Rhinebeck Bancorp, Inc. Completes Further Balance Sheet Restructuring

Rhea-AI Summary

Rhinebeck Bancorp (NASDAQ:RBKB) has completed a strategic balance sheet restructuring through the sale of its available-for-sale securities. The company sold $71 million in September 2024 and an additional $21 million in December 2024. The proceeds were reinvested into new securities with yields 3.06% higher than those sold.

The restructuring is expected to increase earnings per share by $0.04 and net interest margin by 0.04% over the next 12 months. The sold securities had a yield of 1.37% with a 6.2-year average life, while the new securities yield 4.44% with a 1.8-year average life. The transaction resulted in a one-time pre-tax loss of $4.1 million.

The Bank maintains strong liquidity with over $35 million in cash equivalents and a $250 million unused secured credit line with the Federal Home Loan Bank of New York.

Positive

• Increase in securities yield by 3.06% through portfolio restructuring
• Expected EPS increase of $0.04 over next 12 months
• Net interest margin improvement of 0.04%
• Reduction in portfolio average life from 6.2 to 1.8 years, improving liquidity
• Strong liquidity position with $35M in cash equivalents and $250M credit line

Negative

• One-time pre-tax loss of $4.1 million from securities sale

Insights

Financial Analyst

This strategic balance sheet restructuring demonstrates intelligent asset-liability management. The sale of $92 million in available-for-sale securities and reinvestment at 3.06% higher yields represents a significant improvement in portfolio efficiency. The reduction in weighted average life from 6.2 to 1.8 years, coupled with yield enhancement from 1.37% to 4.44%, positions the bank for improved interest income generation and greater balance sheet flexibility.

While the $4.1 million pre-tax loss appears substantial, the projected $0.04 EPS increase and 0.04% net interest margin expansion over the next 12 months validate the long-term strategic value. The bank's maintenance of well-capitalized status and robust liquidity metrics ($35 million in highly liquid assets plus $250 million FHLB credit line) provides a strong foundation for commercial loan growth while reducing costly wholesale funding dependence.

In simple terms: The bank sold low-performing long-term investments at a loss to buy better-performing short-term ones, similar to refinancing a mortgage at a better rate. While there's an upfront cost, the improved ongoing returns and increased flexibility make this a smart financial move.

Banking Risk Analyst

This restructuring significantly improves the bank's interest rate risk profile. By shortening the portfolio duration from 6.2 to 1.8 years, Rhinebeck has reduced its exposure to potential market value fluctuations in a volatile rate environment. The shift to shorter-term securities enhances liquidity management capabilities, important for responding to potential deposit outflows or loan demand surges.

The 3.06% yield pickup is particularly noteworthy, as it helps offset the one-time loss while positioning the bank for sustained profitability improvement. The diversified funding structure, including the substantial FHLB credit line, provides a robust safety net for future growth initiatives.

Think of it like transforming a rigid, long-term commitment into a more flexible arrangement that pays better - sacrificing some upfront value for improved adaptability and returns. The bank can now better navigate market changes and seize lending opportunities.

POUGHKEEPSIE, NY / ACCESSWIRE / December 26, 2024 / Rhinebeck Bancorp, Inc. (NASDAQ:RBKB) (the "Company"), the parent company of Rhinebeck Bank (the "Bank"), announced the sale of a portion of its available-for-sale investment securities portfolio as part of a strategic balance sheet repositioning.

In September 2024, the Company announced the sale of $71 million of available-for-sale securities. In December 2024, the Bank sold an additional $21 million of available-for-sale securities. The proceeds from these sales were reinvested into new securities offering yields that were 3.06% higher than those of the securities sold. This restructuring had no impact on tangible equity and allows the Bank to improve its earnings stream. The transaction is projected to increase earnings per share by $0.04 and net interest margin by 0.04% over the next 12 months.

"This strategic restructuring is a positive move that will improve the profitability of the Company going forward and provide a long-term benefit to the Company, our shareholders and the Bank's customers," said Rhinebeck Bank President and CEO Michael J. Quinn. "Selling longer-term, low-yielding securities and reinvesting into shorter term more liquid securities will also allow the Company more balance sheet flexibility, including providing liquidity for commercial loan growth and reducing reliance on wholesale funding."

The restructuring decreased the average life of the securities portfolio and is expected to improve the Company's earnings stream beginning in the first quarter of 2025. The securities sold had a yield of 1.37% and a weighted average life of approximately 6.2 years. The proceeds were reinvested into securities yielding 4.44% with an approximate weighted average life of 1.8 years. The Company recognized a one-time pre-tax loss of $4.1 million as a result of the transaction.

Following this restructuring, the Bank remained "well capitalized." Additionally, the Bank maintains robust liquidity metrics, including holding over $35 million in cash, cash equivalents, and Treasury securities. Additionally, the Bank has an unused secured line of credit of over $250 million with the Federal Home Loan Bank of New York.

About Rhinebeck Bancorp

Rhinebeck Bancorp, Inc. is a Maryland corporation organized as the mid-tier holding company of Rhinebeck Bank and is the majority-owned subsidiary of Rhinebeck Bancorp, MHC. The Bank is a New York chartered stock savings bank, which provides a full range of banking and financial services to consumer and commercial customers through its thirteen branches and two representative offices located in Dutchess, Ulster, Orange, and Albany counties in New York State. Financial services including comprehensive brokerage, investment advisory services, financial product sales and employee benefits are offered through Rhinebeck Asset Management, a division of the Bank.

Forward Looking Statements

This press release contains certain forward-looking statements about the Company and the Bank. Forward-looking statements include statements regarding anticipated future events or results and can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe", "expect", "anticipate", "estimate", "intend", "predict", "forecast", "improve", "continue", "will", "would", "should", "could", or "may". Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, inflation, changes in the interest rate environment, fluctuations in real estate values, general economic conditions or conditions within the securities markets, potential recessionary conditions, changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio, our ability to access cost-effective funding, changes in asset quality, loan sale volumes, charge-offs and credit loss provisions, changes in economic assumptions that may impact our allowance for credit losses calculation, changes in demand for our products and services, legislative, accounting, tax and regulatory changes, including changes in the monetary and fiscal policies of the Board of Governors of the Federal Reserve System, the effect of our rating under the Community Reinvestment Act, political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, natural disasters, such as earthquakes, drought, pandemic diseases, extreme weather events, or breach of our operational or security systems or infrastructure, including cyberattacks that could adversely affect the Company's or the Bank's financial condition and results of operations and the business in which the Company and the Bank are engaged.

Accordingly, you should not place undue reliance on forward-looking statements. Rhinebeck Bancorp, Inc. undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this press release.

Contact:

Kevin Nihill
Chief Financial Officer
Rhinebeck Bancorp, Inc.
(845) 790-1508

SOURCE: Rhinebeck Bancorp

View the original press release on accesswire.com

FAQ

What is the expected earnings impact of RBKB's December 2024 securities restructuring?

The restructuring is expected to increase earnings per share by $0.04 and net interest margin by 0.04% over the next 12 months.

How much did RBKB's securities yield improve after the December 2024 restructuring?

The securities yield improved by 3.06%, from 1.37% to 4.44%.

What was the total value of securities sold by RBKB in their 2024 restructuring?

RBKB sold a total of $92 million in securities: $71 million in September 2024 and $21 million in December 2024.

How did RBKB's portfolio duration change after the December 2024 restructuring?

The weighted average life of the securities portfolio decreased from 6.2 years to 1.8 years.

What was the one-time loss impact from RBKB's 2024 securities restructuring?

The company recognized a one-time pre-tax loss of $4.1 million from the transaction.