       12.88       13.05       8.92       4.92  
Asian (%)     4.75       5.77       6.34       29.50       13.79  
White (%)     72.41       69.79       68.32       2.79       1.36  
Hispanic (%)     16.35       18.43       19.59       20.20       10.05  
Pacific Islander (%)     0.17       0.20       0.21       20.20       10.03  
American Indian/Alaska Native (%)     0.95       0.99       1.01       10.68       5.84  
Multiple races (%)     2.92       3.47       3.78       26.76       12.82  
Other (%)     6.19       6.90       7.30       18.94       9.49  
                                         
Total Households (actual)     116,716,292       125,018,808       129,683,914       7.11       3.73  
< $25K Households (%)     NA       19.57       17.76       NA       (5.89 )
$25-49K Households (%)     NA       21.51       20.03       NA       (3.39 )
$50-99K Households (%)     NA       29.25       28.50       NA       1.07  
$100-$199K Households (%)     NA       21.61       23.46       NA       12.62  
$200K+ Households (%)     NA       8.06       10.25       NA       31.93  
                                         
Average Household Income ($)     NA       89,646       98,974       NA       10.41  
Median Household Income ($)     NA       63,174       68,744       NA       8.82  
Per Capita Income ($)     NA       34,902       38,568       NA       10.50  
                                         
Total Owner Occupied Housing Units (actual)     75,986,074       81,287,885       84,266,838       6.98       3.66  
Renter Occupied Housing Units (actual)     40,730,218       43,730,923       45,417,076       7.37       3.86  
Vacant Occupied Housing Units (actual)     14,988,438       15,880,404       16,174,202       5.95       1.85  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

Exhibit II-3 (continued)

Demographic and Economic Data

 

Demographic Detail: Indiana

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     6,483,802       6,706,876       6,847,568       3.44       2.10  
0-14 Age Group (%)     20.53       19.29       18.73       (2.82 )     (0.86 )
15-34 Age Group (%)     27.07       27.01       26.80       3.24       1.30  
35-54 Age Group (%)     27.57       24.73       23.85       (7.23 )     (1.54 )
55-69 Age Group (%)     15.86       18.57       18.97       21.13       4.31  
70+ Age Group (%)     8.98       10.41       11.65       19.90       14.35  
Median Age (actual)     36.9       38.0       38.7       2.98       1.84  
                                         
Female Population (actual)     3,294,065       3,399,977       3,469,492       3.22       2.04  
Male Population (actual)     3,189,737       3,306,899       3,378,076       3.67       2.15  
                                         
Population Density (#/ sq miles)     181.04       187.27       191.20       3.44       2.10  
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     9.12       9.58       9.87       8.70       5.12  
Asian (%)     1.58       2.43       2.92       59.31       22.59  
White (%)     84.33       81.98       80.62       0.56       0.40  
Hispanic (%)     6.01       7.18       7.85       23.60       11.60  
Pacific Islander (%)     0.04       0.04       0.05       27.34       12.44  
American Indian/Alaska Native (%)     0.28       0.31       0.32       12.79       6.85  
Multiple races (%)     1.97       2.50       2.80       30.95       14.34  
Other (%)     2.67       3.15       3.42       21.78       10.84  
                                         
Total Households (actual)     2,502,154       2,596,546       2,654,251       3.77       2.22  
< $25K Households (%)     NA       20.07       17.83       NA       (9.18 )
$25-49K Households (%)     NA       24.33       22.40       NA       (5.86 )
$50-99K Households (%)     NA       31.70       31.21       NA       0.66  
$100-$199K Households (%)     NA       19.17       22.09       NA       17.80  
$200K+ Households (%)     NA       4.74       6.46       NA       39.45  
                                         
Average Household Income ($)     NA       76,265       85,004       NA       11.46  
Median Household Income ($)     NA       57,531       63,530       NA       10.43  
Per Capita Income ($)     NA       30,376       33,881       NA       11.54  
                                         
Total Owner Occupied Housing Units (actual)     1,747,975       1,817,089       1,858,256       3.95       2.27  
Renter Occupied Housing Units (actual)     754,179       779,457       795,995       3.35       2.12  
Vacant Occupied Housing Units (actual)     293,387       321,910       328,877       9.72       2.16  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

Exhibit II-3 (continued)

Demographic and Economic Data

 

Demographic Detail: Wayne, IN

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     68,917       65,591       64,720       (4.83 )     (1.33 )
0-14 Age Group (%)     18.98       17.73       17.10       (11.10 )     (4.82 )
15-34 Age Group (%)     24.76       24.71       25.12       (4.99 )     0.30  
35-54 Age Group (%)     27.08       24.12       22.67       (15.23 )     (7.26 )
55-69 Age Group (%)     17.54       20.38       21.02       10.56       1.81  
70+ Age Group (%)     11.64       13.06       14.08       6.78       6.39  
Median Age (actual)     40.0       41.6       42.0       4.00       0.96  
                                         
Female Population (actual)     35,454       33,837       33,349       (4.56 )     (1.44 )
Male Population (actual)     33,463       31,754       31,371       (5.11 )     (1.21 )
                                         
Population Density (#/ sq miles)     171.57       163.29       161.12       (4.83 )     (1.33 )
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     4.96       4.92       4.91       (5.50 )     (1.70 )
Asian (%)     0.76       0.85       0.90       5.88       4.48  
White (%)     90.17       89.48       89.08       (5.55 )     (1.76 )
Hispanic (%)     2.62       2.98       3.19       8.43       5.67  
Pacific Islander (%)     0.07       0.09       0.10       18.37       8.62  
American Indian/Alaska Native (%)     0.25       0.27       0.29       4.09       3.93  
Multiple races (%)     2.65       3.11       3.37       11.66       7.01  
Other (%)     1.14       1.28       1.36       6.75       4.65  
                                         
Total Households (actual)     27,551       26,202       25,861       (4.90 )     (1.30 )
< $25K Households (%)     NA       24.72       21.15       NA       (15.56 )
$25-49K Households (%)     NA       26.70       24.10       NA       (10.91 )
$50-99K Households (%)     NA       29.96       30.32       NA       (0.11 )
$100-$199K Households (%)     NA       15.08       19.78       NA       29.43  
$200K+ Households (%)     NA       3.53       4.65       NA       29.81  
                                         
Average Household Income ($)     NA       67,527       77,485       NA       14.75  
Median Household Income ($)     NA       48,663       56,536       NA       16.18  
Per Capita Income ($)     NA       28,141       32,323       NA       14.86  
                                         
Total Owner Occupied Housing Units (actual)     18,526       17,689       17,477       (4.52 )     (1.20 )
Renter Occupied Housing Units (actual)     9,025       8,513       8,384       (5.67 )     (1.52 )
Vacant Occupied Housing Units (actual)     3,691       4,568       4,800       23.76       5.08  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

Exhibit II-3 (continued)

Demographic and Economic Data

 

Demographic Detail: Shelby, IN

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     44,436       44,449       44,889       0.03       0.99  
0-14 Age Group (%)     19.97       18.20       17.28       (8.83 )     (4.09 )
15-34 Age Group (%)     23.69       24.19       24.75       2.17       3.31  
35-54 Age Group (%)     29.82       25.10       23.24       (15.81 )     (6.49 )
55-69 Age Group (%)     16.90       21.13       22.17       25.12       5.95  
70+ Age Group (%)     9.63       11.37       12.56       18.16       11.47  
Median Age (actual)     39.8       41.5       42.1       4.27       1.45  
                                         
Female Population (actual)     22,416       22,413       22,620       (0.01 )     0.92  
Male Population (actual)     22,020       22,036       22,269       0.07       1.06  
                                         
Population Density (#/ sq miles)     108.09       108.12       109.19       0.03       0.99  
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     1.02       1.23       1.34       19.78       10.28  
Asian (%)     0.55       0.92       1.13       67.21       24.51  
White (%)     95.42       94.21       93.51       (1.25 )     0.25  
Hispanic (%)     3.71       4.47       4.90       20.58       10.73  
Pacific Islander (%)     0.03       0.08       0.11       176.92       36.11  
American Indian/Alaska Native (%)     0.21       0.28       0.32       30.53       14.52  
Multiple races (%)     1.15       1.36       1.48       18.13       9.74  
Other (%)     1.61       1.93       2.11       19.89       10.63  
                                         
Total Households (actual)     17,302       17,531       17,786       1.32       1.45  
< $25K Households (%)     NA       18.38       17.13       NA       (5.49 )
$25-49K Households (%)     NA       24.69       23.09       NA       (5.13 )
$50-99K Households (%)     NA       34.72       34.34       NA       0.35  
$100-$199K Households (%)     NA       19.37       21.61       NA       13.23  
$200K+ Households (%)     NA       2.85       3.84       NA       36.87  
                                         
Average Household Income ($)     NA       71,317       76,560       NA       7.35  
Median Household Income ($)     NA       58,575       62,379       NA       6.49  
Per Capita Income ($)     NA       28,568       30,804       NA       7.83  
                                         
Total Owner Occupied Housing Units (actual)     12,376       12,499       12,664       0.99       1.32  
Renter Occupied Housing Units (actual)     4,926       5,032       5,122       2.15       1.79  
Vacant Occupied Housing Units (actual)     1,778       1,939       1,959       9.06       1.03  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

Exhibit II-3 (continued)

Demographic and Economic Data

 

Demographic Detail: Miami, OH

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     102,506       105,862       107,951       3.27       1.97  
0-14 Age Group (%)     19.79       18.45       17.76       (3.70 )     (1.85 )
15-34 Age Group (%)     23.00       23.59       23.85       5.93       3.12  
35-54 Age Group (%)     28.41       24.80       23.43       (9.87 )     (3.65 )
55-69 Age Group (%)     18.24       20.72       21.43       17.27       5.47  
70+ Age Group (%)     10.56       12.45       13.53       21.75       10.85  
Median Age (actual)     40.5       41.8       42.2       3.21       0.96  
                                         
Female Population (actual)     52,120       53,765       54,805       3.16       1.93  
Male Population (actual)     50,386       52,097       53,146       3.40       2.01  
                                         
Population Density (#/ sq miles)     252.17       260.43       265.57       3.27       1.97  
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     2.03       2.28       2.43       15.98       8.36  
Asian (%)     1.19       1.52       1.72       32.51       14.93  
White (%)     94.36       93.08       92.35       1.87       1.17  
Hispanic (%)     1.31       1.82       2.12       43.85       18.40  
Pacific Islander (%)     0.01       0.03       0.05       146.67       35.14  
American Indian/Alaska Native (%)     0.18       0.24       0.26       32.28       14.40  
Multiple races (%)     1.77       2.25       2.53       31.55       14.49  
Other (%)     0.46       0.59       0.67       34.19       15.45  
                                         
Total Households (actual)     40,917       42,842       43,890       4.70       2.45  
< $25K Households (%)     NA       16.86       14.76       NA       (10.35 )
$25-49K Households (%)     NA       21.43       19.92       NA       (4.75 )
$50-99K Households (%)     NA       35.71       33.42       NA       (4.14 )
$100-$199K Households (%)     NA       21.85       25.45       NA       19.32  
$200K+ Households (%)     NA       4.14       6.45       NA       59.49  
                                         
Average Household Income ($)     NA       78,243       88,727       NA       13.40  
Median Household Income ($)     NA       63,862       70,251       NA       10.00  
Per Capita Income ($)     NA       31,985       36,436       NA       13.92  
                                         
Total Owner Occupied Housing Units (actual)     29,231       30,591       31,328       4.65       2.41  
Renter Occupied Housing Units (actual)     11,686       12,251       12,562       4.83       2.54  
Vacant Occupied Housing Units (actual)     3,339       3,396       3,421       1.71       0.74  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

Exhibit II-3 (continued)

Demographic and Economic Data

 

Demographic Detail: Shelby, OH

 

    Base  2010     Current  2019     Projected 2024     % Change
2010-2019 		    % Change
2019-2024 		 
Total Population (actual)     49,423       48,663       48,602       (1.54 )     (0.13 )
0-14 Age Group (%)     22.68       20.32       19.50       (11.80 )     (4.16 )
15-34 Age Group (%)     23.76       24.73       25.81       2.48       4.26  
35-54 Age Group (%)     28.42       24.30       22.28       (15.82 )     (8.42 )
55-69 Age Group (%)     16.23       19.85       20.46       20.43       2.94  
70+ Age Group (%)     8.91       10.80       11.95       19.39       10.44  
Median Age (actual)     37.7       39.4       39.3       4.51       (0.25 )
                                         
Female Population (actual)     24,774       24,248       24,236       (2.12 )     (0.05 )
Male Population (actual)     24,649       24,415       24,366       (0.95 )     (0.20 )
                                         
Population Density (#/ sq miles)     121.27       119.40       119.25       (1.54 )     (0.13 )
                                         
Diversity Index (actual)     NA       NA       NA       NA       NA  
Black (%)     1.89       2.24       2.44       16.47       8.72  
Asian (%)     0.86       1.06       1.17       21.51       10.89  
White (%)     94.68       93.56       92.92       (2.70 )     (0.81 )
Hispanic (%)     1.34       1.68       1.87       23.75       11.37  
Pacific Islander (%)     0.10       0.10       0.10       0.00       0.00  
American Indian/Alaska Native (%)     0.16       0.23       0.27       41.03       19.09  
Multiple races (%)     1.86       2.26       2.49       19.93       10.08  
Other (%)     0.46       0.56       0.61       18.86       9.23  
                                         
Total Households (actual)     18,467       18,318       18,340       (0.81 )     0.12  
< $25K Households (%)     NA       14.82       13.38       NA       (9.58 )
$25-49K Households (%)     NA       23.50       20.96       NA       (10.69 )
$50-99K Households (%)     NA       36.94       36.86       NA       (0.10 )
$100-$199K Households (%)     NA       20.84       23.56       NA       13.15  
$200K+ Households (%)     NA       3.90       5.25       NA       34.55  
                                         
Average Household Income ($)     NA       77,641       84,599       NA       8.96  
Median Household Income ($)     NA       63,245       67,799       NA       7.20  
Per Capita Income ($)     NA       29,587       32,319       NA       9.23  
                                         
Total Owner Occupied Housing Units (actual)     13,357       13,271       13,289       (0.64 )     0.14  
Renter Occupied Housing Units (actual)     5,110       5,047       5,051       (1.23 )     0.08  
Vacant Occupied Housing Units (actual)     1,706       1,934       1,993       13.36       3.05  

 

Source: Claritas

 

Demographic data is provided by Claritas based primarily on US Census data. For non-census year data, Claritas uses samples and projections to estimate the demographic data. SNL performs calculations on the underlying data provided by Claritas for some of the data presented on this page.

