United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2022

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

For the transition period from to

Commission File No. 001-38779

Rhinebeck Bancorp, Inc.

(Exact name of registrant as specified in its charter)


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

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

(845) 454-8555

(Registrant’s telephone number)

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


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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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


Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☒

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

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

Yes ☐ No ☒

As of November 1, 2022, there were 11,284,565 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	Consolidated Statements of Financial Condition at September 30, 2022 and December 31, 2021	1

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION		51

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

	SIGNATURES	53

PART I — FINANCIAL INFORMATION

ITEM 1.

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

(In thousands, except share and per share data)


	September 30,		December 31,
	2022		2021
Assets
Cash and due from banks	$	28,110	$	72,091
Available for sale securities (at fair value)		229,030		280,283
Loans receivable (net of allowance for loan losses of $8,492 and $7,559, respectively)		951,282		854,967
Federal Home Loan Bank stock		2,350		1,322
Accrued interest receivable		2,644		3,366
Cash surrender value of life insurance		29,635		29,131
Deferred tax assets (net of valuation allowance of $462 and $454, respectively)		10,256		3,352
Premises and equipment, net		18,858		19,183
Goodwill		2,235		2,235
Intangible assets, net		358		433
Other assets		17,925		14,803
Total assets	$	1,292,683	$	1,281,166
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Non-interest bearing	$	309,319	$	314,814
Interest bearing		800,873		787,185
Total deposits		1,110,192		1,101,999

Mortgagors’ escrow accounts		5,895		9,130
Advances from the Federal Home Loan Bank		37,541		18,041
Subordinated debt		5,155		5,155
Accrued expenses and other liabilities		27,098		20,872
Total liabilities		1,185,881		1,155,197

Stockholders’ Equity
Preferred stock (par value $0.01 per share; 5,000,000 authorized, no shares issued)		—		—
Common stock (par value $0.01; authorized 25,000,000; issued and outstanding 11,284,565 at September 30, 2022 and 11,296,103 December 31, 2021)		113		113
Additional paid-in capital		46,922		46,573
Unearned common stock held by the employee stock ownership plan		(3,546)		(3,709)
Retained earnings		95,816		89,627
Accumulated other comprehensive loss:
Net unrealized loss on available for sale securities, net of taxes		(28,034)		(2,734)
Defined benefit pension plan, net of taxes		(4,469)		(3,901)
Total accumulated other comprehensive loss		(32,503)		(6,635)
Total stockholders’ equity		106,802		125,969
Total liabilities and stockholders’ equity	$	1,292,683	$	1,281,166

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

(In thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and Dividend Income
Interest and fees on loans	$	11,404	$	10,402	$	32,212	$	30,722
Interest and dividends on securities		1,002		623		2,844		1,560
Other income		147		34		210		66
Total interest and dividend income		12,553		11,059		35,266		32,348
Interest Expense
Interest expense on deposits		1,262		866		2,773		2,816
Interest expense on borrowings		194		134		415		562
Total interest expense		1,456		1,000		3,188		3,378
Net interest income		11,097		10,059		32,078		28,970
Provision for (credit to) loan losses		545		(954)		1,112		(2,171)
Net interest income after provision for (credit to) loan losses		10,552		11,013		30,966		31,141
Non-interest Income
Service charges on deposit accounts		713		664		2,125		1,891
Net realized loss on sales and calls of securities		(8)		—		(170)		—
Net gain on sales of loans		147		502		840		2,179
Increase in cash surrender value of life insurance		163		158		481		412
Net gain from sale of other real estate owned		—		—		—		2
Gain on disposal of premises and equipment		—		—		—		17
Gain on life insurance		—		—		—		195
Investment advisory income		229		237		932		812
Other		145		78		395		228
Total non-interest income		1,389		1,639		4,603		5,736
Non-interest Expense
Salaries and employee benefits		5,357		5,162		16,393		14,749
Occupancy		1,097		1,060		3,394		3,052
Data processing		479		450		1,421		1,269
Professional fees		419		439		1,292		1,375
Marketing		140		119		458		353
FDIC deposit insurance and other insurance		226		201		602		542
Other real estate owned expense		—		4		—		7
Amortization of intangible assets		24		27		75		69
Other		1,497		1,676		4,194		4,551
Total non-interest expense		9,239		9,138		27,829		25,967
Income before income taxes		2,702		3,514		7,740		10,910
Provision for income taxes		595		829		1,551		2,339
Net income	$	2,107	$	2,685	$	6,189	$	8,571

Earnings per common share:
Basic	$	0.19	$	0.25	$	0.57	$	0.80
Diluted	$	0.19	$	0.25	$	0.56	$	0.79

Weighted average shares outstanding, basic		10,844,240		10,774,038		10,826,862		10,755,342
Weighted average shares outstanding, diluted		10,996,309		10,946,935		10,999,745		10,914,429

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Income	$	2,107	$	2,685	$	6,189	$	8,571
Other Comprehensive Loss:
Unrealized holding losses arising during the period		(11,193)		(597)		(32,196)		(2,014)
Reclassification adjustment for losses included in net realized loss on sales and calls of securities on the consolidated statements of income		8		—		170		—
Net unrealized losses on available for sale securities		(11,185)		(597)		(32,026)		(2,014)
Tax effect (a)		2,349		125		6,726		423
Unrealized losses on available for sale securities, net of tax		(8,836)		(472)		(25,300)		(1,591)
Defined benefit pension plan:
Actuarial gains (losses) arising during the period		53		(152)		(919)		(105)
Reclassification adjustment for amortization of net actuarial loss (b)		66		90		200		269
Total		119		(62)		(719)		164
Tax effect (c)		(25)		13		151		(34)
Defined benefit pension plan gains (losses), net of tax		94		(49)		(568)		130
Other comprehensive loss:		(8,742)		(521)		(25,868)		(1,461)
Total Comprehensive (Loss) Income	$	(6,635)	$	2,164	$	(19,679)	$	7,110

(a)	Includes $2 and $36 for the three and nine months ended September 30, 2022 and $0 for the three and nine months ended September 30, 2021, for tax effect of realized gains or losses which are included in the provision for income taxes on the consolidated statements of income.

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

(c)

Includes $14 and $42 for the three and nine months ended September 30, 2022 and $19 and $56 for the three and nine months ended September 30, 2021, respectively, for tax effect of amortization of net actuarial loss, which are included in the provision for income taxes on the consolidated statements of income.

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(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, 2020	$	111	$	46,038	$	(3,928)	$	78,069	$	(3,791)	$	116,499

Net income		—		—		—		3,321		—		3,321
Other comprehensive loss		—		—		—		—		(1,169)		(1,169)
ESOP shares committed to be allocated		—		(3)		55		—		—		52
Share-based compensation expense		—		153		—		—		—		153
Balance at March 31, 2021	$	111	$	46,188	$	(3,873)	$	81,390	$	(4,960)	$	118,856

Net income		—		—		—		2,565		—		2,565
Other comprehensive income		—		—		—		—		229		229
ESOP shares committed to be allocated		—		3		54		—		—		57
Share-based compensation expense		—		155		—		—		—		155
Balance at June 30, 2021	$	111	$	46,346	$	(3,819)	$	83,955	$	(4,731)	$	121,862

Net income		—		—		—		2,685		—		2,685
Other comprehensive income		—		—		—		—		(521)		(521)
ESOP shares committed to be allocated		—		4		55		—		—		59
Share-based compensation expense		—		156		—		—		—		156
Exercise of options		—		39		—		—		—		39
Restricted stock awards, net of taxes withheld		1		(77)		—		—		—		(76)
Balance at September 30, 2021	$	112	$	46,468	$	(3,764)	$	86,640	$	(5,252)	$	124,204

Balance at December 31, 2021	$	113	$	46,573	$	(3,709)	$	89,627	$	(6,635)	$	125,969

Net income		—		—		—		2,053		—		2,053
Other comprehensive loss		—		—		—		—		(10,939)		(10,939)
ESOP shares committed to be allocated		—		4		54		—		—		58
Share-based compensation expense		—		152		—		—		—		152
Balance at March 31, 2022	$	113	$	46,729	$	(3,655)	$	91,680	$	(17,574)	$	117,293

Net income		—		—		—		2,029		—		2,029
Other comprehensive loss		—		—		—		—		(6,187)		(6,187)
ESOP shares committed to be allocated		—		(1)		54		—		—		53
Share-based compensation expense		—		153		—		—		—		153
Balance at June 30, 2022	$	113	$	46,881	$	(3,601)	$	93,709	$	(23,761)	$	113,341

Net income		—		—		—		2,107		—		2,107
Other comprehensive income		—		—		—		—		(8,742)		(8,742)
ESOP shares committed to be allocated		—		(3)		55		—		—		52
Share-based compensation expense		—		155		—		—		—		155
Share redemption for tax withholding on restricted stock vesting		—		(111)		—		—		—		(111)
Balance at September 30, 2022	$	113	$	46,922	$	(3,546)	$	95,816	$	(32,503)	$	106,802

See accompanying notes to consolidated financial statements

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(In thousands, except share and per share data)


