Rhinebeck Bancorp, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results include Rhinebeck Bank, a New York-chartered savings bank serving customers through 14 branches and two representative offices. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Interest and dividend income | $15.5 | $12.6 | $45.1 | $35.3 |
| Net interest income | $9.7 | $11.1 | $28.8 | $32.1 |
| Provision for credit losses | $0.9 | $0.5 | $1.5 | $1.1 |
| Non-interest income | $1.6 | $1.4 | $4.4 | $4.6 |
| Non-interest expense | $8.8 | $9.2 | $27.3 | $27.8 |
| Net income | $1.2 | $2.1 | $3.5 | $6.2 |
| Diluted earnings per share | $0.11 | $0.19 | $0.32 | $0.56 |
- Margins and funding costs: Net interest margin was 3.09% in both Q3 and the first nine months, versus 3.61% and 3.55%, respectively, in the comparable 2022 periods. For Q3, the average cost of interest-bearing liabilities rose to 2.50% from 0.68%; average interest-earning asset yield rose to 4.96% from 4.08%.
- Cash flow: Nine-month operating cash flow was $6.9 million, down from $16.0 million; investing cash flow was positive $12.6 million versus negative $84.3 million; financing cash flow was negative $24.1 million versus positive $24.3 million. Cash and cash equivalents ended at $26.8 million, down $4.6 million from year-end 2022.
Financial position and material changes
- Total assets were $1.315 billion, down 1.5% from December 31, 2022. Net loans were $1.004 billion, up 0.9%; available-for-sale securities were $194.3 million, down 13.1%.
- Deposits declined $47.6 million, or 4.2%, to $1.082 billion. Transaction deposits fell as customers sought higher rates and amid increased competition and withdrawals following widely publicized bank failures. Time deposits rose $86.5 million; $292.2 million of $302.9 million in time deposits mature within one year.
- FHLB advances increased $30.0 million to $87.7 million, partly offsetting deposit outflows. Subordinated debt was $5.2 million. Stockholders’ equity was $106.7 million; the equity-to-assets ratio was 8.11%, and book value per share was $9.63.
- The loan portfolio shifted: commercial real estate rose $47.5 million and residential real estate rose $16.3 million, while indirect auto loans fell $50.6 million following a strategic decision to reduce that portfolio. Non-accrual loans and non-performing assets increased $0.4 million to $4.8 million.
- The Bank was reported well capitalized. At September 30, its total risk-based capital ratio was 12.47%, common equity Tier 1 ratio 11.71%, and Tier 1 leverage ratio 9.93%.
Management commentary, risks and unusual items
- Higher market rates lifted loan and asset yields but deposit and borrowing costs rose more quickly, reducing net interest income and margin. Management cited a greater share of higher-rate certificates of deposit and increased FHLB borrowing costs.
- Credit-loss provision increased. Year-to-date net charge-offs were approximately $1.4 million, including a $710,000 charge-off on one commercial loan and higher indirect-auto charge-offs. The loan allowance was $8.5 million at quarter-end; the allowance for unfunded commitments was $0.3 million.
- Effective January 1, 2023, the company adopted CECL, recording a $0.8 million increase in credit-loss allowances and a $0.6 million after-tax reduction to retained earnings. Comparisons of credit-loss measures with prior periods are affected by the accounting change.
- Available-for-sale securities had $39.6 million of gross unrealized losses at quarter-end, principally attributed by management to interest rates and market conditions. The related after-tax unrealized securities loss in accumulated other comprehensive income was $31.2 million; no allowance for credit losses on these securities was recorded.
- Non-interest expense fell partly because of workforce reductions of approximately 5% in Q1 2023 and a branch closure at year-end 2022. A $0.2 million life-insurance gain supported Q3 non-interest income.
- Management provided no specific earnings or financial guidance. It cautioned that forward-looking results are subject to economic, deposit and funding, interest-rate, credit, real-estate, regulatory, operational and cybersecurity risks. Management said disclosure controls were effective and reported no material change in internal controls during the quarter; it reported no material pending legal proceeding or material change to risk factors.
Investor verification priorities
- Track deposit retention, deposit mix and pricing, uninsured-deposit exposure, and the extent and cost of wholesale borrowing.
- Assess whether margin pressure eases as deposit and borrowing costs change, and how rate movements affect securities values and economic-value sensitivity.
- Review commercial real-estate and indirect-auto credit quality, delinquency trends, charge-offs, and the assumptions and adequacy of the CECL allowance.
- Confirm liquidity capacity and availability of stated borrowing sources; the filing reports $692.0 million of total available funding sources, including secured facilities.
- Monitor unrealized securities losses and capital effects, and distinguish reported net income from other comprehensive income and the CECL transition impact.