EDGAR 10-K Filing

Company CIK: 1751783
Filing Year: 2025
Filename: 1751783_10-K_2025_0001751783-25-000012.json

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ITEM 1. BUSINESS
Item 1. Business
Rhinebeck Bancorp, Inc.
Rhinebeck Bancorp, Inc., (the “Company”) a Maryland corporation, was incorporated in August 2018. On January 16, 2019, the Company became the holding company for Rhinebeck Bank (the “Bank”) when it completed the reorganization of the Company and the Bank into a two-tier mutual holding company form of organization. The Company is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”). The consolidated financial results contained herein reflect the consolidated accounts of the Company and the Bank.
At December 31, 2024, the Company had consolidated total assets of $1.26 billion, total deposits of $1.02 billion and stockholders’ equity of $121.8 million. The Company’s executive offices are located at 2 Jefferson Plaza, Poughkeepsie, New York 12601. The telephone number at this address is (845) 454-8555. Our website address is www.Rhinebeckbank.com. Information on this website is not and should not be considered a part of this report.
The Company files interim, quarterly and annual reports with the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers such as the Company that file electronically with the SEC. All filed SEC reports and interim filings can also be obtained from the Bank’s website (www.Rhinebeckbank.com), on the “Investor Relations” page, without charge from Rhinebeck Bancorp, Inc.
Rhinebeck Bancorp, MHC
Rhinebeck Bancorp, MHC, a New York-chartered non-stock corporation, is a mutual holding company that owns 57.1% of the outstanding common stock of Rhinebeck Bancorp, Inc.
Rhinebeck Bank
Rhinebeck Bank is a New York-chartered stock savings bank that was organized in 1860. The Bank provides a full range of banking and financial services to consumer and commercial customers through its 13 branches and one representative office located in Dutchess, Ulster and Orange counties. We also maintain a representative office in Albany County to originate indirect automobile and commercial loans. 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 Bank’s primary business activity is accepting deposits from the general public and using those funds together with borrowings, primarily to originate indirect automobile loans (automobile loans referred to us by automobile dealerships), commercial real estate loans (which includes multi-family real estate loans and commercial construction loans), commercial business loans and one- to four-family residential real estate loans, and to purchase investment securities.
We offer a variety of deposit accounts, including savings accounts, certificates of deposit, money market accounts, commercial and personal checking accounts and individual retirement accounts. We also offer alternative delivery channels, including ATMs, online banking and bill pay, mobile banking with mobile deposit and bill pay, Automated Clearing House origination, remote deposit capture and telephone banking.
The Bank is subject to regulation and examination by the NYSDFS and by the Federal Deposit Insurance Corporation (the “FDIC”).
Market Area
Our primary market area encompasses Albany, Dutchess, Orange, and Ulster Counties (and their contiguous counties), which are located in the Hudson Valley region of New York. Our retail banking offices (and the representative offices noted above) are located in these four counties and serve the surrounding areas. The Hudson Valley region has a diversified economy and representative industries include education, health, government, leisure and hospitality and professional business services. We also maintain a representative office in Albany County to originate indirect automobile and commercial loans. We view Orange and Albany Counties, which have larger populations than Dutchess and Ulster Counties, as primary areas for growth.
Based on published statistics, the U.S. unemployment rate was 4.1%, while the New York State unemployment rate was 4.4% as of December 31, 2024. The four counties in our primary market area each had a lower unemployment rate than New York State (Dutchess County, 3.1%, Orange County, 3.2%, Ulster County, 3.2% and Albany County, 3.0%). According to the New York State Department of Labor, for the twelve-month period ended December 31, 2024, the Hudson Valley’s private sector job growth increased by 1.2%. Based on published statistics, median household income for 2023 (the latest date for which information was available) was $97,273 in Dutchess County, $96,497 in Orange County, $81,804 in Ulster County and $83,149 in Albany County, compared to $75,149 in the U.S. and $81,386 in New York State as a whole. Based on published statistics, the July 2023 estimated population was 297,150 in Dutchess County, 407,470 in Orange County, 182,333 in Ulster County and 316,659 in Albany County.
Competition
We face significant competition for deposits and loans. Our most direct competition for deposits has historically come from the numerous financial institutions operating in our market area (including other community and commercial banks and credit unions), many of which are significantly larger than we are and have greater resources. We also face competition for investors’ funds from other sources such as brokerage firms, money market funds and mutual funds, as well as securities, such as Treasury bills, offered by the Federal Government. Based on FDIC data, at June 30, 2024 (the latest date for which information is available), we had 10.40% of the FDIC-insured deposit market share in Dutchess County, which was 4th among the 15 institutions with offices in the county, 1.39% of the FDIC-insured deposit market share in Ulster County, which was 14th among the 19 institutions with offices in the county, and 1.11% of the FDIC-insured deposit market share in Orange County, which was 16th among the 23 institutions with offices in the county. In all three counties, New York City money center banks or large regional banks have a significant presence.
Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities companies, specialty finance firms and financial technology companies. Additionally, in the indirect auto lending space, we face competition from credit unions, captive auto finance companies, online auto lenders, and marketplace lending platforms that connect borrowers directly with investors.
We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.
We seek to meet this competition with convenient branch locations, emphasizing personalized banking and the advantage of local decision-making in our banking businesses. Specifically, we promote and maintain relationships and build customer loyalty within local communities by focusing our marketing and community involvement on the specific needs of individual neighborhoods. We do not rely on any individual, group, or entity for a material portion of our deposits.
Lending Activities
General.
Loans are our primary interest-earning asset. At December 31, 2024, net loans represented 77.4% of our total assets. The allowance for credit losses is accounted for under the current expected credit loss (“CECL”) model.
Loan Portfolio Composition.
The following table sets forth the composition of the loan portfolio at the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Residential Real Estate Loans(1)(2)
$
86,651
8.89
%
$
77,259
7.66
%
Commercial Real Estate Loans:
Non-residential
350,962
36.00
%
324,493
32.17
%
Multi-family
105,030
10.77
%
83,376
8.27
%
Construction(3)
26,611
2.73
%
20,208
2.00
%
Total
482,603
49.50
%
428,077
42.44
%
Commercial Loans:(4)
91,517
9.39
%
88,927
8.82
%
Consumer Loans:
Indirect automobile
295,669
30.33
%
394,245
39.09
%
Home equity
11,656
1.19
%
11,990
1.19
%
Other consumer
6,830
0.70
%
8,095
0.80
%
Total
314,155
32.22
%
414,330
41.08
%
Total loans receivable, gross
974,926
100.00
%
1,008,593
100.00
%
Dealer Reserve
5,392
8,382
Allowance for credit losses
(8,539)
(8,124)
Loans receivable, net
$
971,779
$
1,008,851
(1) Includes residential construction loans totaling $711,000 and $1.8 million at December 31, 2024 and 2023, respectively.
(2) Includes loans held for sale totaling $0 and $908,000 at December 31, 2024 and 2023, respectively.
(3) Represents the amounts distributed as of the dates indicated.
(4) Includes $86,000 and $272,000 in U.S. Small Business Administration (“SBA”) Paycheck Participation Program (“PPP”) loans at December 31, 2024 and 2023, respectively.
Loan Portfolio Maturities. The following table sets forth certain information regarding the dollar amount of loans that will mature in the given period. The table does not include any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below. Demand loans, which are loans having no stated repayment schedule or no stated maturity, are reported as due in one year or less.
At December 31, 2024
Commercial Real Estate Loans
Consumer Loans
Residential Real Estate
Construction
Non-Residential
Multifamily
Commercial
Indirect Automobile
Home Equity
Other Consumer
Total
Loans
Loans
Loans
Loans
Loans
Loans
Loans
Loans
Loans
(In thousands)
Amounts due in:
One year or less
$
$
26,214
$
1,807
$
$
28,493
$
7,059
$
$
$
64,221
More than one year through five years
31,033
44,896
233,196
5,528
316,702
More than five years through fifteen years
10,288
-
206,534
79,749
17,776
55,414
3,838
374,390
More than 15 years
75,667
-
111,588
24,451
-
7,555
-
219,613
Total
$
86,651
$
26,611
$
350,962
$
105,030
$
91,517
$
295,669
$
11,656
$
6,830
$
974,926
The following table sets forth the mix of fixed- and adjustable-rate loans at December 31, 2024 that are due after December 31, 2025, based on their contractual terms to maturity.
Floating or
Fixed
Adjustable
Rates
Rates
Total
(In thousands)
Residential real estate loans
$
61,829
$
24,716
$
86,545
Commercial real estate loans
Non-residential
13,263
335,892
349,155
Multi-family
104,259
105,008
Construction
-
Commercial loans
46,801
16,223
63,024
Consumer loans
Indirect automobile
288,610
-
288,610
Home equity
11,111
11,647
Other consumer
6,319
-
6,319
Total
$
418,107
$
492,598
$
910,705
Indirect Automobile Loans.
We have provided indirect financing of automobile purchases since 1999. At December 31, 2024, indirect automobile loans totaled $295.7 million, or 30.3% of our total loan portfolio. While we still plan to originate indirect automobile loans, over the past three years and for the foreseeable future we have actively decreased our indirect automobile portfolio by decreasing loan originations through increased pricing and more selective underwriting criteria. We acquire our indirect automobile loans from 61 automobile dealerships located in the Hudson Valley region and 30 dealers located in the Albany area, under an arrangement where the dealer receives a flat fee for referring the loan to us, which is known as dealer participation or dealer reserve. As of December 31, 2024, 43.4% of the aggregate principal balance of our indirect automobile loan portfolio was for the purchase of new vehicles and 56.6%, was for used vehicles. The weighted average original term to maturity of our indirect automobile loan portfolio at December 31, 2024 was five years and eleven months.
Each dealer that originates automobile loans makes representations and warranties with respect to our security interests in the related financed vehicles in a separate dealer agreement with us. These representations and warranties do not relate to the creditworthiness of the borrowers or the collectability of the loan. The dealers are also responsible for ensuring that our security interest in the financed vehicles is perfected. Each automobile loan requires the borrower to keep the financed vehicle fully insured against loss or damage by fire, theft and collision. The dealer agreements require the dealers to represent that adequate physical damage insurance (collision and comprehensive) was in effect at the time the related loan was originated and financed by us. In addition, we have the right to “force place” insurance coverage (supplemental insurance taken out by the Bank) if the required physical damage insurance on an automobile is not maintained by the borrower. Nevertheless, there can be no assurance that each borrower will maintain physical damage insurance for a financed vehicle during the entire term of an automobile loan. Vendors Single Interest Insurance, which is included on every automobile loan originated, protects the Bank against losses for physical damage to repossessed automobiles.
Each dealer submits loan applications directly to us, and the borrower’s creditworthiness is the most important criterion we use in determining whether to approve the loan. Each credit application generally requires that the borrower provide current information regarding their employment history, indebtedness, and other factors that bear on creditworthiness. We also obtain a credit report from a major credit reporting agency summarizing the borrower’s credit history and paying habits, including such items as open accounts, delinquent payments, bankruptcies, repossessions, lawsuits and judgments.
Each borrower’s credit score is the principal factor we use in determining the appropriate interest rate on a loan. Our underwriting procedures evaluate the credit information relative to the value of the vehicle to be financed. Our underwriters may also verify a borrower’s employment income and/or residency and, where appropriate, verify a borrower’s payment history directly with the borrower’s creditors. Based on these procedures, a credit decision is considered. We generally follow the same underwriting guidelines in originating direct (non-dealer) automobile loans.
We generally finance up to the full sales price of the vehicle plus sales tax, dealer preparation fees, license fees and title fees, plus the cost of service and warranty contracts (amounts in addition to the sales price are collectively referred to as the “additional vehicle costs”). In addition, we also may finance the negative equity related to vehicles traded in with a prior financing. Accordingly, the amount we finance may exceed, depending on the borrower’s credit score, in the case of new vehicles, the aggregate of the dealer’s invoice price of the financed vehicle and the additional vehicle costs, or in the case of a used vehicle, the aggregate of the vehicle’s value and the additional vehicle costs. The maximum amount that can be borrowed for an automobile loan by borrowers with our lowest risk rating generally may not exceed 135% of the full sales price of a new vehicle, or the vehicle’s “wholesale” value in the case of a used vehicle. The vehicle’s value is determined by using one of the standard reference sources for dealers of used cars. We regularly review the quality of the loans we purchase from the dealers and periodically conduct quality control audits to ensure compliance with our established policies and procedures.
At December 31, 2024, our automobile loans to borrowers with credit scores of 639 or less at origination totaled $27.1 million, or 9.2% of our total indirect automobile loan portfolio. We typically do not originate these types of loans with loan-to-value ratios greater than 100% of the sales price of the automobile or debt-to-income ratios greater than 40%.
Non-Residential Commercial Real Estate Loans.
At December 31, 2024, non-residential commercial real estate loans were $351.0 million, or 36.0%, of our total loan portfolio. Our commercial real estate loans are generally secured by properties used for business purposes, such as office buildings, industrial facilities and retail facilities. At December 31, 2024, $118.9 million of our commercial real estate portfolio was owner-occupied real estate and $232.1 million was secured by income producing, non-owner occupied real estate. At December 31, 2024, substantially all of our commercial real estate loans were secured by properties located in our market area. However, occasionally we will originate commercial real estate loans on properties located outside our market area based on an established relationship with a strong borrower. As of December 31, 2024, we had four loans located outside of the state of New York totaling $17.5 million.
We originate a variety of commercial real estate loans with terms and amortization periods generally up to 25 years, for large newly constructed commercial developments, including retail plazas and up to 20 years for almost all other commercial properties. The interest rate on commercial real estate loans is generally adjustable and based on a margin over an index, typically The Wall Street Journal Prime Rate or the Federal Home Loan Bank of New York Amortizing Advance Rate. Commercial real estate loans are generally originated in amounts up to 75% of the appraised value or the purchase price of the property securing the loan, whichever is lower. The Bank selectively offers interest rate swaps for both commercial and multi-family real estate loans. See Note 12 to the Consolidated Financial Statements for additional information.
In underwriting commercial real estate loans, we consider a number of factors, including the projected net cash flows to the loan’s debt service requirement (generally requiring a minimum of 1.20x), the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Where appropriate, we also require corporate guarantees and/or personal guarantees. We monitor borrowers’ and guarantors’ financial information on an ongoing basis by requiring periodic financial statement updates.
The following table provides information with respect to our non-residential commercial real estate loans by type at December 31, 2024 (dollars in thousands).
December 31, 2024
Commercial real estate loans:
Number of Loans
Owner occupied
Non-owner occupied
Total Balance
Percent
Residential one-to-four family
$
2,052
$
13,030
$
15,082
4.30
%
Mixed use
16,151
40,950
57,101
16.27
%
Auto dealer/car sales
19,036
16,586
35,622
10.15
%
Office
5,931
23,760
29,691
8.46
%
Retail
6,233
61,837
68,070
19.40
%
Industrial/manufacturing/warehouse
17,589
17,196
34,785
9.91
%
Hotel/motel/inn
14,679
23,267
37,946
10.81
%
Restaurant
13,765
4,739
18,504
5.27
%
Mobile home/park
-
2,897
2,897
0.83
%
Self-storage facility
1,167
15,496
16,663
4.75
%
Other commercial real estate
22,295
12,306
34,601
9.86
%
Total commercial real estate loans
118,898
232,064
$
350,962
100.00
%
At December 31, 2024, our largest commercial real estate loan had an outstanding balance of $16.6 million and was secured by a shopping center located in Clifton Park, New York. At December 31, 2024, this loan was performing according to its original terms.
Commercial Business Loans.
We originate commercial business loans and lines of credit to a variety of small- and medium-sized businesses in our market area. Our commercial business borrowers include professional organizations, family-owned businesses, and not-for-profit organizations. These loans are generally secured by business assets and we may require support of this collateral with liens on real property. At December 31, 2024, commercial business loans were $91.5 million, or 9.4% of our total loan portfolio. We encourage our commercial business borrowers to maintain their primary deposit accounts with us, many of which are non-interest-bearing, which improves our overall interest rate spread and profitability.
Our commercial business loans include term loans and revolving lines of credit. Commercial loans and lines of credit are made with either variable or fixed rates of interest. Variable interest rates are based on a margin over an index we select, typically The Wall Street Journal Prime Rate. Commercial business loans typically have shorter terms to maturity and higher interest rates than commercial real estate loans, but may involve more credit risk because of the type of collateral and our reliance primarily on the success of a borrower’s business for the repayment of the loan.
When making commercial business loans, we consider the financial history of the borrower, our lending experience with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, and the value of the collateral, such as accounts receivable, inventory and equipment. Depending on the collateral used to secure the loans, commercial business loans are made in amounts up to 90% of the value of the collateral securing the loan. We require commercial business loans extended to closely held businesses to be guaranteed by the principals, as well as other appropriate guarantors, when personal assets are in joint names or a principal’s net worth is not sufficient to support the loan.
Commercial business loans include participations we purchase from a single, board-approved third party in leveraged lending transactions. Leveraged lending transactions are generally used to support a merger- or acquisition-related transaction, to back a recapitalization of a company’s balance sheet or to refinance debt. When considering a participation in the leveraged lending market, we will participate only in first lien senior secured term loans and lines of credit that are more closely aligned to middle market transactions. To further minimize risk, based on our current capital levels and loan portfolio, we have limited the total amount of leveraged loans to $1.5 million with a single obligor while maintaining that the total of all leveraged loans cannot exceed more than 15% of our risk-based capital. We also monitor industry and customer concentrations. As of December 31, 2024, our leverage loans amounted to $4.0 million. Except for one loan of $159,000, all other loans were performing in compliance with their contractual terms.
