7.  Employee Benefits

Pension Plan

The Bank maintains a noncontributory defined benefit pension plan covering substantially all of its employees 21 years of age or older who had completed at least one year of service as of June 30, 2012, the effective date on which the Board of Directors of the Bank voted to freeze the defined benefit plan.

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

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

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

As of June 30, 2026, the investment funds included two fixed income bond funds, each with its own investment objectives, investment strategies and risks, as detailed in the Company’s investment policy statement. The Company determines the appropriate strategic asset allocation versus plan liabilities, as governed by the investment policy statement.

The assets of the plan are invested under the supervision of the Company’s investment committee in accordance with the investment policy statement. The investment options of the plan are chosen in a manner consistent with generally accepted standards of fiduciary responsibility. The investment performance of the Company’s individual investment managers, with the assistance of the Company’s investment consultant, is monitored on a quarterly basis and is reviewed at least annually relative to the objectives and guidelines as stated in the Company’s investment policy statement.

The Company did not contribute to the plan in the first six months of 2026 or 2025.

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

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

For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 9 of the Company’s Consolidated Financial Statements for the year ended December 31, 2025 included in the Annual Report on Form 10-K.

Defined Contribution Plan

The Bank sponsors a 401(k) defined contribution plan. Participants are permitted, in accordance with the provisions of Section 401(k) of the Internal Revenue Code, to contribute up to 25% of their earnings (as defined) into the plan with the Bank matching up to 6%, subject to Internal Revenue Service limitations. The Bank’s contributions charged to operations amounted to $560 and $569 for the six months ended June 30, 2026 and 2025, respectively.

Deferred Compensation Arrangements

Directors’ Plan, (formerly the “Trustees Plan”)

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The Bank’s Deferred Compensation Plan for Fees of Directors, as amended and restated effective January 1, 2005 (the “Directors’ Plan”), covers directors who elect to defer receipt of all or a portion of their fees until separation from service. Upon resignation, retirement, or death, the participant’s total deferred compensation, including earnings thereon, will be paid out. At June 30, 2026 and December 31, 2025, total amounts due to participants of $2,107 and $3,429, respectively, were included in accrued expenses and other liabilities. Total expenses related to the Directors’ Plan were $161 and $177 for the six months ended June 30, 2026 and 2025, respectively, which were included in other non-interest expense in the consolidated statements of income.

Executive Long-Term Incentive and Retention Plan

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The Bank maintained an Executive Long-Term Incentive and Retention Plan (the “Executive Plan”). Participation in the Executive Plan was limited to officers of the Company designated as participants by the Board of Directors. Under the Executive Plan, the Board of Directors was permitted to grant annual incentive awards equal to a percentage of a participant’s base salary at the rate in effect on the last day of the Executive Plan year, as determined by the Board of Directors based on the attainment of criteria established annually by the Board of Directors. Incentive awards under the Executive Plan were credited to the participant’s incentive benefit account as of the last day of the Executive Plan year to which the award relates and earned interest at a rate determined annually by the Board of Directors. Participants vested in their benefit accounts in accordance with the vesting schedule approved by the Board of Directors, which ranged from one to five years of service. At June 30, 2026 and December 31, 2025, $1,912 and $1,630, respectively, was included in accrued expenses and other liabilities, which represents the cumulative amounts deferred and earnings thereon. The Company recognized expenses of $644 and $455 for the six months ended June 30, 2026 and 2025, respectively, related to this plan, which are included in salaries and employee benefits expense and other non-interest expense in the consolidated statements of income.

On May 19, 2026, the Board of Directors of the Bank terminated the Executive Plan.

Group Term Replacement Plan

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Under the terms of the “Group Term Replacement Plan,” the Company provides postretirement life insurance benefits to certain officers. The liability related to these postretirement benefits is accrued over the individual participants’ service period and aggregated $1,785 and $1,761 at June 30, 2026 and December 31, 2025, respectively. The Company recognized expenses of $24 for each of the six months ended June 30, 2026 and 2025 related to this plan, which are included in salaries and employee benefits expense in the consolidated statements of income.

