Annual Statements Open main menu

Rhinebeck Bancorp, Inc. - Quarter Report: 2021 June (Form 10-Q)

Table of Contents

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 June 30, 2021

or

   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 August 1, 2021, there were 11,133,290 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 June 30, 2021 and December 31, 2020

1

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020

2

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020

3

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

4

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

5

Notes to Consolidated Financial Statements

6

Item 2.

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

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

47

PART II. OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

48

Item 4.

Mine Safety Disclosures

48

Item 5.

Other Information

48

Item 6.

Exhibits

49

SIGNATURES

50

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)

June 30, 

December 31, 

    

2021

    

2020

Assets

Cash and due from banks

$

71,930

$

93,485

Available for sale securities (at fair value)

 

201,938

 

102,933

Loans receivable (net of allowance for loan losses of $10,126 and $11,633, respectively)

 

862,519

 

873,813

Federal Home Loan Bank stock

 

1,511

 

2,787

Accrued interest receivable

 

3,867

 

3,819

Cash surrender value of life insurance

 

28,790

 

18,877

Deferred tax assets (net of valuation allowance of $1,776 and $1,760, respectively)

 

3,893

 

3,703

Premises and equipment, net

 

19,171

 

18,839

Other real estate owned

 

89

 

139

Goodwill

 

2,235

 

1,410

Intangible assets, net

 

487

 

199

Other assets

 

13,758

 

8,825

Total assets

$

1,210,188

$

1,128,829

Liabilities and Stockholders’ Equity

 

  

 

  

Liabilities

 

  

 

  

Deposits

 

  

 

  

Non-interest bearing

$

289,490

$

244,344

Interest bearing

 

737,701

 

685,020

Total deposits

 

1,027,191

 

929,364

Mortgagors’ escrow accounts

 

11,809

 

8,494

Advances from the Federal Home Loan Bank

 

22,239

 

50,674

Subordinated debt

 

5,155

 

5,155

Accrued expenses and other liabilities

 

21,932

 

18,643

Total liabilities

 

1,088,326

 

1,012,330

Stockholders’ Equity

 

  

 

  

Preferred stock (par value $0.01 per share; 5,000,000 authorized, no shares issued)

Common stock (par value $0.01 per share; 25,000,000 authorized, 11,133,290 issued and outstanding)

 

111

 

111

Additional paid-in capital

 

46,346

 

46,038

Unearned common stock held by the employee stock ownership plan ("ESOP")

(3,819)

(3,928)

Retained earnings

 

83,955

 

78,069

Accumulated other comprehensive loss:

 

 

Net unrealized (loss) gain on available for sale securities, net of taxes

 

(126)

 

993

Defined benefit pension plan, net of taxes

 

(4,605)

 

(4,784)

Total accumulated other comprehensive loss

 

(4,731)

 

(3,791)

Total stockholders’ equity

 

121,862

 

116,499

Total liabilities and stockholders’ equity

$

1,210,188

$

1,128,829

See accompanying notes to consolidated financial statements

1

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

(In thousands, except share and per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Interest and Dividend Income

Interest and fees on loans

$

9,650

$

10,569

$

20,320

$

20,615

Interest and dividends on securities

 

574

 

631

 

937

 

1,314

Other income

 

13

 

13

 

32

 

24

Total interest and dividend income

 

10,237

 

11,213

 

21,289

 

21,953

Interest Expense

 

  

 

  

 

  

 

  

Interest expense on deposits

 

930

 

1,859

 

1,950

 

3,876

Interest expense on borrowings

 

178

 

377

 

428

 

779

Total interest expense

 

1,108

 

2,236

 

2,378

 

4,655

Net interest income

 

9,129

 

8,977

 

18,911

 

17,298

(Credit to) provision for loan losses

 

(1,148)

 

2,255

 

(1,217)

 

3,455

Net interest income after (credit to) provision for loan losses

 

10,277

 

6,722

 

20,128

 

13,843

Non-interest Income

 

  

 

  

 

  

 

  

Service charges on deposit accounts

 

618

 

495

 

1,227

 

1,147

Net realized loss on sales and calls of securities

 

 

 

 

(29)

Net gain on sales of loans

 

618

 

941

 

1,677

 

1,406

Increase in cash surrender value of life insurance

 

160

 

96

 

254

 

193

Net gain from sale of other real estate owned

 

2

 

 

2

 

Gain on disposal of premises and equipment

 

 

 

17

 

Gain on life insurance

 

 

 

195

 

Investment advisory income

 

358

 

250

 

575

 

562

Other

 

100

 

(32)

 

150

 

31

Total non-interest income

 

1,856

 

1,750

 

4,097

 

3,310

Non-interest Expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

4,995

 

3,995

 

9,587

 

8,147

Occupancy

 

1,038

 

878

 

1,992

 

1,728

Data processing

 

424

 

361

 

819

 

715

Professional fees

 

528

 

353

 

936

 

675

Marketing

 

146

 

82

 

234

 

225

FDIC deposit insurance and other insurance

 

170

 

197

 

341

 

365

Other real estate owned expense

 

2

 

9

 

3

 

26

Amortization of intangible assets

 

29

 

10

 

42

 

21

Other

 

1,544

 

880

 

2,875

 

2,162

Total non-interest expense

 

8,876

 

6,765

 

16,829

 

14,064

Income before income taxes

 

3,257

 

1,707

 

7,396

 

3,089

Provision for income taxes

 

692

 

359

 

1,510

 

666

Net income

$

2,565

$

1,348

$

5,886

$

2,423

Earnings per common share:

Basic

$

0.24

$

0.13

$

0.55

$

0.23

Diluted

$

0.23

$

0.13

$

0.54

$

0.23

Weighted average shares outstanding, basic

10,748,688

10,726,867

10,745,961

10,724,140

Weighted average shares outstanding, diluted

10,928,343

10,726,867

10,902,916

10,724,140

See accompanying notes to consolidated financial statements

2

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands, except share and per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net Income

$

2,565

$

1,348

$

5,886

$

2,423

Other Comprehensive Income (Loss):

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

64

 

(722)

 

(1,417)

 

2,550

Reclassification adjustment for losses included in net realized loss on sales and calls of securities on the consolidated statements of income

 

 

 

 

29

Net unrealized gains (losses) on available for sale securities

 

64

 

(722)

 

(1,417)

 

2,579

Tax effect (a)

 

(13)

 

152

 

298

 

(542)

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

 

51

 

(570)

 

(1,119)

 

2,037

Defined benefit pension plan:

 

  

 

  

 

  

 

  

Actuarial gains (losses) arising during the period

 

136

 

(1,377)

 

47

 

(1,097)

Reclassification adjustment for amortization of net actuarial losses (b)

 

89

 

71

 

179

 

143

Total

 

225

 

(1,306)

 

226

 

(954)

Tax effect (c)

 

(47)

 

274

 

(47)

 

200

Defined benefit pension plan gains, net of tax

 

178

 

(1,032)

 

179

 

(754)

Other comprehensive income (loss)

 

229

 

(1,602)

 

(940)

 

1,283

Total Comprehensive Income (Loss)

$

2,794

$

(254)

$

4,946

$

3,706

(a)

Includes $0 and $0 for the three and six months ended June 30, 2021, respectively and $0 and $(6) for the three and six months ended June 30, 2020, respectively, for tax effect of realized losses which are included in the provision for income taxes on the consolidated statements of income.

(b)

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

(c)

Includes $19 and $38 for the three and six months ended June 30, 2021, respectively, and $15 and $30 for the three and six months ended June 30, 2020, respectively, for tax effect of amortization of net actuarial loss included in the provision for income taxes on the consolidated statements of income.

See accompanying notes to consolidated financial statements

3

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, 2019

$

111

$

45,869

$

(4,146)

$

72,152

$

(4,104)

$

109,882

 

  

 

  

 

  

 

  

 

  

 

Net income

 

 

 

 

1,075

 

 

1,075

Other comprehensive income

 

 

 

 

2,885

 

2,885

ESOP shares committed to be allocated

 

 

 

55

 

 

 

55

 

  

 

  

 

  

 

  

 

  

 

Balance at March 31, 2020

$

111

$

45,869

$

(4,091)

$

73,227

$

(1,219)

$

113,897

Net income

 

 

 

 

1,348

 

 

1,348

Other comprehensive income

 

 

 

 

 

(1,602)

 

(1,602)

ESOP shares committed to be allocated

 

 

(17)

 

54

 

 

 

37

Balance at June 30, 2020

$

111

$

45,852

$

(4,037)

$

74,575

$

(2,821)

$

113,680

 

  

 

  

 

  

 

  

 

  

 

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

See accompanying notes to consolidated financial statements

4

Rhinebeck Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(In thousands, except share and per share data)

Six Months Ended June 30, 

    

2021

    

2020

Cash Flows from Operating Activities

Net income

$

5,886

$

2,423

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Amortization and accretion of premiums and discounts on investments, net

 

94

 

285

Net realized loss on sales and calls of securities

 

 

29

(Credit to) provision for loan losses

 

(1,217)

 

3,455

Loans originated for sale

 

(41,644)

 

(46,347)

Proceeds from sale of loans

 

41,736

 

46,621

Net gain on sale of loans

 

(1,677)

 

(1,406)

Amortization of intangible assets

 

42

 

21

Depreciation and amortization

 

716

 

669

Gain from disposal of premises and equipment

 

(17)

 

Deferred income tax expense (benefit)

 

59

 

(1,119)

Increase in cash surrender value of insurance

 

(254)

 

(193)

Increase in accrued interest receivable

 

(48)

 

(773)

Expense of earned ESOP shares

 

109

 

92

Share-based compensation expense

308

Increase in other assets

 