At December 31, 2024, our largest commercial business loan had an outstanding balance of $6.1 million and was secured by equipment. At December 31, 2024, this loan was performing according to its original terms.
Residential Mortgage and Residential Construction Loans.
Our one- to four-family residential loan portfolio consists of mortgage loans that enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the borrower. At December 31, 2024, one- to four-family residential real estate loans totaled $86.7 million, or 8.9% of our total loan portfolio, and consisted of $62.0 million of fixed-rate loans and $24.7 million of adjustable-rate loans. Most of these one- to four-family residential properties are located in our primary market area. We will consider originating one- to four-family residential real estate loans secured by properties located outside our normal lending area on a case-by-case basis, primarily to preexisting customers with a relationship of one year or longer, and provided the property is located in New York.
We offer fixed-rate and adjustable-rate residential mortgage loans with maturities up to 30 years. The one- to four-family residential mortgage loans that we originate are generally underwritten according to Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” Loans to be sold to other approved investors or secondary market sources are underwritten to their specific requirements. We originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits. To a lesser extent, we also originate loans above the conforming limits, which are referred to as “jumbo loans.” We usually underwrite jumbo loans, whether originated or purchased, in a manner similar to conforming loans.
Historically we have sold most of the fixed-rate residential mortgage loans that we originated to reduce our interest rate risk exposure and generate fee income. The majority of the mortgage loans that we originated were sold to Freddie Mac on a servicing rights retained basis. We also originated State of New York Mortgage Agency loans, which were sold on a servicing released basis. Over the past few years, however, we have retained in our portfolio more high quality fixed-rate mortgages with terms up to 30 years. We sold $7.8 million and $4.8 million of fixed-rate residential mortgages during the years ended December 31, 2024 and 2023, respectively. At December 31, 2024, we serviced $266.5 million of one- to four-family residential mortgage loans for others. We generated $684,000 and $725,000 in loan servicing fee income during the years ended December 31, 2024 and 2023, respectively.
We originate one- to four-family residential mortgage loans with loan-to-value ratios of up to 80% of the appraised value, depending on the size of the loan. Our conforming mortgage loans may be for up to 97% of the appraised value of the property provided the borrower obtains private mortgage insurance. Additionally, mortgage insurance is required for all mortgage loans that have a loan-to-value ratio greater than 80%. The required coverage amount varies based on the loan-to-value ratio and term of the loan. We only permit borrowers to purchase mortgage insurance from companies that have been approved by Freddie Mac or Fannie Mae. We maintain wholesale broker relationships that give us a wider range of products to better serve our existing customers and to attract new customers for our mortgage loan products. These wholesale relationships provide us access to government-backed loan programs such as Federal Housing Administration and Department of Veterans Affairs financing.
We do not offer “interest only” mortgage loans on one- to four-family residential properties or loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made with low down-payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation).
We originate loans to finance the construction of one- to four-family residential properties. We also originate rehabilitation loans, enabling the borrower to partially or totally refurbish an existing structure, which are structured as construction loans and monitored in the same manner. At December 31, 2024, residential construction loans totaled $711,000, or 0.8% of our residential mortgage loan portfolio. Most of these loans are secured by properties located in our primary market area.
Our residential land and acquisition loans are generally structured as two-year interest-only balloon loans. The interest rate is generally a fixed rate based on an index rate, plus a margin. Our construction-to-permanent loans are generally structured as interest-only, one-year, fixed-rate loans during the construction phase. Construction loan-to-value ratios for one- to four-family residential properties generally will not exceed 80% of the appraised value on a completed basis or the cost of completion, whichever is less, during the construction phase of the mortgage. Once the construction project is satisfactorily completed, we provide permanent financing or sell the permanent mortgage to an investor like Freddie Mac.
Before making a commitment to fund a construction loan, we generally require an appraisal of the property by an independent licensed appraiser. The construction phase is carefully monitored to minimize our risk. All construction projects must be completed in accordance with approved plans and approved by the municipality in which they are located. Loan proceeds are disbursed periodically in increments as construction progresses and as inspections by our approved inspectors warrant.
Multi-Family Real Estate Loans.
At December 31, 2024, multi-family real estate loans totaled $105.0 million, or 10.8%, of our total loan portfolio. Our multi-family real estate loans are generally secured by multi-unit rental properties, consisting of five to 100 rental units, in our market area.
We originate multi-family real estate loans with terms and amortization periods of up to 30 years. The interest rates on our multi-family real estate loans are generally adjustable based on a margin over an index. Multi-family real estate loans are generally originated in amounts up to 75% of the appraised value or the purchase price of the property securing the loan, whichever is lower.
In underwriting multi-family real estate loans, we consider a number of factors including the projected net cash flows to the loan’s debt service requirement (generally requiring a minimum of 1.20x), the age and condition of the collateral, the financial resources and income level of the borrower, and the borrower’s experience in owning or managing similar properties. Where appropriate, we also require corporate guarantees or personal guarantees. We monitor borrowers’ and guarantors’ financial information on an ongoing basis by requiring periodic financial statement updates.
At December 31, 2024, our largest multi-family real estate loan had an outstanding balance of $14.1 million and was secured by an apartment complex located in Poughkeepsie, New York. At December 31, 2024, this loan was performing according to its original terms.
Commercial Construction and Land Development Loans.
We originate loans to finance the construction of commercial properties, multi-family projects (including one- to four-family non-owner occupied residential properties) and professional complexes, or to acquire land for development for these purposes. We also originate rehabilitation loans, enabling the borrower to partially or totally refurbish an existing structure, which are structured as a construction loan and monitored in the same manner. At December 31, 2024, commercial construction and land development loans totaled $26.6 million, or 2.7% of our total loan portfolio. All of these loans are secured by properties located in our primary market area. We also had undrawn amounts on the commercial construction loans totaling $24.6 million at December 31, 2024.
Our commercial construction and land development loans are generally structured as two-year interest-only balloon loans. The interest rate is generally a variable rate based on an index rate, typically The Wall Street Journal Prime Rate plus a margin. We generally offer commercial construction loans with a loan-to-value ratio of up to 75% of the appraised value on a completed basis or the cost of completion, whichever is less. We offer financing to purchase land for development with a maximum loan-to-value ratio of 50%.
Before making a commitment to fund a commercial construction loan, we generally require an appraisal of the property by an independent licensed appraiser. The construction phase is carefully monitored to minimize our risk. All construction projects must be completed in accordance with approved plans and approved by the municipality in which they are located. Loan proceeds are disbursed periodically in increments as construction progresses and as inspections by our approved inspectors warrant.
At December 31, 2024, our largest commercial construction and land development loan was a hotel construction project located in Saratoga Springs, New York, and had an outstanding balance of $15.0 million with no remaining available balance. At December 31, 2024, this loan was performing according to its original terms.
Consumer Loans.
We offer consumer loans to customers residing in our primary market area. Our consumer loans consist primarily of indirect automobile loans as discussed above. Other consumer loans consist mostly of home equity loans, lines of credit and direct automobile loans. At December 31, 2024, $11.7 million of our consumer loans were home equity loans and lines of credit, and $5.7 million of our consumer loans were direct automobile loans.
Home equity loans and lines of credit are multi-purpose loans used to finance various home or personal needs, where a one- to four-family primary or secondary residence serves as collateral. We generally originate home equity loans and lines of credit of up to $150,000, with a maximum loan-to-value ratio of 80% (including any first lien position) and terms of up to 20 years. Home equity lines of credit have adjustable rates of interest that are based on the prime interest rate published in The Wall Street Journal, plus a margin, and reset monthly. Home equity lines of credit are secured by residential real estate in a first or second lien position.
The procedures for underwriting consumer loans include assessing the applicant’s payment history on other indebtedness, the applicant’s ability to meet existing obligations and payments on the proposed loan, and the loan-to-value ratio. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
Loan Underwriting Risks
Indirect Automobile and Other Consumer Loans.
Indirect automobile and other consumer loans entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and any small remaining deficiency often does not warrant further substantial collection efforts against a borrower. Indirect automobile and consumer loan collections depend on a borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount we can recover on such loans.
Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.
Commercial and Multi-Family Real Estate Loans.
Loans secured by commercial and multi-family real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of a project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. If we foreclose on a commercial or multi-family real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition,
vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Direct costs may be required to rehabilitate or prepare the property to be marketed. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial or multi-family real estate loans can be unpredictable and substantial.
To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide financial statements on the business operations underlying the commercial and multi-family real estate loans on an ongoing basis. In reaching a decision whether to make a commercial or multi-family real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income and profitability of the property, the borrower’s expertise, credit history and the value of the underlying property. We generally require properties securing these real estate loans to have debt service coverage ratios (the ratio of earnings before interest, taxes, depreciation, and amortization before debt service to debt service) of at least 1.20x. We obtain an environment report on all commercial real estate properties. We obtain an environmental Phase 1 report for all loans over $1.0 million or when hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. We will also obtain a Phase 1 report if the initial environmental reports indicate that there may be an environmental issue on a property. We require indemnification from our commercial real estate borrowers and/or guarantors for potential exposure to environmental issues.
Commercial Business Loans.
Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans have higher risk because they are made typically on the basis of the borrower’s ability to repay a loan from the cash flows of the borrower’s business and the collateral securing these loans may fluctuate in value. Our commercial business loans are underwritten and evaluated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of accounts receivable, inventory or equipment, or real estate. Commercial business loans to closely held businesses are also required to be personally guaranteed by the principal(s), as well as by other appropriate guarantors when personal assets are in joint names or if the principal’s net worth is insufficient by itself to support the loan. The availability of funds to repay commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.
Our Credit Administration Department is responsible for monitoring industry concentrations among commercial borrowers and for reporting the industries represented by commercial borrowers to senior management on at least an annual basis.
Adjustable-Rate Loans.
Rising interest rates may require adjustable-rate loan borrowers to make higher monthly payments that could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate loans make our assets more responsive to changes in market interest rates, the extent of this interest rate sensitivity may be somewhat limited by the annual and lifetime interest rate adjustment limits on residential mortgage loans.
Construction Loans.
Construction lending involves additional risks when compared to permanent residential or commercial lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction timing and costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the lender or disbursed from an interest reserve set aside from the
construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.
Our ability to originate construction loans is dependent on the strength of the housing and commercial markets in our region. We focus our loan underwriting on the borrower’s financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations. Before making a commitment to fund a construction loan, we generally require an appraisal of the property by an independent licensed appraiser. The construction phase is carefully monitored to minimize our risk. All construction projects must be completed in accordance with approved plans and approved by the municipality in which they are located. Loan proceeds are disbursed periodically in increments as construction progresses and as inspections by our approved inspectors warrant.
Loan Originations and Sales.
Loan originations come from a variety of sources. The primary sources of loan originations are current customers, business development by our relationship managers, walk-in traffic, automobile dealerships, referrals from customers, and brokers.
Fixed-rate residential mortgages may be sold upon origination to limit our interest rate risk exposure and generate fee income. Mortgage loans are usually sold to Freddie Mac on a servicing rights retained basis; however, we may sell mortgages on a servicing released basis to free up capital, maximize profitability and protect us from interest rate risk.
Loan Approval Procedures and Authority.
Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our Board of Directors and management. The Board of Directors has granted loan approval authority to certain officers up to prescribed limits, depending on the officer’s experience and the type of loan. Our policies also limit the aggregate loans to one entity that an individual officer may approve, up to prescribed limits, depending on the officer’s experience. Loan officers are not allowed to approve loans they have originated.
Loans in excess of individual officers’ lending limits require approval of our Credit Committee, which is comprised of our President and Chief Executive Officer (“CEO”), Chief Credit Officer, Chief Lending Officer, Senior Vice President-Commercial Lending Team Leader, Vice President-Credit Administration, and other lending officers appointed from time to time. The Credit Committee can approve individual loans of up to prescribed limits, depending on the type of loan. Officers that sit on the Credit Committee must abstain from voting on loans they have originated.
Loans in excess of the Credit Committee’s loan approval authority require the approval of the Board of Directors. Loans in excess of our internal loans-to-one borrower limitation and certain loans that involve policy exceptions also must be approved by the Board of Directors.
Loans-to-One Borrower.
Under New York banking law, our total loans or extensions of credit to a single borrower or group of related borrowers (“loans-to-one borrower”) cannot exceed, with specified exceptions, 15% of our capital stock, surplus fund and undivided profits. We may lend additional amounts up to 10% of our capital stock, surplus and undivided profits if the loans or extensions of credit are fully secured by readily-marketable collateral.
Pursuant to our internal policies, our internal loans-to-one borrower limitation is set at 25% of Tier 1 capital (excluding the capital attributable to our $5.0 million of outstanding trust preferred securities), of which no more than 10% can be lent on an unsecured basis. This general standard is further restricted as follows:
● Commercial or Multi-Family Real Estate Loans. We will not lend more than 25% of capital to any one borrower, and no more than 15% of capital to any one project or property. We may consider exceptions for loans of more than 15% of capital to any one project/property. In no event will we make a commercial or multi-family real estate loan in excess of 17.5% of capital to any one project or property.
● Commercial Business Loans. We will not lend more than 15% of capital to any one borrower, with only 10% of capital lent on an unsecured basis under normal policy. Our Board of Directors may make exceptions to the 10% limit for unsecured credit for borrowers with strong credit profiles.
At December 31, 2024, our regulatory limit on loans-to-one borrower and our internal loans-to-one borrower limit were $31.1 million and $24.9 million, respectively. As of December 31, 2024, we had no loans that equaled or exceeded our internal loans-to-one borrower limit or our individual regulatory loan limit.
At December 31, 2024, our largest lending relationship consisted of 40 loans aggregating $24.7 million, which consisted of $22.0 million secured by multiple commercial real estate properties and $2.7 million secured by equipment, inventory and receivables. At December 31, 2024, each loan in this relationship was performing according to its original repayment terms.
Non-Performing Loans and Problem Assets
Performance of the loan portfolio is reviewed on a regular basis by Bank management. A number of factors regarding the borrower and loan, such as overall financial strength, collateral values and repayment ability, are considered in deciding what actions should be taken when determining the collectability of interest for accrual purposes.
When a loan is classified as non-accrual, the accrual of interest on such a loan is discontinued. A loan is typically classified as non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid accrued interest is fully reversed. Interest payments received on non-accrual loans are applied against principal.
Loans are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
We use the accrual method of accounting for all performing loans. The accrual of interest income is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. When a loan is placed on non-accrual status, unpaid interest previously credited to income is reversed. Interest received on non-accrual loans is applied against principal. Generally, residential and consumer loans are restored to accrual status when the obligation is brought current in accordance with the contractual terms for a reasonable period of time and ultimate collectability of total contractual principal and interest is no longer in doubt. Commercial loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and ultimate collectability of total contractual principal and interest no longer is in doubt.
In our collection efforts, we will first attempt to cure any delinquent loan. If a real estate secured loan is placed on non-accrual status, it could be subject to transfer to other real estate owned (“OREO”) (comprised of properties acquired by or in lieu of foreclosure), of which our credit administration department will pursue the sale of the real estate. Prior to this transfer, the loan balance will be adjusted, if necessary, to reflect its current market value less estimated costs to sell. Write downs of OREO that occur after the initial transfer from the loan portfolio and costs of holding the property are
recorded within other operating expenses, except for significant improvements, which are capitalized to the extent that the carrying value does not exceed estimated net realizable value.
Fair values for determining the value of collateral are estimated from various sources, such as real estate appraisals, financial statements and from any other reliable sources of available verifiable information. For loans individually evaluated, collateral value is reduced for the estimated costs to sell. Reductions of collateral value are based on historical loss experience, current market data, and any other verifiable source of reliable information specific to the collateral.
This analysis is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available.
Non-Performing Loans. At December 31, 2024, $4.1 million, or 0.4% of our total loans, were non-performing loans, which included $1.9 million of commercial real estate loans, $1.2 million of residential real estate loans, $590,000 of indirect automobile loans, $319,000 of commercial loans and $174,000 of home equity loans.
Other Real Estate Owned. Other real estate owned represents property acquired through foreclosure in partial or full satisfaction of loans. The Company had no other real estate owned at December 31, 2024. At December 31, 2023, the Company had $25,000 in other real estate owned.
Asset Quality. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. We did not have any accruing loans past due 90 days or more at the dates presented.
At December 31,
(Dollars in thousands)
Non-accrual loans:
Residential real estate loans
$
1,182
$
1,624
Commercial real estate loans
Non-residential
1,869
1,621
Commercial loans
Consumer loans
Indirect automobile
Home equity
Other consumer
-
Total
$
4,134
$
4,181
Real estate owned
-
Total non-performing assets
$
4,134
$
4,206
Total non-performing loans to total loans
0.42
%
0.41
%
Total non-performing loans to total assets
0.33
%
0.32
%
Total non-performing assets to total assets
0.33
%
0.32
%
Classified Assets. Banking regulations and our Asset Classification Policy provide that loans and other assets considered to be of lesser quality should be classified as “Substandard,” “Doubtful” or “Loss” assets. An asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all of the weaknesses inherent in those classified Substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.
At December 31, 2024, the Company classified $9.0 million of loans as Substandard, Doubtful or Non-performing, of which $6.8 million were commercial real estate loans, $1.2 million were residential loans, $300,000 were commercial and industrial loans, $590,000 were indirect automobile loans, and $174,000 were home equity loans. At December 31, 2023, the Company classified $6.3 million of loans as Substandard, Doubtful or Non-performing, of which $3.0 million were commercial real estate loans, $1.6 million were residential loans, $967,000 were commercial and industrial loans, $631,000 were indirect automobile loans, $99,000 were home equity loans and $25,000 were other consumer loans.