 

% Change values are calculated using the underlying actual data.

 

 

 

 

EXHIBIT III-1

General Characteristics of Publicly-Traded Institutions

 

 

 

 

Exhibit III-1
General Characteristics of Publicly-Traded Institutions

 

                                            As of  
                                            February 8, 2019  
                        Total           Fiscal   Conv.   Stock     Market  
Ticker   Financial Institution   Exchange   Region   City   State   Assets     Offices     Mth End   Date   Price     Value  
                        ($Mil)                   ($)     ($Mil)  
                                                     
AX   Axos Financial, Inc.   NYSE   WE   San Diego   CA   $ 9,792       2     Jun   3/14/05   $ 32.70     $ 2,002  
BCTF   Bancorp 34, Inc.   NASDAQ   SW   Alamogordo   NM     373       4     Dec   5/16/00     15.12       49  
BYFC   Broadway Financial Corporation   NASDAQ   WE   Los Angeles   CA     419       3     Dec   1/8/96     1.30       35  
CARV   Carver Bancorp, Inc.   NASDAQ   MA   New York   NY     615       8     Mar   10/24/94     3.40       13  
CASH   Meta Financial Group, Inc.   NASDAQ   MW   Sioux Falls   SD     5,835       12     Sep   9/20/93     24.03       947  
CBMB   CBM Bancorp, Inc.   NASDAQ   MA   Baltimore   MD     217       4     Dec   9/27/18     12.76       54  
CFFN   Capitol Federal Financial, Inc.   NASDAQ   MW   Topeka   KS     9,450       57     Sep   3/31/99     12.86       1,770  
DCOM   Dime Community Bancshares, Inc.   NASDAQ   MA   Brooklyn   NY     6,294       30     Dec   6/26/96     19.84       716  
EBSB   Meridian Bancorp, Inc.   NASDAQ   NE   Peabody   MA     5,775       35     Dec   1/22/08     15.77       806  
EFBI   Eagle Financial Bancorp, Inc.   NASDAQ   MW   Cincinnati   OH     138       3     Dec   7/20/17     15.65       24  
ESBK   Elmira Savings Bank   NASDAQ   MA   Elmira   NY     571       12     Dec   3/1/85     18.68       65  
ESSA   ESSA Bancorp, Inc.   NASDAQ   MA   Stroudsburg   PA     1,834       23     Sep   3/15/07     15.25       168  
FBC   Flagstar Bancorp, Inc.   NYSE   MW   Troy   MI     18,697       161     Dec   4/30/97     31.70       1,831  
FDEF   First Defiance Financial Corp.   NASDAQ   MW   Defiance   OH     3,098       44     Dec   7/19/93     29.39       594  
FNWB   First Northwest Bancorp   NASDAQ   WE   Port Angeles   WA     1,238       11     Dec   1/29/15     15.69       162  
FSBC   FSB Bancorp, Inc.   NASDAQ   MA   Fairport   NY     327       5     Dec   8/10/07     17.00       32  
FSBW   FS Bancorp, Inc.   NASDAQ   WE   Mountlake Terrace   WA     1,191       13     Dec   7/9/12     52.00       227  
HFBL   Home Federal Bancorp, Inc. of Louisiana   NASDAQ   SW   Shreveport   LA     428       7     Jun   1/18/05     30.62       54  
HIFS   Hingham Institution for Savings   NASDAQ   NE   Hingham   MA     2,370       13     Dec   12/13/88     183.95       392  
HMNF   HMN Financial, Inc.   NASDAQ   MW   Rochester   MN     737       14     Dec   6/30/94     19.55       90  
HVBC   HV Bancorp, Inc.   NASDAQ   MA   Huntingdon Valley   PA     302       6     Jun   1/11/17     15.16       32  
IROQ   IF Bancorp, Inc.   NASDAQ   MW   Watseka   IL     655       7     Jun   7/7/11     20.75       70  
ISBC   Investors Bancorp, Inc.   NASDAQ   MA   Short Hills   NJ     25,518       151     Dec   10/11/05     12.60       3,458  
KRNY   Kearny Financial Corp.   NASDAQ   MA   Fairfield   NJ     6,656       54     Jun   2/23/05     12.95       1,163  
MELR   Melrose Bancorp, Inc.   NASDAQ   NE   Melrose   MA     322       1     Dec   10/21/14     18.02       43  
MSBF   MSB Financial Corp.   NASDAQ   MA   Millington   NJ     590       4     Dec   1/4/07     17.80       93  
MSVB   Mid-Southern Bancorp, Inc.   NASDAQ   MW   Salem   IN     199       3     Dec   4/8/98     12.89       43  
NFBK   Northfield Bancorp, Inc.   NASDAQ   MA   Woodbridge   NJ     4,286       40     Dec   11/7/07     14.59       717  
NWBI   Northwest Bancshares, Inc.   NASDAQ   MA   Warren   PA     9,575       173     Dec   11/4/94     17.90       1,850  
NYCB   New York Community Bancorp, Inc.   NYSE   MA   Westbury   NY     51,247       256     Dec   11/23/93     11.98       5,673  
ORIT   Oritani Financial Corp.   NASDAQ   MA   Township of Washington   NJ     4,110       27     Jun   1/23/07     16.88       768  
OTTW   Ottawa Bancorp, Inc.   NASDAQ   MW   Ottawa   IL     278       3     Dec   7/11/05     13.53       44  
PBBI   PB Bancorp, Inc.   NASDAQ   NE   Putnam   CT     520       8     Jun   10/4/04     11.13       80  
PBIP   Prudential Bancorp, Inc.   NASDAQ   MA   Philadelphia   PA     1,081       11     Sep   3/29/05     18.01       160  
PCSB   PCSB Financial Corporation   NASDAQ   MA   Yorktown Heights   NY     1,474       17     Jun   4/20/17     20.70       338  
PFS   Provident Financial Services, Inc.   NYSE   MA   Iselin   NJ     9,710       86     Dec   1/15/03     27.43       1,833  
PROV   Provident Financial Holdings, Inc.   NASDAQ   WE   Riverside   CA     1,157       15     Jun   6/27/96     18.63       140  
RNDB   Randolph Bancorp, Inc.   NASDAQ   NE   Stoughton   MA     590       7     Dec   7/1/16     14.75       82  
RVSB   Riverview Bancorp, Inc.   NASDAQ   WE   Vancouver   WA     1,148       19     Mar   10/26/93     7.47       169  
SBT   Sterling Bancorp, Inc.   NASDAQ   MW   Southfield   MI     3,197       28     Dec   11/16/17     9.67       513  
STND   Standard AVB Financial Corp.   NASDAQ   MA   Monroeville   PA     983       19     Dec   10/6/10     30.49       141  
STXB   Spirit of Texas Bancshares, Inc.   NASDAQ   SW   Conroe   TX     1,102       23     Dec   5/3/18     21.70       263  
SVBI   Severn Bancorp, Inc.   NASDAQ   MA   Annapolis   MD     889       5     Dec   NA     8.85       113  
TBK   Triumph Bancorp, Inc.   NASDAQ   SW   Dallas   TX     4,537       51     Dec   11/6/14     30.41       816  
TBNK   Territorial Bancorp Inc.   NASDAQ   WE   Honolulu   HI     2,026       30     Dec   7/13/09     27.46       252  
TRST   TrustCo Bank Corp NY   NASDAQ   MA   Glenville   NY     4,885       148     Dec   NA     8.01       774  
TSBK   Timberland Bancorp, Inc.   NASDAQ   WE   Hoquiam   WA     1,018       24     Sep   1/12/98     28.49       236  
UBNK   United Financial Bancorp, Inc.   NASDAQ   NE   Hartford   CT     7,207       55     Dec   5/20/05     15.13       766  
WEBK   Wellesley Bancorp, Inc.   NASDAQ   NE   Wellesley   MA     837       6     Dec   1/25/12     32.00       77  
WNEB   Western New England Bancorp, Inc.   NASDAQ   NE   Westfield   MA     2,151       24     Dec   12/27/01     9.80       271  
WSBF   Waterstone Financial, Inc.   NASDAQ   MW   Wauwatosa   WI     1,919       13     Dec   10/4/05     16.24       425  
WSFS   WSFS Financial Corporation   NASDAQ   MA   Wilmington   DE     7,160       63     Dec   11/26/86     42.18       1,323  
WVFC   WVS Financial Corp.   NASDAQ   MA   Pittsburgh   PA     350       6     Jun   11/29/93     15.75       28  

 

Source: S&P Global Market Intelligence

 

 

 

 

EXHIBIT III-2

Peer Group Market Area Comparative Analysis

 

 

 

 

Exhibit III-2

Peer Group Market Area Comparative Analysi s

 

                    Proj.                 Per Capita Income     Deposit  
        Population     Pop.     2010-2019     2019-2024           % State     Market  
Institution   County   2010     2019     2024     % Change     % Change     2019     Average     Share(1)  
                                                     
Elmira Savings Bank   Chemung, NY     88,830       84,639       83,194       -0.5 %     -0.3 %     32,306       84.4 %     26.90 %
ESSA Bancorp, Inc.   Erie, PA     280,566       272,402       268,934       -0.3 %     -0.3 %     29,429       85.3 %     29.32 %
HMN Financial, Inc.   Olmsted, MN     144,248       157,269       164,543       1.0 %     0.9 %     41,587       111.6 %     6.55 %
IF Bancorp, Inc.   Iroquois, IL     29,718       27,443       26,561       -0.9 %     -0.7 %     27,541       77.8 %     25.01 %
MSB Financial Corp.   Morris, NJ     492,276       500,609       506,661       0.2 %     0.2 %     61,129       145.6 %     1.19 %
Prudential Bancorp, Inc.   Philadelphia, PA     1,526,006       1,590,076       1,619,276       0.5 %     0.4 %     28,213       81.8 %     1.29 %
Severn Bancorp, Inc.   Anne Arundel, MD     537,656       579,979       602,811       0.8 %     0.8 %     50,705       120.7 %     4.99 %
Spirit of Texas Bancshares, Inc.   Montgomery, TX     455,746       595,671       652,357       3.0 %     1.8 %     39,888       126.4 %     2.33 %
Standard AVB Financial Corp.   Allegheny, PA     1,223,348       1,219,499       1,218,128       0.0 %     0.0 %     39,517       114.5 %     0.36 %
Wellesley Bancorp, Inc.   Norfolk, MA     670,850       705,361       726,170       0.6 %     0.6 %     56,601       127.3 %     2.02 %
    Averages:     544,924       573,295       586,864       0.4 %     0.3 %     40,692       107.5 %     10.00 %
    Medians:     474,011       540,294       554,736       0.3 %     0.3 %     39,703       113.1 %     3.66 %
                                                                     
Richmond Mutual Bancorporation Inc.   Wayne, IN     68,917       65,591       64,720       -1.0 %     -0.3 %     28,141       97.5 %     33.91 %

 

(1) Total institution deposits in headquarters county as percent of total county deposits as of June 30, 2018.

 

Sources: S&P Global Market Intelligence, FDIC.

 

 

 

 

EXHIBIT IV-1

 

Thrift Industry Stock Prices:

As of February 8, 2019

 

 

 

 

Exhibit IV-1

Thrift Industry Stock Prices:

As of February 8, 2019

 

RP ® Financial, LC.

Exhibit IV-1A

Weekly Thrift Market Line - Part One

Prices As of February 8, 2019

 

        Market Capitalization     Price Change Data     Current Per Share Financials  
        Price/     Shares     Market     52 Week (1)           % Change From     LTM     LTM Core     BV/     TBV/     Assets/  
    Share(1)     Outstanding     Capitalization     High     Low     Last Wk     Last Wk     52 Wks (2)     MRY (2)     EPS (3)     EPS (3)     Share     Share (4)     Share  
        ($)     (000)     ($Mil)     ($)     ($)     ($)     (%)     (%)     (%)     ($)     ($)     ($)     ($)     ($)  
                                                                                         
