Rhinebeck Bancorp, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. Rhinebeck Bancorp is the holding company for Rhinebeck Bank, a New York community bank serving the Hudson Valley through branches, representative offices and Rhinebeck Asset Management. This unaudited filing covers the quarter and six months ended June 30, 2020; balance-sheet comparisons are with December 31, 2019. Amounts below are in millions of dollars unless stated otherwise.
Financial results and position
| Metric | Q2 / June 30, 2020 | Comparable period / Dec. 31, 2019 |
|---|---|---|
| Net income | Q2: $1.35; first half: $2.42 | Q2 2019: $1.22; first half 2019: $2.13 |
| Basic and diluted EPS | Q2: $0.13; first half: $0.23 | Q2 2019: $0.11; first half 2019: $0.20 |
| Net interest income | Q2: $8.98; first half: $17.30 | Q2 2019: $7.92; first half 2019: $15.49 |
| Net interest margin | Q2: 3.41%; first half: 3.51% | Q2 2019: 3.75%; first half 2019: 3.77% |
| Provision for loan losses | Q2: $2.26; first half: $3.46 | Q2 2019: $0.78; first half 2019: $1.56 |
| Total assets | $1,128.3 | $973.9 |
| Net loans / deposits | $887.3 / $910.0 | $793.5 / $773.3 |
| Cash and due from banks | $74.6 | $12.0 |
| Total liabilities / stockholders’ equity | $1,014.7 / $113.7 | $864.1 / $109.9 |
Quarterly net income rose 10.4% year over year; first-half net income rose 13.6%. Net interest income increased, but margin fell as asset yields declined, including from lower-yielding PPP loans and the sharp drop in market rates. Higher loan-loss provisioning more than offset some revenue growth: Q2 net interest income after provision was $6.72 million versus $7.14 million a year earlier.
First-half operating cash flow was $2.5 million, investing cash flow was negative $84.7 million, and financing cash flow was positive $144.7 million. Cash increased $62.6 million. Loan growth was funded substantially by deposits, which increased $136.7 million, and borrowings.
Material changes versus prior periods
- Assets increased 15.9% from year-end 2019. Net loans grew 11.8%; management attributed much of the increase to PPP loans, including $86.4 million of net outstanding PPP balances.
- Deposits increased 17.7%, including growth in noninterest-bearing deposits of $68.6 million. Management cited PPP-related cash inflows and a flight to safety amid market volatility.
- The allowance for loan losses increased 44.0% to $8.57 million. Non-accrual loans rose 13.9% to $10.2 million, and nonperforming assets rose 9.7% to $11.3 million from year-end.
- FHLB advances declined to $59.0 million from $66.3 million; $12.1 million was outstanding under the Federal Reserve PPP Lending Facility at quarter-end and was repaid July 2, 2020. Subordinated debt was $5.16 million.
- Book value per share was $10.21 and stockholders’ equity was 10.1% of assets. Rhinebeck Bank reported a 9.80% Tier 1 leverage ratio and a 13.29% total risk-based capital ratio; the Bank was categorized as well capitalized.
Outlook, risks and unusual items
- COVID-19 and credit risk: Management said the pandemic and related economic conditions could materially adversely affect results, liquidity and capital. It highlighted borrower distress in hotel, restaurant and retail industries, potential collateral-value declines, higher delinquencies and losses, and pressure on net interest margin.
- Loan deferrals: As of June 29, the Bank had received 2,289 deferral requests. Bank-owned loans among the requests totaled approximately $125.0 million across 2,134 accounts; about $4.9 million of payments had been deferred. The filing does not establish how many requests ultimately remained in deferral.
- PPP: By June 29, the Bank had funded 647 PPP loans totaling $88.7 million; it stopped accepting applications June 30. Management disclosed possible litigation, regulatory and reputational risks, including uncertainty over SBA funding of loan guarantees.
- Liquidity and funding: The Bank reported $59.0 million of FHLB borrowings, with $36.8 million due within 12 months, and access to an FHLB line of up to $564.1 million. Certificates of deposit totaling $174.6 million mature within one year; replacement funding could cost more. Loan commitments and standby letters of credit totaled $95.9 million.
- Interest-rate sensitivity: The filing’s EVE model estimated a 19.3% decline under a 400-basis-point rate increase and a 21.3% decline under a 100-basis-point decrease. Management cautioned that model assumptions limit predictive precision.
- Accounting and other items: Adoption of lease accounting in January added approximately $6.5 million each to other assets and liabilities. A pension actuarial loss contributed to Q2 other comprehensive loss of $1.60 million, leaving total comprehensive loss of $0.25 million for the quarter. No goodwill impairment was recorded. Management provided no numerical earnings guidance; it stated that the pandemic’s effects remain uncertain and could be significant. No material pending legal proceedings were reported.
Important facts for investors to verify
- How PPP forgiveness, repayments and any SBA guarantee issues affect the reported loan balances, income and credit exposure.
- Whether borrowers receiving payment deferrals resume contractual payments, and how deferrals translate into delinquencies, nonperforming assets and future provisions.
- Whether the $8.57 million allowance adequately reflects credit risk, particularly in commercial real estate and pandemic-exposed industries.
- Deposit retention and pricing as $174.6 million of certificates mature within one year, and the effect of funding costs on the declining net interest margin.
- Whether continued economic disruption, interest-rate changes or pension valuation movements materially alter earnings, liquidity, capital or the reported EVE sensitivity.