Allowance for Credit Losses
The allowance for credit losses is an estimate of current expected credit losses based on available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The Company's methodology to estimate the allowance for credit losses has two components: (i) a collective reserve for estimated lifetime expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve for loans that do not share common risk characteristics. The measurement of expected credit losses is applicable to loans receivable and investment securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. Loan losses are charged against the allowance for credit losses when the Company believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses. The allowance is established through a provision for credit losses that is charged against income. The expected credit loss for unfunded loan commitments is reported on the consolidated statement of financial condition in other liabilities. For more information on the allowance for credit losses methodology, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Significant Accounting Policies, Critical Accounting Estimates-Allowance for Credit Losses.”
Although we believe that we have established the allowance at appropriate levels, future additions may be necessary if economic or other conditions in the future differ from the current environment. In addition, the FDIC and the NYDFS, as an integral part of their examination processes, periodically review our allowance for credit losses. The banking regulators may require that we recognize additions to the allowance based on their analysis and review of information available to them at the time of their examination.
The following table sets forth activity in our allowance for credit losses on loans for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Allowance for credit losses at beginning of period
$
8,124
$
7,943
Adoption of CECL standard
-
Provision for loan losses
2,813
1,666
Charge-offs:
Residential real estate loans
-
-
Commercial real estate loans
Non-residential
(291)
-
Commercial loans
(608)
(836)
Consumer loans
Indirect automobile
(3,626)
(3,577)
Other consumer
(201)
(62)
Total charge-offs
(4,726)
(4,475)
Recoveries:
Residential real estate loans
-
Commercial real estate loans
Non-residential
-
-
Commercial loans
Consumer loans
Indirect automobile
2,233
2,182
Other consumer
Total recoveries
2,328
2,410
Net charge-offs
(2,398)
(2,065)
Allowance for credit losses at end of period
$
8,539
$
8,124
Allowance for credit losses to non-performing loans at end of period
206.56
%
194.31
%
Allowance for credit losses to total loans outstanding at end of period
0.88
%
0.81
%
Non-performing loans to total loans
0.42
%
0.41
%
Net charge-offs to average loans outstanding during period
(0.24)
%
(0.21)
%
During the year, our allowance for credit losses on loans increased by $415,000, or 5.1%, primarily due to updates in prepayment assumptions and adjustments to qualitative and quantitative factors. These updates were made to reflect higher delinquencies and increased charge-offs in our expected credit loss analysis.
The following table sets forth the ratios of net charge-offs to average loans by loan category.
Year Ended December 31,
Net recoveries (charge-offs) to average loans outstanding
Residential real estate loans
-
%
0.08
%
Commercial real estate loans
Non-residential
(0.09)
%
-
%
Commercial loans
(0.68)
%
(0.85)
%
Consumer loans
Indirect automobile
(0.40)
%
(0.32)
%
Other consumer
(1.30)
%
0.03
%
Net charge-offs for the year ended December 31, 2024 totaled $2.4 million, compared to $2.1 million for the year ended 2023. There was $291,000 charged off in non-residential commercial real estate in 2024. The decrease in net charge-offs of commercial loans in 2024 was primarily due to one large commercial loan charge-off of $524,000 in 2024 as opposed to two large commercial loan charge-offs of $710,000 and $126,000 in 2023. Net charge-offs for indirect
automobiles remained relatively stable and totaled $1.4 million for both years ended December 31, 2024 and 2023. Other consumer loans had net recoveries of $3,000 for the year ended December 31, 2023 as compared to net charge-offs of $108,000 for the year ended December 31, 2024.
Allocation of Allowance for Credit Losses. The following table sets forth the allowance for credit losses allocated by loan category, the allocation of the allowance for credit losses by loan segment and the percent of loan balances by category at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
At December 31,
Percent of
Percent of
Percent of
Percent of
Allowance
Loans in
Allowance
Loans in
to Total
Category to
to Total
Category to
Amount
Allowance
Total Loans
Amount
Allowance
Total Loans
(Dollars in thousands)
Residential real estate loans
$
6.73
%
8.89
%
$
4.26
%
7.66
%
Commercial real estate loans
Non-residential
2,675
31.33
36.00
2,329
28.67
32.17
Multi-family
3.67
10.77
4.76
8.27
Construction
-
-
2.73
-
-
2.00
Commercial loans
8.01
9.39
7.46
8.82
Consumer loans
Indirect automobile
4,133
48.40
30.33
4,348
53.52
39.09
Home equity
0.98
1.19
0.60
1.19
Other consumer
0.88
0.70
0.73
0.80
Total allowance
$
8,539
100.00
%
100.00
%
$
8,124
100.00
%
100.00
%
Investment Activities
We have legal authority to invest in various types of investment securities and liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, residential mortgage-backed securities, municipal securities, deposits at the Federal Home Loan Bank (the “FHLB”) of New York, certificates of deposit of federally insured institutions, investment grade corporate bonds, equity securities and Small Business Investment Companies. At December 31, 2024, our investment portfolio had a fair value of $159.9 million and consisted primarily of U.S. Government securities, U.S. Government agency securities, including residential and collateralized mortgage-backed securities, municipal securities and corporate bonds in the form of subordinated bank debt.
Our investment objectives are to maximize portfolio yield over the long term and manage our risk profile in a manner consistent with liquidity needs, pledging requirements, asset/liability strategies and safety and soundness concerns. Our Board of Directors has overall responsibility for the investment portfolio, including reviewing and evaluating our investment policy on an annual basis. The Investment Committee of the Board of Directors, consisting of three directors, meets at least three times annually to review our portfolio’s performance, quality and composition, and provides reports to the full Board of Directors at the next monthly meeting of the full board following the meeting of the Investment Committee. The Investment Committee also reviews and discusses policy changes prior to their presentation to the full board. Our management has the overall responsibility for implementing the investment policy and supervising our investment activities and performance. Management is also responsible for providing regular reports to the Investment Committee. The President and CEO is responsible for the overall supervision of the investment activity. The Chief Financial Officer is responsible for the implementation of the Bank’s investment policy and strategy. The Controller is responsible for the accounting and reporting requirements of the policy.
There are no limits on security purchases or sales executed for cash management or the liquidity needs of the Bank. Transactions require the approval of both the President and CEO and the Chief Financial Officer and must be reported to the Investment Committee, which reports them to the Board of Directors.
Our policy is that, at the time of purchase, we designate a security as held to maturity, available-for-sale, or trading, depending on our ability and intent. Securities that are available-for-sale or held for trading are reported at fair value,
while securities held to maturity are reported at amortized cost. Currently, all securities we hold are classified as available-for-sale.
Federal Home Loan Bank Securities. In addition, we hold FHLB common stock to qualify for membership in the FHLB system and to be eligible to borrow funds under the FHLB advance program. There is no market for the FHLB common stock.
The aggregate fair value of our FHLB common stock as of December 31, 2024 was $4.0 million based on its par value. No unrealized gains or losses have been recorded because we have determined that the par value of the common stock represents its fair value. We owned shares of FHLB common stock at December 31, 2024 equal to what we were required to own to maintain our membership in the FHLB system and was necessary to support the balance of our advances. We are required to purchase stock as our outstanding advances increase and sell stock as the size of borrowings decrease. Our stock position is reviewed and adjusted weekly by the FHLB.
Evaluation of Securities Portfolio. The Company evaluates securities in an unrealized loss position for impairment related to credit losses on at least a quarterly basis. Securities in unrealized loss positions are first assessed as to whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If one of the criteria is met, the security’s amortized cost basis is written down to fair value through current earnings. For securities that do not meet these criteria, the Company evaluates whether the decline in fair value resulted from credit losses or other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. No allowance for credit losses for available-for-sale securities was recorded as of December 31, 2024.
Portfolio Maturities and Yields. The following table sets forth the stated maturities and weighted average yields of investment securities at December 31, 2024. Weighted average yields are calculated by dividing the income by amortized cost. No tax equivalent adjustments were made in calculating the weighted average yield. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. Weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity.
More than One Year
More than Five Years
One Year or Less
to Five Years
to Ten Years
More than Ten Years
Total
Weighted
Weighted
Weighted
Weighted
Weighted
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Average
Amortized
Fair
Average
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Value
Yield
(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury securities
$
23,890
3.54
%
$
5,951
3.65
%
$
-
-
%
$
-
-
%
$
29,841
$
29,693
3.57
%
Mortgage-backed securities - residential
-
-
%
1,865
2.36
%
2,276
2.50
%
99,807
2.98
%
103,948
93,492
2.96
%
U.S. government and agency obligations
10,008
0.93
%
12,002
1.83
%
-
-
%
-
-
%
22,010
21,166
1.42
%
Municipal securities
0.54
%
1,344
1.95
%
1.96
%
-
-
%
2,717
2,493
1.70
%
Corporate bonds
-
-
%
1,604
7.24
%
12,450
4.00
%
-
-
%
14,054
12,583
4.37
%
Other
-
-
%
7.14
%
-
-
%
-
-
%
7.14
%
Total
$
34,394
2.74
%
$
23,529
2.88
%
$
15,603
3.67
%
$
99,807
2.98
%
$
173,212
$
159,947
2.98
%
Sources of Funds
General. Deposits have traditionally been our primary source of funds for our lending and investment activities. We also use borrowings, primarily FHLB advances, and may use brokered certificates of deposit, depending on market conditions, to supplement cash flows as needed. In addition, funds are derived from scheduled loan and investment
payments, investment maturities, loan sales, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments, investment maturities and income on earning assets are relatively stable sources of funds, deposit inflows and outflows, loan prepayments and loan sales can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.
Deposit Accounts. The substantial majority of our deposits are from depositors who reside in our primary market area. At December 31, 2024, our deposits totaled $1.02 billion. Brokered deposits are obtained when needed to build liquidity at favorable rates. We had no brokered deposits at December 31, 2024 or 2023. Deposits from related parties held at the Bank totaled approximately $12.9 million at December 31, 2024.
In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, effects on profitability, and customer preferences and concerns. We generally review our deposit pricing on a monthly basis and continually review our deposit mix. Our deposit pricing strategy has generally been to offer competitive rates, while generally not providing the highest rates in the market, and to periodically offer special rates to attract deposits of a specific type or term.
The following table sets forth the distribution of average deposit accounts, by account type, at the dates indicated.
For the Years Ended December 31,
Average
Average
Average
Average
Balance
Percent
Rate Paid
Balance
Percent
Rate Paid
(Dollars in thousands)
Non-interest-bearing demand accounts
$
242,603
23.45
%
-
%
$
268,103
24.74
%
-
%
Interest-bearing demand accounts
124,061
11.99
%
0.14
%
138,515
12.78
%
0.14
%
Money market accounts
187,615
18.13
%
2.65
%
232,666
21.46
%
2.64
%
Savings accounts
141,189
13.65
%
0.36
%
161,812
14.93
%
0.36
%
Certificates of deposit
339,133
32.78
%
4.58
%
282,838
26.09
%
3.74
%
Total
$
1,034,601
100.00
%
2.05
%
$
1,083,934
100.00
%
1.62
%
As of December 31, 2024 and 2023, approximately $278.3 million and $295.6 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements, which includes affiliate deposits and collateralized deposits.
The following table summarizes total uninsured deposits based on the same methodologies and assumptions used for the Bank’s regulatory reporting:
Years Ended December 31,
(Dollars in thousands)
Uninsured deposits, per regulatory requirements
$
278,329
$
295,574
Less affiliate deposits
(8,728)
(9,448)
Collateralized deposits
-
-
Uninsured deposits, after exclusions
$
269,601
$
286,126
Available liquidity(1)
$
613,696
$
679,393
Uninsured deposits coverage
227.6%
237.4%
Uninsured deposits after exclusions as a percent of total deposits
26.4%
27.8%
(1) Includes cash and cash equivalents, unencumbered securities, lines of credit and remaining borrowing capacity from the FHLB and FRB.
As of December 31, 2024, the aggregate amount of certificates of deposits in denominations greater than $250,000 was $95.6 million. In addition, as of December 31, 2023, the portion of certificates of deposit in excess of the FDIC insurance limit of $250,000 was $48.6 million. The following table sets forth the maturity of those certificates as of December 31, 2024.
Maturity Period
Amount
(In thousands)
Three months or less
$
15,820
Over three through six months
8,223
Over six through twelve months
13,181
Over twelve months
11,367
Total
$
48,591
At December 31, 2024, $288.3 million of our certificates of deposit will mature during 2025. We monitor activity on these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a significant portion of these accounts upon maturity. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Borrowings. We primarily borrow from the Federal Home Loan Bank of New York to supplement our supply of investable funds. The FHLB functions as a central reserve bank providing credit for its member financial institutions. As a member, we are required to own capital stock in the FHLB and are authorized to apply for advances or loans on the security of such stock and first mortgage loans and other assets (principally securities that are obligations of, or guaranteed by, the United States), provided we meet certain creditworthiness standards. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the total amount of advances are based either on a fixed percentage of an institution’s net worth or on the FHLB’s assessment of the institution’s creditworthiness. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity Management” and “Note 7 to the Consolidated Financial Statements” for further discussion of borrowings.
Subsidiaries
In addition to the Bank, the Company has one other wholly-owned subsidiary, RSB Capital Trust I (the “Trust”). In 2005, the Trust issued $5.0 million of pooled trust preferred securities in a private placement and issued 155 shares of common stock at $1,000 par value per share to Rhinebeck Bancorp, MHC. The Trust has no independent assets or operations and was formed to issue trust preferred securities and invest the proceeds in an equivalent amount of junior subordinated debentures issued by Rhinebeck Bancorp, MHC. All of the cash proceeds from the issuance of the junior subordinated debentures by Rhinebeck Bancorp, MHC were contributed as capital to the Bank. In connection with our reorganization in January 2019, all of the common stock of the Trust and the corresponding subordinated debentures issued by Rhinebeck Bancorp, MHC to the Trust were transferred to Rhinebeck Bancorp, Inc. At that time, the Trust became wholly-owned by, and the debt became an obligation of, Rhinebeck Bancorp, Inc. The trust preferred securities mature 30 years from the date of issuance and bear interest at a rate equal to the three-month CME term Secured Overnight Financing Rate (“SOFR”) plus 2% and a relative spread adjustment of 0.26%. The interest rate on these securities at December 31, 2024 was 6.78%.
Personnel and Human Capital Resources
Our success is dependent on a workforce that embrace and are dedicated to our mission and culture. Our culture is grounded in a set of core values - “ICARE,” which stands for “Integrity, Community, Accountability, Respect, and Empathy”. In order to continue to deliver on our mission and maintain our culture, it is crucial that we attract and retain talent who desire and have the experience to provide creative and innovative financial solutions and options for the diverse communities we serve. Through our hiring and retention programs we aim to create an inclusive workforce with diversified backgrounds and experiences. We strive to maintain a safe and healthy workplace, with opportunities for our employees to grow and develop in their careers, supported by advantageous compensation, benefits, health, and welfare programs.
As part of our compensation philosophy, we offer market competitive total rewards programs for our employees in order to attract and retain superior talent. These programs include annual bonus opportunities, an Employee Stock Ownership Plan, an equity incentive plan, a matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption assistance, education reimbursement program, and employee assistance programs.
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Additionally, all of our employees are expected to display and encourage honest, ethical, and respectful conduct in the workplace. Our employees must adhere to our Code of Business Conduct and Ethics that sets standards for appropriate behavior and includes periodic training on preventing, identifying, reporting, and stopping discrimination of any kind.
Continual learning and career development is advanced through ongoing performance and development conversations with employees, internally developed training programs, customized corporate training engagements and educational reimbursement programs. Reimbursement is available to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in compliance with Section 127 of the Internal Revenue Code, and for seminars, conferences, and other training events employees attend in connection with their job duties.
Employee retention helps us operate efficiently and achieve our business objectives. We believe our commitment to demonstrating our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees.
As of December 31, 2024, we had 157 full-time employees and 11 part-time employees. Approximately 45% of our employees are employed at our banking center and loan production offices, and another 55% are employed at our corporate headquarters. We believe our relationship with our employees to be generally good. None of our employees are represented by a collective bargaining agreement.
As of December 31, 2024, approximately 61% of our current workforce was female and 39% male. Our average tenure is seven years and eight months.
The safety, health and wellness of our employees is a top priority. We promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, allowing remote work options, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs.
Information about our Executive Officers
The following listing sets forth the name, principal position, recent business experience and age (as of December 31, 2024) of each executive officer:
Michael J. Quinn is President and Chief Executive Officer (“CEO”) of Rhinebeck Bank. He was appointed as CEO in 2004 and has been a member of the Board of Directors since 2001 when he was President and Chief Operating Officer. He began his career at Rhinebeck Bank in 1984 and has held various positions including Branch Manager, Treasurer, Senior Lending Officer and President and Chief Operating Officer before being named as President and CEO in 2004. On March 21, 2025, Mr. Quinn advised Rhinebeck Bancorp, Inc., Rhinebeck Bank, and Rhinebeck Bancorp, MHC, that he intended to retire: (1) as a Trustee of Rhinebeck Bancorp, MHC, and as a Director of Rhinebeck Bancorp, Inc. and Rhinebeck Bank; and (2) from his positions as Chief Executive Officer and President of Rhinebeck Bancorp, Inc., Rhinebeck Bank, and Rhinebeck Bancorp, MHC. Mr. Quinn will remain in his roles as a director, trustee, President and Chief Executive Officer until the earlier of the end of the year or until a successor is found to ensure an orderly transition. Age 63.
