Rhinebeck Bancorp, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2019. Rhinebeck Bancorp, Inc. became the mid-tier stock holding company for Rhinebeck Bank when the reorganization closed January 16, 2019. Before that date, it had no assets or operations; 2018 comparative results therefore reflect the predecessor Rhinebeck Bancorp, MHC and the Bank. Amounts below are in U.S. dollars; financial statement figures are in thousands unless noted.
Financial performance and position
| Metric | Q1 2019 / March 31, 2019 | Comparable period / prior year-end |
|---|---|---|
| Interest and dividend income | $9.36 million | $7.35 million, Q1 2018 |
| Net interest income | $7.57 million | $6.39 million, Q1 2018 |
| Net interest margin | 3.79% in MD&A narrative; 3.76% in average-balance table | 3.76% in both MD&A disclosures for Q1 2018 |
| Net income / diluted EPS | $911,000 / $0.09 | $616,000 in Q1 2018; EPS not applicable for predecessor |
| Operating cash flow | $9.61 million | $6.87 million, Q1 2018 |
| Total assets | $884.8 million | $882.4 million, December 31, 2018 |
| Net loans / deposits | $706.9 million / $684.0 million | $678.4 million / $684.4 million, December 31, 2018 |
| Cash and due from banks | $15.4 million | $50.6 million, December 31, 2018 |
| Equity / equity-to-assets | $102.8 million / 11.62% | $59.3 million / 6.72%, December 31, 2018 |
Net income increased 47.9% year over year. Net interest income rose 18.5%, reflecting loan growth and higher yields; interest expense rose 85.9% to $1.79 million as deposit and borrowing costs increased. Provision for loan losses was $780,000 versus $525,000. Noninterest income was $1.26 million, up 1.3%; noninterest expense was $6.92 million, up $552,000. The effective tax rate was 20%, compared with 18%.
Gross loans grew 4.2% from year-end, led by indirect auto loans, which increased $19.7 million. The allowance for loan losses was $7.18 million. Cash declined primarily because $41.1 million of unfulfilled stock-offering subscriptions was returned. Investing cash outflow was $40.1 million, principally from loan growth and securities purchases; financing cash outflow was $4.6 million.
Material changes, liquidity and capital
- The company raised $45.9 million in stock-offering proceeds, partly increasing equity; $4.4 million of shares held by the ESOP were unallocated at quarter-end.
- FHLB advances increased $45.2 million to $76.8 million, supplementing funding for loan growth. This includes $59.8 million of overnight advances due the next business day and $17.0 million of structured borrowings. The Bank reported access to a secured FHLB line of approximately $442.4 million.
- Deposits were nearly flat overall, but noninterest-bearing deposits fell 7.1% while interest-bearing accounts rose 2.3%. Certificates of deposit totaling $99.3 million mature within one year.
- At March 31, the Bank’s total risk-based capital ratio was 13.90%, common equity Tier 1 ratio was 12.95%, and Tier 1 leverage ratio was 11.34%. The filing states the Bank remained “well capitalized.”
Outlook, risks and unusual items
The filing provides no specific earnings or growth guidance. Management describes loan growth and higher asset yields as favorable, while noting higher deposit and borrowing costs and increased credit-loss provision. The loan portfolio is concentrated in the bank’s New York service area and includes a substantial indirect auto portfolio. Management considers the allowance adequate but notes that estimates may change and regulators may require adjustments.
Interest-rate sensitivity modeling estimates a 21.4% decline in economic value of equity under an immediate 400-basis-point rate increase; management says modeled scenarios remained within board policy limits. These estimates depend on assumptions and are not precise forecasts. Other risks cited include competition, funding access, real-estate values, economic conditions, credit quality, and regulatory changes.
Off-balance-sheet commitments and standby letters of credit totaled $84.1 million. Management said pending legal matters were not expected to have a material effect. The filing reports no material change in risk factors from the 2018 Form 10-K. The company expected to adopt lease accounting in Q1 2020 and was assessing the effect of CECL, effective for it in 2021.
Key facts for investors to verify
- Reconcile the net interest margin disclosure: MD&A states 3.79% for Q1 2019, while its average-balance table shows 3.76% for both 2019 and 2018.
- Track renewal and pricing of the $59.8 million overnight FHLB borrowing and the $99.3 million of CDs maturing within one year.
- Monitor credit trends, including the 1.85% past-due-loan figure reported by management, the $780,000 quarterly provision, and growth in auto and commercial lending.
- Assess whether the return of offering subscriptions and the resulting cash decline affect liquidity alongside loan growth and funding needs.
- Review future updates to CECL implementation, allowance estimates, and the effect of interest-rate movements on margin and economic value.