Rhinebeck Bancorp, Inc. - Quarter Report: 2019 September (Form 10-Q)

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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 September 30, 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. 001‑38779

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)

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

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 ☒ 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 ☒ 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 ☒		Smaller reporting company ☒
		Emerging growth company ☒

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 ☒

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

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TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	2

	Consolidated Statements of Financial Condition at September 30, 2019 and December 31, 2018	2

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018	3

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	4

	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION		45

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

	SIGNATURES	47

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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 on March 29, 2019.

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PART 1 — FINANCIAL INFORMATION

ITEM 1.

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands, except share and per share data)


	September 30,		December 31,
	2019		2018
Assets
Cash and due from banks	$	18,356	$	50,590
Available for sale securities (at fair value)		115,705		101,312
Loans receivable (net of allowance for loan losses of $7,903 and $6,646, respectively)		758,999		678,402
Federal Home Loan Bank stock		2,608		1,883
Accrued interest receivable		2,793		2,523
Cash surrender value of life insurance		18,359		18,018
Deferred tax assets (net of valuation allowance of $1,210 and $1,085, respectively)		2,340		2,934
Premises and equipment, net		18,571		17,040
Other real estate owned		1,505		1,685
Goodwill		1,410		1,410
Intangible assets, net		252		284
Other assets		5,129		6,342
Total assets	$	946,027	$	882,423
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest bearing	$	179,924	$	171,829
Interest bearing		590,061		512,589
Total deposits		769,985		684,418

Mortgagors’ escrow accounts		3,693		7,725
Advances from the Federal Home Loan Bank		47,936		31,598
Subordinated debt		5,155		5,155
Other borrowings		—		5,000
Subscription offering proceeds		—		79,142
Accrued expenses and other liabilities		11,003		10,108
Total liabilities		837,772		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		45,865		100
Unallocated common stock held by the employee stock ownership plan		(4,200)		—
Retained earnings		70,412		66,189
Accumulated other comprehensive loss:
Net unrealized gain (loss) on available for sale securities, net of taxes		363		(2,576)
Defined benefit pension plan, net of taxes		(4,296)		(4,436)
Total accumulated other comprehensive loss		(3,933)		(7,012)
Total stockholders’ equity		108,255		59,277
Total liabilities and stockholders’ equity	$	946,027	$	882,423

See accompanying notes to consolidated financial statements

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Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Interest and Dividend Income
Interest and fees on loans	$	10,160	$	8,570	$	28,276	$	22,713
Interest and dividends on securities		655		578		1,976		1,762
Other income		10		5		51		14
Total interest and dividend income		10,825		9,153		30,303		24,489
Interest Expense
Interest expense on deposits		1,957		1,112		4,980		2,927
Interest expense on borrowings		404		311		1,368		673
Total interest expense		2,361		1,423		6,348		3,600
Net interest income		8,464		7,730		23,955		20,889
Provision for loan losses		450		525		2,010		1,575
Net interest income after provision for loan losses		8,014		7,205		21,945		19,314
Noninterest Income
Service charges on deposit accounts		729		785		2,141		2,030
Net realized loss on sales and calls of securities		—		(21)		(40)		(22)
Net gain on sales of loans		159		167		367		435
Increase in cash surrender value of life insurance		100		101		300		300
Write-downs of other real estate owned		—		—		—		(387)
Other real estate owned income		8		11		19		32
Investment advisory income		225		225		767		557
Other		238		230		602		685
Total noninterest income		1,459		1,498		4,156		3,630
Noninterest Expense
Salaries and employee benefits		3,944		3,601		11,915		10,520
Occupancy		838		818		2,631		2,572
Data processing		353		283		1,003		851
Professional fees		361		217		987		635
Marketing		166		148		468		532
FDIC deposit insurance and other insurance		29		229		317		608
Other real estate owned expense		73		101		111		184
Amortization of intangible assets		10		11		32		32
Impairment loss on goodwill		—		—		—		95
Other		1,058		1,065		3,334		3,211
Total noninterest expense		6,832		6,473		20,798		19,240
Income before income taxes		2,641		2,230		5,303		3,704
Provision for income taxes		550		266		1,080		545
Net income	$	2,091	$	1,964	$	4,223	$	3,159

Earnings per common share:
Basic	$	0.20	$	—	$	0.39	$	—
Diluted	$	0.20	$	—	$	0.39	$	—

Weighted average shares outstanding, basic		10,710,500		—		10,705,046		—
Weighted average shares outstanding, diluted		10,710,500		—		10,705,046		—

See accompanying notes to consolidated financial statements

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Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net Income	$	2,091	$	1,964	$	4,223	$	3,159
Other Comprehensive Income:
Unrealized holding gains (losses) arising during the period		474		(670)		3,680		(2,455)
Reclassification adjustment for losses included in net realized loss on sales and calls of securities on the consolidated statements of income		—		21		40		22
Net unrealized gains (losses) on available for sale securities		474		(649)		3,720		(2,433)
Tax effect (a)		(99)		137		(781)		511
Unrealized gains (losses) on available for sale securities, net of tax		375		(512)		2,939		(1,922)
Defined benefit pension plan:
Actuarial (loss) gain arising during the period		(50)		—		(111)		823
Reclassification adjustment for amortization of net actuarial loss (b)		110		—		289		187
Total		60		—		178		1,010
Tax effect (c)		(13)		—		(38)		(211)
Defined benefit pension plan gain, net of tax		47		—		140		799
Other comprehensive income (loss)		422		(512)		3,079		(1,123)
Total Comprehensive Income	$	2,513	$	1,452	$	7,302	$	2,036

(a) - Includes $0 and $8 for the three and nine months ended September 30, 2019 and $4 and $5 for the three and nine months ended September 30, 2018 for tax effect of realized 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 and $56 for the three and nine months ended September 30, 2019, respectively and $0 and $39 for the three and nine months ended September 30, 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

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Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands, except share and per share data)


					Unallocated				Accumulated
			Additional		Common				Other
	Common		Paid-in		Stock Held		Retained		Comprehensive
	Stock		Capital		by the ESOP		Earnings		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	$	—	$	100	$	—	$	62,448	$	(8,029)	$	54,519

Net income		—		—		—		579		—		579
Other comprehensive income		—		—		—		—		463		463

Balance at June 30, 2018	$	—	$	100	$	—	$	63,027	$	(7,566)	$	55,561

Net income		—		—		—		1,964		—		1,964
Other comprehensive income		—		—		—		—		(512)		(512)

Balance at September 30, 2018	$	—	$	100	$	—	$	64,991	$	(8,078)	$	57,013

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		45,754		—		—		—		45,865
Unallocated common stock held by ESOP		—		—		(4,364)		—		—		(4,364)
ESOP shares committed to be allocated		—		9		55		—		—		64

