10-Q 1 tv520544_10q.htm FORM 10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2019

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______to _______

Commission File No. 333-227266

Rhinebeck Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland		83-2117268
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2 Jefferson Plaza, Poughkeepsie, New York		12601
(Address of Principal Executive Offices)		(Zip Code)

(845) 454-8555

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company x
		Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	RBKB	The NASDAQ Stock Market, LLC

As of May 1, 2019, there were 11,133,290 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Statements of Financial Condition at March 31, 2019 (unaudited) and December 31, 2018	2

	Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	3

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	4

	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)	6

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64

Item 4.	Controls and Procedures	64

PART II. OTHER INFORMATION		65

Item 1.	Legal Proceedings	65

Item 1A.	Risk Factors	65

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 3.	Defaults Upon Senior Securities	65

Item 4.	Mine Safety Disclosures	65

Item 5.	Other Information	65

Item 6.	Exhibits	65

	SIGNATURES	66

EXPLANATORY NOTE

Rhinebeck Bancorp, Inc. (the “Company,” “we” or “our”) was formed to serve as the mid-tier stock holding company for Rhinebeck Bank in connection with the reorganization of Rhinebeck Bank and its mutual holding company, Rhinebeck Bancorp, MHC, into the two-tier mutual holding company structure. The reorganization was completed on January 16, 2019. Prior to January 16, 2019, the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, the unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q relate solely to the consolidated financial results and financial position of Rhinebeck Bancorp, MHC and Rhinebeck Bank for any period prior to January 16, 2019.

The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements, and related notes, of Rhinebeck Bancorp, MHC and Rhinebeck Bank at and for the year ended December 31, 2018 contained in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on March 29, 2019.

PART 1 — FINANCIAL INFORMATION

ITEM 1.

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

(Dollars in thousands except per share data)

	March 31,			December 31,
	2019			2018
		(unaudited)
Assets
Cash and due from banks	$	15,439		$	50,590
Available for sale securities (at fair value)		109,395			101,312
Loans receivable (net of allowance for loan losses of $7,183 and $6,646, respectively)		706,882			678,402
Federal Home Loan Bank stock		3,919			1,883
Accrued interest receivable		2,782			2,523
Cash surrender value of life insurance		18,118			18,018
Deferred tax assets (net of valuation allowance of $1,123 and $1,085, respectively)		2,776			2,934
Premises and equipment, net		16,955			17,040
Other real estate owned		1,633			1,685
Goodwill		1,410			1,410
Intangible assets, net		273			284
Other assets		5,181			6,342

Total assets	$	884,763		$	882,423
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest bearing	$	159,626		$	171,829
Interest bearing		524,398			512,589
Total deposits		684,024			684,418

Mortgagors' escrow accounts		6,311			7,725
Advances from the Federal Home Loan Bank		76,845			31,598
Subordinated debt		5,155			5,155
Other borrowings		-			5,000
Subscription offering proceeds		-			79,142
Accrued expenses and other liabilities		9,643			10,108
Total liabilities		781,978			823,146

Stockholders' Equity
Preferred stock (par value $0.01 per share; 5,000,000 authorized, 0 issued)		-			-
Common stock (par value $0.01 per share; 25,000,000 authorized, 11,133,290 issued and outstanding)		111			-
Additional paid-in capital		(21	)		100
Unallocated common stock held by the employee stock ownership plan ("ESOP")		(4,364	)		-
Retained earnings		112,975			66,189
Accumulated other comprehensive loss:
Net unrealized loss on available for sale securities, net of taxes		(1,535	)		(2,576	)
Defined benefit pension plan, net of taxes		(4,381	)		(4,436	)
Total accumulated other comprehensive loss		(5,916	)		(7,012	)
Total stockholders' equity		102,785			59,277

Total liabilities and stockholders' equity	$	884,763		$	882,423

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

(Dollars in thousands except per share data)

	Three Months Ended March 31,
	2019		2018
	(unaudited)
Interest and Dividend Income
Interest and fees on loans	$	8,715	$	6,750
Interest and dividends on securities		608		599
Other income		35		4
Total interest and dividend income		9,358		7,353
Interest Expense
Interest expense on deposits		1,382		829
Interest expense on borrowings		406		133
Total interest expense		1,788		962
Net interest income		7,570		6,391
Provision for loan losses		780		525
Net interest income after provision for loan losses		6,790		5,866

Noninterest Income
Service charges on deposit accounts		698		594
Net realized loss on sales and calls of securities		-		(1	)
Net gain on sales of loans		56		148
Increase in cash surrender value of life insurance		100		99
Other real estate owned income		10		10
Investment advisory income		213		148
Other		187		250
Total noninterest income		1,264		1,248

Noninterest Expenses
Salaries and employee benefits		3,888		3,484
Occupancy		895		902
Data processing		307		274
Professional fees		266		194
Advertising		155		180
FDIC deposit insurance and other insurance		141		175
Other real estate owned expense		39		57
Amortization of intangible assets		11		11
Other		1,216		1,089
Total noninterest expenses		6,918		6,366
Income before income taxes		1,136		748
Provision for income taxes		225		132

Net income	$	911	$	616

Earnings per common share:
Basic	$	0.09	$	-
Diluted	$	0.09	$	-

Weighted average shares outstanding		10,699,592		-

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

	Three Months Ended March 31,
	2019			2018
	(unaudited)

Net Income	$	911		$	616

Other Comprehensive Income (Loss):

Unrealized holding gains (losses) arising during the period		1,317			(1,359	)
Reclassification adjustment for losses included in net realized loss on sales and calls of securities on the consolidated statements of income		-			(1	)

Net unrealized gains (losses) on available for sale securities		1,317			(1,360	)

Tax effect (a)		(276	)		286

Unrealized gains (losses) on available for sale securities, net of tax		1,041			(1,074	)

Defined benefit pension plan:
Actuarial loss arising during the period		(20	)		-
Reclassification adjustment for amortization of net actuarial loss (b)		90			-

Total		70			-

Tax effect (c)		(15	)		-

Defined benefit pension plan gain, net of tax		55			-

Other comprehensive income (loss)		1,096			(1,074	)

Total Comprehensive Income (Loss)	$	2,007		$	(458	)

(a) - Includes $0 for the three months ended March 31, 2019 and 2018 for tax effect of realized gains and losses which are included in the provision for income taxes on the consolidated statements of income.

(b) - Included in salaries and benefits on the consolidated statements of income.

(c) - Includes $19 for the three months ended March 31, 2019 and $0 for the three months ended March 31, 2018 for tax effect of amortization of net actuarial loss included in the provision for income taxes on the consolidated statements of income.

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

	Common Stock		Additional Paid-in Capital			Unallocated Common Stock Held by the ESOP			Retained Earnings		Accumulated Other Comprehensive Loss			Total

Balance at December 31, 2017	$	-	$	100		$	-		$	61,832	$	(6,955	)	$	54,977

Net income		-		-			-			616		-			616
Other comprehensive loss		-		-			-			-		(1,074	)		(1,074	)

Balance at March 31, 2018 (unaudited)	$	-	$	100		$	-		$	62,448	$	(8,029	)	$	54,519

Balance at December 31, 2018	$	-	$	100		$	-		$	66,189	$	(7,012	)	$	59,277

Net income		-		-			-			911		-			911
Other comprehensive income												1,096			1,096
Common Stock and proceeds of offering		111		(121	)					45,875		-			45,865
Unallocated common stock held by ESOP		-		-			(4,364	)		-		-			(4,364	)

Balance at March 31, 2019 (unaudited)	$	111	$	(21	)	$	(4,364	)	$	112,975	$	(5,916	)	$	102,785

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Dollars in thousands)

	Three Months Ended March 31,
	2019			2018
	(unaudited)
Cash Flows From Operating Activities
Net income	$	911		$	616
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of premiums and discounts on investments, net		2,943			3,907
Net realized loss on sales and calls of securities		-			1
Provision for loan losses		780			525
Loans originated for sale		(8,318	)		(6,337	)
Proceeds from sale of loans		7,303			7,957
Net gain on sale of loans		(56	)		(148	)
Amortization of intangible assets		11			11
Depreciation and amortization		321			287
Deferred income tax expense		(133	)		(47	)
Increase in cash surrender value of insurance		(100	)		(99	)
(Increase) decrease in accrued interest receivable		(259	)		484
Decrease (increase) in other assets		1,161			(216	)
Increase (decrease) in accrued expenses and other liabilities		5,045			(72	)
Net cash (used in) provided by operating activities		9,609			6,869

Cash Flows from Investing Activities
Proceeds from sales and calls of securities		-			375
Purchases of securities		(9,709	)		-
Net purchases of FHLB Stock		(2,036	)		(139	)
Net increase in loans		(28,189	)		(15,138	)
Purchases of bank premises and equipment		(235	)		(81	)
Proceeds from sale of other real estate owned		51			-
Net cash used in investing activities		(40,118	)		(14,983	)

Cash Flows from Financing Activities
Net (decrease) increase in demand deposits, NOW, money market and savings accounts		(18,931	)		1,968
Net increase in time deposits		18,537			5,113
Decrease in mortgagors' escrow accounts		(1,414	)		(1,055	)
Net increase in short-term debt		43,683			3,100
Net decrease in long-term debt		(3,436	)		-
Return of unfulfilled subscriptions		(41,073	)		-
Offering expenses		(1,887	)		-
Return of capital to Rhinebeck Bancorp, MHC		(121	)		-
Net cash provided by financing activities		(4,642	)		9,126
Net (decrease) increase in cash and due from banks		(35,151	)		1,012

Cash and Due from Banks
Beginning balance		50,590			10,460
Ending balance	$	15,439		$	11,472

Supplemental Disclosures of Cash Flow Information

Cash paid for:
Interest	$	1,758		$	965

Income taxes	$	6		$	12

Noncash Investing and Financing Activities

Unrealized holding gain (loss) on available for sale securities arising during the period	$	1,317		$	(1,360	)

Decrease in defined benefit plan liability included in other comprehensive loss	$	(70	)	$	-

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Nature of Business and Significant Accounting Policies

The consolidated financial statements include the accounts of Rhinebeck Bancorp, Inc. (the “Company”), a stock holding company, and its wholly owned subsidiary, Rhinebeck Bank (the “Bank”), a New York chartered stock savings bank. The primary purpose of the Company is to act as a holding company for the Bank. The Bank provides a full range of banking and financial services to consumer and commercial customers through its eleven branches and two representative offices located in Dutchess, Ulster, Orange, and Albany counties. Financial services including investment advisory and financial product sales are offered through a division of the Bank doing business as Rhinebeck Asset Management (“RAM”).

A description of the Company's significant accounting policies are presented below.

