Rhinebeck Bancorp, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unless otherwise noted, amounts are in millions; the filing reports financial statement amounts in thousands. Rhinebeck Bancorp became the mid-tier holding company in a reorganization completed January 16, 2019. Pre-reorganization comparative financial information relates to Rhinebeck Bancorp, MHC and Rhinebeck Bank, so periods may not be fully comparable.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net interest income | $7.92 | $6.77 | $15.49 | $13.16 |
| Provision for loan losses | $0.78 | $0.53 | $1.56 | $1.05 |
| Noninterest income | $1.43 | $0.88 | $2.70 | $2.13 |
| Noninterest expense | $7.05 | $6.40 | $13.97 | $12.77 |
| Net income | $1.22 | $0.58 | $2.13 | $1.20 |
| Basic and diluted EPS | $0.11 | Not applicable | $0.20 | Not applicable |
| Net interest margin | 3.75% | 3.80% | 3.77% | 3.78% |
- Q2 net income rose 111% year over year; first-half net income rose to $2.13 million from $1.20 million.
- Interest income increased 26.8% in Q2 and 27.0% in the first half, supported by loan growth and higher asset yields. Interest expense rose 81.0% and 83.1%, respectively, as funding balances and costs increased.
- At June 30, total assets were $913.1 million, up 3.5% from year-end 2018. Net loans were $737.3 million, up 8.7%; gross loans were led by indirect auto lending, which grew 13.9% to $338.4 million.
- Deposits were $716.9 million, up 4.5% from year-end. Interest-bearing deposits increased $51.6 million while noninterest-bearing deposits declined $19.1 million.
- FHLB advances were $64.5 million, versus $31.6 million at year-end; subordinated debt was $5.2 million. Stockholders’ equity was $105.6 million, including $45.7 million of offering proceeds; equity-to-assets was 11.6%, versus 6.7% at year-end. Book value per share was $9.48.
- The allowance for loan losses was $7.9 million, up 18.2% from year-end. Net charge-offs for the first half were $0.35 million, down from $0.57 million in the comparable 2018 period.
- Cash from operations was $3.5 million, compared with $5.3 million in first-half 2018. Investing activities used $67.5 million, mainly reflecting $58.7 million of net loan growth; financing activities provided $25.4 million. Cash and due from banks ended at $12.0 million, down from $50.6 million at year-end.
Changes, outlook, and risks
- Net interest income grew, but margin narrowed by 5 basis points in Q2 and 1 basis point for the first half. Management attributed revenue growth chiefly to higher volumes of indirect auto and commercial loans.
- Higher loan growth drove increased provisioning, particularly for potential losses in the indirect auto portfolio. Management stated that the allowance was adequate, while noting it depends on estimates and may require adjustment.
- Noninterest expense rose 10.1% in Q2 and 9.4% in the first half. Higher salaries and benefits, technology/data processing, and public-company professional fees contributed. The 2018 comparisons also included a $0.39 million OREO write-down and a $0.10 million goodwill impairment, which did not recur in 2019.
- The stock offering and reorganization affected cash, equity, and period comparability. The company returned $41.1 million of unfulfilled subscriptions; offering-related proceeds and costs, and the ESOP loan, also affected financing cash flows.
- No earnings guidance or quantified forward outlook was provided. Management cited risks including local economic and real-estate conditions, credit quality and charge-offs, competition for deposits and loans, funding costs, interest-rate movements, regulation, and execution of growth strategies.
- Liquidity considerations include $123.4 million of certificates of deposit maturing within one year, $80.1 million of lending commitments and standby letters of credit, and $16.8 million of structured FHLB borrowings due within one year. The Bank reported access to a secured FHLB line of up to $456.5 million.
- Interest-rate modeling estimated EVE declines of 20.5% under an immediate +400-basis-point shock and 5.2% under a -100-basis-point shock; management said results were within board policy limits. The filing cautions that model assumptions may not predict actual outcomes.
- The Bank was categorized as well capitalized; at June 30, its total risk-based capital ratio was 13.62% and its Tier 1 leverage ratio was 11.04%. Management reported effective disclosure controls and no material change in internal controls. It reported no material pending litigation and no material change in risk factors from the 2018 Form 10-K.
Important facts for investors to verify
- Whether indirect auto and other loan growth can be maintained without further deterioration in delinquencies, nonperforming assets, or credit losses; nonperforming assets increased 5.0% from year-end.
- Whether deposit growth and retention will fund loan expansion at acceptable costs, particularly as $123.4 million of CDs mature within one year.
- How continued increases in funding costs affect net interest margin and earnings.
- The assumptions and adequacy of the loan-loss allowance, including the impact of portfolio mix and the transition to expected-credit-loss accounting.
- How the post-offering capital, liquidity, and share count develop, including the ESOP’s unallocated shares and loan.