Balance at March 31, 2019	$	111	$	45,863	$	(4,309)	$	67,100	$	(5,916)	$	102,849

Net income		—		—		—		1,221		—		1,221
Other comprehensive income		—		—		—		—		1,561		1,561
Common Stock and proceeds of offering		—		(10)		—		—		—		(10)
ESOP shares committed to be allocated		—		8		54		—		—		62

Balance at June 30, 2019	$	111	$	45,861	$	(4,255)	$	68,321	$	(4,355)	$	105,683

Net income		—		—		—		2,091		—		2,091
Other comprehensive income		—		—		—		—		422		422
ESOP shares committed to be allocated		—		4		55		—		—		59

Balance at September 30, 2019	$	111	$	45,865	$	(4,200)	$	70,412	$	(3,933)	$	108,255

See accompanying notes to consolidated financial statements

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Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands, except share and per share data)


	Nine Months Ended September 30,
	2019		2018
Cash Flows from Operating Activities
Net income	$	4,223	$	3,159
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of premiums and discounts on investments, net		169		265
Net realized loss on sales and calls of securities		40		22
Provision for loan losses		2,010		1,575
Loans originated for sale		(32,392)		(26,937)
Proceeds from sale of loans		30,807		29,146
Net gain on sale of loans		(367)		(435)
Amortization of intangible assets		32		32
Depreciation and amortization		969		866
Impairment loss on goodwill		—		95
Write-down of other real estate owned		—		387
Deferred income tax expense		(224)		(12)
Increase in cash surrender value of insurance		(300)		(300)
Increase in accrued interest receivable		(270)		(269)
Increase (decrease) in other assets		1,213		(788)
Increase in accrued expenses and other liabilities		1,258		7
Net cash provided by operating activities		7,168		6,813
Cash Flows from Investing Activities
Proceeds from sales and calls of securities		5,554		2,113
Proceeds from maturities and principal repayments of securities		11,952		11,881
Purchases of securities		(28,388)		(3,885)
Net purchases of FHLB Stock		(725)		(1,766)
Net increase in loans		(80,656)		(89,224)
Purchases of bank owned life insurance		(41)		(41)
Purchases of bank premises and equipment		(2,500)		(434)
Proceeds from sale of other real estate owned		180		108
Net cash used in investing activities		(94,624)		(81,248)
Cash Flows from Financing Activities
Net increase in demand deposits, NOW, money market and savings accounts		31,429		30,911
Net increase in time deposits		54,138		10,702
Decrease in mortgagors' escrow accounts		(4,032)		(3,763)
Net (decrease) increase in short-term debt		(13,954)		20,537
Net increase in long-term debt		25,292		18,184
Proceeds of stock subscriptions		9,814		—
Return of unfulfilled stock subscriptions		(41,082)		—
Loan to ESOP		(4,364)		—
Offering expenses		(1,898)		—
Return of capital to Rhinebeck Bancorp, MHC		(121)		—
Net cash provided by financing activities		55,222		76,571
Net (decrease) increase in cash and due from banks		(32,234)		2,136
Cash and Due from Banks
Beginning balance		50,590		10,460
Ending balance	$	18,356	$	12,596
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest	$	6,424	$	3,483
Income taxes	$	1,040	$	368

See accompanying notes to consolidated financial statements

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

1. Nature of Business and Significant Accounting Policies

The consolidated financial statements include 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”).

The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other period.

For more information regarding the Company’s significant accounting policies, see the Notes to the Consolidated Financial Statements 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 September 30, 2019, the significant accounting policies of the Company have not changed materially from those disclosed in the Annual Report on Form 10‑K for the year ended December 31, 2018.

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 periods after January 16, 2019 and Rhinebeck Bancorp, MHC, a New York chartered mutual holding company, and the Bank for the periods prior to January 16, 2019. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

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

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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 14 for additional information related to the adoption of ASU No. 2014‑09.

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. On October 16, 2019, the FASB approved a delay for conversion to the CECL methodology to January 2023 for smaller reporting companies, other public business entities, private companies and non-profits; although early adoption is permitted in 2019. The Company is currently assessing the effect of ASU No. 2016‑13 and has engaged with a software vendor to assist in its efforts.

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.

Effective January 1, 2019, the Company adopted ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 simplifies the test for goodwill impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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.

2. Investment Securities

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


	September 30, 2019
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. government agency mortgage-backed securities–residential	$	92,951	$	754	$	(407)	$	93,298
U.S. government agency securities		19,366		91		(71)		19,386
Municipal securities 1		888		20		—		908
Corporate Bonds		1,500		15		—		1,515
Other		541		57		—		598
Total	$	115,246	$	937	$	(478)	$	115,705


	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

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

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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:


	September 30, 2019
	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. government agency mortgage-backed securities-residential	$	12,419	$	(56)	$	29,600	$	(351)	$	42,019	$	(407)
U.S. government agency securities		—		—		12,862		(71)		12,862		(71)
Total	$	12,419	$	(56)	$	42,462	$	(422)	$	54,881	$	(478)


	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 September 30, 2019 and December 31, 2018, the Company had 61 and 96 individual available-for-sale securities with unrealized losses totaling $478 and $3,273, respectively, with an aggregate depreciation of 0.87% 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 September 30, 2019 or December 31, 2018.

The amortized cost and fair value of available for sale debt securities at September 30, 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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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:


	September 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	1,075	$	1,074	$	1,221	$	1,210
After 1 but within 5 years		13,443		13,374		17,253		16,780
After 5 but within 10 years		7,056		7,181		1,975		1,945
After 10 years		180		180		734		736
Total Maturities		21,754		21,809		21,183		20,671

Mortgage-backed securities		92,951		93,298		82,965		80,216
Other		541		598		425		425
Total	$	115,246	$	115,705	$	104,573	$	101,312

At September 30, 2019 and December 31, 2018, available for sale securities with a carrying value of $25,327 and $27,465, respectively, were pledged to secure Federal Home Loan Bank of New York (“FHLB”) borrowings. In addition, $728 and $1,032 of available for sale securities, respectively, were pledged to secure borrowings at the Federal Reserve Bank of New York.

During the nine months ended September 30, 2019, there was $5,554 in proceeds from the sales of available for sale securities with $40 in gross losses realized. 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.

3. Loans and Allowance for Loan Losses

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


	September 30,		December 31,
	2019		2018
Commercial real estate loans:
Construction	$	16,654	$	12,870
Non-residential		208,778		197,499
Multi-family		20,272		12,661
Residential real estate loans		41,344		43,534
Commercial and industrial loans		88,187		83,203
Consumer loans:
Indirect automobile		354,394		297,144
Home equity		17,336		19,269
Other consumer		10,133		10,826
Total gross loans		757,098		677,006
Net deferred loan costs		9,804		8,042
Allowance for loan losses		(7,903)		(6,646)
Total net loans	$	758,999	$	678,402

At September 30, 2019 and December 31, 2018, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $1,065 and $888, respectively.