	Nine Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities
Net income	$	6,189	$	8,571
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of premiums and discounts on investments, net		181		216
Net realized loss on sales and calls of securities		170		—
Net realized gain on sale of other real estate owned		—		(2)
Provision for (credit to) loan losses		1,112		(2,171)
Loans originated for sale		(19,399)		(56,534)
Proceeds from sale of loans		24,097		58,518
Net gain on sale of loans		(840)		(2,179)
Amortization of intangible assets		75		69
Depreciation and amortization		1,167		1,111
Gain from disposal of premises and equipment		—		(17)
Deferred income tax (benefit) expense		(27)		543
Increase in cash surrender value of insurance		(481)		(412)
Decrease in accrued interest receivable		722		76
Expense of earned ESOP shares		163		168
Share-based compensation expense		460		464
Increase in other assets		(3,122)		(5,426)
Increase in accrued expenses and other liabilities		5,507		2,818
Net cash provided by operating activities		15,974		5,813
Cash Flows from Investing Activities
Proceeds from sales and calls of securities		14,825		2,000
Proceeds from maturities and principal repayments of securities		34,276		40,238
Purchases of securities		(30,225)		(181,924)
Net (purchases) redemptions of FHLB Stock		(1,028)		1,370
Net (increase) decrease in loans		(101,285)		42,337
Purchases of bank owned life insurance		(23)		(10,023)
Purchases of bank premises and equipment		(842)		(1,305)
Net proceeds from life insurance		—		341
Net cash received from acquisition (Note 2)		—		32,767
Proceeds from sale of other real estate owned		—		50
Net cash used in investing activities		(84,302)		(74,149)
Cash Flows from Financing Activities
Net increase in demand deposits, NOW, money market and savings accounts		44,538		156,442
Net decrease in time deposits		(36,345)		(32,281)
Decrease in mortgagors' escrow accounts		(3,235)		(4,230)
Net increase (decrease) in short-term debt		20,773		(15,030)
Net decrease in long-term debt		(1,273)		(15,499)
Stock repurchase for tax withholding on restricted stock vesting		(111)		—
Proceeds from exercise of stock options		—		36
Net cash provided by financing activities		24,347		89,438
Net (decrease) increase in cash and due from banks		(43,981)		21,102
Cash and Due from Banks
Beginning balance		72,091		93,485
Ending balance	$	28,110	$	114,587
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest	$	3,140	$	3,464
Income taxes	$	1,542	$	(40)
Noncash Investing Activities
Fair value of assets acquired	$	—	$	1,277
Fair value of liabilities assumed	$	—	$	34,044

See accompanying notes to consolidated financial statements

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 financial statements include the accounts of Rhinebeck Bancorp, Inc. (the “Company”), a stock holding company, and its wholly-owned subsidiary, Rhinebeck Bank (the “Bank”), a New York chartered stock savings bank. The primary purpose of the Company is to act as a holding company for the Bank. The Bank provides a full range of banking and financial services to consumer and commercial customers through its fifteen 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.

The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

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. at and for the year ended December 31, 2021 contained in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 22, 2022.

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, 2021, filed with the Securities and Exchange Commission. As of September 30, 2022, 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, 2021.

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 evaluation of goodwill for impairment and the valuation of deferred tax assets.

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.

On March 12, 2021, the Bank completed a branch purchase and assumption transaction with ConnectOne Bank. Management concluded that the acquisition represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date. For additional information, see Note 2.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Reclassifications

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

COVID-19

Significant progress has been made to combat the COVID-19 pandemic; however, the global pandemic could impair the Company’s customers’ ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If there is a resurgence in the virus or variant strains of the virus increase, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. It is not possible to know the full extent of the impact of COVID-19 and the effects it will have on the Company's future operations.

Impact of Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 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. The Company is currently assessing the effect of ASU No. 2016-13 and has engaged with a software vendor to assist in its efforts. As part of our evaluation of the estimated impacts of CECL, we have run simulations based on our portfolio composition and current expectations of future economic conditions. The ultimate effect of CECL on our allowance for credit losses (“ACL”) will depend on the portfolio’s credit quality and economic conditions at the time of adoption. The Company’s CECL implementation efforts are in process and continue to focus on model validation, refinement of the model assumptions, the qualitative factors, and the operational control framework to support the new process. At adoption, we expect to have a cumulative-effect adjustment to retained earnings for this change in the ACL, which would impact our capital. We expect to continue to be well capitalized under the Basel III regulatory framework after the adoption of this standard.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in Update 2016-13 require that an entity measure and record the lifetime expected credit losses on an asset upon origination or acquisition, and, as a result, credit losses from loans modified as troubled debt restructurings (“TDRs”) have been incorporated into the allowance for credit losses. The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40, “Receivables—Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments in this Update should be applied prospectively, except as provided in the next sentence. For the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

ASU 2022-02 is effective for the Company in 2023 upon adoption of ASU 2016-13. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.

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 is taking advantage of the benefits of the extended transition periods allowed under the Jumpstart Our Business Startups Act.

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

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

2. Acquisition

On October 26, 2020, the Bank entered into a branch purchase and assumption agreement with ConnectOne Bank, the wholly-owned subsidiary of ConnectOne Bancorp, Inc., to acquire two branches located in Orange County, New York, as well as certain deposits and other assets and liabilities. The transaction closed on March 12, 2021 with the transfer of $33,863 of deposits. Management concluded that the acquisition represented a business combination, which was accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the March 12, 2021 transaction with ConnectOne, and reflects all adjustments made to the fair value of the opening balance sheet through September 30, 2022:


	March 12,
Fair value of consideration transferred, assets acquired and liabilities assumed	2021
Total cash received on acquisition	$	32,767

Assets acquired
Fixed assets		113
Reimbursed expenses		9
Core deposit intangible⁽¹⁾		330
Total assets acquired		452

Liabilities assumed
Deposits		33,863
Mark-to-market adjustment		181
Total liabilities assumed		34,044
Net liabilities acquired		(33,592)
Goodwill recognized	$	825

_____________________________

(1)

The core deposit intangible was determined to have an estimated life of approximately 13 years.

The Company incurred $71 of expenses in 2021 related to the acquisition. Acquisition expenses, including professional fees, are included in the total non-interest expense line item in the condensed consolidated statement of income.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

3. Investment Securities

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


	September 30, 2022
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	40,198	$	—	$	(2,558)	$	37,640
U.S. government agency mortgage-backed securities–residential		179,064		—		(28,942)		150,122
U.S. government agency securities		24,788		—		(2,531)		22,257
Municipal securities⁽¹⁾		5,124		—		(407)		4,717
Corporate bonds		14,700		5		(1,256)		13,449
Other		643		202		—		845
Total	$	264,517	$	207	$	(35,694)	$	229,030


	December 31, 2021
			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	60,273	$	2	$	(450)	$	59,825
U.S. government agency mortgage-backed securities–residential		179,493		344		(3,346)		176,491
U.S. government agency securities		24,800		53		(131)		24,722
Municipal securities⁽¹⁾		6,858		33		(40)		6,851
Corporate bonds		11,700		117		(65)		11,752
Other		620		22		—		642
Total	$	283,744	$	571	$	(4,032)	$	280,283

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

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


	September 30, 2022
	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	23,442	$	(1,771)	$	14,198	$	(787)	$	37,640	$	(2,558)
U.S. government agency mortgage-backed securities-residential		87,786		(20,206)		62,336		(8,736)		150,122		(28,942)
U.S. government agency securities		13,163		(1,593)		9,094		(938)		22,257		(2,531)
Municipal securities		1,988		(265)		2,599		(142)		4,587		(407)
Corporate bonds		3,296		(404)		8,648		(852)		11,944		(1,256)
Total	$	129,675	$	(24,239)	$	96,875	$	(11,455)	$	226,550	$	(35,694)

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	December 31, 2021
	Less Than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	49,007	$	(268)	$	5,797	$	(182)	$	54,804	$	(450)
U.S. government agency mortgage-backed securities-residential		139,019		(3,035)		11,002		(311)		150,021		(3,346)
U.S. government agency securities		14,625		(131)		—		—		14,625		(131)
Municipal securities		2,469		(40)		—		—		2,469		(40)
Corporate bonds		5,885		(65)		—		—		5,885		(65)
Total	$	211,005	$	(3,539)	$	16,799	$	(493)	$	227,804	$	(4,032)

At September 30, 2022, the Company had 241 individual available-for-sale securities in an unrealized loss position with unrealized losses totaling $35,694 with an aggregate depreciation of 13.61% 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 September 30, 2022.

The amortized cost and fair value of available for sale debt securities at September 30, 2022 and December 31, 2021, by contractual maturities, are presented below. Actual maturities of mortgage-backed securities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without any penalties. Because mortgage-backed securities are not due at a single maturity date, they are not included in the maturity categories in the following maturity summary:


	September 30, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	11,935	$	11,623	$	12,729	$	12,726
After 1 but within 5 years		51,186		46,713		67,912		67,463
After 5 but within 10 years		21,689		19,727		22,595		22,567
After 10 years		—		—		395		394
Total Maturities		84,810		78,063		103,631		103,150

Mortgage-backed securities		179,064		150,122		179,493		176,491
Other		643		845		620		642
Total	$	264,517	$	229,030	$	283,744	$	280,283

At September 30, 2022 and December 31, 2021, available for sale securities with a carrying value of $16,403 and $8,316, respectively, were pledged to secure Federal Home Loan Bank of New York (“FHLB”) borrowings. In addition, at September 30, 2022 and December 31, 2021, $911 and $1,054 of available for sale securities were pledged to secure borrowings at the Federal Reserve Bank of New York (“FRB”), respectively.

During the nine months ended September 30, 2022, there was $14,825 in proceeds from the sales of available for sale securities with $170 in gross losses realized.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

4. Loans and Allowance for Loan Losses

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


	September 30,		December 31,
	2022		2021
Commercial real estate loans:
Construction	$	13,293	$	10,095
Non-residential		265,062		245,568
Multi-family		67,327		55,926
Residential real estate loans		45,007		35,646
Commercial and industrial loans⁽¹⁾		82,642		104,323
Consumer loans:
Indirect automobile		452,819		382,088
Home equity		11,862		11,857
Other consumer		9,957		7,955
Total gross loans		947,969		853,458
Net deferred loan costs		11,805		9,068
Allowance for loan losses		(8,492)		(7,559)
Total net loans	$	951,282	$	854,967

⁽¹⁾	Includes $581 and $29,464 in U.S. Small Business Administration (“SBA”), paycheck protection program (“PPP”) loans at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022 and December 31, 2021, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $92 and $3,950, respectively.