(4,923)

 

(6,138)

Increase in accrued expenses and other liabilities

 

3,334

 

4,884

Net cash provided by operating activities

 

2,504

 

2,503

Cash Flows from Investing Activities

 

  

 

  

Proceeds from sales and calls of securities

 

2,000

 

6,997

Proceeds from maturities and principal repayments of securities

 

24,122

 

15,108

Purchases of securities

 

(126,637)

 

(10,146)

Net redemptions of FHLB Stock

 

1,276

 

273

Net decrease (increase) in loans

 

14,095

 

(96,173)

Purchases of bank owned life insurance

 

(10,000)

 

Purchases of bank premises and equipment

 

(917)

 

(953)

Net proceeds from life insurance

341

Net cash received from acquisition (Note 2)

32,767

Net increase of other real estate owned

 

 

(31)

Proceeds from sale of other real estate owned

 

50

 

270

Net cash used in investing activities

 

(62,903)

 

(84,655)

Cash Flows from Financing Activities

 

  

 

  

Net increase in demand deposits, NOW, money market and savings accounts

 

86,982

 

122,381

Net (decrease) increase in time deposits

 

(23,018)

 

14,315

Increase in mortgagors' escrow accounts

 

3,315

 

3,260

Net (decrease) increase in short-term debt

 

(14,200)

 

11,923

Net decrease in long-term debt

 

(14,235)

 

(7,131)

Net cash provided by financing activities

 

38,844

 

144,748

Net (decrease) increase in cash and due from banks

 

(21,555)

 

62,596

Cash and Due from Banks

 

  

 

  

Beginning balance

 

93,485

 

11,978

Ending balance

$

71,930

$

74,574

Supplemental Disclosures of Cash Flow Information

 

  

 

  

Cash paid for:

 

  

 

  

Cash paid for interest

$

2,432

$

4,716

Cash paid for income taxes

$

536

$

358

Noncash Investing Activities

 

  

 

  

Fair value of assets acquired

$

1,277

$

Fair value of liabilities assumed

$

34,044

$

See accompanying notes to consolidated financial statements

5

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

1.    Nature of Business and Significant Accounting Policies

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

The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three or six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 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. and Rhinebeck Bank at and for the year ended December 31, 2020 contained in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 25, 2021.

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, 2020, filed with the Securities and Exchange Commission. As of June 30, 2021, 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, 2020, with the exception of an additional disclosure for derivative financial instruments contained herein.

Basis of Financial Statements Presentation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

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.

6

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their 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 (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The measurement of expected credit losses is based upon relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. On October 16, 2019, the FASB approved a delay for conversion to the CECL methodology to January 2023 for smaller reporting companies, other public business entities, private companies and non-profits. The Company is currently assessing the effect of ASU No. 2016-13 and has engaged with a software vendor to assist in its efforts.

 

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.

7

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 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.

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 June 30, 2021:

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 in expenses related to the acquisition during the six months ended June 30, 2021. Acquisition expenses, including professional fees, are included in the total non-interest expense line item in the condensed consolidated statement of income.

8

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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:

June 30, 2021

Gross

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

U.S. Treasury securities

$

45,481

$

7

$

(221)

$

45,267

U.S. government agency mortgage-backed securities–residential

130,565

886

(1,012)

130,439

U.S. government agency securities

 

11,764

 

123

 

(29)

 

11,858

Municipal securities(1)

 

7,036

 

37

 

(27)

 

7,046

Corporate bonds

 

6,600

 

103

 

(16)

 

6,687

Other

 

652

 

 

(11)

 

641

Total

$

202,098

$

1,156

$

(1,316)

$

201,938

    

December 31, 2020

Gross

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

U.S. government agency mortgage-backed securities–residential

$

88,197

$

1,350

$

(277)

$

89,270

U.S. government agency securities

7,013

 

148

 

 

7,161

Municipal securities(1)

 

1,445

 

31

 

 

1,476

Corporate bonds

4,400

 

49

 

(3)

 

4,446

Other

621

 

 

(41)

 

580

Total

$

101,676

$

1,578

$

(321)

$

102,933

(1)

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

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

June 30, 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

$

35,211

$

(221)

$

$

$

35,211

$

(221)

U.S. government agency mortgage-backed securities-residential

81,003

(933)

5,333

(79)

86,336

(1,012)

U.S. government agency securities

6,726

(29)

6,726

(29)

Municipal Securities

1,995

(27)

1,995

(27)

Corporate Bonds

2,084

(16)

2,084

(16)

Other

586

(11)

586

(11)

Total

$

127,605

$

(1,237)

$

5,333

$

(79)

$

132,938

$

(1,316)

9

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

    

December 31, 2020

Less Than 12 Months

12 Months or Longer

Total

Unrealized

Unrealized

Unrealized

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

U.S. government agency mortgage-backed securities-residential

$

30,243

$

(269)

$

293

$

(8)

$

30,536

$

(277)

Corporate Bonds

747

(3)

747

(3)

Other

522

(41)

522

(41)

Total

$

31,512

$

(313)

$

293

$

(8)

$

31,805

$

(321)

At June 30, 2021, the Company had 97 individual available-for-sale securities in an unrealized loss position with unrealized losses totaling $1,316 with an aggregate depreciation of 0.99% 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 June 30, 2021.

The amortized cost and fair value of available for sale debt securities at June 30, 2021 and December 31, 2020, 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:

June 30, 2021

December 31, 2020

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Maturity:

Within 1 year

$

17,778

$

17,784

$

102

$

102

After 1 but within 5 years

 

34,133

 

33,998

 

2,155

 

2,155

After 5 but within 10 years

 

18,314

 

18,406

 

9,946

 

10,162

After 10 years

 

656

 

670

 

655

 

664

Total Maturities

 

70,881

 

70,858

 

12,858

 

13,083

Mortgage-backed securities

 

130,565

 

130,439

 

88,197

 

89,270

Other

 

652

 

641

 

621

 

580

Total

$

202,098

$

201,938

$

101,676

$

102,933

At June 30, 2021 and December 31, 2020, available for sale securities with a carrying value of $13,625 and $18,123, respectively, were pledged to secure Federal Home Loan Bank of New York (“FHLB”) borrowings. In addition, at June 30, 2021 and December 31, 2020, $1,060 and $1,059 of available for sale securities were pledged to secure borrowings at the Federal Reserve Bank of New York (“FRB”), respectively.

During the six months ended June 30, 2021, there was $2,000 in proceeds from the call of available for sale securities with no gross gains or losses realized.  

10

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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:

June 30, 

December 31, 

    

2021

    

2020

Commercial real estate loans:

 

 

  

Construction

$

5,359

$

5,392

Non-residential

 

242,384

 

248,349

Multi-family

 

40,177

 

30,379

Residential real estate loans

 

38,392

 

39,239

Commercial and industrial loans(1)

 

144,620

 

154,016

Consumer loans:

 

  

 

  

Indirect automobile

 

372,479

 

376,260

Home equity

 

13,404

 

14,165

Other consumer

 

8,092

 

8,816

Total gross loans

 

864,907

 

876,616

Net deferred loan costs

 

7,738

 

8,830

Allowance for loan losses

 

(10,126)

 

(11,633)

Total net loans

$

862,519

$

873,813

(1)

Includes $74,287 and $75,366 in U.S. Small Business Administration (“SBA”), paycheck protection program (“PPP”) loans at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $4,303 and $2,718, 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:

June 30, 2021

    

Pass

    

Special Mention

    

Substandard

    

Total

Commercial real estate:

  

  

  

  

Construction

$

5,359

$

$

$

5,359

Non-residential

234,118

5,689

2,577

242,384

Multifamily

 

40,177

 

 

 

40,177

Residential real estate

 

35,855

 

 

2,537

 

38,392

Commercial and industrial

 

138,482

 

5,142

 

996

 

144,620

Consumer:

 

 

  

 

  

 

  

Indirect automobile

 

372,083

 

 

396

 

372,479

Home equity

 

12,982

 

 

422

 

13,404

Other consumer

 

8,045

 

 

47

 

8,092

Total

$

847,101

$

10,831

$

6,975

$

864,907

11

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

    

December 31, 2020

    

Pass

    

Special Mention

    

Substandard

    

Total

Commercial real estate:

  

  

  

  

Construction

$

5,392

$

$

$

5,392

Non-residential

240,778

5,468

2,103

248,349

Multifamily

 

30,379

 

 

 

30,379

Residential real estate

 

36,597

 

 

2,642

 

39,239

Commercial and industrial

 

147,748

 

5,395

 

873

 

154,016

Consumer:

 

  

 

  

 

  

 

  

Indirect automobile

 

375,270

 

 

990

 

376,260

Home equity

 

13,819

 

 

346

 

14,165

Other consumer

 

8,768

 

 

48

 

8,816

Total

$

858,751

$

10,863

$

7,002

$

876,616

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:

June 30, 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

$

5,359

$

$

$

$

5,359

$

Non-residential

238,925

1,033

2,426

242,384

2,426

Multifamily

40,177

40,177

Residential real estate

 

37,164

 

 

 

1,228

 

38,392

 

2,537

Commercial and industrial

 

143,799

 

128

 

 

693

 

144,620

 

848

Consumer:

 

  

 

  

 

 

  

 

  

 

Indirect automobile

 

367,399

 

4,285

436

 

359

 

372,479

 

396

Home equity

 

12,953

 

15

 

178

 

258

 

13,404

 

421

Other consumer

 

7,998

 

46

 

1

 

47

 

8,092

 

47

Total

$

853,774

$

4,474

$

1,648

$

5,011

$

864,907

$

6,675

12

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

December 31, 2020

Greater Than

30-59 Days

60-89 Days

90 Days Past

Total Loans

    

