Rhinebeck Bancorp (RBKB) 10-Q 2020 Q1 Quarterly report

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2020

or

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

For the transition period fromto

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 May 1, 2020, there were 11,133,290 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Statements of Financial Condition at March 31, 2020 and December 31, 2019	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION		44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
	SIGNATURES	48

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, Inc. and Rhinebeck Bank at and for the year ended December 31, 2019 contained in the Company’s Annual Report on Form 10‑K, as filed with the Securities and Exchange Commission on March 26, 2020.

1

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)

	March 31,		December 31,
	2020		2019
Assets
Cash and due from banks	$	21,796	$	11,978
Available for sale securities (at fair value)		115,134		114,832
Loans receivable (net of allowance for loan losses of $6,620 and $5,954, respectively)		810,361		793,471
Federal Home Loan Bank stock		4,035		3,435
Accrued interest receivable		3,102		2,903
Cash surrender value of life insurance		18,554		18,457
Deferred tax assets (net of valuation allowance of $1,247 and $1,202, respectively)		1,541		2,255
Premises and equipment, net		18,504		18,338
Other real estate owned		1,382		1,417
Goodwill		1,410		1,410
Intangible assets, net		230		241
Other assets		11,217		5,209
Total assets	$	1,007,266	$	973,946
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest bearing	$	174,958	$	179,236
Interest bearing		609,697		594,107
Total deposits		784,655		773,343
Mortgagors’ escrow accounts		7,063		8,106
Advances from the Federal Home Loan Bank		79,645		66,304
Subordinated debt		5,155		5,155
Accrued expenses and other liabilities		16,851		11,156
Total liabilities		893,369		864,064
Stockholders’ Equity
Preferred stock (par value $0.01 per share; 5,000,000 authorized, no shares issued)		—		—
Common stock (par value $0.01 per share; 25,000,000 authorized, 11,133,290 issued and outstanding)		111		111
Additional paid-in capital		45,869		45,869
Unearned common stock held by the employee stock ownership plan ("ESOP")		(4,091)		(4,146)
Retained earnings		73,227		72,152
Accumulated other comprehensive loss:
Net unrealized gain (loss) on available for sale securities, net of taxes		2,412		(195)
Defined benefit pension plan, net of taxes		(3,631)		(3,909)
Total accumulated other comprehensive loss		(1,219)		(4,104)
Total stockholders’ equity		113,897		109,882
Total liabilities and stockholders’ equity	$	1,007,266	$	973,946

See accompanying notes to consolidated financial statements

2

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

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

	Three Months Ended March 31,
	2020		2019
Interest and Dividend Income
Interest and fees on loans	$	10,046	$	8,715
Interest and dividends on securities		683		608
Other income		11		35
Total interest and dividend income		10,740		9,358
Interest Expense
Interest expense on deposits		2,017		1,382
Interest expense on borrowings		402		406
Total interest expense		2,419		1,788
Net interest income		8,321		7,570
Provision for loan losses		1,200		780
Net interest income after provision for loan losses		7,121		6,790
Noninterest Income
Service charges on deposit accounts		652		698
Net realized loss on sales and calls of securities		(29)		—
Net gain on sales of loans		465		166
Increase in cash surrender value of life insurance		97		100
Other real estate owned income		—		10
Investment advisory income		312		213
Other		63		77
Total noninterest income		1,560		1,264
Noninterest Expense
Salaries and employee benefits		4,152		3,888
Occupancy		850		895
Data processing		354		307
Professional fees		322		266
Marketing		143		155
FDIC deposit insurance and other insurance		168		141
Other real estate owned expense		17		39
Amortization of intangible assets		11		11
Other		1,282		1,216
Total noninterest expense		7,299		6,918
Income before income taxes		1,382		1,136
Provision for income taxes		307		225
Net income	$	1,075	$	911
Earnings per common share:
Basic	$	0.10	$	0.09
Diluted	$	0.10	$	0.09
Weighted average shares outstanding, basic		10,721,413		10,699,592
Weighted average shares outstanding, diluted		10,721,413		10,699,592

See accompanying notes to consolidated financial statements

3

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

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

	Three Months Ended March 31,
	2020		2019
Net Income	$	1,075	$	911
Other Comprehensive Income:
Unrealized holding gains arising during the period		3,272		1,317
Reclassification adjustment for losses included in net realized loss on sales and calls of securities on the consolidated statements of income		29		-
Net unrealized gains on available for sale securities		3,301		1,317
Tax effect (a)		(694)		(276)
Unrealized gains on available for sale securities, net of tax		2,607		1,041
Defined benefit pension plan:
Actuarial gain (loss) arising during the period		280		(20)
Reclassification adjustment for amortization of net actuarial loss (b)		71		90
Total		351		70
Tax effect (c)		(73)		(15)
Defined benefit pension plan gain, net of tax		278		55
Other comprehensive income		2,885		1,096
Total Comprehensive Income	$	3,960	$	2,007

(a) - Includes $6 and $0 for the three months March 31, 2020 and 2019, respectively, for tax effect of realized losses which are included in the provision for income taxes on the consolidated statements of income.

(b) - Included in other noninterest expense on the consolidated statements of income.

(c) - Includes $15 and $19 for the three months ended March 31, 2020 and 2019, respectively, 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

4

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

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

					Unearned				Accumulated
			Additional		Common				Other
	Common		Paid-in		Stock Held		Retained		Comprehensive
	Stock		Capital		by the ESOP		Earnings		Loss		Total
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
Balance at December 31, 2019	$	111	$	45,869	$	(4,146)	$	72,152	$	(4,104)	$	109,882
Net income		—		—		—		1,075		—		1,075
Other comprehensive income		—		—		—		—		2,885		2,885
ESOP shares committed to be allocated		—		—		55		—		—		55
Balance at March 31, 2020	$	111	$	45,869	$	(4,091)	$	73,227	$	(1,219)	$	113,897

See accompanying notes to consolidated financial statements

5

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

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

	Three Months Ended March 31,
	2020		2019
Cash Flows from Operating Activities
Net income	$	1,075	$	911
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of premiums and discounts on investments, net		110		66
Net realized loss on sales and calls of securities		29		—
Provision for loan losses		1,200		780
Loans originated for sale		(15,335)		(8,318)
Proceeds from sale of loans		16,850		7,303
Net gain on sale of loans		(254)		(56)
Amortization of intangible assets		11		11
Depreciation and amortization		328		321
Deferred income tax benefit		(53)		(133)
Increase in cash surrender value of insurance		(97)		(100)
Increase in accrued interest receivable		(199)		(259)
Expense of released ESOP shares		55		—
(Increase) decrease  in other assets		(6,008)		1,161
Increase (decrease) in accrued expenses and other liabilities		6,047		(395)
Net cash provided by operating activities		3,759		1,292
Cash Flows from Investing Activities
Proceeds from sales and calls of securities		6,996		—
Proceeds from maturities and principal repayments of securities		6,009		2,877
Purchases of securities		(10,146)		(9,709)
Net purchases of FHLB Stock		(600)		(2,036)
Net increase in loans		(19,351)		(28,189)
Purchases of bank premises and equipment		(493)		(235)
Net increase of other real estate owned		(16)		—
Proceeds from sale of other real estate owned		51		51
Net cash used in investing activities		(17,550)		(37,241)
Cash Flows from Financing Activities
Net increase in demand deposits, NOW, money market and savings accounts		(629)		(18,931)
Net increase in time deposits		11,941		18,537
Decrease in mortgagors' escrow accounts		(1,043)		(1,414)
Net increase in short-term debt		2,861		43,683
Net increase (decrease) in long-term debt		10,479		(3,436)
Proceeds of stock subscriptions		—		9,814
Return of unfulfilled stock subscriptions		—		(41,083)
Offering expenses		—		(1,887)
Loan to ESOP		—		(4,364)
Return of capital to Rhinebeck Bancorp, MHC		—		(121)
Net cash provided by financing activities		23,609		798
Net increase (decrease) in cash and due from banks		9,818		(35,151)
Cash and Due from Banks
Beginning balance		11,978		50,590
Ending balance	$	21,796	$	15,439
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest	$	2,445	$	1,758
Income taxes	$	3	$	6

See accompanying notes to consolidated financial statements

6

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 month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 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, 2019, filed with the Securities and Exchange Commission. As of March 31, 2020, 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, 2019.

