Rhinebeck Bancorp(RBKB) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the unaudited financial information for the quarter, including detailed financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) Presents the unaudited consolidated financial statements for the quarter, covering financial condition, income, comprehensive income, equity, cash flows, and detailed accounting notes Consolidated Statements of Financial Condition The Consolidated Statements of Financial Condition show an increase in total assets, primarily driven by growth in loans receivable and cash, alongside an increase in total liabilities due to higher deposits and Federal Home Loan Bank (FHLB) advances. Stockholders' equity also increased | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------- | :------------------------------ | :------------------------------- | | Total Assets | $1,007,266 | $973,946 | | Loans receivable (net) | $810,361 | $793,471 | | Cash and due from banks | $21,796 | $11,978 | | Total Liabilities | $893,369 | $864,064 | | Total Deposits | $784,655 | $773,343 | | Total Stockholders' Equity | $113,897 | $109,882 | Consolidated Statements of Income Net income for the three months ended March 31, 2020, increased compared to the prior year, driven by higher net interest income and noninterest income, despite a significant increase in the provision for loan losses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total interest and dividend income | $10,740 | $9,358 | | Total interest expense | $2,419 | $1,788 | | Net interest income | $8,321 | $7,570 | | Provision for loan losses | $1,200 | $780 | | Total noninterest income | $1,560 | $1,264 | | Total noninterest expense | $7,299 | $6,918 | | Net income | $1,075 | $911 | | Basic EPS | $0.10 | $0.09 | | Diluted EPS | $0.10 | $0.09 | Consolidated Statements of Comprehensive Income Total comprehensive income significantly increased for the three months ended March 31, 2020, primarily due to higher net income and substantial unrealized gains on available-for-sale securities, net of tax | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net Income | $1,075 | $911 | | Unrealized gains on available for sale securities, net of tax | $2,607 | $1,041 | | Defined benefit pension plan gain, net of tax | $278 | $55 | | Total Comprehensive Income | $3,960 | $2,007 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased for the three months ended March 31, 2020, primarily driven by net income and a positive change in accumulated other comprehensive loss, partially offset by ESOP share allocations | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------------- | :------------------------------ | :------------------------------- | | Total Stockholders' Equity (Ending Balance) | $113,897 | $109,882 | | Net income | $1,075 | — | | Other comprehensive income | $2,885 | — | | Unearned common stock held by the ESOP | $(4,091) | $(4,146) | | Retained earnings | $73,227 | $72,152 | Consolidated Statements of Cash Flows The company experienced a net increase in cash and due from banks for the three months ended March 31, 2020, primarily driven by cash provided by financing activities, which offset cash used in investing activities | Cash Flow Activity | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $3,759 | $1,292 | | Net cash used in investing activities | $(17,550) | $(37,241) | | Net cash provided by financing activities | $23,609 | $798 | | Net increase (decrease) in cash and due from banks | $9,818 | $(35,151) | | Ending cash and due from banks | $21,796 | $15,439 | Notes to Consolidated Financial Statements These notes provide detailed disclosures supporting the consolidated financial statements, covering the company's business, significant accounting policies, investment securities, loan portfolio, employee benefits, regulatory capital, fair value measurements, and the impact of the COVID-19 pandemic 1. Nature of Business and Significant Accounting Policies This note describes Rhinebeck Bancorp, Inc. as a holding company for Rhinebeck Bank, providing banking and financial services. It outlines the basis of financial statement presentation, principles of consolidation, and highlights the potential adverse impact of the COVID-19 pandemic on the company's financial condition and results of operations, as well as the adoption of new accounting standards like ASC 842 Leases and the delayed adoption of CECL - Rhinebeck Bancorp, Inc. serves as the mid-tier stock holding company for Rhinebeck Bank, offering a full range of banking and financial services through eleven branches and two representative offices in New York[19] - The COVID-19 pandemic is expected to adversely impact the Company's financial condition and results of operations, particularly net interest income and noninterest income, due to economic uncertainties and interest rate reductions by the Federal Open Market Committee[26] - The Company adopted ASC 842 Leases effective January 1, 2020, resulting in an approximate $6.7 million increase in both other assets (right-of-use asset) and other liabilities (lease liability)[27][28] - The adoption of the CECL model has been delayed to January 2023 for smaller reporting companies, which the Company is unlikely to early adopt[30] 2. Investment Securities The investment securities portfolio primarily consists of U.S. government agency mortgage-backed securities. As of March 