Jamie J. Bloom is the Chief Operating Officer at Rhinebeck Bank. She has over 30 years of financial services experience. She began her banking career at Rhinebeck Bank in 1994 as the Vice President of Sales. Age 58.
Kevin Nihill became the Chief Financial Officer and Treasurer of Rhinebeck Bank in July 2024. Prior to joining the Bank, Mr. Nihill served as Executive Vice President and Chief Financial Officer of St. Mary’s Bank, Manchester, New Hampshire beginning in 2021. Prior to joining St. Mary’s Bank, Mr. Nihill served as Senior Vice President, Treasurer of Berkshire Bank, Pittsfield, Massachusetts. Mr. Nihill is a Chartered Financial Analyst. Age 49.
James T. McCardle III joined the Bank in 2001 and is currently the Chief Credit Officer (“CCO”) of Rhinebeck Bank, a position he was appointed to in 2018. Prior to being named CCO, Mr. McCardle was the Chief Lending Officer for seven years. He has held various titles since joining the Bank including VP, Commercial Lending, SVP Commercial Lending and SVP and Senior Lending Officer. Age 59.
Philip Bronzi joined the Bank in 2012 as the Vice President of Lending. He became the Senior Vice President of Lending in 2018 and was named Chief Lending Officer in 2021. His career expands over 20 years in commercial lending with various banks in the Hudson Valley. Age 49.
Karen Morgan-D’Amelio, Esq. is the Chief Risk Officer and General Counsel for Rhinebeck Bank and a member of its executive leadership team. She was appointed to these positions in 2014. Prior to joining the Bank, Ms. Morgan-D’Amelio worked in both private practice and held managing attorney roles and leadership roles in financial institutions such as The Dime Savings Bank of NY, FSB, Washington Mutual and J.P. Morgan Chase, and was a Deputy County Attorney for Nassau County, New York. Age 54.
Timmian C. Massie joined Rhinebeck Bank in October 2020 as Chief Marketing/Public Affairs Officer. He previously served as Senior Vice President for Marketing, Public Affairs and Government Relations at Nuvance Health and its predecessor, Health Quest Systems, Inc. He previously served in senior positions in healthcare, utilities, government and higher education, where he was also an adjunct professor. Age 66. Mr. Massie retired in 2025.
Mark Malone joined Rhinebeck Bank in 2012 and was appointed Chief Retail Officer in 2023. Throughout his 20 years of banking and financial services experience, he has held various leadership roles, most recently serving as Senior Vice President of Retail Banking. Age 43.
SUPERVISION AND REGULATION
General
As a New York-chartered savings bank, Rhinebeck Bank is subject to comprehensive regulation by the NYSDFS, as its chartering agency, and by the FDIC, as its primary federal regulator and its deposit insurer. Rhinebeck Bank is a member of the FHLB of New York and its deposits are insured up to applicable limits by the FDIC. Rhinebeck Bank is required to file reports with, and is periodically examined by, the FDIC and the NYSDFS concerning its activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including mergers with or acquisitions of other financial institutions. This regulatory structure is intended primarily for the protection of the Deposit Insurance Fund (“DIF”) and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classifying of assets and establishing an adequate Allowance for credit losses for regulatory purposes.
As a New York-chartered mutual holding company, Rhinebeck Bancorp, MHC is regulated and subject to examination by the NYSDFS and the Federal Reserve Board. As a bank holding company, Rhinebeck Bancorp, Inc. is required to comply with the rules and regulations of the Federal Reserve Board and the NYSDFS. They are required to file certain reports with the Federal Reserve Board and are subject to examination by and the enforcement authority of the Federal Reserve Board and the NYSDFS. Rhinebeck Bancorp, Inc. also is subject to the rules and regulations of the SEC under the federal securities laws.
Set forth below is a brief description of material regulatory requirements that are applicable to Rhinebeck Bancorp, Inc., Rhinebeck Bancorp, MHC and Rhinebeck Bank. The description is limited to certain material aspects of certain statutes and regulations that are addressed, and is not intended to be a complete list or description of such statutes and regulations and their effects on Rhinebeck Bancorp, Inc., Rhinebeck Bancorp, MHC and Rhinebeck Bank.
New York Banking Laws and Supervision
Supervision and Enforcement Authority. Rhinebeck Bank, as a New York savings bank, is regulated and supervised by the NYSDFS. The NYSDFS is required to regularly examine each state-chartered bank. The approval of the NYSDFS is required to establish or close branches, to merge with another bank, to issue stock and to undertake many other activities. Any New York savings bank that does not operate according to the regulations, policies and directives of the NYSDFS may be subject to enforcement action for non-compliance, including seizure of the property and business of the savings bank and suspension or revocation of its charter. NYSDFS may take a variety of enforcement actions to address non-compliance with applicable law or engagement in prohibited practices.
The powers that New York-chartered savings banks can exercise under these laws include the following:
Lending Activities. A New York-chartered savings bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, participation loans, construction and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made according to applicable regulations. Commercial loans may be made to corporations and other commercial enterprises with or without security. Consumer and personal loans may also be made with or without security.
Investment Activities. In general, the Bank may invest in certain types of debt securities (including certain corporate debt securities, and obligations of federal, state, and local governments and agencies thereof), certain types of corporate equity securities, and certain other assets. However, this investment authority is subject to restrictions under federal law. See “- Federal Bank Regulation - Investment Activities” for such federal restrictions.
Dividends. Under New York banking law, the Bank may declare and pay dividends from its net profits, unless there is an impairment of capital. Additionally, the approval of the NYSDFS is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years. The term “net profits” is generally defined to mean earnings from current operations, subject to certain adjustments provided for under applicable law.
Loans to Directors and Executive Officers. Under applicable NYSDFS regulations (which are substantially similar to applicable federal banking regulations), Rhinebeck Bank generally may not make a loan or other extension of credit to any of its executive officers or directors unless the loan or other extension of credit (1) is made on terms, including interest rate and collateral, that are not more favorable to the executive officer or director than those customarily offered by the Bank to persons who are not executive officers or directors and who are not employed by the Bank, and (2) does not involve more than the normal risk of repayment or present other unfavorable features. Depending on the size of the loan or other extension of credit, prior approval of the Bank’s Board of Directors (with the interested party, if a director, abstaining from participating directly or indirectly in the voting) may be required.
Federal Bank Regulation
Supervision and Enforcement Authority. Rhinebeck Bank is subject to extensive regulation, examination and supervision by the FDIC as its primary federal regulator and the insurer of its deposits.
The Bank must file reports with the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the FDIC to evaluate Rhinebeck Bank’s safety and soundness and compliance with various regulatory requirements.
The regulatory structure also gives the FDIC extensive discretion in connection with its supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of an adequate allowance for credit losses for regulatory purposes. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC may also appoint itself as conservator or receiver for an insured bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.
Capital Requirements. Under FDIC regulations, Rhinebeck Bank is subject to a comprehensive capital framework for U.S. banking organizations that was effective January 2015 (the Basel III capital rules), subject to phase-in periods for certain components and other provisions.
The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
Regulatory relief legislation enacted in May 2018 required the federal banking agencies, including the FDIC, to establish for institutions with assets of less than $10 billion an elective “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of between 8 to 10%. A “qualifying community bank” with capital exceeding the specified requirement that opts into the alternative framework is considered compliant with all applicable regulatory capital and leverage requirements and deemed “well capitalized” for prompt corrective action purposes, discussed below. A final rule was issued in November 2019 establishing the community bank leverage ratio at 9% Tier 1 capital to average total consolidated assets. The community bank leverage ratio option became effective January 1, 2020. Management has chosen not to utilize the community bank leverage ratio.
At December 31, 2024, Rhinebeck Bank exceeded all of its capital requirements.
The FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.
Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.
Investment Activities. All state-chartered savings banks insured by the FDIC are generally limited in their investment activities to principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law, subject to certain exceptions. For example, state-chartered banks may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the Nasdaq Global Market and to invest in the shares of an investment company registered under the Investment Company Act of 1940. The maximum permissible investment is 100% of Tier 1 capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New York law, whichever is less.
In addition, the FDIC is authorized to permit state-chartered banks and savings banks to engage in state-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if they meet all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the DIF. The FDIC has adopted procedures for institutions seeking approval to engage in such activities or investments. In addition, a state nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if the bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, federal law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action legislation. An institution is considered “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 capital ratio of 6.5% or greater. An institution is considered “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 capital ratio of 4.5% or greater. An institution is considered “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 capital ratio of less than 4.5%. An institution is considered “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 capital ratio of less than 3.0%. An institution is considered “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. At December 31, 2024, Rhinebeck Bank was classified as a “well capitalized” institution.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, interest rates paid on deposits, payment of dividends, and acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the institution’s holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable capital restoration plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
Transactions with Affiliates
Transactions between banks and their affiliates are governed by federal law. Generally, Section 23A of the Federal Reserve Act and the Federal Reserve Board’s Regulation W, as made applicable to the Bank by the Federal Deposit Insurance Act, limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of the bank’s capital stock and surplus, and with all transactions with all affiliates to an amount equal to 20.0% of the bank’s capital stock and surplus. The term “covered transaction” includes making loans to, purchasing assets from, and issuing guarantees to, an affiliate, and other similar transactions. Loans or other extensions of credit by a bank to an affiliate are required to be collateralized according to the requirements set forth in Section 23A of the Federal Reserve Act and Regulation W. Section 23B of the Federal Reserve Act and Regulation W apply to “covered transactions” as well as to certain other transactions with affiliates, including a bank’s provision of services and selling of assets to affiliates, and require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate.
Loans to Insiders. Sections 22(h) and (g) of the Federal Reserve Act and the Federal Reserve Board’s Regulation O, as made applicable to the Bank by the Federal Deposit Insurance Act and FDIC regulation, place restrictions on loans to a bank’s and its affiliates’ insiders, i.e., executive officers, directors and principal stockholders and those persons’ related interests. Under Section 22(h) of the Federal Reserve Act and Regulation O, loans to a director, an executive officer and to a greater than 10.0% stockholder of a financial institution, and their related interests, together with all other outstanding loans to such persons and their related interests, may not exceed specified limits. Section 22(h) of the Federal Reserve Act also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other unaffiliated persons, and also requires prior approval by a majority of the board of directors for certain loans. In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act and Regulation O place additional restrictions on loans to executive officers.
Insurance of Accounts and Regulation by the Federal Deposit Insurance Corporation. Deposit accounts in the Bank are insured by the FDIC’s DIF, generally up to a maximum of $250,000 per separately insured depositor per account ownership category.
The FDIC imposes an assessment for deposit insurance on all depository institutions. Under the FDIC’s risk-based assessment system, insured institutions deemed less risky of failure pay lower assessments. Assessment rates (inclusive of possible adjustments) for most banks with less than $10 billion of assets are based on a formula using financial data and supervisory ratings, and currently range from 2.5 to 32 basis points of each institution’s total assets less tangible capital.
The FDIC may adjust its risk-based assessment system in the future, except that no adjustment can be made without notice and comment rulemaking. No institution may pay a dividend if in default of the federal deposit insurance assessment.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or condition imposed by the FDIC. The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to termination of its deposit insurance.
The USA PATRIOT Act. The USA PATRIOT Act of 2001 gave the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with the USA PATRIOT Act and other anti-money laundering and anti-terrorist financing statutes and their implementing regulations.
Regulation of Brokered Deposits. Section 29 of the Federal Deposit Insurance Act establishes, among other things, a general prohibition on the acceptance by any insured depository institution that is not well capitalized of any deposit obtained, directly or indirectly, by or through any deposit broker. This statutory prohibition is further implemented through the regulations of the FDIC and, historically, numerous published and unpublished FDIC staff interpretations of the statute and the FDIC’s regulation.
On December 15, 2020, the FDIC adopted a final rule substantially amending its brokered deposits regulation. The final rule sought to clarify and modernize the FDIC’s existing regulatory framework for brokered deposits. Notable aspects of the rule include: (1) the establishment of bright-line standards for determining whether an entity meets the statutory definition of deposit broker; (2) the identification of a number of business relationships in which the agent or nominee of the depositor is not deemed to be a "deposit broker" because the primary purpose of the agent or nominee is not the placement of funds with depository institutions; (3) the establishment of a more transparent application process for entities that seek to rely upon a “primary purpose” exception, but do not qualify as one of the enumerated business relationships to which the exception is deemed to apply; and (4) the clarification that third parties that have an exclusive deposit-placement arrangement with only one bank is not considered a deposit broker.
The final rule took effect on April 1, 2021; however, full compliance with the final rule was not required until January 1, 2022. Under the amended brokered deposits regulation, the range of activities viewed as deposit brokerage has been modified, which could have an impact on the Bank’s deposit premiums, capital and liquidity risk management planning and regulatory monitoring and reporting obligations.
FDIC Improvement Act (“FDICIA”). Under FDICIA, an institution with over $1 billion in assets is subject to more vigorous audit requirements. Part 363 of the FDIC’s regulations, which implement FDICIA, requires an internal control over financial reporting integrated audit by independent auditors. The Bank complied with all Part 363 requirements in 2023 and 2024.
Privacy Regulations. Cybersecurity has become a focus of federal and state regulators. The federal banking agencies have adopted regulations for consumer privacy protection that require financial institutions to adopt procedures to protect customers and their “non-public personal information.” Federal law and regulations generally require that Rhinebeck Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and, subject to certain exceptions, annually thereafter. In addition, Rhinebeck Bank is required to provide its customers with the ability to “opt-out” of having their non-public personal information shared with unaffiliated third parties and to not disclose account numbers or access codes to non-affiliated third parties for marketing purposes.
Effective March 1, 2017, NYSDFS regulations required financial institutions including Rhinebeck Bank, to, among other things: (i) establish and maintain a cyber security program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cybersecurity policy setting forth policies and procedures for the protection of their information systems and non-public information; and (iii) designate a Chief Information Security Officer. In November 2023, NYSDFS amended these regulations to include heightened governance requirements and to expand the breadth and depth of required policies and procedures, among other things.
Community Reinvestment Act. Under the Community Reinvestment Act (“CRA”), as implemented by the FDIC, a state non-member bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of each state non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including applications to establish branches and acquire other financial institutions. The CRA and its current implementing regulations require the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. Rhinebeck Bank’s latest FDIC CRA rating was “Needs to Improve.” On October 24, 2023, the FDIC and the other federal banking agencies issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years will be an “intermediate bank.” The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test. Under the revised regulations, the applicability date for the majority of the provisions is January 1, 2026, and additional requirements will be applicable under the regulations on January 1, 2027. On March 29, 2024, a federal court in the Northern District of Texas issued a preliminary injunction of the new CRA regulations, enjoining the federal banking agencies from enforcing the regulations against the plaintiff bank industry trade groups, and extending the regulations’ implementation dates day-for-day for each day the injunction is in place.
New York has its own statutory counterpart to the CRA, which is applicable to Rhinebeck Bank. New York law requires the NYSDFS to consider a bank’s record of performance under New York law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Rhinebeck Bank’s most recent rating under New York’s community reinvestment law was “Satisfactory.”
Consumer Protection and Fair Lending Regulations. Rhinebeck Bank is subject to a variety of federal and New York statutes and regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and regulations provide for a range of enforcement actions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations. New York’s Attorney General and NYSDFS have vigorously enforced fair lending and other consumer protection laws. Federal laws also prohibit unfair, deceptive or abusive acts practices against consumers, which can be enforced against the Bank by the FDIC and state Attorneys General.
Holding Company Regulation
Federal Holding Company Regulation. Rhinebeck Bancorp, MHC and Rhinebeck Bancorp, Inc. are registered as bank holding companies with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, and subject to its regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over the Company and Rhinebeck Bancorp, MHC and their non-savings bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings bank.
A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (1) making or servicing loans; (2) performing certain data processing services; (3) providing discount brokerage services; (4) acting as fiduciary, investment or financial advisor; (5) leasing personal or real property; (6) making investments in corporations or projects designed primarily to promote community welfare; and (7) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies. A bank holding company that meets certain specified criteria may elect to be regulated as a “financial holding company” and thereby engage in a broader array of nonbank financial activities than those generally permitted for bank holding companies. Neither Rhinebeck Bancorp, MHC nor the Company have elected financial holding company status.
Capital. Federal law required the Federal Reserve Board to establish for all bank holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. Pursuant to recent federal regulatory relief legislation, bank holding companies with less than $3.0 billion in consolidated assets, including Rhinebeck Bancorp, MHC and Rhinebeck Bancorp, Inc., are not subject to the holding company capital requirements unless otherwise advised by the Federal Reserve Board.
Dividends and Stock Repurchases. A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the holding company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The Federal Reserve Board has issued a policy statement regarding capital distributions, including dividends, by bank holding companies. In general, the policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity, and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Additionally, under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. Federal Reserve Board supervisory guidance indicates that bank holding companies should provide prior notice of proposed dividends or stock repurchases under certain specified circumstances. The purpose of such notice is to provide the Federal Reserve Board with an opportunity for supervisory review of, and possible objection to, the proposal. These regulatory policies could affect the ability of Rhinebeck Bancorp, Inc. to pay dividends, engage in stock repurchases, or otherwise engage in capital distributions.
