Business Context and Reporting Period
Rhinebeck Bancorp, Inc. is the holding company for Rhinebeck Bank, a New York community bank serving the Hudson Valley and Albany areas. This Form 10-K covers the fiscal year ended December 31, 2020; comparisons are to fiscal 2019. The bank’s lending is concentrated in indirect automobile loans, commercial real estate and commercial business loans.
Financial Performance and Position
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $1.129 billion | $973.9 million |
| Loans receivable, net, year-end | $873.8 million | $793.5 million |
| Deposits, year-end | $929.4 million | $773.3 million |
| Cash and due from banks, year-end | $93.5 million | $12.0 million |
| Net interest income | $36.4 million | $32.2 million |
| Net income | $5.9 million; $0.55 per share | $6.0 million; $0.56 per share |
| Net interest margin | 3.56% | 3.76% |
| Return on average assets | 0.55% | 0.65% |
| Allowance for loan losses, year-end | $11.6 million; 1.33% of loans | $6.0 million; 0.75% of loans |
Interest and dividend income rose 8.3% to $44.4 million, while interest expense fell 8.2% to $8.0 million. Noninterest income increased 47.5% to $8.3 million, led by loan-sale gains; noninterest expense rose 7.7% to $30.1 million. The loan-loss provision climbed to $7.1 million from $2.5 million. As a result, net income declined 0.8% despite higher net interest income and fee income.
Operating cash flow was $14.8 million, versus $12.1 million in 2019. Investing activities used $74.1 million, mainly reflecting loan growth; financing activities provided $140.8 million, largely from deposit inflows. Year-end FHLB advances were $50.7 million, down from $66.3 million; subordinated debt was $5.2 million. The bank reported $564.3 million of available FHLB borrowing capacity. Stockholders’ equity was $116.5 million, and Rhinebeck Bank was well capitalized, with a 13.97% total risk-based capital ratio and 9.95% Tier 1 leverage ratio.
Material Changes Versus 2019
- Assets grew 15.9%, deposits 20.2%, and net loans 10.1%. The loan increase included $75.4 million of PPP loans outstanding at year-end.
- Cash rose by $81.5 million as deposit growth exceeded loan growth; available-for-sale securities fell 10.4% to $102.9 million.
- The allowance nearly doubled, reflecting portfolio growth and pandemic-related credit-risk estimates. Net charge-offs decreased to $1.5 million from $3.2 million.
- Nonperforming loans fell to $6.3 million, or 0.72% of loans, from $8.9 million, or 1.13%. However, loans classified as special mention increased to $10.9 million from $4.9 million.
- Loan-sale gains rose to $3.8 million from $1.2 million as the bank sold $95.0 million of fixed-rate residential mortgages, versus $48.2 million in 2019.
Outlook, Commentary, Risks and Unusual Items
Management gave no specific earnings or financial guidance. It expects moderate balance-sheet growth, plans to continue expanding indirect auto and commercial lending, and aims to increase lower-cost core deposits. It planned four Orange County branch additions for 2021: two acquired locations and two de novo branches. Management anticipated renewed commercial activity as the pandemic eased, while warning that the timing and economic effects remained uncertain.
- COVID-19 created risks of borrower distress, defaults, collateral-value declines, margin pressure, weaker demand, operational disruption and increased cybersecurity exposure. The bank approved 2,095 deferrals totaling $122.6 million during 2020; 194 loans totaling $40.2 million remained in deferral at year-end and were reported as performing.
- The $7.1 million provision reflected deteriorating economic assumptions and deferred-payment exposures. Management cautioned that further provisions may be required.
- Indirect auto loans were $376.3 million, 42.9% of gross loans; commercial real estate and commercial business loans together were $438.1 million, 50.0% of gross loans. These concentrations expose the bank to consumer-credit, regional economic and property-market risks.
- The bank recorded an initial estimated $350,000 reserve for potential consumer-compliance issues in its indirect auto portfolio and said additional reserves may be required.
- PPP participation carries potential SBA-guaranty, compliance, litigation and reputational risks. PPP deferred origination fees were $3.3 million at year-end, with $2.1 million amortized in 2020.
- The bank adopted lease accounting in 2020, recognizing a $6.3 million right-of-use asset and corresponding lease liability. CECL adoption was expected in 2023 and could increase allowance volatility.
- The filing reports no pending legal proceedings believed likely to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements; the company, as an emerging growth company, did not receive an auditor attestation on internal controls.
Important Facts for Investors to Verify
- Whether pandemic-related borrower stress, active deferrals and criticized commercial exposures result in higher delinquencies, charge-offs or further allowance increases.
- How quickly PPP loans are forgiven or repaid, and the resulting timing of fee income and loan-balance runoff.
- Credit performance and profitability of the large indirect auto portfolio, including the potential consumer-compliance reserve.
- Whether commercial real estate borrowers—especially hospitality, restaurant and retail borrowers—can maintain cash flows and collateral values.
- Deposit retention and funding costs as certificates of deposit mature, alongside liquidity, borrowing capacity and capital levels.
- Execution and costs of the planned Orange County branch expansion, and whether new locations achieve expected deposit and loan growth.