31, 2020, the portfolio showed net unrealized gains, and management believes that none of the unrealized losses are other-than-temporary, primarily due to market interest rate changes on debt and mortgage-backed securities | Security Type | March 31, 2020 (Fair Value, in thousands) | December 31, 2019 (Fair Value, in thousands) | | :--------------------------------------- | :---------------------------------------- | :----------------------------------------- | | U.S. government agency mortgage-backed securities–residential | $105,699 | $98,478 | | U.S. government agency securities | $5,197 | $12,076 | | Municipal securities | $1,375 | $1,396 | | Corporate bonds | $2,269 | $2,273 | | Other | $594 | $609 | | Total | $115,134 | $114,832 | - At March 31, 2020, the Company had 11 individual available-for-sale securities in an unrealized loss position totaling $47 thousand, representing an aggregate depreciation of 1.91% from amortized cost[34] - Management believes that none of the unrealized losses on available-for-sale securities are other-than-temporary, as they primarily relate to market interest rate changes, and the Company does not intend or is not likely to be required to sell these securities before recovery of their amortized cost basis[35] 3. Loans and Allowance for Loan Losses The loan portfolio saw an increase in total gross loans, with indirect automobile loans and non-residential commercial real estate being the largest segments. The allowance for loan losses increased, reflecting portfolio growth and the anticipated negative impact of the COVID-19 pandemic on credit quality. Non-accrual loans decreased slightly | Loan Type | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Commercial real estate: | | | | Construction | $8,801 | $20,354 | | Non-residential | $242,078 | $228,157 | | Multi-family | $30,334 | $20,129 | | Residential real estate loans | $43,629 | $43,726 | | Commercial and industrial loans | $90,242 | $90,554 | | Consumer loans: | | | | Indirect automobile | $367,293 | $360,569 | | Home equity | $15,165 | $16,276 | | Other consumer | $9,410 | $9,752 | | Total gross loans | $806,952 | $789,517 | | Allowance for loan losses | $(6,620) | $(5,954) | | Total net loans | $810,361 | $793,471 | | Loan Category | March 31, 2020 (Total, in thousands) | December 31, 2019 (Total, in thousands) | | :-------------------------- | :----------------------------------- | :------------------------------------ | | Pass | $793,286 | $775,060 | | Special Mention | $4,778 | $4,882 | | Substandard | $8,888 | $9,575 | | Total | $806,952 | $789,517 | | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Beginning balance (ALL) | $5,954 | $6,646 | | Provision for loan losses | $1,200 | $780 | | Loans charged-off | $(764) | $(506) | | Recoveries | $230 | $263 | | Ending balance (ALL) | $6,620 | $7,183 | - At March 31, 2020, non-accrual loans totaled $8.2 million, a decrease from $8.9 million at December 31, 2019[43] - Impaired loans, including three Troubled Debt Restructurings (TDRs), totaled $8.2 million at March 31, 2020[45] 4. Premises and Equipment The net value of premises and equipment increased slightly at March 31, 2020, reflecting ongoing investments in buildings and equipment, offset by accumulated depreciation | Category | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Land | $3,690 | $3,690 | | Buildings and improvements | $25,371 | $25,371 | | Furniture, fixtures and equipment | $12,353 | $12,090 | | Construction in process | $498 | $267 | | Total | $41,912 | $41,418 | | Less accumulated depreciation | $(23,408) | $(23,080) | | Net | $18,504 | $18,338 | 5. Goodwill The carrying value of goodwill remained constant at $1.41 million, and no impairment write-down was required for the first three months of 2020 or the year 2019 | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Beginning balance | $1,410 | $1,410 | | Ending balance | $1,410 | $1,410 | | Accumulated impairment | $1,116 | $1,116 | - The Company tested the goodwill recorded for Rhinebeck Asset Management (RAM) and determined that no write-down was required for the first three months of 2020 or the year 2019[51] 6. Intangible Assets The carrying value of customer list intangibles decreased due to amortization. These assets have an expected useful life of 13 years and 4 months, and their fair value exceeded carrying value at March 31, 2020 | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Beginning balance | $241 | $284 | | Amortization | $(11) | $(43) | | Ending balance | $230 | $241 | | Accumulated amortization and impairment | $695 | $706 | | Year | Future Amortization Expense (in thousands) | | :--- | :--------------------------------------- | | 2020 | $31 | | 2021 | $42 | | 2022 | $42 | | 2023 | $42 | | 2024 | $42 | | Thereafter | $31 | | Total | $230 | 7. Deposits Total deposits increased at March 31, 2020, with growth in interest-bearing accounts, particularly time certificates of deposit, while noninterest-bearing demand deposits slightly decreased | Deposit Type | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Noninterest bearing demand deposits | $174,958 | $179,236 | | Interest bearing accounts: | | | | NOW | $97,979 | $95,572 | | Savings | $127,578 | $121,139 | | Money market | $153,550 | $158,747 | | Time certificates of deposit | $230,590 | $218,649 | | Total interest bearing accounts | $609,697 | $594,107 | | Total