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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


	September 30, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
Commercial real estate:
Construction	$	16,654	$	—	$	—	$	—	$	16,654
Non-residential		200,820		3,614		4,175		169		208,778
Multifamily		19,888		—		384		—		20,272
Residential real estate		38,687		—		—		2,657		41,344
Commercial and industrial		86,255		621		889		422		88,187
Consumer:
Indirect automobile		353,720		—		—		674		354,394
Home equity		16,854		—		—		482		17,336
Other consumer		10,084		—		—		49		10,133
Total	$	742,962	$	4,235	$	5,448	$	4,453	$	757,098


	December 31, 2018
	Pass		Special 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 real estate		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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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


	September 30, 2019
							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	$	16,654	$	—	$	—	$	—	$	16,654	$	—
Non-residential		202,855		235		1,835		3,853		208,778		3,853
Multifamily		19,887		—		—		385		20,272		385
Residential real estate		39,871		48		357		1,068		41,344		2,657
Commercial and industrial		87,459		10		296		422		88,187		674
Consumer:
Indirect automobile		347,611		5,228		902		653		354,394		673
Home equity		16,678		159		115		384		17,336		482
Other consumer		9,878		149		57		49		10,133		49
Total	$	740,893	$	5,829	$	3,562	$	6,814	$	757,098	$	8,773


	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 real estate		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

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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


	September 30, 2019
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Construction	$	—	$	—	$	—	$	—
Non-residential		3,853		3,915		—		3,180
Multifamily		385		409		—		192
Residential real estate		2,657		3,150		—		2,471
Commercial and industrial		674		814		—		486
Consumer:
Indirect automobile		374		421		—		324
Home equity		482		532		—		340
Other consumer		11		11		—		10
Total	$	8,436	$	9,252	$	—	$	7,003
With an allowance recorded:
Commercial real estate:
Construction	$	—	$	—	$	—	$	—
Non-residential		—		—		—		—
Multifamily		—		—		—		—
Residential real estate		—		—		—		—
Commercial and industrial		—		—		—		—
Consumer:
Indirect automobile		299		323		118		239
Home equity		—		—		—		—
Other consumer		38		40		6		19
Total	$	337	$	363	$	124	$	258
Total:
Commercial real estate:
Construction	$	—	$	—	$	—	$	—
Non-residential		3,853		3,915		—		3,180
Multifamily		385		409		—		192
Residential real estate		2,657		3,150		—		2,471
Commercial and industrial		674		814		—		486
Consumer:
Indirect automobile		673		744		118		563
Home equity		482		532		—		340
Other consumer		49		51		6		29
Total	$	8,773	$	9,615	$	124	$	7,261

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)


	December 31, 2018
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Construction	$	—	$	—	$	—	$	563
Non-residential		2,507		2,601		—		3,023
Multifamily		—		—		—		—
Residential real estate		2,285		2,841		—		2,235
Commercial and industrial		297		421		—		758
Consumer:
Indirect automobile		274		320		—		242
Home equity		198		211		—		158
Other consumer		10		10		—		5
Total	$	5,571	$	6,404	$	—	$	6,984
With an allowance recorded:
Commercial real estate:
Construction	$	—	$	—	$	—	$	—
Non-residential		—		—		—		451
Multifamily		—		—		—		—
Residential real estate		—		—		—		—
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 real estate		2,285		2,841		—		2,235
Commercial and industrial		297		421		—		767
Consumer:
Indirect automobile		452		511		50		447
Home equity		198		211		—		158
Other consumer		10		10		—		7
Total	$	5,749	$	6,595	$	50	$	7,651

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 September 30, 2019 and December 31, 2018, three loans totaling $1,687 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 nine months 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 September 30, 2019

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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 September 30, 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 $265,629 and $255,892 as of September 30, 2019 and December 31, 2018, respectively.

The balance of capitalized servicing rights, included in other assets at September 30, 2019 and December 31, 2018, were $2,192 and $2,278, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the period ended September 30, 2019 and the year ended December 31, 2018.

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				Commercial
	Real Estate		Residential		and Industrial		Indirect		Consumer		Totals
	Three months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	1,252	$	305	$	1,895	$	3,606	$	800	$	7,858
Provision for loan losses		(79)		(49)		(276)		898		(44)		450
Loans charged-off		—		—		(43)		(494)		(67)		(604)
Recoveries		—		—		14		173		12		199
Ending balance	$	1,173	$	256	$	1,590	$	4,183	$	701	$	7,903


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals
	Three months ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	947	$	513	$	1,082	$	2,621	$	776	$	5,939
Provision for loan losses		(77)		(40)		(27)		728		(59)		525
Loans charged-off		—		—		(1)		(365)		(6)		(372)
Recoveries		—		1		1		211		5		218
Ending balance	$	870	$	474	$	1,055	$	3,195	$	716	$	6,310

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals
	Nine months ended September 30, 2019

Allowance for loan losses:
Beginning balance	$	1,080	$	320	$	1,542	$	2,915	$	789	$	6,646
Provision for loan losses		93		(67)		89		1,930		(35)		2,010
Loans charged-off		—		—		(55)		(1,413)		(82)		(1,550)
Recoveries		—		3		14		751		29		797
Ending balance	$	1,173	$	256	$	1,590	$	4,183	$	701	$	7,903
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	118	$	6	$	124
Loans not deemed impaired	$	1,173	$	256	$	1,590	$	4,065	$	695	$	7,779
Loan receivables:
Ending balance	$	245,704	$	41,344	$	88,187	$	354,394	$	27,469	$	757,098
Ending balance:
Loans deemed impaired	$	4,238	$	2,657	$	674	$	673	$	531	$	8,773
Loans not deemed impaired	$	241,466	$	38,687	$	87,513	$	353,721	$	26,938	$	748,325


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals
	Nine months ended September 30, 2018

Allowance for loan losses:
Beginning balance	$	1,305	$	455	$	879	$	2,150	$	668	$	5,457
Provision for loan losses		(132)		15		91		1,545		56		1,575
Loans charged-off		(303)		—		(28)		(1,100)		(25)		(1,456)
Recoveries		—		4		113		600		17		734
Ending balance	$	870	$	474	$	1,055	$	3,195	$	716	$	6,310
Ending balance:
Loans deemed impaired	$	—	$	—	$	5	$	83	$	11	$	99
Loans not deemed impaired	$	870	$	474	$	1,050	$	3,112	$	705	$	6,211
Loan receivables:
Ending balance	$	224,699	$	44,387	$	79,055	$	272,892	$	30,013	$	651,046
Ending balance:
Loans deemed impaired	$	4,668	$	2,445	$	630	$	542	$	294	$	8,579
Loans not deemed impaired	$	220,031	$	41,942	$	78,425	$	272,350	$	29,719	$	642,467

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals
	Year ended December 31, 2018
Allowance for loan losses:
Beginning balance	$	1,305	$	455	$	879	$	2,150	$	668	$	5,457
Provision 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:
Loans deemed impaired	$	—	$	—	$	—	$	50	$	—	$	50
Loans not deemed impaired	$	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:
Loans deemed impaired	$	2,507	$	2,285	$	297	$	452	$	208	$	5,749
Loans not deemed impaired	$	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.