Financial Institution                                                                                                                
AX   Axos Financial, Inc.     32.70       61,216       2,001.8       45.18       23.87       31.28       4.54       -4.80       29.86       2.45       NA       15.84       14.77       0.00  
BCTF   Bancorp 34, Inc.     15.12       3,228       48.8       17.25       12.86       15.07       0.31       0.53       2.23       0.09       0.49       13.56       13.51       0.00  
BYFC   Broadway Financial Corporation     1.30       26,762       34.8       2.54       0.95       1.35       -3.70       -47.37       23.81       0.02       0.03       1.75       1.75       0.00  
CFFN   Capitol Federal Financial, Inc.     12.86       137,623       1,769.8       14.15       11.80       12.83       0.23       2.23       0.70       0.73       0.68       9.85       9.73       0.00  
CARV   Carver Bancorp, Inc.     3.40       3,699       12.6       11.94       2.40       3.88       -12.37       22.61       14.09       -0.27       -1.15       0.85       0.85       0.00  
CBMB   CBM Bancorp, Inc.     12.76       4,232       54.0       13.25       12.02       12.67       0.71       NA       1.92       NA       NA       14.23       14.23       0.00  
DCOM   Dime Community Bancshares, Inc.     19.84       36,093       716.1       20.85       15.48       19.72       0.61       9.31       16.84       1.45       1.32       16.49       14.97       0.00  
EFBI   Eagle Financial Bancorp, Inc.     15.65       1,508       23.6       16.84       14.56       15.54       0.68       -2.17       3.16       NA       NA       17.05       17.05       0.00  
ESBK   Elmira Savings Bank     18.68       3,504       65.5       21.00       15.77       18.84       -0.83       -9.34       7.07       1.31       1.65       16.42       12.90       0.00  
ESSA   ESSA Bancorp, Inc.     15.25       10,993       167.6       16.50       14.16       15.22       0.20       -0.97       -2.31       0.60       1.00       15.21       13.92       0.00  
FDEF   First Defiance Financial Corp.     29.39       20,196       593.6       35.00       22.78       28.40       3.49       11.94       19.91       2.13       2.08       19.29       14.22       0.00  
FNWB   First Northwest Bancorp     15.69       10,310       161.8       17.65       13.56       15.27       2.75       -3.92       5.80       0.47       0.56       15.18       15.18       0.00  
FBC   Flagstar Bancorp, Inc.     31.70       57,749       1,830.7       38.00       25.30       32.02       -1.00       -8.96       20.08       1.49       2.92       26.34       25.13       0.00  
FSBW   FS Bancorp, Inc.     52.00       4,371       227.3       66.40       41.25       48.71       6.75       -4.66       21.27       4.33       4.35       35.82       34.91       0.00  
FSBC   FSB Bancorp, Inc.     17.00       1,909       32.5       18.50       15.96       16.80       1.19       -0.29       0.00       -0.05       0.07       16.12       16.12       0.00  
HIFS   Hingham Institution for Savings     183.95       2,133       392.3       229.99       180.17       187.30       -1.79       -8.19       -6.97       14.83       14.46       98.35       98.35       0.00  
HMNF   HMN Financial, Inc.     19.55       4,580       89.5       21.90       18.05       20.25       -3.46       5.68       -0.36       1.32       1.56       17.35       17.12       0.00  
HFBL   Home Federal Bancorp, Inc. of Louisiana     30.62       1,770       54.2       37.30       25.64       31.25       -2.02       9.14       3.94       1.97       2.31       25.32       25.32       0.00  
HVBC   HV Bancorp, Inc.     15.16       2,100       31.8       17.50       13.75       15.12       0.24       1.07       1.20       0.39       0.51       13.72       13.72       0.00  
IROQ   IF Bancorp, Inc.     20.75       3,371       69.9       25.04       18.70       20.40       1.72       3.70       3.13       0.46       0.82       20.94       20.94       0.00  
ISBC   Investors Bancorp, Inc.     12.60       274,431       3,457.8       14.41       9.94       12.74       -1.10       -3.45       21.15       0.57       0.79       10.39       10.09       0.00  
KRNY   Kearny Financial Corp.     12.95       89,840       1,163.4       14.80       11.26       12.99       -0.31       0.78       1.01       0.29       0.39       12.64       10.42       0.00  
MELR   Melrose Bancorp, Inc.     18.02       2,374       42.8       20.50       16.99       18.46       -2.38       -9.33       0.33       0.63       0.54       17.37       17.37       0.00  
EBSB   Meridian Bancorp, Inc.     15.77       51,106       805.9       20.95       13.67       15.85       -0.50       -19.64       10.13       1.00       1.08       12.52       12.11       0.00  
CASH   Meta Financial Group, Inc.     24.03       39,420       947.3       39.28       18.01       23.66       1.56       -33.03       23.93       1.67       2.53       19.00       9.45       0.00  
MSVB   Mid-Southern Bancorp, Inc.     12.89       3,366       43.4       28.55       11.55       12.30       4.80       -50.42       11.41       0.64       0.84       13.35       13.35       0.00  
MSBF   MSB Financial Corp.     17.80       5,210       92.7       21.95       16.14       17.80       0.00       0.00       -0.28       0.71       0.83       12.70       12.70       0.00  
NYCB   New York Community Bancorp, Inc.     11.98       473,537       5,673.0       14.53       8.61       11.97       0.08       -9.58       27.31       0.86       0.77       12.83       7.86       0.00  
NFBK   Northfield Bancorp, Inc.     14.59       49,127       716.8       17.33       12.76       14.52       0.48       -5.01       7.68       0.60       0.84       13.21       12.41       0.00  
NWBI   Northwest Bancshares, Inc.     17.90       103,354       1,850.0       18.56       15.50       17.66       1.36       9.61       5.67       0.98       0.98       12.01       8.83       0.00  
ORIT   Oritani Financial Corp.     16.88       45,493       767.9       17.20       14.07       16.99       -0.65       5.17       14.44       0.99       1.28       12.08       12.08       0.00  
OTTW   Ottawa Bancorp, Inc.     13.53       3,220       43.6       14.30       12.75       13.85       -2.31       -2.47       1.50       0.30       0.57       15.56       15.30       0.00  
PBBI   PB Bancorp, Inc.     11.13       7,218       80.3       12.20       10.25       11.06       0.68       8.01       3.06       0.54       0.55       11.19       10.28       0.00  
PCSB   PCSB Financial Corporation     20.70       16,323       337.9       22.34       18.16       20.28       2.07       5.24       5.83       0.43       0.42       15.96       15.60       0.00  
PROV   Provident Financial Holdings, Inc.     18.63       7,510       139.9       19.78       14.67       17.65       5.55       3.44       20.19       0.55       0.84       16.22       16.22       0.00  
PFS   Provident Financial Services, Inc.     27.43       66,830       1,833.1       29.12       22.22       26.30       4.30       9.11       13.68       1.57       1.65       19.92       13.66       0.00  
PBIP   Prudential Bancorp, Inc.     18.01       8,893       160.2       19.87       13.92       18.27       -1.42       6.88       2.33       0.78       1.02       14.29       13.55       0.00  
RNDB   Randolph Bancorp, Inc.     14.75       5,535       81.6       17.45       13.16       15.00       -1.67       -5.51       4.24       -0.62       -0.31       13.05       NA       0.00  
RVSB   Riverview Bancorp, Inc.     7.47       22,599       168.8       9.99       5.46       7.54       -0.93       -14.73       2.61       0.59       0.67       5.42       4.17       0.00  
SVBI   Severn Bancorp, Inc.     8.85       12,721       112.6       9.86       7.10       8.24       7.35       15.69       10.90       0.44       0.58       7.55       7.47       0.00  
STXB   Spirit of Texas Bancshares, Inc.     21.70       12,104       262.7       23.53       16.70       21.50       0.93       NA       -4.74       0.90       1.09       15.38       14.26       0.00  
STND   Standard AVB Financial Corp.     30.49       4,632       141.2       39.45       28.75       30.31       0.59       1.43       2.04       1.79       2.00       28.16       22.22       0.00  
SBT   Sterling Bancorp, Inc.     9.67       53,012       512.6       14.98       6.65       8.76       10.39       -25.50       39.14       1.03       1.11       6.03       6.02       0.00  
TBNK   Territorial Bancorp Inc.     27.46       9,180       252.1       31.95       24.96       27.59       -0.47       -8.95       5.70       1.78       2.00       24.36       24.36       0.00  
TSBK   Timberland Bancorp, Inc.     28.49       8,293       236.3       39.45       21.91       28.39       0.35       5.01       27.76       2.22       2.34       16.84       16.08       0.00  
TBK   Triumph Bancorp, Inc.     30.41       26,849       816.5       44.70       27.47       30.88       -1.52       -20.08       2.39       1.66       2.23       23.10       15.42       0.00  
TRST   TrustCo Bank Corp NY     8.01       96,659       774.2       9.45       6.51       7.84       2.17       -4.93       16.76       0.55       0.60       4.94       4.93       0.00  
UBNK   United Financial Bancorp, Inc.     15.13       50,639       766.2       18.33       13.37       15.11       0.13       -3.66       2.93       1.13       1.19       13.88       11.55       0.00  
WSBF   Waterstone Financial, Inc.     16.24       26,189       425.3       18.10       15.20       16.48       -1.46       -4.75       -3.10       1.01       1.10       13.93       13.91       0.00  
WEBK   Wellesley Bancorp, Inc.     32.00       2,419       77.4       34.50       27.74       30.69       4.27       12.26       15.36       1.85       2.24       24.96       24.96       0.00  
WNEB   Western New England Bancorp, Inc.     9.80       27,693       271.4       11.25       8.50       9.32       5.15       -1.51       -2.39       0.43       0.55       8.19       7.64       0.00  
WSFS   WSFS Financial Corporation     42.18       31,374       1,323.4       57.70       33.75       42.64       -1.08       -11.57       11.26       2.94       3.26       25.08       19.26       0.00  
WVFC   WVS Financial Corp.     15.75       1,788       28.2       17.90       12.25       15.65       0.64       -8.70       6.64       1.30       1.38       17.64       17.64       0.00  
                                                                                                                     
MHC                                                                                                                    
BCOW   1895 Bancorp Of Wisconsin, Inc. (MHC)     9.48       4,877       46.3       10.50       9.16       9.45       0.32       NA       NA       NA       NA       NA       NA       0.00  
CLBK   Columbia Financial, Inc. (MHC)     15.77       115,889       1,827.6       17.73       14.01       15.28       3.21       NA       3.14       NA       NA       8.17       8.12       0.00  
CFBI   Community First Bancshares, Inc. (MHC)     10.33       7,481       77.3       11.92       10.06       10.61       -2.64       -8.50       -11.33       0.06       0.18       10.17       10.17       0.00  
FFBW   FFBW, Inc. (MHC)     11.22       6,453       72.4       11.79       9.50       10.65       5.32       2.80       11.83       0.06       0.17       9.00       8.99       0.00  
GCBC   Greene County Bancorp, Inc. (MHC)     32.33       8,538       276.0       38.00       28.85       30.67       5.41       -8.93       3.89       1.79       1.76       11.67       11.67       0.00  
HONE   HarborOne Bancorp, Inc. (MHC)     15.33       31,562       483.8       20.01       14.90       15.19       0.92       -15.91       -3.52       0.41       0.43       10.87       10.45       0.00  
KFFB   Kentucky First Federal Bancorp (MHC)     7.50       8,367       62.8       9.00       6.52       7.55       -0.66       -16.67       8.54       0.15       0.09       7.99       6.27       0.00  
LSBK   Lake Shore Bancorp, Inc. (MHC)     15.93       5,862       93.4       18.00       14.64       15.93       0.00       -3.16       5.78       0.57       0.59       13.03       13.03       0.00  
MGYR   Magyar Bancorp, Inc. (MHC)     11.65       5,821       67.8       13.50       11.55       11.55       0.87       -5.74       -4.90       0.35       0.41       8.82       8.82       0.00  
OFED   Oconee Federal Financial Corp. (MHC)     24.43       5,690       139.0       30.27       23.06       26.17       -6.65       -13.21       -1.89       0.52       0.69       14.62       14.10       0.00  
PDLB   PDL Community Bancorp (MHC)     12.63       17,824       225.1       16.23       12.42       12.85       -1.71       -14.66       -0.86       -0.05       0.07       9.05       9.05       0.00  
PVBC   Provident Bancorp, Inc. (MHC)     23.00       9,229       212.3       30.80       19.81       22.88       0.52       -1.08       6.09       0.89       0.86       12.68       12.68       0.00  
RBKB   Rhinebeck Bancorp, Inc. (MHC)     11.44       11,133       127.4       11.90       11.30       11.59       -1.29       NA       NA       NA       NA       NA       NA       0.00  
TFSL   TFS Financial Corporation (MHC)     16.92       275,368       4,659.2       17.00       14.19       16.55       2.24       17.42       4.90       0.30       NA       6.27       6.24       0.00  
                                                                                                                     
Under Acquisition                                                                                                                
BNCL   Beneficial Bancorp, Inc.     15.64       72,321       1,131.1       18.60       13.74       15.81       -1.08       4.27       9.45       0.41       0.61       13.83       11.66       0.00  
BHBK   Blue Hills Bancorp, Inc.     23.75       24,290       576.9       25.80       19.50       23.85       -0.42       21.79       11.29       0.81       0.93       14.98       14.64       0.00  
BLMT   BSB Bancorp, Inc.     33.30       9,413       313.4       36.50       26.64       32.72       1.76       16.21       18.66       2.18       2.46       20.29       20.29       0.00  
SIFI   SI Financial Group, Inc.     13.43       11,720       157.4       15.60       12.26       12.93       3.87       -3.38       5.50       0.55       0.87       14.13       12.76       0.00  

 

 

(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares.

 

Source: S&P Market Intelligence, LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

 

Copyright (c) 2019 by RP ® Financial, LC.

 

 

 

 

Exhibit IV-1 (continued)

Thrift Industry Stock Prices:

As of February 8, 2019

 

RP ® Financial, LC.