Basis of Financial Statements Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, as of the date of the consolidated statements of financial condition and reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of securities and other real estate owned, the evaluation of investment securities for other-than-temporary impairment, the evaluation of goodwill for impairment, the valuation of deferred tax assets and the determination of pension obligations.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. As a result of the reorganization, the consolidation refers to the Company and the Bank for the March 31, 2019 period and Rhinebeck Bancorp, MHC and the Bank for the 2018 periods. All significant intercompany accounts and transactions have been eliminated in consolidation.

Significant Group Concentrations of Credit Risk

Most of the Company’s activities are with customers located in the New York State counties of Dutchess, Ulster, Orange, Columbia, Putnam, and Albany. Although the Company has a diversified loan portfolio, a substantial portion of its customers’ abilities to repay their loans is dependent on the economic conditions in the territories in which the Company operates.

Cash and Cash Equivalents

Cash and due from banks and federal funds sold are recognized as cash equivalents in the consolidated statements of financial condition and cash flows. Federal funds sold generally mature in one day. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Investment in Debt and Marketable Equity Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and are recorded at amortized cost. “Trading” securities, if any, are carried at fair value, with unrealized gains and losses recognized in earnings. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive loss, net of taxes. Purchase premiums and discounts are recognized in interest income using the interest method over the maturity terms of the securities. Realized gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The Company evaluates securities for other-than temporary impairment on a regular basis. The evaluation considers several factors including the amount of the unrealized loss, the period of time the security has been in a loss position and the credit standing of the issuer. When the Company does not intend to sell the security and it is likely that the Company will not be required to sell the security before recovery of its cost basis, the credit loss determined due to a permanent impairment will be recognized in earnings. The credit loss component recognized is identified as the amount of future principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow estimates discounted at the applicable original yield of the security.

Loans Receivable

Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for unearned income, including any allowance for loan losses and any unamortized deferred fees or costs.

Interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due. Consumer automobile and installment loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued, but not collected, for loans that are placed on non-accrual status or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis method until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

allowance for loan losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management determines all or part of the loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the size and composition of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance calculation methodology involves segregation of the total loan portfolio into segments. The Company’s loans receivable portfolio is comprised of the following segments: commercial real estate, residential real estate, commercial and industrial and consumer. The segments of the Company’s loans receivable portfolio are further disaggregated into classes based on identified associated risks within those segments. This allows management to better monitor risk and performance.

Commercial real estate loans are separated into the two classes: non-residential and multi-family. Non-residential and multi-family loans include long-term loans financing commercial properties and include both owner and non-owner occupied properties. Construction loans, which include land loans, are comprised mostly of non-owner occupied projects, whereby the property is generally under development and tends to have more risk than the owner occupied loans. The Company grants loans for the construction of residential homes, residential developments and land development projects. Repayment of these loans is mostly dependent upon either the ongoing cash flows of the borrowing entity or the resale or lease of the subject property.

Residential real estate loans are secured by the borrower’s residential real estate generally in a first lien position. Residential mortgages have varying loan interest rates depending on the financial condition of the borrower, the loan to value ratio and the term of the loan.

The commercial and industrial loan segment consists of loans made for purposes of financing the activities of commercial customers. The assets financed through commercial and industrial loans are used within the business for its ongoing operations. Repayment of commercial and industrial loans predominately comes from the cash flows of the business or the ongoing operations of assets.

Consumer loans are classified into the following three classes: indirect automobile loans, home equity loans and other consumer loans. Indirect automobile loans are secured by the borrowers’ automobiles and originated through the Company’s relationships with the automobile dealers in the various counties in the Company’s service area. Home equity loans are secured by the borrower’s residential real estate in a first or second lien position. Other direct consumer loans may be unsecured.

The Company has established credit policies applicable to each type of lending activity in which it engages. The Company evaluates the creditworthiness of each customer and, in most cases, extends credit of up to 80% of the market value of the collateral at the date of the credit extension. The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged against commercial and industrial and commercial real estate loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, automobiles, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower, past experience with the borrower, the nature of the collateral, competitive offerings and/or the term of the loan.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The market value of collateral is monitored on an ongoing basis and additional collateral may be obtained when warranted. While collateral provides some assurance as a secondary source of repayment, the Company ordinarily requires the primary source of repayment to be based on the borrower's ability to generate continuing sufficient cash flows. The Company's policy for collateral requires that, generally, the amount of the loan may not exceed 90% of the original appraised value of the property. Private mortgage insurance is usually required for that portion of the loan in excess of 80% of the appraised value of the property.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated at least quarterly or when credit deficiencies arise, such as when loan payments are delinquent. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

The allowance consists of specific and general components. The specific component relates to loans that are considered impaired. For such impaired loans, an allowance is established when the discounted cash flows (or observable market price or collateral value if the loan is collateral dependent) of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans, segregated generally by loan type and is based on historical loss experience with adjustments for qualitative factors which are made after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss data.

These qualitative risk factors generally include:

Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.

National, regional and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.

Size and composition of the portfolio and the terms of loans.

Volume and severity of past due, classified and non-accrual loans as well as loan modifications.

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

Effect of external factors, such as competition and legal and regulatory requirements.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls are not necessarily classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loans’ collateral.

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the size of the loan, age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted for expected sales costs to arrive at the estimated recognizable value of the collateral, which is considered to be the estimated fair value. The recorded investment in consumer mortgages and loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $640 and $526 on March 31, 2019 and December 31, 2018, respectively.

For loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company's allowance for loan losses.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, negative trends, or specific conditions may result in a payment default in the near future.

Regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Loans Held for Sale

Loans held for sale are those mortgage loans the Company has the intent to sell in the foreseeable future and are carried at the lower of aggregate cost or market value, with valuation changes recorded in noninterest income. Gains and losses on sales of loans are recognized at the trade dates and are determined by the difference between the sales proceeds and the carrying value of the loans.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Mortgage service rights are recorded at fair value and amortized over the life of the loan.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company – put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Mortgage Servicing Assets

Mortgage servicing assets are recognized as separate assets developed through the sale of mortgages. Servicing rights are initially recorded at fair value with the income statement effect recorded in gain or loss on sales of loans. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to and over the period of the estimated future net servicing income of the underlying financial assets.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is recognized through a valuation allowance and charged to noninterest income, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in operations. Costs relating to the development and improvement of the property are capitalized, subject to the resulting limit of fair value of the collateral. Gains or losses are included in operations upon disposal. Other real estate owned (“OREO”) included $935 and $935 of residential real estate and $698 and $750 of commercial property at March 31, 2019 and December 31, 2018, respectively.

Premises and Equipment

Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the related assets. Rent expense is charged to operations over the expected lease term using the straight-line method. Leasehold improvements are amortized over the shorter of the improvements' estimated economic lives or the related lease terms. Gains and losses on dispositions are recognized upon realization. Maintenance and repairs are expensed as incurred and improvements are capitalized.

Bank-Owned Life Insurance

The Company purchased bank owned life insurance (“BOLI”) on a chosen group of employees and trustees. The Company is the owner and sole beneficiary of the policies. Earnings from BOLI are recognized as part of noninterest income. BOLI is carried at cash surrender value. Death benefit proceeds received in excess of the policies cash surrender values are recognized in income upon receipt. The Company does not intend to surrender these policies and, accordingly, no deferred taxes have been provided.

Goodwill and Amortizable Intangible Assets

The excess of the purchase price of an acquisition over the net fair value of the identifiable tangible and intangible assets and liabilities is assigned to goodwill. Goodwill is not amortizable, but is subject to at least an annual assessment, or more frequently in the presence of certain circumstances, for impairment.

Other intangible assets are stated at cost, less accumulated amortization and consist of purchased customer accounts. Purchased customer accounts primarily consist of records and files that contain information about investment holdings. These assets are amortized on a straight-line basis over the related estimated lives of 13 years and 4 months. In the presence of certain circumstances, intangible assets may be assessed for impairment as well. Impairment exists when carrying value exceeds its fair value. In such circumstances a charge for the relevant impairment is recognized and the net book value is reduced to the appropriate value.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Income Taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that all or some portion of the deferred tax assets will not be realized.

When tax returns are filed, it is highly expected that most positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company had no liabilities for uncertain tax positions at March 31, 2019 and December 31, 2018.

Interest and penalties associated with unrecognized tax benefits, if any, would be classified as an additional provision for income taxes in the consolidated statements of income.

Comprehensive Income or Loss

GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and the net actuarial gain or loss of the defined benefit pension plan, are reported as a separate component of the stockholders’ equity section of the consolidated statements of financial condition, such items, along with net income, are components of comprehensive income or loss.

Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.

The Company's fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:

Level 1

Quoted prices in active markets for identical assets and liabilities.

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active; and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.

Impact of Recent Accounting Pronouncements

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU No. 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company used the modified retrospective method for transition with the cumulative effect recognized as of the date of initial application with no restatement of prior periods. The adoption did not have a material effect on the Company’s financial statements as the recognition of interest income has been scoped out of the guidance and noninterest income recognition is similar to current revenue recognition practices. See Note 15 for additional information related to the adoption of ASU No. 2014-09.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 “Leases (Topic 842).” This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018 for public companies, but the Company will have until the first quarter of 2020 to adopt due to its emerging growth company status. The guidance is required to be applied by the modified retrospective transition approach. Early adoption is permitted. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements and collecting the data necessary for that assessment and adoption.

In June 2016, the FASB issued ASU No. 2016-13 on “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU requires credit losses on most financial assets be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The measurement of expected credit losses is based upon relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for the Company in 2021. Early adoption is permitted in 2019. The Company is currently assessing the effect that ASU No. 2016-13 will have on its consolidated financial statements.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Effective January 1, 2019, the Company adopted ASU No. 2018-07, “Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”. This update expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share based payment awards will be measured at the grant-date fair value of the equity instruments that an entity is obligated to issue when the service has been rendered, subject to the probability of satisfying performance conditions when applicable. The Company has not and does not expect to engage in this type of compensation practice, and therefore this update did not and likely will not, have an effect on the Company.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Emerging Growth Company Status

As an emerging growth company, the Company may delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by non-issuer companies. If such standards would not apply to non-issuer companies, no deferral would be applicable. The Company intends to take advantage of the benefits of the extended transition periods allowed under the Jumpstart Our Business Startups Act.