Current

    

Past Due

    

Past Due

    

Due

    

Receivable

    

Non-accrual

Commercial real estate:

  

  

  

  

  

  

Construction

$

5,392

$

$

$

$

5,392

$

Non-residential

244,387

1,985

33

1,944

248,349

1,944

Multifamily

30,379

30,379

Residential real estate

 

36,581

 

1,351

 

138

 

1,169

 

39,239

 

2,641

Commercial and industrial

 

151,771

 

1,551

 

511

 

183

 

154,016

 

366

Consumer:

 

  

 

  

 

 

  

 

  

 

Indirect automobile

 

367,929

 

6,321

 

1,063

 

947

 

376,260

 

990

Home equity

 

13,506

 

310

 

101

 

248

 

14,165

 

346

Other consumer

 

8,663

 

98

 

7

 

48

 

8,816

 

48

Total

$

858,608

$

11,616

$

1,853

$

4,539

$

876,616

$

6,335

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

June 30, 2021

Recorded

Unpaid Principal

Related

Average Recorded

    

Investment

    

Balance

    

Allowance

    

Investment

With no related allowance recorded:

Commercial real estate:

Non-residential

$

2,426

$

3,491

$

$

1,897

Multifamily

 

 

 

 

Residential real estate

 

2,537

 

3,046

 

 

2,611

Commercial and industrial

 

563

 

855

 

 

461

Consumer:

 

 

  

 

  

 

Indirect automobile

 

173

 

223

 

 

221

Home equity

 

421

 

432

 

 

425

Other consumer

 

47

 

48

 

 

43

Total

$

6,167

$

8,095

$

$

5,658

With an allowance recorded:

 

  

 

  

 

  

 

  

Commercial and industrial

$

285

$

285

$

285

$

95

Consumer:

 

  

 

  

 

 

Indirect automobile

223

228

51

453

Other consumer

 

 

 

 

83

Total

$

508

$

513

$

336

$

631

Total:

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

Non-residential

$

2,426

$

3,491

$

$

1,897

Multifamily

 

 

 

 

Residential real estate

 

2,537

 

3,046

 

 

2,611

Commercial and industrial

 

848

 

1,140

 

285

 

556

Consumer:

 

  

 

  

 

  

 

  

Indirect automobile

 

396

 

451

 

51

 

674

Home equity

 

421

 

432

 

 

425

Other consumer

 

47

 

48

 

 

126

Total

$

6,675

$

8,608

$

336

$

6,289

13

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

December 31, 2020

Recorded 

Unpaid Principal 

Related 

Average Recorded 

    

Investment

    

Balance

    

Allowance

    

Investment

With no related allowance recorded:

  

  

  

  

Commercial real estate:

  

  

  

  

Non-residential

$

1,944

$

2,973

$

$

3,086

Multifamily

 

 

 

 

184

Residential real estate

 

2,641

 

3,086

 

 

2,554

Commercial and industrial

 

345

 

586

 

 

426

Consumer:

 

 

  

 

  

 

Indirect automobile

 

397

 

467

 

 

293

Home equity

 

346

 

351

 

 

449

Other consumer

 

 

 

 

21

Total

$

5,673

$

7,463

$

$

7,013

With an allowance recorded:

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

Commercial and industrial

$

21

$

21

$

11

$

30

Consumer:

 

  

 

  

 

 

  

Indirect automobile

593

613

135

591

Other consumer

 

48

 

49

 

7

 

13

Total

$

662

$

683

$

153

$

634

Total:

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

Non-residential

$

1,944

$

2,973

$

$

3,086

Multifamily

 

 

 

 

184

Residential real estate

 

2,641

 

3,086

 

 

2,554

Commercial and industrial

 

366

 

607

 

11

 

456

Consumer:

 

  

 

  

 

  

 

  

Indirect automobile

 

990

 

1,080

 

135

 

884

Home equity

 

346

 

351

 

 

449

Other consumer

 

48

 

49

 

7

 

34

Total

$

6,335

$

8,146

$

153

$

7,647

A loan is considered impaired when based on current information and events it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans and loans modified as troubled debt restructurings (“TDRs”). Loan modifications, which resulted in these loans being considered TDRs, are primarily in the form of rate concessions and extensions of maturity dates 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 June 30, 2021 and December 31, 2020, three loans totaling $1,506 and $1,571, included in impaired loans, were identified as TDRs. There were no new TDRs in 2020 or the first six months of 2021. At June 30, 2021 and December 31, 2020, all TDR loans were performing in accordance with their restructured terms. At June 30, 2021 and December 31, 2020, the Company had no commitments to advance additional funds to borrowers under TDR loans.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $648 and $636 at June 30, 2021 and December 31, 2020, respectively.

The Company services certain loans that it has sold without recourse to third parties. The aggregate balances of loans serviced for others were $310,480 and $300,700 as of June 30, 2021 and December 31, 2020, respectively.

14

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

The balance of capitalized servicing rights, included in other assets at June 30, 2021 and December 31, 2020, were $2,660 and $2,390, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the period ended June 30, 2021 or the year ended December 31, 2020.

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 June 30, 2021

Allowance for loan losses:

Beginning balance

$

4,162

$

131

$

1,319

$

5,512

$

137

$

11,261

Provision for (credit to) loan losses

671

(11)

(647)

(1,366)

205

(1,148)

Loans charged-off

(1)

(491)

(6)

(498)

Recoveries

 

 

 

88

 

416

 

7

 

511

Ending balance

$

4,833

$

120

$

759

$

4,071

$

343

$

10,126

Commercial

Residential

Commercial

    

Real Estate

    

Real Estate

    

and Industrial

    

Indirect

Consumer

    

Totals

Three months ended June 30, 2020

Allowance for loan losses:

Beginning balance

$

2,153

$

99

$

601

$

3,638

$

129

$

6,620

Provision for loan losses

520

26

254

1,450

5

2,255

Loans charged-off

(1)

(478)

(2)

(481)

Recoveries

 

 

 

5

 

169

 

4

 

178

Ending balance

$

2,673

$

125

$

859

$

4,779

$

136

$

8,572

Commercial

Residential

Commercial

    

Real Estate

    

Real Estate

    

and Industrial

    

Indirect

    

Consumer

    

Totals

Six months ended June 30, 2021

Allowance for loan losses:

Beginning balance

$

5,354

$

117

$

1,050

$

4,974

$

138

$

11,633

(Credit to) provision for loan losses

(521)

(378)

(509)

191

(1,217)

Loans charged-off

(1)

(1,117)

(9)

(1,127)

Recoveries

 

 

3

 

88

 

723

 

23

 

837

Ending balance

$

4,833

$

120

$

759

$

4,071

$

343

$

10,126

Ending balance:

 

  

 

  

 

  

 

  

 

  

 

  

Loans deemed impaired

$

$

$

285

$

51

$

$

336

Loans not deemed impaired

$

4,833

$

120

$

474

$

4,020

$

343

$

9,790

Loan receivables:

 

  

 

  

 

  

 

  

 

  

 

  

Ending balance

$

287,920

$

38,392

$

144,620

$

372,479

$

21,496

$

864,907

Ending balance:

 

  

 

 

  

 

  

 

  

 

  

Loans deemed impaired

$

2,426

$

2,537

$

848

$

396

$

468

$

6,675

Loans not deemed impaired

$

285,494

$

35,855

$

143,772

$

372,083

$

21,028

$

858,232

15

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

Commercial

Residential

Commercial

    

Real Estate

    

Real Estate

    

and Industrial

    

Indirect

Consumer

    

Totals

Six months ended June 30, 2020

Allowance for loan losses:

Beginning balance

$

2,009

$

99

$

603

$

3,117

$

126

$

5,954

Provision for loan losses

664

26

285

2,461

19

3,455

Loans charged-off

(39)

(1,189)

(18)

(1,246)

Recoveries

 

 

 

10

 

390

 

9

 

409

Ending balance

$

2,673

$

125

$

859

$

4,779

$

136

$

8,572

Ending balance:

 

  

 

  

 

  

 

  

 

  

 

  

Loans deemed impaired

$

$

$

25

$

226

$

2

$

253

Loans not deemed impaired

$

2,673

$

125

$

834

$

4,553

$

134

$

8,319

Loan receivables:

 

  

 

  

 

  

 

  

 

  

 

  

Ending balance

$

282,683

$

41,682

$

175,120

$

365,455

$

23,812

$

888,752

Ending balance:

 

  

 

  

 

  

 

  

 

  

 

  

Loans deemed impaired

$

5,485

$

2,555

$

547

$

1,036

$

539

$

10,162

Loans not deemed impaired

$

277,198

$

39,127

$

174,573

$

364,419

$

23,273

$

878,590

Commercial

Residential

Commercial

    

Real Estate

    

Real Estate

    

and Industrial

    

Indirect

    

Consumer

    

Totals

December 31, 2020

Allowance for loan losses:

Ending balance:

 

  

 

  

 

  

 

  

 

  

 

  

Loans deemed impaired

$

$

$

11

$

135

$

7

$

153

Loans not deemed impaired

$

5,354

$

117

$

1,039

$

4,839

$

131

$

11,480

Loan receivables:

 

  

 

  

 

  

 

  

 

  

 

  

Ending balance

$

284,120

$

39,239

$

154,016

$

376,260

$

22,981

$

876,616

Ending balance:

 

  

 

 

  

 

  

 

  

 

  

Loans deemed impaired

$

1,944

$

2,641

$

366

$

990

$

394

$

6,335

Loans not deemed impaired

$

282,176

$

36,598

$

153,650

$

375,270

$

22,587

$

870,281

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.

