Rhinebeck Bancorp, Inc. (NASDAQ:RBKB) is a financial holding company that operates through its wholly-owned subsidiary, Rhinebeck Bank, a New York-chartered stock savings bank. Rhinebeck Bank provides a comprehensive range of banking and financial services to both consumer and commercial customers across its network of 13 branches and 2 representative offices in New York.
Business Overview and History
Rhinebeck Bancorp was founded in 2005 as the holding company for Rhinebeck Bank. The Bank provides a full range of banking and financial services to consumer and commercial customers through its network of branches and representative offices located in Dutchess, Ulster, Orange, and Albany counties in New York. In 2018, Rhinebeck Bancorp completed an initial public offering, raising $47.5 million in gross proceeds, which provided capital to support the Bank's continued growth and expansion.
One of the key challenges the company faced was navigating the low interest rate environment in the early 2010s. To address this, the Bank focused on diversifying its revenue streams, growing its commercial lending business, and maintaining disciplined underwriting standards. This strategy helped the company weather the economic uncertainty during this period.
In 2020, the COVID-19 pandemic presented another significant challenge for Rhinebeck Bancorp. The company quickly adapted, providing loan payment deferrals and other assistance to support its customers. Despite the economic disruption, the Bank was able to maintain solid asset quality and profitability throughout the pandemic.
Today, Rhinebeck Bancorp operates as a diversified financial institution, offering a broad array of products and services. The company's core business segments include commercial and industrial lending, commercial real estate lending, residential mortgage lending, and consumer banking. Additionally, the bank's Rhinebeck Asset Management division provides investment advisory and wealth management services to its clients.
Financials
Rhinebeck Bancorp's financial position reflects its operations as a community bank. The company's balance sheet and income statement provide insights into its financial health and performance over time.
For the fiscal year ended December 31, 2023, Rhinebeck Bancorp reported total revenue of $43.7 million and net income of $4.39 million. The company generated operating cash flow of $7.05 million and free cash flow of $6.47 million during this period.
However, the company's financial results have been more muted in recent quarters. For the third quarter of 2024, Rhinebeck Bancorp reported a revenue loss of $329,000 and a net loss of $8.06 million, or $0.75 per diluted share. This significant decline was primarily attributable to a $12 million pre-tax loss on the sale of investment securities, as the company undertook a strategic balance sheet restructuring during the period. This restructuring is expected to improve the company's earnings stream going forward.
Financial Performance and Ratios
Rhinebeck Bancorp has demonstrated a generally solid financial performance in recent years, though the company has faced some headwinds that have impacted its bottom line. For the fiscal year ended December 31, 2023, the company reported total assets of $1.31 billion, net loans of $1.01 billion, and total deposits of $1.03 billion. Net income for the year was $4.39 million, with a return on average assets (ROAA) of 0.33% and a return on average equity (ROAE) of 3.89%.
The company's net interest margin was 3.26% for the third quarter of 2024, an increase of 17 basis points from the same period in 2023. Net interest income increased slightly by 0.4% to $9.7 million in the third quarter of 2024. These improvements were due to the rising interest rate environment, though partially offset by a decrease in the average balance of loans and securities.
Non-interest income for the third quarter of 2024 decreased significantly by $11.7 million, or 709.2%, to a loss of $10.03 million, primarily due to the $12 million loss on the sale of investment securities as part of the company's balance sheet restructuring. Excluding this loss, non-interest income would have been $2 million, an increase compared to $1.6 million in the prior year quarter.
Non-interest expense increased 3.0% to $9.08 million in the third quarter of 2024, primarily driven by higher salaries and benefits costs, partially offset by decreases in other non-interest expenses.
Loan Portfolio and Segment Performance
Rhinebeck Bancorp's loan portfolio is divided into four primary business segments: Commercial Real Estate, Residential Real Estate, Commercial and Industrial, and Consumer.
As of September 30, 2024, the Commercial Real Estate segment had $334.8 million in loans, representing 34.6% of the total loan portfolio. This segment includes construction loans ($28.9 million) and multi-family loans ($91.38 million). The Residential Real Estate segment had $85.59 million in loans, accounting for 8.8% of the portfolio. The Commercial and Industrial segment held $88.41 million in loans, making up 9.1% of the portfolio.