Accordingly, the Company's consolidated financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. The effective dates of the recent accounting standards reflect those that relate to non-issuer companies.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Investment Securities

The amortized cost, gross unrealized gains and losses and fair values of available for sale securities are as follows:

	March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(unaudited)
U.S. Treasury securities	$	3,033	$	-	$	(43	)	$	2,990
U.S. government agency mortgage-backed securities-residential		89,740		115		(1,746	)		88,109
U.S. government agency securities		16,914		-		(282	)		16,632
Municipal securities ¹		1,229		12		-			1,241
Other		423		-		-			423
Total	$	111,339	$	127	$	(2,071	)	$	109,395

	December 31, 2018

U.S. Treasury securities	$	3,036	$	-	$	(65	)	$	2,971
U.S. government agency mortgage-backed securities-residential		82,965		8		(2,757	)		80,216
U.S. government agency securities		16,919		-		(451	)		16,468
Municipal securities ¹		1,228		4		-			1,232
Other		425		-		-			425
Total	$	104,573	$	12	$	(3,273	)	$	101,312

¹ The issuers of municipal securities are all within New York State.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following table presents the fair value and unrealized losses of the Company’s available for sale securities with gross unrealized losses aggregated by the length of time the individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
						March 31, 2019
	(unaudited)
U.S. Treasury securities	$	-	$	-		$	2,990	$	(43	)	$	2,990	$	(43	)
U.S. government agency mortgage-backed securities-residential		-		-			72,050		(1,746	)		72,050		(1,746	)
U.S. government agency securities		-		-			16,632		(282	)		16,632		(282	)
Total	$	-	$	-		$	91,672	$	(2,071	)	$	91,672	$	(2,071	)

						December 31, 2018
U.S. Treasury securities	$	-	$	-		$	2,971	$	(65	)	$	2,971	$	(65	)
U.S. government agency mortgage-backed securities-residential		1,669		(4	)		76,586		(2,753	)		78,255		(2,757	)
U.S. government agency securities		0		0			16,468		(451	)		16,468		(451	)
Total	$	1,669	$	(4	)	$	96,025	$	(3,269	)	$	97,694	$	(3,273	)

At March 31, 2019 and December 31, 2018, the Company had 92 and 96 individual available-for-sale securities with unrealized losses totaling $2,071 and $3,273, respectively, with an aggregate depreciation of 2.26% and 3.35%, respectively, from the Company’s amortized cost.

Management believes that none of the unrealized losses on available for sale securities are other-than-temporary because substantially all of the unrealized losses in the Company’s investment portfolio relate to market interest rate changes on debt and mortgage-backed securities issued either directly by the government or from government sponsored enterprises. Because the Company does not intend to sell the securities and it is not likely that the Company will be required to sell the securities before recovery of their amortized cost basis, which may be maturity, the Company did not consider those investments to be other-than-temporarily impaired at March 31, 2019 or December 31, 2018

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The amortized cost and fair value of available for sale debt securities at March 31, 2019 and December 31, 2018, by contractual maturities, are presented below. Actual maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties. Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary:

	March 31, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Maturity:
Within 1 year	$	1,221	$	1,213	$	1,221	$	1,210
After 1 but within 5 years		17,246		16,933		17,253		16,780
After 5 but within 10 years		1,975		1,972		1,975		1,945
After 10 years		734		745		734		736
Total Maturities		21,176		20,863		21,183		20,671

Mortgage-backed securities		89,740		88,109		82,965		80,216
Other		423		423		425		425

Total	$	111,339	$	109,395	$	104,573	$	101,312

At March 31, 2019 and December 31, 2018, available for sale securities with a carrying value of $26,837 and $27,465, respectively, were pledged to secure Federal Home Loan Bank of New York (“FHLB”) borrowings. In addition $1,191 and $1,032 of available for sale securities, respectively, were pledged to secure borrowings at the Federal Reserve Bank of New York.

Proceeds from the sale of available for sale securities and calls aggregated $2,113 with $22 in gross losses realized for the year ended December 31, 2018. There were no sales of available for sale securities during the three months ended March 31, 2019.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Loans and allowance for loan losses

A summary of the Company’s loan portfolio is as follows:

	March 31,			December 31,
	2019			2018
	(unaudited)
Commercial real estate loans:
Construction	$	9,131		$	12,870
Non-residential		206,736			197,499
Multi-family		18,495			12,661
Residential real estate loans		40,793			43,534
Commercial loans:		83,655			83,203
Consumer loans:
Indirect automobile		316,866			297,144
Home equity		19,132			19,269
Other consumer		10,639			10,826

Total gross loans		705,447			677,006

Net deferred loan costs		8,618			8,042
Allowance for loan losses		(7,183	)		(6,646	)

Total net loans	$	706,882		$	678,402

At March 31, 2019 and December 31, 2018, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $184 and $888, respectively.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following tables present the classes of the loan portfolio summarized by the pass category and the criticized categories of special mention, substandard and doubtful within the internal risk system:

	March 31, 2019
			Special
	Pass		Mention		Substandard		Doubtful		Total
	(unaudited)
Commercial real estate:
Construction	$	9,131	$	-	$	-	$	-	$	9,131
Non-residential		196,250		6,804		3,682		-		206,736
Multifamily		18,102		-		393		-		18,495
Residential		38,510		-		-		2,283		40,793
Commercial and industrial		81,925		696		1,034		-		83,655
Consumer:
Indirect automobile		316,342		-		-		524		316,866
Home equity		18,939		-		-		193		19,132
Other consumer		10,635		-		-		4		10,639

Total	$	689,834	$	7,500	$	5,109	$	3,004	$	705,447

	December 31, 2018
			Special
	Pass		Mention		Substandard		Doubtful		Total

Commercial real estate:
Construction	$	12,870	$	-	$	-	$	-	$	12,870
Non-residential		186,020		6,840		4,639		-		197,499
Multifamily		12,261		-		400		-		12,661
Residential		41,249		-		-		2,285		43,534
Commercial and industrial		81,111		965		1,124		3		83,203
Consumer:
Indirect automobile		296,692		-		-		452		297,144
Home equity		19,071		-		-		198		19,269
Other consumer		10,816		-		-		10		10,826

Total	$	660,090	$	7,805	$	6,163	$	2,948	$	677,006

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The past due status of all classes of loans is determined based on contractual due dates for loan payments.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans:

	March 31, 2019
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
	(unaudited)
Commercial real estate:
Construction	$	9,131	$	-	$	-	$	-	$	9,131	$	-
Non-residential		201,853		2,128		248		2,507		206,736		2,507
Multifamily		18,124		72		299		-		18,495		-
Residential		39,587		120		526		560		40,793		2,208
Commercial and industrial		83,329		326		-		-		83,655		280
Consumer:
Indirect automobile		311,512		4,271		585		498		316,866		524
Home equity		18,269		493		275		95		19,132		192
Other consumer		10,397		236		2		4		10,639		4

Total	$	692,202	$	7,646	$	1,935	$	3,664	$	705,447	$	5,715

	December 31, 2018
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
Commercial real estate:
Construction	$	12,870	$	-	$	-	$	-	$	12,870	$	-
Non-residential		193,273		1,466		253		2,507		197,499		2,507
Multifamily		12,487		174		-		-		12,661		-
Residential		42,083		305		615		531		43,534		2,208
Commercial and industrial		82,992		206		1		4		83,203		297
Consumer:
Indirect automobile		291,369		4,429		915		431		297,144		452
Home equity		18,905		264		-		100		19,269		198
Other consumer		10,601		186		29		10		10,826		10

Total	$	664,580	$	7,030	$	1,813	$	3,583	$	677,006	$	5,672

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following tables summarize information in regards to impaired loans by loan portfolio class:

	March 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
With no related allowance recorded:	(unaudited)
Commercial real estate:
Construction	$	-	$	-	$	-	$	-
Non-residential		2,507		2,601		-		2,507
Multifamily		-		-		-		-
Residential		2,208		2,515		-		2,246
Commercial and industrial		280		409		-		289
Consumer:
Indirect automobile		337		392		-		305
Home equity		192		208		-		195
Other consumer		4		4		-		7

Total	$	5,528	$	6,129	$	-	$	5,549

With an allowance recorded:
Commercial real estate:
Construction	$	-	$	-	$	-	$	-
Non-residential		-		-		-		-
Multifamily		-		-		-		-
Residential		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer:
Indirect automobile		187		208		65		183
Home equity		-		-		-		-
Other consumer		-		-		-		-

Total	$	187	$	208	$	65	$	183

Total:
Commercial real estate:
Construction	$	-	$	-	$	-	$	-
Non-residential		2,507		2,601		-		2,507
Multifamily		-		-		-		-
Residential		2,208		2,515		-		2,246
Commercial and industrial		280		409		-		289
Consumer:
Indirect automobile		524		600		65		488
Home equity		192		208		-		195
Other consumer		4		4		-		7

Total	$	5,715	$	6,337	$	65	$	5,732

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

	December 31, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial real estate:
Construction	$	-	$	-	$	-	$	563
Non-residential		2,507		2,601		-		3,023
Multifamily		-		-		-		-
Residential		2,208		2,523		-		2,196
Commercial and industrial		297		421		-		758
Consumer:
Indirect automobile		274		320		-		242
Home equity		198		211		-		158
Other consumer		10		10		-		5

Total	$	5,494	$	6,086	$	-	$	6,945

With an allowance recorded:
Commercial real estate:
Construction	$	-	$	-	$	-	$	-
Non-residential		-		-		-		451
Multifamily		-		-		-		-
Residential		-		-		-		-
Commercial and industrial		-		-		-		9
Consumer:
Indirect automobile		178		191		50		205
Home equity		-		-		-		-
Other consumer		-		-		-		2

Total	$	178	$	191	$	50	$	667

Total:
Commercial real estate:
Construction	$	-	$	-	$	-	$	563
Non-residential		2,507		2,601		-		3,474
Multifamily		-		-		-		-
Residential		2,208		2,523		-		2,196
Commercial and industrial		297		421		-		767
Consumer:
Indirect automobile		452		511		50		447
Home equity		198		211		-		158
Other consumer		10		10		-		7

Total	$	5,672	$	6,277	$	50	$	7,612

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

A loan is considered impaired when based on current information and events it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans and loans modified as troubled debt restructurings. Loan modifications, which resulted in these loans being considered TDRs, are primarily in the form of rate concessions and extensions of maturity dates. The Company does not generally recognize interest income on a loan in an impaired status. At March 31, 2019 and December 31, 2018, three loans totaling $1,745 and the same three loans totaling $1,774, respectively, included in impaired loans, were identified as TDRs. There were no new TDRs in the first quarter of 2019. In 2018, the Company restructured two loans, a residential mortgage and home equity loan, into a single residential mortgage, with a carrying value of $117, which included both rate and term modifications. At March 31, 2019 and December 31, 2018, all TDR loans were performing in accordance with their restructured terms. During the year ended December 31, 2018, one loan for $19 had defaulted in its modified terms and was charged off. At March 31, 2019 and December 31, 2018, the Company had no commitments to advance additional funds to borrowers under TDR loans.

