Richmond Mutual Bancorporation (RMBI) Q3 2026 earnings review
Richmond Mutual doubles lending income, but loan losses halve profit
Richmond Mutual Bancorporation, the Indiana parent of First Bank Midwest, doubled its lending income through a acquisition while loan write-offs cut profit in half. Closing the Farmers Bancorp merger lifted net interest margin to 3.68% and doubled the share of free checking deposits. However, the bank recorded a $6 million credit loss provision to cover commercial loan write-offs, and chief executive Garry Kleer kept the focus on integrating the two banks.
| Net interest income | $22.8M +102% from a year ago |
|---|---|
| Profit per share | $0.11 $0.36 a year ago (-69%) |
| Net interest margin | 3.68% 3.07% a year ago |
| Non-performing loans | $32.2M $21.8M last quarter |
⚖️ Verdict: 🔴 Bearish
The story got worse because credit problems in the bank's legacy loan book are growing faster than the reserves set aside to cover them. Even after foreclosing on a commercial property and taking a $5 million write-off, non-performing loans rose by $10 million from last quarter as another business borrower stopped paying. The good news: the acquired branches brought in low-cost checking accounts and allowed the bank to pay off $95 million of wholesale borrowings.
The question now is whether the third-quarter charge-offs cleared out the worst loan problems or if under-reserved bad loans will force more provisions. Either collateral values will cover the remaining $32 million of troubled loans without further losses, or the bank will have to rebuild its reserve coverage through future earnings. Fourth-quarter net charge-offs and foreclosed property sales will tell.
🐂 Bull Case
Farmers Merger Lifted Net Interest Margin
Richmond Mutual Bancorporation, the Indiana parent of First Bank Midwest, closed its purchase of Farmers Bancorp on July 1. Chief executive Garry Kleer said the deal "significantly expanded our balance sheet and increased net interest income". Net interest income—what a bank earns on loans and bonds minus what it pays on deposits and debt—more than doubled from a year ago to $22.8 million.
Net interest margin, which measures that lending profit as a share of interest-earning assets, rose 0.61 percentage points from a year ago to 3.68%. The bank said the gain came "from the loan portfolio acquired in the merger, as well as lower average funding costs". That wider spread gives the combined lender a much larger recurring profit base before loan losses.
What to watch: net interest margin and loan yields in the fourth quarter. A stable margin near 3.68% would show the wider spread comes from ongoing loan pricing rather than one-off merger accounting adjustments.
Free Checking Deposits Doubled Their Funding Share
Before the acquisition, the Indiana lender relied heavily on expensive certificates of deposit and wholesale funding to back its loan book. Buying Farmers Bancorp brought in $935.8 million of customer deposits and reshaped that funding mix overnight. Management also sold $91.9 million of acquired investment securities during the quarter and used the cash to pay off all $95 million of Federal Home Loan Bank (FHLB) advances assumed in the deal.
- Noninterest-bearing checking deposits: $351.4 million, or 16.9% of deposits, up from 8.7% last quarter
- Brokered time deposits: 12.9% of total deposits, down from 21.2% at the end of 2025
- Average rate paid on interest-bearing deposits: 2.98%, down from 3.14% a year ago
This shift matters because free checking accounts keep funding costs down even when municipal checking accounts acquired in the deal pay higher rates. Relying less on brokered deposits and wholesale borrowings leaves the bank less exposed to bond market rates.
What to watch: the share of noninterest-bearing deposits at year-end. Holding that share near 17% after the software conversion would prove that Farmers Bancorp customers are keeping their operating cash at the combined bank.
🐻 Bear Case
Loan Write-Offs Wiped Out Half the Profit
Even though lending income doubled, third-quarter net income fell 51% from a year ago to $1.75 million, or $0.11 per share. The drop happened because the bank set aside $6.1 million for credit losses, up from $823,000 last quarter and $269,000 a year ago. That provision matched $6.1 million in net charge-offs, which are loans the bank wrote off as uncollectible.
Two old loans caused most of the damage. Richmond Mutual wrote off $4.5 million on a commercial real estate loan before taking possession of a former behavioral health hospital campus in Dayton, Ohio, now valued at $2.2 million. It also wrote off $803,000 on a commercial business loan. A single quarter of write-offs erased almost all the extra lending income from the newly acquired branches.
What to watch: the sale price of the $2.2 million Dayton hospital property and fourth-quarter net charge-offs. Another write-off when selling foreclosed properties would show that collateral values on troubled commercial loans are still too high.
Problem Loans Grew While Reserve Coverage Fell
Taking ownership of the Dayton property did not clear out the backlog of troubled borrowers. Non-performing loans—loans that are not paying interest or are 90 days past due—rose to $32.2 million from $21.8 million last quarter and $17.4 million at year-end. Management noted that the allowance for credit losses is appropriate because many bad loans are backed by collateral.