16

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

5.    Goodwill and Intangible Assets

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

Six Months

Year Ended

Ended June 30, 

December 31, 

    

    

2021

    

2020

Beginning balance

$

1,410

$

1,410

Acquisition activity

 

825

 

 

  

 

  

Ending balance

$

2,235

$

1,410

 

  

 

  

Accumulated impairment

$

1,116

$

1,116

The Company evaluated goodwill and determined that no write-down was required for the first six months of 2021 or the year ended December 31, 2020.

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

Six Months

Year Ended

Ended June 30, 

December 31, 

    

2021

    

2020

Beginning balance

$

199

$

241

Acquisition activity

330

Amortization

 

(42)

 

(42)

 

  

 

  

Ending balance

$

487

$

199

Accumulated amortization and impairment

$

790

$

748

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.

The values assigned to customer lists or 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 $42 and $21 of amortization expense related to its intangible assets for the six months ended June 30, 2021 and 2020, respectively. The Company recognized $29 and $10 of amortization expense for the three months ended June 30, 2021 and 2020, respectively.

At June 30, 2021, based upon a review of the intangibles, the Company determined that the fair value of the amortizable intangible assets exceeded their carrying values.

As of June 30, 2021, the future amortization expense for amortizable intangible assets for the respective years is as follows:

2021

    

$

53

2022

 

99

2023

 

88

2024

 

80

2025

 

61

Thereafter

106

Total

$

487

17

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

6.    Premises and Equipment

Premises and equipment are summarized as follows:

June 30, 

December 31, 

    

2021

    

2020

Land

$

3,732

$

3,732

Buildings and improvements

 

26,567

 

26,431

Furniture, fixtures and equipment

 

13,542

 

13,042

Construction in process

 

505

 

93

Total

 

44,346

 

43,298

Less accumulated depreciation

 

(25,175)

 

(24,459)

Net

$

19,171

$

18,839

7.    Deposits

Deposits balances are summarized as follows:

June 30, 

December 31, 

    

2021

    

2020

Non-interest bearing demand deposits

$

289,490

$

244,344

Interest bearing accounts:

 

  

 

  

NOW

 

147,073

 

141,580

Savings

 

179,010

 

157,414

Money market

 

233,993

 

185,383

Time certificates of deposit

 

177,625

 

200,643

Total interest bearing accounts

 

737,701

 

685,020

Total deposits

$

1,027,191

$

929,364

Included in time certificates of deposit at June 30, 2021 and December 31, 2020 were reciprocal deposits totaling $20,443 and $30,012, respectively, with original maturities of one to three years. Time certificates of deposit in denominations of $250 or greater were $28,677 and $34,565 as of June 30, 2021 and December 31, 2020, respectively.

Contractual maturities of time certificates of deposit at June 30, 2021 are summarized below:

June 30, 

    

2021

Within 1 year

$

137,771

1 – 2 years

 

19,090

2 – 3 years

 

10,565

3 – 4 years

 

6,244

4 – 5 years

 

3,955

Total

$

177,625

18

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 June 30, 2021 and December 31, 2020, the Bank had access to a preapproved secured line of credit with the FHLB of $604,993 and $564,330, respectively. Borrowings under this line require collateralization through the pledge of specific loans and securities. At June 30, 2021 and

December 31, 2020, the Bank had pledged assets of $177,169 and $175,011, respectively.

The outstanding principal amounts and the related terms and rates at June 30, 2021 were as follows:

Term

    

Principal

    

Maturity

    

Rate

    

Due in one year

    

Long term

3 year amortizing

$

3,417

May 16, 2022

 

2.49

%  

$

3,417

 

3 year bullet

10,000

May 16, 2022

2.44

%  

10,000

3 year amortizing

8,822

February 28, 2023

1.32

%  

5,016

3,806

Total

$

22,239

Weighted Average Rate

 

2.00

%  

$

18,433

$

3,806

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 June 30, 2021 or December 31, 2020.

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, now owned by 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 trust securities bear interest at 3-month LIBOR plus 2.00%. The duration of the Trust is 30 years.

The subordinated debt securities of $5,155 are unsecured obligations of the Company and are subordinate and junior in right of payment to all present and future senior indebtedness of the Company. The Company has entered into a guarantee, which together with its obligations under the subordinated debt securities and the declaration of trust governing the Trust, including its obligations to pay costs, expenses, debts and liabilities, provides a full and unconditional guarantee of amounts on the capital securities. The subordinated debentures, which bear interest at 3-month LIBOR plus 2.00% (2.15% at June 30, 2021 and 2.21% at December 31, 2020) mature on May 23, 2035.

Other Borrowings

The Bank also has an unsecured, uncommitted $10,000 line of credit with Zions Bank. There were no advances outstanding under this line of credit at either June 30, 2021 or December 31, 2020.

19

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

9.  Employee Benefits

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan covering substantially all of its employees 21 years of age or older who had completed at least one year of service as of 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:

June 30, 

December 31, 

    

2021

    

2020

Projected and accumulated benefit obligation

$

(23,524)

$

(23,964)

Plan assets at fair value

 

22,418

 

22,634

Funded status included in accrued expenses and other liabilities

$

(1,106)

$

(1,330)

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

Six months ended June 30,

    

2021

    

2020

Interest cost

$

295

$

335

Expected return on plan assets

 

(472)

 

(529)

Amortization of unrecognized loss

 

179

 

143

Net periodic cost (benefit)

$

2

$

(51)

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 ten diversified investment funds.

As of June 30, 2021, the investment funds included seven equity funds and three 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.

The Company did not make a contribution to the plan in the first six months of 2021 or 2020.

20

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

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

June 30, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Investment in separate accounts

Fixed income

$

15,716

$

$

$

15,716

Equity

 

6,702

 

 

 

6,702

Total assets at fair value

$

22,418

$

$

$

22,418

December 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Investment in separate accounts

Fixed income

$

15,189

$

$

$

15,189

Equity

 

6,206

 

 

 

6,206

Other

1,239

1,239

Total assets at fair value

$

22,634

$

$

$

22,634

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 8 of the Company’s Consolidated Financial Statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K.

Defined Contribution Plan

The Company sponsors a 401(k) defined contribution plan. Participants are permitted, in accordance with the provisions of Section 401(k) of the Internal Revenue Code, to contribute up to 25% of their earnings (as defined) into the plan with the Company matching up to 6%, subject to Internal Revenue Service limitations. The Company’s contributions charged to operations amounted to $527 and $490 for the six months ended June 30, 2021 and 2020, respectively.

21

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 June 30, 2021 and December 31, 2020, total amounts due of $2,743 and $2,483, respectively, are included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $71 and $85 for the six months ended June 30, 2021 and 2020, 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 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 June 30, 2021 and December 31, 2020, $1,344 and $1,312, respectively, is included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $229 and $284 for the six months ended June 30, 2021 and 2020, 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 $1,408 and $1,387, at June 30, 2021 and December 31, 2020, respectively. The Company recognized expenses of $21 and $29 for the six-month periods ended June 30, 2021 and June 30, 2020, 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 $1,969 and $2,148 at June 30, 2021 and December 31, 2020, respectively. The Company recognized expenses of $37 and $43 for the six months ended June 30, 2021 and 2020, respectively, related to these benefits, which are included in other non-interest expenses in the consolidated statements of income.

22

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16, 2019, the Company granted a loan to the ESOP for the purchase of 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company 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, 2021). 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 June 30, 2021 was $4,087. 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:

Six months ended

Year ended

June 30, 

December 31, 

2021

    

2020

Allocated

43,642

 

21,821

Committed to be allocated

10,908

 

21,821

Unallocated

381,875

 

392,783

Paid out to participants

(68)

(68)

Total shares

436,357

 

436,357

The fair value of unallocated shares was $4,182 at June 30, 2021.

Total compensation expense recognized in connection with the ESOP for the six months ended June 30, 2021 and 2020 was $109 and $92, 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 or delivery 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 represent 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 June 30, 2021, there were 97,146 stock options and 48,443 restricted stock awards that remain available for future grants.

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

23

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

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 June 30, 2021 is presented below:

Weighted -

Weighted-Average

Number of

Average

Remaining Contractual

Shares

Exercise Price

Term (in Years)

Options outstanding at beginning of year

448,385

$

6.61

9.66

Options granted

-

-

-

Options exercised

-

-

-

Forfeited

-

-

-

Options outstanding at June 30, 2021

448,385

$

6.61

9.17

Options exercisable at June 30, 2021

-

-

-

At June 30, 2021, the aggregate intrinsic value of the shares outstanding, which fluctuates based on changes in the fair market value of the Company’s stock, was $1,944. 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 June 30, 2021.

As of June 30, 2021, there was $538 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 2.17 years.

The following table summarizes the Company’s restricted stock activity for the six months ended June 30, 2021:

    

    

Weighted-Average

Number

Grant Date

 of Shares

Fair Value per Share

Non-vested restricted stock at beginning of year

169,769

$

6.57

Granted

-

 

-

Vested

-

 

-

Forfeited

-

 

-

Non-vested restricted stock at June 30, 2021

169,769

$

6.57

As of June 30, 2021, there was $800 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 2.15 years.

For the six months ended June 30, 2021, share-based compensation under the plan was $308.

24

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

10.  Leases

As of June 30, 2021, the Company leases real estate for eight branch offices and two administrative offices under various lease agreements. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of financial condition. With the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), operating lease agreements are required to be recognized on the consolidated statements of  financial condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s leases have maturities which range from 2021 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 ROU asset and lease liability. The weighted average remaining life of the lease terms for these leases was 12.6 years as of June 30, 2021. 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 2.51% in determining the lease liability as of June 30, 2021.