 

Exhibit IV-1B

Weekly Bank and Thrift Market Line - Part Two

Prices As of February 8, 2019

 

        Key Financial Ratios     Asset Quality Ratios     Pricing Ratios     Dividend Data (6)  
        Equity/     Tang Equity/     Reported Earnings     Core Earnings     NPAs/     Rsvs/     Price/     Price/     Price/     Price/     Price/     Div/     Dividend     Payout  
    Assets(1)     Assets(1)     ROA(5)     ROE(5)     ROA(5)     ROE(5)     Assets     NPLs     Earnings     Book     Assets     Tang Book     Core Earnings     Share     Yield     Ratio (7)  
        (%)     (%)     (%)     (%)     (%)     (%)     (%)     (%)     (x)     (%)     (%)     (%)     (x)     ($)     (%)     (%)  
                                                                                                     
Financial Institution                                                                                                                                
AX   Axos Financial, Inc.     10.22       9.60       1.68       16.86       NA       NA       0.40       166.31       12.67       202.31       20.41       220.06       NA       NA       NA       NM  
BCTF   Bancorp 34, Inc.     12.37       12.32       0.09       0.62       0.46       3.33       1.43       60.52       NM       111.50       13.79       111.94       31.12       0.00       0.00       NM  
BYFC   Broadway Financial Corporation     11.45       11.45       0.03       0.30       0.16       1.39       2.20       37.95       65.00       74.24       8.50       74.24       39.38       0.00       0.00       NM  
CFFN   Capitol Federal Financial, Inc.     14.73       14.57       0.94       7.25       0.88       6.76       0.35       27.12       18.91       134.98       19.53       132.20       18.73       0.34       2.64       144.12  
CARV   Carver Bancorp, Inc.     7.85       7.85       0.54       7.24       -0.65       -8.73       2.07       38.42       NM       398.97       2.21       398.97       NM       0.00       0.00       NM  
CBMB   CBM Bancorp, Inc.     27.69       27.69       NA       1.99       NA       3.95       0.89       110.18       NA       89.67       24.83       89.67       NA       NA       NA       NA  
DCOM   Dime Community Bancshares, Inc.     9.59       8.78       0.86       8.97       0.76       7.94       0.11       301.95       14.38       118.93       11.33       131.04       14.62       0.56       2.82       40.58  
EFBI   Eagle Financial Bancorp, Inc.     20.11       20.11       0.41       1.95       0.26       1.24       0.79       136.04       NA       91.81       18.46       91.81       NA       NA       NA       NA  
ESBK   Elmira Savings Bank     10.08       8.09       0.85       8.06       1.06       10.08       0.79       100.00       15.44       113.07       11.10       143.63       15.46       0.92       4.92       76.03  
ESSA   ESSA Bancorp, Inc.     9.77       9.02       0.36       3.61       0.60       6.01       0.64       110.09       14.95       97.55       9.68       106.23       14.52       0.40       2.62       36.27  
FDEF   First Defiance Financial Corp.     12.70       9.69       1.45       11.51       1.41       11.16       1.14       82.41       13.00       148.36       18.63       199.85       12.97       0.76       2.59       30.09  
FNWB   First Northwest Bancorp     13.89       13.89       0.40       2.78       0.48       3.33       0.51       148.27       23.07       101.74       13.92       101.74       23.27       0.12       0.76       8.82  
FBC   Flagstar Bancorp, Inc.     8.12       7.77       0.50       5.97       0.96       11.50       0.45       171.79       9.88       116.60       9.88       132.66       NA       0.16       0.50       1.25  
FSBW   FS Bancorp, Inc.     11.17       10.92       1.54       13.06       1.54       13.12       0.18       554.56       8.27       129.76       14.41       136.21       10.17       0.60       1.15       9.06  
FSBC   FSB Bancorp, Inc.     9.57       9.57       -0.03       -0.30       0.04       0.43       0.03       NM       NM       105.48       NA       105.48       242.86       NA       NA       NM  
HIFS   Hingham Institution for Savings     8.85       8.85       1.42       16.55       1.38       16.14       0.08       719.32       13.23       184.55       16.29       184.55       12.27       1.48       0.80       13.81  
HMNF   HMN Financial, Inc.     10.85       10.72       0.87       7.55       1.03       8.93       0.93       137.72       11.37       113.70       13.27       115.17       NA       0.00       0.00       NM  
HFBL   Home Federal Bancorp, Inc. of Louisiana     11.20       11.20       0.90       8.09       1.06       9.46       1.72       62.96       12.76       118.46       13.54       118.46       12.76       0.56       1.83       22.50  
HVBC   HV Bancorp, Inc.     10.26       10.26       0.30       2.59       0.39       3.37       0.60       51.61       38.87       110.47       11.33       110.47       29.73       NA       NA       128.21  
IROQ   IF Bancorp, Inc.     12.37       12.37       0.27       2.06       0.48       3.66       1.18       228.76       23.58       95.57       11.30       95.57       NA       0.25       1.20       25.57  
ISBC   Investors Bancorp, Inc.     11.89       11.59       0.65       5.27       0.86       6.93       0.49       196.22       17.50       120.02       13.75       124.88       15.43       0.44       3.49       55.56  
KRNY   Kearny Financial Corp.     18.57       15.82       0.45       2.25       0.59       2.95       0.39       128.92       33.21       102.63       18.12       124.25       29.40       0.20       1.54       82.05  
MELR   Melrose Bancorp, Inc.     13.96       13.96       0.49       3.40       0.41       2.87       NA       NA       24.35       102.55       14.32       102.55       NA       0.34       1.89       45.95  
EBSB   Meridian Bancorp, Inc.     11.76       11.42       0.96       7.95       1.03       8.44       0.35       245.10       14.88       125.15       13.67       129.58       14.34       0.28       1.78       20.75  
CASH   Meta Financial Group, Inc.     12.81       6.84       1.13       10.58       1.71       16.47       0.66       197.64       12.58       123.38       15.32       238.02       9.38       0.20       0.83       9.77  
MSVB   Mid-Southern Bancorp, Inc.     23.90       23.90       0.57       4.04       0.71       5.03       1.77       55.15       31.44       96.54       NA       96.54       31.44       0.08       0.62       9.76  
MSBF   MSB Financial Corp.     11.86       11.86       0.69       5.41       0.81       6.36       2.26       42.38       19.78       143.93       16.41       143.93       19.78       0.00       0.00       100.56  
NYCB   New York Community Bancorp, Inc.     13.26       8.93       0.93       6.74       0.84       6.11       0.15       247.77       15.16       92.21       11.04       152.65       NA       0.68       5.68       86.08  
NFBK   Northfield Bancorp, Inc.     15.27       14.48       0.69       4.39       0.94       6.00       0.62       104.24       17.16       108.66       16.43       115.50       17.04       0.40       2.74       47.06  
NWBI   Northwest Bancshares, Inc.     12.96       9.86       1.07       8.33       1.07       8.36       1.00       59.80       17.55       147.10       19.26       198.84       16.91       0.72       4.02       67.65  
ORIT   Oritani Financial Corp.     13.70       13.70       1.07       7.91       1.38       10.20       0.27       305.25       13.95       143.33       18.47       143.33       13.27       1.00       5.92       95.04  
OTTW   Ottawa Bancorp, Inc.     18.96       18.69       0.36       1.77       0.71       3.46       NA       NA       45.10       86.95       16.48       88.44       23.61       0.20       1.48       88.33  
PBBI   PB Bancorp, Inc.     16.41       15.28       0.75       4.65       0.76       4.75       NA       NA       20.61       99.50       16.32       108.28       20.07       0.28       2.52       59.26  
PCSB   PCSB Financial Corporation     19.66       19.30       0.50       2.51       0.61       3.08       NA       NA       36.32       132.54       24.58       135.58       37.52       0.12       0.58       21.05  
PROV   Provident Financial Holdings, Inc.     10.51       10.51       0.36       3.44       0.56       5.38       0.76       86.34       20.47       114.00       12.41       114.00       20.47       0.56       3.01       61.54  
PFS   Provident Financial Services, Inc.     13.71       9.83       1.05       7.76       1.11       8.18       0.74       81.72       15.07       133.87       18.71       193.38       15.30       0.92       3.35       57.69  
PBIP   Prudential Bancorp, Inc.     11.88       11.33       0.72       5.45       0.95       7.12       1.39       36.80       18.38       122.56       14.36       129.12       NA       0.20       1.11       56.12  
RNDB   Randolph Bancorp, Inc.     13.25       NA       -0.63       -4.26       -0.29       -1.94       0.95       70.24       NM       113.04       14.98       NA       NM       NA       NA       NM  
RVSB   Riverview Bancorp, Inc.     10.66       8.42       1.16       11.05       1.31       12.48       0.53       190.77       10.52       131.79       14.66       168.72       10.77       0.16       2.14       19.72  
SVBI   Severn Bancorp, Inc.     10.78       10.67       0.69       6.30       0.92       8.42       1.94       47.38       13.21       117.19       NA       118.55       NA       0.12       1.36       17.91  
STXB   Spirit of Texas Bancshares, Inc.     13.69       12.82       0.76       6.79       0.91       8.16       NA       174.10       20.87       132.12       17.89       157.36       NA       NA       NA       NM  
STND   Standard AVB Financial Corp.     13.77       11.19       0.86       6.33       0.97       7.13       0.30       184.96       16.22       106.42       15.10       137.21       NA       0.88       2.90       47.02  
SBT   Sterling Bancorp, Inc.     9.99       9.98       1.80       19.19       1.93       20.57       0.19       348.52       8.06       153.00       16.04       153.20       NA       0.04       0.41       2.50  
TBNK   Territorial Bancorp Inc.     11.64       11.64       0.83       7.10       0.93       7.95       NA       77.66       13.53       112.40       12.80       112.40       13.55       0.88       3.20       57.14  
TSBK   Timberland Bancorp, Inc.     12.24       11.75       1.70       14.27       1.79       15.04       0.65       223.08       11.82       150.95       19.73       169.29       11.52       0.60       2.11       30.71  
TBK   Triumph Bancorp, Inc.     13.59       9.57       1.12       8.00       1.53       10.92       0.88       72.97       14.98       128.74       17.97       187.46       12.47       NA       NA       NM  
TRST   TrustCo Bank Corp NY     9.77       9.76       1.08       11.36       1.18       12.45       0.77       127.48       12.59       158.05       15.61       158.23       NA       0.27       3.40       42.06  
UBNK   United Financial Bancorp, Inc.     9.85       8.34       0.81       8.23       0.85       8.70       0.59       123.24       12.93       108.54       10.51       131.14       13.01       0.48       3.17       41.03  
WSBF   Waterstone Financial, Inc.     21.08       21.06       1.52       6.91       1.66       7.55       0.61       138.22       14.63       115.65       24.13       115.83       14.63       0.48       2.96       88.29  
WEBK   Wellesley Bancorp, Inc.     7.53       7.53       0.57       7.59       0.69       9.20       NA       NA       13.33       124.08       9.27       124.08       13.33       0.22       0.69       8.96  
WNEB   Western New England Bancorp, Inc.     11.22       10.54       0.59       5.00       0.78       6.67       0.69       82.82       17.19       117.39       13.13       125.99       17.12       0.16       1.63       21.05  
WSFS   WSFS Financial Corporation     11.16       8.80       1.37       12.62       1.53       14.18       0.76       79.73       10.07       161.20       18.26       219.01       12.50       0.44       1.04       10.50  
WVFC   WVS Financial Corp.     9.92       9.92       0.67       6.96       0.71       7.37       0.07       209.01       10.79       91.68       8.77       91.68       NA       0.40       2.54       26.03  
                                                                                                                                     
MHC                                                                                                                                    
BCOW   1895 Bancorp Of Wisconsin, Inc. (MHC)     7.82       7.82       NA       NA       NA       NA       0.43       154.82       NA       NA       NA       NA       NA       NA       NA       NA  
CLBK   Columbia Financial, Inc. (MHC)     14.42       14.34       0.19       1.72       0.72       6.49       NA       NA       NM       188.01       27.31       189.12       35.78       NA       NA       NM  
CFBI   Community First Bancshares, Inc. (MHC)     24.96       24.96       0.15       0.59       0.46       1.75       2.09       61.74       NM       101.62       25.37       101.62       57.99       NA       NA       NM  
FFBW   FFBW, Inc. (MHC)     22.18       22.15       0.16       0.73       0.44       2.05       0.40       186.69       65.98       124.43       28.59       124.61       56.66       NA       NA       NM  
GCBC   Greene County Bancorp, Inc. (MHC)     8.39       8.39       1.37       16.51       1.35       16.24       0.42       249.25       17.02       265.10       23.09       265.10       17.02       0.40       1.24       20.92  
HONE   HarborOne Bancorp, Inc. (MHC)     12.39       11.96       0.48       3.73       0.49       3.84       1.25       55.58       42.58       139.70       13.67       178.98       31.58       NA       NA       NM  
KFFB   Kentucky First Federal Bancorp (MHC)     21.27       17.49       0.38       1.75       0.20       0.92       NA       NA       NM       94.17       19.60       120.28       NA       0.40       5.33       666.67  
LSBK   Lake Shore Bancorp, Inc. (MHC)     14.43       14.43       0.68       4.55       0.70       4.71       0.94       98.40       24.14       119.86       17.53       119.86       NA       0.40       2.51       45.45  
MGYR   Magyar Bancorp, Inc. (MHC)     8.23       8.23       0.33       3.95       0.39       4.58       2.25       77.06       28.41       129.58       10.54       129.58       NA       NA       NA       NM  
OFED   Oconee Federal Financial Corp. (MHC)     16.97       16.47       0.63       3.84       0.85       5.14       1.22       22.86       46.98       167.11       28.37       173.24       35.18       0.40       1.64       76.92  
PDLB   PDL Community Bancorp (MHC)     17.01       17.01       -0.09       -0.49       0.14       0.77       1.79       70.32       NM       139.51       23.73       139.51       186.65       NA       NA       NM  
PVBC   Provident Bancorp, Inc. (MHC)     13.35       13.35       0.91       6.95       0.83       6.34       NA       NA       23.00       176.29       22.73       176.29       23.00       NA       NA       NM  
RBKB   Rhinebeck Bancorp, Inc. (MHC)     6.96       6.76       NA       NA       NA       NA       NA       NA       NA       NA       NA       NA       NA       NA       NA       NA  
TFSL   TFS Financial Corporation (MHC)     12.44       12.38       0.62       4.91       NA       NA       1.30       23.49       56.40       271.82       33.29       273.34       NA       1.00       5.91       280.00  
                                                                                                                                     
Under Acquisition                                                                                                                                
BNCL   Beneficial Bancorp, Inc.     17.68       15.34       0.53       2.98       0.76       4.30       0.27       279.62       24.06       113.13       NA       134.10       23.48       0.24       1.53       36.92  
BHBK   Blue Hills Bancorp, Inc.     14.49       14.20       0.75       5.02       0.88       5.84       0.57       163.80       24.23       158.21       22.79       161.92       22.51       0.80       3.37       102.04  
BLMT   BSB Bancorp, Inc.     6.66       6.66       0.74       11.00       0.83       12.35       0.19       322.35       13.65       161.31       10.74       161.31       13.03       NA       NA       NM  
SIFI   SI Financial Group, Inc.     10.58       9.65       0.41       3.82       0.65       6.12       1.17       78.51       24.42       95.06       10.06       105.24       15.38       0.24       1.79       43.64  

 

 

(1) Average of High/Low or Bid/Ask price per share.
(2) Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized.
(3) EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis.
(4) Exludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances.
(6) Annualized based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing 12 month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares.

