Rhinebeck Bancorp, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; balance-sheet comparisons are with December 31, 2020. Amounts are in millions of dollars unless otherwise noted. The company is a New York community banking and financial-services holding company.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Interest and dividend income | $10.2 | $11.2 | $21.3 | $22.0 |
| Net interest income | $9.1 | $9.0 | $18.9 | $17.3 |
| Net interest margin | 3.26% | 3.41% | 3.45% | 3.51% |
| Provision for loan losses | $(1.1) credit | $2.3 expense | $(1.2) credit | $3.5 expense |
| Non-interest income | $1.9 | $1.8 | $4.1 | $3.3 |
| Non-interest expense | $8.9 | $6.8 | $16.8 | $14.1 |
| Net income | $2.6 | $1.3 | $5.9 | $2.4 |
| Diluted earnings per share | $0.23 | $0.13 | $0.54 | $0.23 |
Financial position, cash flow and capital
- Assets were $1.21 billion, up 7.2% from year-end 2020. Net loans were $862.5 million, down 1.3%; available-for-sale securities were $201.9 million, nearly double year-end levels, following $126.6 million of purchases.
- Deposits rose 10.5% to $1.03 billion, including $33.9 million assumed in the ConnectOne branch transaction. Non-interest-bearing deposits increased 18.5% to $289.5 million.
- FHLB advances declined 56.1% to $22.2 million. Subordinated debt remained $5.2 million. The Bank reported access to a $605.0 million secured FHLB credit line; $18.4 million of outstanding advances mature within 12 months.
- Cash and due from banks were $71.9 million, down from $93.5 million at year-end. First-half cash flow: $2.5 million provided by operations, $62.9 million used in investing, and $38.8 million provided by financing; cash decreased $21.6 million.
- Stockholders’ equity was $121.9 million; book value was $10.95 per share and equity-to-assets was 10.07%. The Bank was classified as well capitalized, with a 14.21% total risk-based capital ratio and a 9.69% Tier 1 leverage ratio.
Material changes and management commentary
- Net income increased substantially year over year, mainly reflecting lower funding costs and a credit to loan-loss provision, partly offset by lower asset yields and higher operating expenses. Q2 net interest margin fell 15 basis points year over year; first-half margin declined 6 basis points.
- The provision credit reflected improved economic forecasts, improved credit quality and lower loan balances. First-half net charge-offs were $0.29 million, versus $0.84 million a year earlier.
- Non-interest expense increased 31.2% in Q2. Management cited staffing and operating costs for branch expansion, higher professional fees, and increased indirect-auto lending expenses. The quarter also included an additional estimated reserve for potential consumer-compliance issues in the indirect-auto portfolio; any further reserve requirement was not estimable.
- The Bank completed its acquisition of two Orange County branches from ConnectOne on March 12, assuming $33.9 million of deposits and recognizing $0.8 million of goodwill. It also opened a new Orange County branch. Acquisition-related expenses were $71,000 in the first half.
- COVID-19 remained a source of uncertainty. At June 30, 49 loans totaling $29.9 million remained under payment deferral, and management said they were performing to contractual terms. First-half PPP originations included 376 approved applications totaling $48.2 million; $74.3 million of PPP loans remained outstanding.
- Management provided no specific earnings or financial guidance. It cautioned that results depend on economic conditions, interest rates, credit performance, funding access, competition, acquisition integration and the continued effects of COVID-19. Its interest-rate sensitivity model estimated EVE down 18.4% under a 100-basis-point rate decrease and down 2.2% under a 400-basis-point increase; management noted model limitations.
Risks, contingencies and unusual items
- Credit risk includes the possibility that a renewed pandemic downturn could increase delinquencies, foreclosures, collateral losses and loan-loss provisions. The filing also identifies PPP-related litigation, regulatory and reputation risks, including the possibility that SBA guarantees are not funded.
- Certificates of deposit totaling $137.8 million mature within one year. If not retained, replacement funding could cost more. Outstanding loan commitments and standby letters of credit totaled $80.4 million.
- Unrealized losses on available-for-sale securities were $1.3 million. Management attributed them primarily to interest-rate movements and did not consider them other-than-temporary, stating it did not expect to sell the securities before recovery.
- Management said pending legal matters were not expected to have a material adverse effect. The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit growth is durable and the company can retain or replace the $137.8 million of time deposits maturing within a year at acceptable cost.
- Trends in net interest margin, asset yields and funding costs as rates and balance-sheet composition change.
- Credit quality, non-accruals and charge-offs, the assumptions supporting the provision credit, and any additional reserve for indirect-auto compliance matters.
- Whether the ConnectOne branches and new location generate sustainable growth sufficient to offset higher operating expenses.
- How COVID-19, PPP forgiveness and remaining borrower deferrals affect future credit costs and income.