Rhinebeck Bancorp, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited; amounts below are in millions unless otherwise stated. Rhinebeck Bancorp is a bank holding company whose subsidiary operates 15 branches and two representative offices in New York.
Financial performance and condition
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Interest and dividend income | $12.6 | $11.1 | $35.3 | $32.3 |
| Net interest income | $11.1 | $10.1 | $32.1 | $29.0 |
| Net interest margin | 3.61% | 3.42% | 3.55% | 3.44% |
| Provision for (credit to) loan losses | $0.5 | $(1.0) | $1.1 | $(2.2) |
| Non-interest income | $1.4 | $1.6 | $4.6 | $5.7 |
| Non-interest expense | $9.2 | $9.1 | $27.8 | $26.0 |
| Net income | $2.1 | $2.7 | $6.2 | $8.6 |
| Diluted earnings per share | $0.19 | $0.25 | $0.56 | $0.79 |
- At September 30, total assets were $1.293 billion, up 0.9% from December 31, 2021. Net loans rose 11.3% to $951.3 million, led by indirect auto loans and commercial real estate; deposits increased 0.7% to $1.110 billion.
- Cash and due from banks fell 61.0% to $28.1 million, primarily as excess cash funded loan growth. Available-for-sale securities declined to $229.0 million from $280.3 million.
- Stockholders’ equity declined to $106.8 million from $126.0 million; the equity-to-assets ratio fell to 8.26% from 9.83%, and book value per share to $9.46 from $11.15. The principal driver was a $25.9 million increase in accumulated other comprehensive loss, largely from securities valuation declines.
- Nine-month cash flows: $16.0 million provided by operating activities, $84.3 million used in investing, and $24.3 million provided by financing. Cash decreased $44.0 million during the period.
- At September 30, FHLB advances were $37.5 million and subordinated debt was $5.2 million. The Bank reported regulatory capital ratios above “well capitalized” thresholds, including total risk-based capital of 12.57% and Tier 1 leverage of 9.83%.
Material changes versus comparable periods
- Net income declined 21.5% in Q3 and 27.8% for the first nine months. Higher net interest income did not offset the shift from prior-year loan-loss provision credits to provisions, lower mortgage loan-sale gains, and higher operating expenses.
- Net interest income increased 10.3% in Q3 and 10.7% year to date; the reported margin improved 19 basis points and 11 basis points, respectively. In Q3, higher interest income was partly offset by a 45.6% increase in interest expense as deposit costs rose.
- Nine-month non-interest income fell 19.8%, mainly because of lower mortgage loan-sale gains, the absence of a prior-year life-insurance claim gain, and a $0.17 million realized securities loss. Non-interest expense rose 7.2%, driven mainly by salaries and branch-related costs.
- Gross unrealized losses on available-for-sale securities were $35.7 million at September 30, versus $4.0 million at December 31, 2021. Management attributed the losses primarily to market interest-rate changes and said it did not expect to sell the securities or be required to sell them before recovery.
- Credit indicators improved overall: non-performing assets declined to $4.7 million from $6.7 million, and the overdue-loan ratio fell to 1.45% from 1.58%. The allowance for loan losses was $8.5 million; indirect auto loans represented $452.8 million of gross loans.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or financial guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management identifies interest-rate, funding, credit, real-estate, competition, operational and cybersecurity, regulatory, and economic risks. Its interest-rate sensitivity model estimated an EVE decline of 9.0% under an immediate 400-basis-point rate increase and 16.7% under a 200-basis-point decrease; management notes model limitations.
- Liquidity sources totaled $462.1 million, including cash, unencumbered securities, and borrowing availability. Commitments to extend credit and standby letters of credit totaled $156.9 million; actual funding needs may be lower because commitments may expire undrawn.
- On October 6, 2022, the Bank settled a New York Department of Financial Services matter concerning dealer reserve differences in its indirect auto lending program for 2017–2021. It agreed to a $0.95 million penalty and estimated approximately $0.50 million of borrower restitution. The Bank disputed the findings, had fully reserved for the settlement, and expected no further material earnings impact.
- The Company was preparing for CECL adoption in 2023 and expected a cumulative-effect adjustment to retained earnings; the ultimate effect depends on credit quality and economic conditions at adoption.
- The Board approved a plan in September to repurchase up to 247,506 shares beginning in Q4 2022. The filing does not state that repurchases had begun by September 30.
Important facts for investors to verify
- Whether deposit pricing and funding costs continue to rise, and how that affects net interest margin and liquidity.
- The trajectory of indirect auto credit performance, charge-offs, and the allowance for loan losses as that portfolio grows.
- Whether unrealized securities losses remain manageable and how rate changes affect equity, capital, and potential liquidity needs.
- The final amount and timing of restitution under the DFS settlement, and whether the reserved amount fully covers the obligation.
- The effect of CECL adoption on the allowance, retained earnings, and regulatory capital.
- Actual execution and terms of the authorized share repurchase plan.