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:


	September 30, 2022
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	13,293	$	—	$	—	$	13,293
Non-residential		253,992		7,961		3,109		265,062
Multifamily		67,327		—		—		67,327
Residential real estate		43,172		—		1,835		45,007
Commercial and industrial		77,692		4,000		950		82,642
Consumer:
Indirect automobile		452,227		—		592		452,819
Home equity		11,740		—		122		11,862
Other consumer		9,927		—		30		9,957
Total	$	929,370	$	11,961	$	6,638	$	947,969

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	December 31, 2021
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	10,095	$	—	$	—	$	10,095
Non-residential		232,253		10,341		2,974		245,568
Multifamily		55,926		—		—		55,926
Residential real estate		33,416		—		2,230		35,646
Commercial and industrial		98,171		5,377		775		104,323
Consumer:
Indirect automobile		381,354		—		734		382,088
Home equity		11,587		—		270		11,857
Other consumer		7,908		—		47		7,955
Total	$	830,710	$	15,718	$	7,030	$	853,458

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.

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


	September 30, 2022
							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	$	13,293	$	—	$	—	$	—	$	13,293	$	—
Non-residential		263,609		—		—		1,453		265,062		1,453
Multifamily		67,327		—		—		—		67,327		—
Residential real estate		43,254		1,160		—		593		45,007		1,835
Commercial and industrial		81,994		8		—		640		82,642		640
Consumer:
Indirect automobile		443,282		7,690		1,315		532		452,819		592
Home equity		11,612		78		147		25		11,862		122
Other consumer		9,842		53		32		30		9,957		30
Total	$	934,213	$	8,989	$	1,494	$	3,273	$	947,969	$	4,672

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	December 31, 2021
							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	$	10,095	$	—	$	—	$	—	$	10,095	$	—
Non-residential		242,205		115		527		2,721		245,568		2,721
Multifamily		55,926		—		—		—		55,926		—
Residential real estate		34,363		57		242		984		35,646		2,230
Commercial and industrial		103,517		246		—		560		104,323		687
Consumer:
Indirect automobile		374,729		5,977		715		667		382,088		734
Home equity		11,429		149		106		173		11,857		270
Other consumer		7,702		153		53		47		7,955		47
Total	$	839,966	$	6,697	$	1,643	$	5,152	$	853,458	$	6,689

The following tables summarize information regarding impaired loans by loan portfolio class:


	September 30, 2022
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	1,453	$	2,493	$	—	$	2,302
Residential real estate		1,835		2,460		—		1,999
Commercial and industrial		191		247		—		435
Consumer:
Indirect automobile		340		407		—		330
Home equity		122		123		—		159
Other consumer		27		31		—		37
Total	$	3,968	$	5,761	$	—	$	5,262
With an allowance recorded:
Commercial and industrial	$	449	$	449	$	449	$	114
Consumer:
Indirect automobile		252		262		68		284
Other consumer		3		3		1		10
Total	$	704	$	714	$	518	$	408
Total:
Commercial real estate:
Non-residential	$	1,453	$	2,493	$	—	$	2,302
Residential real estate		1,835		2,460		—		1,999
Commercial and industrial		640		696		449		549
Consumer:
Indirect automobile		592		669		68		614
Home equity		122		123		—		159
Other consumer		30		34		1		47
Total	$	4,672	$	6,475	$	518	$	5,670

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	December 31, 2021
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	2,721	$	3,797	$	—	$	2,290
Residential real estate		2,230		2,786		—		2,459
Commercial and industrial		687		921		—		674
Consumer:
Indirect automobile		345		408		—		219
Home equity		270		276		—		338
Other consumer		47		48		—		50
Total	$	6,300	$	8,236	$	—	$	6,030
With an allowance recorded:
Commercial real estate:
Commercial and industrial	$	—	$	—	$	—	$	148
Consumer:
Indirect automobile		389		395		68		286
Total	$	389	$	395	$	68	$	434
Total:
Commercial real estate:
Non-residential	$	2,721	$	3,797	$	—	$	2,290
Residential real estate		2,230		2,786		—		2,459
Commercial and industrial		687		921		—		822
Consumer:
Indirect automobile		734		803		68		505
Home equity		270		276		—		338
Other consumer		47		48		—		50
Total	$	6,689	$	8,631	$	68	$	6,464

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 TDRs. Loan modifications, which resulted in these loans being considered TDRs, are primarily in the form of rate concessions and extensions of maturity dates that are made specifically due to hardships experienced by the customer. The Company does not generally recognize interest income on a loan in an impaired status. At September 30, 2022 and December 31, 2021, respectively, three loans totaling $1,339 and $1,440, included in impaired loans, were identified as TDRs. There were no new TDRs in 2021 or the first nine months of 2022. At September 30, 2022 and December 31, 2021, all TDR loans were performing in accordance with their restructured terms. At September 30, 2022 and December 31, 2021, the Company had no commitments to advance additional funds to borrowers under TDR loans.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying statements of financial condition. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with the contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At September 30, 2022 and December 31, 2021, the Company was servicing loans for participants aggregating $7,622 and $3,962, respectively.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $637 and $935 at September 30, 2022 and December 31, 2021, respectively.

The Company services certain loans that it has sold without recourse to third parties. The aggregate balances of loans serviced for others were $306,824 and $314,953 as of September 30, 2022 and December 31, 2021, respectively.

The balances of capitalized servicing rights, included in other assets at September 30, 2022 and December 31, 2021, were $2,531 and $2,633, respectively. Fair value exceeds carrying value, and thus, no impairment charges related to servicing rights were recognized during the period ended September 30, 2022 or the year ended December 31, 2021.

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


	Commercial				Commercial
	Real Estate		Residential		and Industrial		Indirect		Consumer		Totals

	Three months ended September 30, 2022
Allowance for loan losses:
Beginning balance	$	3,440	$	59	$	859	$	3,738	$	73	$	8,169
(Credit to) provision for loan losses		(86)		26		344		238		23		545
Loans charged-off		—		—		(6)		(736)		(39)		(781)
Recoveries		117		1		—		430		11		559
Ending balance	$	3,471	$	86	$	1,197	$	3,670	$	68	$	8,492


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals

	Three months ended September 30, 2021
Allowance for loan losses:
Beginning balance	$	4,833	$	120	$	759	$	4,071	$	343	$	10,126
(Credit to) provision for loan losses		(792)		(67)		491		(294)		(292)		(954)
Loans charged-off		—		—		(12)		(527)		(5)		(544)
Recoveries		—		—		1		390		15		406
Ending balance	$	4,041	$	53	$	1,239	$	3,640	$	61	$	9,034

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals

	Nine months ended September 30, 2022

Allowance for loan losses:
Beginning balance	$	3,317	$	54	$	725	$	3,416	$	47	$	7,559
Provision for (credit to) loan losses		37		(79)		477		593		84		1,112
Loans charged-off		—		(44)		(6)		(1,790)		(100)		(1,940)
Recoveries		117		155		1		1,451		37		1,761
Ending balance	$	3,471	$	86	$	1,197	$	3,670	$	68	$	8,492
Ending balance:
Loans deemed impaired	$	—	$	—	$	449	$	68	$	1	$	518
Loans not deemed impaired	$	3,471	$	86	$	748	$	3,602	$	67	$	7,974
Loan receivables:
Ending balance	$	345,682	$	45,007	$	82,642	$	452,819	$	21,819	$	947,969
Ending balance:
Loans deemed impaired	$	1,453	$	1,835	$	640	$	592	$	152	$	4,672
Loans not deemed impaired	$	344,229	$	43,172	$	82,002	$	452,227	$	21,667	$	943,297


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals

	Nine months ended September 30, 2021
Allowance for loan losses:
Beginning balance	$	5,354	$	117	$	1,050	$	4,974	$	138	$	11,633
(Credit to) provision for loan losses		(1,313)		(67)		113		(803)		(101)		(2,171)
Loans charged-off		—		—		(13)		(1,644)		(14)		(1,671)
Recoveries		—		3		89		1,113		38		1,243
Ending balance	$	4,041	$	53	$	1,239	$	3,640	$	61	$	9,034
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	68	$	—	$	68
Loans not deemed impaired	$	4,041	$	53	$	1,239	$	3,572	$	61	$	8,966
Loan receivables:
Ending balance	$	283,155	$	35,830	$	117,755	$	377,116	$	20,493	$	834,349
Ending balance:
Loans deemed impaired	$	2,088	$	2,483	$	884	$	477	$	271	$	6,203
Loans not deemed impaired	$	281,067	$	33,347	$	116,871	$	376,639	$	20,222	$	828,146

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals

	December 31, 2021
Allowance for loan losses:
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	68	$	—	$	68
Loans not deemed impaired	$	3,317	$	54	$	725	$	3,348	$	47	$	7,491
Loan receivables:
Ending balance	$	311,589	$	35,646	$	104,323	$	382,088	$	19,812	$	853,458
Ending balance:
Loans deemed impaired	$	2,721	$	2,230	$	687	$	734	$	317	$	6,689
Loans not deemed impaired	$	308,868	$	33,416	$	103,636	$	381,354	$	19,495	$	846,769

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.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

5. Goodwill and Intangible Assets

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


	Nine Months Ended		Year Ended
	September 30,		December 31,
	2022		2021
Beginning balance	$	2,235	$	1,410
Acquisition activity		—		825

Ending balance	$	2,235	$	2,235

Accumulated impairment	$	1,116	$	1,116

The Company evaluated goodwill and determined that no write-down was required for the first nine months of 2022 or the year ended December 31, 2021.