deposits | $784,655 | $773,343 | | Maturity | March 31, 2020 (in thousands) | | :--------- | :------------------------------ | | Within 1 year | $197,309 | | 1 – 2 years | $17,222 | | 2 – 3 years | $4,266 | | 3 – 4 years | $3,928 | | 4 – 5 years | $7,865 | | Total | $230,590 | 8. Long-Term Debt and FHLB Stock FHLB borrowings increased to support asset growth, with a significant portion due within one year. The company also maintains subordinated debt, which is considered Tier 1 capital and bears interest at a floating rate | Term | Principal (in thousands) | Maturity | Rate | | :---------------- | :----------------------- | :------- | :----- | | 1 month bullet | $15,000 | Apr 13, 2020 | 0.91% | | 1 year bullet | $10,000 | Feb 1, 2021 | 0.80% | | 2 year amortizing | $640 | May 15, 2020 | 2.78% | | 2 year amortizing | $853 | Jun 8, 2020 | 2.76% | | 2 year amortizing | $6,309 | May 17, 2021 | 2.53% | | 2 year bullet | $10,000 | May 17, 2021 | 2.46% | | 3 year amortizing | $4,273 | May 17, 2021 | 2.92% | | 3 year amortizing | $7,570 | May 16, 2022 | 2.49% | | 3 year bullet | $10,000 | May 16, 2022 | 2.44% | | 3 year amortizing | $15,000 | Feb 28, 2023 | 1.32% | | Total | $79,645 | | 2.55% | - The Bank had access to a preapproved secured line of credit with the FHLB of $503.5 million at March 31, 2020, and maintained an investment in FHLB capital stock, which was not impaired[57] - Subordinated debt of $5.16 million, bearing interest at 3-month LIBOR plus 2.00% (3.45% at March 31, 2020), matures on May 23, 2035, and is considered Tier 1 capital[58][59][60] 9. Employee Benefits The company maintains a frozen defined benefit pension plan, a 401(k) defined contribution plan, and various deferred compensation arrangements for directors and executives. The Employee Stock Ownership Plan (ESOP) provides employees with Company stock, with compensation expense recognized for allocated shares | Pension Plan Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------------- | :------------------------------ | :------------------------------- | | Projected and accumulated benefit obligation | $(19,557) | $(20,953) | | Plan assets at fair value | $19,609 | $20,628 | | Funded status | $52 | $(325) | | Net periodic cost (benefit) (3 months ended March 31) | $(26) | $510 | - The Company's contributions to the 401(k) defined contribution plan amounted to $246 thousand for the three months ended March 31, 2020, an increase from $225 thousand in the prior year[70] - The Employee Stock Ownership Plan (ESOP) had 436,425 shares outstanding at March 31, 2020, with a loan balance of $4.24 million[75] - Total compensation expense recognized for the ESOP was $55 thousand for the three months ended March 31, 2020[76] 10. Leases With the adoption of Topic 842, the Company recognized right-of-use (ROU) assets and corresponding lease liabilities for its operating leases, primarily for branch offices. The weighted average remaining lease term is 13.3 years, and a weighted average discount rate of 2.62% was used - Upon adoption of ASC 842, the Company recorded an increase in other assets (ROU asset) and other liabilities (lease liability) of approximately $6.6 million each as of March 31, 2020[27][80] - The weighted average remaining life of the lease terms for operating leases was 13.3 years, and the weighted average discount rate used was 2.62% as of March 31, 2020[79] | Years ending December 31: | Future Minimum Lease Payments (in thousands) | | :-------------------------- | :--------------------------------------- | | 2020 | $476 | | 2021 | $637 | | 2022 | $593 | | 2023 | $570 | | 2024 | $566 | | Thereafter | $5,086 | | Total future minimum lease payments | $7,928 | | Amounts representing interest | $(1,290) | | Present Value of Net Future Minimum Lease Payments | $6,638 | 11. Commitments and Contingencies The Company is involved in routine legal proceedings, none of which are expected to have a material adverse effect. It also has significant off-balance-sheet commitments, including various loan commitments and standby letters of credit, which represent potential future credit risk - Management believes that resolution of current legal matters will not have a material effect on the Company's financial condition or results of operations[82] | Commitment Type | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------------- | :------------------------------ | :------------------------------- | | Future loan commitments | $8,460 | $9,881 | | Undisbursed construction loans | $8,824 | $10,202 | | Undisbursed home equity lines of credit | $10,307 | $10,277 | | Undisbursed commercial and other line of credit | $57,144 | $59,234 | | Standby letters of credit | $5,297 | $5,290 | | Total | $90,032 | $94,884 | 12. Regulatory Matters The Bank continues to meet all regulatory capital adequacy requirements under BASEL III and is categorized as "well capitalized" by the FDIC. The CARES Act temporarily reduced the community bank leverage ratio, but the Bank has not elected to use this framework - Management believes the Bank met all capital adequacy requirements as of March 31, 2020, and December 31, 2019, and was categorized as "well capitalized" by the FDIC[92][93] | Capital Ratio | Actual Ratio (March 31, 2020) | Minimum for Capital Adequacy | Minimum to be Well Capitalized | | :--------------------------------------- | :---------------------------- | :--------------------------- | :----------------------------- | | Total