Waivers of Dividends by Rhinebeck Bancorp, MHC. Rhinebeck Bancorp, Inc. has the authority to pay dividends on its common stock to public stockholders. If it does, it is also required to pay the same dividends per share to Rhinebeck Bancorp, MHC, unless Rhinebeck Bancorp, MHC elects to waive the receipt of dividends. Rhinebeck Bancorp, MHC must receive the prior approval of the Federal Reserve Board before it may waive the receipt of any dividends from Rhinebeck Bancorp, Inc., and current Federal Reserve Board policy prohibits any mutual holding company that is regulated as a bank holding company, such as Rhinebeck Bancorp, MHC, from waiving the receipt of dividends paid by its subsidiary mid-tier stock holding company.
Because of the foregoing Federal Reserve Board restrictions on the ability of a mutual holding company, such as Rhinebeck Bancorp, MHC, to waive the receipt of dividends declared by its subsidiary mid-tier stock holding company, it is unlikely that Rhinebeck Bancorp, MHC will waive the receipt of any dividends declared by Rhinebeck Bancorp, Inc. Moreover, since Rhinebeck Bancorp, Inc. has sold only a minority of its shares to the public and
contributed the remaining shares to Rhinebeck Bancorp, MHC, Rhinebeck Bancorp, Inc. raised significantly less capital than would have been the case if it sold all its shares to the public. As a result, paying dividends to Rhinebeck Bancorp, MHC may be inequitable to public stockholders and not in their best financial interests. Therefore, unless Federal Reserve Board regulations and policy change by allowing Rhinebeck Bancorp, MHC to waive the receipt of dividends declared by Rhinebeck Bancorp, Inc. without diluting minority stockholders, it is unlikely that Rhinebeck Bancorp, Inc. will pay any dividends.
Possible Conversion of Rhinebeck Bancorp, MHC to Stock Form. In the future, Rhinebeck Bancorp, MHC may convert from the mutual to capital stock form of ownership, in a transaction commonly referred to as a “second-step conversion.” Any second-step conversion of Rhinebeck Bancorp, MHC would require the approval of the NYSDFS and the Federal Reserve Board.
Acquisition. The Change in Bank Control Act and its implementing regulations provide that no person or entity may acquire control of a bank holding company, such as Rhinebeck Bancorp, Inc., without the prior non-objection or approval of the Federal Reserve Board. Control, as defined under the Change in Bank Control Act and its implementing regulations, means the power, directly or indirectly, to direct the management or policies of the company or the ownership, control, or power to vote 25% or more of any class of voting securities of the company. Acquisition of more than 10% of any class of a bank holding company’s voting securities constitutes a rebuttable presumption of control under certain circumstances, including where, as is the case with Rhinebeck Bancorp, Inc., the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. Separately, any company that acquires control of a bank holding company, as “control” is defined in the federal Bank Holding Company Act and the Federal Reserve Board’s regulations, must receive the prior approval of the Federal Reserve Board and becomes a “bank holding company” subject to examination and regulation by the Federal Reserve Board.
New York Holding Company Regulation. Rhinebeck Bancorp, MHC and Rhinebeck Bancorp, Inc. are also subject to regulation under New York banking law. Among other requirements, Rhinebeck Bancorp, MHC and Rhinebeck Bancorp, Inc. must receive the approval of the NYSDFS before acquiring 10% or more of the voting stock of another banking institution, or to otherwise acquire a banking institution by merger or purchase.
Federal Securities Laws
Rhinebeck Bancorp, Inc.’s common stock was registered with the Securities and Exchange Commission after its offering. Rhinebeck Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. Rhinebeck Bancorp, Inc. has policies, procedures and systems designed to comply with this Act and its implementing regulations, and we review and document such policies, procedures and systems to ensure continued compliance with this Act and its implementing regulations.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company and the Bank.
Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its consolidated federal income tax returns.
Net Operating Loss Carryovers. Generally, a financial institution may carry forward net operating losses indefinitely and are subject to a limitation of 80% of taxable income. See Note 8 to the Consolidated Financial Statements for additional information.
Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any un-deducted loss remaining after the five-year carryover period is not deductible. At December 31, 2024, Rhinebeck Bank had no capital loss carryovers.
Corporate Dividends. We may generally exclude from our income 100% of dividends received from Rhinebeck Bank as a member of the same affiliated group of corporations. As of December 31, 2024, no dividends had been paid by Rhinebeck Bank.
Audit of Tax Returns. Rhinebeck Bank’s federal income tax returns have not been audited in the most recent three-year period.
State Taxation
Rhinebeck Bancorp, MHC, Rhinebeck Bancorp, Inc. and Rhinebeck Bank report income on a combined fiscal year basis to New York State. The statutory tax rate is currently 6.5% for general business taxpayers, and 7.25% for general business taxpayers with a business income base of more than $5,000,000. An alternative tax of 0.1875% on apportioned capital is imposed to the extent that it exceeds the tax on apportioned income. The New York State alternative tax is capped at $5 million for a tax year and is not applicable for tax years beginning January 1, 2027. Thrift institutions that maintain a qualified residential loan portfolio are entitled to a specially computed modification that reduces the income taxable to New York State; this is the case for the Bank.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
In addition to factors discussed in the description of our business and elsewhere in this report, the following are factors that could adversely affect our future results of operations and financial condition.
Risks Related to Economic Conditions
Our business may be adversely affected by downturns in the local economy.
Substantially all of our loans are to businesses and individuals in the Hudson Valley region of New York. A decline in local economic conditions may have a greater effect on our earnings and capital than on larger financial institutions whose operations and real estate loans are geographically diverse. Many of the loans in our portfolio are secured by real estate. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower's ability to repay the loan and the value of the collateral securing the loan. Real estate values are affected by various other factors, including changes in general or regional economic conditions, government regulations or policies and natural disasters. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected. Recessionary conditions or adverse economic conditions in our local market areas may reduce our rate of growth, affect our customers' ability to repay loans and adversely impact our business, financial condition, and results of operations.
A decline in economic conditions could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our results of operations.
General economic conditions, including inflation, unemployment, money supply fluctuations and the shape of the interest rate curve may adversely affect our profitability. Negative changes in these general business and economic conditions could have the following consequences, any of which could have a materially adverse impact on our business, financial condition and results of operations:
● loan delinquencies, problem assets and foreclosures may increase;
● our allowance for credit losses may increase;
● demand for our products and services may decline possibly resulting in a decrease in our total loans, total deposits, or assets;
● collateral for loans may decline in value, thereby reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans;
● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
● the amount of our low-cost or non-interest bearing deposits may decrease and the composition of our deposits may be adversely affected.
Inflation can have an adverse impact on our business and on our customers.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In the United States, the annual inflation rate peaked at 9.1% in June 2022. By December 31, 2024, it had decreased to 2.9%. The Federal Reserve increased the target federal funds rate to combat inflation. However, in 2024, the Federal Reserve implemented one 50 basis point and two 25 basis point rate cuts, bringing the target range to 4.25% to 4.50% by December 2024. As inflation increased, the value of our investment securities, particularly those with longer maturities, decreased. In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. A deterioration in economic conditions in the United States and our markets could result in an increase in loan
delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
Changes to trade policies and tariffs can have an adverse impact on our business and our customers.
Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers-particularly local businesses engaged in agriculture, manufacturing, and retail-may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers’ ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.
Interruption of our customers' supply chains could negatively impact their business and operations and impact their ability to repay their loans.
Any material interruption in our customers’ supply chains, such as a material interruption of the resources required to conduct their business resulting from interruptions in service by third-party providers, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, social or labor unrest, natural disasters, epidemics or pandemics or political disputes and military conflicts, that cause a material disruption in our customers' supply chains, could have a negative impact on their business and ability to repay their borrowings with us. In the event of disruptions in our customers' supply chains, the labor and materials they rely on in the ordinary course of business may not be available at reasonable rates or at all.
Risks Related to Interest Rates
Changes in interest rates may reduce our profits.
Our profitability, like that of most financial institutions, depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates.
If interest rates rise, and the interest rates on our deposits increase faster than the interest rates we receive on our loans and investments, our interest rate spread would decrease, which would have a negative effect on our net interest income and profitability. Furthermore, increases in interest rates may adversely affect the ability of borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to reinvest such loan or securities prepayments into lower-yielding assets, which may also negatively impact our income. Changes in market interest rates may also affect the demand for the Company’s products and services, competition for deposits, the secondary mortgage market, and our ability to realize gains from the sale of assets.
Changes in interest rates also affect the value of our interest-earning assets and, in particular, our investment securities portfolio. Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates. Stockholders' equity, specifically accumulated other comprehensive income (loss), is increased or decreased by the amount of change in the estimated fair value of our securities available for sale, net of deferred income taxes. Increases in interest rates generally decrease the fair value of securities available for sale, which adversely impacts stockholders' equity. On December 31, 2024, we recorded other comprehensive losses, net of tax, of $10.5 million related to net changes in unrealized holding losses in our available-for-sale investment securities portfolio.
Any substantial or unexpected change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in interest rates also may negatively impact our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which may ultimately affect our earnings. For further discussion of how changes in interest rates could impact us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management of Market Risk.”
Risks Related to our Lending Activities
Our automobile lending exposes us to increased credit risks.
At December 31, 2024, $295.7 million, or 30.3% of our total loan portfolio and 23.5% of our total assets, consisted of indirect automobile loans and $5.7 million, or 0.6% of our total loan portfolio, consisted of automobile loans that we also originated directly. Automobile loans are inherently risky as they are secured by assets that may be difficult to locate and can depreciate rapidly. In some cases, repossessed collateral for a defaulted automobile loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further collection efforts against the borrower. Automobile loan collections depend on the borrower’s continuing financial stability, and therefore, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers, and reliance on automobile dealers to comply with fair lending practices. See “Item 1. Business - Loan Underwriting Risks.”
Our emphasis on commercial real estate and commercial business lending involves risks that could adversely affect our financial condition and results of operations.
We emphasize the originations of commercial real estate and commercial business loans. At December 31, 2024, our commercial real estate (which includes multi-family real estate loans and commercial construction loans) and commercial business loans totaled $574.1 million, or 58.9% of our loan portfolio. While these types of loans are potentially more profitable than residential mortgage loans due primarily to bearing generally higher interest rates and larger balances, they present greater risk due to greater dependency on the successful operation of the properties, and are generally more sensitive to regional and local economic conditions, making future losses more difficult to predict. These loans also generally have relatively large balances to single borrowers or related groups of borrowers. Also, many of our borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. In addition, changes in consumer preferences about where they
work, live, shop and eat can also impact commercial real estate, which could result in declines in occupancy and declines in property values. Accordingly, any charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loans. See “Item 1. Business - Loan Underwriting Risks.”
Our allowance for credit losses may not be sufficient to cover actual loan losses.
We maintain an allowance for credit losses, which is established through a provision for credit losses that represents management’s best estimate of the lifetime expected losses on loans. We make various assumptions and judgments about the collectability of loans in our portfolio, including the creditworthiness of borrowers and the value of the real estate, automobiles and other assets serving as collateral for the repayment of loans. In determining the adequacy of the allowance for credit losses, we rely on our experience and our evaluation of economic conditions and other qualitative factors. If our assumptions prove to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, and adjustments may be necessary.
The allowance for credit losses is dependent on various factors, including credit quality, macroeconomic forecasts and conditions, composition of our loans and securities portfolios, and other management judgements. There can be no assurance that the Company’s allowance for credit losses will be adequate to cover actual losses. In addition, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs. Significant additions to the allowance could materially decrease our net income.
Our non-owner occupied commercial real estate loans may expose us to increased credit risk.
At December 31, 2024, $361.6 million, or 37.1% of our total loan portfolio and 74.9% of our commercial real estate loan portfolio, consisted of loans secured by non-owner occupied commercial real estate loans. Loans secured by non-owner occupied properties generally expose a lender to greater risk of non-payment and loss than loans secured by owner occupied properties because repayment of such loans depend primarily on the tenant’s continuing ability to pay rent to the property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner occupied properties may be below that of owner occupied properties due to lenient property maintenance standards that negatively impact the value of the collateral properties.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If so, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or regulations or more stringent interpretations or enforcement policies with respect to existing laws or regulations may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
Risks Related to Our Funding and Liquidity
Our inability to generate core deposits may cause us to rely more heavily on wholesale funding strategies for funding and liquidity needs, which could have an adverse effect on our net interest margin and profitability.
We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize generating transaction accounts, we cannot guarantee if and when this will occur. Further, the considerable competition for deposits in our market area also has made, and may continue to make, it difficult for us to obtain reasonably priced deposits. Moreover, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. If we are not able to increase our lower-cost transactional deposits at a level necessary to fund our asset growth or deposit outflows, we may be forced seek other sources of funds, including certificates of deposit, FHLB advances, brokered deposits and lines of credit to meet the borrowing and deposit withdrawal requirements of our customers, which may be more expensive and have an adverse effect on our net interest margin and profitability. Total deposits decreased $9.7 million, or 0.9%, to $1.02 billion at December 31, 2024 from $1.03 billion at December 31, 2023.
A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on the Company.
Liquidity is essential to our business. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans to ensure that we have adequate liquidity to fund our operations. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff. If customers move money out of deposits, we may lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income. Depending on the capitalization and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on interest rates paid on deposits and on the acceptance of brokered deposits. Significant deposit withdrawals could materially reduce our liquidity, and, in such an event, we may be required to replace such deposits with higher-costing borrowings.
Other primary sources of funds consist of cash flows from operations and sales of investment securities and borrowings from the FHLB of New York and the Federal Reserve. We also may borrow funds from third-party lenders, such as other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Our liquidity is also affected by a decrease in the sale of mortgage loans as a result of our decision to retain more mortgage loans in the portfolio, higher market interest rates negatively impacting originations, a downturn in our markets or by one or more adverse regulatory actions against us. A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Risk Related to our Business Strategy
Our long-term business strategy involves moderate growth, and our financial condition and results of operations may be adversely affected if we fail to grow or fail to manage our growth effectively.
Our assets decreased $57.4 million, or 4.4%, from $1.31 billion at December 31, 2023 to $1.26 billion at December 31, 2024, primarily due to decreases in loans and available for sale securities. Due to the rebalancing of our portfolio, we expect the size of our balance sheet to stabilize in 2025. We then expect to resume moderate growth in our total assets and deposits going forward, accompanied by relative increases in the scale of our operations. Achieving our growth targets requires us to attract customers that currently bank at other financial institutions in our market. Our ability to grow successfully will depend on a variety of factors, including our ability to attract and retain experienced bankers, the availability of attractive business opportunities and competition from other financial institutions in our market area. While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance that growth opportunities will be available or that we will successfully manage our growth. If we do not manage our growth effectively, we may not be able to execute our business plan, which would have an adverse effect on our financial condition and results of operations.
Risks Related to Laws and Regulations
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of Rhinebeck Bank rather than for the protection of our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, classify our assets and determine the level of our allowance for credit losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations, legislation or supervisory action, may have a material impact on our operations. Further, compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.
The fiscal, monetary and regulatory policies of the federal government and its agencies could have an adverse effect on our results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the FRB. An important function of the FRB is to regulate the money supply and credit environment. Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. Government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. The FRB’s policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin. Its policies can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. The monetary policies and regulations of the FRB have had a significant effect on the overall economy and the operating results of financial institutions in the past and are expected to continue to do so in the future.
Additionally, Congress and the administration through executive orders controls fiscal policy through decisions on taxation and expenditures. Depending on industries and markets involved, changes to tax law and increased or reduced public expenditures could affect us directly or the business operations of our customers.
Changes in Federal Reserve and other governmental policies, fiscal policy, and our regulatory environment generally are beyond our control, and we are unable to predict what changes may occur or the manner in which any future changes may affect our business, financial condition and results of operations.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers that open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.
Changes in accounting standards could affect reported earnings.
The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and bank regulators, periodically change the financial accounting and reporting guidance that governs the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.
We are subject to more stringent capital requirements, which may adversely impact our return on equity, or constrain us from paying dividends or repurchasing shares.
Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define what constitutes “capital” for calculating these ratios. The regulations establish a “capital conservation buffer” of 2.5%, which, when added to the minimum capital ratios, result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 to risk-based assets capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that can be utilized for such actions.
The application of more stringent capital requirements could, among other things, require us to maintain higher capital levels resulting in lower returns on equity, raise capital and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition of additional liquidity requirements could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying out dividends or buying back shares. See “Item 1. Supervision and Regulation - Federal Bank Regulation - Capital Requirements.”
Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations.
The effects of climate change continue to create a significant level of concern for the state of the global environment. As a result of the increased political and social awareness surrounding the issue, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global
effort to combat climate change. While it is impossible to predict how climate change may directly impact our financial condition and operations, the physical effects of climate change may present certain risks to our customers. Unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in our portfolios. Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact our ability to raise and invest capital in potentially impacted communities.
Loss of Emerging Growth Company Status May Increase Our Costs and Regulatory Burdens
As of December 31, 2024, we no longer qualify as an Emerging Growth Company as defined under the Jumpstart Our Business Startups (JOBS) Act. As a result, we are now subject to additional regulatory and reporting requirements, including enhanced financial disclosures, stricter internal control audits, and increased compliance costs. These additional regulatory burdens and associated costs may negatively impact our financial condition, results of operations, and cash flows. Furthermore, failure to comply with these enhanced requirements could expose us to legal and regulatory risks, including potential penalties or loss of investor confidence in our financial reporting.
