Rhinebeck Bancorp, Inc. — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, with comparisons to 2021. Rhinebeck Bancorp is the holding company for Rhinebeck Bank, a New York community bank serving the Hudson Valley through 14 branches and representative offices. Its lending centers on indirect auto, commercial real estate, commercial business and residential loans.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $1.336 billion | $1.281 billion |
| Deposits, year-end | $1.130 billion | $1.102 billion |
| Net loans, year-end | $994.4 million | $855.0 million |
| Net interest income | $41.8 million | $39.4 million |
| Net income | $7.0 million | $11.6 million |
| Diluted earnings per share | $0.64 | $1.06 |
| Net interest margin | 3.45% | 3.45% |
| Return on average assets / equity | 0.54% / 6.06% | 0.95% / 9.49% |
| Operating cash flow | $14.8 million | $7.7 million |
| Cash and cash equivalents, year-end | $31.4 million | $72.1 million |
| FHLB advances, year-end | $57.7 million | $18.0 million |
| Stockholders’ equity, year-end | $108.1 million | $126.0 million |
Interest income rose 11.2%, while interest expense increased 57.6%; the provision for loan losses was $1.4 million, versus a $3.7 million credit in 2021. Non-interest income declined 20.6% to $5.9 million, and non-interest expense increased 5.4% to $37.4 million. The efficiency ratio rose to 78.40% from 75.82%.
Net cash used in investing activities was $123.6 million, primarily reflecting loan growth; financing activities provided $68.1 million. The filing reports $441.9 million of total available funding sources, including cash, unencumbered securities and borrowing capacity. The Bank was classified as well capitalized; at year-end its total risk-based capital ratio was 12.25% and Tier 1 leverage ratio was 9.75%.
Material changes and key developments
- Assets increased 4.3%, driven mainly by 16.3% growth in net loans. Indirect auto loans increased to $457.2 million, 46.2% of gross loans; commercial real estate loans also expanded.
- Cash fell 56.5% and available-for-sale securities fell 20.2% as funds were deployed into loans. FHLB advances rose by $39.7 million as loan growth outpaced deposit growth.
- Core deposits were 80.9% of deposits, down from 85.8%. Non-interest-bearing deposits declined $31.3 million; brokered deposits totaled $34.0 million. About $394.6 million of deposits were estimated to be uninsured.
- Stockholders’ equity declined $17.8 million, primarily due to a $25.6 million after-tax increase in accumulated other comprehensive loss, largely from securities valuation changes. The available-for-sale portfolio had $35.9 million of gross unrealized losses; management attributed these mainly to higher interest rates and reported no other-than-temporary impairment.
- Non-performing loans decreased to $4.4 million, or 0.45% of loans, from $6.7 million, or 0.78%. Net charge-offs increased to $1.0 million from $407,000. The allowance was $7.9 million, 0.80% of loans.
Outlook, risks and unusual items
- Management gave no specific earnings or financial forecast. Its stated strategy is to moderate indirect-auto growth through pricing and tighter risk selection, expand commercial lending, build core deposits, control expenses and maintain asset quality. Management noted that the indirect-auto portfolio was above its internal limit of 45% of total assets and planned to slow its growth.
- The Company adopted CECL on January 1, 2023. Management’s preliminary estimate was an approximately $800,000 (10%) increase in reserves, to $8.7 million, with a net-of-tax retained-earnings adjustment; the estimate was subject to further testing and portfolio and economic conditions.
- Key exposures include indirect auto credit, commercial real estate and business lending, regional economic weakness, inflation and interest-rate movements. Rising rates can increase funding costs and reduce securities values; the filing recorded $25.5 million of after-tax other comprehensive loss related to securities in 2022.
- Liquidity and funding merit attention: $151.6 million of time deposits were scheduled to mature in 2023, and management noted that replacement funding or deposit repricing could increase costs. FHLB advances totaled $57.7 million, most due within one year.
- The Monroe, New York branch was closed at year-end 2022; closure and lease-cancellation costs contributed to expense. A prior reserve for potential consumer-compliance issues in the indirect-auto portfolio was resolved, with management stating no further material earnings impact was expected.
- The Company reported no pending legal proceedings believed likely to materially affect its financial condition, results or cash flows. It did not anticipate dividends in the foreseeable future. A repurchase plan authorized up to 247,506 shares; no shares were repurchased under it in the fourth quarter.
Important facts for investors to verify
- How credit performance, delinquency trends, recoveries and losses develop in the large indirect-auto portfolio, and whether the planned reduction in originations is achieved.
- The realized impact of CECL adoption and subsequent reserve levels, including sensitivity to economic forecasts and loan growth.
- Deposit retention and pricing, uninsured deposit concentration, 2023 certificate maturities and the continued need for FHLB or brokered funding.
- Whether securities-related unrealized losses persist or affect capital, liquidity or reported earnings; distinguish accumulated valuation changes from realized losses.
- Whether revenue growth can offset operating costs, branch-related expenses and higher funding costs, given lower earnings and a higher efficiency ratio.
- Reconcile reported equity ratios when comparing periods: the filing gives an ending stockholders’ equity-to-assets ratio of 8.09% for 2022 in its discussion, while selected data also presents an average equity-to-assets measure.