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. 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. 

COVID-19

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The declaration

7

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

of a global pandemic indicates that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The outbreak of COVID-19 could adversely impact a broad range of industries in which the Company’s customers operate and impair their ability to fulfill their financial obligations to the Company. On March 3, 2020, the Federal Open Market Committee reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. This rate was further reduced to a target range of 0.00% to 0.25% on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 outbreak will likely adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

Impact of Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”), which created FASB Accounting Standards Codification (“ASC”) Topic 842 (“ASC 842”) and is intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The principal change required by ASC 842 related to lessee accounting, and is that for operating leases, a lessee is required to (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis, and (3) classify all cash payments within operating activities in the statement of cash flows. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASC 842 also changes disclosure requirements related to leasing activities and requires certain qualitative disclosures along with specific quantitative disclosures. ASC 842 also provides an optional transition method for adoption, under which an entity initially applies ASC 842 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in which it adopts ASC 842 will continue to be in accordance with current GAAP. The Company adopted the provisions of ASC 842 effective January 1, 2020 utilizing the optional transition method and did not restate comparative periods. The Company elected the package of practical expedients permitted under ASC 842's transition guidance, which allows the Company to carryforward its historical lease classifications and its assessment as to whether a contract is or contains a lease. The Company elected to not recognize lease assets and lease liabilities for leases with an initial term of 12 months or less. Upon adoption, the Company recorded an increase in other assets and an increase in other liabilities of approximately $6.7 million, respectively. See Note 10 of the footnotes to the consolidated financial statements.

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. While the Company is

8

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

currently assessing the effect of ASU No. 2016‑13 and has engaged with a software vendor to assist in its efforts; it is unlikely that the Company will early adopt this ASU.

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:

	March 31, 2020
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. government agency mortgage-backed securities–residential	$	102,887	$	2,819	$	(7)	$	105,699
U.S. government agency securities		5,021		176		—		5,197
Municipal securities(1)		1,383		17		(25)		1,375
Corporate bonds		2,250		34		(15)		2,269
Other		540		54		—		594
Total	$	112,081	$	3,100	$	(47)	$	115,134

	December 31, 2019
U.S. government agency mortgage-backed securities–residential	$	98,842	$	464	$	(828)	$	98,478
U.S. government agency securities		12,049		53		(26)		12,076
Municipal securities(1)		1,384		17		(5)		1,396
Corporate bonds		2,250		25		(2)		2,273
Other		555		54		—		609
Total	$	115,080	$	613	$	(861)	$	114,832

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

9

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:

	March 31, 2020
	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	$	—	$	—	$	1,009	$	(7)	$	1,009	$	(7)
Municipal Securities		471		(25)		—		—		471		(25)
Corporate Bonds		985		(15)		—		—		985		(15)
Total	$	1,456	$	(40)	$	1,009	$	(7)	$	2,465	$	(47)

	December 31, 2019
U.S. government agency mortgage-backed securities-residential	$	35,612	$	(302)	$	27,252	$	(526)	$	62,864	$	(828)
U.S. government agency securities		—		—		7,001		(26)		7,001		(26)
Municipal Securities		490		(5)		—		—		490		(5)
Corporate Bonds		749		(2)		—		—		749		(2)
Total	$	36,851	$	(309)	$	34,253	$	(552)	$	71,104	$	(861)

At March 31, 2020, the Company had 11 individual available-for-sale securities in an unrealized loss position with unrealized losses totaling $47, with an aggregate depreciation of 1.91%, 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. 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, therefore, the Company did not consider those investments to be other-than-temporarily impaired at March 31, 2020.

The amortized cost and fair value of available for sale debt securities at March 31, 2020 and December 31, 2019, 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.

10

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:

	March 31, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	175	$	175	$	175	$	175
After 1 but within 5 years		—		—		7,027		7,001
After 5 but within 10 years		7,804		8,016		7,806		7,899
After 10 years		675		650		675		670
Total Maturities		8,654		8,841		15,683		15,745
Mortgage-backed securities		102,887		105,699		98,842		98,478
Other		540		594		555		609
Total	$	112,081	$	115,134	$	115,080	$	114,832

At March 31, 2020 and December 31, 2019, available for sale securities with a carrying value of $23,116 and $23,782, respectively, were pledged to secure Federal Home Loan Bank of New York (“FHLB”) borrowings. In addition, at March 31, 2020 and December 31, 2019, $725 and $726 of available for sale securities were pledged to secure borrowings at the Federal Reserve Bank of New York (“FRB”), respectively.

During the three months ended March 31, 2020, there was $6,996 in proceeds from the sales of available for sale securities with $29 in gross losses realized.  

3.    Loans and Allowance for Loan Losses

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

	March 31,		December 31,
	2020		2019
Commercial real estate loans:
Construction	$	8,801	$	20,354
Non-residential		242,078		228,157
Multi-family		30,334		20,129
Residential real estate loans		43,629		43,726
Commercial and industrial loans		90,242		90,554
Consumer loans:
Indirect automobile		367,293		360,569
Home equity		15,165		16,276
Other consumer		9,410		9,752
Total gross loans		806,952		789,517
Net deferred loan costs		10,029		9,908
Allowance for loan losses		(6,620)		(5,954)
Total net loans	$	810,361	$	793,471

At March 31, 2020 and December 31, 2019, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $1,169 and $2,684, respectively.

11

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 and substandard within the internal risk system:

	March 31, 2020
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	8,801	$	—	$	—	$	8,801
Non-residential		233,549		4,223		4,306		242,078
Multifamily		29,965		—		369		30,334
Residential real estate		41,296		—		2,333		43,629
Commercial and industrial		88,840		555		847		90,242
Consumer:
Indirect automobile		366,685		—		608		367,293
Home equity		14,740		—		425		15,165
Other consumer		9,410		—		—		9,410
Total	$	793,286	$	4,778	$	8,888	$	806,952

	December 31, 2019
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	20,354	$	—	$	—	$	20,354
Non-residential		219,485		4,285		4,387		228,157
Multifamily		19,744		—		385		20,129
Residential real estate		41,385		—		2,341		43,726
Commercial and industrial		88,874		597		1,083		90,554
Consumer:
Indirect automobile		359,616		—		953		360,569
Home equity		15,861		—		415		16,276
Other consumer		9,741		—		11		9,752
Total	$	775,060	$	4,882	$	9,575	$	789,517

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.