Risks Related to Privacy, Security and Technology
Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We are subject to various privacy, information security and data protection laws, such as the Gramm-Leach-Bliley Act, which, among other things, requires privacy disclosures, and maintenance of a robust security program, which are increasingly subject to change and that could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. New laws or changes to existing laws may increase our costs of compliance, could reduce income from certain business initiatives and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our regulators also hold us responsible for privacy and data protection obligations performed by our third-party service providers while providing services to us. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
Systems failures or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
Our operations depend upon our ability to protect our computer systems and network infrastructure against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, continue to implement security technology and establish operational procedures designed to prevent such damage, our security measures may not be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material impact on the Bank’s operations or a material adverse effect on our financial condition and results of operations.
It is possible that we could incur significant costs associated with a breach of our computer systems. While we have cyber liability insurance, there are limitations on coverage. Furthermore, cyber incidents carry a great risk of injury to
our reputation. Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer losses.
Our risk and exposure to cyber-attacks or other information security breaches remains heightened because of, among other things, the evolving nature of these threats, our plans to continue to enhance our internet banking and mobile banking channel strategies, our expanded geographic footprint and that a portion of our employee base works remotely. There continues to be a rise in security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Disruptions or failures in the physical infrastructure or operating systems that support our businesses, customers or third parties, or cyber-attacks or security breaches of the networks, systems or devices that our customers or third parties use to access our products and services could result in customer attrition, financial losses, the inability of our customers or vendors to transact business with us, violations of applicable privacy and other laws, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
While our Board of Directors takes an active role in cybersecurity risk tolerance, we rely to a large degree on management and outside consultants in overseeing cybersecurity risk management.
Our Board of Directors takes an active role in our cybersecurity risk management and all members receive cybersecurity training annually. The Board reviews the annual risk assessments and approves information technology policies, which include cybersecurity. Furthermore, our Audit Committee is responsible for reviewing all audit findings related to information technology general controls, internal and external vulnerability, and penetration testing. The Board receives an annual information security report from our virtual Chief Information Security Officer and Chief Executive Officer as it relates to cybersecurity and related issues. We also engage outside consultants to support our cybersecurity efforts. However, our directors do not have significant experience in cybersecurity risk management outside of the Company and therefore, its ability to fulfill its oversight function remains dependent on the input it receives from management and outside consultants.
Our inability to successfully implement technological change may adversely impact our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services which increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our customers, which failure could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to Our Business and Operations
Our cost of operations is high relative to our assets. Our failure to maintain or reduce our operating expenses may reduce our profits.
Our non-interest expenses totaled $36.8 million and $36.4 million for the years ended December 31, 2024 and 2023, respectively. Although we have decreased our expenses and have achieved certain efficiencies, our efficiency ratio, comparative to peers, remains high. Our efficiency ratio totaled 82.34% and 83.28% for the years ended December 31, 2024 and 2023, respectively. Failure to control or maintain our expenses may reduce future profits.
Changes in the valuation of our securities portfolio may reduce our profits and our capital levels.
The market value of our securities portfolio may fluctuate, potentially increasing accumulated other comprehensive loss or reducing earnings. During 2024, we undertook a balance sheet restructuring that reduced our accumulated other comprehensive loss on securities from $26.1 million to $10.5 million. As part of this restructuring, we recognized a $16 million loss on our available-for-sale securities. At December 31, 2024, our other comprehensive losses, net of tax, of $10.5 million was related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand.
Declines in market value may result in impairments of these assets, which may lead to accounting charges that could have a material adverse effect on our net income and stockholders’ equity. Management evaluates securities for impairment related to credit losses on at least a quarterly basis. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, we may take a charge to earnings to reflect such impairment. Changes in interest rates may also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are affected by fluctuations in interest rates. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes.
Strong competition within our market area may reduce our profits and slow growth.
We face strong competition in making loans and attracting deposits. Price competition for loans and deposits sometimes requires us to charge lower interest rates on our loans and pay higher interest rates on our deposits, which may reduce our net interest income. Many of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. Our competitors often aggressively price loan and deposit products when they enter into new lines of business or new market areas. If we are unable to effectively compete in our market area, our profitability would be negatively affected. The greater resources and broader offering of deposit and loan products of some of our competitors may also limit our ability to increase our interest-earning assets. Competition also makes it more difficult and costly to attract and retain qualified employees. For more information about our market area and the competition we face, see “Item 1. Business - Market Area” and “- Competition.”
The value of our goodwill may decline in the future.
As of December 31, 2024, we had $2.2 million of goodwill. A significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates, any or all of which could be materially impacted by many of the risk factors discussed herein, may necessitate our taking charges in the future related to the impairment of our goodwill. Future regulatory actions could also have a material impact on assessments of goodwill for impairment. If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations.
Our success depends on retaining certain key personnel.
Our performance largely depends on the talents and efforts of highly skilled individuals who comprise our senior management team. We rely on key personnel to manage and operate our business, including major revenue generating functions such as loan and deposit generation and our wealth management business. The loss of key staff may adversely affect our ability to maintain and manage these functions effectively, which could negatively affect our income. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which would reduce our net income. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.
In preparing the periodic reports we are required to file under the Securities Exchange Act of 1934, including our consolidated financial statements, our management is required under applicable rules and regulations to make estimates and assumptions as of specified dates. These estimates and assumptions are based on management’s best estimates and experience at such times and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our Allowance for credit losses, the determination of our deferred income taxes, our fair value measurements and our determination of goodwill impairment.
Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
Our risk management framework is designed to minimize risk and loss. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use broad and diversified risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. We could suffer losses if we fail to properly anticipate and manage these risks.
Risks Relating to Ownership of Our Common Stock
We may not pay any dividends on our common stock.
The Company’s Board of Directors has the authority to declare dividends on our common stock subject to statutory and regulatory requirements. We currently intend to retain all our future earnings, if any, for use in our business and do not expect to pay any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends will be made by our board of directors and will depend upon our financial condition, results of operations, capital requirements, restrictions under Federal Reserve Board regulations and policy, our business strategy and other factors that our board of directors deems relevant. See “Item1. Business - Waivers of Dividends by Rhinebeck Bancorp, MHC.”
Our common stock is not heavily traded, and the stock price may fluctuate significantly.
Our common stock is traded on The NASDAQ Capital Market (ticker symbol “RBKB”), but the volume of shares traded is relatively low. Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock. Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding the banking industry, and various other factors affecting the banking industry may have a significant impact on the market price of the shares of our common stock. Management also cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future. Accordingly, stockholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire.
Persons who have purchased stock will own a minority of the Company’s common stock and will not be able to exercise voting control over most matters put to a vote of stockholders.
Rhinebeck Bancorp, MHC owns a majority of the Company’s common stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of stockholders. Generally, the same directors and officers who manage Rhinebeck Bank also manage the Company and Rhinebeck Bancorp, MHC. Our directors and officers, or Rhinebeck Bancorp, MHC, may take action that the public stockholders believe to be contrary to their interests. For example, Rhinebeck Bancorp, MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium for their shares. The only matters that public stockholders are able to exercise voting control over include proposals to implement stock-based benefit plans or initiate a “second-step” conversion.
The Company’s Articles of Incorporation and Bylaws and Maryland law may discourage a corporate takeover.
The Company’s Articles of Incorporation and Bylaws contain certain provisions designed to enhance the ability of the Company’s board of directors to deal with attempts to acquire control of the Company, including a classified board, the ability to classify and reclassify unissued shares of stock of any class or series of stock by setting, fixing, eliminating, or altering in any one or more respects the preferences, rights, voting powers, restrictions and qualifications of, dividends on, and redemption, conversion, exchange, and other rights of, such securities and a requirement for any stockholder who desires to nominate a director to abide by strict notice requirements.
Maryland law also contains anti-takeover provisions that apply to the Company. The Maryland Business Combination Act generally prohibits, subject to certain limited exceptions, corporations from being involved in any “business combination” (defined in the Act) with any “interested shareholder” for a period of five years following the most recent date on which the interested shareholder became an interested shareholder. The Maryland Control Share Acquisition Act applies to acquisitions of “control shares,” which, subject to certain exceptions, are shares the acquisition of which entitle the holder, directly or indirectly, to exercise or direct the exercise of the voting power of shares of stock of a corporation in the election of directors. Control shares have limited voting rights.
Although these provisions do not preclude a takeover, they may have the effect of discouraging, delaying or deferring a tender offer or takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the common stock. Such provisions will also render the removal of the Company’s board of directors and of management more difficult and, therefore, may serve to perpetuate current management. These provisions could potentially adversely affect the market prices of the Company’s securities.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
At December 31, 2024, we conducted business through our corporate office in Poughkeepsie and 13 other retail banking offices located in Rhinebeck, Fishkill, Goshen, Hopewell Junction, Hyde Park, Kingston, Middletown, Newburgh, Poughkeepsie (three branch offices), Red Hook and Warwick, as well as two representative offices in Montgomery and Albany. We own six and lease nine properties, and own three other buildings situated on land controlled under long-term leases. At December 31, 2024, the net book value of our land, buildings, furniture, fixtures and equipment was $14.1 million.
In the first quarter of 2024, the Bank sold the Bank’s Beacon branch office in Wappingers Falls, New York, for $2.9 million to Heritage Financial Credit Union, a New York State chartered credit union. The sale included the land and building, including all branch premises and equipment. All of the branch accounts were redomiciled to the customer’s nearest branch and all employees were placed in open positions. An impairment expense of $375,000 was taken on the property in December 2023.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. 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 December 31, 2024, 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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The common stock of the Company is listed on The NASDAQ Capital Market under the symbol “RBKB”. At February 28, 2025, the Company had 332 stockholders of record. Certain shares of the Company are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
The Company currently does not anticipate paying a dividend to its stockholders. The payment and amount of any dividend payments will be subject to statutory and regulatory limitations, and will depend upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; the Federal Reserve Board’s current regulations restricting the waiver of dividends by mutual holding companies; and general economic conditions. See “Item1. Business - Waivers of Dividends by Rhinebeck Bancorp, MHC.”
In September 2022, the Board approved a stock repurchase plan pursuant to which the Company was authorized to repurchase up to 247,506 shares of its common stock, of which 47,506 shares remain available for repurchase. The repurchase plan has no expiration date. No shares were repurchased under the stock repurchase plan during the three months ended December 31, 2024.
There were no sales of unregistered securities during the quarter ended December 31, 2024.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects information contained in our audited consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements contained within this Form 10-K.
Overview
Net Interest Income. Our primary source of income is net interest income. Net interest income is the difference between interest income, which is the income we earn on our loans and investments, and interest expense, which is the interest we pay on our deposits and borrowings.
Provision for Credit Losses. The allowance for credit losses is a valuation allowance for the estimated lifetime credit losses. The allowance for credit losses is increased through charges to the provision for credit losses. Loans are charged against the allowance when management believes that the collectability of the principal loan amount is not probable. Recoveries on loans previously charged-off, if any, are credited to the allowance for credit losses when realized.
Non-Interest Income. Our primary sources of non-interest income are service charges on deposit accounts, investment advisory income, net gains in the cash surrender value of bank owned life insurance and other income.
Non-Interest Expenses. Our non-interest expenses consist of salaries and employee benefits, net occupancy and equipment, data processing, professional fees, marketing expenses, premium payments we make to the FDIC for insurance of our deposits and other general and administrative expenses.
Income Tax Expense. Our income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized.
Business Strategy
Based on an extensive review of the current opportunities in our primary market area as well as our resources and capabilities, we are pursuing the following business strategies:
● Prudent management of our indirect automobile loan portfolio. We originate automobile loans through a network of 91 automobile dealerships (61 in the Hudson Valley region and 30 in Albany, New York). Over the past three years, we have actively decreased our indirect automobile loan portfolio by decreasing loan originations through increased pricing and conservative underwriting criteria, and we plan to continue this strategy to further reduce exposure while focusing on higher-yielding opportunities within our portfolio. Our indirect automobile loan portfolio totaled $295.7 million, or 30.3% of our total loan portfolio and 23.5% of total assets, at December 31, 2024 as compared to $394.2 million, or 39.1% of our total loan portfolio and 30.0% of total assets, at December 31, 2023.
● Focus on commercial real estate, multi-family real estate and commercial business lending. We believe that commercial real estate, multi-family real estate and commercial business lending offer opportunities to invest in our community, increase the overall yield earned on our loan portfolio and manage interest rate risk. We intend to continue to increase our originations of these types of loans in our primary market area and may consider hiring additional lenders as well as originating loans secured by properties located in areas that are contiguous to our current market area. We also occasionally participate in commercial real estate loans originated in areas in which we do not have a market presence. The purchase of loan pools may be considered in the event our organic loan production does not meet our expectations.
● Increase core deposits, including demand deposits. Deposits are our primary source of funds for lending and investment. Our intention to expand our core deposits (which we define as all deposits except for certificates of deposit), was upended in 2023 with the rising interest rates as depositors sought higher rates causing our certificates of deposit to increase and our core deposits to decrease. Deposits were also impacted as some depositors withdrew funds in reaction to the highly publicized bank failures in the first quarter of 2023 in a perceived flight to safety; and as competition for deposits increased. Core deposits, which we define as all non time deposits, represented 66.9% of our total deposits at December 31, 2024 compared to 69.1% at December 31, 2023. We will focus on increasing our core deposits by increasing operating accounts related to commercial lending activities and enhancing our relationships with our retail customers through the introduction of new deposit products.
● Continue expense control. Management continues to focus on controlling our level of non-interest expense and identifying cost savings opportunities, such as reducing our staffing levels, renegotiating key third-party contracts and reducing other operating expenses. Our non-interest expense was $36.8 million and $36.4 million for the years ended December 31, 2024 and 2023, respectively.
● Manage credit risk to maintain a low level of non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined and implemented credit policies and procedures, conservative loan underwriting criteria and active credit monitoring. Our ratio of non-performing loans to total assets was 0.33% at December 31, 2024, which increased from 0.32% at December 31, 2023.
● Grow the balance sheet. We intend to again focus on growing the balance sheet. We believe that we will continue to reap the benefit of a customer base that prefers doing business with a local institution and may be reluctant to do business with larger institutions. By providing our customers with quality service, a home-town ambience and local decision making, we expect to return to a period of strong organic growth.
Significant Accounting Policies, Critical Accounting Estimates
Our most significant accounting policies are described in Note 1 to the consolidated financial statements. Certain of these accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities, and we consider these policies to be our critical accounting estimates. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations.
The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates.
Allowance for Credit Losses
The allowance for credit losses is an estimate of current expected credit losses considering available information relevant to assessing collectability of cash flows over the contractual term of the financial assets necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The loan portfolio also represents the largest asset type on the Company’s Consolidated Statements of Financial Condition.
Our methodology for estimating lifetime expected credit losses for our loan portfolio includes the following key components:
a.
Segmentation of loans into pools that share common risk characteristics;
b.
An economic forecast based on the relation of losses with key economic variables for each portfolio segment;
c.
Reversion period to historical loss experience using a straight-line method;
d.
Inclusion of qualitative adjustments to consider factors that have not been accounted for, may be changing, or are, by evidence, expected to change;
e.
Discounted cash flow methodologies to measure credit impairment on each of our loan portfolio segments;
f.
Evaluation of credit losses for loans that do not share similar risk characteristics are estimated on an individual basis. The lifetime losses for individually measured loans are estimated based on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows; and
g.
The estimation methodologies for credit losses on unfunded lending-related commitments are similar to the process for estimating credit losses for loans, although with the addition of a probability of draw estimate that is applied to each loan portfolio segment.
The Company’s allowance for credit losses for loans totaled $8.5 million and $8.1 million as of December 31, 2024 and December 31, 2023, respectively. The $415,000 increase in our allowance for credit losses for loans was primarily driven by an increase in our collectively evaluated loans, partially offset by a decrease in the allowance for credit losses on individually analyzed loans.
The quantitative component of our allowance for credit losses on collectively evaluated loans, which is largely based on a selection of various economic forecasts, decreased by $151,000 as of December 31, 2024, when compared to December 31, 2023. The decrease was primarily attributable to decreased loan balances of indirect automobile loans and an update to the Loss Driver Analysis that had a favorable impact on the Multifamily Real Estate Loan probability of default (“PD”) and loss given default (“LGD”) factors in the CECL model.
The qualitative component of our allowance for credit losses (“ACL”), which is largely based on management’s judgment of qualitative loss factors, was relatively unchanged during the first half of 2024, but was adjusted in the second half to account for increased delinquency and higher net charge-offs. The Company’s automobile loan portfolio
has continued to experience elevated delinquency rates, and this combined with a simultaneous decrease in collateral values, has resulted in increases to forecasted net charge-offs. Moderate qualitative adjustments were made to account for both of these risks. The Company also retained moderated qualitative adjustments related to economic conditions as inflationary pressures and higher interest rates continue to have an adverse effect on both consumers and businesses.
The following table shows the change in the ACL for collectively evaluated loans:
December 31, 2024
December 31, 2023
Increase/(Decrease)
(In thousands)
Commercial real estate:
Construction
$
-
$
-
$
-
Non-residential
$
2,675
$
2,313
$
Multifamily
$
$
$
(74)
Residential real estate
$
$
$
Commercial and industrial
$
$
$
Consumer:
Indirect automobile
$
3,994
$
4,182
$
(188)
Home equity
$
$
$
Other consumer
$
$
$
Total
$
8,380
$
7,908
$
The Company’s allowance for credit losses for collectively evaluated loans totaled $8.4 million as of December 31, 2024, which included nearly $4.0 million of allowance related to indirect automobile loans. In comparison, the Company’s allowance related to indirect automobile loans totaled nearly $4.2 million as of December 31, 2023, a reduction of nearly $200,000 from January 1, 2024. The allowance amount attributed to qualitative adjustments at year end for indirect automobile loans was $1.7 million, an increase of approximately $400,000 from January 1, 2024. As previously mentioned, actual as well as forecasted increases in delinquencies and net charge-offs for automobile loans drove management’s increase in qualitative loss factors.
