Employee Benefits

12 Months Ended

Dec. 31, 2022

Employee Benefits

Employee Benefits

10.   Employee Benefits

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an ESOP to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16, 2019, the Company granted a loan to the ESOP for the purchase of 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (3.25% at January 1, 2022 and 7.50% at January 1, 2023). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan was $3,741 and $3,917 at December 31, 2022 and 2021, respectively. 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:

	Year ended December 31,
	2022	2021
Allocated	65,463	43,642
Committed to be allocated	21,821	21,821
Unallocated	349,141	370,962
Paid out to participants	(4,376)	(1,252)
Total shares	432,049	435,173

The fair value of unallocated shares was $3,181 and $3,954 at December 31, 2022 and 2021, respectively.

Total compensation expense recognized in connection with the ESOP for the years ended December 31, 2022 and 2021 was $216 and $227, 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 represented 4.90% and 1.96%, respectively, of the number of shares of common stock issued in the stock offering of Rhinebeck Bancorp, including the shares issued to Rhinebeck Bancorp, MHC.

Pursuant to terms of the EIP, on August 25, 2020, the Board of Directors granted restricted stock and stock options to employees and directors. All of the awards granted to date vest annually over a three-year period from the date of the grant and the term of each option is ten years. As of December 31, 2022, there were 102,146 stock options and 49,110 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 Company’s expectation that it will not pay dividends. The risk-free rate for periods within the expected 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.

The Company followed SEC safe-harbor guidelines when determining the expected term of the options granted. The weighted average assumptions used and fair value for options granted under the 2020 EIP as of the grant date were as follows:

Expected term (years)	6
Expected dividend yield	0%
Weighted-average expected volatility	25.45%
Weighted-average risk-free interest rate	0.29%
Weighted-average fair value of options granted	$1.67

A summary of options under the 2020 EIP as of December 31, 2022 is presented below:

		Weighted -		Weighted-Average
	Number of	Average		Remaining Contractual
	Shares	Exercise Price		Term (in Years)
Options outstanding at beginning of year	439,596	$	6.62	8.63
Options granted	-		-	-
Options exercised	-		-	-
Options Expired	(1,666)		6.57	-
Options outstanding at December 31, 2022	437,930	$	6.62	7.66
Options exercisable at December 31, 2022	290,126	$	6.62	7.66

The aggregate intrinsic value of the options outstanding, which fluctuates based on changes in the fair market value of the Company’s stock, at December 31, 2022, was $1,092. 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 December 31, 2022. The aggregate intrinsic value of the options exercisable at December 31, 2022 was $724.

As of December 31, 2022, there was $162 of unrecognized compensation cost related to the nonvested stock options granted under the 2020 EIP. The cost is expected to be recognized over a remaining period of 0.66 years.

The following table summarizes the Company’s restricted stock activity for the year ended December 31, 2022:

			Weighted-Average
	Number		Grant Date
	of Shares		Fair Value per Share
Non-vested restricted stock at beginning of year	112,520	$	6.57
Granted	-		-
Vested	(56,254)		6.57
Forfeited	-		-
Non-vested restricted stock at December 31, 2022	56,266	$	6.57

As of December 31, 2022, there was $240 of unrecognized compensation cost related to the nonvested restricted stock awards granted under the 2020 EIP. The cost is expected to be recognized over a remaining period of 0.65 years.

The aggregate fair value of the vested options and restricted stock awards as of December 31, 2022 was $246 and $539, respectively.

For the years ended December 31, 2022 and 2021, share-based compensation expense under the plan was $615 and $618, respectively.

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan covering substantially all of its employees 21 years of age or older who have completed at least one year of service. On April 24, 2012, the Board of Directors of Rhinebeck Bank voted to freeze the Bank’s defined benefit plan as of June 30, 2012.

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

	December 31,
	2022		2021
Projected and accumulated benefit obligation	$	(17,138)	$	(23,055)
Plan assets at fair value		16,906		22,839
Funded status included in accrued expenses and other liabilities	$	(232)	$	(216)

The following table details the plan’s funded status:

	2022		2021
Change in benefit projected obligation:
Projected benefit obligation at beginning of year	$	23,055	$	23,964
Service cost		-		-
Interest cost		634		589
Actuarial gain		(5,874)		(842)
Benefits paid		(677)		(656)
Projected benefit obligation at end of year		17,138		23,055
Change in plan assets:
Fair value of plan assets at beginning of year		22,839		22,634
Actual return on plan assets		(5,256)		861
Contributions		-		-
Benefits paid		(677)		(656)
Fair value of plan assets at end of year		16,906		22,839
Funded status	$	(232)	$	(216)

In 2022, the net actuarial gain in the projected benefit obligation resulted primarily from a change in the discount rate. The loss on plan assets during the fiscal year ending December 31, 2022 of $5,256 was due to unfavorable investment performance.