capital (to risk-weighted assets) | 12.80% | 8.00% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 12.04% | 6.00% | 8.00% | | Common equity tier one capital (to risk weighted assets) | 12.04% | 4.50% | 6.50% | | Tier 1 capital (to average assets) | 10.68% | 4.00% | 5.00% | - The CARES Act temporarily reduced the community bank leverage ratio to 8%, but the Bank has not elected to use this framework[91] 13. Fair Value This note details the valuation methodologies used for assets and liabilities measured at fair value, categorizing them into Level 1, Level 2, and Level 3 inputs. It provides tables for recurring and nonrecurring fair value measurements, as well as the carrying and fair values of financial instruments | Asset Type | March 31, 2020 (Fair Value, in thousands) | December 31, 2019 (Fair Value, in thousands) | | :--------------------------------------- | :---------------------------------------- | :----------------------------------------- | | U.S. government agency mortgage-backed securities-residential | $105,699 | $98,478 | | U.S. government agency securities | $5,197 | $12,076 | | Municipal securities | $1,375 | $1,396 | | Corporate Bonds | $2,269 | $2,273 | | Other | $594 | $609 | | Total | $115,134 | $114,832 | | Asset Type | March 31, 2020 (Fair Value, in thousands) | December 31, 2019 (Fair Value, in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Impaired loans, with specific reserves | $187 | $239 | | Other real estate owned | $1,382 | $1,417 | | Total | $1,569 | $1,656 | | Financial Instrument | March 31, 2020 (Carrying Value, in thousands) | March 31, 2020 (Fair Value, in thousands) | | :--------------------------------------- | :-------------------------------------------- | :---------------------------------------- | | Cash and due from banks | $21,796 | $21,796 | | Available for sale securities | $115,134 | $115,134 | | FHLB stock | $4,035 | $4,035 | | Loans, net | $810,361 | $823,737 | | Deposits | $784,655 | $792,055 | | FHLB advances | $79,645 | $80,726 | | Subordinated debt and other borrowings | $5,155 | $5,155 | 14. Revenue Recognition The Company generally recognizes revenue as services are rendered, with transaction prices typically fixed. This note details the recognition policies for various non-interest income streams, including service charges on deposits, interchange fees, OREO income, and retail brokerage and advisory fees - Service charges on deposit accounts, including transaction-based fees (stop payment, ACH, account maintenance, wire, official check, overdraft services), ATM and debit card fees, and check sales fees, are recognized as earned on the day of the transaction or within the month of service[117] - Retail brokerage and advisory fee income is accrued monthly, with advisory fees collected quarterly in advance and recorded in the first month of the quarter[117] - Fees from mutual funds, annuities, and life insurance products are recognized at the time of initial sale or as recurring 12B-1 fees[118] 15. Accumulated Other Comprehensive Loss The accumulated other comprehensive loss decreased significantly for the three months ended March 31, 2020, primarily due to unrealized gains on available-for-sale securities, net of tax, and a gain from the defined benefit pension plan | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------------- | :------------------------------ | :------------------------------- | | Balance at period end | $(1,219) | $(4,104) | | Period change | $2,885 | — | 16. Earnings Per Share Basic and diluted earnings per share increased to $0.10 for the three months ended March 31, 2020, reflecting higher net income and a stable weighted-average number of common shares outstanding, excluding unallocated ESOP shares | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income applicable to common stock | $1,075 | $911 | | Average number of common shares outstanding used to calculate basic and diluted EPS | 10,721,413 | 10,699,592 | | Basic EPS | $0.10 | $0.09 | | Diluted EPS | $0.10 | $0.09 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operating results, highlighting the impact of the COVID-19 pandemic, key financial trends, and risk management strategies. It details changes in assets, liabilities, equity, and income statement components, along with an analysis of interest rate sensitivity and liquidity General This section serves as an introduction to the Management's Discussion and Analysis, aiming to provide insights into the Company's financial condition and operational results for the specified periods - The Management's Discussion and Analysis section is intended to assist in understanding the financial condition and results of operations of Rhinebeck Bancorp, Inc. and Rhinebeck Bank[123] Cautionary Note Regarding Forward-Looking Statements This note advises readers that the report contains forward-looking statements, which are subject to significant business, economic, and competitive uncertainties and contingencies, many beyond the Company's control, that could cause actual results to differ materially from expectations - The report contains forward-looking statements, identifiable by words like "estimate," "project," "believe," and "intend," which are subject to significant business, economic, and competitive uncertainties[124] - Key factors that could cause actual results to