4. Premises and Equipment

Premises and equipment are summarized as follows:


	September 30,		December 31,
	2019		2018
Land	$	3,690	$	3,536
Buildings and improvements		25,347		23,534
Furniture, fixtures and equipment		12,047		11,708
Construction in process		245		51
Total		41,329		38,829
Less accumulated depreciation		(22,758)		(21,789)
Net	$	18,571	$	17,040

5. Goodwill

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


	Nine Months		Year Ended
	Ended September 30,		December 31,
RAM	2019		2018
Beginning balance	$	1,410	$	1,505
Impairment		—		(95)

Ending balance	$	1,410	$	1,410

Accumulated impairment	$	1,116	$	1,116

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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.

6. Intangible Assets

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


	Nine Months		Year Ended
	Ended September 30,		December 31,
RAM	2019		2018
Beginning balance	$	284	$	326
Amortization		(32)		(42)

Ending balance	$	252	$	284
Accumulated amortization and impairment	$	695	$	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 $32 and $42 of amortization expense related to its intangible assets for the nine months ended September 30, 2019 and the year ended December 31, 2018.

At September 30, 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 September 30, 2019, the future amortization expense for amortizable intangible assets for the respective years is as follows:


2019	$	10
2020		42
2021		42
2022		42
2023		42
Thereafter		74
Total	$	252

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

7. Deposits

Deposits balances are summarized as follows:


	September 30,		December 31,
	2019		2018
Noninterest bearing demand deposits	$	179,924	$	171,829
Interest bearing accounts:
NOW		98,769		99,715
Savings		121,095		126,822
Money market		160,363		130,356
Time certificates of deposit		209,834		155,696
Total interest bearing accounts		590,061		512,589
Total deposits	$	769,985	$	684,418

Included in time certificates of deposit at September 30, 2019 and December 31, 2018 were reciprocal deposits totaling $19,078 and $21,515, respectively, with original maturities of one to three years. Time certificates of deposit in denominations of $250 or greater were $43,264 and $16,644 as of September 30, 2019 and December 31, 2018, respectively.

Contractual maturities of time certificates of deposit at September 30, 2019 are summarized below:


	September 30,
	2019
Within 1 year	$	172,954
1 – 2 years		14,506
2 – 3 years		13,487
3 – 4 years		2,789
4 – 5 years		6,098
Total	$	209,834

8. Long-Term Debt and FHLB Stock

FHLB Borrowings and Stock

The Bank is a member of the FHLB. At September 30, 2019 and December 31, 2018, the Bank had access to a preapproved secured line of credit with the FHLB of $472,936 and $441,134, respectively. Borrowings under this line require collateralization through the pledge of specific loans and securities. At September 30, 2019 and December 31, 2018, the Bank had pledged assets of $157,255 and $145,805, respectively. At September 30, 2019,

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

the Bank also had structured borrowings in the amount of $47,936. The outstanding principal amounts and the related terms and rates at September 30, 2019 were as follows:


Term	Principal		Maturity	Rate		Due in one year		Long term
2 year amortizing	$	1,908	May 15, 2020	2.78	%	$	1,908	$	—
2 year amortizing		2,117	June 8, 2020	2.76	%		2,117		—
2 year amortizing		8,777	May 17, 2021	2.53	%		4,968		3,809
2 year bullet		10,000	May 17, 2021	2.46	%		—		10,000
3 year amortizing		5,939	May 17, 2021	2.92	%		3,357		2,582
3 year amortizing		9,195	May 16, 2022	2.49	%		3,271		5,924
3 year bullet		10,000	May 16, 2022	2.44	%		—		10,000
Total	$	47,936	Weighted Average Rate	2.56	%	$	15,621	$	32,315

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 September 30, 2019 or December 31, 2018.

Subordinated Debt

As part of the reorganization completed on January 16, 2019, the Company acquired both the common securities and related obligations of 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. The proceeds from the issuance of the 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, 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% (4.15% at September 30, 2019 and 4.65% at December 31, 2018) mature on May 23, 2035.

Other Borrowings

The Company maintains an unsecured line of credit in the amount of $5,000 with Atlantic Community Bankers Bank. At September 30, 2019, there were no advances under this line. On December 31, 2018, there was an outstanding advance of $5,000 to Rhinebeck Bancorp, MHC which was paid in full on January 16, 2019 at the close of the Company’s offering.

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 either September 30, 2019 or December 31, 2018.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

9. 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 the Bank voted to freeze the its 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:


	Nine months		Year ended
	ended September 30,		December 31,
	2019		2018
Projected and accumulated benefit obligation	$	(21,136)	$	(18,241)
Plan assets at fair value		20,354		17,459
Funded status included in other liabilities	$	(782)	$	(782)

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


	Nine months ended		Nine months ended
	September 30,		September 30,
	2019		2018
Interest cost	$	555	$	345
Expected return on plan assets		(705)		(537)
Amortization of unrecognized loss		328		187
Net periodic cost (benefit)	$	178	$	(5)

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 eleven diversified investment funds.

As of September 30, 2019 the investment funds included seven 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.

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.

In 2018, the Company made a contribution to the plan in the amount of $570. The Company does not expect to make a contribution in 2019.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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


	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	—	$	15,542	$	—	$	15,542
Equity		—		4,812		—		4,812
Total assets at fair value	$	—	$	20,354	$	—	$	20,354


	December 31, 2018
	Level 1		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 $643 and $577 for the nine months ended September 30, 2019 and 2018, respectively.

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 $18,359 and $18,018 at September 30, 2019 and December 31, 2018, respectively. Net earnings on these policies aggregated $300 and $300 for the nine months ended September 30, 2019 and 2018, respectively, which are included in noninterest income in the consolidated statements of income.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

Deferred Compensation Arrangements

Directors’ Plan

The Bank’s Deferred Compensation Plan for Fees of Directors, as amended and restated effective January 1, 2005 (the “Directors’ Plan”) 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 September 30, 2019 and December 31, 2018, total amounts due of $1,945 and $1,687, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $91 and $95 for the nine months ended September 30, 2019 and 2018, respectively, which were included in other 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 September 30, 2019 and December 31, 2018, $1,013 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 $405 and $379 for the nine months ended September 30, 2019 and 2018, respectively, related to this plan and which are included in salaries and employee benefits expense in the consolidated statements of income.