 

Source: S&P Market Intelligence, LC. and RP ® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.

 

Copyright (c) 2019 by RP ® Financial, LC.

 

 

 

 

EXHIBIT IV-2

Historical Stock Price Indices

 

 

 

 

Exhibit IV-2

Historical Stock Price Indices

 

                          SNL     SNL  
                    NASDAQ     Thrift     Bank  
Year/Qtr. Ended   DJIA     S&P 500     Composite     Index     Index  
                                   
2010:   Quarter 1     10856.6       1169.4       2398.0       626.3       301.1  
    Quarter 2     9744.0       1030.7       2109.2       564.5       257.2  
    Quarter 3     9744.0       1030.7       2109.2       564.5       257.2  
    Quarter 4     11577.5       1257.6       2652.9       592.2       290.1  
                                             
2011:   Quarter 1     12319.7       1325.8       2781.1       578.1       293.1  
    Quarter 2     12414.3       1320.6       2773.5       540.8       266.8  
    Quarter 3     10913.4       1131.4       2415.4       443.2       198.9  
    Quarter 4     12217.6       1257.6       2605.2       481.4       221.3  
                                             
2012:   Quarter 1     13212.0       1408.5       3091.6       529.3       284.9  
    Quarter 2     12880.1       1362.2       2935.1       511.6       257.3  
    Quarter 3     13437.1       1440.7       3116.2       557.6       276.8  
    Quarter 4     13104.1       1426.2       3019.5       565.8       292.7  
                                             
2013:   Quarter 1     14578.5       1569.2       3267.5       602.3       318.9  
    Quarter 2     14909.6       1606.3       3404.3       625.3       346.7  
    Quarter 3     15129.7       1681.6       3771.5       650.8       354.4  
    Quarter 4     16576.7       1848.4       4176.6       706.5       394.4  
                                             
2014:   Quarter 1     16457.7       1872.3       4199.0       718.9       410.8  
    Quarter 2     16826.6       1960.2       4408.2       723.9       405.2  
    Quarter 3     17042.9       1972.3       4493.4       697.7       411.0  
    Quarter 4     17823.1       2058.9       4736.1       738.7       432.8  
                                             
2015:   Quarter 1     17776.1       2067.9       4900.9       749.3       418.8  
    Quarter 2     17619.5       2063.1       4986.9       795.7       448.4  
    Quarter 3     16284.7       1920.0       4620.2       811.7       409.4  
    Quarter 4     17425.0       2043.9       5007.4       809.1       431.5  
                                             
2016:   Quarter 1     17685.1       2059.7       4869.9       788.1       381.4  
    Quarter 2     17930.0       2098.9       4842.7       780.9       385.6  
    Quarter 3     18308.2       2168.3       5312.0       827.2       413.7  
    Quarter 4     19762.6       2238.8       5383.1       966.7       532.7  
                                             
2017:   Quarter 1     20663.2       2362.7       5911.7       918.9       535.8  
    Quarter 2     21349.6       2423.4       6140.4       897.1       552.4  
    Quarter 3     22405.1       2519.4       6496.0       939.3       573.2  
    Quarter 4     24719.2       2673..6       6903.4       937.6       617.7  
                                             
2018:   Quarter 1     24103.1       2640.9       7063.5       941.5       606.8  
    Quarter 2     24271.4       2718.4       7510.3       961.2       597.8  
    Quarter 3     26458.3       2914.0       8046.4       905.6       597.8  
    Quarter 4     23327.5       2506.9       6635.3       772.0       502.9  
As of Feb. 8, 2019     25106.3       2707.9       7298.2       864.5       554.9  

 

(1) End of period data.

 

Sources: SNL Financial and The Wall Street Journal.

 

 

 

  

EXHIBIT IV-3

Stock Indices as of February 8, 2019

 

 

 

Exhibit IV-3

Stock Indices as of February 8, 2019

 

Bank & Thrift Daily Monday, February 11, 2019
   
   
Daily Index Values  

 

          Percentage Change  
    Value     1 Day     1 Week     YTD     52 Week  
Bank     554.9       -0.76       -0.80       10.35       -10.24  
SNL TARP Participants     135.8       -0.54       0.73       16.19       57.79  
NE Bank     544.2       -0.92       -0.19       12.53       -20.27  
Mid-Atlc Bank     532.6       -0.98       -1.85       8.57       -10.42  
SE Bank     366.4       -0.19       0.51       14.62       -8.23  
MW Bank     624.6       -0.88       0.02       10.81       -8.23  
SW Bank     1,157.1       -1.16       1.46       14.79       -7.48  
W Bank     1,288.1       -0.91       -1.63       6.44       -12.91  
Bank < $500M     842.7       0.16       0.60       4.61       -8.67  
Bank $500M-$1B     1,117.2       0.30       1.32       6.15       -0.13  
Bank $1B-$5B     1,132.0       -0.15       0.90       7.34       -6.17  
Bank $5B-$10B     1,342.4       -0.75       0.87       10.26       -1.62  
Bank > $10B     481.1       -0.78       -0.91       10.47       -10.76  

 

          Percentage Change  
    Value     1 Day     1 Week     YTD     52 Week  
Thrift     864.5       -0.34       0.94       11.99       -7.14  
Bank/Thrift     529.8       -0.75       -0.76       10.39       -10.47  
Thrift MHCs     5,727.1       0.03       2.06       3.48       5.44  
NE Thrift     2,904.4       -0.31       0.45       4.62       -4.57  
Mid-Atlc Thrift     3,361.8       -0.39       0.58       14.13       -1.01  
SE Thrift     451.4       -2.01       -5.25       -5.49       4.09  
MW Thrift     3,018.9       -0.14       1.51       9.44       -3.57  
SW Thrift     843.7       0.44       -0.94       0.75       -16.99  
W Thrift     160.0       -0.91       3.55       23.29       -6.56  
Thrift < $250M     1,373.0       0.16       2.13       5.39       -1.80  
Thrift $250M-$500M     6,174.2       -0.63       -1.67       1.25       -5.08  
Thrift $500M-$1B     3,529.4       0.38       0.17       4.43       3.35  
Thrift $1B-$5B     2,694.7       0.24       1.43       8.55       -24.73  
Thrift > $5B     368.7       -0.54       0.90       13.71       -0.69  
NASDAQ     7,298.9       0.14       0.48       10.00       6.17  

 

Note: All SNL indexes are market-value weighted; i.e., an institution’s effect on an index is proportional to that institution’s market capitalization. All SNL bank indexes began at 100 on June 30, 1987. On that date, the S&P stood at 304.0. All SNL thrift indexes, except for the SNL MHC Index, began at 100 on March 30, 1984. The SNL MHC Index began at 201.082 on Dec. 31, 1992, the level of the SNL Thrift Index on that date. The SNL Bank and Thrift Index began at 100.00 on June 29, 1987. On March 30, 1984, the S&P 500 stood at 159.2. The SNL TARP Index began at 100.00 on September 29, 2003. On that date, the S&P 500 stood at 1006.6.

 

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EXHIBIT IV-4

Market Area Acquisition Activity

 

 

 

 

Exhibit IV-4

Market Area Acquisition Activity

 

                        Target Financials at Announcement     Deal Terms and Pricing at Announcement  
                        Total                             NPAs/     Rsrvs/     Deal     Value/                             Prem/  
Announce   Complete                   Assets     E/A     TE/A     ROAA     ROAE     Assets     NPLs     Value     Share     P/B     P/TB     P/E     P/A     Cdeps  
Date   Date   Buyer Name       Target Name       ($000)     (%)     (%)     (%)     (%)     (%)     (%)     ($M)     ($)     (%)     (%)     (x)     (%)     (%)  
                                                                                                         
3/12/2018   9/14/2018   Civista Bancshares Inc.   OH   United Community Bancorp   IN     546,219       13.17       12.75       0.61       4.63       0.39       196.24       118.5       27.168       158.61       164.69       33.96       21.69       NA  
3/16/2016   7/1/2016   First SB of Hegewisch   IL   Lake Federal Bank, FSB   IN     65,545       22.02       22.02       0.18       0.83       0.06       660.00       NA       NA       NA       NA       NA       NA       NA  
3/10/2016   7/18/2016   Horizon Bancorp   IN   La Porte Bancorp, Inc.   IN     543,191       15.75       14.40       0.89       5.48       1.15       89.31       94.1       16.023       104.48       116.13       18.63       17.33       4.94  
2/19/2015   7/1/2015   Horizon Bancorp   IN   Peoples Bancorp, Inc.   IN     486,555       12.60       12.18       0.74       5.75       NA       NA       73.1       31.619       119.20       123.91       21.36       15.02       4.21  
6/4/2014   11/1/2014   Old National Bancorp   IN   LSB Financial Corp.   IN     366,080       11.28       11.28       0.67       6.02       NA       NA       66.6       41.670       158.16       158.16       27.24       18.20       9.74  
5/13/2013   11/12/2013   First Merchants Corp.   IN   CFS Bancorp, Inc.   IN     1,146,368       9.84       9.84       0.50       5.27       4.89       37.13       114.7       10.488       101.35       101.35       19.79       10.00       0.22  
7/28/2011   2/17/2012   First Berne Financial Corp.   IN   AmericanTrust Federal Savings Bank (MHC)   IN     97,395       8.70       8.69       -0.76       -8.70       4.78       21.31       NA       NA       NA       NA       NA       NA       NA  
7/27/2011   1/1/2012   United Federal Credit Union   MI   Griffith Savings Bank   IN     88,425       7.67       7.67       -2.01       -25.74       7.06       36.76       0.3       NA       4.85       4.85       NM       0.37       -12.27  
3/25/2010   7/22/2011   Private Investors   0   Forethought Federal Savings Bank   IN     128,097       7.08       6.78       0.72       9.28       0.00       NA       NA       NA       NA       NA       NA       NA       NA  
                                                                                                                                     
                Average:         385,319       12.01       11.73       0.17       0.31       2.62       173.46                       107.78       111.52       24.20       13.77       1.37  
                Median:         366,080       11.28       11.28       0.61       5.27       1.15       63.22                       111.84       120.02       21.36       16.18       4.21  

 

Source: S&P Global Market Intelligence.

 

 

 

 

EXHIBIT IV-5

Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

 

 

 

Exhibit IV-5
Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

Directors of First Bank Richmond

 

The board of directors of First Bank Richmond consists of eight directors divided into three classes, with approximately one-third of the directors elected at each annual meeting of shareholders. The composition of the boards of directors of Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC is identical to that of First Bank Richmond.

 

The following table sets forth certain information regarding the board of directors of First Bank Richmond.

 

Name   Age (1)   Position  

Director

Since

 

Term of

Office

Expires (2)

                 
Garry D. Kleer   63   Chairman of the Board, President and Chief Executive Officer   2002   2020
E. Michael Blum   63   Director   1993   2019
Thomas L. Holthouse (2)   83   Director   1971   2019
Jeffrey A. Jackson   63   Director   2018   2021
Lindley S. Mann   73   Director   1998   2021
W. Ray Stevens, III   68   Director   1994   2020
Kathryn Cruz-Uribe   62   Director   2016   2020
M. Lynn Wetzel   69   Director   2016   2021

 

 

(1) As of December 31, 2018.
(2) Mr. Holthouse will retire from the boards of directors of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC in April 2019. As a result, the term of office of the remaining directors will be adjusted so that approximately one-third of the directors will be elected at each annual meeting of shareholders.

 

The composition of the board of directors of Richmond Mutual Bancorporation-Maryland is identical to that of First Bank Richmond, except for Mr. Holthouse. As stated above, Mr. Holthouse will retire as a director of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC in April 2019 and, therefore, has not been appointed to serve as a director of Richmond Mutual Bancorporation-Maryland. We greatly appreciate Mr. Holthouse’s 48 years of dedication and service to our organization.

 

The board of directors of Richmond Mutual Bancorporation-Maryland consists of seven directors and is divided into three classes, each of which contains approximately one-third of the members of the board. The directors of Richmond Mutual Bancorporation-Maryland will be elected by the stockholders of Richmond Mutual Bancorporation-Maryland generally for three-year terms, or until their successors are elected and qualified. One class of directors, consisting of W. Ray Stevens, III, Kathryn Cruz-Uribe and Lindley S. Mann has a term of office expiring in 2020. A second class of directors, consisting of M. Lynn Wetzel and Jeffrey A. Jackson, has a term of office expiring in 2021. The third class of directors, consisting of E. Michael Blum and Garry D. Kleer, has a term of office expiring in 2022.

 

Richmond Mutual Bancorporation-Maryland’s bylaws provide that no person 76 years of age or older shall be eligible for election, re-election, appointment or re-appointment to the Board of Directors. No director who has attained the age of 76 shall continue to serve as a director beyond the annual meeting of stockholders at which his or her term as a director expires.

 

The background and business experience for at least the past five years of each director of Richmond Mutual Bancorporation-Maryland is set forth below. The biographies also contain information regarding the person’s experience, qualifications, attributes or skills that caused the board of directors to determine that the person should serve as a director. Unless otherwise indicated, directors have held their positions for the past five years.

 

 

 

 

Exhibit IV-5 (continued)
Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

Garry D. Kleer. Mr. Kleer joined First Bank Richmond in May 1994 and currently serves as Chairman of the Board, President and Chief Executive Officer of First Bank Richmond, Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC (collectively, the “First Bank Richmond Entities”).  Mr. Kleer also serves as a member of the Mutual Federal advisory board of directors. He has served as President and Chief Executive Officer of First Bank Richmond since 2001 and Richmond Mutual Bancorporation and First Mutual of Richmond since 2006.  He was appointed Chairman of the Board in January 2019.  Mr. Kleer began his banking career in 1978 at American Fletcher National Bank in the Career Associates Program and was promoted to Vice President and Branch Manager in 1983. In 1986, American Fletcher National Bank, the second largest banking company in Indiana at the time, was acquired by Bank One where Mr. Kleer served as a Vice President until he joined First Bank Richmond as Vice President of Commercial Lending.  His community involvement includes serving on the Boards of the Richmond Symphony Orchestra, Wayne County Revolving Loan Fund, Reid Health Foundation, Boys & Girls Club of Wayne County, Indiana Bankers Association and Wayne County Foundation.  Mr. Kleer has also served as Past President of the Boys and Girls Clubs of Wayne County.  He has been recognized with the Indiana University East Chancellor’s Medallion, Junior Achievement Business Hall of Fame, Richmond/Wayne County Distinguished Community Leader, and Boys and Girls Club Man and Youth Award.  Mr. Kleer earned a Bachelor of Science degree in Finance from Indiana University in 1978.  He attended the ABA Graduate School of Commercial Lending and graduated with honors from the Stonier Graduate School of Banking.  With 40 years of experience working in the banking industry, his service on the Boards of numerous community organizations and his extensive involvement in our community, Mr. Kleer brings outstanding leadership skills and a deep understanding of the local banking market and issues facing the banking industry.