12

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 aging categories of performing loans and non-accrual loans:

	March 31, 2020
							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	$	8,801	$	—	$	—	$	—	$	8,801	$	—
Non-residential		234,528		3,554		—		3,996		242,078		3,996
Multifamily		29,965		—		—		369		30,334		369
Residential real estate		40,346		2,226		264		793		43,629		2,333
Commercial and industrial		89,458		508		1		275		90,242		504
Consumer:
Indirect automobile		359,289		6,712		699		593		367,293		608
Home equity		14,695		69		74		327		15,165		425
Other consumer		9,228		128		54		—		9,410		—
Total	$	786,310	$	13,197	$	1,092	$	6,353	$	806,952	$	8,235

	December 31, 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	$	20,354	$	—	$	—	$	—	$	20,354	$	—
Non-residential		222,953		409		884		3,911		228,157		3,911
Multifamily		19,744		—		—		385		20,129		385
Residential real estate		42,403		427		116		780		43,726		2,341
Commercial and industrial		89,401		288		198		667		90,554		905
Consumer:
Indirect automobile		351,840		6,494		1,294		941		360,569		953
Home equity		15,726		142		91		317		16,276		415
Other consumer		9,492		201		48		11		9,752		11
Total	$	771,913	$	7,961	$	2,631	$	7,012	$	789,517	$	8,921

13

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:

	March 31, 2020
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	3,996	$	5,882	$	—	$	3,953
Multifamily		369		400		—		377
Residential real estate		2,333		2,929		—		2,337
Commercial and industrial		503		679		—		704
Consumer:
Indirect automobile		343		389		—		475
Home equity		425		455		—		420
Other consumer		—		—		—		6
Total	$	7,969	$	10,734	$	—	$	8,272
With an allowance recorded:
Commercial and industrial	$	1	$	49	$	1	$	1
Consumer:
Indirect automobile		265		267		78		305
Total	$	266	$	316	$	79	$	306
Total:
Commercial real estate:
Non-residential	$	3,996	$	5,882	$	—	$	3,953
Multifamily		369		400		—		377
Residential real estate		2,333		2,929		—		2,337
Commercial and industrial		504		728		1		705
Consumer:
Indirect automobile		608		656		78		780
Home equity		425		455		—		420
Other consumer		—		—		—		6
Total	$	8,235	$	11,050	$	79	$	8,578

14

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

	December 31, 2019
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential		3,911	$	5,733	$	—	$	3,209
Multifamily		385		409		—		192
Residential real estate		2,341		2,850		—		2,313
Commercial and industrial		905		1,109		—		601
Consumer:
Indirect automobile		607		740		—		441
Home equity		415		467		—		307
Other consumer		11		11		—		10
Total	$	8,575	$	11,319	$	—	$	7,073
With an allowance recorded:
Consumer:
Indirect automobile		346	$	376	$	107	$	262
Total	$	346	$	376	$	107	$	262
Total:
Commercial real estate:
Non-residential		3,911	$	5,733	$	—	$	3,209
Multifamily		385		409		—		192
Residential real estate		2,341		2,850		—		2,313
Commercial and industrial		905		1,109		—		601
Consumer:
Indirect automobile		953		1,116		107		703
Home equity		415		467		—		307
Other consumer		11		11		—		10
Total	$	8,921	$	11,695	$	107	$	7,335

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 (“TDRs”). Loan modifications, which resulted in these loans being considered TDRs, are primarily in the form of rate concessions and extensions of maturity dates. The Company does not generally recognize interest income on a loan in an impaired status. At March 31, 2020 and December 31, 2019, the same three loans totaling $1,638 and $1,659, respectively, included in impaired loans, were identified as TDRs. There were no new TDRs in 2019 or the first three months of 2020. At March 31, 2020 and December 31, 2019, all TDR loans were performing in accordance with their restructured terms. At March 31, 2020 and December 31, 2019, 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 $276,749 and $270,730 as of March 31, 2020 and December 31, 2019, respectively.

The balance of capitalized servicing rights, included in other assets at March 31, 2020 and December 31, 2019, were $2,254 and $2,226, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the period ended March 31, 2020 and the year ended December 31, 2019.

15

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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 March 31, 2020
Allowance for loan losses:
Beginning balance	$	2,009	$	99	$	603	$	3,117	$	126	$	5,954
Provision for loan losses		144		—		31		1,012		13		1,200
Loans charged-off		—		—		(38)		(711)		(15)		(764)
Recoveries		—		—		5		220		5		230
Ending balance	$	2,153	$	99	$	601	$	3,638	$	129	$	6,620
Ending balance:
Individually evaluated for impairment	$	—	$	—	$	1	$	78	$	—	$	79
Collectively evaluated for impairment	$	2,153	$	99	$	600	$	3,560	$	129	$	6,541
Loan receivables:
Ending balance	$	281,213	$	43,629	$	90,242	$	367,293	$	24,575	$	806,952
Ending balance:
Individually evaluated for impairment	$	4,365	$	2,333	$	504	$	608	$	425	$	8,235
Collectively evaluated for impairment	$	276,848	$	41,296	$	89,738	$	366,685	$	24,150	$	798,717

	Commercial		Residential		Commercial
	Real Estate		Real Estate		andIndustrial			Indirect	Consumer		Totals
	Three months ended March 31, 2019
Allowance for loan losses:
Beginning balance	$	1,080	$	320	$	1,542	$	2,915	$	789	$	6,646
Provision for loan losses		79		(35)		37		703		(4)		780
Loans charged-off		—		—		(5)		(495)		(6)		(506)
Recoveries		—		1		1		257		4		263
Ending balance	$	1,159	$	286	$	1,575	$	3,380	$	783	$	7,183

16

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		andIndustrial		Indirect		Consumer		Totals
	Year ended December 31, 2019
Allowance for loan losses:
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	107	$	—	$	107
Loans not deemed impaired	$	2,009	$	99	$	603	$	3,010	$	126	$	5,847
Loan receivables:
Ending balance	$	268,640	$	43,726	$	90,554	$	360,569	$	26,028	$	789,517
Ending balance:
Loans deemed impaired	$	4,296	$	2,341	$	905	$	953	$	426	$	8,921
Loans not deemed impaired	$	264,344	$	41,385	$	89,649	$	359,616	$	25,602	$	780,596

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:

	March 31,		December 31,
	2020		2019
Land	$	3,690	$	3,690
Buildings and improvements		25,371		25,371
Furniture, fixtures and equipment		12,353		12,090
Construction in process		498		267
Total		41,912		41,418
Less accumulated depreciation		(23,408)		(23,080)
Net	$	18,504	$	18,338

5.    Goodwill

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

	Three Months		Year Ended
	Ended March 31,		December 31,
RAM	2020		2019
Beginning balance	$	1,410	$	1,410
Ending balance	$	1,410	$	1,410
Accumulated impairment	$	1,116	$	1,116

The Company tested the goodwill recorded for RAM and determined that no write-down was required for the first three months of 2020 or the year 2019.

17

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

6.    Intangible Assets

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

	Three Months		Year Ended
	Ended March 31,		December 31,
RAM	2020		2019
Beginning balance	$	241	$	284
Amortization		(11)		(43)
Ending balance	$	230	$	241
Accumulated amortization and impairment	$	695	$	706

The value assigned to customer list intangibles is based upon a multiple of the amount of commission revenue generated from the identified premiums. The customer lists are expected to have useful lives of 13 years and 4 months. The Company recognized $11 of amortization expense related to its intangible assets for the three month periods ended March 31, 2020 and 2019.

At March 31, 2020, based upon the amount of future commission revenue available from the then existing RAM customer premiums on hand, the Company determined that the fair value of the amortizable intangible assets exceeded their carrying values.

As of March 31, 2020, the future amortization expense for amortizable intangible assets for the respective years is as follows:

2020	$	31
2021		42
2022		42
2023		42
2024		42
Thereafter		31
Total	$	230

7.    Deposits

Deposits balances are summarized as follows:

	March 31,		December 31,
	2020		2019
Noninterest bearing demand deposits	$	174,958	$	179,236
Interest bearing accounts:
NOW		97,979		95,572
Savings		127,578		121,139
Money market		153,550		158,747
Time certificates of deposit		230,590		218,649
Total interest bearing accounts		609,697		594,107
Total deposits	$	784,655	$	773,343

Included in time certificates of deposit at March 31, 2020 and December 31, 2019 were reciprocal deposits totaling $27,005 and $21,270, respectively, with original maturities of one to three years. Time certificates of deposit in

18

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

denominations of $250 or greater were $45,808 and $44,605 as of March 31, 2020 and December 31, 2019, respectively.