For the six months ended June 30, 2021, total operating lease costs were $344 and were included in occupancy and other expense. Deferred rent liability was $159 at June 30, 2021 and $176 at December 31, 2020. The right-of-use asset, included in other assets, was $7,735 and the corresponding lease liability, included in accrued expenses and other liabilities, was $7,735 as of June 30, 2021.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2021 were as follows:

Years ending December 31:

    

2021

$

396

2022

 

754

2023

 

732

2024

 

729

2025

 

743

Thereafter

 

5,822

Total future minimum lease payments

9,176

Amounts representing interest

(1,441)

Present Value of Net Future Minimum Lease Payments

$

7,735

25

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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:

June 30, 

December 31, 

    

2021

    

2020

Commitments to extend credit summarized as follows:

Future loan commitments

$

11,418

$

14,356

Undisbursed construction loans

 

4,424

 

3,493

Undisbursed home equity lines of credit

 

10,284

 

10,686

Undisbursed commercial and other line of credit

 

51,190

 

63,911

Standby letters of credit

 

3,050

 

5,681

Total

$

80,366

$

98,127

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.

26

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 $4 and $0 related to our swaps is recorded in other assets and other liabilities as of June 30, 2021 and 2020, respectively.

Summary information regarding these derivatives is presented below:

June 30,

December 31,

2021

2020

Notational amount

$

3,950

$

1,875

Fair value

$

75

$

41

Weighted average pay rates

3.38

%

3.10

%

Weighted average receive rates

2.21

%

2.22

%

Weighted average maturity (in years)

9.56

9.92

Number of Contracts

3

1

27

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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.

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the tables below) of total, common equity Tier 1 and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 2021 and December 31, 2020, 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

 

June 30, 2021

 

Rhinebeck Bank

 

  

 

Total capital (to risk-weighted assets)

$

126,486

 

14.21

%  

$

71,190

 

8.00

%  

$

88,988

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

116,360

 

13.08

%  

 

53,393

 

6.00

%  

 

71,190

 

8.00

%

Common equity tier one capital (to risk weighted assets)

 

116,360

 

13.08

%  

 

40,045

 

4.50

%  

 

57,842

 

6.50

%

Tier 1 capital (to average assets)

 

116,360

 

9.69

%  

 

48,015

 

4.00

%  

 

60,019

 

5.00

%

December 31, 2020

 

Rhinebeck Bank

 

  

 

  

 

  

 

  

 

  

 

  

Total capital (to risk-weighted assets)

$

121,604

 

13.97

%  

$

69,614

 

8.00

%  

$

87,018

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

110,717

 

12.72

%  

 

52,211

 

6.00

%  

 

69,614

 

8.00

%

Common equity tier one capital (to risk weighted assets)

 

110,717

 

12.72

%  

 

39,158

 

4.50

%  

 

56,562

 

6.50

%

Tier 1 capital (to average assets)

 

110,717

 

9.95

%  

 

44,529

 

4.00

%  

 

55,662

 

5.00

%

28

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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.

29

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 account

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.

30

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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)

June 30, 2021

Assets:

U.S. Treasury securities

$

45,267

$

45,267

$

$

U.S. government agency mortgage-backed securities-residential

130,439

130,439

U.S. government agency securities

 

11,858

 

 

11,858

 

Municipal securities

 

7,046

 

 

6,886

 

160

Corporate Bonds

6,687

6,687

Other

 

641

 

 

641

 

Total available for sale securities

201,938

45,267

156,511

160

Loan level interest rate swaps

75

75

Total assets

$

202,013

$

45,267

$

156,586

$

160

Liabilities:

Loan level interest rate swaps

75

75

Total liabilities

$

75

$

$

75

$

    

December 31, 2020

Assets:

U.S. government agency mortgage-backed securities – residential

$

89,270

$

$

89,270

$

U.S. government agency securities

 

7,161

 

 

7,161

 

Municipal securities

 

1,476

 

 

1,316

 

160

Corporate Bonds

4,446

4,446

Other

580

 

580

 

Total available for sale securities

102,933

102,773

160

Loan level interest rate swaps

41

41

Total assets

$

102,974

$

$

102,814

$

160

Liabilities:

Loan level interest rate swaps

41

41

Total liabilities

$

41

$

$

41

$

31

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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 June 30, 2021 and December 31, 2020 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)

June 30, 2021

Impaired loans, with specific reserves

$

172

$

$

$

172

Other real estate owned

 

89

 

 

 

89

Total

$

261

$

$

$

261

    

December 31, 2020

Impaired loans, with specific reserves

$

509

$

$

$

509

Other real estate owned

 

139

 

 

 

139

Total

$

648

$

$

$

648

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)

June 30, 2021

Impaired loans

$

172

 

Appraisal of collateral

(1)  

Liquidation expenses

(3)  

0% to 6%

Appraisal adjustments

(2)  

0% to 20%

Other real estate owned

 

89

 

Appraisal of collateral

(1)  

Liquidation expenses

(3)  

0% to 6%

 

 

Appraisal adjustments

(2)  

0% to 20%

December 31, 2020

Impaired loans

$

509

 

Appraisal of collateral

(1)  

Liquidation expenses

(3)  

0% to 6%

Appraisal adjustments

(2)  

0% to 20%

Other real estate owned

 

139

 

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 2021 and 2020 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.

32

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(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:

June 30, 

December 31, 

2021

2020

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

Financial Assets:

  

  

  

  

Cash and due from banks (Level 1)

$

71,930

$

71,930

$

93,485

$

93,485

Available for sale securities (Level 1)

 

45,267

 

45,267

 

 

Available for sale securities (Level 2)

 

156,511

 

156,511

 

102,773

 

102,773

Available for sale securities (Level 3)

 

160

 

160

 

160

 

160

Loan level interest rate swaps (Level 2)

75

75

41

41

FHLB stock (Level 2)

 

1,511

 

1,511

 

2,787

 

2,787

Loans, net (Level 3)

 

862,519

 

860,316

 

873,813

 

876,699

Mortgage servicing rights (Level 3)

 

2,660

 

4,681

 

2,390

 

3,569

Financial Liabilities:

 

  

 

  

 

  

 

  

Deposits (Level 2)

 

1,027,191

 

1,027,037

 

929,364

 

941,460

Mortgagors' escrow accounts (Level 2)

 

11,809

 

11,818

 

8,494

 

8,501

FHLB advances (Level 2)

 

22,239

 

22,622

 

50,674

 

51,468

Subordinated debt (Level 2)

 

5,155

 

5,155

 

5,155

 

5,155

Loan level interest rate swaps (Level 2)

75

75

41

41

14.  Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the three and six months ended June 30, 2021 and 2020 is as follows:

Accumulated Other Comprehensive Loss(1)

Unrealized (losses)

gains on

Defined Benefit

available for sale

    

Pension Plan

    

securities

    

Total

Balance at March 31, 2021

$

(4,783)

$

(177)

$

(4,960)

Other comprehensive loss before reclassifications

 

108

 

51

 

159

Amounts reclassified from accumulated other comprehensive loss

 

70

 

 

70

Period change

 

178

 

51

 

229

Balance at June 30, 2021

$

(4,605)

$

(126)

$

(4,731)

Balance at March 31, 2020

$

(3,631)

$

2,412

$

(1,219)

Other comprehensive gain before reclassifications

 

(1,088)

 

(570)

 

(1,658)

Amounts reclassified from accumulated other comprehensive loss

 

56

 

 

56

Period change

 

(1,032)

 

(570)

 

(1,602)

Balance at June 30, 2020

$

(4,663)

$

1,842

$

(2,821)

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

33

Rhinebeck Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share data)

Accumulated Other Comprehensive Loss(1)

Unrealized gains

(losses) on

Defined Benefit

available for sale

    

Pension Plan

    

securities

    

Total

Balance at December 31, 2020

$

(4,784)

$

993

$

(3,791)

Other comprehensive (loss) gain before reclassifications

 

37

 

(1,119)

 

(1,082)

Amounts reclassified from accumulated other comprehensive loss

 

142

 

 

142

Period change

 

179

 

(1,119)

 

(940)

Balance at June 30, 2021

$

(4,605)

$

(126)

$

(4,731)

Balance at December 31, 2019

$

(3,909)

$

(195)

$

(4,104)

Other comprehensive gain before reclassifications

 

(867)

 

2,014

 

1,147

Amounts reclassified from accumulated other comprehensive loss

 

113

 

23

 

136

Period change

 

(754)

 

2,037

 

1,283

Balance at June 30, 2020

$

(4,663)

$

1,842

$

(2,821)

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

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. There were no potentially dilutive common stock equivalents for the three or six months ended June 30, 2020.

Three months ended June 30,

Six months ended June 30,

    

2021

    

2020

2021

    

2020

Net income applicable to common stock

$

2,565

$

1,348

$

5,886

$

2,423

 

  

 

  

 

  

 

  

Average number of common shares outstanding

 

11,133,290

 

11,133,290

 

11,133,290

 

11,133,290

Less: Average unearned ESOP shares

 

384,602

 

406,423

 

387,329

 

409,150

Average number of common shares outstanding used to calculate basic earnings per common share

 

10,748,688

 

10,726,867

 

10,745,961

 

10,724,140

Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share

76,029

69,064

Additional common stock equivalents (stock options) used to calculate diluted earnings per share

103,626

87,891

Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share

10,928,343

10,726,867

10,902,916

10,724,140

 

  

 

  

 

  

 

  

Earnings per Common share:

 

  

 

  

 

  

 

  

Basic

$

0.24

$

0.13

$

0.55

$

0.23

Diluted

$

0.23

$

0.13

$

0.54

$

0.23

34

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 June 30, 2021 and December 31, 2020 and for the six months ended June 30, 2021 and 2020 is intended to assist in understanding the financial condition and results of operations of the Company and the Bank. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

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

statements of our goals, intentions and expectations;

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

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

estimates of our risks and future costs and benefits.