The changes in the carrying value of the customer list and core deposit intangibles are as follows:


	Nine Months Ended		Year Ended
	September 30,		December 31,
	2022		2021
Beginning balance	$	433	$	199
Acquisition activity		—		330
Amortization		(75)		(96)

Ending balance	$	358	$	433
Accumulated amortization and impairment	$	919	$	844

Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships on the date of acquisition and are amortized over their estimated useful lives. Purchased customer accounts primarily consist of records and files that contain information about investment holdings. The values assigned to customer lists and core deposit intangibles is based upon the application of the income approach. The intangibles are expected to have useful lives of approximately 13 years. The Company recognized $75 and $69 of amortization expense related to its intangible assets for the nine months ended September 30, 2022 and 2021, respectively. The Company recognized $24 and $27 of amortization expense related to its intangible assets for the three months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the future amortization expense for amortizable intangible assets for the respective years is as follows:


2022	$	24
2023		88
2024		79
2025		60
2026		29
Thereafter		78
Total	$	358

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

6. Premises and Equipment

Premises and equipment are summarized as follows:


	September 30,		December 31,
	2022		2021
Land	$	3,732	$	3,732
Buildings and improvements		27,469		27,151
Furniture, fixtures and equipment		14,655		14,107
Construction in process		137		161
Total		45,993		45,151
Less accumulated depreciation		(27,135)		(25,968)
Net	$	18,858	$	19,183

7. Deposits

Deposits balances are summarized as follows:


	September 30,		December 31,
	2022		2021
Non-interest bearing demand deposits	$	309,319	$	314,814
Interest bearing accounts:
NOW		161,151		158,615
Savings		190,796		182,564
Money market		328,372		289,107
Time certificates of deposit		120,554		156,899
Total interest bearing accounts		800,873		787,185
Total deposits	$	1,110,192	$	1,101,999

Included in time certificates of deposit at September 30, 2022 and December 31, 2021 were reciprocal deposits totaling $8,976 and $21,083, respectively, with original maturities of one to three years. Time certificates of deposit in denominations of $250 or greater were $18,166 and $23,704 as of September 30, 2022 and December 31, 2021, respectively.

Contractual maturities of time certificates of deposit at September 30, 2022 are summarized below:


	September 30,
	2022
Within 1 year	$	92,293
1 – 2 years		14,506
2 – 3 years		9,247
3 – 4 years		2,683
4 – 5 years		1,825
Total	$	120,554

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

8. Long-Term Debt and FHLB Stock

FHLB Borrowings and Stock

The Bank is a member of the FHLB. At September 30, 2022 and December 31, 2021, the Bank had access to a preapproved secured line of credit with the FHLB of $646,254 and $640,500, respectively. Borrowings under this line require collateralization through the pledge of specific loans and securities. At September 30, 2022 and December 31, 2021, the Bank had pledged assets of $189,287 and $170,385, respectively. At September 30, 2022 and December 31, 2021, the Bank had outstanding overnight line of credit balances with FHLB of $5,000 and $0, respectively. These borrowings mature the following business day. The interest rate on the overnight line of credit balance was 3.29% at September 30, 2022.

The outstanding principal amounts and the related terms and rates at September 30, 2022 were as follows:


Term	Principal		Maturity	Rate		Due in one year
Fixed short-term	$	5,000	October 3, 2022	2.85	%	$	5,000
Fixed short-term		5,000	November 1, 2022	3.06	%		5,000
Fixed short-term		20,000	December 21, 2022	3.76	%	$	20,000
3 year amortizing		2,541	February 28, 2023	1.32	%		2,541
Total	$	32,541	Weighted Average Rate	3.32	%	$	32,541

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 FHLB stock for impairment based on the ultimate recovery ability of the cost. No impairment was recognized at either September 30, 2022 or December 31, 2021.

Subordinated Debt

In addition to the Bank, the Company has one other wholly-owned subsidiary, RSB Capital Trust I (the “Trust”). In 2005, the Trust issued $5,000 of pooled trust preferred securities in a private placement and issued 155 shares of common stock at $1 par value per share, to the Company. The Trust, which has no independent assets or operations, was formed in 2005 for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures. The proceeds from the issuance of the trust preferred securities were down-streamed to the Bank and are currently considered Tier 1 capital for purposes of determining the Bank’s capital ratios. 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 three month LIBOR plus 2.00% (4.96% at September 30, 2022 and 2.16% at December 31, 2021) mature on May 23, 2035.

As it is anticipated that LIBOR will be discontinued after June 2023, the Company is reviewing the agreements for the above debt to determine alternative reference rates and does not anticipate there will be a significant financial statement impact.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Other Borrowings

The Bank has an unsecured, uncommitted $10,000 line of credit with Zions Bank. There were no advances outstanding under this line of credit at either September 30, 2022 or December 31, 2021.

The Bank also has an unsecured, uncommitted $50,000 line of credit with Pacific Coast Bankers Bank. There were no advances outstanding under this line of credit at either September 30, 2022 or December 31, 2021.

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 September 30, 2012, the effective date on which the Board of Directors of the Bank voted to freeze the 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:


	September 30,		December 31,
	2022		2021
Projected and accumulated benefit obligation	$	(17,299)	$	(23,055)
Plan assets at fair value		16,444		22,839
Funded status included in accrued expenses and other liabilities	$	(855)	$	(216)

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


	Nine months ended September 30,
	2022		2021
Interest cost	$	476	$	442
Expected return on plan assets		(755)		(708)
Amortization of unrecognized loss		200		269
Net periodic (benefit) cost	$	(79)	$	3

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

As of September 30, 2022, the investment funds included seven equity funds and two fixed income bond funds, 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.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

The Company did not make a contribution to the plan in the first nine months of 2022 or 2021.

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


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	11,487	$	—	$	—	$	11,487
Equity		4,957		—		—		4,957
Total assets at fair value	$	16,444	$	—	$	—	$	16,444


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	15,689	$	—	$	—	$	15,689
Equity		7,150		—		—		7,150
Total assets at fair value	$	22,839	$	—	$	—	$	22,839

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.

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, 2021 included in the Company’s Annual Report on Form 10-K.

Defined Contribution Plan

The Bank 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 Bank matching up to 6%, subject to Internal Revenue Service limitations. The Bank’s contributions charged to operations amounted to $882 and $798 for the nine months ended September 30, 2022 and 2021, respectively.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Deferred Compensation Arrangements

Directors’ Plan

The Bank’s Deferred Compensation Plan for Fees of Directors, as amended and restated effective January 1, 2005 (the “Directors’ Plan”), covers directors who elect to defer receipt of all or a portion of their fees until separation from service. Upon resignation, retirement, or death, the participant’s total deferred compensation, including earnings thereon, will be paid out. At September 30, 2022 and December 31, 2021, total amounts due to participants of $2,574 and $2,877, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $172 and $106 for the nine months ended September 30, 2022 and 2021, respectively, which were included in other non-interest 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 Executive Plan year, as determined by the Board of Directors based on the attainment of criteria established annually by the Board of Directors. Incentive awards under the Executive Plan are credited to the participant’s incentive benefit account as of the last day of the Executive Plan year to which the award relates and earn interest at a rate determined annually by the Board of Directors. Participants vest in their benefit accounts in accordance with the vesting schedule approved by the Board of Directors, which ranges from one to five years of service. At September 30, 2022 and December 31, 2021, $1,619 and $1,545, respectively, was included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $565 and $392 for the nine months ended September 30, 2022 and 2021, 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 $1,459 and $1,423 at September 30, 2022 and December 31, 2021, respectively. The Company recognized expenses of $36 and $32 for the nine-month periods ended September 30, 2022 and September 30, 2021, respectively, related to this plan, which are included in salaries and employee benefits expense in the consolidated statements of income.

Other Director and Officer Postretirement Benefits

The Company has individual fee continuation agreements with certain directors and a supplemental retirement agreement with an executive officer which provide for fixed postretirement benefits to be paid to the directors and the officer, or their beneficiaries, for periods ranging from 15 to 20 years. In addition, the Company has agreements with certain directors which provide for certain postretirement life insurance benefits. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $2,019 and $1,986 at September 30, 2022 and December 31, 2021, respectively. The Company recognized expenses of $65 and $56 for the nine months ended September

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

30, 2022 and 2021, respectively, related to these benefits, which are included in other non-interest 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 Company stock to eligible employees. 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 is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (3.25% at January 1, 2022). 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 September 30, 2022 was $3,917. 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:


	Nine months ended	Year ended
	September 30,	December 31,
	2022	2021
Allocated	65,463	43,642
Committed to be allocated	16,362	21,821
Unallocated	354,600	370,962
Paid out to participants	(1,252)	(1,252)
Total shares	435,173	435,173

The fair value of unallocated shares was $3,457 at September 30, 2022.

Total compensation expense recognized in connection with the ESOP for the nine months ended September 30, 2022 and 2021 was $163 and $168, respectively.

Share-Based Compensation Plan

On May 26, 2020, stockholders of the Company approved the 2020 Equity Incentive Plan (the “EIP”). The EIP authorizes the issuance to participants of up to 763,743 shares of Rhinebeck Bancorp common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units. Of this number, the maximum number of shares of Rhinebeck Bancorp common stock that may be issued under the EIP pursuant to the exercise of stock options is 545,531 shares, and the maximum number of shares of Rhinebeck Bancorp common stock that may be issued as restricted stock awards or restricted stock units is 218,212 shares. These amounts represented 4.90% and 1.96%, respectively, of the number of shares of common stock issued in the stock offering of Rhinebeck Bancorp, including the shares issued to Rhinebeck Bancorp, MHC.