The Company services certain loans that it has sold without recourse to third parties. The aggregate balances of loans serviced for others were $257,439 and $255,892 as of March 31, 2019 and December 31, 2018, respectively.

The balance of capitalized servicing rights, included in other assets at March 31, 2019 and December 31, 2018, were $2,246 and $2,278, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the period ended March 31, 2019 and the year ended December 31, 2018.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following tables summarize the segments of the loan portfolio and the allowance for loan losses, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment and the activity in the allowance for loan losses for the periods then ended:

	Commercial Real Estate		Residential			Commercial and Industrial			Indirect			Consumer			Totals
	Three months ended March 31, 2019
Allowance for loan losses:		(unaudited)
Beginning balance	$	1,080	$	320		$	1,542		$	2,915		$	789		$	6,646
Provision (credit) for loan losses		79		(35	)		37			703			(4	)		780
Loans charged-off		-		-			(5	)		(495	)		(6	)		(506	)
Recoveries		-		1			1			257			4			263
Ending balance	$	1,159	$	286		$	1,575		$	3,380		$	783		$	7,183
Ending balance:
Individually evaluated for impairment	$	-	$	-		$	-		$	65		$	-		$	65
Collectively evaluated for impairment	$	1,159	$	286		$	1,575		$	3,315		$	783		$	7,118
Loan receivables:
Ending balance	$	234,362	$	40,793		$	83,655		$	316,866		$	29,771		$	705,447
Ending balance:

Individually evaluated for impairment	$	2,507	$	2,283		$	280		$	524		$	196		$	5,790
Collectively evaluated for impairment	$	231,855	$	38,510		$	83,375		$	316,342		$	29,575		$	699,657

	Commercial Real Estate			Residential		Commercial and Industrial			Indirect			Consumer			Totals
	Three months ended March 31, 2018
Allowance for loan losses:		(unaudited)
Beginning balance	$	1,305		$	455	$	879		$	2,150		$	668		$	5,457
Provision (credit) for loan losses		(105	)		6		(13	)		570			67			525
Loans charged-off		(303	)		-		(19	)		(373	)		(8	)		(703	)
Recoveries		-			1		103			230			7			341
Ending balance	$	897		$	462	$	950		$	2,577		$	734		$	5,620
Ending balance:
Individually evaluated for impairment	$	-		$	-	$	-		$	75		$	-		$	75
Collectively evaluated for impairment	$	897		$	462	$	950		$	2,502		$	734		$	5,545
Loan receivables:
Ending balance	$	215,899		$	41,482	$	68,328		$	223,653		$	29,895		$	579,257
Ending balance:

Individually evaluated for impairment	$	6,354		$	2,357	$	1,154		$	448		$	398		$	10,711
Collectively evaluated for impairment	$	209,545		$	39,125	$	67,174		$	223,205		$	29,497		$	568,546

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

	Commercial Real Estate			Residential			Commercial and Industrial			Indirect			Consumer			Totals
	December 31, 2018
Allowance for loan losses:
Beginning balance	$	1,305		$	455		$	879		$	2,150		$	668		$	5,457
Provision (credit) for loan losses		(45	)		(140	)		578			1,539			168			2,100
Loans charged-off		(303	)		-			(37	)		(1,607	)		(66	)		(2,013	)
Recoveries		123			5			122			833			19			1,102
Ending balance	$	1,080		$	320		$	1,542		$	2,915		$	789		$	6,646
Ending balance:
Individually evaluated for impairment	$	-		$	-		$	-		$	50		$	-		$	50
Collectively evaluated for impairment	$	1,080		$	320		$	1,542		$	2,865		$	789		$	6,596
Loan receivables:
Ending balance	$	223,030		$	43,534		$	83,203		$	297,144		$	30,095		$	677,006
Ending balance:
Individually evaluated for impairment	$	2,507		$	2,285		$	297		$	452		$	208		$	5,749
Collectively evaluated for impairment	$	220,523		$	41,249		$	82,906		$	296,692		$	29,887		$	671,257

In the normal course of business, the Company grants loans to officers, directors and other related parties. Balances and activity of such loans during the periods presented were not material.

Premises and Equipment

Premises and equipment are summarized as follows:

	March 31,			December 31,
	2019			2018
	(unaudited)
Land	$	3,536		$	3,536
Buildings and improvements		23,564			23,534
Furniture, fixtures and equipment		11,749			11,708
Construction in process		215			51

Total		39,064			38,829

Less accumulated depreciation		(22,109	)		(21,789	)

Net	$	16,955		$	17,040

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Goodwill

The changes in the carrying value of goodwill are as follows:

RAM	Three Months Ended March 31, 2019		Year Ended December 31, 2018
	(unaudited)
Beginning balance	$	1,410	$	1,505
Impairment		-		(95	)

Ending balance	$	1,410	$	1,410

Accumulated impairment	$	1,116	$	1,116

In 2018 the Company tested the goodwill recorded for RAM and determined that a write-down of $95 was required to reflect impairment due to the loss of expected revenue.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

6. Intangible Assets

The changes in the carrying value of customer list intangible are as follows:

RAM	Three Months Ended March 31, 2019			Year Ended December 31, 2018
	(Unaudited)
Beginning balance	$	284		$	326
Amortization		(11	)		(42	)

Ending balance	$	273		$	284
Accumulated amortization and impairment	$	674		$	663

The value assigned to customer list intangibles is based upon a multiple of the amount of commission revenue generated from the identified premiums. The customer lists are expected to have useful lives of 13 years and 4 months. The Company recognized $11 and $42 of amortization expense related to its intangible assets for the quarter ended March 31, 2019 and the year ended December 31, 2018.

At March 31, 2019, based upon the amount of future commission revenue available from the then existing RAM customer premiums on hand, the Company determined that the fair value of the amortizable intangible assets exceeded their carrying values.

As of March 31, 2019 the future amortization expense for amortizable intangible assets for the respective years is as follows:

2019	$	31
2020		42
2021		42
2022		42
2023		42
Thereafter		74

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

7. Deposits

Deposits balances are summarized as follows:

	March 31,		December 31,
	2019		2018
	(unaudited)
Noninterest bearing demand deposits	$	159,626	$	171,829

Interest bearing accounts:
NOW		94,698		99,715
Savings		120,786		126,822
Money market		134,681		130,356
Time certificates of deposit		174,233		155,696

Total interest bearing accounts		524,398		512,589

Total deposits	$	684,024	$	684,418

Included in time certificates of deposit at March 31, 2019 and December 31, 2018 were reciprocal deposits totaling $22,147 and $21,515, respectively, with original maturities of one to three years. Time certificates of deposit in denominations of $250 or greater were $28,190 and $16,644 as of March 31, 2019 and December 31, 2018, respectively.

Contractual maturities of time certificates of deposit at March 31, 2019 are summarized below:

	March 31,
	2019
	(unaudited)
Within 1 year	$	99,290
1 - 2 years		52,321
2 - 3 years		14,366
3 - 4 years		2,908
4 - 5 years		5,348

Total	$	174,233

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

8. Long-Term Debt and FHLB Stock

FHLB Borrowings and Stock

The Bank is a member of the FHLB. At March 31, 2019 and December 31, 2018, the Bank had access to a preapproved secured line of credit with the FHLB of $442,413 and $441,134, respectively. Borrowings under this line require collateralization through the pledge of specific loans and securities. At March 31, 2019 and December 31, 2018, the Bank had pledged assets of $149,112 and $145,805, respectively. At March 31, 2019 and December 31, 2018, the Bank had outstanding overnight line of credit balances with FHLB of $59,800 and $0, respectively. These borrowings mature the following business day. The interest rate was 2.66% at March 31, 2019. At March 31, 2019, the Bank also had structured borrowings in the amount of $17,045. The outstanding principal amounts and the related terms and rates at March 31, 2019 were as follows:

Term	Principal		Maturity	Rate			Due in one year		Long term
1 year amortizing		1,262	May 15, 2019		2.50	%		1,262		-
1 year amortizing		1,681	June 7, 2019		2.53	%		1,681		-
2 year amortizing		3,157	May 15, 2020		2.78	%		2,517		640
2 year amortizing		3,364	June 8, 2020		2.76	%		2,511		853
3 year amortizing		7,581	May 17, 2021		2.92	%		3,308		4,273

Total	$	17,045	Weighted Average Rate		2.62	%	$	11,279	$	5,766

The Bank is required to maintain an investment in capital stock of the FHLB, as collateral, in an amount equal to a certain percentage of its outstanding debt. FHLB stock is considered restricted stock and is carried at cost. The Bank evaluates for impairment based on the ultimate recovery ability of the cost. No impairment was recognized at either March 31, 2019 or December 31, 2018.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Subordinated Debt

As part of the reorganization completed on January 16, 2019, the Company acquired both of the common securities and related obligations of the RSB Capital Trust I (“Trust”). The Trust, which has no independent assets or operations, was formed in 2005 for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures. Trust preferred securities are currently considered Tier 1 capital for purposes of determining the Bank’s capital ratios. The trust securities also bear interest at 3-month LIBOR plus 2.00%. The duration of the Trust is 30 years.

The subordinated debt securities of $5,155 are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, other than trust securities, provides a full and unconditional guarantee of amounts on the capital securities. The subordinated debentures, which bear interest at 3-month LIBOR plus 2.00% (4.651% at March 31, 2019 and 4.653% at December 31, 2018) mature on May 23, 2035.

Other Borrowings

In December 2018 Rhinebeck Bancorp, MHC entered into an agreement with Atlantic Community Bankers Bank to provide it with a $5,000 line of credit at a rate equal to the Wall Street Journal prime rate of interest plus 0.50% to provide a temporary source of additional funds. At December 31, 2018 the entire line was drawn and the funds were down-streamed to the Bank as capital to support year-end capital ratios that were impacted by the influx of cash for subscription orders related to the reorganization and stock offering. On January 15, 2019 the Bank paid a $5,100 dividend to Rhinebeck Bancorp, MHC which then paid off the borrowing. After the closing of the offering, the facility converted to Rhinebeck Bancorp, Inc. and remains in place for backstop liquidity purposes. On March 31, 2019, the Company had no amount outstanding on the line.