differ include general economic conditions, changes in loan delinquencies, funding access, real estate values, market interest rates, regulatory changes, and the unpredictable impact of the COVID-19 pandemic[125][128][129] Critical Accounting Policies The Company's critical accounting policies have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019 - As of March 31, 2020, the critical accounting policies of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019[132] Overview At March 31, 2020, the Company maintained a strong financial and operational condition, evidenced by robust capital ratios and a low ratio of nonperforming assets to total assets | Metric | March 31, 2020 | | :--------------------------------------- | :------------- | | Tier 1 leverage ratio | 10.68% | | Tier 1 risk-based capital ratio | 12.04% | | Ratio of nonperforming loans to total loans | 1.02% | | Ratio of nonperforming assets to total assets | 0.95% | Impact of COVID-19 The COVID-19 pandemic is expected to have a complex and significant adverse impact on the Company's business, market areas, and financial condition. Policy responses, operational adjustments, and loan forbearance programs have been implemented to mitigate these effects Effects on Our Market Areas The Hudson Valley of New York, the Company's primary market, has experienced a broad curtailment of economic activity and an increase in unemployment due to the COVID-19 pandemic and statewide stay-at-home orders - The Hudson Valley of New York, the Company's primary market, has seen a broad curtailment of economic activity since March 2020 due to the COVID-19 pandemic, leading to an increase in unemployment levels from 3.7% in December 2019 to 4.4% in March 2020[135] Policy and Regulatory Developments Federal, state, and local governments and regulatory authorities have implemented various policy responses to COVID-19, including Federal Reserve interest rate cuts, the CARES Act (establishing the PPP and allowing TDR suspension), and the Main Street Business Lending Program - The Federal Reserve reduced the target federal funds rate by 1.50 percentage points in March 2020, reaching a range of 0.0% to 0.25%[137] - The CARES Act established the Paycheck Protection Program (PPP) and provided financial institutions the option to temporarily suspend certain GAAP requirements related to Troubled Debt Restructurings (TDRs)[137][138] - The Federal Reserve announced the Main Street Business Lending Program, offering up to $600 billion in loans to small and mid-sized businesses impacted by COVID-19[141] Pandemic Operational Preparations & Status In response to the pandemic, the Bank implemented temporary operational changes, including suspending lobby services, enhancing digital banking channels, implementing social distancing, and enabling remote work for over half of its staff - The Bank suspended lobby services, made drive-thru, mobile, and online banking primary channels, enhanced social distancing, increased cleaning, and assigned over half of its staff to work remotely[139] Effects on Our Business The Company anticipates a significant negative impact on its business, particularly for borrowers in the hotel, restaurant, and retail industries, leading to potential increases in loan delinquencies, reduced collateral values, and adverse effects on financial condition and capital levels - The COVID-19 pandemic is expected to significantly impact borrowers in the hotel, restaurant, and retail industries, potentially increasing loan delinquencies, impairing repayment ability, and adversely affecting collateral values and the Company's financial condition[140] Loan Composition & Activity The commercial loan portfolio is heavily concentrated in Real Estate and Rental and Leasing, which accounts for over half of the total commercial loans, followed by Loans to Individuals and Accommodation and Food Services | Industry | Balance (in thousands) | Percent of Total Commercial Loans | | :--------------------------------------- | :--------------------- | :-------------------------------- | | Real Estate and Rental and Leasing | $199,934 | 53.82% | | Loans to Individuals | $73,911 | 19.90% | | Accommodation and Food Services | $13,048 | 3.51% | | Manufacturing | $12,896 | 3.47% | | Construction | $12,416 | 3.34% | | Total loans | $371,455 | 100.00% | U.S. Small Business Administration Paycheck Protection Program Rhinebeck Bank actively participated in the PPP, receiving 578 applications totaling $83.8 million and funding 331 loans for $70.1 million by April 28, 2020. The Bank utilized the Federal Reserve's Paycheck Protection Program Lending Facility for funding these loans | PPP Loan Activity (as of April 28, 2020) | Amount (in thousands) | | :--------------------------------------- | :-------------------- | | Applications received | $83,800 | | SBA approvals received | $83,300 | | Loans funded | $70,100 | - The Bank became a participant in the Federal Reserve's Paycheck Protection Program Lending Facility, allowing it to present PPP loans as collateral for 100% principal funding at the Federal Reserve's discount window, with $57.1 million received to date[146] COVID-19 Loan Forbearance Programs As of April 24, 2020, the Bank received 1,868 deferral requests from 1,565 customers, totaling $85.8 million in principal for non-investor mortgages, with approximately $3.1 million in payments deferred | Loan