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

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

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

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

our ability to access cost-effective funding;

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

demand for loans and deposits in our market area;

our ability to continue to implement our business strategies;

competition among depository and other financial institutions;

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

35

adverse changes in the securities markets;

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

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

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;

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

our ability to retain key employees;

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

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

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

demand for our products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially reopen, and higher levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
our cyber security risks are increased as the result of an increase in the number of employees working remotely;

36

FDIC premiums may increase if the agency experiences additional resolution costs; and
we may face litigation, regulatory enforcement and reputation risk as a result of our participation in the SBA PPP and the risk that the SBA may not fund some or all PPP loan guaranties.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

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

Critical Accounting Policies

For a detailed disclosure regarding the Company’s critical accounting policies, see Part 2, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operationsin the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission. As of June 30, 2021, 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, 2020, with the exception of an additional disclosure for derivative financial instruments as stated below.

Derivative Financial Instruments

Derivative financial instruments are recognized as assets and liabilities on the consolidated balance sheet and measured at fair value, if material.

Loan Level Interest Rate Swaps

The Company enters into interest rate swaps with commercial loan customers to synthetically convert the customer’s loan from a variable rate to a fixed rate. These swaps are matched in offsetting terms to swaps that the Company enters into with an outside third party. The swaps are reported at fair value in other assets and other liabilities. The Company’s swaps qualify as derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other non-interest income.

Recent Events

On March 12, 2021, the Bank acquired two branches located in Orange County, New York from ConnectOne Bank, the wholly-owned subsidiary of ConnectOne Bancorp, Inc., as well as $33,863 of deposits and other assets and liabilities.

We have also opened one new branch in Orange County, New York, as a de novo location.  Previously stated as a geographical part of our service territory that we wished to develop, this location was fully operational at June 30, 2021.

37

Impact of COVID-19

While significant progress has been made to combat the outbreak of COVID-19, the pandemic is not over and is expected to continue to have a complex and significant adverse impact on the economy, the banking industry and the Company in future periods, all subject to a high degree of uncertainty, particularly as new variants of the virus continue to emerge.

Effects on Our Market Areas.

Our commercial and consumer banking products and services are offered primarily in the Hudson Valley of New York, where individual and governmental responses to the COVID-19 pandemic have led to a broad curtailment of economic activity beginning in March 2020. The Governor announced a statewide stay-at-home order, also known as the “NYS on PAUSE Program,” with a mandate that all non-essential workers work from home and only businesses declared as essential by the program were allowed to stay open. As cases of COVID-19 declined, New York began a phased-in reopening with the Hudson Valley reaching Phase 1 reopening on May 26, 2020 and reaching the final Phase 4 on July 7, 2020. Even with the Phase 4 reopening business operations remained limited and many people still engaged in limited activities. As vaccines became available in 2021, more pandemic related restrictions eased and New York is gradually returning to normal. Unemployment levels continue to decrease but remain higher than pre-pandemic levels, from an average of 4.4% in March 2020 to 5.9% in June 2021.

Policy and Regulatory Developments.

Federal, state and local governments and regulatory authorities have enacted a range of policy responses to the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the PPP. In December 2020, many provisions of the CARES Act were extended through the end of 2021. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had a material impact on the Company’s 2020 and 2021 operations and could continue to impact operations going forward.

Pandemic Operational Preparations & Status.

Various operational measures remain in effect to encourage social distancing and enhanced cleaning and sanitizing procedures continue at all offices, drive-thru locations and ATM terminals. We maintain a workplace safety program to provide employees a safe and healthy workplace. At June 30, 2021, the majority of our employees have returned to the office. The wearing of face masks is no longer mandatory for fully vaccinated employees while employee wellness continues to be monitored daily. We continue to watch the latest COVID-19 developments and are following guidance provided by the Centers for Disease Control, as well as federal, state and local agencies.   

Effects on Our Business.

With regard to our June 30, 2021 financial condition and results of operations, improving conditions around COVID-19 had a material impact on our provision for loan losses as the provision is significantly impacted by changes in forecasted economic conditions. Given that the economic forecast has improved significantly since December 31, 2020, we recorded a credit to the provision for loan losses during the six months ended June 30, 2021. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, we could experience increases in our required provision and record an additional expense.

The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While

38

interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted.

U.S. Small Business Administration Paycheck Protection Program.

Section 1102 of the CARES Act created the PPP, a program administered by the SBA to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. We have participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for the first ten months of the loan term. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020. No collateral or personal guarantees were required. Neither the government nor lenders are permitted to charge the recipients any fees. During 2020, we received SBA approval for 674 applications totaling $92.0 million all of which had been funded. As of December 31, 2020, there were $75.4 million of PPP loans outstanding.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the “CAA”). The CAA, among other things, extends the life of the PPP, creating a second round of PPP loans for eligible businesses. We participated in the CAA’s second round of PPP lending. In mid-January we opened our lending portal and began processing PPP loan applications. During the six months ended June 30, 2021, we received SBA approval for 376 applications totaling $48.2 million and all had been funded. At June 30, 2021, we had $74.3 million of PPP loans outstanding.

COVID-19 Loan Forbearance Program.

Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to GAAP.  In addition, the Office of the Comptroller of the Currency (“OCC”) in coordination with other federal agencies and in consultation with state financial regulators, issued OCC Bulletin 2020-35, which provided more limited circumstances in which a loan modification is not subject to classification as a TDR.

For consumer borrowers, the Bank is providing deferment of payments for indirect and direct automobile loans for up to sixty (60) days and an additional thirty (30) days, if needed. We are also providing forbearance to our residential real estate borrowers, which allows them to defer their principal and interest payments for up to ninety (90) days and an option for an additional ninety (90) days, if needed. In addition, for commercial borrowers we are providing deferment and forbearance options that include interest-only and tax escrow only payments. Some borrowers meeting the Bank’s underwriting criteria have been granted working capital loans to provide financial assistance. These deferrals are maintained within the CARES Act guidance and have not exceeded twelve consecutive months of deferred payment. 

For the six months ended June 30, 2021, the Bank granted 145 new loan deferrals totaling $2.2 million. As of June 30, 2021, we had 49 loans totaling $29.9 million of remaining deferrals outstanding and all were performing in accordance with their contractual terms.

Details with respect to the active outstanding deferrals as of June 30, 2021 are as follows (dollars in thousands):

    

Number of Loans

Balance

Weighted Rate

Accrued Interest

Commercial non-residential real estate loans

10

$

24,709

4.10

%

$

534

Commercial and industrial loans

12

4,681

5.40

%

129

Indirect automobile loans

27

548

8.89

%

8

Total loans

49

$

29,938

4.39

%

$

671

39

Comparison of Financial Condition at June 30, 2021 and December 31, 2020

Total Assets. Total assets were $1.21 billion at June 30, 2021, representing an increase of $81.4 million, or 7.2%, compared to $1.13 billion at December 31, 2020. The increase was primarily related to an increase of available for sale securities.

Cash and Due from Banks. Cash and due from banks decreased $21.6 million, or 23.1%, to $71.9 million at June 30, 2021 from $93.5 million at December 31, 2020 primarily due to a decrease in deposits held at the Federal Reserve Bank of New York as excess cash from deposit growth was used to purchase investment securities.

Investment Securities Available for Sale. Investment securities available for sale increased $99.0 million, or 96.2%, to $201.9 million at June 30, 2021 from $102.9 million at December 31, 2020. This increase was primarily due to purchases of treasury and mortgage backed securities of $126.6 million partially offset by principal pay-downs, calls and maturities of $26.1 million and the reversal of a net unrealized gain of $1.3 million to a net unrealized loss of $160,000.

Net Loans. Total net loans receivable were $862.5 million at June 30, 2021, a decrease of $11.3 million, or 1.3%, as compared to $873.8 million at December 31, 2020. The decrease was primarily due to a decline in our commercial and industrial loan balances of $8.3 million (excluding outstanding SBA PPP loan balances), a decrease in our non-residential commercial real estate loans of $6.0 million, a decrease in our net indirect automobile loan balances of $4.0 million, and a decrease in our SBA PPP loans of $1.9 million. These decreases were primarily due to higher than expected pay-offs and production short-falls. These decreases were partially offset by an increase in multi-family real estate loans of $9.8 million.

Non-accrual loans increased $340,000, or 5.4%, to $6.7 million at June 30, 2021, while non-performing assets increased $290,000, or 4.5%, to $6.8 million at June 30, 2021, as we disposed of other real estate owned valued at $50,000 in 2021.

Cash Surrender Value of Life Insurance. Cash surrender value of life insurance increased $9.9 million, or 52.5%, as the Bank purchased $10.0 million in split-dollar life insurance policies for key employees.

Total Liabilities. Total liabilities increased $76.0 million, or 7.5%, to $1.09 billion at June 30, 2021, primarily due to an increase in deposits of $97.8 million, partially offset by a decrease in advances from the FHLB of $28.4 million.

Deposits. Deposits increased $97.8 million, or 10.5%, to $1.03 billion at June 30, 2021. Interest bearing accounts grew $52.7 million, or 7.7%, to $737.7 million while non-interest bearing balances increased $45.1 million, or 18.5%, finishing the first half of 2021 at $289.5 million. The increase in deposits was primarily due to the acquisition of $33.9 million in deposits from the acquisition of two branches from ConnectOne Bank in March 2021, an accumulation of liquidity by customers in response to government stimulus actions, and normal fluctuations in some of our large business accounts.