Pursuant to terms of the EIP, on August 25, 2020, the Board of Directors granted restricted stock and stock options to employees and directors. All of the awards vest annually over a three-year period from the date of the grant and the term of each option is ten years. As of September 30, 2022, there were 102,146 stock options and 49,110 restricted stock awards that remain available for future grants.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

The fair value of each option granted under the EIP is estimated on the date of grant using the Black-Scholes Option-Pricing Model. The expected volatility is based on the historical volatility of a peer group of comparable SEC-reporting bank holding companies. The dividend yield assumption is based on the Company’s expectation of dividend payouts. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the date of grant. The Company has elected to recognize forfeitures as they occur.

A summary of options under the 2020 EIP as of September 30, 2022 is presented below:


		Weighted -		Weighted-Average
	Number of	Average		Remaining Contractual
	Shares	Exercise Price		Term (in Years)
Options outstanding at beginning of year	439,596	$	6.62	8.63
Options granted	-		-	-
Options exercised	-		-	-
Options Expired	(1,666)		6.57	-
Options outstanding at September 30, 2022	437,930	$	6.62	7.92
Options exercisable at September 30, 2022	285,126	$	6.59	7.91

At September 30, 2022, the aggregate intrinsic value of the stock options outstanding, which fluctuates based on changes in the fair market value of the Company’s stock, was $1,373. The aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of period and the weighted-average exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2022.

As of September 30, 2022, there was $224 of unrecognized compensation cost related to the nonvested stock options granted under the 2020 EIP. The cost is expected to be recognized over a remaining period of 0.91 years.

The following table summarizes the Company’s restricted stock activity for the nine months ended September 30, 2022:


			Weighted-Average
	Number		Grant Date
	of Shares		Fair Value per Share
Non-vested restricted stock at beginning of year	112,520	$	6.57
Granted	-		-
Vested	(56,254)		6.57
Forfeited	-		-
Non-vested restricted stock at September 30, 2022	56,266	$	6.57

As of September 30, 2022, there was $333 of unrecognized compensation cost related to the nonvested restricted stock awards granted under the 2020 EIP. The cost is expected to be recognized over a remaining period of 0.90 years.

For the nine months ended September 30, 2022, share-based compensation of options and restricted stock under the plan totaled $460.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

10. Leases

As of September 30, 2022, the Company leased real estate for eight branch offices and two administrative offices under various lease agreements. All of our leases are classified as operating leases.

The calculated amount of the right-of-use 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 2024 to 2041, some of which include lessee options to extend the lease term. If the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The weighted average remaining life of the lease terms for these leases was 11.4 years and 12.0 years as of September 30, 2022 and December 31, 2021, respectively. 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 2.52% and 2.51% in determining the lease liability as of September 30, 2022 and December 31, 2021, respectively.

For the nine months ended September 30, 2022 and 2021, total operating lease costs were $597 and $539, respectively, and were included in occupancy and other expense. Deferred rent liability was $118 and $145 at September 30, 2022 and December 31, 2021, respectively. The right-of-use asset, included in other assets, was $7,345 and $7,839 and the corresponding lease liability, included in accrued expenses and other liabilities, was $7,345 and $7,839 as of September 30, 2022 and December 31, 2021, respectively.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2022 were as follows:


Years ending December 31:
2022	$	213
2023		854
2024		857
2025		833
2026		728
Thereafter		5,070
Total future minimum lease payments		8,555
Amounts representing interest		(1,210)
Present Value of Net Future Minimum Lease Payments	$	7,345

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

11. Commitments and Contingencies and Derivatives

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

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

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


	September 30,		December 31,
	2022		2021
Commitments to extend credit summarized as follows:
Future loan commitments	$	8,804	$	6,830
Undisbursed construction loans		38,829		15,191
Undisbursed home equity lines of credit		10,200		11,048
Undisbursed commercial and other line of credit		94,097		78,941
Standby letters of credit		5,004		3,068
Total	$	156,934	$	115,078

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.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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

Interest Rate Swaps

The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate loan agreement to a fixed-rate loan agreement. Under these agreements, the Company simultaneously enters into a variable-rate loan and interest rate swap agreements with a customer. The Company then enters into a corresponding and offsetting swap agreement with a third party to hedge its exposure created by the customer agreements. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging, and are marked to market through earnings. The fair values of the swaps are recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions. The accrued interest receivable and payable of $23 and $12 related to our swaps is recorded in other assets and other liabilities as of September 30, 2022 and December 31, 2021, respectively.

Summary information regarding these derivatives is presented below:


	September 30,			December 31,
	2022			2021
Notational amount	$	52,982		$	26,842
Fair value	$	4,840		$	644
Weighted average pay rates		4.28	%		3.69	%
Weighted average receive rates		4.73	%		2.26	%
Weighted average maturity (in years)		10.11			9.78

Number of Contracts		11			7

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the tables below) of total, common equity Tier 1 and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of September 30, 2022 and December 31, 2021, 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

	September 30, 2022
Rhinebeck Bank
Total capital (to risk-weighted assets)	$	138,827	12.57	%	$	88,372	8.00	%	$	110,464	10.00	%
Tier 1 capital (to risk-weighted assets)		130,335	11.80	%		66,279	6.00	%		88,372	8.00	%
Common equity tier one capital (to risk weighted assets)		130,335	11.80	%		49,709	4.50	%		71,802	6.50	%
Tier 1 capital (to average assets)		130,335	9.83	%		53,058	4.00	%		66,322	5.00	%


	December 31, 2021
Rhinebeck Bank
Total capital (to risk-weighted assets)	$	130,217	13.54	%	$	76,917	8.00	%	$	96,146	10.00	%
Tier 1 capital (to risk-weighted assets)		122,658	12.76	%		57,687	6.00	%		76,917	8.00	%
Common equity tier one capital (to risk weighted assets)		122,658	12.76	%		43,266	4.50	%		62,495	6.50	%
Tier 1 capital (to average assets)		122,658	9.65	%		50,865	4.00	%		63,582	5.00	%

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

13. Fair Value

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

The carrying amount is a reasonable estimate of fair value.

Available for Sale Securities

Where quoted prices are available in an active market for identical securities, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include marketable equity securities and U.S. Treasury obligations. If quoted prices are not available, then fair values are estimated by using pricing models (i.e., matrix pricing) or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. Examples of such instruments include government agency bonds, mortgage-backed securities and municipal bonds. Level 3 securities include 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 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.

Other Real Estate Owned

Other real estate owned represents real estate acquired through foreclosure and is carried at 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. Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value and are included in other assets on the consolidated statements of financial condition.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

Deposits

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

Mortgagors’ Escrow Accounts

The fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered on deposited escrow accounts of similarly expected maturities.

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.

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.

Loan Level Interest Rate Swaps

The fair value is based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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


			Quoted Prices in
			Active Markets		Significant		Significant
			for Identical		Observable		Unobservable
	Balance		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)

	September 30, 2022
Assets:
U.S. Treasury securities	$	37,640	$	37,640	$	—	$	—
U.S. government agency mortgage-backed securities-residential		150,122		—		150,122		—
U.S. government agency securities		22,257		—		22,257		—
Municipal securities		4,717		—		4,587		130
Corporate Bonds		13,449		—		13,449		—
Other		845		—		845		—
Total available for sale securities		229,030		37,640		191,260		130
Loan level interest rate swaps		4,840		—		4,840		—
Total assets	$	233,870	$	37,640	$	196,100	$	130
Liabilities:
Loan level interest rate swaps	$	4,840	$	—	$	4,840	$	—
Total liabilities	$	4,840	$	—	$	4,840	$	—


	December 31, 2021
Assets:
U.S. Treasury securities	$	59,825	$	59,825	$	—	$	—
U.S. government agency mortgage-backed securities – residential		176,491		—		176,491		—
U.S. government agency securities		24,722		—		24,722		—
Municipal securities		6,851		—		6,706		145
Corporate Bonds		11,752		—		11,752		—
Other		642		—		642		—
Total available for sale securities		280,283		59,825		220,313		145
Loan level interest rate swaps		644		—		644		—
Total assets	$	280,927	$	59,825	$	220,957	$	145
Liabilities:
Loan level interest rate swaps	$	644	$	—	$	644	$	—
Total liabilities	$	644	$	—	$	644	$	—

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 carried at fair value and measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:


			Quoted Prices in
			Active Markets		Significant		Significant
			for Identical		Observable		Unobservable
	Balance		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)

	September 30, 2022
Impaired loans, with specific reserves	$	186	$	—	$	—	$	186
Total	$	186	$	—	$	—	$	186


	December 31, 2021
Impaired loans, with specific reserves	$	321	$	—	$	—	$	321
Total	$	321	$	—	$	—	$	321

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had recorded investments of $704 and $389 with valuation allowances of $518 and $68, resulting in fair values of $186 and $321 at September 30, 2022 and December 31, 2021, respectively. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans.

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


	Quantitative Information About Level 3 Fair Value Measurements
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Average)

	September 30, 2022
Impaired loans	$	186	Appraisal of collateral	⁽¹⁾	Liquidation expenses	⁽³⁾	0% to 6%
					Appraisal adjustments	⁽²⁾	0% to 20%

	December 31, 2021
Impaired loans	$	321	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 2022 and 2021 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.

