Rhinebeck Bancorp, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; balance-sheet comparisons are with December 31, 2020. Unaudited consolidated results are for Rhinebeck Bancorp and its wholly owned bank subsidiary. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless otherwise noted.
Business context and financial position
Rhinebeck Bank provides consumer and commercial banking and investment advisory services in New York’s Hudson Valley. In March 2021 it acquired two Orange County branches from ConnectOne Bank, including $33.9 million of deposits; it also opened two de novo branches in the county during 2021.
- Total assets rose 11.9% to $1.263 billion. Cash and due from banks were $114.6 million, and available-for-sale securities were $240.4 million, up from $102.9 million at year-end.
- Net loans declined 4.6% to $833.8 million. Gross loans were $834.3 million; indirect auto loans represented $377.1 million. PPP loans outstanding were $44.1 million, down from $75.4 million at year-end.
- Deposits grew 17.0% to $1.087 billion, including non-interest-bearing deposits of $316.5 million. Management attributed growth to the branch acquisition and openings, customer liquidity, and organic growth.
- FHLB advances fell to $20.1 million from $50.7 million; subordinated debt remained $5.2 million. Of the FHLB advances, $17.6 million was due within 12 months. The Bank reported access to a secured FHLB line of up to $631.3 million.
- Stockholders’ equity was $124.2 million; book value per share was $10.99 and equity-to-assets was 9.84%. Rhinebeck Bank was reported “well capitalized,” with total risk-based capital of 14.12% and Tier 1 leverage of 9.58%.
Results, margins and cash flow
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $10.1m | $9.0m | $29.0m | $26.3m |
| Provision for loan losses (credit shown as negative) | $(1.0)m | $2.3m | $(2.2)m | $5.7m |
| Non-interest income | $1.6m | $2.1m | $5.7m | $5.4m |
| Non-interest expense | $9.1m | $7.4m | $26.0m | $21.5m |
| Net income | $2.7m | $1.2m | $8.6m | $3.6m |
| Diluted earnings per share | $0.25 | $0.10 | $0.79 | $0.33 |
| Net interest margin | 3.42% | 3.40% | 3.44% | 3.47% |
- Q3 net income increased 133.5%; nine-month net income increased 139.9% (from the reported rounded amounts, about $5.0 million higher). Lower funding costs and loan-loss credits drove much of the improvement.
- Q3 net interest income rose 11.4%; nine-month net interest income rose 10.0%. For the nine-month period, lower asset yields reduced interest income 1.5%, while interest expense fell 48.0% as deposit and borrowing costs declined.
- Management recorded loan-loss provision credits of $954,000 in Q3 and $2.171 million for the first nine months, citing improved economic conditions, credit quality and lower loan balances. The allowance for loan losses was $9.0 million, down from $11.6 million at year-end.
- Operating cash flow was $5.8 million for the first nine months, versus $6.3 million in 2020. Cash increased $21.1 million to $114.6 million. Investing cash outflow was $74.1 million, including $181.9 million of securities purchases, partly offset by $32.8 million received in the branch acquisition and loan portfolio cash flows.
Material changes, outlook and risks
- Assets increased $133.9 million, principally as securities grew $137.5 million and cash increased; net loans contracted $40.0 million. Deposits rose $158.0 million, helping reduce FHLB borrowing.
- Net interest margin was nearly flat year over year in Q3 but declined three basis points for the first nine months. Q3 average earning-asset yield declined 33 basis points, partly offset by higher average balances.
- Expenses increased 23.0% in Q3 and 20.8% for the nine-month period. Salaries and benefits, occupancy, data processing and professional fees rose with branch expansion and market growth. Other expense included a $450,000 estimated reserve for potential consumer-compliance issues in the indirect auto portfolio; management said further reserves may be required but could not estimate them.
- Non-interest income was lower in Q3, chiefly due to reduced loan-sale gains and advisory income. Nine-month income included a $195,000 life-insurance gain.
- At September 30, 19 loans totaling $22.9 million remained under COVID-related payment deferrals; all were reported performing under their terms. Management cautioned that renewed pandemic effects or worsening economic conditions could increase delinquencies, losses and required provisions. It also cited interest-rate, funding, real-estate, competition, regulatory, operational and cybersecurity risks.
- The filing gives no earnings or financial targets. Management said it believed a significant portion of certificates of deposit maturing within one year would remain, but replacement funding could cost more. It reported no material pending legal proceeding, no material change in disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether the large loan-loss credits remain appropriate as economic conditions and credit performance evolve; review delinquency, non-accrual and charge-off trends.
- Potential size and timing of additional indirect-auto consumer-compliance reserves or related regulatory consequences.
- Deposit retention and repricing for the $137.3 million of certificates of deposit due within one year, alongside the $100.9 million of off-balance-sheet lending commitments.
- Loan growth, PPP runoff, and the returns and interest-rate sensitivity of the significantly expanded securities portfolio; securities had $1.7 million of gross unrealized losses at quarter-end.
- Execution and costs of the ConnectOne branch integration and new Orange County branches, and the durability of recent earnings given elevated expenses and lower loan-sale income.
- COVID-related borrower performance, the remaining $22.9 million of deferrals, and the possible impact of a resurgence or new variants.