Contractual maturities of time certificates of deposit at March 31, 2020 are summarized below:

	March 31,
	2020
Within 1 year	$	197,309
1 – 2 years		17,222
2 – 3 years		4,266
3 – 4 years		3,928
4 – 5 years		7,865
Total	$	230,590

8.    Long-Term Debt and FHLB Stock

FHLB Borrowings and Stock

The Bank is a member of the FHLB. At March 31, 2020 and December 31, 2019, the Bank had access to a preapproved secured line of credit with the FHLB of $503,527 and $486,906, respectively. Borrowings under this line require collateralization through the pledge of specific loans and securities. At March 31, 2020 and December 31, 2019, the Bank had pledged assets of $186,202 and $168,230, respectively. At March 31, 2020, the Bank also had structured borrowings in the amount of $79,645. The outstanding principal amounts and the related terms and rates at March 31, 2020 were as follows:

Term	Principal		Maturity	Rate		Due in one year		Long term
1 month bullet	$	15,000	April 13, 2020	0.91	%	$	15,000	$	—
1 year bullet		10,000	February 1, 2021	0.80	%		10,000		—
2 year amortizing		640	May 15, 2020	2.78	%		640		—
2 year amortizing		853	June 8, 2020	2.76	%		853		—
2 year amortizing		6,309	May 17, 2021	2.53	%		5,031		1,277
2 year bullet		10,000	May 17, 2021	2.46	%		—		10,000
3 year amortizing		4,273	May 17, 2021	2.92	%		3,406		867
3 year amortizing		7,570	May 16, 2022	2.49	%		3,312		4,259
3 year bullet		10,000	May 16, 2022	2.44	%		—		10,000
3 year amortizing		15,000	February 28, 2023	1.32	%		4,934		10,066
Total	$	79,645	Weighted Average Rate	2.55	%	$	43,176	$	36,469

The Bank is required to maintain an investment in capital stock of the FHLB, as collateral, in an amount equal to a certain percentage of its outstanding debt. FHLB stock is considered restricted stock and is carried at cost. The Bank evaluates for impairment based on the ultimate recovery ability of the cost. No impairment was recognized at either March 31, 2020 or December 31, 2019.

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

19

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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%  (3.45% at March 31, 2020 and 3.91% at December 31, 2019) mature on May 23, 2035.

Other Borrowings

On December 31, 2018, there was an outstanding advance on an unsecured credit line with Atlantic Community Bankers Bank 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 March 31, 2020 or December 31, 2019.

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:

	Three months		Year ended
	ended March 31,		December 31,
	2020		2019
Projected and accumulated benefit obligation	$	(19,557)	$	(20,953)
Plan assets at fair value		19,609		20,628
Funded status included in accrued expenses and other liabilities	$	52	$	(325)

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

	Three months ended		Three months ended
	March 31,		March 31,
	2020		2019
Interest cost	$	167	$	185
Expected return on plan assets		(264)		235
Amortization of unrecognized loss		71		90
Net periodic cost (benefit)	$	(26)	$	510

20

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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 March 31, 2020 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.

The Company did not make a contribution to the plan in the first three months of 2020 or 2019.

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

	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	14,315	$	—	$	—	$	14,315
Equity		5,294		—		—		5,294
Total assets at fair value	$	19,609	$	—	$	—	$	19,609

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	15,372	$	—	$	—	$	15,372
Equity		5,256		—		—		5,256
Total assets at fair value	$	20,628	$	—	$	—	$	20,628

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 were previously classified within level 2 of the valuation hierarchy, however, new guidance interpretation has prompted us to reclassify our input level to level 1 as the net asset value has a readily determinable fair value in a manner that is similar to that of a mutual fund.

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 10 of the Company’s Consolidated Financial Statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10‑K.

21

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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 $246 and $225 for the three months ended March 31, 2020 and 2019, respectively.

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 March 31, 2020 and December 31, 2019, total amounts due of $1,795 and $2,086, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $10 and $32 for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 and December 31, 2019, $1,181 and $1,163, respectively, is included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $149 and $137 for the three months ended March 31, 2020 and 2019, 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 $1,344 and $1,330, respectively, at March 31, 2020 and December 31, 2019. The Company recognized expenses of $14 and $13 for the three-month periods ended March 31, 2020 and March 31, 2019, related to this plan which are included in salaries and employee benefits expense in the consolidated statements of income.

22

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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 $2,129 and $2,123, respectively, at March 31, 2020 and December 31, 2019. The Company recognized expenses of $22 and $24 for the three months ended March 31, 2020 and 2019, respectively, related to these benefits which are included in other noninterest expenses in the consolidated statements of income.

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16, 2019, the Company granted a loan to the ESOP for the purchase of 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.75% at January 1, 2020). Loan payments are funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at March 31, 2020 was $4,239. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 21,821 through 2039.

Shares held by the ESOP include the following:

	March 31, 2020
Allocated	21,821
Committed to be allocated	5,454
Unallocated	409,150
Total shares	436,425

The fair value of unallocated shares was $2,619 at March 31, 2020.

Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2020 and 2019 was $55 and $64, respectively.

10.  Leases

As of March 31, 2020, the Company leases real estate for seven branch offices under various lease agreements. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s Consolidated Statements of Financial Condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the Consolidated Statements of  Financial Condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s leases have maturities which range from 2020 to 2035, some of which include lessee options to extend the lease term. If  the Company considers

23

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The weighted average remaining life of the lease terms for these leases was 13.3 years as of March 31, 2020. As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, the rate of interest to borrow on a collateralized basis for a similar term, at the lease commencement date. The Company utilized a weighted average discount rate of 2.62% in determining the lease liability as of March 31, 2020.

For the three months ended March 31, 2020, total operating lease costs were $155 and is included in occupancy expense. Deferred rent liability was $204,000 at March 31, 2020 and $213,000 at December 31, 2019. The right-of-use asset, included in other assets, was $6.6 million and the corresponding lease liability, included in accrued expenses and other liabilities was $6.6 million as of March 31, 2020, respectively.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020 were as follows:

Years ending December 31:
2020	$	476
2021		637
2022		593
2023		570
2024		566
Thereafter		5,086
Total future minimum lease payments		7,928
Amounts representing interest		(1,290)
Present Value of Net Future Minimum Lease Payments	$	6,638

11.  Commitments and Contingencies

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.

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

24

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

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

	March 31,		December 31,
	2020		2019
Commitments to extend credit summarized as follows:
Future loan commitments	$	8,460	$	9,881
Undisbursed construction loans		8,824		10,202
Undisbursed home equity lines of credit		10,307		10,277
Undisbursed commercial and other line of credit		57,144		59,234
Standby letters of credit		5,297		5,290
Total	$	90,032	$	94,884

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

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

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.

Pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, are eligible to opt into a “Community Bank Leverage Ratio” framework.  The

25

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization.  More recently, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and implementing rules temporarily reduced the community bank leverage ratio to 8%, to be gradually increased back to 9% by 2022. The CARES Act also provides that, during the same time period, if a qualifying community banking organization falls no more than 1% below the community bank leverage ratio, it will have a two-quarter grace period to satisfy the community bank leverage ratio.  The Bank has not elected to use the community bank leverage ratio framework.

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 March 31, 2020 and December 31, 2019, 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 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
	March 31, 2020
Rhinebeck Bank
Total capital (to risk-weighted assets)	$	111,801	12.80	%	$	69,892	8.00	%	$	87,365	10.00	%
Tier 1 capital (to risk-weighted assets)		105,181	12.04	%		52,419	6.00	%		69,892	8.00	%
Common equity tier one capital (to risk weighted assets)		105,181	12.04	%		39,314	4.50	%		56,787	6.50	%
Tier 1 capital (to average assets)		105,181	10.68	%		39,391	4.00	%		49,238	5.00	%

	December 31, 2019
Rhinebeck Bank
Total capital (to risk-weighted assets)	$	109,799	12.83	%	$	68,481	8.00	%	$	85,602	10.00	%
Tier 1 capital (to risk-weighted assets)		103,845	12.13	%		51,361	6.00	%		68,481	8.00	%
Common equity tier one capital (to risk weighted assets)		103,845	12.13	%		38,521	4.50	%		55,641	6.50	%
Tier 1 capital (to average assets)		103,845	10.84	%		38,325	4.00	%		47,907	5.00	%

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.