Borrowed Funds. Advances from the FHLB decreased $28.4 million, or 56.1%, from $50.7 million at December 31, 2020 to $22.2 million at June 30, 2021, as the Company was able to utilize deposit growth to fund asset growth.

Stockholders’ Equity. Stockholders' equity increased $5.4 million to $121.9 million at June 30, 2021, primarily due to net income of $5.9 million partially offset by a $1.1 million reversal from a net unrealized gain to a net unrealized loss on available for sale securities. At June 30, 2021, the Company’s book value per share was $10.95. At June 30, 2021, the Company’s ratio of stockholders’ equity-to-total assets was 10.07%. Unearned common stock held by the Bank’s employee stock ownership plan was $3.8 million at June 30, 2021.

Comparison of Operating Results for the Three and Six Months Ended June 30, 2021 and June 30, 2020

Net Income. Net income for the three months ended June 30, 2021 increased $1.2 million, or 90.3%, to $2.6 million, or $0.23 per diluted share, compared to net income of $1.3 million, or $0.13 per diluted share, for the three months

40

ended June 30, 2020. Interest and dividend income decreased $976,000, or 8.7%, interest expense decreased $1.1 million, or 50.4%, the provision for loan losses decreased $3.4 million or 150.9%, non-interest income increased $106,000, or 6.1%, while other expenses and taxes increased $2.4 million, or 34.3%, between comparable quarters.

For the six months ended June 30, 2021, net income was $5.9 million, or $0.54 per diluted share, compared to $2.4 million, or $0.23 per diluted share, for the six months ended June 30, 2020. Interest and dividend income decreased by $664,000, or 3.0%, interest expense decreased $2.3 million, or 48.9%, and the provision for loan losses decreased $4.7 million, or 135.2%, resulting in a $6.3 million increase, or 45.4%, in net interest income after the provision for loan losses. Non-interest income increased $787,000, or 23.8% while other non-interest and tax expense increased $3.6 million, or 24.5%, during the equivalent six month timeframes.

Net Interest Income. Net interest income increased $152,000, or 1.7%, to $9.1 million for the three months ended June 30, 2021, compared to $9.0 million for the quarter ended June 30, 2020. The ratio of average interest-earning assets to average interest-bearing liabilities improved 2.9% to 143.82% while our net interest margin decreased by 15 basis points to 3.26% when comparing the second quarter of 2021 to the same period in 2020.

For the six months ended June 30, 2021, net interest income increased $1.6 million, or 9.3%, to $18.9 million from $17.3 million for the comparable 2020 period. Overall there was a 6 basis point decrease in the net interest margin to 3.45%, when comparing the respective six month periods, while the ratio of average interest-earning assets to average interest-bearing liabilities improved 4.3% to 143.86%.

Interest Income. Interest income decreased $976,000, or 8.7%, to $10.2 million for the three months ended June 30, 2021 from $11.2 million for the comparable 2020 period. The average yield decreased by 60 basis points to 3.66%, which was offset by an increase in the average balances of interest-earning assets of $65.4 million, or 6.2%, to $1.12 billion.

For the six months end June 30, 2021, interest income decreased $664,000, or 3.0%, to $21.3 million from $22.0 million for the six months ended June 30, 2020. The average yield declined by 57 basis points when comparing the six-month periods ended June 30, 2021 and 2020 to 3.88% for the six months ended June 30, 2021, which was offset by an increase in the average balance of interest-earning assets of $114.5 million, or 11.5%, to $1.11 billion.

In both comparable periods, interest income decreases were mostly driven lower earning asset yields due to lower yielding PPP loans and lower yielding debt securities due to the significant decline in the interest rate environment, partially offset by higher average earning asset balances.

Interest Expense. Interest expense decreased $1.1 million, or 50.4%, from $2.2 million for the quarter ended June 30, 2020, to $1.1 million for the quarter ended June 30, 2021. Interest rates on interest-bearing liabilities decreased 62 basis points to an average of 0.57% for the quarter ended June 30, 2021, which was offset by an increase in the average balance of total interest-bearing liabilities of $23.9 million, or 3.2%, to $780.8 million.

For the six months ended June 30, 2021, interest expense decreased $2.3 million, or 48.9%, to $2.4 million from $4.7 million for the comparable 2020 period, as the average yield on interest-bearing liabilities decreased by 68 basis points from the first half of 2020 to 0.62% for the first half of 2021. The decrease in overall cost was partially offset by an increase of $49.7 million, or 6.9%, in the average balances of interest-bearing liability accounts.

Provision for Loan Losses. The provision for loan losses decreased by $3.4 million, or 150.9%, from $2.3 million for the quarter ended June 30, 2020, to a credit of $1.1 million for the current quarter. The provision decreased by $4.7 million, or 135.2%, from $3.5 million at June 30, 2020 to a credit of $1.2 million for the six months ended June 30, 2021. The provision increased in 2020 as a result of the onset of the COVID-19 pandemic and related economic conditions. The credit for both the three months and six months of 2021 was primarily attributable to a decline in loan balances, exclusive of multi-family commercial real estate loans, an improvement in credit quality and an improvement in the general economy as our customers show signs of recovering from the pandemic.

Recoveries outpaced charge-offs for the quarter ended June 30, 2021, totaling $13,000 in net recoveries compared to $303,000 in net charge-offs for the respective period in 2020. For the six-month period ended June 30,

41

2021, net charge-offs were $290,000, a decrease of $547,000, or 65.4%, when compared to $837,000 in the comparative 2020 period.

Non-Interest Income. Non-interest income totaled $1.9 million for the three months ended June 30, 2021; an increase of $106,000, or 6.1%, from the comparable period in the prior year. An increase in service charges on deposit accounts of $123,000, or 24.8%, was driven primarily by the increase in transaction volume related to our acquisitions, as well as growth in the volume of our legacy deposit accounts. Investment advisory income increased $108,000, or 43.2%, as economic conditions seemed to recover from the pandemic, while other non-interest income increased $132,000 and the cash surrender value of life insurance increased $64,000. These increases were partially offset by a decrease in the net gain on the sale of loans of $323,000, or 34.3%.

Non-interest income increased $787,000, or 23.8%, to $4.1 million for the six months ended June 30, 2021. In the six months ended June 30, 2021, net gain on the sale of loans increased $271,000, or 19.3%, while service charges on deposit accounts increased $80,000, or 7.0%. A gain related to the collection of life insurance proceeds of $195,000 and an increase in various other non-interest income items of $241,000, also contributed to the increase.

Non-Interest Expense. For the second quarter of 2021, non-interest expense totaled $8.9 million, an increase of $2.1 million, or 31.2%, over the comparable 2020 period. The increase was primarily due to an increase in salaries and benefits of $1.0 million, or 25.0%, as the Company hired additional employees for its new branches. Professional fees increased $175,000, or 49.6%, as legal expense and consultant fees both increased over the second quarter of 2020. For the three months ended June 30, 2021, occupancy expenses also increased $160,000, or 18.2%, as a result of the additional rent, depreciation, and other expenses related to the branch expansion. The addition of branches was also primarily responsible for increased data processing costs of $63,000 and a portion of the increased other non-interest expenses. Other non-interest expenses increased $664,000, or 75.5%, primarily due to increased automobile loan expenses as lending volume had decreased substantially in the second quarter of last year with the beginning of the pandemic; as well as an additional estimated reserve for potential consumer compliance issues in the Bank’s indirect automobile portfolio in this year. Additional reserves in the future may be required but cannot be estimated at this time.

For the six months ended June 30, 2021, non-interest expense increased $2.8 million, or 19.7%, to $16.8 million from $14.1 million over the comparative period in 2020. The increase was primarily due to an increase in salaries and benefits of $1.4 million, or 17.7%, due to new branch employees as well as annual merit increases, production incentives and employee benefit increases. Occupancy increased $264,000, or 15.3% and professional fees increased $261,000, or 38.7%, while data processing increased $104,000, or 14.5%. Other non-interest expenses increased $713,000, or 33.0%.

Income Taxes. Income taxes increased by $333,000 for the three months ended June 30, 2021 as compared to the comparable period in 2020 as our income before income taxes increased.  Our effective tax rate for the three months ended June 30, 2021 was 21.3% compared to 21.0% for the three months ended June 30, 2020.

For the six months ended June 30, 2021, income taxes increased $844,000, or 126.7%, to $1.5 million in the first half of 2021 from $666,000 for the comparable 2020 period. Our effective tax rate for the six months ended June 30, 2021 was 20.4% as compared to 21.6% for the six months ended June 30, 2020.

