Rhinebeck Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021 unless noted. Financial statements are unaudited. Rhinebeck Bancorp is a bank holding company whose subsidiary operates 15 branches and two representative offices in New York.
Key financial results
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Interest and dividend income | $10.97 million | $11.05 million |
| Net interest income | $10.11 million | $9.78 million; up 3.4% |
| Net interest margin | 3.42% | 3.65%; down 23 basis points |
| Non-interest income | $1.71 million | $2.24 million; down 23.7% |
| Non-interest expense | $9.11 million | $7.95 million; up 14.5% |
| Provision for loan losses | $221,000 expense | $69,000 credit |
| Net income / diluted EPS | $2.05 million / $0.19 | $3.32 million / $0.31 |
| Net cash from operating activities | $7.50 million | $2.62 million |
| Net change in cash and due from banks | Down $4.73 million | Down $3.65 million |
Financial condition, liquidity and capital
- Total assets were $1.281 billion, essentially unchanged from year-end. Net loans were $860.2 million, up $5.2 million; deposits were $1.113 billion, up $10.6 million.
- Cash and due from banks were $67.4 million. Available-for-sale securities were $277.0 million, down $3.2 million, including a $13.8 million increase in unrealized market losses. The portfolio’s gross unrealized losses were $17.4 million; management attributed them principally to market interest-rate changes and reported no intent or expected need to sell before recovery.
- FHLB advances declined to $15.9 million from $18.0 million; subordinated debt remained $5.2 million. Management reported $571.3 million in total available liquid funds and borrowing sources, including $270.7 million of unencumbered securities and available credit facilities.
- Stockholders’ equity declined to $117.3 million from $126.0 million, mainly because of the securities-related other comprehensive loss, partly offset by net income. Equity-to-assets was 9.15%; book value per share was $10.38.
- Rhinebeck Bank was categorized as well capitalized. At March 31, total risk-based capital was 13.47%, common equity Tier 1 was 12.69%, and Tier 1 leverage was 9.75%.
Material changes and management commentary
- Net income fell 38.2% year over year. Lower funding costs supported net interest income, but the average asset yield declined 41 basis points to 3.71%; the average cost of interest-bearing liabilities fell to 0.42% from 0.68%.
- Non-interest income fell mainly because mortgage-loan sale gains decreased $659,000 as mortgage originations and sales slowed amid higher rates and limited housing inventory. Higher advisory income and deposit service charges partly offset the decline.
- Expense growth reflected the four branches added during 2021, higher wages and benefits, and related occupancy and data-processing costs. Salaries and benefits rose 20.2% to $5.52 million.
- Management attributed the $221,000 loan-loss provision primarily to growth in indirect auto and non-residential commercial real estate loans and changes in qualitative assumptions for multifamily loans. Net charge-offs were $80,000 versus $303,000 a year earlier.
- Non-accrual loans and non-performing assets were $6.7 million, up $47,000 from year-end. The allowance for loan losses was $7.7 million. Indirect auto loans rose $22.5 million during the quarter.
Outlook, risks and contingencies
- The filing provides no specific earnings or financial guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Management identifies interest-rate, credit, funding, real-estate, competition, inflation, regulatory, operational and economic risks. COVID-19 effects remain uncertain, including potential impacts on borrowers, credit quality, demand and employee availability.
- The company’s interest-rate sensitivity model estimated EVE down 3.5% under a 400-basis-point rate increase and down 17.0% under a 100-basis-point decrease; management cautions that model assumptions limit the precision of these estimates.
- Credit commitments and standby letters totaled $123.1 million. These are potential, not necessarily expected, funding needs. Management said pending legal matters were not expected to have a material adverse effect.
- The company was assessing CECL adoption, scheduled for January 2023 for the company as a smaller reporting company. It stated ASU 2022-02 was not expected to have a material impact when adopted with CECL. LIBOR-based subordinated debt reference-rate transition was under review, with no significant financial-statement impact anticipated.
Important facts for investors to verify
- Whether net interest margin stabilizes as market rates change, and how deposit pricing and loan yields affect funding costs and earnings.
- Whether securities unrealized losses remain unrealized or affect reported equity, liquidity or capital; verify securities duration and any sale or funding needs.
- Credit performance in indirect auto and commercial real estate portfolios, including delinquencies, charge-offs, non-accrual loans and adequacy of the allowance.
- Whether branch-related expense growth is offset by revenue and deposit growth, and whether mortgage-sale income remains subdued.
- Progress and eventual impact of CECL implementation, along with the LIBOR transition for subordinated debt.