Rhinebeck Bancorp, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results include Rhinebeck Bancorp and Rhinebeck Bank. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Interest and dividend income | $14.9 | $11.7 in Q2 2022 |
| Net interest income | $9.3; net interest margin 2.97% | $10.9 and 3.63% in Q2 2022 |
| Net income | $1.4; diluted EPS $0.13 | $2.0 and $0.18 in Q2 2022 |
| Six-month net income | $2.2; diluted EPS $0.20 | $4.1 and $0.37 in first half 2022 |
| Total assets | $1,337.1 | $1,336.0 at Dec. 31, 2022 |
| Net loans | $987.0 | $994.4 at Dec. 31, 2022 |
| Total deposits | $1,077.5 | $1,129.9 at Dec. 31, 2022 |
| FHLB advances | $106.5 | $57.7 at Dec. 31, 2022 |
| Stockholders’ equity | $107.5; equity/assets 8.04% | $108.1 and 8.09% at Dec. 31, 2022 |
| Cash and cash equivalents | $53.9 | $31.4 at Dec. 31, 2022 |
- Margins and funding costs: Q2 net interest income fell 14.4% year over year as interest expense rose to $5.6 million from $0.9 million. The average cost of interest-bearing liabilities increased to 2.40% from 0.42%; the yield on interest-earning assets rose to 4.77% from 3.92%.
- Six-month results: Net interest income declined 8.7% to $19.2 million and net interest margin fell to 3.09% from 3.52%. Interest expense increased to $10.4 million from $1.7 million.
- Cash flow: First-half operating cash flow was $4.4 million, investing cash flow was positive $19.5 million, and financing cash flow was negative $1.4 million. Cash increased $22.6 million during the period.
- Liquidity: Management reported $441.3 million of available liquid funds and borrowing sources, including cash, unencumbered securities and credit facilities. The Bank also had a $668.5 million preapproved secured FHLB line; the filing excludes it from the readily accessible sources total.
- Capital and debt: The Bank was categorized as well capitalized. At June 30, its total risk-based capital ratio was 12.35%, common equity Tier 1 ratio 11.63%, and Tier 1 leverage ratio 9.74%. Subordinated debt was $5.2 million; its floating rate was 7.39% at quarter-end.
Material changes versus comparable periods
- Q2 net income declined 29.5% year over year; first-half net income declined 45.4%. Higher asset yields and interest income were more than offset by sharply higher deposit and borrowing costs.
- Deposits fell $52.5 million, or 4.6%, from year-end. Non-interest-bearing deposits declined $27.3 million; transaction accounts declined while time deposits grew $73.8 million. Management cited depositors seeking higher rates, competition, and withdrawals following highly publicized bank failures.
- Net loans decreased $7.3 million. Indirect auto loans declined $39.3 million as the company sought to reduce that portfolio’s size, partly offset by $34.8 million growth in commercial real estate loans, including two large loans.
- Available-for-sale securities fell $16.8 million to $206.9 million. Their gross unrealized losses were $36.7 million; the company attributed declines primarily to interest rates and market conditions, reported no credit-loss allowance, and said it did not intend or expect to be required to sell before recovery.
- Non-interest income declined 9.6% in Q2 and 14.9% in the first half, mainly reflecting fewer mortgage loan sales and lower investment advisory income. Non-interest expense decreased modestly; salary savings included a workforce reduction of approximately 5% in Q1 and a branch closure at year-end 2022.
- The company repurchased 200,000 shares in June for $1.38 million, at an average $6.90 per share; 47,506 shares remained authorized for repurchase.
Outlook, risks and unusual items
- The filing provides no specific earnings, margin, loan growth, or deposit guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Effective January 1, 2023, the company adopted CECL. Adoption increased the loan allowance by $0.6 million and the unfunded-commitment allowance by $0.2 million, with a net-of-tax $0.6 million reduction to retained earnings. Comparisons with 2022 are affected by the change in accounting methodology.
- A $710,000 commercial loan charge-off was a notable credit item. First-half net charge-offs were approximately $1.0 million, including increased indirect auto losses. Non-accrual loans and non-performing assets were $4.5 million, up $73,000 from year-end; past-due balances as a share of loans declined to 1.76% from 2.29%.
- Other risks identified include deposit liquidity and funding costs, interest-rate sensitivity, credit quality and real estate conditions, access to cost-effective funding, competition, inflation, regulatory costs, and operational and cybersecurity risks. In an immediate 400-basis-point rate increase scenario, modeled economic value of equity declined 25.1%; management notes the model is assumption-dependent and not a precise forecast.
- Off-balance-sheet commitments and related exposures totaled $156.7 million, including loan commitments, undisbursed credit lines, standby letters of credit, and loans sold with recourse. The company reported no pending legal proceedings believed likely to have a material effect.
Investor verification points
- Track deposit retention, mix, uninsured and reciprocal deposits, and the cost and availability of replacement funding.
- Assess whether net interest margin stabilizes as deposit and borrowing repricing continues.
- Review commercial real estate concentration, criticized loan trends, indirect auto delinquencies and charge-offs, and the adequacy of CECL allowances.
- Monitor the unrealized securities loss position, liquidity capacity under stress, and the effects of any securities sales or pledging.
- Confirm capital ratios, remaining share-repurchase authorization, and any material changes to guidance, risks, or contingencies in subsequent filings.