The Bank also has an unsecured, uncommitted $10,000 line of credit with Zions Bank. There were no advances outstanding under this line of credit at March 31, 2019 and December 31, 2018.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Income Taxes

The components of the provision for income taxes are as follows:

	Three Months Ended March 31,
	2019			2018
	(unaudited)
Current expense (benefit):
Federal	$	352		$	172
State		6			7
Total		358			179

Deferred expense:
Federal		(133	)		(47	)

Total provision for income taxes	$	225		$	132

The following is a reconciliation between the expected federal statutory income tax rate of 21% and the Company’s actual income tax expense and rate:

	Three Months ended March 31,
	2019					2018
	(unaudited)
Provision at statutory rate	$	238		21	%	$	157		21	%
Tax exempt income		(21	)	(1	)%		(24	)	(3	)%
State income taxes, net of federal income tax benefit		5		0	%		6		1	%
Other, net		3		0	%		(7	)	(1	)%

Effective income tax and rate	$	225		20	%	$	132		18	%

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at March 31, 2019 and December 31, 2018 are presented below:

	March 31,			December 31,
	2019			2018
	(unaudited)
Deferred tax assets:
Allowance for loan losses	$	1,939		$	1,794
Deferred expenses		829			783
Unrecognized pension liability		1,165			1,179
Postretirement liability		920			914
Deferred loss on OREO		187			187
Unrealized loss on securities		408			685
State tax NOLs		780			779
Other		151			134
Gross deferred tax assets		6,379			6,455

Deferred tax liabilities:
Prepaid expenses		(234	)		(241	)
Prepaid pension		(1,289	)		(1,305	)
Deferred loan fees		(185	)		(170	)
Depreciation and amortization		(166	)		(105	)
Mortgage servicing rights		(606	)		(615	)
Gross deferred tax liabilities		(2,480	)		(2,436	)

Net deferred tax asset		3,899			4,019

Deferred tax valuation allowance		(1,123	)		(1,085	)

Deferred tax assets, net of allowance	$	2,776		$	2,934

In management’s opinion, it is expected that in future years there will be no opportunity to reverse the New York State deferred tax assets (“DTAs”) to provide for a reduction in New York State income taxes. Therefore, management has established a full valuation allowance to recognize the fully diminished value of these DTAs.

Retained earnings at March 31, 2019 and December 31, 2018 include a contingency reserve for loan losses of $1,534 which represents the tax reserve balance existing at December 31, 1987 and is maintained in accordance with provisions of the Internal Revenue Code applicable to mutual savings banks. Amounts transferred to the reserve have been claimed as deductions from taxable income and, if the reserve is used for purposes other than to absorb losses on loans, a federal income tax liability could be incurred. It is not anticipated that the Company will incur a federal income tax liability relating to this reserve balance and accordingly, deferred income taxes of $414 at March 31, 2019 and December 31, 2018 have not been recognized.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

10.

Employee Benefits

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan covering substantially all of its employees 21 years of age or older who had completed at least one year of service as of June 30, 2012, the effective date on which, the Board of Directors of Rhinebeck Bank voted to freeze the Bank’s defined benefit plan.

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated statements of financial condition:

	Three months ended March 31,			Year ended December 31,
	2019			2018
	(unaudited)
Projected and accumulated benefit obligation	$	(18,298	)	$	(18,241	)
Plan assets at fair value		18,704			17,459
Funded status included in other liabilities	$	406		$	(782	)

The net periodic pension (benefit) cost and amounts recognized in other comprehensive income (loss) are as follows:

	Three months ended March 31,		Year ended December 31,
	2019		2018
	(unaudited)
Interest cost	$	185	$	689
Expected return on plan assets		235		(1,074	)
Amortization of unrecognized loss		90		374
Net periodic cost (benefit)	$	510	$	(11	)

The expected long-term rate of return on plan assets has been determined by applying historical average investment returns from published indexes relating to the current allocation of assets in the plan. Plan assets are invested in pooled separate accounts consisting of underlying investments in nine diversified investment funds.

As of March 31, 2019 and December 31, 2018, the investment funds included six equity funds and four fixed income funds, comprised of three bond funds and a real estate fund, each with its own investment objectives, investment strategies and risks, as detailed in the Company’s investment policy statement. The Company determines the appropriate strategic asset allocation versus plan liabilities, as governed by the investment policy statement.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The assets of the plan are invested under the supervision of the Company’s investment committee in accordance with the investment policy statement. The investment options of the plan are chosen in a manner consistent with generally accepted standards of fiduciary responsibility. The investment performance of the Company’s individual investment managers, with the assistance of the Company’s investment consultant, is monitored on a quarterly basis and is reviewed at least annually relative to the objectives and guidelines as stated in the Company’s investment policy statement.

The fair value of the Company’s pension plan assets, by fair value hierarchy, are as follows:

	March 31, 2019
	Level1		Level 2		Level 3		Total
	(unaudited)
Assets:
Investment in separate accounts
Fixed income	$	-	$	14,406	$	-	$	14,406
Equity		-		4,298		-		4,298
Total assets at fair value	$	-	$	18,704	$	-	$	18,704

	December 31, 2018
	Level1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	-	$	13,638	$	-	$	13,638
Equity		-		3,821		-		3,821
Total assets at fair value	$	-	$	17,459	$	-	$	17,459

The pooled separate accounts are valued at the net asset per unit based on either the observable net asset value of the underlying investment or the net asset value of the underlying pool of securities. Net asset value is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding. Pooled separate accounts are classified within level 2 of the valuation hierarchy described in Note 1.

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 11 of the Company’s Consolidated Financial Statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K.

Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan. Participants are permitted, in accordance with the provisions of Section 401(k) of the Internal Revenue Code, to contribute up to 25% of their earnings (as defined) into the plan with the Company matching up to 6%, subject to Internal Revenue Service limitations. The Company’s contributions charged to operations amounted to $225 and $196 for the three months ended March 31, 2019 and 2018, respectively.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Bank Owned Life Insurance

The Company has an investment in and is the beneficiary of, life insurance policies on the lives of certain officers and trustees. The purpose of these life insurance policies is to provide income through the appreciation in cash surrender value of the policies, which is expected to offset the cost of the deferred compensation plans. These policies have aggregate cash surrender values of $18,118 and $18,018 at March 31, 2019 and December 31, 2018, respectively. Net earnings on these policies aggregated $100 and $99 for the three months ended March 31, 2019 and 2018, respectively, which are included in noninterest income in the consolidated statements of income.

Deferred Compensation Arrangements

Directors’ Plan

The Bank’s Deferred Compensation Plan for Fees of Directors (the “Directors’ Plan”; as amended and restated effective January 1, 2005) covers Directors who elect to defer receipt of all or a portion of their fees until separation from service. Upon resignation, retirement, or death the participant’s total deferred compensation, including earnings thereon, will be paid out. At March 31, 2019 and December 31, 2018, total amounts due of $1,851 and $1,687, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan for the three months ended March 31, 2019 and 2018 were both $32, which were included in noninterest expense in the consolidated statements of income.

Executive Long-Term Incentive and Retention Plan

The Bank maintains an Executive Long-Term Incentive and Retention Plan (the “Executive Plan”). Participation in the Executive Plan is limited to officers of the Company designated as participants by the Board of Directors and who filed a properly completed and executed participation agreement in accordance with the terms of the Executive Plan. Under the Executive Plan, the Board of Directors may grant annual incentive awards equal to a percentage of a participant’s base salary at the rate in effect on the last day of the Plan year, as determined by the Board of Directors based on the attainment of criteria established annually by the Board of Directors. Incentive awards under the Executive Plan are credited to the participant’s incentive benefit account as of the last day of the Executive Plan year to which the award relates and earn interest at a rate determined annually by the Board of Directors. Participants vest in their benefit accounts in accordance with the vesting schedule approved by the Board of Directors, which ranges from one to five years of service. At March 31, 2019 and December 31, 2018, $991 and $975, respectively, is included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $137 and $113 for the three months ended March

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Group Term Replacement Plan

Under the terms of the “Group Term Replacement Plan”, the Company provides postretirement life insurance benefits to certain officers. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $1,290 and $1,276, respectively, at March 31, 2019 and December 31, 2018. The Company recognized expenses of $13 for each of the three month periods ended March 31, 2019 and March 31, 2018, related to this plan which are included in salaries and employee benefits expense in the consolidated statements of income.

Other Director and Officer Postretirement Benefits

The Company has individual fee continuation agreements with certain directors and a supplemental retirement agreement with an executive officer which provide for fixed postretirement benefits to be paid to the directors and the officer, or their beneficiaries, for periods ranging from 15 to 20 years. In addition, the Company has agreements with certain directors which provide for certain postretirement life insurance benefits. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $2,116 and $2,108, respectively, at March 31, 2019 and December 31, 2018. The Company recognized expenses of $24 and $26 for the three months ended March 31, 2019 and 2018, respectively, related to these benefits which are included in other noninterest expenses in the consolidated statements of income.

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16 2019, the Company granted a loan to the ESOP for the purchase of 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (5.5% at December 31, 2018). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at March 31, 2019 was $4.4 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 21,821 through 2039.

Shares held by the ESOP include the following:

	March 31, 2019
Allocated		-
Committed to be allocated		5,455
Unallocated		430,970
Total shares		436,425

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The fair value of unallocated shares was $5.2 million at March 31, 2019.

Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2019 was $91.

11.

Commitments and Contingencies

Leases and Subleases

The Company leases certain branch offices and equipment under operating lease agreements which expire at various dates through 2025. The Company has the option to renew the leases for its branch offices at fair rental values. In addition to rental payments, the branch leases require payments for property taxes in excess of base year taxes.

As of March 31, 2019, future minimum rental commitments under the terms of these leases, by year and in the aggregate, are as follows:

Years ending December 31:
2019	$	673
2020		641
2021		564
2022		509
2023		486
2024 and beyond		477

Total	$	3,350

Total rental expense charged to operations for cancelable and non-cancelable operating leases was $162 and $160 for the three months ended March 31, 2019 and 2018, respectively. Rental income under subleases was $68 and $81 for the three months ended March 31, 2019 and 2018, respectively.

Legal Matters

The Company is involved in various legal proceedings which have arisen in the normal course of business. Management believes that resolution of these matters will not have a material effect on the Company's financial condition or results of operations.

Employment Agreements

The Company has entered into employment agreements with certain officers. The agreements provide for base salaries and incentive compensation based on performance criteria outlined in the agreements. The agreements also provide for insurance and various other benefits.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

12.

Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include standby letters of credit and commitments to extend credit, which include new loan commitments and undisbursed portions of construction loans and other lines of credit. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The contractual amounts of commitments to extend credit represent the amounts of potential loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral become worthless. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Financial instruments whose contract amounts represent off-balance sheet credit risk are as follows:

	March 31,		December 31,
	2019		2018
	(unaudited)
Commitments to extend credit summarized as follows:
Future loan commitments	$	3,861	$	3,157
Undisbursed construction loans		11,549		16,289
Undisbursed home equity lines of credit		9,391		9,532
Undisbursed commercial and other line of credit		57,150		50,773
Standby letters of credit		2,163		1,785

Total	$	84,114	$	81,536

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include residential and commercial property, deposits and securities.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

13.

Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank’s assets, liabilities and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Company's and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The final rules implementing the BASEL Committee on Banking Supervisor’s Capital Guidance for U.S. Banks (BASEL III) became effective for the Company and Bank on January 1, 2016. Compliance with the requirements was phased in over a four year period with full compliance as of January 1, 2019. All presented capital ratios are calculated using BASEL III rules.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of total, common equity Tier 1 and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of March 31, 2019 and December 31, 2018, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The most recent notification from the Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as “well capitalized” under the regulatory framework. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, common equity Tier 1, Tier I risk-based and Tier I leverage ratios as set forth in the table below. There are no conditions or events since then, which management believes have changed the Bank's category.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The Company’s and Bank's actual capital amounts and ratios were:

	Actual					For Capital Adequacy Purposes					To be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

	March 31, 2019
	(unaudited)
Rhinebeck Bancorp, Inc.
Total capital (to risk-weighted assets)	$	114,202		15.05	%	$	60,700		8.00	%	$	75,875		10.00	%
Tier 1 capital (to risk-weighted assets)		107,019		14.10	%		45,525		6.00	%		60,700		8.00	%
Common equity tier one capital (to risk weighted assets)		107,019		14.10	%		34,144		4.50	%		49,318		6.50	%
Tier 1 capital (to average assets)		107,019		12.31	%		34,665		4.00	%		43,331		5.00	%

Rhinebeck Bank
Total capital (to risk-weighted assets)	$	105,447		13.90	%	$	60,705		8.00	%	$	75,881		10.00	%
Tier 1 capital (to risk-weighted assets)		98,264		12.95	%		45,528		6.00	%		60,705		8.00	%
Common equity tier one capital (to risk weighted assets)		98,264		12.95	%		34,146		4.50	%		49,323		6.50	%
Tier 1 capital (to average assets)		98,264		11.34	%		34,552		4.00	%		43,190		5.00	%

	December 31, 2018
Rhinebeck Bancorp, MHC
Total capital (to risk-weighted assets)	$	71,243	9.71	%	$	58,707	8.00	%	$	73,383	10.00	%
Tier 1 capital (to risk-weighted assets)		64,597	8.80	%		44,030	6.00	%		58,707	8.00	%
Common equity tier one capital (to risk weighted assets)		64,597	8.80	%		33,023	4.50	%		47,699	6.50	%
Tier 1 capital (to average assets)		64,597	7.63	%		33,849	4.00	%		42,311	5.00	%

Rhinebeck Bank
Total capital (to risk-weighted assets)	$	81,222	11.07	%	$	58,694	8.00	%	$	73,368	10.00	%
Tier 1 capital (to risk-weighted assets)		74,576	10.16	%		44,021	6.00	%		58,694	8.00	%
Common equity tier one capital (to risk weighted assets)		74,576	10.16	%		33,016	4.50	%		47,689	6.50	%
Tier 1 capital (to average assets)		74,576	8.80	%		33,901	4.00	%		42,376	5.00	%

14.

Fair Value

As described in Note 1, the Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. A description of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial and non-financial instruments not recorded at fair value, is set forth below.

Cash and Due from Banks, Accrued Interest Receivable and Mortgagors' Escrow Accounts

The carrying amount is a reasonable estimate of fair value.

Available for Sale and Held to Maturity Securities

Where quoted prices are available in an active market for identical securities, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include marketable equity securities and U.S. Treasury obligations. If quoted prices are not available, then fair values are estimated by using pricing models (i.e., matrix pricing) or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency bonds, mortgage-backed securities and municipal bonds. The Company does not have any Level 3 securities for which significant unobservable inputs are utilized. Available for sale securities are recorded at fair value on a recurring basis and held to maturity securities are only disclosed at fair value.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

FHLB Stock

The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans

Loans receivable are carried at cost. For variable rate loans which reprice frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values, adjusted for credit losses inherent in the portfolios. The fair value of fixed rate loans is estimated by discounting the future cash flows using the year end rates, estimated using local market data, at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for credit losses inherent in the portfolios. The Company does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral-dependent impaired loans are recorded to reflect partial write-downs based on the observable market price or current appraised value of collateral. The fair value of loans held for sale is estimated using quoted market prices.

Other Real Estate Owned

Other real estate owned represents real estate acquired through foreclosure and is carried at the lower of cost or fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. These assets are included as Level 3 fair values, based upon the lowest level of input that is utilized in the fair value measurements.

Mortgage Servicing Rights

The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated future net servicing income.

Deposits

Deposit liabilities are carried at cost. The fair value of NOW, savings and money market deposits is the amount payable on demand at the reporting date. The fair value of time certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities estimated using local market data to a schedule of aggregated expected maturities on such deposits.

Advances from the FHLB

The fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to a schedule of maturities of such advances.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

Subordinated Debt

Based on the floating rate characteristic of these instruments, the carrying value is considered to approximate fair value.

Other Borrowings

Based on the floating rate characteristic of these instruments, the carrying value is considered to approximate fair value.

Off-Balance-Sheet Instruments

Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standings. Such amounts are not significant.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following tables detail the assets that are carried at fair value on a recurring basis as of the periods shown and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

			Quoted Prices
			in Active		Significant		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
	March 31, 2019
	(unaudited)
U.S. Treasury securities	$	2,990	$	2,990	$	-	$	-
U.S. government agency mortgage-backed securities-residential		88,109		-		88,109		-
U.S. government agency securities		16,632		-		16,632		-
Municipal securities		1,241		-		1,241		-
Other		423		-		423		-

Total	$	109,395	$	2,990	$	106,405	$	-

	December 31, 2018
U.S. Treasury securities	$	2,971	$	2,971	$	-	$	-
U.S. government agency mortgage-backed securities-residential		80,216		-		80,216		-
U.S. government agency securities		16,468		-		16,468		-
Municipal securities		1,232		-		1,232		-
		425		-		425		-
Total	$	101,312		2,971	$	98,341	$	-

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of March 31, 2019 and December 31, 2018 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	March 31, 2019
	(unaudited)
Impaired loans, with specific reserves	$	122	$	-	$	-	$	122
Other real estate owned		-		-		-		-

Total	$	122	$	-	$	-	$	122

	December 31, 2018
Impaired loans, with specific reserves	$	128	$	-	$	-	$	128
Other real estate owned		935		-		-		935

Total	$	1,063	$	-	$	-	$	1,063

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information About Level 3 Fair Value Measurements

Fair Value
Estimate

Valuation
Techniques

Unobservable
Input

Range
(Weighted Average)

March 31, 2019

(unaudited)

Impaired loans

122

Appraisal of collateral⁽¹⁾

Appraisal adjustments⁽²⁾

0% to 20

Other real estate owned

Appraisal of collateral⁽¹⁾

Liquidation expenses⁽³⁾

0% to 6

Appraisal adjustments⁽²⁾

0% to 20

December 31, 2018

Impaired loans

128

Appraisal of collateral⁽¹⁾

Appraisal adjustments⁽²⁾

0% to 20

Other real estate owned

935

Appraisal of collateral⁽¹⁾

Liquidation expenses⁽³⁾

0% to 6

Appraisal adjustments⁽²⁾

0% to 20

(1)

Fair value is generally through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraised value.

(3)

Estimated costs to sell.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

The Company discloses fair value information about financial instruments, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. Certain financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The estimated fair value amounts for 2019 and 2018 have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than amounts reported at each year-end.

The information presented should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company's assets and liabilities. Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.

As of the following dates, the carrying value and fair values of the Company's financial instruments were:

	March 31,				December 31,
	2019				2018
	(unaudited)
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and due from banks (Level 2)	$	15,439	$	15,439	$	50,590	$	50,590
Available for sale securities (Level 2)		109,395		109,395		101,312		101,312
FHLB stock (Level 2)		3,919		3,919		1,883		1,883
Loans, net (Level 3)		706,882		706,606		678,402		674,287
Accrued interest receivable (Level 2)		2,782		2,782		2,523		2,523
Mortgage servicing rights (Level 3)		2,246		4,284		2,278		4,667

Financial Liabilities:

Deposits (Level 2)		684,024		683,660		684,418		683,163
Mortgagors escrow accounts (Level 2)		6,311		6,311		7,725		7,725
FHLB advances (Level 2)		76,845		76,845		31,598		31,598
Subordinated debt and other borrowings (Level 2)		5,155		5,155		10,155		10,155

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

15. Revenue Recognition

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The main types of revenue contracts included in non-interest income within the consolidated statements of operations are as follows:

Fees for services to customers include service charges on deposits which are included as liabilities in the consolidated statements of financial condition and consist of transaction-based fees: stop payment fees, Automated Clearing House (ACH) fees, account maintenance fees, wire fees, official check fees and overdraft services fees for various retail and business checking customers. These fees are charged as earned on the day of the transaction or within the month of the service. Service charges on deposits are withdrawn directly from the customer’s account balance. ATM and debit card fees are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Sales of checks to depositors earn fees as a contractual discount to the retail price of the sale from a third-party provider. These fees earned are remitted by the third-party to the Company quarterly.

The Company earns interchange fee income from credit/debit cardholder transactions conducted through MasterCard payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized monthly, concurrently with the transaction processing services provided to the cardholder within the month.

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed; at this time the OREO asset is derecognized and the gain or loss on the sale is recorded. Rental income received from leased OREO property is recognized during the month it is earned.

Retail brokerage and advisory fee income is accrued monthly to properly record the revenues in the month they are earned. Advisory fees are collected in advance on a quarterly basis. These advisory fees are recorded in the first month of the quarter for which the service is being performed. Investments into mutual funds and annuities generate fees that are recorded as revenue at the time of the initial sale. In subsequent years the mutual funds and variable annuities generate recurring fees (referred to as 12B-1 fees) that are paid in advance on the anniversary of the original transaction. Fees that are transaction based are recognized at the point in time that the transaction is executed (i.e. trade date). Life insurance products are sold on a commission basis that generates a fee that is recorded as revenue within the month of the approved transaction.

Other income includes rental income, mortgage origination and service fees and late fees on serviced mortgages. All items are recorded as revenue within the month that the service is provided.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

16.

Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the three months ended March 31, 2019 and 2018, is as follows:

	Accumulated Other Comprehensive Loss ⁽¹⁾
	Defined Benefit Pension Plan			Unrealized gains (losses) on available for sale securities			Total
Balance at December 31, 2018	$	(339	)	$	(6,673	)	$	(7,012	)
Other comprehensive (loss) gain before reclassifications		(15	)		1,041			1,025
Amounts reclassified from accumulated other comprehensive loss		70			-			71
Period change		55			1,041			1,096
Balance at March 31, 2019 (unaudited)	$	(284	)	$	(5,632	)	$	(5,916	)
Balance at December 31, 2017	$	(534	)	$	(6,421	)	$	(6,955	)
Other comprehensive loss before reclassifications		-			(1,073	)		(1,073	)
Amounts reclassified from accumulated other comprehensive loss		-			(1	)		(1	)
Period change		-			(1,074	)		(1,074	)
Balance at March 31, 2018 (unaudited)	$	(534	)	$	(7,495	)	$	(8,029	)

(1)	All amounts are net of tax. Related income tax expense or benefit is calculated using an income tax rate of 21.0 %.