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 $1,316 and $1,276, respectively, at September 30, 2019 and December 31, 2018. The Company recognized expenses of $40 and $40 for the nine-month periods ended September 30, 2019 and September 30, 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 $2,128 and $2,108, respectively, at September 30, 2019 and December 31, 2018. The Company recognized expenses of $67 and $75 for the nine months ended September 30, 2019 and 2018, respectively, related to these benefits which are included in other noninterest expenses in the consolidated statements of income.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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 (5.50% at January 16, 2019). 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 September 30, 2019 was $4,364. 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:


		September 30, 2019
Allocated		—
Committed to be allocated		16,362
Unallocated		420,063
Total shares		436,425

The fair value of unallocated shares was $4,495 at September 30, 2019.

Total compensation expense recognized in connection with the ESOP for the nine months ended September 30, 2019 was $185.

10. 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 September 30, 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	$	149
2020		627
2021		633
2022		578
2023		555
2024 and beyond		563
Total	$	3,105

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

Total rental expense charged to operations for cancelable and non-cancelable operating leases was $474 and $479 for the nine months ended September 30, 2019 and 2018, respectively. Rental income under subleases was $228 and $230 for the nine months ended September 30, 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.

11. 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:


	September 30,		December 31,
	2019		2018
Commitments to extend credit summarized as follows:
Future loan commitments	$	9,118	$	3,157
Undisbursed construction loans		8,622		16,289
Undisbursed home equity lines of credit		10,255		9,532
Undisbursed commercial and other line of credit		57,975		50,773
Standby letters of credit		2,752		1,785
Total	$	88,722	$	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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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.

12. Regulatory Matters

The Bank is 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items, as calculated under regulatory accounting practices. 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 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 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 September 30, 2019 and December 31, 2018, that 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.

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


									To be Well Capitalized under
					For Capital Adequacy				Prompt Corrective Action
	Actual				Purposes				Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	September 30, 2019
Rhinebeck Bank
Total capital (to risk-weighted assets)	$	110,099	13.44	%	$	65,557	8.00	%	$	81,946	10.00	%
Tier 1 capital (to risk-weighted assets)		102,196	12.47	%		49,167	6.00	%		65,557	8.00	%
Common equity tier one capital (to risk weighted assets)		102,196	12.47	%		36,876	4.50	%		53,265	6.50	%
Tier 1 capital (to average assets)		102,196	11.01	%		37,132	4.00	%		46,415	5.00	%


	December 31, 2018
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	%

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

13. 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 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.

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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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.

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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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 Markets		Significant		Significant
			for Identical		Observable		Unobservable
	Balance		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	September 30, 2019
U.S. government agency mortgage-backed securities-residential	$	93,298	$	—	$	93,298	$	—
U.S. government agency securities		19,386		—		19,386		—
Municipal securities		908		—		908		—
Corporate Bonds		1,515		—		1,515		—
Other		598		—		598		—
Total	$	115,705	$	—	$	115,705	$	—


	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		—
Other		425		—		425		—
Total	$	101,312	$	2,971	$	98,341	$	—

The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:


			Quoted Prices in
			Active Markets		Significant		Significant
			for Identical		Observable		Unobservable
	Balance		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	September 30, 2019
Impaired loans, with specific reserves	$	213	$	—	$	—	$	213
Other real estate owned		1,074		—		—		1,074
Total	$	1,287	$	—	$	—	$	1,287


	December 31, 2018
Impaired loans	$	128	$	—	$	—	$	128
Other real estate owned		935		—		—		935
Total	$	1,063	$	—	$	—	$	1,063

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Average)
	September 30, 2019

Impaired loans	$	213	Appraisal of collateral	(1)	Appraisal adjustments	(2)	0% to 20%
Other real estate owned		1,074	Appraisal of collateral	(1)	Liquidation expenses	(3)	0% to 6%
					Appraisal adjustments	(2)	0% to 20%
December 31, 2018

	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.

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.

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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


	September 30,				December 31,
	2019				2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and due from banks (Level 2)	$	18,356	$	18,356	$	50,590	$	50,590
Available for sale securities (Level 2)		115,705		115,705		101,312		101,312
FHLB stock (Level 2)		2,608		2,608		1,883		1,883
Loans, net (Level 3)		758,999		765,048		678,402		667,641
Accrued interest receivable (Level 2)		2,793		2,793		2,523		2,523
Mortgage servicing rights (Level 3)		2,192		3,713		2,278		4,667
Financial Liabilities:
Deposits (Level 2)		769,985		764,230		684,418		637,863
Mortgagors escrow accounts (Level 2)		3,693		3,695		7,725		7,723
FHLB advances (Level 2)		47,936		48,394		31,598		31,561
Subordinated debt and other borrowings (Level 2)		5,155		5,155		10,155		10,155

14. 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

Table of Contents

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

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.

15. Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the three months and nine months ended September 30, 2019 and 2018, is as follows:


	Accumulated Other Comprehensive Loss(1)
			Unrealized gains
			(losses) on
	Defined Benefit		available for sale
	Pension Plan		securities		Total
Balance at June 30, 2019	$	(246)	$	(4,109)	$	(4,355)
Other comprehensive (loss) gain before reclassifications		(24)		375		351
Amounts reclassified from accumulated other comprehensive loss		71		—		71
Period change		47		375		422
Balance at September 30, 2019	$	(199)	$	(3,734)	$	(3,933)

Balance at June 30, 2018	$	264	$	(7,830)	$	(7,566)
Other comprehensive loss before reclassifications		—		(512)		(512)
Period change		—		(512)		(512)
Balance at September 30, 2018	$	264	$	(8,342)	$	(8,078)


	Accumulated Other Comprehensive Loss(1)
			Unrealized gains
			(losses) on
	Defined Benefit		available for sale
	Pension Plan		securities		Total
Balance at December 31, 2018	$	(339)	$	(6,673)	$	(7,012)
Other comprehensive (loss) gain before reclassifications		(72)		2,907		2,835
Amounts reclassified from accumulated other comprehensive loss		212		32		244
Period change		140		2,939		3,079
Balance at September 30, 2019	$	(199)	$	(3,734)	$	(3,933)

Balance at December 31, 2017	$	(534)	$	(6,421)	$	(6,955)
Other comprehensive gain (loss) before reclassifications		650		(1,939)		(1,289)
Amounts reclassified from accumulated other comprehensive loss		148		18		166
Period change		798		(1,921)		(1,123)
Balance at September 30, 2018	$	264	$	(8,342)	$	(8,078)

(1)

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

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Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except share and per share data)

16. 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 September 30, 2019. Earnings per share data is not applicable for the period ended September 30, 2018 because the Company had not yet been formed and had no shares outstanding.