 

E. Michael Blum. Mr. Blum has served as a board member of First Bank Richmond since 1993 and Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC since their formation in 1998. Mr. Blum, since 1987, is the President and Owner of Bullerdick, a furniture and mattress store located in Richmond Indiana, which has been in business since 1930. He is a member of the Richmond Redevelopment Commission and was a past president and director of Main Street Center City Development, a former community-based nonprofit organization dedicated to the revitalization of the historic downtown area of Richmond, Indiana. Mr. Blum’s years of work with and running Bullerdick has provided him with strong leadership, management, financial and administrative skills, which together with his 25 years of service as a bank director, brings valuable knowledge and skills to our organization. In addition, his participation in our local business community for over 30 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

Jeffrey A. Jackson. Mr. Jackson joined the board of directors of the First Bank Richmond Entities in November 2018. Mr. Jackson currently is a director at Brady Ware & Company, a regional accounting firm with more than 150 professional team members, serving clients throughout the Midwest and in Georgia in a variety of industries. He joined Brady Ware & Company in 1980 and became a director in the firm in 1989 and served on its executive committee until December 2018. Mr. Jackson serves a wide variety of industries including manufacturers, contractors, retailers, agricultural businesses and professionals, with a focus on tax and financial planning issues of business owners and their closely-held businesses. Mr. Jackson has served nearly ten years as a member of the Board of Directors of the Economic Development Corporation of Wayne County and also currently serves on the Business Advisory Council for IU East School of Business and Economics. He is also a member of the board of the Richmond Symphony Orchestra. Mr. Jackson’s past board service includes the Reid Health Foundation and the Forest Hills Country Club, where he also served as president. Mr. Jackson joined the United States Army upon graduation from high school and, following his military service, graduated Magna Cum Laude with a degree in accounting from Ball State University. Mr. Jackson, who will serve as our audit committee financial expert following the reorganization, is a Certified Public Accountant, a Certified Financial Planner and has received his Personal Financial Specialist credentials from the American Institute of Certified Public Accountants. Mr. Jackson was inducted into the eastern Indiana Junior Achievement Business Hall of Fame in 2017. Mr. Jackson’s qualifications to serve as a board member include his extensive and varied accounting experience, as well as his knowledge of and involvement in the communities we serve.

 

 

 

 

Exhibit IV-5 (continued)
Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

Lindley S. Mann. Mr. Mann has served as a board member of the First Bank Richmond Entities since 1998. Mr. Mann is president, since 1976, of EG Hill Co., a wholesale florist located in Richmond, Indiana. He also served as president of Hill Floral Products, a floral distributor, from 1992 until it was sold in 2002. Mr. Mann currently serves as a trustee on the board of the Boys and Girls Clubs of Wayne County and in the past was actively involved in the Wayne County Area Chamber of Commerce and the Richmond Art Museum. Mr. Mann received a degree in Business Administration from the University of Mississippi. Mr. Mann’s business and management experience in the retail space, as both an owner and operator, and his 21 years serving as a bank director give him a broad range of experience and knowledge which he draws upon for service on our board and his assigned committees. In addition, his participation in our local business community for over 40 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

W. Ray Stevens, III. Mr. Stevens has served as a board member of First Bank Richmond since 1994 and Richmond Mutual Bancorporation-Delaware and First Mutual of Richmond-MHC since their formation in 1998. Mr. Stevens was the President and Owner of Stevens Wire Products, a manufacturer of wire products, from 1986 until his retirement in 2016. He is a past board member of the Wire Fabricators Association, the Richmond YMCA, the Richmond Redevelopment Commission, the Wayne County Chamber of Commerce and the Forest Hills Country Club, and has supported and continues to support various not-for-profit organizations in our community. Mr. Stevens graduated with a Bachelor of Science degree from Indiana University. Mr. Stevens’ business experience as an owner and operator of a manufacturing company, including navigating the numerous business cycles which occurred over his more than 30 years in the industry, and his 25 years serving as a bank director helped him develop valuable skills which he draws upon for service on our board and his assigned committees. In addition, his participation in our local business community for over 30 years brings knowledge of the local economy and business opportunities to First Bank Richmond.

 

Kathryn Cruz-Uribe. Ms. Cruz-Uribe has served as a board member of the First Bank Richmond Entities since 2016. Ms. Cruz-Uribe currently serves as the Chancellor/CEO of Indiana University East located in Richmond, Indiana, a growing, vibrant educational institution with a significant online presence and over 300 employees. As Chancellor, Ms. Cruz-Uribe exercises broad responsibilities for all aspects of the academic, student, financial, development and administrative operations of the campus in coordination with Indiana University central administration. Her responsibilities also include strategic planning, risk assessment (including Information Technology threats and security), federal and state regulatory compliance and maintenance of accreditation standards. Prior to joining Indiana University East in 2013, Ms. Cruz-Uribe was Provost and Vice President for Academic Affairs at California State University, Monterey Bay, from 2007 to 2013, leading all aspects of the academic operations of the university and serving as its second-in-command. Before that she was at Northern Arizona University from 1989 to 2006, serving four years as Dean of the College of Social and Behavioral Sciences. Ms. Cruz-Uribe serves on the board of the Wayne County Area Chamber of Commerce (past chair of the board), the Richmond Art Museum (second vice president), the Richmond Symphony Orchestra (vice president), the Wayne County Foundation and Reid Health. She earned her BA from Middlebury College, followed by an M.A. and Ph.D. from the University of Chicago. Ms. Cruz-Uribe’s extensive leadership, management and strategic planning experience, as well as her civic and community involvement, provide her with valuable skills beneficial to our board and the committees on which she serves.

 

M. Lynn Wetzel. Mr. Wetzel has served as a board member of the First Bank Richmond Entities since 2016. Mr. Wetzel began working in the automobile industry in 1973, purchasing his first dealership in Pittsburgh, Pennsylvania, a Mercedes-Benz dealership, in 1983. Mr. Wetzel currently owns and operates six dealerships in Richmond, Indiana, which include Honda and Dodge dealerships purchased in 1998, Chrysler and Jeep dealerships purchased in 2004, and Ford and Chevrolet dealerships purchased in 2007. He serves as a trustee on the board of the Boys and Girls Clubs of Wayne County, is a former board member of the Wayne County Area Chamber of Commerce, past president and former board member of the Pittsburgh Auto Dealers Trade Association and former board member of the Pennsylvania Automobile Dealers Association. Mr. Wetzel also actively supports multiple charitable causes in the community including sponsorship, in partnership with First Bank Richmond and the Wayne County Area Chamber of Commerce, of the “School is Cool” program which gives an automobile or scholarship annually to a senior high school student with perfect attendance during the school year. Mr. Wetzel’s business acumen, including his broad range of knowledge in the areas of finance, leasing, negotiations and day to day business operations resulting from his extensive career in the automobile industry makes him a valuable asset to our board and the committees on which he serves.

 

 

 

 

Exhibit IV-5 (continued)
Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

Executive Officers Who Are Not Directors

 

The following sets forth information regarding our executive officers who are not directors.

 

Donald A. Benziger . Mr. Benziger joined First Bank Richmond in 2012 as Senior Vice President-Chief Financial Officer and has served as Executive Vice President-Chief Financial Officer since 2014. Mr. Benziger has more than 40 years of experience in the financial services industry. This experience has included serving as Chief Financial Officer at several public companies, including SEC registrants. His responsibilities include management and direction of the finance and accounting functions, asset-liability management, budgeting, investment management, and regulatory reporting. Mr. Benziger holds a Bachelor’s Degree from Ohio Northern University and an MBA in Finance from Bowling Green State University. He is also a graduate of the Stonier Graduate School of Banking.

 

Beth A. Brittenham. Ms. Brittenham, employed by First Bank Richmond since 1979, currently serves as Senior Vice President-Human Resources. Ms. Brittenham has served in various positions in the human resources department during her 40 year career at First Bank Richmond and as Senior Vice President-Human Resources since 2011. Her responsibilities include employee relations, payroll, benefits and the administration of all phases of the human resources area. In addition, Ms. Brittenham serves as corporate secretary to the First Bank Richmond Entities.

 

Albert E. Fullerton , Jr. Mr. Fullerton, employed by First Bank Richmond since 2005, currently serves as Senior Vice President-Chief Information Officer/Information Security Officer. Mr. Fullerton has served as Senior Vice President and Chief Information Officer/Information Security Officer since 2013. His responsibilities include managing the bank’s technology resources and coordinating the evaluation, deployment, and management of IT systems across the organization. In addition, Mr. Fullerton is responsible for the development of the cyber security-related policies and processes that reduce the organization’s operational risks. Mr. Fullerton received his graduate degree from the Graduate School of Banking at the University of Wisconsin - Madison. He earned a Certified Information Security Manager (CISM) designation from ISACA and a Certified Banking Security Manager (CBSM) designation from the SBS Cyber Security Institute.

 

Cathy J. Hays . Ms. Hays, employed by First Bank Richmond since 1999, currently serves as Senior Vice President-Chief Audit Examiner and Training Director and has been employed in the financial services industry for 34 years. Her responsibilities include overseeing the bank’s internal audit program, FDICIA compliance, exam preparation for all regulators and external auditors, and coordinating and overseeing employee training. Ms. Hays received her BA from Indiana University East and, in 2004, received her designation as a BAI Certified Bank Auditor.

 

Alan M. Spears. Mr. Spears, since 2003, has served as Senior Vice President-Senior Trust Officer of First Bank Richmond. Mr. Spears has 29 years of experience in wealth management with a focus on investments and estate planning. He is responsible for investments, trust and estate administration and new business development. Mr. Spears holds a Bachelor’s Degree in Political Science and a Master’s in Public Administration from Indiana University, and a JD from the Indiana University Robert H. McKinney School of Law in Indianapolis.

 

Pamela S. Stoops. Ms. Stoops, since 2004, has served as Senior Vice President-Retail Lending Manager at First Bank Richmond.  Ms. Stoops has more than 33 years of experience in the financial services industry, primarily in residential lending. Her responsibilities include overseeing all aspects of our retail lending operations, including our secondary market operations. Ms. Stoops received her Associate’s Degree in Business from Indiana Wesleyan University and holds a life, accident and health insurance license.

 

 

 

 

Exhibit IV-5 (continued)
Richmond Mutual Bancorporation, Inc.

Director and Senior Management Summary Resumes

 

Dean W. Weinert. Mr. Weinert served as the President and Chief Executive Officer of Mutual Federal Savings Bank, which operated independently from First Bank Richmond as a wholly owned bank subsidiary of Richmond Mutual Bancorporation-Delaware, from 2010 through 2016, and as Division President since 2016 when Mutual Federal Savings Bank was combined with First Bank Richmond through an internal merger transaction. Mr. Weinert also serves as a member of the Mutual Federal advisory board of directors. Prior to joining Mutual Federal and First Bank Richmond, Mr. Weinert served as a senior officer in the large corporate special assets division of PNC National Bank in Indianapolis (2008-2010), a senior commercial lending officer at Park National Bank in Columbus, Ohio (2006-2008), and as President of Eaton National Bank, Eaton, Ohio (2002-2006). In addition, over his 45 year career in banking, Mr. Weinert has held numerous commercial banking positions, including serving as a senior credit analyst, corporate lending officer, commercial lending division manager, special assets group manager, corporate banking manager and chief commercial credit officer, predominately with the Indiana National Bank in Indiana and its several successor entities through subsequent mergers. Mr. Weinert holds a BA in Economics from Wabash College and an MBA from Butler University.

 

Robin S. Weinert . Mrs. Weinert, employed by First Bank Richmond since 2006, currently serves as Senior Vice President-Operations/Retail Banking. Mrs. Weinert has served as Senior Vice President-Operations/Retail Banking of First Bank Richmond since 2015. Her responsibilities include overseeing our retail branches and marketing. She also is responsible for the overall planning and effectiveness of the retail branch initiatives related to the delivery of exceptional customer service and diversification strategies. Mrs. Weinert has over 30 years of experience in the financial services industry with an emphasis on retail, operations and sales. Mrs. Weinert is a graduate of the Graduate School of Banking at the University of Wisconsin-Madison. She has also completed Indiana University East’s Center for Leadership Development program and the Indiana Bankers Association’s Compliance School Operations and Deposit programs.

 

Paul J. Witte. Mr. Witte, employed by First Bank Richmond since 1996, currently serves as Senior Vice President of Commercial Lending and Commercial Leasing. Mr. Witte has served as Senior Vice President of Commercial Lending since 2014 and Commercial Leasing since 2006. Mr. Witte manages First Bank Richmond’s Commercial Lending Department and is co-chair of the Officer’s Loan Committee and member of the Executive Loan Committee. He also provides direction and oversight to the Leasing Department, as needed, and generally is responsible for the review of larger leasing credit applications. Mr. Witte is a graduate of Ball State University with a B.S. in Accounting, Corporate Finance and Institutional Finance. He is a Certified Public Accountant (currently inactive). He is a graduate of the Graduate School of Banking at the University of Wisconsin-Madison and has attended the Financial Managers School sponsored by the Graduate School of Banking at the University of Wisconsin-Madison.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT IV-6

Richmond Mutual Bancorporation, Inc.

Pro Forma Regulatory Capital Ratios

 

 

 

 

Exhibit IV-6
Richmond Mutual Bancorporation, Inc.