- Legacy loans turning non-performing over nine months: $8.9 million
- Acquired loans non-performing at close or since: $5.9 million
- Allowance coverage of non-performing loans: 78.9%, down from 94.6% at year-end and 151.6% a year ago
That collateral argument was tested this quarter when a supposedly well-backed commercial property still took a $4.5 million write-off upon foreclosure. Meanwhile, the $8.9 million of new legacy problem loans came "primarily consisting of commercial and industrial loans associated with one customer relationship". Because reserves now cover less than four-fifths of problem loans, any shortfall in collateral value will hit earnings directly.
What to watch: non-performing commercial business loans in the fourth quarter. A further rise in past-due balances would mean credit trouble is spreading from real estate into everyday business lending.
Underlying Loan Growth Stalled in the Quarter
Headline total loans rose by $827.2 million over the first nine months of 2026 to reach $2.03 billion before reserves. However, $803.6 million of those loans came from the Farmers Bancorp acquisition at closing. Stripping out the acquired portfolio, loans from businesses the bank owned at the start of the year grew by $23.6 million, or 2.0%, over nine months.
During the third quarter alone, total loans rose by $804.6 million from June's $1.23 billion balance. After removing the $803.6 million acquired at close, underlying net new loans were only $1.0 million in the quarter by our math. Kleer said management is focused on "successfully integrating the two organizations, realizing the strategic benefits of the combination", so internal loan originations barely moved.
What to watch: net loan growth in the fourth quarter now that both banks are on one balance sheet. Stagnant loan balances would limit interest income growth once the one-time merger jump laps next year.
👓 Other Themes
Bank Switched to a Simpler Capital Rule
First Bank Midwest changed how it reports regulatory capital this quarter by adopting the Community Bank Leverage Ratio (CBLR) rule. Banks that keep a Tier 1 leverage ratio—core capital divided by average assets—above 8.0% no longer have to calculate or publish risk-based capital ratios. The bank's leverage ratio fell to 9.99% from 10.90% in June after taking on Farmers Bancorp's assets, so detailed risk-weighted ratios are no longer disclosed.
💲 Other KPIs
The efficiency ratio—operating expenses as a share of total revenue, where a lower number means higher profitability—improved slightly from 74.47% in Q2 but stayed worse than 64.18% a year ago. Noninterest expense nearly doubled to $20.0 million, driven by a larger staff of 310 employees, $3.0 million of one-time software conversion costs, and $1.8 million of deposit intangible amortization.
Shareholder equity per share fell 3.2% from $14.11 in Q2 and sits below $13.88 at year-end 2025. The merger added $21.2 million of core deposit intangibles—accounting value assigned to acquired customer accounts—to the balance sheet. Excluding those intangibles, tangible book value per share dropped 12.2% from last quarter to $12.39 by our math.
Diluted share count jumped 64.0% from 9.89 million a year ago and 63.6% from 9.91 million in Q2. Richmond Mutual issued 6.25 million new common shares valued at $99.3 million on July 1 to buy Farmers Bancorp, spreading future earnings across a much larger shareholder base.
🔮 Guidance
Unchanged. Chief executive Garry Kleer reiterated that management remains focused on integrating the two banks and capturing cost savings from the combination. The bank does not publish numerical targets for revenue, loan growth, or net interest margin. Third-quarter results showed the anticipated earnings swings, with $3.0 million in conversion costs and $1.8 million in intangible amortization offset by a $1.6 million bargain purchase gain.
❓ Key Questions
What is the collateral behind the new problem business loans?
Legacy non-performing loans grew by $8.9 million over the first nine months of 2026 due to commercial business loans tied to one customer. Investors need to know what collateral backs this relationship and whether specific reserves are already set aside for it.
How much did loan accounting boosts add to the margin?
Net interest margin jumped 0.46 percentage points from Q2 to 3.68%, helped by fair-value accounting adjustments on acquired Farmers Bancorp loans. Management did not disclose how many basis points came from purchase accounting accretion versus core loan yields.
How much will quarterly operating expenses drop after software conversion?
Noninterest expense reached $20.0 million in Q3, including $3.0 million of one-time software conversion fees and $1.8 million of intangible amortization. Management has not stated how much duplicate overhead remains to be cut from the remaining $15.2 million cost base.
Why did the bank stop reporting risk-based capital ratios?
First Bank Midwest switched to the Community Bank Leverage Ratio framework as its Tier 1 leverage ratio dropped to 9.99% from 10.90% in Q2. Removing risk-weighted ratios makes it harder to track capital buffers against higher-risk commercial real estate loans.