Other Director and Officer Postretirement Benefits

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The Company has fee continuation agreements with certain directors and a supplemental retirement agreement with an executive officer, each of which provide fixed postretirement benefits to be paid to the directors or the officer, or their beneficiaries, for periods ranging from 15 to 20 years. In addition, the Company has agreements with certain directors which provide certain postretirement life insurance benefits. The liability related to these postretirement benefits is accrued over the individual participants’ service period and aggregated $2,170 and $2,154 at June 30, 2026 and December 31, 2025, respectively. The Company recognized expenses of $23 and $69 for the six months ended June 30, 2026 and 2025, respectively, related to these benefits, which are included in other non-interest expenses in the consolidated statements of income.

Employee Stock Ownership Plan

On January 1, 2019, the Bank established an Employee Stock Ownership Plan (“ESOP”) to provide Company stock to eligible employees. The plan is a tax-qualified retirement plan for the benefit of Bank employees. On January 16, 2019, the Company granted a loan to the ESOP to purchase 436,425 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company is payable annually over 20 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (6.75% at January 1, 2026). Loan payments are funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at June 30, 2026 was $3,335. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 21,821 through 2039.

Shares held by the ESOP include the following:

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The fair value of unallocated shares was $4,722 at June 30, 2026.

Total compensation expense recognized in connection with the ESOP was $164 and $115 for the six months ended June 30, 2026 and 2025, respectively.

Share-Based Compensation Plan

On May 26, 2020, stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 EIP”).  The 2020 EIP authorizes the issuance to participants of up to 763,743 shares of Rhinebeck Bancorp common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units.  Of this number, the maximum number of shares of Rhinebeck Bancorp common stock that may be issued under the 2020 EIP pursuant to the exercise of stock options is 545,531 shares, and the maximum number of shares of Rhinebeck Bancorp common stock that may be issued as restricted stock awards or restricted stock units is 218,212 shares.  These amounts represented 4.90% and 1.96%, respectively, of the number of shares of common stock issued in the initial stock offering of Rhinebeck Bancorp in 2018.

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Pursuant to terms of the 2020 EIP, on August 25, 2020, the Board of Directors granted restricted stock and stock options to employees and directors. All of the awards granted vest annually over a three-year period from the date of the grant and the term of each option is ten years. Since the effective date of the 2025 Equity Incentive Plan (“2025 EIP”), no further grants of equity awards are permitted under the 2020 Equity Plan.

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On May 21, 2025, stockholders of the Company approved the 2025 EIP. The 2025 EIP authorizes the issuance to participants of up to 600,000 shares of Rhinebeck Bancorp common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units.

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Pursuant to terms of the 2025 EIP, on May 26, 2026, the Board of Directors granted restricted stock to employees and directors. All of the awards granted vest annually over a three-year period from the date of the grant.

The fair value of each option granted under the 2020 EIP is estimated on the date of grant using the Black-Scholes Option-Pricing Model. The expected volatility is based on the historical volatility of a peer group of comparable SEC-reporting bank holding companies. The dividend yield assumption is based on the Company’s expectation of dividend payouts. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the date of grant. The Company has elected to recognize forfeitures as they occur.

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A summary of options under the 2020 EIP as of June 30, 2026 is presented below:

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At June 30, 2026, the aggregate intrinsic value of the stock options exercised was $654, and the aggregate intrinsic value of the stock options outstanding was $2,024. These values fluctuate based on changes in the fair market value of the Company’s stock. The aggregate intrinsic value of the stock options outstanding represents the total pre-tax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of period and the weighted-average exercise price, multiplied by the number of shares) that would have been issued had all option holders exercised their options on June 30, 2026.

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As of June 30, 2026, there was no unrecognized compensation cost related to the nonvested stock options granted under the 2020 EIP, as all options were fully vested at June 30, 2026.

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There were no options granted or outstanding under the 2025 EIP as of June 30, 2026.

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The following table summarizes the Company’s restricted stock activity for the six months ended June 30, 2026:

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As of June 30, 2026, there was $1,539 of unrecognized compensation cost related to the nonvested restricted stock awards granted under the 2020 and 2025 EIPs. The cost is expected to be recognized over the remaining period of 2.85 years.

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For the six months ended June 30, 2026 and 2025, share-based compensation of options and restricted stock under the 2020 and 2025 EIPs totaled $75 and $20, respectively.