Rhinebeck Bancorp(US:RBKB)2024-03-26 20:03Credit Losses and Loan Portfolio - The allowance for credit losses increased by $181,000, or 2.3%, primarily due to the adoption of the CECL standard and an increase in the loan portfolio [111]. - The allowance for credit losses at the end of the period was $8,124,000, compared to $7,943,000 at the end of the previous year [109]. - Total charge-offs for the year were $4,475,000, an increase from $3,267,000 in the previous year [109]. - Net charge-offs for the year ended December 31, 2023, totaled $2,065,000, compared to $1,030,000 for the year ended December 31, 2022 [113]. - The allowance for credit losses to non-performing loans at the end of the period was 194.31%, up from 179.54% in the previous year [109]. - The allowance for credit losses may not be sufficient to cover actual loan losses, as it is based on management's estimates and assumptions [236]. - The company adopted the current expected credit loss model (CECL) effective January 1, 2023, which significantly changed how it calculates its allowance for credit losses [237]. Investment Portfolio - The investment portfolio had a fair value of $192.0 million as of December 31, 2023, primarily consisting of U.S. Government securities and corporate bonds [120]. - The weighted average yield of investment securities was calculated without tax equivalent adjustments, reflecting the company's strategy of diversified investing [128]. - The company’s investment strategy focuses on maximizing portfolio yield while managing risk consistent with liquidity needs [121]. - The aggregate fair value of FHLB common stock was $6.5 million as of December 31, 2023, based on its par value [126]. - At December 31, 2023, Rhinebeck Bancorp, Inc. held approximately $23.2 million in U.S. government agency securities and $128.6 million in residential mortgage-backed securities issued or guaranteed by government-sponsored enterprises [228]. - Other comprehensive losses, net of tax, amounted to $26.1 million as of December 31, 2023, related to unrealized holding losses in the available-for-sale investment securities portfolio [256]. Deposits and Funding - Total deposits as of December 31, 2023, amounted to $1.031 billion, with no brokered deposits reported [132]. - Average balance of non-interest-bearing demand accounts was $268.1 million, representing 24.74% of total deposits [135]. - Average balance of certificates of deposit was $282.8 million, with a rate paid of 3.74% [135]. - Approximately $295.6 million of the deposit portfolio was uninsured as of December 31, 2023 [135]. - The company had the ability to borrow $656.5 million under credit facilities with the Federal Home Loan Bank [140]. - As of December 31, 2023, total deposits decreased by $99.4 million, or 8.8%, to $1.031 billion from $1.130 billion at December 31, 2022 [240]. - The company relies heavily on deposits as its primary source of funds, and significant withdrawals could adversely affect liquidity and increase funding costs [259]. Capital Requirements and Regulatory Compliance - Rhinebeck Bank exceeded all capital requirements as of December 31, 2023, maintaining a well-capitalized status [177]. - The bank is subject to a comprehensive capital framework requiring a common equity Tier 1 capital ratio of at least 4.5% [174]. - Rhinebeck Bank's total risk-based capital ratio must be at least 10.0% to be classified as well capitalized [182]. - The bank's regulatory structure includes oversight by the NYSDFS and FDIC, ensuring compliance with safety and soundness standards [171]. - The company is subject to more stringent capital requirements, including a common equity Tier 1 capital ratio of 7.0% and a total capital ratio of 10.5% [246]. - The bank must obtain regulatory approvals before entering into mergers or acquisitions [172]. - The FDIC has the authority to assess civil money penalties and issue cease and desist orders for regulatory violations [173]. - The Bank's deposit accounts are insured by the FDIC's Deposit Insurance Fund up to a maximum of $250,000 per separately insured depositor [186]. - The Federal Reserve Board requires bank holding companies to maintain minimum consolidated capital requirements that are as stringent as those for insured depository subsidiaries [200]. Employee and Management Information - The average tenure of employees increased to 7 years and 10 months as of December 31, 2023, up from 6 years and 6 months in 2022 [148]. - The workforce composition was approximately 60% female and 40% male as of December 31, 2023 [148]. - The company had 164 full-time employees and nine part-time employees as of December 31, 2023 [147]. - Michael J. McDermott, the CFO, announced retirement effective May 31, 2024 [152]. Financial Performance and Operational Efficiency - Non-interest expenses totaled $36.4 million for the year ended December 31, 2023, down from $37.4 million in 2022, indicating a decrease in operational costs [255]. - The efficiency ratio was 83.28% for 2023, compared to 78.4% in 2022, suggesting a need for further cost management [255]. - The company faces strong competition in loan and deposit markets, which may pressure net interest income due to lower interest rates on loans and higher rates on deposits [258]. - Cybersecurity risks could lead to increased operating costs and potential liabilities, impacting financial condition and results of operations [251]. - Management's estimates and assumptions in financial reporting are subject to significant risk and uncertainty, which could materially affect financial results [264]. Corporate Structure and Future Outlook - Rhinebeck Bancorp, Inc. expects to lose its emerging growth company status on December 31, 2024 [160]. - The company is classified as an emerging growth company, which allows it to comply with reduced reporting and disclosure requirements [272]. - The common stock may be less attractive to investors if the company relies on exemptions from various reporting requirements [273]. - The company has exemptions from holding non-binding advisory votes on executive compensation [273]. - The board of directors intends to retain future earnings for business use and does not expect to pay cash dividends in the foreseeable future [266]. - Rhinebeck Bancorp, MHC may convert from mutual to capital stock form of ownership, pending approval from the NYSDFS and the Federal Reserve Board [205]. - The company must receive prior approval from the Federal Reserve Board before any person or entity can acquire control of Rhinebeck Bancorp, Inc. [207]. - The USA PATRIOT Act requires federal banking agencies to consider the effectiveness of controls against money laundering when approving mergers or acquisitions [214]. Economic Environment - The annual inflation rate in the United States decreased from a high of 9.1% in June 2022 to 3.4% as of December 31, 2023 [229]. - The Federal Reserve increased the target federal funds rate by 425 basis points in 2022 to combat inflation [229].