The Consumer segment, primarily composed of indirect automobile loans, home equity loans, and other consumer loans, accounted for 34.9% of the total loan portfolio. As of September 30, 2024, indirect automobile loans totaled $318.92 million, home equity loans were $11.73 million, and other consumer loans stood at $7.33 million.
Overall, the loan portfolio decreased by $44 million, or 4.4%, to $964.88 million at September 30, 2024, compared to $1.01 billion at December 31, 2023. This decrease was primarily driven by a $75.33 million, or 19.1%, drop in indirect automobile loans, partially offset by increases in commercial real estate and residential real estate loans.
Liquidity
Liquidity is a crucial aspect of Rhinebeck Bancorp's operations, reflecting the company's ability to meet its short-term obligations and fund its lending activities.
Liquidity and Solvency
Rhinebeck Bancorp maintains a strong liquidity position, with a cash and cash equivalents balance of $22.13 million as of December 31, 2023. The company's loan-to-deposit ratio stood at 98.2% at the end of 2023, indicating a well-balanced funding structure. Additionally, Rhinebeck Bank's regulatory capital ratios remained well above the "well-capitalized" thresholds, with a total risk-based capital ratio of 12.70% and a Tier 1 leverage ratio of 10.10% as of December 31, 2023.
The company's debt-to-equity ratio was 0.17 as of December 31, 2023, reflecting a conservative capital structure. Rhinebeck Bancorp's current ratio stood at 1.08, and its quick ratio was 1.01 as of the same date, indicating adequate short-term liquidity.
Rhinebeck Bancorp has access to several credit facilities to support its liquidity needs. These include a $10 million unsecured line of credit with Zions Bank, a $50 million unsecured line of credit with Pacific Coast Bankers Bank, and a $656.52 million secured line of credit with the Federal Home Loan Bank (FHLB), with $228.17 million in pledged assets as of December 31, 2023. As of the end of 2023, there were no outstanding balances on the unsecured lines of credit.
Challenges and Opportunities
Rhinebeck Bancorp has navigated a challenging operating environment in recent years, marked by a low interest rate environment, increased competition, and economic uncertainty. The company's strategic decision to restructure its balance sheet by selling lower-yielding securities and reinvesting the proceeds into higher-yielding assets is a clear effort to improve its earnings profile and position the company for long-term success.
However, the short-term impact of this restructuring, as evidenced by the $12 million pre-tax loss in the third quarter of 2024, has weighed on the company's financial performance. Additionally, Rhinebeck Bancorp has faced headwinds in its consumer lending portfolio, particularly in the indirect automobile lending segment, which has seen a decline in balances.
Despite these challenges, Rhinebeck Bancorp remains well-positioned to capitalize on potential growth opportunities. The company's strong capital position and liquidity provide a solid foundation to support future lending and investment activities. Furthermore, the bank's diversified business model, which includes commercial lending, residential mortgages, and wealth management services, offers a degree of revenue and risk diversification.
Geographic Markets and Operations
Rhinebeck Bancorp primarily operates in the northeastern United States, with all of its 13 branches and 2 representative offices located in Dutchess, Ulster, Orange, and Albany counties. The company does not have any significant operations outside of this regional market, focusing its efforts on serving the local communities within its footprint.
Outlook and Guidance
While specific guidance for the upcoming fiscal year has not been provided, Rhinebeck Bancorp's management has indicated that the balance sheet restructuring, coupled with a continued focus on commercial and residential lending, should position the bank for improved earnings performance in the future. The company's strategy appears to be centered on optimizing its balance sheet, improving its interest margin, and capitalizing on growth opportunities within its core markets.
Conclusion
Rhinebeck Bancorp has navigated a complex operating environment in recent years, marked by interest rate challenges, economic uncertainty, and strategic balance sheet adjustments. While the company's short-term financial results have been impacted by these factors, Rhinebeck Bancorp remains well-capitalized and poised to capitalize on future growth opportunities. As the company continues to execute its strategic initiatives and diversify its revenue streams, investors will be keen to monitor Rhinebeck Bancorp's ability to translate these efforts into sustained profitability and shareholder value. The recent balance sheet restructuring, although resulting in a short-term loss, is expected to improve the company's earnings stream going forward, potentially setting the stage for stronger financial performance in the coming quarters.