Our allowance for credit losses for individually analyzed loans is determined using the fair value of the collateral, less estimated selling costs, as applicable. As of December 31, 2024, the Company’s allowance for credit losses on individually analyzed loans decreased $56,000 from December 31, 2023. This decrease was primarily due to a decrease of individually analyzed indirect automobile loans, with additional decreases in commercial and commercial real estate loans also contributing to the overall decrease.
As noted above, we consider a number of variables in our evaluation of the adequacy of the allowance for credit losses. The most significant variables are portfolio growth and any changing historical loss trends within the specific business segments. As of December 31, 2024, the $264,000 decrease in our allowance for credit losses reflected the reduction in indirect automobile loan originations. Based on our model, if all segments of the portfolio grew by an additional 5% on a year-over-year basis, our allowance for credit losses as of December 31, 2024 would have increased by $418,000 to $9.0 million, holding all other variables constant. Conversely, if all segment balances of our loan portfolio had fallen by 5% during the year ended December 31, 2024, our allowance for credit losses would have decreased by $418,000 to $8.1 million, holding all other variables constant.
The above hypothetical sensitivity calculation reflect the sensitivity of the allowance but lacks other qualitative adjustments that are part of the quarterly reserving process. As such, this does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile of the portfolio, changes in the macroeconomic scenario and/or the range of scenarios under management consideration.
Goodwill and Intangible Assets
The assets (including identifiable intangible assets) and liabilities acquired in a business combination are recorded at fair value at the date of acquisition. Goodwill is recognized as the excess of the acquisition cost over the fair values of the net assets acquired and is not subsequently amortized. Identifiable intangible assets include customer lists and core deposit intangibles and are being amortized on a straight-line basis over their estimated lives. Goodwill is not amortized, but it is tested at least annually, or more frequently if indicators of impairment are present.
Management evaluated goodwill as of October 1, 2024, utilizing various methods including an income approach that incorporated a discounted cash flow model that involved management assumptions based upon future growth and earnings projections. A weighted average of the various methods was calculated to determine the estimated fair value of the reporting unit. The estimated fair value of the reporting unit was then compared to the current carrying value to determine if impairment had occurred. It is our opinion that, as of the measurement date, the aggregate fair value of the reporting unit exceeded the carrying value of the reporting unit. Therefore, management concluded that goodwill was not impaired. Although we believe our assumptions are reasonable, actual results may vary significantly. If for any future period it is determined that there has been impairment in the carrying value of our goodwill balances, the Company will record a charge to earnings, which could have a material adverse effect on net income, but not risk-based capital ratios.
Income Taxes
We are subject to the income tax laws of the United States, New York State, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. See Note 8 to the Consolidated Financial Statements for a further description of our provision and related income tax assets and liabilities.
In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.
If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change.
A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carryback declines, or if we project lower levels of future taxable income. Such a valuation allowance would be established through a charge to income tax expense, which would adversely affect our operating results.
Although management believes that the judgments and estimates used are reasonable, actual results could differ and we may be exposed to losses or gains that could be material. An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution.
Selected Financial Data
The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K for 2024 and 2023.
At December 31,
(In thousands)
Selected Financial Condition Data:
Total assets
$
1,255,765
$
1,313,202
Cash and cash equivalents
37,484
22,129
Securities available-for-sale
159,947
191,985
Loans receivable, net
971,779
1,008,851
Bank owned life insurance
30,193
30,031
Goodwill and other intangibles
2,401
2,481
Total liabilities
1,133,932
1,199,517
Deposits
1,020,783
1,030,503
Federal Home Loan Bank advances
69,773
128,064
Subordinated debt
5,155
5,155
Total stockholders’ equity
$
121,833
$
113,685
For the Year Ended December 31,
(In thousands, except per share data)
Selected Operating Data:
Interest and dividend income
$
63,758
$
60,659
Interest expense
25,527
22,694
Net interest income
38,231
37,965
Provision for credit losses
2,800
1,702
Net interest income after provision for credit losses
35,431
36,263
Non-interest income
(9,520)
5,780
Non-interest expense
36,848
36,429
(Loss) income before income tax expense
(10,937)
5,614
Income tax (benefit) expense
(2,317)
1,219
Net (loss) income
$
(8,620)
$
4,395
(Loss) earnings per share (diluted)
$
(0.80)
$
0.40
At or For the Year Ended December 31,
Performance Ratios:
(Loss) return on average assets(1)
(0.67)
%
0.33
%
(Loss) return on average equity(2)
(7.31)
%
4.03
%
Interest rate spread(3)
2.49
%
2.44
%
Net interest margin(4)
3.21
%
3.06
%
Efficiency ratio(5)
82.34
%
83.28
%
Average interest-earning assets to average interest-bearing liabilities
133.68
%
133.80
%
Total gross loans to total assets
77.64
%
76.80
%
Equity to assets(6)
9.23
%
8.19
%
Capital Ratios(7):
Tier 1 capital (to adjusted total assets)
10.07
%
10.10
%
Tier I capital (to risk-weighted assets)
11.81
%
11.96
%
Total capital (to risk-weighted assets)
12.63
%
12.70
%
Common equity Tier 1 capital (to risk-weighted assets)
11.81
%
11.96
%
Asset Quality Ratios:
Allowance for credit losses as a percent of total loans
0.88
%
0.81
%
Allowance for credit losses as a percent of non-performing loans
206.56
%
194.31
%
Net charge-offs to average outstanding loans
(0.24)
%
(0.21)
%
Non-performing loans as a percent of total loans
0.42
%
0.41
%
Non-performing assets as a percent of total assets
0.33
%
0.32
%
Other Data:
Book value per common share
$ 10.98
$ 10.27
Number of offices
(1) Represents net income divided by average total assets.
(2) Represents net income divided by average equity.
(3) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities.
(4) Represents net interest income as a percent of average interest-earning assets.
(5) Represents non-interest expense divided by the sum of net interest income and non-interest income.
(6) Represents average equity divided by average total assets.
(7) Capital ratios are for Rhinebeck Bank only. Rhinebeck Bancorp, Inc. is not subject to the minimum consolidated capital requirements as a small bank holding company with assets less than $3.0 billion.
Comparison of Financial Condition at December 31, 2024 and December 31, 2024
Total Assets. Total assets were $1.26 billion at December 31, 2024, representing a decrease of $57.4 million, or 4.4%, compared to $1.31 billion at December 31, 2023. The decrease was primarily due to decreases in: (i) net loans receivable of $37.1 million, or 3.7%, (ii) available for sale securities of $32.0 million, or 16.7%, (iii) premises and equipment of $3.5 million, or 19.7%, (iv) Federal Home Loan Bank stock of $2.5 million, or 39.2%, and (v) deferred tax assets of $1.8 million, or 18.3%. The decrease in total assets was partially offset by an increase in cash and cash equivalents of $15.4 million, or 69.4%, and an increase in other assets of $4.3 million, or 22.4%
Cash and Cash Equivalents. Cash and cash equivalents grew by $15.4 million, or 69.4%, to $37.5 million as of December 31, 2024, compared to $22.1 million at December 31, 2023. This increase was mainly driven by higher deposits at the Federal Reserve Bank of New York and the Federal Home Loan Bank of New York, as cash was generated from proceeds from maturing loans and securities sales.
Investment Securities Available for Sale. Investment securities available for sale decreased $32.0 million, or 16.7%, to $159.9 million at December 31, 2024 from $192.0 million at December 31, 2023. The decrease was due to $75.0 million of sales and $32.1 million of paydowns and maturities, partially offset by purchases of $71.4 million and an unrealized holding gain of $3.7 million. The change in the securities portfolio reflected a balance sheet restructuring in which the Company sold lower-yielding securities and reinvested the proceeds in higher-yielding securities with a shorter duration. In September 2024, the Bank sold $58.6 million of available-for-sale securities. The proceeds from these sales were reinvested into new securities offering yields that were 3.11% higher than those of the securities sold. In December 2024, the Bank sold an additional $16.4 million of available-for-sale securities. The proceeds from these sales were reinvested into new securities offering yields that were 3.06% higher than those of the securities sold. The Company recognized a one-time pre-tax loss of $16.0 million as a result of these transactions.
Net Loans. Net loans receivable were $971.8 million at December 31, 2024, a decrease of $37.1 million, or 3.7%, as compared to $1.01 billion at December 31, 2023. The decrease was primarily due to a decrease in indirect automobile loans of $98.6 million, or 25.0%, reflecting a strategic decision to decrease that loan portfolio as a percentage of the balance sheet. At December 31, 2024, indirect automobile loans were 23.5% of assets, compared to 30.0% at December 31, 2023. Partially offsetting the decrease in automobile loans were increases in commercial real estate loans of $54.5 million, or 12.7%, and residential real estate loans of $9.4 million, or 12.2%. The increase in commercial real estate loans was primarily due to the closing of three large loans secured by a retail shopping center and two hotels totaling $26.9 million. The increase in residential real estate loans reflected the strategic decision to hold new production in our portfolio instead of selling these loans.
Allowance for Credit Losses. During the year, the allowance for credit losses increased $415,000, or 5.1%, reflecting an increase of expected losses in our loan portfolio. Non-accrual loans decreased $47,000, or 1.1%, to $4.1 million at December 31, 2024 from $4.2 million at December 31, 2023. Non-performing assets decreased $72,000, or 1.7%. Non-performing assets included $25,000 in other real estate owned as of December 31, 2023. The Company had no other real estate owned as of December 31, 2024. Past due loans decreased $2.5 million, or 12.8%, between December 31, 2023 and December 31, 2024, finishing at $16.7 million, or 1.7%, of total loans, down from $19.2 million, or 1.9%, of total loans at year-end 2023. The decrease was most notable in non-residential commercial real-estate, as a few large loans were brought current and one loan was paid off. Our allowance for credit losses was 0.88% of total loans and 206.56% of non-performing loans at December 31, 2024 as compared to 0.81% of total loans and 194.31% of non-performing loans at December 31, 2023.
Federal Home Loan Bank Stock. FHLB stock decreased $2.6 million, or 39.2%, to $4.0 million at December 31, 2024, from $6.5 million at December 31, 2023, primarily due to a reduction in additional shares required to support borrowing activity as advances from the FHLB decreased.
Premises and Equipment. Premises and equipment decreased $3.5 million, or 19.7%, as our former Beacon, New York branch office was closed, and the property sold during the first quarter of 2024 for $2.9 million.
Total Liabilities. Total liabilities decreased $65.6 million, or 5.5%, to $1.13 billion at December 31, 2024 from $1.20 billion at December 31, 2023 primarily due to a decrease in advances from the FHLB of $58.3 million, or 45.5% and a decrease in deposits of $9.7 million, or 0.9%, partially offset by an increase in accrued expenses and other liabilities of $2.3 million, or 8.6%.
Deposits. Deposits decreased $9.7 million, or 0.9%, to $1.02 billion at December 31, 2024 from $1.03 billion at December 31, 2023. Interest bearing accounts increased $1.9 million, or 0.2%, to $782.7 million while non-interest bearing balances decreased $11.7 million, or 4.7%, finishing the year at $238.1 million. The increase in interest bearing accounts represented an increase in time deposits of $19.6 million, or 6.2%, which was offset by a decrease transaction accounts including NOW, savings and money market accounts of $17.6 million, or 3.8%. The continued growth in time deposits was primarily due to depositors seeking higher interest rates, which contributed to the decrease in non-interest bearing and lower interest-bearing deposits.
We participate in reciprocal deposit programs, obtained through the Certificate Deposit Account Registry Service (CDARS) and IntraFi Cash Service (ICS) networks, that provide access to FDIC-insured deposit products in aggregate amounts exceeding the current limits for depositors. This allows us to maintain deposits that might otherwise be uninsured. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $25.4 million and $13.5 million, respectively, at December 31, 2024. At December 31, 2023, we had reciprocal deposits obtained through CDARS and ICS networks of $23.4 million and $16.7 million, respectively. We had no brokered deposits at December 31, 2024 and 2023.
Borrowed Funds. Advances from the FHLB decreased $58.3 million, or 45.5%, from $128.1 million at December 31, 2023 to $69.8 million at December 31, 2024 as proceeds from investment sales were used to pay down debt.
Stockholders’ Equity. Stockholders' equity increased $8.1 million, or 7.2%, to $121.8 million at December 31, 2024. The increase was primarily due to a $16.6 million decrease in accumulated other comprehensive loss reflecting the results of the balance sheet restructuring, which was partially offset by a net loss of $8.6 million. The Company's ratio of average equity to average assets was 9.23% for the year ended December 31, 2024 and 8.19% for the year ended December 31, 2023.
Comparison of Operating Results for the Years Ended December 31, 2024 and December 31, 2023
Net Income. Net loss for the year ended December 31, 2024 was $8.6 million, compared to net income of $4.4 million for the year ended December 31, 2023, a decrease of $13.0 million, or 296.1%. Diluted loss per share was $0.80 for the year ended December 31, 2024, compared to diluted earnings per share of $0.40 for the year ended December 31, 2023. The decrease in net income for the year ended December 31, 2024 was primarily due to a balance sheet restructuring, which resulted in a $16.0 million loss on sale of securities. Net income was also impacted by an increase in net interest income, an increase in the provision for credit losses and an increase in non-interest expense. Interest and dividend income increased $3.1 million, or 5.1%, interest expense increased $2.8 million, or 12.5%, and the provision for credit losses increased $1.1 million, or 64.5%. Non-interest income decreased $15.3 million, reflecting the loss on securities, while non-interest expenses increased $419,000, or 1.2%, as compared to 2023. Taxes decreased by $3.5 million due to the 2024 net loss, in contrast to the net income in 2023.
Net Interest Income. Net interest income increased $266,000, or 0.7%, to $38.2 million for the year ended December 31, 2024, as compared to $38.0 million for the year ended December 31, 2023. The increase was primarily driven by higher yields on interest-earning asset balances, which were partially offset by higher costs on interest-bearing liability balances. The yield on interest earning assets increased 48 basis points to 5.36% in 2024 from 4.88% in 2023, primarily due to the rising interest rate environment in 2024. The costs of interest bearing liabilities increased 43 basis points to 2.87% in 2024 from 2.44% in 2023 driven by increases in general market rates, competitive market forces and a greater percentage of higher-yielding certificates of deposits and FHLB advances. The interest rate spread increased by 5 basis points to 2.49%. The net interest margin was 3.21% for the year ended December 31, 2024 and 3.06% for the year ended December 31, 2023. The ratio of average interest-earning assets to average interest-bearing liabilities decreased 0.9% to 133.68%.
Interest Income. Interest income increased $3.1 million, or 5.1%, to $63.8 million for 2024 from $60.7 million for 2023. The increase resulted primarily from increased asset yields, offset by a decrease in the average balance. The average yield on interest-bearing depository accounts increased to 5.29% for 2024 from 5.19% for 2023. The average yield on loans increased to 5.91% for 2024 from 5.47% in 2023. The average yields on investment securities increased to 2.14% for 2024 from 1.91% for 2023. Average interest earning assets decreased $52.2 million from $1.24 billion for the year ended December 31, 2023 to $1.19 billion for the year ended December 31, 2024. The decrease in average interest earning assets during 2024 compared to 2023 included decreases of $19.3 million in average loan balances and $30.8 million in available for sale securities.
Interest Expense. Interest expense increased $2.8 million, or 12.5%, to $25.5 million for 2024 from $22.7 million for 2023. This was primarily due to a 43 basis point increase in the overall cost of interest bearing liabilities to 2.87% for 2024 from 2.44% for 2023, partially offset by a decrease in average interest bearing liability balances of $38.3 million, or 4.1%, year over year. The average balance of the total interest-bearing deposits decreased by $23.8 million, while the cost increased 52 basis points. The average balance of FHLB advances decreased $13.5 million, while the cost decreased 24 basis points.
Provision for Credit Losses. The Company records a provision for credit losses, which is recognized in earnings. The Company adopted the CECL model beginning on January 1, 2023, which requires that we make assumptions of credit quality, macroeconomic factors and conditions, and loan composition which are inherently subjective due to the use of estimates that are susceptible to significant revision as more information becomes available or as future events occur. Although we believe that we use the best information available to establish the allowance for credit losses, based on industry standards and historical experience, future additions to the allowance may be necessary, as a result of changes in economic conditions and other factors. In addition, the FDIC and NYSDFS, as an integral part of their examination process, will periodically review our allowance for credit losses. These agencies may require us to recognize adjustments to the allowance, based on their judgments about information available to them at the time of their examination.
The Company recorded a provision for credit losses of $2.8 million for the year ended December 31, 2024, an increase of $1.1 million, or 64.5%, as compared to $1.7 million for the year ended December 31, 2023. Of this $1.1 million increase, $1.1 million is related to the provision for credit losses on loans, while the provision for credit losses on unfunded commitments decreased $43,000. The increase to the provision was primarily attributable to higher charge-offs and updates to assumptions on prepayments and other qualitative and quantitative components in our expected credit loss analysis.