Richmond Mutual Bancorporation
Pro Forma Regulatory Capital Ratios

 

    Actual, As of     Pro Forma at December 31, 2018 (1)  
    December 31, 2018     Minimum     Midpoint     Maximum     Maximum As Adjusted  
                83,725,000     98,500,000     113,275,000     130,266,250 (2)  
          Percent of           Percent of           Percent of           Percent of           Percent of  
    Amount     Assets (3)(4)     Amount     Assets (3)     Amount     Assets (3)     Amount     Assets (3)     Amount     Assets (3)  
Capital and Retained
Earnings Under GAAP 		    (Dollars in Thousands)  
Equity   $ 80,857       9.57 %   $ 101,059       11.59 %   $ 106,605       12.13 %   $ 112,152       12.67 %   $ 118,531       13.27 %
                                                                                 
Tier 1 Leverage Capital   $ 84,250       10.06 %   $ 104,452       12.07 %   $ 109,998       12.62 %   $ 115,545       13.15 %   $ 121,924       13.76 %
Requirement     41,888       5.00 %     43,253       5.00 %     43,590       5.00 %     43,926       5.00 %     44,313       5.00 %
Excess   $ 42,362       5.06 %   $ 61,199       7.07 %   $ 66,408       7.62 %   $ 71,619       8.15 %   $ 77,611       8.76 %
                                                                                 
Tier I Risk Based Capital (5)   $ 84,250       11.49 %   $ 104,452       14.14 %   $ 109,998       14.87 %   $ 115,545       15.59 %   $ 121,924       16.42 %
Requirement     58,640       8.00 %     59,077       8.00 %     59,184       8.00 %     59,292       8.00 %     59,416       8.00 %
Excess   $ 25,610       3.49 %   $ 45,375       6.14 %   $ 50,814       6.87 %   $ 56,253       7.59 %   $ 62,508       8.42 %
                                                                                 
Total Risk-Based Capital (5)   $ 89,850       12.26 %   $ 110,052       14.90 %   $ 115,598       15.63 %   $ 121,145       16.35 %   $ 127,524       17.17 %
Risk-Based Requirement     73,300       10.00 %     73,846       10.00 %     73,981       10.00 %     74,115       10.00 %     74,270       10.00 %
Excess   $ 16,550       2.26 %   $ 36,206       4.90 %   $ 41,617       5.63 %   $ 47,030       6.35 %   $ 53,254       7.17 %
                                                                                 
Common Equity Tier 1 RB (5)   $ 84,250       11.49 %   $ 104,452       14.14 %   $ 109,998       14.87 %   $ 115,545       15.59 %   $ 121,924       16.42 %
Risk-Based Requirement     47,645       6.50 %     48,000       6.50 %     48,087       6.50 %     48,175       6.50 %     48,275       6.50 %
Excess   $ 36,605       4.99 %   $ 56,452       7.64 %   $ 61,911       8.37 %   $ 67,370       9.09 %   $ 73,649       9.92 %
                                                                                 
Net Proceeds After Exp. Infused (50%)                   $ 40,680             $ 47,999             $ 55,318             $ 63,736          
Less:  Pentegra Plan Termination                     (9,831 )             (9,831 )             (9,831 )             (9,831 )        
Less:  ESOP                     (7,098 )             (8,280 )             (9,462 )             (10,821 )        
Less:  MRP                     (3,549 )             (4,140 )             (4,731 )             (5,411 )        
   Pro Forma Increase                   $ 20,202             $ 25,748             $ 31,296             $ 37,674          

 

 

(1) Pro forma capital levels assume that the employee stock ownership plan purchases 8.0% of our total outstanding shares (including shares contributed to the charitable foundation) with funds we lend and that one or more stock-based benefit plans purchases 4.0% of our total outstanding shares (including shares contributed to the charitable foundation) for restricted stock awards. Pro forma capital calculated under U.S. generally accepted accounting principles (“U.S. GAAP”) and regulatory capital have been reduced by the amount required to fund these plans. See “Management – Existing and Future Benefit Plans and Agreements” for a discussion of the employee stock ownership plan.
(2) As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(3) Tier 1 leverage capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(4) Based on total assets of $844.7 million for the purposes of the GAAP capital ratio, total assets of $837.8 million, for the purposes of the Tier 1 leverage capital requirement and risk-weighted assets of $733.0 million, for the purposes of the Tier 1 risk-based and total risk-based capital requirements.
(5) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

 

Source: Richmond Mutual Bancorporation’s prospectus.

 

 

 

 

EXHIBIT IV-7

Richmond Mutual Bancorporation, Inc.

Pro Forma Analysis Sheet

 

 

 

Exhibit IV-7

Richmond Mutual Bancorporation, Inc.

Pro Forma Analysis Sheet

Prices as of February 8, 2019

 

            Subject at         Peer Group     All Public Thrifts  
Valuation Pricing Multiples   Symbol   Midpoint         Mean     Median     Mean     Median  
Price-earnings multiple   =   P/E     15.72     x     16.71 x     15.83 x     15.92 x     14.88 x
Price-core earnings multiple   =   P/CE     16.24     x     15.77 x     14.99 x     17.00 x     14.63 x
Price-book ratio   =   P/B     67.20 %         116.62 %     115.44 %     125.94 %     117.19 %
Price-tangible book ratio   =   P/TB     67.20 %         127.09 %     126.60 %     140.56 %     129.35 %
Price-assets ratio   =   P/A     11.20 %         13.15 %     13.27 %     15.02 %     14.82 %

 

                  % of     % of Offering  
Valuation Parameters                 Offering     + Foundation  
Pre-Conversion Earnings (Y)   $ 5,395,000     (Through 12/18)   ESOP Stock as % of Offering (E)     8.4061 %     8.0000 %
Pre-Conversion Core Earnings   $ 5,185,000     (Through 12/18)   Cost of ESOP Borrowings (S)     0.00 %        
Pre-Conversion Book Value (B)   $ 79,817,633     (12/18)   ESOP Amortization (T)     20.00       years  
Intangibles   $ 0     (12/18)   RRP Stock as % of Offering (M)     4.2030 %     4.0000 %
Pre-Conv. Tang. Book Value (B)   $ 79,817,633     (12/18)   Stock Programs Vesting (N)     5.00       years  
Pre-Conversion Assets (A)   $ 849,618,363     (12/18)   Fixed Expenses   $ 1,600,000          
Reinv Rte: (5 Yr Treas) @ 12/2018     2.510 %       Subscr/Dir Comm Exp (Mdpnt)   $ 902,200       1.00 %
Tax rate (TAX)     25.94 %       Total Expenses (Midpoint)   $ 2,502,200          
A-T Reinvestment Rate(R)     1.859 %       Syndicate Expenses (Mdpnt)   $ 0       0.00 %
Est. Conversion Expenses (1)(X)     2.42 %       Syndicate Amount   $ 0          
Insider Purchases ($)   $ 0         Percent Sold (PCT)     100.00 %        
Price/Share   $ 10.00         MHC Assets   $ 0          
Foundation Cash Contrib. (FC)   $ 1,250,000         Options as % of Offering (O1)     10.5076 %     10.00 %
Found Stk Cont (% of Off Shrs (FS)     5.0761 %       Estimated Option Value (O2)     29.50 %        
Foundation Tax Benefit (Z)   $ 1,621,250         Option Vesting Period (O3)     5.00       years  
Foundation Stock Amount (Mdpt.)   $ 5,000,000         % of Options taxable (O4)     25.00 %        
Pentegra Plan Termination   $ 13,274,000         Senior Mgmt. SERP Plan   $ 0          
Repayment of TRuPS   $ 5,000,000                          
Yr 2018 Pentegra Plan Pre-Tax Exp.   $ 1,725,000                          

 

Calculation of Pro Forma Value After Conversion

 

1.    V= P/E * (Y) V= $103,500,000
  1 - P/E * PCT * ((1-X-E-M-FC-FS)*R - (1-TAX)*E/T - (1-TAX)*M/N)-(1-(TAX*O4))*(O1*O2)/O3)    

 

1.    V= P/E * (Y) V= $103,500,000
  1 - P/Core E * PCT * ((1-X-E-M-FC-FS)*R - (1-TAX)*E/T - (1-TAX)*M/N)-(1-(TAX*O4))*(O1*O2)/O3)    

 

2.    V= P/B  *  (B+Z)   V= $103,500,000
  1 - P/B * PCT * (1-X-E-M-FC-FS)      

 

2.    V= P/TB  *  (TB+Z)   V= $103,500,000
  1 - P/TB * PCT * (1-X-E-M-FC-FS)      
         
3.    V= P/A * (A+Z+PA)        V= $103,500,000
    1 - P/A * PCT * (1-X-E-M-FC-FS)      

 

                                  Market Value     Market Value  
    Shares Issued     Shares Sold     Foundation     Total Shares     Price Per     of Stock Sold     of Stock Issued  
Valuation Conclusion   to MHC     to Public     Shares     Issued     Share     in Offering     in Reorganization  
Supermaximum     0       13,026,625       500,000       13,526,625     $ 10.00     $ 130,266,250     $ 135,266,250  
Maximum     0       11,327,500       500,000       11,827,500       10.00       113,275,000     $ 118,275,000  
Midpoint     0       9,850,000       500,000       10,350,000       10.00       98,500,000     $ 103,500,000  
Minimum     0       8,372,500       500,000       8,872,500       10.00       83,725,000     $ 88,725,000  

 

    Shares Issued     Shares Sold     Foundation     Total Shares  
Valuation Conclusion   to MHC     to Public     Shares     Issued  
Supermaximum     0.000 %     96.304 %     3.696 %     100.000 %
Maximum     0.000 %     95.773 %     4.227 %     100.000 %
Midpoint     0.000 %     95.169 %     4.831 %     100.000 %
Minimum     0.000 %     94.365 %     5.635 %     100.000 %

 

Foundation Information   Foundation              
    Stock Portion     Total     Total Dollars     Cash     Total     As % of Offer.  
    % of Public     Shares     Stock Portion     Portion     Value     +Foundation Value  
                                     
      3.838 %     500,000     $ 5,000,000     $ 1,250,000     $ 6,250,000       4.621 %
      4.414 %     500,000     $ 5,000,000     $ 1,250,000     $ 6,250,000       5.284 %
      5.076 %     500,000     $ 5,000,000     $ 1,250,000     $ 6,250,000       6.039 %
      5.972 %     500,000     $ 5,000,000     $ 1,250,000     $ 6,250,000       7.044 %

 

(1) Estimated offering expenses at midpoint of the offering.

 

 

 

 

EXHIBIT IV-8

Richmond Mutual Bancorporation, Inc.

Pro Forma Effect of Conversion Proceeds

 

 

 

 

Exhibit IV-8

Richmond Mutual Bancorporation, Inc.

Pro Forma Effect of Conversion Proceeds

At the Minimum of the Range

 

1.   Market Value of Shares Sold In Offering:   $ 83,725,000  
    Market Value of Shares Issued to Foundation:     5,000,000  
    Total Market Value of Company:   $ 88,725,000  
             
2.   Offering Proceeds of Shares Sold In Offering   $ 83,725,000  
    Less: Estimated Offering Expenses     2,366,270  
    Net Conversion Proceeds   $ 81,358,730  
             
3.   Estimated Additional Equity and Income from Offering Proceeds        
    Net Conversion Proceeds   $ 81,358,730  
    Less: Repayment of TruPS     (5,000,000 )
    Less: After Tax Cash Payment for Pentegra Termination Expense     (9,830,724 )
             
    Less: Cash Contribution to Foundation     (1,250,000 )
    Less: Non-Cash ESOP Stock Purchases (1)     (7,098,000 )
    Less: Non-Cash MRP Stock Purchases (2)     (3,549,000 )
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 54,631,006  
    Estimated After-Tax Reinvestment Rate     1.86 %
    Earnings from Reinvestment of Proceeds   $ 1,015,539  
    Less: Estimated cost of ESOP borrowings(1)     0  
    Less: Amortization of ESOP borrowings(1)     (262,839 )
    Less: Stock Programs Vesting (2)     (525,678 )
    Less: Option Plan Vesting (3)     (489,530 )
    Plus: Reduction in After Tax Expense from Pentegra Termination (4)     1,277,535  
    Plus: Reduction in After Tax Expense from Payoff of $5 Mil External TruPS (5)     147,500  
    Net Earnings Increase   $ 1,162,527  
             
    MEMO: Adjustments to Net Conversion Proceeds to Calculate Net Equity Increase        
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 54,631,006  
    Plus: Exclude Repayment of Trust Preferred Securities-Cash Flow Item Only     5,000,000  
    Net Equity Proceeds   $ 59,631,006  

 

              Net        
        Before     Earnings     After  
        Conversion     Increase     Conversion  
4.   Pro Forma Earnings                        
                             
    12 Mths ended Dec. 31, 2018, annualized (reported)   $ 5,395,000     $ 1,162,527     $ 6,557,527  
    12 Mths ended Dec. 31, 2018, annualized (core)   $ 5,185,000     $ 1,162,527     $ 6,347,527  

 

        Before     Net Equity     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
5.   Pro Forma Net Worth                                
                                     
    December 31, 2018   $ 79,817,633     $ 59,631,006     $ 1,621,250     $ 141,069,889  
    December 31, 2018 (Tangible)   $ 79,817,633     $ 59,631,006     $ 1,621,250     $ 141,069,889  

 

        Before     Net Cash     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
6.   Pro Forma Assets                                
                                     
    December 31, 2018   $ 849,618,363     $ 59,631,006     $ 1,621,250     $ 910,870,619  

 

(1) ESOP stock (8.00% of total shares issued in conversion) amortized over 20 years, amortization expense is tax effected at 24.9%.
(2) Restricted stock program (4.00% of total shares issued in conversion) amortized over 5 years, amortization expense is tax effected at 24.9%.
(3) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25% taxable.
(4) Fiscal 2018 Pentegra Plan Expense equaled: $1,725,000
(5) Reflects elimination of annual interest expense related to external $5.0 million of TruPS to be redeemed

 

 

 

 

Exhibit IV-8 (continued)

Richmond Mutual Bancorporation, Inc.