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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

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


	September 30,				December 31,
	2022				2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and due from banks (Level 1)	$	28,110	$	28,110	$	72,091	$	72,091
Available for sale securities (Level 1)		37,640		37,640		59,825		59,825
Available for sale securities (Level 2)		191,260		191,260		220,313		220,313
Available for sale securities (Level 3)		130		130		145		145
Loan level interest rate swaps (Level 2)		4,840		4,840		644		644
FHLB stock (Level 2)		2,350		2,350		1,322		1,322
Loans, net (Level 3)		951,282		923,561		854,967		855,542
Mortgage servicing rights (Level 3)		2,531		5,613		2,633		4,892
Financial Liabilities:
Deposits (Level 2)		1,110,192		1,000,530		1,101,999		1,083,541
Mortgagors' escrow accounts (Level 2)		5,895		5,896		9,130		9,137
FHLB advances (Level 2)		37,541		37,547		18,041		18,151
Subordinated debt (Level 2)		5,155		5,155		5,155		5,155
Loan level interest rate swaps (Level 2)		4,840		4,840		644		644

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

14. Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021 is as follows:


	Accumulated Other Comprehensive Loss⁽¹⁾
			Unrealized (losses)
			gains on
	Defined Benefit		available for sale
	Pension Plan		securities		Total
Balance at June 30, 2022	$	(4,563)	$	(19,198)	$	(23,761)
Other comprehensive loss before reclassifications		42		(8,842)		(8,800)
Amounts reclassified from accumulated other comprehensive loss		52		6		58
Period change		94		(8,836)		(8,742)
Balance at September 30, 2022	$	(4,469)	$	(28,034)	$	(32,503)

Balance at June 30, 2021	$	(4,605)	$	(126)	$	(4,731)
Other comprehensive gain (loss) before reclassifications		(120)		(472)		(592)
Amounts reclassified from accumulated other comprehensive loss		71		—		71
Period change		(49)		(472)		(521)
Balance at September 30, 2021	$	(4,654)	$	(598)	$	(5,252)

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


	Accumulated Other Comprehensive Loss⁽¹⁾
			Unrealized (losses)
			gains on
	Defined Benefit		available for sale
	Pension Plan		securities		Total
Balance at December 31, 2021	$	(3,901)	$	(2,734)	$	(6,635)
Other comprehensive loss before reclassifications		(726)		(25,434)		(26,160)
Amounts reclassified from accumulated other comprehensive loss		158		134		292
Period change		(568)		(25,300)		(25,868)
Balance at September 30, 2022	$	(4,469)	$	(28,034)	$	(32,503)

Balance at December 31, 2020	$	(4,784)	$	993	$	(3,791)
Other comprehensive loss before reclassifications		(83)		(1,591)		(1,674)
Amounts reclassified from accumulated other comprehensive loss		213		—		213
Period change		130		(1,591)		(1,461)
Balance at September 30, 2021	$	(4,654)	$	(598)	$	(5,252)

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

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

15. 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. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents (such as options) were issued during the period. Unearned ESOP shares are not deemed outstanding for earnings per share calculations.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022			2021
Net income applicable to common stock	$	2,107	$	2,685	$	6,189	$	8,571

Average number of common shares outstanding		11,201,567		11,153,186		11,189,643		11,139,944
Less: Average unearned ESOP shares		357,327		379,148		362,781		384,602
Average number of common shares outstanding used to calculate basic earnings per common share		10,844,240		10,774,038		10,826,862		10,755,342
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share		49,534		61,444		57,603		64,311
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		102,535		111,453		115,280		94,776
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		10,996,309		10,946,935		10,999,745		10,914,429

Earnings per Common share:
Basic	$	0.19	$	0.25	$	0.57	$	0.80
Diluted	$	0.19	$	0.25	$	0.56	$	0.79

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

16. Subsequent Events

On October 6, 2022, the Bank and the New York State Department of Financial Services (“DFS”) reached a settlement regarding claims based on DFS’s detection of statistical differences in dealer reserve (i.e., dealer markup) charged by automobile dealers to different borrower groups on loans purchased by the Bank through its indirect automobile lending program for the years 2017 through 2021.

While the Bank did not agree with the findings and denied the allegations, it agreed to a settlement so as not to engage in a lengthy and costly legal challenge.

The Bank agreed to pay a civil monetary penalty of $950 and estimates that the restitution to eligible impacted borrowers to be approximately $501. The Bank has fully reserved for this settlement and does not expect any further material negative impact on earnings.

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

General

Management’s discussion and analysis of financial condition and results of operations at September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021 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;

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 affect our margins and yields, the fair value of financial instruments, our volume of loan originations, or the level of defaults, losses and prepayments on loans, whether held in portfolio or sold in the secondary market;

● changes in the securities markets;

● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, Federal Deposit Insurance Corporation premiums and capital requirements;

●

negative financial impact from unfavorable regulatory penalties and/or settlements;

● 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;

● 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;

●

the current or anticipated impact of military conflict, terrorism or other geopolitical events;

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;

a failure in or breach of our operational or security systems or infrastructure, including cyberattacks;

the failure to maintain current technologies;

the inability to successfully implement future information technology enhancements;

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

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

the effects of the COVID-19 pandemic, or any other public health emergency, including the impact of government and regulatory responses, changes in consumer behavior, supply chain interruptions, loss or unavailability of employees, and other economic effects.

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

Critical Accounting Policies

For 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, 2021, filed with the Securities and Exchange Commission. As of September 30, 2022, 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, 2021.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total Assets. Total assets were $1.29 billion at September 30, 2022 as compared to $1.28 billion at December 31, 2021, reflecting an increase of $11.5 million, or 0.9%. The increase was primarily related to increases in loans receivable of $96.3 million and deferred tax assets of $6.9 million, offset by decreases in cash and due from banks of $44.0 million and available for sale securities of $51.3 million.

Cash and Due from Banks. Cash and due from banks decreased $44.0 million, or 61.0%, to $28.1 million at September 30, 2022 from $72.1 million at December 31, 2021 primarily due to a decrease in deposits held at the Federal Reserve Bank of New York as excess cash was used to fund loan growth.

Investment Securities Available for Sale. Investment securities available for sale decreased $51.3 million, or 18.3%, to $229.0 million at September 30, 2022 from $280.3 million at December 31, 2021, primarily due to paydowns, sales, calls and maturities of $49.1 million and an increase of $32.0 million in unrealized market losses, partially offset by $30.2 million in purchases. The excess funds from the paydowns, calls and maturities of securities were used to fund loan growth.

Net Loans. Total net loans receivable were $951.3 million at September 30, 2022, an increase of $96.3 million, or 11.3%, as compared to $855.0 million at December 31, 2021. The increase was primarily due to increases of $70.7 million, or 18.5%, in indirect automobile loans and $34.1 million, or 10.9%, in commercial real estate loans, while commercial and industrial loans decreased $21.7 million, or 20.8%.

Non-accrual loans and non-performing assets decreased $2.0 million, or 30.2%, to $4.7 million at September 30, 2022 from $6.7 million at December 31, 2021. The Company had no other real estate owned at the end of either period.

Deferred Tax Assets. Deferred tax assets increased $6.9 million, or 206.0%, to $10.3 million at September 30, 2022, primarily due to an increase in the unrealized loss on available for sale securities, driven by the impacts of an increasing interest rate environment on market valuations. The unrealized loss on available for sale securities was $35.5 million at September 30, 2022 as compared to $3.5 million at December 31, 2021.

Total Liabilities. Total liabilities increased $30.7 million, or 2.7%, to $1.19 billion at September 30, 2022, primarily due to an increase in advances from the FHLB of $19.5 million, an increase in deposits of $8.2 million, and an increase in accrued expenses and other liabilities of $6.2 million, the latter due to increases in pension and swap liabilities. These increases were partially offset by a decrease in mortgagors’ escrow accounts of $3.2 million.

Deposits. Deposits increased $8.2 million, or 0.7%, to $1.11 billion at September 30, 2022 from $1.10 billion at December 31, 2021. Interest bearing accounts grew $13.7 million, or 1.7%, to $800.9 million while non-interest bearing balances decreased $5.5 million, or 1.7%, finishing the first nine months of 2022 at $309.3 million. Of the interest bearing accounts, transaction accounts including NOW, savings and money market accounts increased $50.0 million, or 7.9%, which was partially offset by a decrease in time deposits of $36.3 million, or 23.2%. The continued growth in deposits was primarily due to the addition of four branches during the first quarter of 2021.

Stockholders’ Equity. Stockholders' equity decreased $19.2 million to $106.8 million at September 30, 2022, primarily due to an increase in accumulated other comprehensive loss of $25.9 million partially offset by $6.2 million in net income. At September 30, 2022, the Company’s book value per share was $9.46 and the Company’s ratio of stockholders’ equity-to-total assets was 8.26%. At December 31, 2021, the Company’s book value per share was $11.15 and the Company’s ratio of stockholders’ equity-to-total assets was 9.83%. Unearned common stock held by the Bank’s employee stock ownership plan was $3.5 million and $3.7 million at September 30, 2022 and December 31, 2021, respectively.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2022 and 2021

Net Income. Net income for the three months ended September 30, 2022 decreased $578,000, or 21.5%, to $2.1 million, or $0.19 per diluted share, compared to net income of $2.7 million, or $0.25 per diluted share, for the three months ended September 30, 2021. Interest and dividend income increased $1.5 million, or 13.5%, interest expense increased $456,000, or 45.6%, the provision for loan losses increased $1.5 million, non-interest income decreased $250,000, or 15.3%, non-interest expense increased $101,000, or 1.1%, and taxes decreased $234,000, or 28.2%, between comparable quarters.

Net income for the nine months ended September 30, 2022 decreased $2.4 million, or 27.8%, to $6.2 million, or $0.56 per diluted share, compared to net income of $8.6 million, or $0.79 per diluted share, for the nine months ended September 30, 2021. Interest and dividend income increased $2.9 million, or 9.0%, interest expense decreased $190,000, or 5.6%, the provision for loan losses increased $3.3 million, or 151.2%, non-interest income decreased $1.1 million, or 19.8%, non-interest expense increased $1.9 million, or 7.2%, and taxes decreased $788,000, or 33.7%, between the comparable nine-month periods.