Details about accumulated other comprehensive loss components are as follows:

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Three Months Ended March 31,						Affected Line Item in the Consolidated Statement of Income
	2019			2018
	(unaudited)
Securities available for sale ⁽¹⁾:
Net securities losses reclassified into earnings	$	-		$	(1	)	Gain on sale of investments, net
Related income tax expense		-			-		Income taxes
Net effect on accumulated other other comprehensive loss for the period		-			(1	)
Defined benefit pension plan ⁽²⁾:
Amortization of net loss and prior service costs		(90	)		-		Compensation and employee benefits
Related income tax expense		20			-		Income taxes
Net effect on accumulated other other comprehensive loss for the period		(70	)		-
Total reclassifications for the period	$	(70	)	$	(1	)

(1)	For additional details related to unrealized gains and losses on securities and related amounts reclassified from accumulated other comprehensive loss see Note 2, “Investment Securities.”
(2)	Included in the computation of net periodic pension cost. See Note 10, “Employee Benefits” for additional details.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(Dollars in thousands)

17. Earnings Per Share

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. There were no potentially dilutive common stock equivalents as of March 31, 2019. Earnings per share data is not applicable for the period ended March 31, 2018 because the Company had not yet been formed and had no shares outstanding.

(Dollars in thousands, except for per share data)	Three months ended March 31, 2019
	(unaudited)
Net income applicable to common stock	$	911

Average number of common shares outstanding		11,133,290
Less: Average unallocated ESOP shares		433,698
Average number of common shares outstanding used to calculate basic earnings per common share		10,699,592

Earnings per Common share:
Basic	$	0.09
Diluted	$	0.09

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018 is intended to assist in understanding the financial condition and results of operations of the Company and the Bank. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

general economic conditions, either nationally or in our market area, that are worse than expected;

•

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to continue to implement our business strategies;

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

•

competition among depository and other financial institutions;

•

inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary market;

•

adverse changes in the securities markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•

our ability to manage market risk, credit risk and operational risk;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

the imposition of tariffs or other domestic or international governmental polices impacting the value of the agricultural or other products of our borrowers;

•

our ability to successfully integrate into our operations any assets, liabilities or systems we may acquire, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

•

our ability to retain key employees;

•

our compensation expense associated with equity allocated or awarded to our employees; and

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

A summary of our accounting policies is described in Note 1 to the unaudited consolidated financial statements included Item 1 of this report. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Allowance for Loan Losses. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. The allowance for loan losses is determined by management based upon portfolio segment, past experience, evaluation of estimated loss and impairment in the loan portfolio, current economic conditions and other pertinent factors. Management also considers risk characteristics by portfolio segments. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. Loan impairment is evaluated based on the fair value of collateral or cash flows. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.

The allowance for loan losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, our banking regulators, as an integral part of their examination process, periodically review our allowance for loan losses. Our banking regulators may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of its examination.

Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure you that our allowance will be adequate if we experience sizeable loan losses in any particular period.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Deferred Income Taxes. At March 31, 2019, we had net deferred tax assets totaling $2,776 million. In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal portion of its deferred tax assets. However, due to changes in New York state tax law, we do not believe we can realize our state deferred tax assets. Accordingly, we established a 100% valuation allowance against such assets.

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we utilize can be found in Note 14 to the unaudited consolidated financial statements included in Item 1 of this report.

Investment Securities. Available for sale and held to maturity securities are reviewed regularly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and our intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statements of income. At March 31, 2019, we believe the unrealized losses are primarily a result of increases in market interest rates from the time of purchase. In general, as market interest rates rise, the fair value of securities will decrease; as market interest rates fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities and does not believe it will be required to sell these securities before they recover in value.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Goodwill. The assets (including identifiable intangible assets) and liabilities acquired in a business combination are recorded at fair value at the date of acquisition. Goodwill is recognized for the excess of the acquisition cost over the fair values of the net assets acquired and is not subsequently amortized. Identifiable intangible assets include customer lists and are being amortized on a straight-line basis over their estimated lives. Management assesses the recoverability of goodwill at least on an annual basis and all intangible assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The impairment test uses a combined qualitative and quantitative approach. The initial qualitative approach assesses whether the existence of events or circumstances led to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after this assessment, we determine that it is more likely than not that the fair value is less than the carrying value, the two-step quantitative impairment test is performed. Step one of the quantitative impairment test compares book value to the fair value of the reporting unit. If step one is failed, a more detailed analysis is performed, which involves measuring the excess of the fair value of the reporting unit, as determined in step one, over the aggregate fair value of the individual assets, liabilities, and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying amount exceeds fair value, an impairment charge is recorded through earnings.

Pension Obligations. We maintain a non-contributory defined benefit pension plan, which was frozen in 2012. We account for benefits under the plan in accordance with ASC Topic 715 “Pension and Other Postretirement Benefits.” The guidance requires an employer to: (1) recognize in its statement of financial position the over funded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation; (2) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (3) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period.

Comparison of Financial Condition at March 31, 2019 and December 31, 2018

Total Assets. Total assets were $884.8 million at March 31, 2019, representing an increase of $2.4 million, or 0.3%, compared to $882.4 million at December 31, 2018. The increase was primarily related to an increase in the loan portfolio and available for sale securities, which was substantially offset by a $35.2 million decrease in cash balances due primarily to the return of $41.1 million of unfilled subscriptions for Rhinebeck Bancorp, Inc.’s stock offering.

Cash and Due from Banks. Cash and due from banks decreased $35.2 million, or 69.5%, to $15.4 million at March 31, 2019 from $50.6 million at December 31, 2018. Prior to year-end, subscription receipts had temporarily increased our federal fund balances to $37.1 million.

Investment Securities Available for Sale. Investment securities available for sale increased $8.1million, or 8.0%, to $109.4 million at March 31, 2019 from $101.3 million at December 31, 2018. This increase was due primarily to purchases of mortgage backed securities of $9.7 million, a reduction of unrealized loss of $1.3 million, offset by pay-downs of $2.9 million.

Net Loans. Total loans receivable were $706.9 million at March 31, 2019, an increase of $28.5 million, or 4.2%, as compared to $678.4 million at December 31, 2018. The primary increase was in our indirect automobile portfolio, which increased $19.7 million, or 6.6%, as we continued to increase the number of dealerships in Albany and grow that line of business. Our Albany office alone increased its indirect automobile loan balances by 14.7 million or 35.5%.

Overdue loans increased $819 or 6.6% between year end and March 31, 2019 finishing at 1.85% of total loans. During the same timeframe non-performing assets rose $43 or 0.8%.

Total Liabilities. Total liabilities decreased $41.2 million primarily due to the release of $87.1 million in net subscription offering proceeds and a $5 million line of credit pay-down, offset by an increase of $45.2 million in FHLB advances.

Deposits. Overall deposits remained substantially unchanged decreasing 0.1%, or $394 to $684.0 million at March 31, 2019. Interest bearing accounts grew 2.3%, or $11.8 million, to $524.4 million while non-interest bearing balances decreased 7.1% or $12.2 million finishing the quarter at $159.6 million.

Borrowed Funds. Advances from the FHLB increased $45.2 million from $31.6 million at December 31, 2018 to $76.8 million at March 31, 2019, in order to supplement loan growth that exceeded deposit growth. The $5 million borrowed prior to year-end to support year end capital ratios was paid back just before the close of the stock offering in January 2019.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Stockholders’ Equity. Stockholders' equity increased $43.5 million to $102.8 million, primarily due to proceeds from the common stock offering of $45.9 million recorded in retained earnings. At March 31, 2018, the Company’s book value per share and tangible book value per share (excluding goodwill and other tangible assets of $1.7 million from the calculation of book value) were $9.23 and $9.08, respectively. At March 31, 2019, the Company's ratio of stockholders' equity-to-total assets was 11.62%, compared to 6.72% at December 31, 2018. This ratio was positively impacted by close of the stock offering and reorganization. Unallocated common stock held by the ESOP, established with the offering and reorganization, was $4.4 million.

Comparison of Operating Results for the Three Months Ended March 31, 2019 and March 31, 2018

Net Income. Net income for the three months ended March 31, 2019 increased $295, or 47.9%, to $911 compared to net income of $616 for the three months ended March 31, 2018. The increase was due to increased net interest income partially offset by increased interest expense and an increase in the provision for loan losses.

Net Interest Income. Net interest income increased $1.2 million, or 18.5%, to $7.6 million for the three months ended March 31, 2019, as compared to $6.4 million in the three months ended March 31, 2018. The increase was largely due to increased loan income resulting from growth in our portfolio and increased yields partially offset by higher deposit and FHLB volumes and costs. Our interest earning asset yield was 4.69% for the three months ended March 31, 2019 as compared to 4.32% for the same period in 2018, an increase of 37 basis points due to the increase in market rates and continued origination of higher-yielding automobile and commercial loans. Production of new indirect automobile loans increased 55.2% or $18.6 million to $52.4 million while commercial loan production was up 9.7% or $1.5 million to $16.7 million quarter over quarter. Deposit and borrowing costs increased 51 basis points to 1.25% for the first three months of 2019 from 0.74% for the same period in 2018 driven by the increases in general market rates. Our net interest margin was 3.79% for the first quarter 2019, compared to 3.76% for the same period in 2018.

Interest Income. Interest income increased $2.0 million, or 27.3%, to $9.4 million for the first three months of 2019 from $7.4 million for the first three months of 2018. The increase resulted from the increase in average yields supplemented by a $119.4 million increase in average interest earning assets during the year. The increase in average interest earning assets at March 31, 2019 compared to March 31, 2018 included increases in average loan balances of $121.2 million slightly offset by a decrease in average investment securities of $6.6 million. The average yield on loans increased to 5.08% for the first three months of the year, from 4.76% for the comparable period in 2018. The average yields on investment securities increased to 2.30% for the three month period ending March 31, 2019 from 2.13% for the comparable 2018 period.

