Rhinebeck Bancorp, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company is the holding company for Rhinebeck Bank, a New York community bank serving consumer and commercial customers through 15 branches and two representative offices. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net interest income | $10.9 | $9.1 | $21.0 | $18.9 |
| Provision for loan losses | $0.35 | ($1.15) credit | $0.57 | ($1.22) credit |
| Non-interest income | $1.50 | $1.86 | $3.21 | $4.10 |
| Non-interest expense | $9.49 | $8.88 | $18.59 | $16.83 |
| Net income | $2.03 | $2.57 | $4.08 | $5.89 |
| Diluted EPS | $0.18 | $0.23 | $0.37 | $0.54 |
| Net interest margin | 3.63% | 3.26% | 3.52% | 3.45% |
- Quarterly net income declined 20.9%; first-half net income declined 30.6%. Higher net interest income and lower interest expense were outweighed by higher loan-loss provisions, lower non-interest income, and higher operating costs.
- Q2 interest income rose 14.7% to $11.7 million; interest expense fell 21.3% to $0.87 million. The quarterly margin improved 37 basis points year over year.
- Non-interest income fell in Q2 mainly because mortgage loan-sale gains declined; the quarter also included a $0.16 million realized securities loss. First-half non-interest income additionally compared against a $0.20 million life-insurance claim gain in 2021.
Financial condition, cash flow, and capital
- At June 30, 2022, total assets were $1.293 billion, up 0.9% from year-end 2021. Net loans increased 8.4% to $927.2 million, led by indirect auto and commercial real estate lending. Gross indirect auto loans were $434.6 million.
- Deposits increased 1.0% to $1.112 billion. Interest-bearing deposits rose $20.9 million while non-interest-bearing deposits declined $10.5 million. Cash and due from banks fell to $39.9 million from $72.1 million, primarily as cash funded loan growth.
- Available-for-sale securities declined to $245.6 million. Gross unrealized losses were $24.5 million, attributed by management primarily to higher market interest rates; management said it did not intend, and was not likely required, to sell before recovery of amortized cost. Net-of-tax securities losses in accumulated other comprehensive loss were $19.2 million.
- Stockholders’ equity fell $12.6 million to $113.3 million, principally due to the increase in accumulated other comprehensive loss, partly offset by net income. Book value per share was $10.03; equity-to-assets was 8.77%.
- For the first six months, operating cash flow was $10.2 million, investing cash outflow was $62.1 million, and financing cash inflow was $19.7 million. Cash declined $32.2 million over the period.
- FHLB advances were $23.8 million; subordinated debt was $5.2 million and bears a floating rate. The company reported $505.8 million of total available funding sources, including cash, unencumbered securities and borrowing availability. Bank capital ratios exceeded regulatory well-capitalized thresholds; total risk-based capital was 12.71%.
Material changes, outlook, and risks
- Credit indicators improved from year-end: non-accrual loans and non-performing assets declined to $4.6 million from $6.7 million. The allowance for loan losses increased to $8.2 million. First-half net recoveries were $43,000, compared with net charge-offs of $290,000 in the prior-year period.
- Expense growth reflected branch expansion, additional positions, wage and benefit increases, and inflationary pressure on service and occupancy costs. Salaries and benefits increased 15.1% for the first half.
- Management provided no specific earnings or financial guidance. It cautioned that interim results are not necessarily indicative of full-year results.
- Interest-rate risk is significant: the filing identifies interest rates as the company’s primary market risk. Its EVE model estimated declines of 9.6% under a 400-basis-point rate increase and 10.3% under a 100-basis-point decrease; management cautions that model assumptions limit predictive precision.
- Other identified risks include economic deterioration, loan delinquencies and losses, deposit and funding costs, real-estate conditions, securities-market changes, competition, operational and cybersecurity events, and COVID-19-related effects. The company noted that a LIBOR replacement for its subordinated debt was under review and did not expect a significant financial-statement impact. CECL adoption was expected in 2023; management was still assessing its effect.
- There were no material changes to reported risk factors, no disclosed pending legal proceedings expected to have a material adverse effect, and management concluded disclosure controls were effective.
Important facts for investors to verify
- How rising rates affect net interest margin, deposit pricing and securities values, including the sizable unrealized securities loss and reported EVE sensitivities.
- Whether loan growth—particularly indirect auto lending—continues without deterioration in delinquencies, charge-offs or required loss reserves.
- Deposit stability and funding costs, including the maturity profile of time deposits and the company’s reliance on FHLB borrowing capacity.
- The $20 million short-term FHLB advance shown as maturing July 1, 2022, immediately after quarter-end, and how it was repaid or refinanced.
- Whether operating expenses moderate and mortgage loan-sale income stabilizes, given their contribution to lower year-over-year earnings.
- The eventual effect of CECL implementation and the LIBOR transition on credit provisions and funding costs.