Net Interest Income. Net interest income increased $1.0 million, or 10.3%, to $11.1 million for the three months ended September 30, 2022, compared to $10.1 million for the quarter ended September 30, 2021. The ratio of average interest-earning assets to average interest-bearing liabilities decreased 2.0% to 142.62% while our net interest margin increased by 19 basis points to 3.61% when comparing the third quarter of 2022 to the same period in 2021.

Net interest income increased $3.1 million, or 10.7%, to $32.1 million for the nine months ended September 30, 2022, compared to $29.0 million for the nine months ended September 30, 2021. The ratio of average interest-earning assets to average interest-bearing liabilities decreased 0.6% to 143.50% while our net interest margin increased by 11 basis points to 3.55% for the nine months ended September 30, 2022, compared to 3.44% for the same nine month period in 2021.

Interest Income. Interest income increased $1.5 million, or 13.5%, to $12.6 million for the three months ended September 30, 2022 from $11.1 million for the comparable 2021 period. Both interest and fees on loans and interest and dividends on securities increased as the average balances both increased. For the three months ended September 30, 2022, the average balance of loans increased $93.7 million, while the average balance of available for sale securities increased $21.7 million when compared to the three months ended September 30, 2021. The average yield on loans decreased 6 basis points, while the average yield on available for sale securities increased 52 basis points. Loan yields were driven lower mainly due to the reduction in the overall risk rating of our indirect loan portfolio as both competition for higher yielding loans and our desire to manage long term credit quality had some negative impact on interest revenue. The average yield of interest-earning assets increased by 32 basis points to 4.08% and the average balances of interest-earning assets increased $51.3 million, or 4.4%.

Interest income increased $2.9 million, or 9.0%, to $35.3 million for the nine months ended September 30, 2022 from $32.3 million for the comparable 2021 period. Interest and dividends on securities and interest and fees on loans both increased. For the nine months ended September 30, 2022, the average balance of loans increased $35.8 million, while the average balance of available for sale securities increased $87.4 million when compared to the nine months ended September 30, 2021. The average yield on loans increased 3 basis points, while the average yield on available for sale securities increased 26 basis points. The average yield of interest-earning assets increased by 7 basis points to 3.91% while the average balances of interest-earning assets increased $80.3 million, or 7.1%.

Interest Expense. Interest expense increased $456,000, or 45.6%, from $1.0 million for the quarter ended September 30, 2021, to $1.5 million for the quarter ended September 30, 2022. The average cost of interest-bearing liabilities increased 19 basis points to 0.68% for the quarter ended September 30, 2022 while the average balance of total interest-bearing liabilities increased $52.0 million, or 6.5%, to $855.2 million. For the three months ended September 30, 2022 and 2021, the average cost of interest-bearing deposits increased by 17 basis points. An increase of $95.4 million, or 16.1%, in the average balance of our core deposits was partially offset by a decrease of $48.8 million, or 28.2%, in the average balance of certificates of deposit.

Interest expense decreased $190,000, or 5.6%, from $3.4 million for the nine months ended September 30, 2021, to $3.2 million for the nine months ended September 30, 2022. The average cost of interest-bearing liabilities decreased 7 basis points to 0.51% for the nine months ended September 30, 2022, which was offset by an increase in the average balance of total interest-bearing liabilities of $60.9 million, or 7.8%, to $841.2 million. For the nine-month periods ended September 30, 2022 and 2021, the average cost of interest-bearing deposits decreased by 6 basis points. An increase of $119.2 million, or 21.7%, in the average balance of our core deposits was partially offset by a decrease of $45.5 million, or 24.9%, in the average balance of certificates of deposit.

Provision for Loan Losses. We recorded a provision for loan losses of $545,000 for the quarter ended September 30, 2022, which represented a $1.5 million increase from a credit of $954,000 for the prior year comparable quarter. We recorded a provision for loan losses of $1.1 million for the nine months ended September 30, 2022, which represented a $3.3 million increase from a credit of $2.2 million for the nine months ended September 30, 2021. In 2021, the credits to loan losses for the three and nine months ended September 30, 2021 were primarily attributable to a decline in loan balances, exclusive of PPP loans, a reduction in specific allocations to the allowance for loan losses and a general improvement in economic conditions as our customers showed signs of recovering from the pandemic. An increase in loan balances in 2022 was the primary factor leading to the increase in the provision.

Net charge-offs increased $84,000 to $222,000 for the quarter ended September 30, 2022 from $138,000 for the comparable quarter in 2021 primarily due to increased charge-offs in our indirect automobile portfolio as loan balances increased. Net charge-offs for the nine months ended September 30, 2022 totaled $179,000 compared to net charge-offs of $428,000 for the comparable period in 2021. The year-to-date decrease in 2022 was primarily due to a $143,000 recovery of a residential mortgage loan, pricing gains on the sales of repossessed vehicles as used car prices have risen significantly, and an improvement in the overall economic environment. There was a general overall improvement in loan quality during the first nine months of 2022 as the percentage of overdue account balances to total loans decreased to 1.45% as of September 30, 2022 from 1.58% as of December 31, 2021 and non-performing assets decreased $2.0 million.

Non-Interest Income. Non-interest income totaled $1.4 million for the three months ended September 30, 2022, a decrease of $250,000, or 15.3%, from the comparable period in the prior year, due primarily to a decrease in the net gain on sales of mortgage loans as activity decreased due to fewer originations in the increasing interest rate environment and as some higher-rate loans were added to the portfolio. Gain on sales of mortgage loans decreased $355,000, or 70.7%, compared to the prior year quarter as the Company sold $5.1 million of residential mortgage loans in the third quarter of 2022 as compared to $16.3 million in the third quarter of 2021. The net decrease was partially offset by an increase in service charges on deposit accounts of $49,000, or 7.4%, as transaction volume increased and an increase in other non-interest income of $67,000.

For the nine months ended September 30, 2022, total non-interest income decreased $1.1 million, or 19.8%, from the comparable period in the prior year. The reduction between periods was mostly due to the decrease in the gain on the sale of mortgage loans of $1.3 million, or 61.5%, the 2021 one-time gain from the collection of a life insurance claim of $195,000 and a net realized loss in 2022 from the sale of securities of $170,000, partially offset by an increase in service charges on deposit accounts of $234,000, an improvement in investment advisory income of $120,000, a $69,000 increase in the cash value of life insurance, and a net improvement of $167,000 in other income items.

Non-Interest Expense. For the third quarter of 2022, non-interest expense totaled $9.2 million, an increase of $101,000, or 1.1%, over the comparable 2021 period. The increase was primarily due to an increase in salaries and benefits of $195,000, or 3.8%, due to new hires, annual merit increases, production incentives and employee benefit increases, as well as the competitive pressures of the current job market. For the three months ended September 30, 2022, occupancy expenses increased $37,000, or 3.5%, primarily resulting from inflationary pressures on our service contracts. Data processing costs increased $29,000, FDIC insurance costs increased $25,000 and marketing expense increased by $21,000. These increases were partially offset by decreased professional fees of $20,000 and a decrease in other non-interest expenses of $179,000, or 10.7%.

For the nine months ended September 30, 2022, non-interest expense totaled $27.8 million, an increase of $1.9 million, or 7.2%, over the comparable 2021 period. The increase was primarily due to an increase in salaries and benefits of $1.6 million, or 11.1%, due to branch expansion, new hires, annual merit increases, production incentives and employee benefit increases, as well as the competitive pressures of the current job market. For the nine months ended September 30, 2022, occupancy expenses increased $342,000, or 11.2%, as a result of the additional rent, depreciation and other expenses related to branch expansion. The addition of branches was also primarily responsible for increased data processing costs of $152,000, increased marketing expense of $105,000 and increased FDIC insurance costs of $60,000. These increases were partially offset by decreased professional fees of $83,000 and a decrease in other non-interest expenses of $357,000, or 7.8%. The decrease in other non-interest expense was primarily due a reserve put in place in 2021 for potential consumer compliance issues in the Bank’s indirect automobile portfolio. A settlement was reached with the New York State Department of Financial Services in October of 2022 and no further material negative impact on earnings is expected.

Income Taxes. Income taxes decreased by $234,000 for the three months ended September 30, 2022 as compared to the same three month period in 2021 as our income before income taxes decreased. Our effective tax rate for the three months ended September 30, 2022 was 22.02% compared to 23.59% for the three months ended September 30, 2021.

Income taxes decreased by $788,000 for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 as our income before income taxes decreased. Our effective tax rate for the nine months ended September 30, 2022 was 20.04% compared to 21.44% for the nine months ended September 30, 2021.