Interest Expense. Interest expense increased $826, or 85.9%, to $1.8 million for the three months ending March 31, 2019 from $962 for the comparable 2018 period, while average total interest bearing liabilities increased by $54.6 million year over year. The increase in interest expense resulted from a 51 basis point increase in the overall cost of interest bearing liabilities to 1.25% for the first quarter of 2019 from 0.74% for the first quarter of 2018 and an increase in the volume of average interest bearing liabilities had the overall effect of increasing the interest expense. Interest bearing deposit rates rose by 41 basis points to 1.08% while the rate paid on other interest bearing liabilities grew by 60 basis points to 2.57%.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Provision for Loan Losses. The Company establishes provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. After an evaluation of these factors, the provision expense was $780 for the three months ended March 31, 2019, an increase of $255 from $525 for the three months ended March 31, 2018. The increase was a result of the current loan mix, as commercial and indirect automobile loans tend to carry a higher risk of default, as well as the continued growth in the loan portfolio.

Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary, based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the FDIC and New York State Department of Financial Services, as an integral part of its examination process, will periodically review our allowance for loan losses. This agency may require us to recognize adjustments to the allowance, based on its judgments about information available to it at the time of its examination.

Non-Interest Income. Non-interest income totaled $1.3 million for the three months ended March 31, 2019, an increase of $16, or 1.3%, compared to the three months ended March 31, 2018, due primarily to a $104 increase in service charges on deposit accounts and a $65 increase in investment advisory income, offset by $92 less on net gains on sales of loans, (as the Company originated fewer mortgage loans for sale in the current higher interest rate environment), and a $63 decrease in other non-interest income mostly due to a $50 reduction in revenue from a smaller volume of mortgage service rights originated including the amortization on those rights and $14 less in rental income related to the departure of a tenant in our corporate headquarters.

Non-Interest Expense. For the three months ended March 31, 2019, non-interest expenses increased $552 to $6.9 million, as compared to $6.4 million for the comparable 2018 period. Salaries and employee benefits increased $404, or 11.6%, attributable to annual salary merit increases, employee benefit increases and additions to staff. Data processing fees increased $33 or 12.0% due to general increases in overall processing volumes and the additions of new technologies. Professional fees increased $72, as the Company undertook a consulting project to improve efficiency and absorbed the additional expenses required of a public company. Advertising was down 13.9% or $25 due mostly to timing as 2018 saw more advertising, publicity, and community support activity in that comparative quarter. Insurance expense reflected a decrease of $34 or 19.4% mainly due to a reduction in our FDIC assessment. Other real estate owned expense was $18 more in the first quarter of 2018 as we spent additional funds to make a foreclosure property more attractive for sale. Other operating expenses included an increase of $70 related to the increased indirect automobile production and $35 for appraisal and other related loan costs.

Income Taxes. Income tax provision increased by $93 for the three months ended March 31, 2019 as compared to the comparable period in 2018 as our income before income taxes increased. Our effective tax rate for the three months ended March 31, 2019 was 20% compared to 18% for the three months ended March 31, 2018.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Average Balance Sheets for the Three Months Ended March 31, 2019 and 2018

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances, the yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income.

	For the Three Months Ended March 31,
	2019							2018
	Average Balance		Interest and Dividends		Yield/Cost			Average Balance		Interest and Dividends		Yield/Cost
	(unaudited)
Assets:
Interest bearing depository accounts	$	6,055	$	35		2.34	%	$	1,260	$	4		1.29	%
Loans ⁽¹⁾		695,790		8,715		5.08	%		574,604		6,750		4.76	%
Marketable Securities		107,167		608		2.30	%		113,792		599		2.13	%
Total interest-earning assets	$	809,012	$	9,358		4.69	%	$	689,656	$	7,353		4.32	%

Non-interest-earning assets		52,547							53,904
Total assets	$	861,559						$	743,560

Liabilities and equity:
NOW accounts	$	94,106	$	73		0.31	%	$	99,670	$	45		0.18	%
Money market accounts		133,445		415		1.26	%		127,051		213		0.68	%
Savings accounts		121,735		106		0.35	%		124,951		57		0.19	%
Certificates of deposit		163,809		770		1.91	%		142,734		496		1.41	%
Total interest-bearing deposits		513,095		1,364		1.08	%		494,406		811		0.67	%

Escrow accounts		6,352		18		1.15	%		5,942		18		1.23	%
Federal Home Loan Bank advances		54,621		355		2.64	%		19,982		86		1.75	%
Subordinated debt		6,016		51		3.44	%		5,155		47		3.70	%
Other interest-bearing liabilities		66,988		424		2.57	%		31,079		151		1.97	%

Total interest-bearing liabilities	$	580,084	$	1,788		1.25	%	$	525,485	$	962		0.74	%

Non-interest-bearing deposits		163,766							153,951
Other non-interest-bearing liabilities		23,605							9,720
Total liabilities	$	767,455						$	689,156

Total stockholders’ equity		94,104							54,404
Total liabilities and stockholders’ equity	$	861,559						$	743,560
Net interest income			$	7,570						$	6,391
Interest rate spread						3.44	%						3.58	%
Net interest margin ⁽²⁾						3.76	%						3.76	%
Average interest-earning assets to average interest-bearing liabilities						139.46	%						131.24	%

(1)

Non-accruing loans are included in the outstanding loan balance.

(2)

Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018 March 31, 2018
	Increase (Decrease) Due to
	Volume			Rate			Net
	(unaudited)
Interest income:
Interest bearing depository accounts	$	19		$	12		$	31
Loans receivable		1,468			497			1,965
Marketable securities		(249	)		258			9
Total interest-earning assets		1,238			767			2,005

Interest expense:
Deposits		101			452			553
Escrow accounts		1			(1	)		-
Federal Home Loan Bank advances		176			93			269
Subordinated debt		8			(4	)		4
Total interest-bearing liabilities		286			540			826
Net increase (decrease) in net interest income	$	952		$	227		$	1,179

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the Board of Directors established a management-level Asset/Liability Management Committee (the “ALCO”), which takes initial responsibility for reviewing the asset/liability management process and related procedures, establishing and monitoring reporting systems and ascertaining that established asset/liability strategies are being maintained. On at least a quarterly basis, the ALCO reviews and reports asset/liability management outcomes. This committee also implements any changes in strategies and reviews the performance of any specific asset/liability management actions that have been implemented.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

We try to manage our interest rate risk to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates or with shorter terms, promoting core deposit products, and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Economic Value Simulation. We analyze our sensitivity to changes in interest rates through a net economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The EVE ratio represents the dollar amount of our EVE divided by the present value of our total assets for a given interest rate scenario. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. We estimate what our EVE would be at a specific date. We then forecast what the EVE might be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate EVE under scenarios where interest rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100 basis points from current market rates.

The following table presents the estimated changes in our EVE that would result from changes in market interest rates at March 31, 2019. All estimated changes presented in the table are within the policy limits approved by our Board of Directors.

	Net Economic Value								Net Economic Value as Percent of of Assets
Basis Point Change in Interest Rates	Dollar Amount		Dollar Change			Percent Change			EVE Ratio			Change
	(unaudited)
400	$	89,830		(24,521	)		(21.4	%)		11.23	%		(13.8	%)
300		95,767		(18,584	)		(16.3	%)		11.72	%		(10.1	%)
200		101,982		(12,369	)		(10.8	%)		12.20	%		(6.4	%)
100		108,788		(5,563	)		(4.9	%)		12.70	%		(2.6	%)
0		114,351		-			0.0	%		13.03	%		0.0	%
(100)	$	112,429	$	(1,922	)		(1.7	%)		12.55	%		(3.7	%)

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our EVE and will likely differ from actual results.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet both our short-term and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our primary sources of liquidity are deposits, loan sales, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLB advances and other borrowings. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan sales and prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits.

A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At March 31, 2019, $15.4 million of our assets were invested in cash and cash equivalents. Short-term investment securities (maturing in one year or less) totaled $1.2 million at March 31, 2019. As of March 31, 2019, we had $17.0 million of structured borrowings outstanding from the FHLB. We have access to FHLB advances of up to $442.4 million.

At March 31, 2019, we had $84.1 million in loan commitments outstanding, which included $11.5 million in undisbursed construction loans, $9.4 million in unused home equity lines of credit, $57.1 million in commercial lines of credit, $3.9 million in future loan commitments and $2.2 million in standby letters of credit. Certificates of deposit due within one year of March 31, 2019 totaled $99.3 million, or 57.0% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2019. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $9.6 million and $6.9 million for the three months ended March 31, 2019 and 2018, respectively. These amounts differ from our net income because of a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash used for investing activities was $(40.1) million and $(15.0) million in the three months ended March 31, 2019 and 2018, respectively, principally reflecting our loan and investment security activities in the respective periods. Net increase in loan balances outstanding had the most significant effect, as net cash used amounted to $28.2 million and $15.1 million in the three months ended March 31, 2019 and 2018, respectively. Deposit and borrowing cash flows have traditionally comprised most of our financing activities which resulted in net cash provided of $9.1 million in the quarter ended March 31, 2018. As a result of the return of unfulfilled offering subscriptions of $41.1 million we had a net cash outflow of $(4.6) million from financing activities during the quarter ended March 31, 2019.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

We also have obligations under our post retirement plan as described in Note 10 to the Consolidated Financial Statements. The post retirement benefit payments represent actuarially determined future payments to eligible plan participants. We froze our pension plan in 2012.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments, letters of credit and unused lines of credit, see Note 12 of the notes to the Consolidated Financial Statements. For the three months ended March 31, 2019, we did not engage in any off-balance-sheet transactions other than loan origination commitments and standby letters of credit in the normal course of our lending activities.

Impact of Inflation and Changing Prices

The financial statements and related notes of Rhinebeck Bancorp, Inc. have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding market risk, see “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation- Management of Market Risk.”

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2019, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

PART 2 — OTHER INFORMATION

Item 1.

Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At March 31, 2019, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.

Risk Factors

For information regarding the Company’s risk factors, see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission. As of March 31, 2019, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

3.1	Articles of Incorporation of Rhinebeck Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Rhinebeck Bancorp, Inc. (File no. 333-227266), originally filed with the Securities and Exchange Commission on September 10, 2018.)

3.2	Bylaws of Rhinebeck Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Rhinebeck Bancorp, Inc. (File no. 333-227266), originally filed with the Securities and Exchange Commission on September 10, 2018.)

4.0	Form of Common Stock Certificate of Rhinebeck Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Rhinebeck Bancorp, Inc. (File no. 333-227266), originally filed with the Securities and Exchange Commission on September 10, 2018.)

31.1	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0	The following materials for the quarter ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

Rhinebeck Bancorp, Inc. and Subsidiary

(Dollars in thousands)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	RHINEBECK BANCORP, INC.

Date: May 14, 2019		/s/ Michael J. Quinn
		Michael J. Quinn President and Chief Executive Officer

Date: May 14, 2019		/s/ Michael J. McDermott
		Michael J. McDermott Chief Financial Officer