26

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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. 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.

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.

27

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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.

28

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)
	March 31, 2020
U.S. government agency mortgage-backed securities-residential	$	105,699	$	—	$	105,699	$	—
U.S. government agency securities		5,197		—		5,197		—
Municipal securities		1,375		—		1,195		180
Corporate Bonds		2,269		—		2,269		—
Other		594		—		594		—
Total	$	115,134	$	—	$	114,954	$	180

	December 31, 2019
U.S. government agency mortgage-backed securities – residential	$	98,478	$	—	$	98,478	$	—
U.S. government agency securities		12,076		—		12,076		—
Municipal securities		1,396		—		1,216		180
Corporate Bonds		2,273		—		2,273		—
Other		609		—		609		—
Total	$	114,832	$	—	$	114,652	$	180

The following tables detail the assets carried at fair value and measured at fair value on a nonrecurring basis as of March 31, 2020 and December 31, 2019 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)
	March 31, 2020
Impaired loans, with specific reserves	$	187	$	—	$	—	$	187
Other real estate owned		1,382		—		—		1,382
Total	$	1,569	$	—	$	—	$	1,569

	December 31, 2019
Impaired loans	$	239	$	—	$	—	$	239
Other real estate owned		1,417		—		—		1,417
Total	$	1,656	$	—	$	—	$	1,656

29

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)
	March 31, 2020
Impaired loans	$	187	Appraisal of collateral	(1)	Appraisal adjustments	(2)	0% to 20%
Other real estate owned		1,382	Appraisal of collateral	(1)	Liquidation expenses	(3)	0% to 6%
					Appraisal adjustments	(2)	0% to 20%
	December 31, 2019
Impaired loans	$	239	Appraisal of collateral	(1)	Appraisal adjustments	(2)	0% to 20%
Other real estate owned		1,417	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 2020 and 2019 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.

30

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:

	March 31,				December 31,
	2020				2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and due from banks (Level 1)	$	21,796	$	21,796	$	11,978	$	11,978
Available for sale securities (Level 2)		115,134		115,134		114,832		114,832
FHLB stock (Level 2)		4,035		4,035		3,435		3,435
Loans, net (Level 3)		810,361		823,737		793,471		796,262
Accrued interest receivable (Level 2)		3,102		3,102		2,903		2,903
Mortgage servicing rights (Level 3)		2,254		3,492		2,226		4,137
Financial Liabilities:
Deposits (Level 2)		784,655		792,055		773,343		762,272
Mortgagors escrow accounts (Level 2)		7,063		7,068		8,106		8,107
FHLB advances (Level 2)		79,645		80,726		66,304		66,724
Subordinated debt and other borrowings (Level 2)		5,155		5,155		5,155		5,155

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 ASC 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

31

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 ended March 31, 2020 and 2019, is as follows:

	Accumulated Other Comprehensive Loss(1)
			Unrealized gains
			(losses) on
	Defined Benefit		available for sale
	Pension Plan		securities		Total
Balance at December 31, 2019	$	(3,909)	$	(195)	$	(4,104)
Other comprehensive gain before reclassifications		222		2,584		2,806
Amounts reclassified from accumulated other comprehensive loss		56		23		79
Period change		278		2,607		2,885
Balance at March 31, 2020	$	(3,631)	$	2,412	$	(1,219)
Balance at December 31, 2018	$	(2,576)	$	(4,436)	$	(7,012)
Other comprehensive loss before reclassifications		(15)		1,041		1,026
Amounts reclassified from accumulated other comprehensive loss		70		—		70
Period change		55		1,041		1,096
Balance at March 31, 2019	$	(2,521)	$	(3,395)	$	(5,916)

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

32

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 March 31, 2020 or 2019.

	Three months ended		Three months ended
	March 31, 2020		March 31, 2019
Net income applicable to common stock	$	1,075	$	911
Average number of common shares outstanding		11,133,290		11,133,290
Less: Average unallocated ESOP shares		411,877		433,698
Average number of common shares outstanding used to calculate basic and diluted earnings per common share		10,721,413		10,699,592
Earnings per Common share:
Basic	$	0.10	$	0.09
Diluted	$	0.10	$	0.09

33

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

General

Management’s discussion and analysis of financial condition and results of operations at March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 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.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

· demand for our products and services may decline, making it difficult to grow assets and income;

· if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

· collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

· our allowance for loan losses may have to be increased if borrowers experience financial difficulties, which will adversely affect our net income;

· the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

· as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

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· our cyber security risks are increased as the result of an increase in the number of employees working remotely; and

· FDIC premiums may increase if the agency experience additional resolution costs.

Additional factors that may affect our results are discussed in our Annual Report on Form 10‑K and this Quarterly Report on Form 10-Q 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, 2019, filed with the Securities and Exchange Commission. As of March 31, 2020, the critical accounting policies of the Company have not changed materially from those disclosed in the Annual Report on Form 10‑K for the year ended December 31, 2019.

Overview

At March 31, 2020, the Company continued to be in a strong financial and operational condition. The Company had a Tier 1 leverage ratio of 10.68% and a Tier 1 risk-based capital ratio of 12.04%. Our ratio of nonperforming loans to total loans was 1.02% and the ratio of nonperforming assets to total assets was 0.95%.

Impact of COVID-19

The COVID-19 pandemic in the United States is expected to have a complex and significant adverse impact on the economy, the banking industry and the Company in future periods, all subject to a high degree of uncertainty.

Effects on Our Market Areas.

Our commercial and consumer banking products and services are offered primarily in the Hudson Valley of New York, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020. On that date, the Governor announced a statewide stay-at-home order, also known as the NYS on PAUSE Program, with a mandate that all non-essential workers work from home and only businesses declared as essential by the program are allowed to stay open. As a result, the state has experienced an increase in unemployment levels from an average of 3.7% in December of 2019 to an average of 4.4% in March, with levels expected to increase dramatically as time passes and until the program is halted.

Policy and Regulatory Developments.

Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

The Federal Reserve decreased the range for the federal funds target rate by 0.5 percent on March 3, 2020, and by another 1.0 percent on March 16, 2020, reaching a current range of 0.0 - 0.25 percent.

On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the paycheck protection program (“PPP”). Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is

36

participating as a lender in the PPP. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.

On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.

On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and mid-sized businesses, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which establishes two new loan facilities intended to facilitate lending to small and mid-sized businesses: (1) the Main Street New Loan Facility (“MSNLF’), and (2) the Main Street Expanded Loan Facility (“MSELF”). MSNLF loans are unsecured term loans originated on or after April 8, 2020, while MSELF loans are provided as upsized tranches of existing loans originated before April 8, 2020. The combined size of the program will be up to $600 billion. The program is designed for businesses with up to 10,000 employees or $2.5 billion in 2019 revenues. To obtain a loan, borrowers must confirm that they are seeking financial support because of COVID-19 and that they will not use proceeds from the loan to pay off debt. The Federal Reserve also stated that it would provide additional funding to banks offering PPP loans to struggling small businesses. Lenders participating in the PPP will be able to exclude loans financed by the facility from their leverage ratio.

Pandemic Operational Preparations & Status.

