Rhinebeck Bancorp, Inc. annual report, FY2021

Abrir documento

Rhinebeck Bancorp, Inc. — FY2021 Form 10-K

Business and period: Annual report for the year ended December 31, 2021, comparing results with FY2020. Rhinebeck Bancorp is a bank holding company serving the Hudson Valley and Albany-area markets through Rhinebeck Bank. The Bank operates retail branches and representative offices and focuses on indirect auto, commercial real estate, commercial business, and residential lending.

Financial performance and condition

  • Profitability: Net income rose 95.3% to $11.6 million from $5.9 million; diluted earnings per share were $1.06 versus $0.55. Return on average assets improved to 0.95% from 0.55%, and return on average equity to 9.49% from 5.17%.
  • Interest income and margins: Net interest income increased 8.3% to $39.4 million. Net interest margin declined to 3.45% from 3.56%, as lower asset yields—especially on securities—more than offset a decrease in funding costs. Interest and dividend income was $43.7 million; interest expense fell 46.5% to $4.3 million.
  • Credit costs and asset quality: The Company recorded a $3.7 million credit to the loan-loss provision, compared with a $7.1 million provision in FY2020. The allowance fell to $7.6 million, or 0.89% of gross loans, from $11.6 million, or 1.33%. Nonperforming loans increased to $6.7 million (0.78% of loans) from $6.3 million (0.72%); allowance coverage of nonperforming loans declined to 113% from 184%. Net charge-offs were $407,000, down from $1.5 million.
  • Expenses and efficiency: Noninterest income decreased 10.6% to $7.4 million, while noninterest expense rose 18.1% to $35.5 million. The efficiency ratio worsened to 75.82% from 67.29%. The expense increase reflected branch expansion and staffing, among other items.
  • Balance sheet: Total assets grew 13.5% to $1.28 billion. Deposits increased 18.6% to $1.10 billion; noninterest-bearing deposits were $314.8 million. Net loans decreased 2.2% to $855.0 million, while available-for-sale securities increased to $280.3 million from $102.9 million. Stockholders’ equity rose to $126.0 million; book value per share was $11.15.
  • Funding and liquidity: FHLB advances declined to $18.0 million from $50.7 million; subordinated debt remained $5.2 million. Management reported $591.0 million in available liquid funds and borrowing sources, including $72.1 million cash, $272.1 million of unencumbered securities, and committed credit facilities. Operating cash flow was $7.7 million, compared with $14.8 million in FY2020; investing activities used $135.7 million, and financing activities provided $106.7 million.
  • Capital: Rhinebeck Bank was classified as well capitalized. At year-end, its total risk-based capital ratio was 13.54%, common equity Tier 1 ratio 12.76%, and Tier 1 leverage ratio 9.65%.

Material changes versus FY2020

  • Profit nearly doubled, driven substantially by the shift from a $7.1 million loan-loss provision to a $3.7 million credit, alongside lower deposit and borrowing costs.
  • Assets expanded primarily through securities purchases funded by excess cash and deposit growth. The securities portfolio’s unrealized position moved from a $1.0 million net gain to a $2.7 million net loss at year-end.
  • Deposits grew while certificates of deposit declined; core deposits represented 85.8% of deposits versus 78.4% in 2020. FHLB borrowing also decreased.
  • The loan mix shifted: PPP loans fell to $29.5 million from $75.4 million, multi-family loans rose to $55.9 million from $30.4 million, and commercial business loans declined to $104.3 million from $154.0 million. Indirect auto loans remained the largest category at $382.1 million, or 44.8% of gross loans.
  • Four Orange County branches were added during 2021—two acquired from ConnectOne Bank and two opened as de novo locations. The acquisition transferred $33.9 million in deposits and generated $825,000 of goodwill.

Outlook, commentary, and risks

  • Management described its strategy as moderate growth: expand indirect auto and commercial lending, build core deposits, grow in Orange County and Albany, and control expenses while maintaining credit standards. No specific earnings or financial guidance was provided.
  • Management attributed the provision credit to improved economic conditions and the expiration of all COVID-related loan deferrals; no deferrals remained at December 31, 2021. It cautioned that renewed economic deterioration could require higher provisions.
  • Key exposures include indirect auto lending, which is a large portfolio concentration; commercial real estate and business lending; local economic and real-estate conditions; competition; inflation and interest-rate movements; deposit retention and funding costs; and cybersecurity and operational risks.
  • The Company recorded an additional estimated $600,000 reserve for potential consumer-compliance issues in its indirect auto portfolio. It stated further reserves might be required but could not be estimated.
  • Management noted expected CECL adoption in 2023 could require a one-time allowance and capital adjustment; the amount and overall impact were not yet determinable. The Company also had LIBOR-linked instruments and discussed transition-related uncertainty.
  • Rising rates may pressure margins or securities values. The filing reports $4.0 million of gross unrealized losses on available-for-sale securities, which management attributed primarily to market-rate changes and did not consider other-than-temporary. The Bank’s modeled economic value of equity rose 0.1% under a 100-basis-point rate increase and declined 16.8% under a 100-basis-point decrease; management cautioned that the model is assumption-dependent.
  • The Company did not anticipate paying cash dividends in the foreseeable future. It reported no pending legal proceedings believed likely to have a material adverse effect. The auditor gave an unqualified opinion on the financial statements; management concluded internal controls were effective, but the auditor did not attest to internal control effectiveness.

Important facts for investors to verify

  • Whether credit quality remains sound as the allowance has fallen while nonperforming loans increased slightly; review subsequent delinquencies, charge-offs, and reserve methodology.
  • Whether the indirect auto compliance reserve is adequate and whether additional remediation or reserves are needed.
  • How the expanded securities portfolio, unrealized losses, and interest-rate changes affect capital, earnings, and liquidity.
  • Whether branch expansion and acquisition-related growth generate sufficient deposits and revenue to offset the higher expense base and weaker efficiency ratio.
  • The eventual CECL transition impact, LIBOR replacement terms, and any changes in dividend or capital-distribution plans.
  • Reconcile the filing’s cash-flow, liquidity-availability, and loan-ratio disclosures against the audited financial statements and subsequent filings.