	Three months ended		Nine months ended
(Dollars in thousands, except for per share data)	September 30, 2019		September 30, 2019
Net income applicable to common stock	$	2,091	$	4,223

Average number of common shares outstanding		11,133,290		11,133,290
Less: Average unallocated ESOP shares		422,790		428,244
Average number of common shares outstanding used to calculate basic and diluted earnings per common share		10,710,500		10,705,046

Earnings per Common share:
Basic	$	0.20	$	0.39
Diluted	$	0.20	$	0.39

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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 September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 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”, "intend", “predict”, “forecast”, “improve”, “continue”, "will", "would", "should", "could", "may" 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. Forward looking statements, by their nature, are subject to risks and uncertainties.

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;

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;

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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 interest rate risk, 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 prospects of issuers of securities that we own.

Additional factors that may affect our results are discussed in our Annual Report on Form 10‑K under the heading “Risk Factors.” Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Accordingly, you should not place undue reliance on such statements.

Critical Accounting Policies

For a detailed disclosure regarding the Company’s critical accounting policies, see Part 2, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 September 30, 2019, the critical accounting policies of the Company have not changed materially from those disclosed in the Annual Report on Form 10‑K for the year ended December 31, 2018.

Comparison of Financial Condition at September 30, 2019 and December 31, 2018

Total Assets. Total assets were $946.0 million at September 30, 2019, representing an increase of $63.6 million, or 7.2%, 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 $32.2 million decrease in cash balances on hand. Prior to year-end, subscription receipts in connection with the Company’s stock offering had temporarily increased our federal fund balances to $37.1 million.

Cash and Due from Banks. Cash and due from banks decreased $32.2 million, or 63.7%, to $18.4 million at September 30, 2019 from $50.6 million at December 31, 2018 primarily due to the return of $41.1 million of unfilled subscriptions for Rhinebeck Bancorp, Inc.’s stock offering.

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Investment Securities Available for Sale. Investment securities available for sale increased $14.4 million, or 14.2%, to $115.7 million at September 30, 2019 from $101.3 million at December 31, 2018, which was funded by increased deposits and borrowings. This increase was due to purchases of mortgage backed securities of $28.4 million and a reduction in unrealized loss of $3.7 million, offset by principal pay-downs of $12.1 million and sales and calls of $5.6 million.

Net Loans. Total net loans receivable were $759.0 million at September 30, 2019, an increase of $80.6 million, or 11.9%, as compared to $678.4 million at December 31, 2018. The primary increase was in our indirect automobile portfolio, which increased $55.7 million, or 19.2%, as we continued to increase the number of dealerships in Albany and grow that line of business. The net increase in commercial real estate loans totaled $22.6 million, or 10.2%, as compared to December 31, 2018. During the same period our allowance for loan losses increased $1.3 million, or 18.9%, to reflect the growth in our indirect automobile portfolio and an increase in non-performing assets.

Non-accrual loans increased $3.1 million, or 54.7%, to $8.8 million between year end and September 30, 2019. During the same timeframe non-performing assets increased $2.9 million or 39.7%.

Total Liabilities. Total liabilities increased $14.7 million, or 1.8%, to $837.8 million at September 30, 2019, primarily due to an increase of $16.3 million in Federal Home Loan Bank advances and an $85.6 million increase in deposits, offset by the release of $90.0 million in gross subscription offering proceeds and a $5.0 million line of credit pay-down.

Deposits. Deposits increased 12.5%, or $85.6 million, to $770.0 million at September 30, 2019. Interest bearing accounts grew 15.1%, or $77.5 million, to $590.1 million while non-interest bearing balances increased 4.7% or $8.1 million finishing the first nine months at $179.9 million. Money market balances were significantly impacted by the receipt of an estate deposit in the amount of $23.2 million in September 2019.

Borrowed Funds. Advances from the Federal Home Loan Bank increased $16.3 million from $31.6 million at December 31, 2018 to $47.9 million at September 30, 2019, in order to support asset growth. A $5.0 million borrowing undertaken by Rhinebeck Bancorp, MHC just prior to year-end, used to support Bank capital ratios, was paid back at the close of the stock offering in January 2019.

Stockholders’ Equity. Stockholders’ equity increased $49.0 million to $108.3 million, primarily due to proceeds from the common stock offering of $45.7 million recorded in additional paid-in capital. At September 30, 2019, the Company’s book value per share was $9.72. At September 30, 2019, the Company’s ratio of stockholders’ equity-to-total assets was 11.4%, compared to 6.7% at December 31, 2018. This ratio was significantly impacted by the stock offering and reorganization. Unallocated common stock held by the Bank’s employee stock ownership plan was $4.2 million at September 30, 2019.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2019 and September 30, 2018

Net Income. Net income for the three months ended September 30, 2019 increased $127,000, or 6.5%, to $2.1 million, or $0.20 per basic and diluted share, compared to net income of $2.0 million for the three months ended September 30, 2018. Interest and dividend income increased $1.7 million, or 18.3%, interest expense increased $938,000, or 65.9%, the provision for loan losses decreased $75,000, or 14.3%, noninterest income decreased $39,000, or 2.6%, while other expenses and taxes increased $643,000, or 9.5%, between comparable quarters.

For the nine months ended September 30, 2019, net income was $4.2 million, or $0.39 per basic and diluted share, compared to $3.2 million for the nine months ended September 30, 2018. Interest income increased by $5.8 million, or 23.7%, and noninterest income increased $526,000, or 14.5%, between the two nine-month periods. These revenue gains were partially offset by a $2.7 million, or 76.3%, increase in interest expense, a $435,000 increase in provision for loan losses, and a $2.1 million, or 10.6%, increase in other noninterest and tax expenses during the equivalent timeframes.

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Net Interest Income. Net interest income increased $734,000 or 9.5%, to $8.5 million for the three months ended September 30, 2019 compared to the quarter ended September 30, 2018. The ratio of average interest-earning assets to average interest-bearing liabilities increased 2.8% to 136.9% while our net interest margin declined by 25 basis points to 3.85% when comparing the third quarter of 2019 to the same period in 2018.

For the nine months ended September 30, 2019, net interest income increased $3.1 million, or 14.7%, to $24.0 million from $20.9 million for the comparable 2018 period. Overall there was a 9 basis point decline in net interest margin to 3.80%, when comparing the respective nine month periods while the ratio of average interest-earning assets to average interest-bearing liabilities improved 4.5% to 137.4%.