In response to the state of emergency, the Bank has implemented several temporary operational changes to serve customers and protect its employees during the COVID-19 crisis. Lobby services have been suspended, while drive-thru, mobile and online banking have become the Bank’s primary channels of serving customers. Furthermore, various measures have been taken to enhance social distancing and we have also enhanced our cleaning and sanitizing procedures at all office, drive-thru locations and ATM terminals. Additionally, over half of our staff have been assigned to work from home when possible, while other employees are on a staggered or reduced hour schedule. We continue to monitor the latest COVID-19 developments and are following guidance provided by the Centers for Disease Control, as well as federal, state and local agencies. 

Effects on Our Business.  

We currently expect that the COVID-19 pandemic and the specific developments referred to above could have a significant negative impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the hotel, restaurant and retail industries will continue to endure significant economic distress, which has caused, and may continue to cause, them to draw on their existing lines of credit and adversely affect their ability to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, and the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations will be adversely affected, as described in further detail below.

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Loan Composition & Activity.

The following table provides information with respect to our commercial and industrial and commercial real estate loans by type at March 31, 2020 (dollars in thousands).

	March 31, 2020
	Number of Loans	Balance		Percent
	(unaudited)
Commercial loans:
Accommodation and Food Services	68	$	13,048	3.51	%
Administrative and Support and Waste Management and Remediation Services	78		2,547	0.69	%
Agriculture, Forestry, Fishing and Hunting	15		4,394	1.18	%
Arts, Entertainment and Recreation	26		6,146	1.65	%
Construction	170		12,416	3.34	%
Educational Services	7		2,180	0.59	%
Finance and Insurance	14		1,439	0.39	%
Health Care and Social Assistance	82		8,974	2.42	%
Information	11		1,378	0.37	%
Loans to Individuals	359		73,911	19.90	%
Management of Companies and Enterprises	1		1,678	0.45	%
Manufacturing	72		12,896	3.47	%
Mining	3		244	0.07	%
Other Services	80		8,424	2.27	%
Professional, Scientific and Technical Services	43		2,598	0.70	%
Real Estate and Rental and Leasing	434		199,934	53.82	%
Retail Trade	56		8,859	2.38	%
Transportation and Warehousing	41		2,711	0.73	%
Wholesale Trade	22		7,677	2.07	%
Total loans	1,582	$	371,455	100.00	%

U.S. Small Business Administration Paycheck Protection Program. 

As part of the CARES Act enacted on March 27, 2020, the PPP Loan Program allocated first $350 billion, and just recently an additional $310 billion, in funds to assist small businesses. Rhinebeck Bank, as a qualified SBA lender, is an authorized participant in this program.

To meet customer demand, a bank-wide team was formed to provide communications to our customer base, establish procedures and documentation to accept loan applications under the PPP program, evaluate potential automated system solutions to process the loan applications, allocate resources to underwrite the loans, submit applications to the SBA for approval, develop new documents for the loans, and close, fund, and book the loans.  

As of April 28, 2020, we had received 578 applications for approximately $83.8 million of loans under the PPP. We received SBA approval for 566 applications totaling $83.3 million. By that date we had funded 331 loans for $70.1 million, none of which were funded at March 31, 2020. To fund this additional loan demand, the Bank became a participant in the Federal Reserve’s Paycheck Protection Program Lending Facility which allows us to present these loans as collateral for 100% principal funding at the Federal Reserve’s discount window. The term of these loans will mirror the actual maturity of the underlying collateral and will have a fixed interest rate of 0.35%.  To date we have received $57.1 million in such funding and have submitted for an additional $8.7 million.

COVID-19 Loan Forbearance Programs

Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to GAAP.  In addition, OCC Bulletin 2020-35 provides more limited circumstances in which a loan modification is not subject to classification as a TDR. 

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As of April 24, 2020, the Bank had received 1,868 deferral requests from 1,565 customers. Of these, 139 are investor mortgages with $25.2 million in outstanding balances. The remaining 1,729 accounts have total principal of $85.8 million and a weighted average rate of 5.6%. Although the actual amount of payments deferred is not known until the deferral application is completed by collections staff,  approximately $3.1 million of payments have been deferred as of April 24, 2020.

Details with respect to the deferral requests as of April 24, 2020 are as follows (dollars in thousands):

	Number of Loans	Balance		Weighted Rate
	(unaudited)
Commercial real estate loans:
Non-residential	35	$	36,110	4.5	%
Residential real estate loans	14		3,934	4.5	%
Commercial and industrial loans	153		15,236	5.2	%
Consumer loans:
Indirect automobile	1,438		28,894	7.4	%
Home equity	7		417	3.5	%
Other consumer	82		1,244	6.6	%
Total loans	1,729	$	85,835	5.6	%

Comparison of Financial Condition at March 31, 2020 and December 31, 2019

Total Assets. Total assets were $1.01 billion at March 31, 2020, representing an increase of $33.3 million, or 3.4%, compared to $973.9 million at December 31, 2019. The increase was primarily related to an increase in loans, cash and the establishment of the right-of-use lease asset of $6.6 million included in other assets.

Cash and Due from Banks. Cash and due from banks increased $9.8 million, or 82.0%, to $21.8 million at March 31, 2020 from $12.0 million at December 31, 2019 primarily due to an increase in funds from the Federal Reserve Bank of New York.

Investment Securities Available for Sale. Investment securities available for sale increased $302,000, or 0.3%, to $115.1 million at March 31, 2020 from $114.8 million at December 31, 2019. This increase was primarily due to purchases of mortgage backed securities of $10.1 million and  an unrealized gain of $3.1 million, offset by principal pay-downs of $6.0 million and sales and calls of $7.0 million.

Net Loans. Total net loans receivable were $810.4 million at March 31, 2020, an increase of $16.9 million, or 2.1%, as compared to $793.5 million at December 31, 2019. The net increase in commercial real estate loans totaled $12.6 million, or 4.7%, as compared to December 31, 2019.  Our net indirect auto loans increased $6.9 million or 1.9% over the first three months of 2020. During the same period our allowance for loan losses increased $666,000, or 11.2%, to reflect the growth in our portfolio and the significant negative impact of the change in the qualitative factors due to the COVID-19 pandemic.

Non-accrual loans decreased $686,000, or 7.7%, to $8.2 million between year end and March 31, 2020. During the same timeframe non-performing assets decreased $721,000 or 7.0%.

Total Liabilities. Total liabilities increased $29.3 million, or 3.4%, to $893.4 million at March 31, 2020, primarily due to an increase of $13.3 million in Federal Home Loan Bank advances, an $11.3 million increase in deposits and the establishment of the lease liability included in accrued expenses and other liabilities of $6.6 million.

Deposits. Deposits increased 1.5%, or $11.3 million, to $784.7 million at March 31, 2020. Interest bearing accounts grew 2.6%, or $15.6 million, to $609.7 million while non-interest bearing balances decreased 2.4% or $4.3 million finishing the first quarter at $175.0 million.

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Borrowed Funds.Advances from the Federal Home Loan Bank increased $13.3 million from $66.3 million at December 31, 2019 to $79.6 million at March 31, 2020, in order to support asset growth.  

Stockholders’ Equity. Stockholders’ equity increased $4.0 million to $113.9 million, primarily due to net income of $1.1 million and a decrease in the total accumulated other comprehensive loss of $2.9 million. At March 31, 2020, the Company’s book value per share was $10.23. At March 31, 2020, the Company’s ratio of stockholders’ equity-to-total assets was 11.3%.  Unallocated common stock held by the Bank’s employee stock ownership plan was $4.1 million at March 31, 2020.

Comparison of Operating Results for the Three Months Ended March 31, 2020 and March 31, 2019

Net Income. Net income for the three months ended March 31, 2020 increased $164,000, or 18.0%, to $1.1 million, or $0.10 per basic and diluted share, compared to net income of $911,000, or $0.09 per basic and diluted share, for the three months ended March 31, 2019. Interest and dividend income increased $1.4 million, or 14.8%, interest expense increased $631,000, or 35.3%, the provision for loan losses increased $420,000, or 53.8%, noninterest income increased $296,000, or 23.4%, while other expenses and taxes increased $463,000, or 6.5%, between comparable quarters.

