Rhinebeck Bancorp, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. Unaudited consolidated results cover the Company and Rhinebeck Bank, a New York-chartered bank serving customers through 14 branches and two representative offices. Figures below are in U.S. dollars; amounts are shown in millions unless stated otherwise.
Financial results and condition
- Profit: Net income was $0.8 million, or $0.07 per diluted share, down 61.1% from $2.1 million, or $0.19 per diluted share, in Q1 2022. Income before taxes was $1.0 million.
- Revenue and margin: Interest and dividend income rose 33.1% to $14.6 million, but interest expense increased to $4.7 million from $0.9 million. Net interest income fell 2.5% to $9.9 million; net interest margin was 3.21%, down 21 basis points year over year. Non-interest income declined 19.6% to $1.4 million; non-interest expense increased 1.1% to $9.2 million.
- Credit costs: Provision for credit losses was $1.0 million, versus $0.2 million in Q1 2022. Net charge-offs were $0.4 million, compared with $0.1 million. The allowance for credit losses on loans was $9.1 million at quarter-end, following CECL adoption and quarterly activity.
- Assets and lending: Total assets were $1.351 billion, up 1.2% from year-end. Net loans were $1.005 billion, up 1.0%; commercial real estate loans grew $25.8 million, while indirect auto loans fell $13.3 million. Non-accrual loans and non-performing assets rose to $5.6 million from $4.4 million.
- Funding and liquidity: Deposits decreased 3.2% to $1.094 billion. Transaction accounts declined while time deposits increased $67.7 million; management cited customers seeking higher rates and withdrawals following widely publicized bank failures. FHLB advances rose $48.7 million to $106.5 million. Cash and cash equivalents were $36.1 million. The Company reported $428.5 million in total available sources of funds, including cash, unencumbered securities and borrowing availability.
- Cash flow: Operating activities provided $3.1 million; investing activities used $9.6 million; financing activities provided $11.3 million. Cash and cash equivalents increased $4.8 million during the quarter.
- Capital and securities: Stockholders’ equity was $110.7 million; book value per share was $9.81 and equity was 8.19% of total assets. The Bank was categorized as well capitalized; its total risk-based capital ratio was 12.16%. Available-for-sale securities were $222.2 million, with $33.0 million of gross unrealized losses; management attributed the losses principally to interest rates and market conditions and recorded no credit-loss allowance on those securities.
Material changes and management commentary
- Higher asset yields lifted interest income, but sharply higher deposit and borrowing costs more than offset the increase, reducing net interest income and margin.
- Management attributed the higher credit provision to loan growth, higher charge-offs, developing signs of weaker economic conditions, CECL adoption and a $0.7 million specific reserve on a $0.975 million commercial loan.
- The Company adopted CECL on January 1, 2023. Adoption increased the loan and unfunded-commitment allowances by $0.8 million before tax and reduced retained earnings by $0.6 million after tax. Prior-period figures remain under the previous accounting method.
- The Company said it made a strategic decision to limit indirect auto loan growth and retain more new residential mortgage production rather than sell it. It also laid off approximately 5% of its workforce in Q1.
- No specific earnings or financial guidance was provided. Management cautioned that Q1 results are not necessarily indicative of full-year results.
Risks, contingencies and other notable items
- The filing identifies risks from deposit liquidity and funding costs, interest-rate changes, credit quality, commercial and residential real estate conditions, recession, competition, cybersecurity and regulatory changes. It specifically warns that recent bank failures may undermine depositor confidence, pressure liquidity and margins, increase credit losses or borrowing costs, and affect the stock price.
- Interest-rate modeling estimated that a parallel 400-basis-point increase would reduce the Bank’s economic value of equity by 27.5%; management notes that model assumptions limit the precision of these estimates.
- Commitments and other off-balance-sheet credit exposures totaled $146.9 million. The Company reported no pending legal proceeding it believed would materially affect financial condition, results or cash flows.
- The Company’s Treasury and agency-related securities include $38.3 million of U.S. Treasury securities, $22.8 million of agency securities and $142.5 million of agency mortgage-backed securities. The filing notes potential valuation, liquidity and collateral risks from U.S. credit-market or debt-ceiling disruption.
Important facts for investors to verify
- Whether deposit outflows stabilize and the mix, pricing and maturity profile of deposits, including uninsured and brokered deposits.
- Whether higher funding costs continue to outpace asset-yield increases and pressure net interest margin and earnings.
- Credit trends, especially commercial real estate and indirect auto performance, non-performing assets, charge-offs and the adequacy of the CECL allowance.
- Available liquidity and borrowing capacity, including reliance on FHLB advances and the value and availability of pledged securities.
- Whether unrealized securities losses, interest-rate exposure and capital ratios change materially in subsequent filings.