42

Average Balance Sheets for the Three and Six Months Ended June 30, 2021 and 2020

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 June 30, 

2021

2020

    

Average

    

Interest and

    

    

Average

    

Interest and

    

    

Balance

Dividends

Yield/Cost(3)

Balance

Dividends

Yield/Cost(3)

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest bearing depository accounts

$

57,878

$

13

 

0.09

%  

$

66,351

$

13

 

0.08

%  

Loans(1)

 

872,465

 

9,650

 

4.44

%  

 

876,809

 

10,569

 

4.85

%  

Available for sale securities

 

192,669

 

574

 

1.19

%  

 

114,405

 

631

 

2.22

%  

Total interest-earning assets

1,123,012

10,237

 

3.66

%  

1,057,565

11,213

 

4.26

%  

Non-interest-earning assets

 

75,570

 

  

 

  

 

61,092

 

  

 

  

Total assets

$

1,198,582

 

  

 

  

$

1,118,657

 

  

 

  

Liabilities and equity:

 

  

 

  

 

  

 

  

 

  

 

  

NOW accounts

$

147,048

$

65

 

0.18

%  

$

107,062

$

61

 

0.23

%  

Money market accounts

 

230,284

 

357

 

0.62

%  

 

164,676

 

417

 

1.02

%  

Savings accounts

 

175,103

 

75

 

0.17

%  

 

136,898

 

89

 

0.26

%  

Certificates of deposit

 

184,547

 

404

 

0.88

%  

 

232,056

 

1,265

 

2.19

%  

Total interest-bearing deposits

 

736,982

 

901

 

0.49

%  

 

640,692

 

1,832

 

1.15

%  

Escrow accounts

 

9,996

 

29

 

1.16

%  

 

9,526

 

27

 

1.14

%  

Federal Home Loan Bank advances

 

28,713

 

150

 

2.10

%  

 

101,564

 

336

 

1.33

%  

Subordinated debt

 

5,155

 

28

 

2.18

%  

 

5,155

 

41

 

3.20

%  

Other interest-bearing liabilities

 

43,864

 

207

 

1.89

%  

 

116,245

 

404

 

1.40

%  

Total interest-bearing liabilities

780,846

1,108

 

0.57

%  

756,937

2,236

 

1.19

%  

Non-interest-bearing deposits

 

276,948

 

  

 

  

 

230,116

 

  

 

  

Other non-interest-bearing liabilities

 

20,298

 

  

 

  

 

16,868

 

  

 

  

Total liabilities

1,078,092

 

  

 

  

1,003,921

 

  

 

  

Total stockholders’ equity

 

120,490

 

  

 

  

 

114,736

 

  

 

  

Total liabilities and stockholders’ equity

$

1,198,582

 

  

 

  

$

1,118,657

 

  

 

  

Net interest income

 

  

$

9,129

 

  

 

  

$

8,977

 

  

Interest rate spread

 

  

 

  

 

3.09

%  

 

  

 

  

 

3.07

%

Net interest margin(2)

 

  

 

  

 

3.26

%  

 

  

 

  

 

3.41

%  

Average interest-earning assets to average interest-bearing liabilities

 

  

 

  

 

143.82

%  

 

  

 

  

 

139.72

%  

(1)

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

(2)

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

(3)

Annualized.

43

For the Six Months Ended June 30, 

2021

2020

    

Average

    

Interest and

    

    

Average

    

Interest and

    

    

Balance

Dividends

Yield/Cost

Balance

Dividends

Yield/Cost

(Dollars in thousands)

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Interest bearing depository accounts

$

70,999

$

32

 

0.09

%  

$

35,345

$

24

 

0.14

%  

Loans(1)

 

876,566

 

20,320

 

4.67

%  

 

839,973

 

20,615

 

4.94

%  

Available for sale securities

 

158,070

 

937

 

1.20

%  

 

115,850

 

1,314

 

2.28

%  

Total interest-earning assets

1,105,635

21,289

 

3.88

%  

991,168

21,953

 

4.45

%  

Non-interest-earning assets

 

66,796

 

  

 

  

 

59,968

 

  

 

  

Total assets

$

1,172,431

 

  

 

  

$

1,051,136

 

  

 

  

Liabilities and equity:

 

  

 

  

 

  

 

  

 

  

 

  

NOW accounts

$

142,400

$

125

 

0.18

%  

$

102,775

$

119

 

0.23

%  

Money market accounts

 

218,041

 

683

 

0.63

%  

 

159,940

 

913

 

1.15

%  

Savings accounts

 

168,302

 

142

 

0.17

%  

 

130,571

 

169

 

0.26

%  

Certificates of deposit

 

188,281

 

952

 

1.02

%  

 

229,030

 

2,629

 

2.31

%  

Total interest-bearing deposits

 

717,024

 

1,902

 

0.53

%  

 

622,316

 

3,830

 

1.24

%  

Escrow accounts

 

8,417

 

48

 

1.15

%  

 

8,086

 

46

 

1.14

%  

FHLB and FRB advances

 

37,931

 

371

 

1.97

%  

 

83,275

 

688

 

1.66

%  

Subordinated debt

 

5,155

 

57

 

2.23

%  

 

5,155

 

91

 

3.55

%  

Other interest-bearing liabilities

 

51,503

 

476

 

1.86

%  

 

96,516

 

825

 

1.72

%  

Total interest-bearing liabilities

768,527

2,378

 

0.62

%  

718,832

4,655

 

1.30

%  

Non-interest-bearing deposits

 

265,222

 

  

 

  

 

202,986

 

  

 

  

Other non-interest-bearing liabilities

 

19,341

 

  

 

  

 

15,841

 

  

 

  

Total liabilities

1,053,090

 

  

 

  

937,659

 

  

 

  

Total stockholders’ equity

 

119,341

 

  

 

  

 

113,477

 

  

 

  

Total liabilities and stockholders’ equity

$

1,172,431

 

  

 

  

$

1,051,136

 

  

 

  

Net interest income

 

  

$

18,911

 

  

 

  

$

17,298

 

  

Interest rate spread

 

  

 

  

 

3.26

%  

 

  

 

  

 

3.15

%  

Net interest margin(2)

 

  

 

  

 

3.45

%  

 

  

 

  

 

3.51

%  

Average interest-earning assets to average interest-bearing liabilities

 

  

 

  

 

143.86

%  

 

  

 

  

 

137.89

%  

(1)

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

(2)

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

(3)

Annualized.

44

Rate/Volume Analysis

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

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Compared to Three Months Ended

Compared to Six Months Ended

June 30, 2020

June 30, 2020

Increase (Decrease)

Increase (Decrease)

Due to

Due to

    

Volume

    

Rate

    

Net

    

Volume

    

Rate

    

Net

Interest income:

 

  

 

  

 

  

 

  

 

  

 

  

Interest bearing depository accounts

$

(1)

$

1

$

$

19

$

(11)

$

8

Loans receivable

 

(52)

 

(867)

 

(919)

 

876

 

(1,171)

 

(295)

Marketable securities

 

313

 

(370)

 

(57)

 

380

 

(757)

 

(377)

Total interest-earning assets

 

260

 

(1,236)

 

(976)

 

1,275

 

(1,939)

 

(664)

Interest expense:

 

  

 

  

 

  

 

  

 

  

 

  

Deposits

 

(45)

 

(886)

 

(931)

 

(60)

 

(1,868)

 

(1,928)

Escrow accounts

 

1

 

1

 

2

 

2

 

 

2

Federal Home Loan Bank advances

 

(318)

 

132

 

(186)

 

(426)

 

109

 

(317)

Subordinated debt

 

 

(13)

 

(13)

 

 

(34)

 

(34)

Total interest-bearing liabilities

 

(362)

 

(766)

 

(1,128)

 

(484)

 

(1,793)

 

(2,277)

Net increase in net interest income

$

622

$

(470)

$

152

$

1,759

$

(146)

$

1,613

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the Board of Directors established a management-level Asset/Liability Management Committee (the “ALCO”), which takes initial responsibility for reviewing the 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

45

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 June 30, 2021 (dollars in thousands).

Net Economic

 

Value as Percent of

 

Net Economic Value

of Assets

 

    

Dollar

    

Dollar

    

Percent

    

EVE

    

Percent

 

Basis Point Change in Interest Rates

Amount

Change

Change

Ratio

Change

 

400

$

108,371

$

(2,441)

 

(2.2)

%  

9.74

%  

6.2

%

300

 

110,052

 

(760)

 

(0.7)

%  

9.70

%  

5.8

%

200

 

111,304

 

492

 

0.4

%  

9.61

%  

4.8

%

100

 

112,326

 

1,514

 

1.4

%  

9.50

%  

3.6

%

0

 

110,812

 

 

%  

9.17

%  

%

(100)

$

90,466

$

(20,346)

 

(18.4)

%  

7.34

%  

(20.0)

%

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

Liquidity and Capital Resources

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

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

A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At June 30, 2021, $71.9 million of our assets were held in cash and cash equivalents. We had $17.8 million in short-term investment securities (maturing in one year or less) at June 30, 2021. As of June 30, 2021, we had $22.2 million of structured borrowings outstanding from the FHLB, of which $18.4 million is due within the next 12 months. We have access to FHLB advances of up to $605.0 million.

At June 30, 2021, we had $80.4 million in loan commitments outstanding, which included $4.4 million in undisbursed construction loans, $10.3 million in unused home equity lines of credit, $51.2 million in commercial lines of credit, $11.4 million in future loan commitments and $3.1 million in standby letters of credit. Certificates of deposit due within one year of June 30, 2021 totaled $137.8 million, or 77.6% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2022. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

46

We also have obligations under our post retirement plan as described in Note 9 to the consolidated financial statements. The post retirement benefit payments represent actuarially determined future payments to eligible plan participants. We froze our pension plan in 2012.

Impact of Inflation and Changing Prices

The financial statements and related notes of Rhinebeck Bancorp, Inc. have been prepared in accordance with 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 June 30, 2021. 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 June 30, 2021, 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.

47

PART II — OTHER INFORMATION

Item 1.           Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At June 30, 2021, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.        Risk Factors

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, 2020.

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

None.

Item 3.           Defaults Upon Senior Securities

None.

Item 4.           Mine Safety Disclosures

Not applicable.

Item 5.           Other Information

None.

48

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 June 30, 2021, 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 June 30, 2021, formatted in inline XBRL (contained in Exhibit 101)

49

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: August 12, 2021

/s/ Michael J. Quinn

 

Michael J. Quinn
President and Chief Executive Officer

 

 

Date: August 12, 2021

/s/ Michael J. McDermott

 

Michael J. McDermott
Chief Financial Officer

50