Net Interest Income. Net interest income increased $751,000 or 9.9%, to $8.3 million for the three months ended March 31, 2020 compared to the quarter ended March 31, 2019. The ratio of average interest-earning assets to average interest-bearing liabilities decreased 2.6% to 135.85% while our net interest margin declined by 17 basis points to 3.62% when comparing the first quarter of 2020 to the same period in 2019.

Interest Income. Interest income increased $1.4 million, or 14.8%, to $10.7 million for the three months ended March 31, 2020 from $9.4 million for the comparable 2019 period. The average balances of interest-earning assets increased by $115.8 million, or 14.3%, to $924.8 million while the average yield decreased by 2 basis points to 4.67%. The interest income increase was mostly driven by continued origination of a greater volume of higher-yielding indirect automobile loans and commercial loans.

Interest Expense. Interest expense increased $631,000 or 35.3%, to $2.4 million for the three months ended March 31, 2020 over the comparable 2019 period. The average balance of total interest-bearing liabilities increased by $100.6 million, or 17.4%, to $680.7 million while interest rates on those balances increased 18 basis points to an average of 1.43% when comparing the quarters ended March 31, 2020 and 2019.

Provision for Loan Losses. We recorded $1.2 million in provision for loan losses for the three-month period ended March 31, 2020, as compared to $780,000 for the comparable three month period of 2019. The increase in the provision was mainly attributable to the significant change in the economic environment from the COVID-19 pandemic and the resultant risk the pandemic poses for the Bank’s borrowers, which may lead to credit quality deterioration. Net charge-offs for the quarter ended March 31, 2020 totaled $535,000 compared to $243,000 for the respective period in 2019. The increase was mainly due to higher charge-offs in our indirect automobile book which, itself, grew by $50.4 million, or 15.9%, in loan balances from March 31, 2019 to March 31, 2020 and which was further impacted by the maturing nature of loss development within our relatively new Albany portfolio.

Non-Interest Income. Non-interest income totaled $1.6 million for the three months ended March 31, 2020;  an increase of $296,000, or 23.4%, compared to $1.3 million for the three months ended March 31, 2019.  Gain on the sale of loans increased $299,000, or 180.1% while investment advisory income increased $99,000.  These increases were offset by a $46,000 decrease in service charges on deposit accounts and a $29,000 loss on the sale of securities.  

Non-Interest Expense. For the three months ended March 31, 2020, non-interest expenses increased $381,000 to $7.3 million, as compared to $6.9 million for the comparable 2019 period. Salaries and employee benefits increased $264,000, or 6.8%, attributable to annual salary merit increases, production incentives, employee benefit increases and additions to staff.  Data processing fees increased $47,000, or 15.3%, mostly due to general increases in overall processing volumes and the additions of new technologies. Professional fees were up by $56,000, or 21.1%.  FDIC and other insurance expenses also increased $27,000 or 19.1%. These increases were offset by a  reduction of occupancy expenses of  $45,000, or 5.0%, marketing expense decreases of $12,000 and other real estate owned expense reductions of $22,000.

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Income Taxes. Income taxes increased by $82,000 for the three months ended March 31, 2020 as compared to the comparable period in 2019 as our income before income taxes increased. Our effective tax rate for the three months ended March 31, 2020 was 22.2% compared to 19.8% for the three months ended March 31, 2019. 

Average Balance Sheets for the Three Months Ended March 31, 2020 and 2019

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 March 31,
	2020						2019
	Average		Interest and				Average		Interest and
	Balance		Dividends		Yield/Cost		Balance		Dividends		Yield/Cost
	(unaudited)
Assets:
Interest bearing depository accounts	$	4,340	$	11	0.93	%	$	6,055	$	35	2.34	%
Loans(1)		803,137		10,046	5.03	%		695,790		8,715	5.08	%
Available for sale securities		117,295		683	2.34	%		107,167		608	2.30	%
Total interest-earning assets		924,772		10,740	4.67	%		809,012		9,358	4.69	%
Non-interest-earning assets		58,843						52,547
Total assets	$	983,615					$	861,559
Liabilities and equity:
NOW accounts	$	98,488	$	58	0.24	%	$	94,106	$	73	0.31	%
Money market accounts		155,204		496	1.29	%		133,445		415	1.26	%
Savings accounts		124,244		80	0.26	%		121,734		106	0.35	%
Certificates of deposit		226,003		1,364	2.43	%		163,810		770	1.91	%
Total interest-bearing deposits		603,939		1,998	1.33	%		513,095		1,364	1.08	%
Escrow accounts		6,647		19	1.15	%		6,352		18	1.15	%
Federal Home Loan Bank advances		64,986		352	2.18	%		54,621		355	2.64	%
Subordinated debt		5,155		50	3.90	%		6,016		51	3.44	%
Other interest-bearing liabilities		76,788		421	2.21	%		66,989		424	2.57	%
Total interest-bearing liabilities		680,727		2,419	1.43	%		580,084		1,788	1.25	%
Non-interest-bearing deposits		175,857						163,766
Other non-interest-bearing liabilities		14,814						23,605
Total liabilities		871,398						767,455
Total stockholders’ equity		112,217						94,104
Total liabilities and stockholders’ equity	$	983,615					$	861,559
Net interest income			$	8,321					$	7,570
Interest rate spread					3.24	%					3.44	%
Net interest margin(2)					3.62	%					3.79	%
Average interest-earning assets to average interest-bearing liabilities					135.85	%					139.46	%

(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 March 31, 2020
	Compared to Three Months Ended
	March 31, 2019
	Increase (Decrease)
	Due to
	Volume		Rate		Net
	(unaudited)
Interest income:		��
Interest bearing depository accounts	$	(7)	$	(17)	$	(24)
Loans receivable		1,419		(88)		1,331
Marketable securities		63		12		75
Total interest-earning assets		1,475		(93)		1,382
Interest expense:
Deposits		424		211		635
Escrow accounts		1		—		1
Federal Home Loan Bank advances		(35)		32		(3)
Subordinated debt		(17)		15		(2)
Total interest-bearing liabilities		373		258		631
Net increase in net interest income	$	1,102	$	(351)	$	751

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 where interest rates decrease 100 basis points from current market rates.

The following table presents the estimated changes in our EVE that would result from changes in market interest rates at March 31, 2020. 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 InterestRates	Amount		Change		Change		Ratio		Change
	(unaudited)
400	$	72,776	$	(35,850)	(33.0)	%	7.90	%	(25.8)	%
300		78,706		(29,920)	(27.5)	%	8.36	%	(21.5)	%
200		87,857		(20,769)	(19.1)	%	9.10	%	(14.6)	%
100		99,737		(8,889)	(8.2)	%	10.04	%	(5.7)	%
0		108,626		—	—	%	10.65	%	—	%
(100)	$	107,805	$	(821)	(0.8)	%	10.34	%	(2.9)	%

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 March 31, 2020, $21.8 million of our assets were held in cash and cash equivalents. Short-term investment securities (maturing in one year or less) totaled $175,000 at March 31, 2020. As of March 31, 2020, we had $79.6 million of structured borrowings outstanding from the FHLB, of which $43.2 million is due within the next 12 months. We have access to FHLB advances of up to $503.5 million.

At March 31, 2020, we had $90.0 million in loan commitments outstanding, which included $8.8 million in undisbursed construction loans, $10.3 million in unused home equity lines of credit, $57.1 million in commercial lines of credit, $8.5 million in future loan commitments and $5.3 million in standby letters of credit. Certificates of deposit due within one year of March 31, 2020 totaled $197.3 million, or 85.6% 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 March 31, 2021. We believe, however, based on past

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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 $3.8 million and $1.3 million for the three months ended March 31, 2020 and 2019, 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 $17.6 million and $37.2 million in the three months ended March 31, 2020 and 2019, 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 $19.4 million and $28.2 million in the three months ended March 31, 2020 and 2019, respectively. Deposit and borrowing cash flows have traditionally comprised most of our financing activities which resulted in net cash provided of $23.6 million and $798,000 for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2019, deposit and borrowing cash flows were primarily 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.