Average Balance Sheets for the Three and Nine Months Ended September 30, 2022 and 2021

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


	For the Three Months Ended September 30,
	2022						2021
	Average		Interest and				Average		Interest and
	Balance		Dividends		Yield/Cost⁽³⁾		Balance		Dividends		Yield/Cost⁽³⁾
Assets:
Interest bearing depository accounts	$	26,612	$	147	2.19	%	$	90,680	$	34	0.15	%
Loans⁽¹⁾		948,536		11,404	4.77	%		854,822		10,402	4.83	%
Available for sale securities		244,543		1,002	1.63	%		222,851		623	1.11	%
Total interest-earning assets		1,219,691		12,553	4.08	%		1,168,353		11,059	3.76	%
Non-interest-earning assets		85,480						78,220
Total assets	$	1,305,171					$	1,246,573
Liabilities and equity:
NOW accounts	$	163,765	$	59	0.14	%	$	152,578	$	59	0.15	%
Money market accounts		329,932		820	0.99	%		259,014		359	0.55	%
Savings accounts		193,597		134	0.27	%		180,277		72	0.16	%
Certificates of deposit		124,217		210	0.67	%		173,013		340	0.78	%
Total interest-bearing deposits		811,511		1,223	0.60	%		764,882		830	0.43	%
Escrow accounts		13,676		39	1.13	%		12,304		36	1.16	%
Federal Home Loan Bank advances		24,870		140	2.23	%		20,858		106	2.02	%
Subordinated debt		5,155		54	4.16	%		5,155		28	2.15	%
Other interest-bearing liabilities		43,701		233	2.12	%		38,317		170	1.76	%
Total interest-bearing liabilities		855,212		1,456	0.68	%		803,199		1,000	0.49	%
Non-interest-bearing deposits		310,219						298,713
Other non-interest-bearing liabilities		25,018						20,838
Total liabilities		1,190,449						1,122,750
Total stockholders’ equity		114,722						123,823
Total liabilities and stockholders’ equity	$	1,305,171					$	1,246,573
Net interest income			$	11,097					$	10,059
Interest rate spread					3.40	%					3.27	%
Net interest margin⁽²⁾					3.61	%					3.42	%
Average interest-earning assets to average interest-bearing liabilities					142.62	%					145.46	%

⁽¹⁾	Non-accruing loans are included in the outstanding loan balance. Deferred loan fees included in interest income totaled $25 and $790 for the three months ended September 30, 2022 and 2021.

⁽²⁾	Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

⁽³⁾	Annualized.


	For the Nine Months Ended September 30,
	2022						2021
	Average		Interest and				Average		Interest and
	Balance		Dividends		Yield/Cost⁽³⁾		Balance		Dividends		Yield/Cost⁽³⁾

	(Dollars in thousands)
Assets:
Interest bearing depository accounts	$	34,762	$	210	0.81	%	$	77,632	$	66	0.11	%
Loans⁽¹⁾		905,004		32,212	4.76	%		869,238		30,722	4.73	%
Available for sale securities		267,266		2,844	1.42	%		179,901		1,560	1.16	%
Total interest-earning assets		1,207,032		35,266	3.91	%		1,126,771		32,348	3.84	%
Non-interest-earning assets		82,152						70,646
Total assets	$	1,289,184					$	1,197,417
Liabilities and equity:
NOW accounts	$	161,500	$	172	0.14	%	$	145,830	$	184	0.17	%
Money market accounts		317,509		1,583	0.67	%		231,849		1,042	0.60	%
Savings accounts		190,218		279	0.20	%		172,338		214	0.17	%
Certificates of deposit		137,610		650	0.63	%		183,136		1,292	0.94	%
Total interest-bearing deposits		806,837		2,684	0.44	%		733,153		2,732	0.50	%
Escrow accounts		10,579		89	1.12	%		9,727		84	1.15	%
FHLB and FRB advances		18,586		293	2.11	%		32,178		477	1.98	%
Subordinated debt		5,155		122	3.16	%		5,155		85	2.20	%
Other interest-bearing liabilities		34,320		504	1.96	%		47,060		646	1.84	%
Total interest-bearing liabilities		841,157		3,188	0.51	%		780,213		3,378	0.58	%
Non-interest-bearing deposits		306,748						276,508
Other non-interest-bearing liabilities		23,023						19,844
Total liabilities		1,170,928						1,076,565
Total stockholders’ equity		118,256						120,852
Total liabilities and stockholders’ equity	$	1,289,184					$	1,197,417
Net interest income			$	32,078					$	28,970
Interest rate spread					3.40	%					3.26	%
Net interest margin⁽²⁾					3.55	%					3.44	%
Average interest-earning assets to average interest-bearing liabilities					143.50	%					144.42	%

⁽¹⁾	Non-accruing loans are included in the outstanding loan balance. Deferred loan fees included in interest income totaled $1,129 and $2,007 for the nine months ended September 30, 2022 and 2021.

⁽²⁾	Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

⁽³⁾	Annualized.

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). The Company does not have any excludable out-of-period items or adjustments.


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
	Compared to Three Months Ended						Compared to Nine Months Ended
	September 30, 2021						September 30, 2021
	Increase (Decrease)						Increase (Decrease)
	Due to						Due to
	Volume		Rate		Net		Volume		Rate		Net
Interest income:
Interest bearing depository accounts	$	(41)	$	154	$	113	$	(55)	$	199	$	144
Loans receivable		1,128		(126)		1,002		1,271		219		1,490
Available for sale securities		66		313		379		875		409		1,284
Total interest-earning assets		1,153		341		1,494		2,091		827		2,918
Interest expense:
Deposits		42		351		393		185		(230)		(45)
Escrow accounts		4		(1)		3		6		(4)		2
Federal Home Loan Bank advances		22		12		34		(213)		29		(184)
Subordinated debt		—		26		26		—		37		37
Total interest-bearing liabilities		68		388		456		(22)		(168)		(190)
Net increase in net interest income	$	1,085	$	(47)	$	1,038	$	2,113	$	995	$	3,108

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 maintains a management-level Asset/Liability Management Committee (the “ALCO”), which takes primary responsibility for reviewing the Company’s 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 from various modeling scenarios. This committee also implements any changes in strategies and reviews the performance of any specific asset/liability management actions that have been implemented.

We 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 the Bank’s 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 the EVE under scenarios where interest rates increase 100, 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 the Bank’s EVE that would result from changes in market interest rates at September 30, 2022 (dollars in thousands).


							Net Economic Value as a
	Net Economic Value						Percentage of Assets
	Dollar		Dollar		Percent		EVE		Percent
Basis Point Change in Interest Rates	Amount		Change		Change		Ratio		Change
400	$	164,967	$	(16,396)	(9.0)	%	14.13	%	(1.5)	%
300		170,188		(11,175)	(6.2)	%	14.30	%	(0.3)	%
200		174,494		(6,869)	(3.8)	%	14.38	%	0.2	%
100		178,781		(2,582)	(1.4)	%	14.43	%	0.6	%
0		181,363		—	—	%	14.34	%	—	%
(100)		174,528		(6,835)	(3.8)	%	13.52	%	(5.7)	%
(200)	$	151,106	$	(30,257)	(16.7)	%	11.49	%	(19.9)	%

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 Management

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, sales and calls of investment securities and other short-term investments, 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 and security 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.

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 $16.0 million and $5.8 million for the nine-month periods ended September 30, 2022 and 2021, 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 $84.3 million and $74.1 for the nine-month periods ended September 30, 2022 and 2021, respectively, principally reflecting our investment security and loan activities in the respective periods. We also received $32.8 million in cash from the acquisition of two branches and the associated deposits in 2021. Cash outlays for

the purchase of securities decreased from $181.9 million for the nine-month period ended September 30, 2021 to $30.2 million for the period ended September 30, 2022. We had cash outflows from a net increase in loans of $101.3 million for the nine months ended September 30, 2022 compared to a cash inflow of $42.3 million for the nine months ended September 30, 2021. Deposit and borrowing cash flows have traditionally comprised most of our financing activities which resulted in net cash provided of $24.3 million in the nine months ended September 30, 2022, and $89.4 million in the comparable 2021 period.

At September 30, 2022, we had the following main sources of availability of liquid funds and borrowings:


(In thousands)	Total
Available liquid funds:
Cash and due from banks	$	28,110
Unencumbered securities		211,716
Amount available from the Paycheck Protection Plan Loan Facility		581
Availability of borrowings:
Zions Bank line of credit		10,000
Pacific Coast Bankers Bank line of credit		50,000
Other secured FHLB credit facility		161,709
Total available sources of funds	$	462,116

The following table summarizes our main contractual obligations and other commitments to make future payments as of September 30, 2022. The amount of the obligations presented in the table reflect principal amounts only and exclude the amount of interest we are obligated to pay. Also excluded from the table are a number of obligations to be settled in cash. These excluded items are reflected in our consolidated balance sheet and include deposits with no stated maturity, trade payables, and accrued interest payable.


	September 30, 2022
(In thousands)	Total		One Year or Less		After One but within Five Years		After 5 Years
Payments Due:
Federal Home Loan Bank advances	$	37,541	$	37,541	$	—	$	—
Operating lease agreements		8,555		854		3,139		4,562
Subordinated debt		5,155		—		—		5,155
Time deposits with stated maturity dates		120,554		92,293		28,261		—
Total contractual obligations	$	171,805	$	130,688	$	31,400	$	9,717

We also have obligations under our post retirement plan and other benefit plans 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 GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2022. 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 September 30, 2022, 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 II — OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as employment related issues, 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 incidental to our business. As of the date of this Quarterly Report on Form 10-Q, we are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

In September 2022, the Board approved a stock repurchase plan pursuant to which the Company was authorized to repurchase up to 247,506 shares of its common stock beginning in the fourth quarter of 2022.

Participants in the Company’s equity incentive plans also may have awarded shares withheld to cover income taxes upon the vesting of restricted stock awards. Shares withheld to cover income taxes upon the vesting of restricted stock awards are retired pursuant to the terms of the applicable plan and not under a share repurchase program. Shares retired pursuant to these plans during the three months ended September 30, 2022 were as follows:


Period	Total Number of Shares	Average Price Paid per share
July 1 - 31, 2022	-		-
August 1 - 31, 2022	11,538	$	9.58
September 1 - 30, 2022	-		-
Total	11,538	$	9.58

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 September 30, 2022, formatted in inline 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

104.0	The cover page from Rhinebeck Bancorp’s Form 10-Q for the quarterly period ended September 30, 2022, formatted in inline XBRL (contained in Exhibit 101.0)

SIGNATURES

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


	RHINEBECK BANCORP, INC.

Date: November 10, 2022		/s/ Michael J. Quinn
		Michael J. Quinn President and Chief Executive Officer

Date: November 10, 2022		/s/ Michael J. McDermott
		Michael J. McDermott Chief Financial Officer