Type (as of April 24, 2020) | Number of Loans | Balance (in thousands) | Weighted Rate | | :--------------------------------------- | :-------------- | :--------------------- | :------------ | | Commercial real estate loans: | | | | | Non-residential | 35 | $36,110 | 4.5% | | Residential real estate loans | 14 | $3,934 | 4.5% | | Commercial and industrial loans | 153 | $15,236 | 5.2% | | Consumer loans: | | | | | Indirect automobile | 1,438 | $28,894 | 7.4% | | Home equity | 7 | $417 | 3.5% | | Other consumer | 82 | $1,244 | 6.6% | | Total loans | 1,729 | $85,835 | 5.6% | - The Bank received 1,868 deferral requests from 1,565 customers, with approximately $3.1 million of payments deferred as of April 24, 2020[148] Comparison of Financial Condition at March 31, 2020 and December 31, 2019 The Company's financial condition improved with increases in total assets, cash, net loans, and stockholders' equity, while total liabilities also grew, primarily driven by deposits and FHLB advances Total Assets Total assets increased by $33.3 million, or 3.4%, to $1.01 billion, primarily due to growth in loans, cash, and the establishment of the right-of-use lease asset - Total assets increased by $33.3 million (3.4%) to $1.01 billion at March 31, 2020, from $973.9 million at December 31, 2019[150] Cash and Due from Banks Cash and due from banks significantly increased by $9.8 million, or 82.0%, to $21.8 million, mainly due to an increase in funds from the Federal Reserve Bank of New York - Cash and due from banks increased by $9.8 million (82.0%) to $21.8 million at March 31, 2020, from $12.0 million at December 31, 2019[151] Investment Securities Available for Sale Investment securities available for sale saw a modest increase of $302 thousand, or 0.3%, influenced by purchases and unrealized gains, partially offset by principal pay-downs and sales - Investment securities available for sale increased by $302 thousand (0.3%) to $115.1 million at March 31, 2020, from $114.8 million at December 31, 2019[152] Net Loans Total net loans receivable increased by $16.9 million, or 2.1%, driven by growth in commercial real estate and indirect auto loans. The allowance for loan losses increased significantly due to portfolio growth and the negative impact of the COVID-19 pandemic - Total net loans receivable increased by $16.9 million (2.1%) to $810.4 million at March 31, 2020, from $793.5 million at December 31, 2019[153] - The allowance for loan losses increased by $666 thousand (11.2%) to $6.62 million, reflecting portfolio growth and the significant negative impact of the COVID-19 pandemic on qualitative factors[153] - Non-accrual loans decreased by $686 thousand (7.7%) to $8.2 million between year-end and March 31, 2020[154] Total Liabilities Total liabilities increased by $29.3 million, or 3.4%, primarily due to an increase in Federal Home Loan Bank advances, higher deposits, and the recognition of lease liabilities - Total liabilities increased by $29.3 million (3.4%) to $893.4 million at March 31, 2020, from $864.1 million at December 31, 2019[155] Deposits Total deposits increased by $11.3 million, or 1.5%, with interest-bearing accounts growing while non-interest-bearing balances experienced a slight decrease - Total deposits increased by $11.3 million (1.5%) to $784.7 million at March 31, 2020[156] - Interest-bearing accounts grew by $15.6 million (2.6%), while non-interest-bearing balances decreased by $4.3 million (2.4%)[156] Borrowed Funds Advances from the Federal Home Loan Bank increased by $13.3 million to $79.6 million, primarily to support asset growth - Advances from the Federal Home Loan Bank increased by $13.3 million to $79.6 million at March 31, 2020, from $66.3 million at December 31, 2019, to support asset growth[157] Stockholders' Equity Stockholders' equity increased by $4.0 million to $113.9 million, driven by net income and a decrease in the total accumulated other comprehensive loss. The book value per share was $10.23 - Stockholders' equity increased by $4.0 million to $113.9 million, primarily due to net income of $1.1 million and a $2.9 million decrease in total accumulated other comprehensive loss[158] - At March 31, 2020, the Company's book value per share was $10.23[158] Comparison of Operating Results for the Three Months Ended March 31, 2020 and March 31, 2019 The Company's operating results for the three months ended March 31, 2020, showed an increase in net income, driven by higher net interest income and non-interest income, despite a significant increase in the provision for loan losses Net Income Net income increased by $164 thousand, or 18.0%, to $1.1 million, or $0.10 per basic and diluted share, compared to the prior year, primarily due to higher interest and noninterest income, partially offset by increased provision for loan losses - Net income increased by $164 thousand (18.0%) to $1.1 million, or $0.10 per basic and diluted share, for the three months ended March 31, 2020, compared to $911 thousand, or $0.09 per share, in the prior year[159] Net Interest Income Net interest income increased by $751 thousand, or 9.9%, to $8.3 million, although the net interest margin declined by 17 basis points to 3.62% due to changes in interest-earning assets and interest-bearing liabilities - Net interest income increased by $751 thousand (9.9%) to $8.3 million for the three months ended March 31, 2020[160] - The