Impact of Inflation and Changing Prices

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

Item 3.          Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.           Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a‑15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2020. 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 three months ended March 31, 2020, 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.

PART 2 — OTHER INFORMATION

Item 1.           Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At March 31, 2020, we were not a party to any pending

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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

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition, or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

 On March 11, 2020, the World Health Organization declared the outbreak of the coronavirus, COVID-19,  a pandemic. The state of the pandemic has been evolving and its impact, both directly and indirectly, has been and will be negatively impacting our business. Currently, the specifics are mostly speculative, very unpredictable, and depend upon many factors outside of the institution’s control. Examples are the nature and duration of the pandemic (including the possibility of additional waves of outbreaks), the nature and scope of any resulting economic downturn, customer response and actions that the governmental authorities may take in response. A list of additional risks that we might encounter include:

· Charged-Off Accounts. The biggest risk the Bank faces due to the pandemic is the possibility it will face an unprecedented number and total amount of charge-offs as a result of the general overall economic disruption that has occurred and will occur over time. The amount of loss being faced by the Bank is anticipated to be material, but the extent is unknowable at present. There are no past events of this magnitude that give rise to a suitable or reasonable method of comparable forecasting. The future outcome of this primary risk is unpredictable.

Adverse Economic Conditions. Reduction in demand for our products, decreases in market values of loans and securities, impairment of intangible assets, decreases in interest and other income, and increases in customer delinquencies and defaults.

Loan and Credit Losses. The mandated closure of non-essential businesses and the resulting wave of unemployed individuals may exist for an indeterminate period into the future and the recovery may be delayed by the practicalities of restarting the economy. The direct impact of this may be a significant change in the quality of our loan portfolios. It is expected that the small and mid-size businesses that make up most of our commercial market presence, which rely on a steady continuing cash flow to support operations, may be particularly hard hit by closure and inability to quickly restart operations.  Furthermore, we may be hampered by governmental regulation or executive orders that restrict or limit our ability to take certain actions that we would otherwise take, in the ordinary course – such as following standard collection and foreclosure procedures. New York State has already required state-chartered banks to suspend foreclosures and payments on residential mortgages for a 90-day period for borrowers experiencing financial hardship due to COVID-19. The federal government has taken similar action under Title IV of the CARES Act, which provides that individuals with single-family, federally backed mortgages may request a 180-day mortgage forbearance (which can be extended for another 180 days) due to difficulties related to the virus.  We have also voluntarily taken similar actions on a customer by customer basis.

Indirect Automobile Lending. The essential shut down of the business of selling automobiles and the potential negative impact of the pandemic on consumers’ ongoing financial health may reduce our interest income and increase losses through diminished loan production, increased rates of default and the diminishment of collateral values.  While, presently, the significantly reduced demand for funding new automobile loans has helped us meet the temporary increased demands required to meet the funding needs of the new SBA lending programs, long-

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term, an extended disruption to this line of business and significantly increased loan defaults may be detrimental to our overall growth plans and profits as a result of disarray in this strategically important line of business.

Real Estate Market and Real Estate Lending. We face the risk that as a result of the impact of the pandemic our commercial and residential real estate markets may face reduced lending rates (which have reached an all-time low during the first quarter), decreasing property values, reducing demand for properties, and increasing vacancies if businesses fail or close locations.

Cybersecurity. Almost directly as a result of allowing remote access to primary banking systems the Bank faces significantly increased cybersecurity risks. With the large number of employees working from home, the expanded number of access points creates additional opportunities for cyber criminals to exploit vulnerabilities. Employees may be more susceptible to phishing, social engineering attempts, or other ploys and efforts from those wishing to gain unauthorized access to our data. We have increased our efforts to monitor and control our remote operating environment and have continued a regular regimen of reminders and training for remote users.

Changes in Consumptive Behavior. Consumers and businesses may continue to demonstrate changed behavior even after (and perhaps, long after) the crisis has diminished. Both may decrease discretionary spending on a permanent or long-term basis. Due to supply chain interruptions and other factors, some businesses may take longer to recover. Those businesses relying on travel or social gathering might face significant barriers to a quick recovery. Consumers may be hesitant to return to full social interactions, become more comfortable with technology, and perhaps learn to devalue the need for the traditional face-to-face transactions which are generally deemed an asset to the community banking world.

Reliance on Important Vendors. The Bank relies on vendors and other third parties to provide critical systems and services. Issues at these vendors and suppliers can have significant impact on the Bank’s ability to function properly and continue to meet the demand for its services. While we continually monitor the level of services we are receiving and stay in regular contact with key parties it is possible that either through the direct impact of the contagion or indirectly though things like mandated government shut downs among others, the Bank faces increased operating and other risks in this current and future environment.  While to date, the number of operating issues has been relatively small and mostly evolved from supply chain interruptions, we do face unpredictable challenges into the future.

Changes to Interest Rates. In response to the pandemic, the Federal Reserve reduced the Federal Funds Rate to zero percent in March. The outlook for the rest of 2020 is uncertain and there is a possibility that the Federal Reserve may keep interest rates low or even use negative rates if economic conditions warrant. The Bank could be subject to significantly decreased interest income if such conditions persist for a significant length of time.

Other Impacts on Financial Condition. A prolonged pandemic event might have a number of adverse impacts on our institution’s financial condition. Continuing decreases in our stock price and future cash flow projections reduced by deferrals, decreased earnings, or actual losses could have a negative impact on the valuation of goodwill, intangible assets, and long-lived and other assets. At March 31, 2020, management determined that there is no material risk that one or more of these items have been significantly impacted on an other-than-temporary basis and that no write downs were necessary.

Negative Impact to Investment Management Business Lines. The Bank offers investment related services though its RAM division. Volatile market conditions caused by the pandemic could reduce the value of assets under management and/or cause clients to withdraw funds. Further, the impact of limited access to our branch staff, has reduced the ability to generate referrals that have been a source of new business for our investment arm. Extended or diminished face-to-face interactions with customers could reduce the growth potential of this line of business.

Pension Plan Assets. A prolonged negative impact on the value of stocks and other asset classes will result in a significant reduction to pension plan asset values. This can impact us directly as we maintain a defined benefit pension plan and/or indirectly through the impact on our customers who maintain similar pension assets.

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Reputational Risks. Failure to meet customer demands for the SBA lending programs could create issues that negatively reflect on our community reputation. While we have focused a significant effort to meet demand for these loans: assigning most of our lending and operations staff, investing in technology, creating service procedures and processes, extending operating hours, and providing significant customer assistance; the external limitations of the programs (especially the level of funding) may leave many customers unable to gain the funding requested, which may result in negative publicity that might hurt us in the marketplace.

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

None.

Item 3.           Defaults Upon Senior Securities

None.

Item 4.           Mine Safety Disclosures

Not applicable.

Item 5.           Other Information

None.

Item 6.           Exhibits

3.1	Articles of Incorporation of Rhinebeck Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S‑1 of Rhinebeck Bancorp, Inc. (File no. 333‑227266), originally filed with the Securities and Exchange Commission on September 10, 2018.)
3.2	Bylaws of Rhinebeck Bancorp, Inc. (Incorporated by reference to the 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 March 31, 2020, 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: May 14, 2020		/s/ Michael J. Quinn
		Michael J. Quinn President and Chief Executive Officer
Date: May 14, 2020		/s/ Michael J. McDermott
		Michael J. McDermott Chief Financial Officer

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