Interest Income. Interest income increased $1.7 million, or 18.3%, to $10.8 million for the three months ended September 30, 2019 from $9.2 million for the comparable 2018 period. The average balances of interest-earning assets increased by $124.6 million, or 16.7%, to $872.8 million while the average yield improved 7 basis points to 4.92%

The average balance of interest-earning assets increased by $125.8 million, or 17.5%, to $843.5 million while the average yield improved by 24 basis points to 4.80% when comparing the nine-month periods ended September 30, 2019 and 2018, respectively.

In both comparable periods, interest income increases were mostly driven by continued origination of a greater volume of higher-yielding indirect automobile loans and commercial loans.

Interest Expense. Interest expense increased $938,000 or 65.9%, to $2.4 million for the three months ended September 30, 2019 over the comparable 2018 period. The average balance of total interest-bearing liabilities increased by $75.6 million, or 13.4%, to $637.8 million while interest rates on those balances increased 47 basis points to an average of 1.47% when comparing the quarters ended September 30, 2019 and 2018.

For the nine months ended September 30, 2019, interest expense grew $2.7 million, or 76.3%, to $6.3 million from $3.6 million for the comparable 2018 period, while the average balance of total interest-bearing liabilities increased by $68.4 million, or 12.5%, year over year. The increase in interest expense was also driven by a 50 basis point increase in the overall cost of average interest-bearing liabilities to 1.38% for the first nine months of 2019 from 0.88% for the first nine months of 2018.

Provision for Loan Losses. We recorded $450,000 in provision for loan losses for the three-month period ended September 30, 2019, as compared to $525,000 for the comparable three month period of 2018. Management deemed the decrease adequate to cover the $405,000 in net charge-offs experienced. Net charge-offs for the quarter ended September 30, 2018 totaled $154,000.

We recorded a $2.0 million provision for loan losses through the first nine months of 2019 as compared to $1.6 million for the same nine months in 2018, an increase of 27.6% period over period. Net charge-offs increased in comparative periods by $31,000, or 4.3%, from $722,000 to $753,000. Due to favorable improvement in net charge-off experiences in our growing indirect portfolio during the first nine months of 2019, management felt compelled to reduce the provision by $75,000 during the quarter.

Non-Interest Income. Non-interest income totaled $1.5 million for the three months ended September 30, 2019; a slight decrease of $39,000, or 2.6%, compared to $1.5 million for the same period ended September 30, 2018. A decrease in service charges on deposit accounts of $56,000, or 7.1%, was partially offset by a $21,000 realized loss on sales of securities in the quarter ended September 30, 2018 with no corresponding activity in the quarter ended September 30, 2019.

For the nine months ended September 30, 2019, non-interest income totaled $4.2 million, an increase of $526,000, or 14.5% over the comparative period in 2018. The increase was primarily due to period over period increases of $111,000 in deposit account fees, a $387,000 OREO write-down in 2018 and additional investment advisory income of $210,000 in 2019. The increase was partially offset by $83,000 less in loan fees, an increase in loss on security sales of $18,000, $68,000 less revenue on sales of loans and $13,000 less in rental income from bank held properties.

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Non-Interest Expense. For the three months ended September 30, 2019, non-interest expenses increased $359,000 to $6.8 million, as compared to $6.5 million for the comparable 2018 period. Salaries and employee benefits increased $343,000, or 9.5%, attributable to annual salary merit increases, production incentives, employee benefit increases and additions to staff. Occupancy expenses grew $20,000, or 2.4%, mostly due to increased depreciation on the purchases of new loan software and cash recyclers in late 2018 and 2019 and the purchase of our branch location in Goshen. Data processing fees increased $70,000, or 24.7%, mostly due to general increases in overall processing volumes and the additions of new technologies. Professional fees were up by $144,000, or 66.4%, mostly due to increases related to our new status as a public company effective this year. Marketing expenses also increased $18,000 or 12.2%. These increases were offset by reductions of $200,000, or 87.3%, due to assessment rate reductions and credits received from the FDIC, and $28,000, or 27.7%, in OREO expenses, as comparatively less maintenance was required in 2019.

For the nine months ended September 30, 2019, non-interest expenses increased $1.6 million to $20.8 million, or 8.1%, as compared to $19.2 million for the first nine months of 2018. Year to date salaries and employee benefits increased $1.4 million, or 13.3%, attributable to annual salary merit increases, production incentives, employee benefit increases and additions to staff. Occupancy costs increased by $59,000, or 2.3%, due mainly to increased depreciation expense as the result of the purchases of new equipment and software and the purchase of a building in Goshen, housing our branch operation. Data processing fees increased $152,000, or 17.9%, due to general increases in overall processing volumes and the additions of new technologies. Professional fees increased $352,000, or 55.4%, as the Company absorbed the additional expenses required of a public company. Marketing and advertising decreased 12.0%, or $64,000, due mostly to timing as 2018 saw more advertising, publicity, and community support activity in that comparative period. Insurance expense reflected a decrease of $291,000, or 47.9%, mainly due to a reduction in our FDIC assessment. OREO expense decreased $73,000 comparatively over the first nine months of 2019 as $115,000 in expenses of a previously foreclosed loan were recovered. Other expenses were up 3.8%, or $123,000, due mostly to volume related expenses and growing loan production and servicing costs.

Income Taxes. Income taxes increased by $284,000 for the three months ended September 30, 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 September 30, 2019 was 20.8% compared to 11.9% for the three months ended September 30, 2018. The tax liability in 2018 was positively impacted by a 2017 pension contribution made in August of 2018.

For the nine months ended September 30, 2019, income taxes increased $535,000, or 98.2%, from $545,000 in the first nine months of 2018 to $1.1 million for the comparable 2019 period. Our effective tax rate for the nine months ended September 30, 2019 was 20.4% as compared to 14.7% for the nine months ended September 30, 2018.

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Average Balance Sheets for the Three and Nine months Ended September 30, 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 (dollars in thousands).


	For the Three Months Ended September 30,
	2019						2018
	Average		Interest and				Average		Interest and
	Balance		Dividends		Yield/Cost		Balance		Dividends		Yield/Cost
Assets:
Interest bearing depository accounts	$	2,268	$	10	1.75	%	$	1,353	$	5	1.47	%
Loans(1)		754,317		10,160	5.34	%		640,534		8,570	5.31	%
Marketable Securities		116,210		655	2.24	%		106,322		578	2.16	%
Total interest-earning assets	$	872,795	$	10,825	4.92	%	$	748,209	$	9,153	4.85	%
Non-interest-earning assets		53,082						53,819
Total assets	$	925,877					$	802,028
Liabilities and equity:
NOW accounts	$	98,737	$	80	0.32	%	$	97,770	$	63	0.26	%
Money market accounts		139,688		476	1.35	%		129,582		313	0.96	%
Savings accounts		121,008		105	0.35	%		127,398		82	0.26	%
Certificates of deposit		207,600		1,262	2.41	%		152,440		621	1.62	%
Total interest-bearing deposits		567,033		1,923	1.35	%		507,190		1,079	0.84	%
Escrow accounts		11,057		34	1.22	%		10,719		33	1.22	%
Federal Home Loan Bank advances		54,518		347	2.53	%		39,140		254	2.57	%
Subordinated debt		5,155		57	4.39	%		5,155		57	4.39	%
Other interest-bearing liabilities		70,730		438	2.46	%		55,014		344	2.48	%
Total interest-bearing liabilities	$	637,763	$	2,361	1.47	%	$	562,204	$	1,423	1.00	%
Non-interest-bearing deposits		170,871						174,450
Other non-interest-bearing liabilities		10,555						8,906
Total liabilities	$	819,189					$	745,560
Total stockholders’ equity		106,688						56,468
Total liabilities and stockholders’ equity	$	925,877					$	802,028
Net interest income			$	8,464					$	7,730
Interest rate spread					3.45	%					3.85	%
Net interest margin(2)					3.85	%					4.10	%
Average interest-earning assets to average interest-bearing liabilities					136.85	%					133.08	%