The weighted-average assumptions used by the Company to determine the pension benefit obligation consisted of the following:

	Years ended December 31,
	2022		2021
Discount rate	5.15	%	2.80	%
Rate of compensation increase	N/A		N/A

Amounts recognized in accumulated other comprehensive loss consisted of the following:

	Years ended December 31,
	2022		2021
Net actuarial loss	$	5,060	$	4,938

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

	Years ended December 31,
	2022		2021
Interest cost	$	634	$	589
Expected return on plan assets		(1,007)		(944)
Amortization of unrecognized loss		267		359
Net periodic (benefit) cost	$	(106)	$	4

Weighted-average assumptions used by the Company to determine the net periodic pension cost consisted of the following:

	Years ended December 31,
	2022		2021
Discount rate	2.80	%	2.50	%
Expected long-term return on plan assets	4.75	%	4.50	%
Rate of compensation increase	N/A		N/A

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

As of December 31, 2022, the investment funds included seven equity funds and two bond funds. As of December 31, 2021, the investment funds included seven equity funds and three bond funds. Each fund has its own investment objectives, investment strategies and risks, as detailed in the Plan’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 fair value of the Company’s pension plan assets, by fair value hierarchy, are as follows:

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Investment in separate accounts
Fixed income	$	11,600	$	—	$	—	$	11,600
Equity		5,306		—		—		5,306
Total assets at fair value	$	16,906	$	—	$	—	$	16,906

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

The pooled separate accounts are valued at the net asset per unit based on either the observable net asset value of the underlying investment or the net asset value of the underlying pool of securities. Net asset value is based on the value of the underlying assets owned by the fund, minus its liabilities and then divided by the number of shares outstanding.

Benefit payments are as follows:

	Year ended December 31,
	2022		2021
Benefits paid	$	677	$	656

As of December 31, 2022, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Fiscal Year Ending	Pension Benefits
2023	$	850
2024		920
2025		960
2026		980
2027		1,020
2028 – 2032		5,830

The Company made no contributions to the plan in either 2022 or 2021.

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 $1,152 and $1,074 for the years ended December 31, 2022 and 2021, respectively.

Bank Owned Life Insurance

The Company has an investment in and is the beneficiary of life insurance policies on the lives of certain officers and directors. The purpose of these life insurance policies is to provide income through the appreciation in cash surrender value of the policies, which is expected to offset the cost of the deferred compensation plans. These policies had aggregate cash surrender values of $29,794 and $29,131 at December 31, 2022 and 2021, respectively. Net earnings on these policies aggregated $640 and $571 for the years ended December 31, 2022 and 2021, respectively, which are included in non-interest income in the consolidated statements of income.

Deferred Compensation Arrangements

Trustees’ Plan

The Company’s 1991 Plan (the “Trustees’ Plan”) covers directors who elect to defer fees earned. Under the terms of the Trustees’ Plan, each participant may elect to defer all or part of their annual director’s fees. Upon resignation, retirement, or death, the participants’ total deferred compensation, including earnings thereon, will be paid out. At December 31, 2022 and 2021, $2,761 and $2,877, respectively, are included in accrued expenses and other liabilities, which represents cumulative amounts deferred and earnings thereon. Total expense related to the Trustees’ Plan years ended December 31, 2022 and 2021 were $232 and $143, respectively, which are included in non-interest expense in the consolidated statements of income.

Executive Long-Term Incentive and Retention Plan

The Company 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 December 31, 2022 and 2021, $1,649 and $1,545, respectively, is included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $745 and $589 for the years ended December 31, 2022 and 2021, respectively, related to this plan and which are included in salaries and employee benefits expense in the consolidated statements of income.

Group Term Replacement Plan

Under the terms of the “Group Term Replacement Plan”, the Company provides postretirement life insurance benefits to certain officers. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $1,580 and $1,423, respectively, at December 31, 2022 and 2021. The Company recognized expenses of $157 and $36 for the years ended December 31, 2022 and 2021, respectively, related to this plan which are included in salaries and employee benefits expense in the consolidated statements of income.

Other Director and Officer Postretirement Benefits

The Company has individual fee continuation agreements with certain directors and a supplemental retirement agreement with an executive officer which provide for fixed postretirement benefits to be paid to the directors and the officer, or their beneficiaries, for periods ranging from 15 to 20 years. In addition, the Company has agreements with certain directors which provide for certain postretirement life insurance benefits. The liability related to these postretirement benefits is being accrued over the individual participants’ service period and aggregated $2,031 and $1,986, respectively, at December 31, 2022 and 2021. The Company recognized expenses of $88 and $75 for the years ended December 31, 2022 and 2021, respectively, related to these benefits which are included in other non-interest expenses in the consolidated statements of income.