Net charge-offs increased $333,000, or 16.1%, to $2.4 million for the year ended December 31, 2024. The increase was primarily due to a $291,000 commercial real estate loan charged-off in 2024. Net charge-offs on indirect automobile loans remained relatively stable at $1.4 million in both 2024 and 2023. The percentage of overdue account balances to total loans decreased to 1.71% as of December 31, 2024, from 1.90% as of December 31, 2023 and non-performing assets decreased $72,000, or 1.7%, to $4.1 million at December 31, 2024.
Non-Interest Income. Non-interest loss totaled $9.5 million for the year ended December 31, 2024, a decrease of $15.3 million, from non-interest income of $5.8 million in 2023, due primarily to the $16.0 million loss on sale of investment securities resulting from the previously mentioned balance sheet restructuring. The Company recorded an increase of $368,000, or 31.6%, in investment advisory income resulting from the improved market and economic conditions, an increase of $192,000 related to gains on life insurance, an increase of $122,000, or 4.2%, in service charges on deposit accounts, an increase of $86,000, or 12.9%, in the cash surrender value of life insurance, and an increase in the gain on sales of loans of $42,000, partially offset by a decrease of $64,000 on the disposal of premises and equipment.
Non-Interest Expense. Non-interest expense totaled $36.8 million for the year ended December 31, 2024, an increase of $419,000, or 1.2%, over 2023. The increase was primarily due to a $913,000 increase in salaries and benefits primarily due to higher production commissions and higher medical insurance costs, an increase of $33,000 in marketing expense and a $26,000 increase in data processing costs. These increases were partially offset by the $375,000 write-down of the Beacon, New York branch in the fourth quarter of 2023, which was sold in the first quarter of 2024. FDIC deposit insurance and other insurance decreased $127,000, or 10.3%, primarily due to a decreased assessment rate while other non-interest expense decreased $61,000 primarily due to decreased lending expenses.
Income Taxes. Income tax provision decreased by $3.5 million, or 290.1%, to a net benefit of $2.3 million for the year ended December 31, 2024 as compared to an expense of $1.2 million for the year ended December 31, 2023, primarily due to a pre-tax net loss recorded in 2024. Our effective tax rate for the year ended December 31, 2024 was 21.18% compared to 21.71% in 2023. The statutory tax rate was impacted by the benefits derived mainly from tax-exempt bond income and income received on the bank owned life insurance to arrive at the effective tax rate.
Average Balance Sheets for the Years Ended December 31, 2024 and 2023
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. 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. Loan balances include loans held for sale. Deferred loan fees included in interest income totaled $60,000 and $67,000 for the years ended December 31, 2024 and 2023, respectively.
For the Year Ended December 31,
Average
Interest and
Average
Interest and
Balance
Dividends
Yield/Cost
Balance
Dividends
Yield/Cost
(Dollars in thousands)
Assets:
Interest bearing depository accounts
$
21,042
$
1,113
5.29
%
$
22,612
$
1,173
5.19
%
Loans(1)
987,212
58,371
5.91
%
1,006,506
55,077
5.47
%
Available for sale securities
177,214
3,799
2.14
%
208,058
3,964
1.91
%
Other interest-earning assets
4,689
10.13
%
5,223
8.52
%
Total interest-earning assets
1,190,157
63,758
5.36
%
1,242,399
60,659
4.88
%
Non-interest-earning assets
88,221
90,389
Total assets
$
1,278,378
$
1,332,788
Liabilities and equity:
NOW accounts
$
124,061
$
0.14
%
$
138,515
$
0.14
%
Money market accounts
187,615
4,971
2.65
%
232,666
6,154
2.64
%
Savings accounts
141,189
0.36
%
161,812
0.36
%
Certificates of deposit
339,133
15,528
4.58
%
282,838
10,574
3.74
%
Total interest-bearing deposits
791,998
21,185
2.67
%
815,831
17,506
2.15
%
Escrow accounts
9,210
1.17
%
10,032
1.11
%
Federal Home Loan Bank advances
82,915
3,787
4.57
%
96,409
4,634
4.81
%
Subordinated debt
5,155
7.57
%
5,155
7.39
%
Other interest-bearing liabilities
1,043
5.47
%
1,146
5.41
%
Total other interest-bearing liabilities
98,323
4,342
4.42
%
112,742
5,188
4.60
%
Total interest-bearing liabilities
890,321
25,527
2.87
%
928,573
22,694
2.44
%
Non-interest-bearing deposits
242,603
268,103
Other non-interest-bearing liabilities
27,515
26,972
Total liabilities
1,160,439
1,223,648
Total stockholders’ equity
117,939
109,140
Total liabilities and stockholders’ equity
$
1,278,378
$
1,332,788
Net interest income
$
38,231
$
37,965
Interest rate spread
2.49
%
2.44
%
Net interest margin(2)
3.21
%
3.06
%
Average interest-earning assets to average interest-bearing liabilities
133.68
%
133.80
%
(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.
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the years 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. The Company does not have any excludable out-of-period items or adjustments.
Year Ended December 31, 2024
Compared to Year Ended
December 31, 2023
Increase (Decrease)
Due to
Volume
Rate
Net
Interest income:
Interest bearing depository accounts
$
(83)
$
$
(60)
Loans receivable
(1,072)
4,366
3,294
Available for sale securities
(627)
(164)
Other interest-earning assets
(48)
Total interest-earning assets
(1,830)
4,929
3,099
Interest expense:
Deposits
(524)
4,204
3,680
Escrow accounts
(9)
(3)
Federal Home Loan Bank advances
(625)
(223)
(848)
Subordinated debt
-
Other interest-bearing liabilities
(6)
(5)
Total interest-bearing liabilities
(1,164)
3,997
2,833
Net (decrease) increase in net interest income
$
(666)
$
$
In 2024, net interest income increased by $266,000 driven by a $932,000 gain from improved rates, despite a $666,000 loss from declining volumes. Interest income rose by $3.1 million, with rate increases in loans receivable and securities offsetting volume losses. Interest expenses increased by $2.8 million due to higher deposit rates, despite volume declines in deposits and Federal Home Loan Bank advances. Rate improvements were the primary driver of the overall positive impact, outweighing the negative effects of reduced volumes. The net interest rate spread increased 5 basis points to 2.49% for the year ended December 31, 2024 as compared to 2.44% for the year ended December 31, 2023. Net interest margin increased 15 basis points to 3.21% for 2024 from 3.06% for 2023.
Management of Market Risk
General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, the Board of Directors maintains a management-level Asset/Liability Management Committee (the “ALCO”), which takes initial responsibility for reviewing the asset/liability management process and related procedures, establishing and monitoring reporting systems and ascertaining that established asset/liability strategies are being maintained. On at least a quarterly basis, the ALCO reviews and reports asset/liability management outcomes with the Board of Directors. This committee also implements any changes in strategies and reviews the performance of any specific asset/liability management actions that have been implemented.
We try to manage our interest rate risk to minimize the exposure of our earnings and capital to changes in market interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates, holding more residential mortgage loans in our portfolio, promoting core deposit products and managing the interest rates and maturities of funding sources, as favorably as possible. By following these strategies, we believe that we can be better positioned to react to changes in market interest rates.
Net Economic Value Simulation. We analyze our sensitivity to changes in interest rates through a net economic value of equity (“EVE”) model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. The EVE ratio represents the dollar amount of our EVE divided by the present value of our total assets for a given interest rate scenario. EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. We estimate what our EVE would be at a specific date. We then calculate what the EVE would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate EVE under the assumptions that interest rates increase 100 to 400 basis points from current market rates and that interest rates decrease from 100 to 400 basis points from current market rates.
The following table presents the estimated changes in our EVE that would result from changes in market interest rates at December 31, 2024. All estimated changes presented in the table are within the policy limits approved by our Board of Directors.
Net Economic Value as a
Net Economic Value
Percentage of Assets
Dollar
Dollar
Percent
EVE
Percent
Basis Point Change in Interest Rates
Amount
Change
Change
Ratio
Change
(Dollars in thousands)
$
133,642
$
(39,731)
(22.9)
%
11.64
%
(16.80)
%
143,022
(30,351)
(17.5)
%
12.24
%
(12.56)
%
152,913
(20,460)
(11.8)
%
12.84
%
(8.25)
%
163,272
(10,101)
(5.8)
%
13.44
%
(3.94)
%
173,373
-
-
%
13.99
%
-
%
(100)
174,142
0.4
%
13.79
%
(1.49)
%
(200)
169,738
(3,635)
(2.1)
%
13.19
%
(5.75)
%
(300)
157,999
(15,374)
(8.9)
%
12.06
%
(13.81)
%
(400)
138,693
(34,680)
(20.0)
%
10.39
%
(25.78)
%
The table above shows that in the event of an instantaneous 200 basis point increase in interest rates, our EVE would decrease by 11.8%; and in the event of an instantaneous 200 basis point decrease in interest rates, our EVE would decrease by 2.1%. 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 table above 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 particular 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 differ from actual results.
Liquidity Management
We maintain liquid assets at levels we consider adequate to meet both our short-term and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.
Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLB advances and other borrowings. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows, loan sales and prepayments are greatly influenced by market interest rates, economic conditions, interest rate risk management and rates offered by our competition. We set the interest rates on our deposits in an attempt to maintain a desired level of total deposits.
As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing, or financing cash flows. Net cash provided by operating activities was $8.5 million and $7.0 million for the years ended December 31, 2024 and 2023, respectively. These amounts differ from our net income because of certain cash receipts and disbursements that did not affect net income for the respective periods. Net cash provided by investing activities was $74.7 million in 2024 as compared to $14.7 million in 2023. Net cash provided by investing activities principally reflects our investment security and loan activities in the respective periods. Net cash inflows of $33.4 million for a decrease in loans was the primary contributor to the cash provided by investing activities for the year ended December 31, 2024, as loans increased $16.2 million in 2023. Deposit and borrowing cash flows have traditionally comprised most of our financing activities, which resulted in a net cash outflow $67.9 million in the year ended December 31, 2024, as compared to $31.0 million in fiscal year 2023.
At December 31, 2024, we had the following main sources of availability of liquid funds and borrowings:
(In thousands)
Total
Available liquid funds:
Cash and cash equivalents
$
37,484
Unencumbered securities
64,002
Availability of borrowings:
Zions Bank line of credit
10,000
Pacific Coast Bankers Bank line of credit
50,000
FHLB secured line of credit
236,637
FRB secured line of credit
215,573
Total available sources of funds
$
613,696
The Bank has access to a preapproved secured line of credit with the FHLB not to exceed $627.3 million at December 31, 2024. Additional funds available under this line are not included in the table above as we do not consider it to be as readily accessible as the funds above.
The following table summarizes our main contractual obligations and other commitments to make future payments as of December 31, 2024. The amount of the obligations presented in the table reflect principal amounts only and exclude the amount of interest we are obligated to pay. Also excluded from the table are a number of obligations to be settled in cash. These excluded items are reflected in our consolidated balance sheet and include deposits with no stated maturity, trade payables, and accrued interest payable.
December 31, 2024
(In thousands)
Total
One Year or Less
After One but within Five Years
After 5 Years
Payments Due:
Federal Home Loan Bank advances
$
69,773
$
46,450
$
23,323
$
-
Operating lease agreements
10,443
2,872
6,814
Subordinated debt
5,155
-
-
5,155
Time deposits with stated maturity dates
337,639
288,303
49,336
-
Total contractual obligations
$
423,010
$
335,510
$
75,531
$
11,969
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles (“GAAP”) are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments, letters of credit and unused lines of credit, see Note 11 to the Consolidated Financial Statements. For 2024, we did not engage in any off-balance-sheet transactions other than loan origination commitments and standby letters of credit in the normal course of our lending activities.
Impact of Inflation and Changing Prices
The financial statements and related notes of the Company have been prepared in accordance with United States 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operation - Management of Market Risk.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The Financial Statements are included beginning on page of this annual report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal year (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that our internal control over financial reporting was effective and met the criteria of the “Internal Control - Integrated Framework (2013)” as of December 31, 2024.
(c) Attestation Report of the Registered Public Accounting Firm.
Not applicable because the Company is a non-accelerated filer.
(d) Changes in Internal Controls.
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Trading arrangements of Section 16 Reporting Persons.
During the quarter ended December 31, 2024, no person who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to holdings of, and transactions in, the Company’s common shares (i.e. directors and certain officers of the Company) maintained, adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1(c) arrangement”, as those terms are defined in Section 229.408 of the regulations of the SEC.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding directors, executive officers and corporate governance of the Company is presented under the headings “Other Information Relating to Directors and Executive Officers - Delinquent Section 16(a) Reports Compliance,” “Proposal 1 - Election of Directors,” “Corporate Governance - Code of Ethics for Senior Officers,” “- Committees of the Board of Directors - Audit Committee” and “- Insider Trading Policy and Arrangements” in the Company’s definitive Proxy Statement for the 2025 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by reference.
A copy of the Code of Ethics for Senior Officers is available to shareholders of the “Investor Relations” portion of the Bank’s website of www.rhinebeckbank.com.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Information regarding executive compensation is presented under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management is presented under the heading “Stock Ownership” in the Proxy Statement and is incorporated herein by reference.
The equity compensation plan information is presented under the heading “Proposal 2 - The approval of the Rhinebeck Bancorp, Inc. 2025 Equity Incentive Plan” in the Proxy Statement and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence is presented under the heading “Corporate Governance - Director Independence” and “Other Information Relating to Directors and Executive Officers - Transactions with Certain Related Persons” in the Proxy Statement and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services is presented under the heading “Proposal 2 - Ratification of the Appointment of Independent Registered Public Accountants” in the Proxy Statement and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)(1)
Financial Statements
The following documents are filed as part of this annual report on Form 10-K.
(A)
Reports of Independent Registered Public Accounting Firms
(B)
Consolidated Statements of Financial Condition - at December 31, 2024 and 2023
(C)
Consolidated Statements of Income - Years ended December 31, 2024 and 2023
(D)
Consolidated Statements of Comprehensive Income - Years ended December 31, 2024 and 2023
(E)
Consolidated Statements of Changes in Stockholders’ Equity - Years ended December 31, 2024 and 2023
(F)
Consolidated Statements of Cash Flows - Years ended December 31, 2024 and 2023
(G)
Notes to the Consolidated Financial Statements
(a)(2)
Financial Statement Schedules
None.
(a)(3)
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
Amended and Restated Bylaws of Rhinebeck Bancorp, Inc. (Incorporated by reference to the Rhinebeck Bancorp, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 27, 2019)
4.1
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.)
4.2
Indenture, dated as of March 30, 2005, by and between Rhinebeck Bancorp, MHC, as Issuer, and Wilmington Trust Company, as Trustee (Incorporated by reference to Rhinebeck Bancorp, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2019)
4.3
First Supplemental Indenture, dated as of January 16, 2019, by and among Wilmington Trust Company, as Trustee, Rhinebeck Bancorp, Inc. and Rhinebeck Bancorp, MHC (Incorporated by reference to Rhinebeck Bancorp, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2019)
4.4
Description of Rhinebeck Bancorp, Inc.’s Securities (Incorporated by reference to Exhibit 4.4 to Rhinebeck Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 26, 2020)
10.1*
Retirement Separation Agreement dated effective as of March 21, 2025, by and among Rhinebeck Bancorp, Inc., Rhinebeck Bank, and Michael J. Quinn, (Incorporated by reference to Rhinebeck Bancorp, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2025)
10.2*
Employment Agreement between Rhinebeck Bank and Jamie J. Bloom (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)
10.3*
Supplemental Executive Retirement Agreement between Rhinebeck Bank and Michael J. Quinn dated January 1, 2008 (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)
10.4*
Rhinebeck Bank Split Dollar Life Insurance Plan (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)
10.5*
Rhinebeck Bank Executive Short-Term Incentive and Retention Plan (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)
10.6*
Rhinebeck Bank Executive Long-Term Incentive and Retention Plan (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)
10.7*
New Director Fee Continuation Agreement between Rhinebeck Bank and Frederick Battenfeld dated January 1, 2008 (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)
10.8*
New Director Fee Continuation Agreement between Rhinebeck Bank and William C. Irwin dated January 1, 2008 (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)
10.9*
New Director Fee Continuation Agreement between Rhinebeck Bank and Louis Tumolo, Jr. dated January 1, 2008 (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)
10.10*
Change in Control Agreement between Rhinebeck Bank and Kevin Nihill (Incorporated by reference to Rhinebeck Bancorp, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 25, 2024)
10.11*
Rhinebeck Bancorp, Inc. 2020 Equity Incentive Plan (Incorporated by reference to Appendix A to the Proxy Statement for the 2020 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on April 21, 2020)
10.12*
Form of Restricted Stock Award Agreement (Incorporated by reference to the Registration Statement on Form S-8 (File no. 333-239811), filed with the Securities and Exchange Commission on July 10, 2020)
10.13*
Form of Incentive Stock Option Award Agreement (Incorporated by reference to the Registration Statement on Form S-8 (File no. 333-239811), filed with the Securities and Exchange Commission on July 10, 2020)
10.14*
Form of Non-Qualified Stock Option Award Agreement (Incorporated by reference to the Registration Statement on Form S-8 (File no. 333-239811), filed with the Securities and Exchange Commission on July 10, 2020)
Rhinebeck Bancorp, Inc, Insider Trading Policy
Subsidiaries of Registrant
23.1
Consent of Wolf & Company, P.C.
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
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Rhinebeck Bancorp, Inc. Clawback Policy (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 26, 2024)
The following materials from the Annual Report on Form 10-K of Rhinebeck Bancorp, Inc. for the year ended December 31, 2024, 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
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Denotes a compensatory plan or agreement.