(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.

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	For the Nine Months Ended September 30,
	2019						2018
	Average		Interest and				Average		Interest and
	Balance		Dividends		Yield/Cost		Balance		Dividends		Yield/Cost
Assets:
Interest bearing depository accounts	$	3,228	$	51	2.15	%	$	1,269	$	14	1.48	%
Loans(1)		727,275		28,276	5.20	%		606,566		22,713	5.01	%
Marketable Securities		112,975		1,976	2.34	%		109,827		1,762	2.14	%
Total interest-earning assets	$	843,478	$	30,303	4.80	%	$	717,662	$	24,489	4.56	%
Non-interest-earning assets		52,558						53,825
Total assets	$	896,036					$	771,487
Liabilities and equity:
NOW accounts	$	97,032	$	232	0.32	%	$	100,643	$	172	0.23	%
Money market accounts		136,188		1,327	1.30	%		127,385		763	0.80	%
Savings accounts		121,077		317	0.35	%		125,827		219	0.23	%
Certificates of deposit		184,556		3,026	2.19	%		148,482		1,696	1.53	%
Total interest-bearing deposits		538,853		4,902	1.22	%		502,337		2,850	0.76	%
Escrow accounts		8,731		78	1.19	%		8,312		77	1.24	%
Federal Home Loan Bank advances		60,992		1,200	2.63	%		29,853		516	2.31	%
Subordinated debt		5,439		168	4.13	%		5,155		157	4.07	%
Other interest-bearing liabilities		75,162		1,446	2.57	%		43,320		750	2.31	%
Total interest-bearing liabilities	$	614,015	$	6,348	1.38	%	$	545,657	$	3,600	0.88	%
Non-interest-bearing deposits		165,773						161,142
Other non-interest-bearing liabilities		14,639						9,431
Total liabilities	$	794,427					$	716,230
Total stockholders’ equity		101,609						55,257
Total liabilities and stockholders’ equity	$	896,036					$	771,487
Net interest income			$	23,955					$	20,889
Interest rate spread					3.42	%					3.68	%
Net interest margin(2)					3.80	%					3.89	%
Average interest-earning assets to average interest-bearing liabilities					137.37	%					131.52	%

(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.

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Rate/Volume Analysis

The following tables present 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 (in thousands).


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Compared to Three Months Ended						Compared to Nine Months Ended
	September 30, 2018						September 30, 2018
	Increase (Decrease)						Increase (Decrease)
	Due to						Due to
	Volume		Rate		Net		Volume		Rate		Net
Interest income:
Interest bearing depository accounts	$	4	$	1	$	5	$	29	$	8	$	37
Loans receivable		1,532		58		1,590		4,666		897		5,563
Marketable securities		55		22		77		52		162		214
Total interest-earning assets		1,591		81		1,672		4,747		1,067		5,814
Interest expense:
Deposits		295		550		845		519		1,534		2,053
Escrow accounts		2		(1)		1		3		(2)		1
Federal Home Loan Bank advances		97		(5)		92		603		80		683
Subordinated debt		—		—		—		9		2		11
Total interest-bearing liabilities		394		544		938		1,134		1,614		2,748
Net increase in net interest income	$	1,197	$	(463)	$	734	$	3,613	$	(547)	$	3,066

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.

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,

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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 September 30, 2019. All estimated changes presented in the table are within the policy limits approved by our Board of Directors (dollars in thousands).


							Net Economic
							Value as Percent of
	Net Economic Value						of Assets
	Dollar		Dollar		Percent		EVE		Percent
Basis Point Change in Interest Rates	Amount		Change		Change		Ratio		Change
	(unaudited)
400	$	89,328		(21,559)	(19.4)	%	10.29	%	(11.6)	%
300		94,748		(16,139)	(14.6)	%	10.68	%	(8.3)	%
200		100,865		(10,022)	(9.0)	%	11.10	%	(4.6)	%
100		106,984		(3,903)	(3.5)	%	11.49	%	(1.3)	%
0		110,887		—	—	%	11.64	%	—	%
(100)	$	105,274	$	(5,613)	(5.1)	%	10.85	%	(6.8)	%

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 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.

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 September 30, 2019, $18.4 million of our assets were invested in cash and cash equivalents. Short-term investment securities (maturing in one year or less) totaled $1.1 million at September 30, 2019. As of September 30, 2019, we had $47.9 million of structured borrowings outstanding from the FHLB, of which $15.6 million is due within the next 12 months. We have access to FHLB advances of up to $472.9 million.

At September 30, 2019, we had $88.7 million in loan commitments outstanding, which included $8.6 million in undisbursed construction loans, $10.3 million in unused home equity lines of credit, $58.0 million in commercial lines of credit, $9.1 million in future loan commitments and $2.7 million in standby letters of credit. Certificates of deposit due within one year of September 30, 2019 totaled $173.0 million, or 82.4% 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,

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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 $7.2 million and $6.8 million for the nine months ended September 30, 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 $94.6 million and $81.2 million in the nine months ended September 30, 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 $80.7 million and $89.2 million in the nine months ended September 30, 2019 and 2018, respectively. Deposit and borrowing cash flows have traditionally comprised most of our financing activities which resulted in net cash provided of $92.9 million in the nine months ended September 30, 2019, offset by the return of unfulfilled offering subscriptions of $41.1 million.

We also have obligations under our post retirement plan as described in Note 9 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 11 of the notes to the Consolidated Financial Statements. For the nine months ended September 30, 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 September 30, 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 nine months ended September 30, 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.

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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 September 30, 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 September 30, 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.

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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 Current Report on Form 8-K of Rhinebeck Bancorp, Inc. (File no. 333‑227266), filed with the Securities and Exchange Commission on September 27, 2019.)

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 period ended September 30, 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

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

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