Pro Forma Effect of Conversion Proceeds

At the Midpoint of the Range

 

1.   Market Value of Shares Sold In Offering:   $ 98,500,000  
    Market Value of Shares Issued to Foundation:     5,000,000  
    Total Market Value of Company:   $ 103,500,000  
             
2.   Offering Proceeds of Shares Sold In Offering   $ 98,500,000  
    Less: Estimated Offering Expenses     2,502,200  
    Net Conversion Proceeds   $ 95,997,800  
             
3.   Estimated Additional Equity and Income from Offering Proceeds        
    Net Conversion Proceeds   $ 95,997,800  
    Less: Repayment of TruPS     (5,000,000 )
    Less: After Tax Cash Payment for Pentegra Termination Expense     (9,830,724 )
    Less: Cash Contribution to Foundation     (1,250,000 )
    Less: Non-Cash ESOP Stock Purchases (1)     (8,280,000 )
    Less: Non-Cash MRP Stock Purchases (2)     (4,140,000 )
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 67,497,076  
    Estimated After-Tax Reinvestment Rate     1.86 %
    Earnings from Reinvestment of Proceeds   $ 1,254,707  
    Less: Estimated cost of ESOP borrowings(1)     0  
    Less: Amortization of ESOP borrowings(1)     (306,608 )
    Less: Stock Programs Vesting (2)     (613,217 )
    Less: Option Plan Vesting (3)     (571,049 )
    Plus: Reduction in After Tax Expense from Pentegra Termination (4)     1,277,535  
    Plus: Reduction in After Tax Expense from Payoff of $5 Mil External TruPS (5)     147,500  
    Net Earnings Increase   $ 1,188,868  
             
    MEMO: Adjustments to Net Conversion Proceeds to Calculate Net Equity Increase        
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 67,497,076  
    Plus: Exclude Repayment of Trust Preferred Securities-Cash Flow Item Only     5,000,000  
    Net Equity Proceeds   $ 72,497,076  

 

              Net        
        Before     Earnings     After  
        Conversion     Increase     Conversion  
4.   Pro Forma Earnings                        
                             
    12 Mths ended Dec. 31, 2018, annualized (reported)   $ 5,395,000     $ 1,188,868     $ 6,583,868  
    12 Mths ended Dec. 31, 2018, annualized (core)   $ 5,185,000     $ 1,188,868     $ 6,373,868  

 

        Before     Net Capital     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
5.   Pro Forma Net Worth                                
                                     
    December 31, 2018   $ 79,817,633     $ 72,497,076     $ 1,621,250     $ 153,935,959  
    December 31, 2018 (Tangible)   $ 79,817,633     $ 72,497,076     $ 1,621,250     $ 153,935,959  

 

        Before     Net Cash     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
6.   Pro Forma Assets                                
                                     
    December 31, 2018   $ 849,618,363     $ 72,497,076     $ 1,621,250     $ 923,736,689  

 

(1) ESOP stock (8.00% of total shares issued in conversion) amortized over 20 years, amortization expense is tax effected at 24.9%.
(2) Restricted stock program (4.00% of total shares issued in conversion) amortized over 5 years, amortization expense is tax effected at 24.9%.
(3) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25% taxable.
(4) Fiscal 2018 Pentegra Plan Expense equaled:  $1,725,000
(5) Reflects elimination of annual interest expense related to external $5.0 million of TruPS to be redeemed

 

 

 

Exhibit IV-8 (continued)

Richmond Mutual Bancorporation, Inc.

Pro Forma Effect of Conversion Proceeds

At the Maximum of the Range

 

1.   Market Value of Shares Sold In Offering:   $ 113,275,000  
    Market Value of Shares Issued to Foundation:     5,000,000  
    Total Market Value of Company:   $ 118,275,000  
             
2.   Offering Proceeds of Shares Sold In Offering   $ 113,275,000  
    Less: Estimated Offering Expenses     2,638,130  
    Net Conversion Proceeds   $ 110,636,870  
             
3.   Estimated Additional Equity and Income from Offering Proceeds        
    Net Conversion Proceeds   $ 110,636,870  
    Less: Repayment of TruPS     (5,000,000 )
    Less: After Tax Cash Payment for Pentegra Termination Expense     (9,830,724 )
    Less: Cash Contribution to Foundation     (1,250,000 )
    Less: Non-Cash ESOP Stock Purchases (1)     (9,462,000 )
    Less: Non-Cash MRP Stock Purchases (2)     (4,731,000 )
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 80,363,146  
    Estimated After-Tax Reinvestment Rate     1.86 %
    Earnings from Reinvestment of Proceeds   $ 1,493,875  
    Less: Estimated cost of ESOP borrowings(1)     0  
    Less: Amortization of ESOP borrowings(1)     (350,378 )
    Less: Stock Programs Vesting (2)     (700,756 )
    Less: Option Plan Vesting (3)     (652,569 )
    Plus: Reduction in After Tax Expense from Pentegra Termination (4)     1,277,535  
    Plus: Reduction in After Tax Expense from Payoff of $5 Mil External TruPS (5)     147,500  
    Net Earnings Increase   $ 1,215,208  
             
    MEMO: Adjustments to Net Conversion Proceeds to Calculate Net Equity Increase        
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 80,363,146  
    Plus: Exclude Repayment of Trust Preferred Securities-Cash Flow Item Only     5,000,000  
    Net Equity Proceeds   $ 85,363,146  

 

              Net        
        Before     Earnings     After  
        Conversion     Increase     Conversion  
4.   Pro Forma Earnings                        
                             
    12 Mths ended Dec. 31, 2018, annualized (reported)   $ 5,395,000     $ 1,215,208     $ 6,610,208  
    12 Mths ended Dec. 31, 2018, annualized (core)   $ 5,185,000     $ 1,215,208     $ 6,400,208  

 

        Before     Net Capital     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
5.   Pro Forma Net Worth                                
                                     
    December 31, 2018   $ 79,817,633     $ 85,363,146     $ 1,621,250     $ 166,802,029  
    December 31, 2018 (Tangible)   $ 79,817,633     $ 85,363,146     $ 1,621,250     $ 166,802,029  

 

        Before     Net Cash     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
6.   Pro Forma Assets                                
                                     
    December 31, 2018   $ 849,618,363     $ 85,363,146     $ 1,621,250     $ 936,602,759  

 

(1) ESOP stock (8.00% of total shares issued in conversion) amortized over 20 years, amortization expense is tax effected at 24.9%.
(2) Restricted stock program (4.00% of total shares issued in conversion) amortized over 5 years, amortization expense is tax effected at 24.9%.
(3) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25% taxable.
(4) Fiscal 2018 Pentegra Plan Expense equaled:    $1,725,000
(5) Reflects elimination of annual interest expense related to external $5.0 million of TruPS to be redeemed

 

 

 

 

Exhibit IV-8 (continued)

Richmond Mutual Bancorporation, Inc.

Pro Forma Effect of Conversion Proceeds

At the Supermaximum Value

 

1.   Market Value of Shares Sold In Offering:   $ 130,266,250  
    Market Value of Shares Issued to Foundation:     5,000,000  
    Total Market Value of Company:   $ 135,266,250  
             
2.   Offering Proceeds of Shares Sold In Offering   $ 130,266,250  
    Less: Estimated Offering Expenses     2,794,450  
    Net Conversion Proceeds   $ 127,471,801  
             
3.   Estimated Additional Equity and Income from Offering Proceeds        
    Net Conversion Proceeds   $ 127,471,801  
    Less: Repayment of TruPS     (5,000,000 )
    Less: After Tax Cash Payment for Pentegra Termination Expense     (9,830,724 )
    Less: Cash Contribution to Foundation     (1,250,000 )
    Less: Non-Cash ESOP Stock Purchases (1)     (10,821,300 )
    Less: Non-Cash MRP Stock Purchases (2)     (5,410,650 )
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 95,159,126  
    Estimated After-Tax Reinvestment Rate     1.86 %
    Earnings from Reinvestment of Proceeds   $ 1,768,919  
    Less: Estimated cost of ESOP borrowings(1)     0  
    Less: Amortization of ESOP borrowings(1)     (400,713 )
    Less: Stock Programs Vesting (2)     (801,425 )
    Less: Option Plan Vesting (3)     (746,316 )
    Plus: Reduction in After Tax Expense from Pentegra Termination (4)     1,277,535  
    Plus: Reduction in After Tax Expense from Payoff of $5 Mil External TruPS (5)     147,500  
    Net Earnings Increase   $ 1,245,500  
             
    MEMO: Adjustments to Net Conversion Proceeds to Calculate Net Equity Increase        
    Net Conversion Proceeds Reinvested (Net Equity Increase)   $ 95,159,126  
    Plus: Exclude Repayment of Trust Preferred Securities-Cash Flow Item Only     5,000,000  
    Net Equity Proceeds   $ 100,159,126  

 

              Net        
        Before     Earnings     After  
        Conversion     Increase     Conversion  
4.   Pro Forma Earnings                        
                             
    12 Mths ended Dec. 31, 2018, annualized (reported)   $ 5,395,000     $ 1,245,500     $ 6,640,500  
    12 Mths ended Dec. 31, 2018, annualized (core)   $ 5,185,000     $ 1,245,500     $ 6,430,500  

 

        Before     Net Capital     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
5.   Pro Forma Net Worth                                
                                     
    December 31, 2018   $ 79,817,633     $ 100,159,126     $ 1,621,250     $ 181,598,009  
    December 31, 2018 (Tangible)   $ 79,817,633     $ 100,159,126     $ 1,621,250     $ 181,598,009  

 

        Before     Net Cash     Tax Benefit     After  
        Conversion     Proceeds     of Foundation     Conversion  
6.   Pro Forma Assets                                
                                     
    December 31, 2018   $ 849,618,363     $ 100,159,126     $ 1,621,250     $ 951,398,739  

 

(1) ESOP stock (8.00% of total shares issued in conversion) amortized over 20 years, amortization expense is tax effected at 24.9%.
(2) Restricted stock program (4.00% of total shares issued in conversion) amortized over 5 years, amortization expense is tax effected at 24.9%.
(3) Option valuation based on Black-Scholes model, 5 year vesting, and assuming 25% taxable.
(4) Fiscal 2018 Pentegra Plan Expense equaled:  $1,725,000
(5) Reflects elimination of annual interest expense related to external $5.0 million of TruPS to be redeemed

 

 

 

 

EXHIBIT V-1

RP ® Financial, LC.

Firm Qualifications Statement

 

 

 

 

 

 

FIRM QUALIFICATION STATEMENT

 

RP ® Financial (“RP ® ) provides financial and management consulting, merger advisory and valuation services to the financial services industry nationwide. We offer a broad array of services, high quality and prompt service, hands-on involvement by principals and senior staff, careful structuring of strategic initiatives and sophisticated valuation and other analyses consistent with industry practices and regulatory requirements. Our staff maintains extensive background in financial and management consulting, valuation and investment banking. Our clients include commercial banks, thrifts, credit unions, mortgage companies, insurance companies and other financial services companies.

 

STRATEGIC PLANNING SERVICES

RP ® ’s strategic planning services are designed to provide effective feasible plans with quantifiable results. We analyze strategic options to enhance shareholder value, achieve regulatory approval or realize other objectives. Such services involve conducting situation analyses; establishing mission/vision statements, developing strategic goals and objectives; and identifying strategies to enhance franchise and/or market value, capital management, earnings enhancement, operational matters and organizational issues. Strategic recommendations typically focus on: capital formation and management, asset/liability targets, profitability, return on equity and stock pricing. Our proprietary financial simulation models provide the basis for evaluating the impact of various strategies and assessing their feasibility and compatibility with regulations.

 

MERGER ADVISORY SERVICES

RP ® ’s merger advisory services include targeting potential buyers and sellers, assessing acquisition merit, conducting due diligence, negotiating and structuring merger transactions, preparing merger business plans and financial simulations, rendering fairness opinions, preparing mark-to-market analyses, valuing intangible assets and supporting the implementation of post-acquisition strategies. Our merger advisory services involve transactions of financially healthy companies and failed bank deals. RP ® is also expert in de novo charters and shelf charters. Through financial simulations, comprehensive data bases, valuation proficiency and regulatory familiarity, RP ® ’s merger advisory services center on enhancing shareholder returns.

 

VALUATION SERVICES

RP ® ’s extensive valuation practice includes bank and thrift mergers, thrift mutual-to-stock conversions, goodwill impairment, insurance company demutualizations, ESOPs, subsidiary companies, merger accounting and other purposes. We are highly experienced in performing appraisals which conform to regulatory guidelines and appraisal standards. RP ® is the nation’s leading valuation firm for thrift mutual-to-stock conversions, with appraised values ranging up to $4 billion.

 

OTHER CONSULTING SERVICES

RP ® offers other consulting services including evaluating the impact of regulatory changes (TARP, etc.), branching and diversification strategies, feasibility studies and special research. We assist banks/thrifts in preparing CRA plans and evaluating wealth management activities on a de novo or merger basis. Our other consulting services are facilitated by proprietary valuation and financial simulation models.

 

KEY PERSONNEL (Years of Relevant Experience & Contact Information)

 

Ronald S. Riggins, Managing Director (39) (703) 647-6543 rriggins@rpfinancial.com
William E. Pommerening, Managing Director (33) (703) 647-6546 wpommerening@rpfinancial.com
Marcus Faust, Managing Director (31) (703) 647-6553 mfaust@rpfinancial.com
James P. Hennessey, Director (33) (703) 647-6544 jhennessey@rpfinancial.com
James J. Oren, Director (32) (703) 647-6549 joren@rpfinancial.com
Gregory E. Dunn, Director (37) (703) 647-6548 gdunn@rpfinancial.com
Carla Pollard, Senior Vice President (28) (703) 647-6556 cpollard@rpfinancial.com

 

 

4250 North Fairfax Drive, Suite 600 Telephone:  (703) 528-1700
Arlington, VA  22201 Fax No.:  (703) 528-1788
www.rpfinancial.com E-Mail:  mail@rpfinancial.com