net interest margin declined by 17 basis points to 3.62% when comparing the first quarter of 2020 to the same period in 2019[160] Interest Income Interest income increased by $1.4 million, or 14.8%, to $10.7 million, primarily driven by a greater volume of higher-yielding indirect automobile and commercial loans, despite a slight decrease in the average yield on interest-earning assets - Interest income increased by $1.4 million (14.8%) to $10.7 million for the three months ended March 31, 2020, from $9.4 million in the comparable 2019 period[161] - The increase was mostly driven by continued origination of a greater volume of higher-yielding indirect automobile loans and commercial loans[161] Interest Expense Interest expense increased by $631 thousand, or 35.3%, to $2.4 million, due to a 17.4% increase in the average balance of total interest-bearing liabilities and an 18 basis point increase in the average interest rates on those balances - Interest expense increased by $631 thousand (35.3%) to $2.4 million for the three months ended March 31, 2020, over the comparable 2019 period[162] - The average balance of total interest-bearing liabilities increased by $100.6 million (17.4%), and interest rates on those balances increased by 18 basis points to an average of 1.43%[162] Provision for Loan Losses The provision for loan losses increased significantly by $420 thousand, or 53.8%, to $1.2 million, primarily due to the economic impact of the COVID-19 pandemic and growth in the indirect automobile loan portfolio, which also saw higher net charge-offs - The provision for loan losses increased by $420 thousand (53.8%) to $1.2 million for the three months ended March 31, 2020, compared to $780 thousand in the prior year[163] - The increase was mainly attributable to the significant change in the economic environment from the COVID-19 pandemic and growth in the indirect automobile book[163] - Net charge-offs for the quarter ended March 31, 2020, totaled $535 thousand, up from $243 thousand in the respective period in 2019[163] Non-Interest Income Non-interest income increased by $296 thousand, or 23.4%, to $1.6 million, driven by higher gains on loan sales and investment advisory income, partially offset by decreased service charges on deposit accounts and a loss on securities sales - Non-interest income increased by $296 thousand (23.4%) to $1.6 million for the three months ended March 31, 2020, compared to $1.3 million in the prior year[164] - This increase was primarily due to a $299 thousand (180.1%) increase in gain on the sale of loans and a $99 thousand increase in investment advisory income, partially offset by a $46 thousand decrease in service charges on deposit accounts and a $29 thousand loss on securities sales[164] Non-Interest Expense Non-interest expenses increased by $381 thousand to $7.3 million, mainly due to higher salaries and employee benefits, data processing fees, professional fees, and FDIC insurance, partially offset by reductions in occupancy and other real estate owned expenses - Non-interest expenses increased by $381 thousand to $7.3 million for the three months ended March 31, 2020, compared to $6.9 million in the prior year[165] - Salaries and employee benefits increased by $264 thousand (6.8%), data processing by $47 thousand (15.3%), professional fees by $56 thousand (21.1%), and FDIC and other insurance by $27 thousand (19.1%)[165] Income Taxes Income taxes increased by $82 thousand due to higher income before taxes, resulting in an effective tax rate of 22.2% for the three months ended March 31, 2020, up from 19.8% in the prior year - Income taxes increased by $82 thousand for the three months ended March 31, 2020, compared to the prior year, with the effective tax rate rising to 22.2% from 19.8%[167] Average Balance Sheets for the Three Months Ended March 31, 2020 and 2019 This section provides detailed average balance sheets, average yields, and costs for interest-earning assets and interest-bearing liabilities, illustrating the composition and profitability of the Company's balance sheet for the comparable periods | Metric | Average Balance (3 Months Ended March 31, 2020, in thousands) | Yield/Cost (3 Months Ended March 31, 2020) | Average Balance (3 Months Ended March 31, 2019, in thousands) | Yield/Cost (3 Months Ended March 31, 2019) | | :--------------------------------------- | :-------------------------------------------- | :----------------------------------------- | :-------------------------------------------- | :----------------------------------------- | | Total interest-earning assets | $924,772 | 4.67% | $809,012 | 4.69% | | Total interest-bearing deposits | $603,939 | 1.33% | $513,095 | 1.08% | | Total interest-bearing liabilities | $680,727 | 1.43% | $580,084 | 1.25% | | Net interest income | $8,321 | — | $7,570 | — | | Interest rate spread | — | 3.24% | — | 3.44% | | Net interest margin | — | 3.62% | — | 3.79% | Rate/Volume Analysis The rate/volume analysis indicates that the increase in net interest income was primarily driven by changes in volume, which positively impacted interest income, while changes in interest rates had a negative effect | Metric | Increase (Decrease) Due to Volume (in thousands) | Increase (Decrease) Due to Rate (in thousands) | Net Increase (Decrease) (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------- | | Total interest-earning assets | $1,475 | $(93) | $1,382 | | Total interest-bearing liabilities | $373 | $258 | $631 | | Net increase in net interest income | $1,102 | $(351) | $751 | Management of Market Risk The Company manages its primary market risk, interest rate risk, through an Asset/Liability Management Committee (ALCO) and strategies such as originating adjustable-rate loans and promoting core deposits. Net Economic Value (EVE) simulations are used to analyze sensitivity to interest rate changes General The Company's most significant market risk is interest rate risk, managed by an Asset/Liability Management Committee (ALCO) through strategies like originating adjustable-rate loans and promoting core deposit products to minimize exposure to interest rate changes - The Company's most significant market risk is interest rate risk, managed by an Asset/Liability Management Committee (ALCO) to minimize exposure of earnings and capital to changes in market interest rates[174][175] Net Economic Value Simulation The Company uses a Net Economic Value of Equity (EVE) model to assess interest rate sensitivity, simulating changes in EVE under various interest rate scenarios. The results indicate the percentage change in EVE relative to assets under different rate shifts | Basis Point Change in Interest Rates | Net Economic Value (in thousands) | Percent Change in EVE | | :--------------------------------------- | :-------------------------------- | :-------------------- | | 400 | $72,776 | (33.0)% | | 300 | $78,706 | (27.5)% | | 200 | $87,857 | (19.1)% | | 100 | $99,737 | (8.2)% | | 0 | $108,626 | — % | | (100) | $107,805 | (0.8)% | Liquidity and Capital Resources The Company maintains adequate liquid assets to meet short-term and long-term needs, with primary liquidity sources including deposits, loan sales, and FHLB advances. Cash flows from operating activities increased, while investing activities used cash, and financing activities provided significant cash - Primary sources of liquidity include deposits, loan sales, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities, and access to FHLB advances and other borrowings[180] - At March 31, 2020, the Company had $90.0 million in loan commitments outstanding and $197.3 million in certificates of deposit due within one year[182] - Net cash provided by operating activities was $3.8 million, net cash used for investing activities was $17.6 million, and net cash provided by financing activities was $23.6 million for the three months ended March 31, 2020[184] Impact of Inflation and Changing Prices Due to the monetary nature of its assets and liabilities, the Company's performance is more significantly impacted by changes in market interest rates than by the effects of inflation, although inflation does affect operational costs - Changes in market interest rates have a greater impact on the Company's performance than the effects of inflation, given that its assets and liabilities are primarily monetary in nature[186] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the detailed discussion on market risk management, including quantitative and qualitative disclosures, provided within Item 2 of this report - Information regarding market risk is provided in "Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operation—Management of Market Risk"[187] Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls over financial reporting during the quarter - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2020[187] - There have been no material changes in the Company's internal controls over financial reporting during the three months ended March 31, 2020[188] PART II. OTHER INFORMATION This part provides other information not included in the financial statements, such as legal proceedings, updated risk factors, and exhibits Item 1. Legal Proceedings The Company is involved in various legal proceedings that arise in the normal course of business, but management believes none will have a material adverse effect on its financial condition, results of operations, or cash flows - At March 31, 2020, the Company was not a party to any pending legal proceedings that management believes would have a material adverse effect on its financial condition, results of operations, or cash flows[189][190] Item 1A. Risk Factors This section provides material updates and additions to previously disclosed risk factors, primarily focusing on the evolving and unpredictable negative impacts of the COVID-19 pandemic across various aspects of the business, including potential for unprecedented charge-offs, adverse economic conditions, loan and credit losses, real estate market disruption, increased cybersecurity risks, changes in consumptive behavior, vendor reliance, interest rate changes, and reputational risks - The COVID-19 pandemic is an evolving and unpredictable risk, with potential for unprecedented charge-offs, adverse economic conditions, and significant changes in loan portfolio quality[192][193] - Specific risks include disruption to indirect automobile lending, reduced real estate market activity, increased cybersecurity risks due to remote work, changes in consumer and business behavior, reliance on vendors, and potential negative impacts on investment management business lines and pension plan assets[193][194] - The Federal Reserve's reduction of the Federal Funds Rate to zero percent in March could lead to significant