Employee Benefits And Deferred Compensation Plans

12 Months Ended

Dec. 31, 2023

Employee Benefits And Deferred Compensation Plans [Abstract]

Employee Benefits And Deferred Compensation Plans

12.EMPLOYEE BENEFITS AND DEFERRED COMPENSATION PLANS

Employees’ Pension Plan

The Bank has a defined benefit pension plan that covered substantially all employees of the Company and its subsidiaries (the “Pension Plan”). The Pension Plan provides benefits that are based on the employees’ compensation and years of service. The Bank uses an actuarial method of amortizing prior service cost and unrecognized net gains or losses which result from actual experience and assumptions being different than those that are projected. The amortization method the Bank uses recognizes the prior service cost and net gains or losses over the average remaining service period of active employees which exceeds the required amortization. The Pension Plan was frozen effective January 31, 2008. Under the freeze, eligible employees will receive the benefits already earned through January 31, 2008 at retirement, but will not be able to accrue any additional benefits. As a result, service cost will no longer be incurred.

Selected Financial Information for the Pension Plan is as follows:

	2023		2022
Change in benefit obligation:		(in thousands)
Benefit obligation at the beginning of the year	$	4,912	$	6,551
Interest cost		237		179
Assumption change		102		(1,613)
Actuarial loss		4		49
Settlements		(263)		-
Benefits paid		(258)		(254)
Benefit obligation at the end of the year		4,734		4,912
Change in plan assets:
Fair value of plan assets at the beginning of year		4,998		6,536
Actual return on plan assets		503		(1,284)
Benefits paid		(521)		(254)
Fair value of plan assets at the end of year		4,980		4,998
Funded status	$	246	$	86
Amount recognized in the Consolidated Balance Sheets consist of:
Accrued benefit liabilities	$	246	$	86
Amount recognized in the Accumulated Other Comprehensive Loss consists of:
Net actuarial loss	$	1,879	$	2,229
Prior service cost		-		-
Net amount recognized in equity - pre-tax	$	1,879	$	2,229
Accumulated benefit obligation at year end	$	4,734	$	4,912

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Assumptions used by the Bank in the determination of Pension Plan information consisted of the following:

	2023		2022		2021
Discount rate for projected benefit obligation	5.00	%	5.22	%	2.77	%
Discount rate for net periodic pension cost	5.22	%	2.77	%	2.42	%
Expected long-term rate of return of plan assets	5.50	%	5.50	%	5.50	%

The components of net periodic benefit cost consisted of the following:

		2023			2022		2021
		(in thousands)
Interest cost	$	237	$		179	$	165
Expected return on plan assets		(259)			(353)		(356)
Net amortization and deferral		97			97		100
Settlement cost		114			-		-
Net periodic benefit cost	$	189		$	(77)	$	(91)

The components of net periodic benefit cost are included in the line item “other expense” in the income statement.

The Company did not contribute to the Pension Plan in 2023 and expects that it will not contribute to the Pension Plan in 2024.

The expected long-term rate of return on Pension Plan assets assumption was determined based on historical returns earned by equity and fixed income securities, adjusted to reflect future return expectations based on plan targeted asset allocation. Equity and fixed income securities were assumed to earn returns in the ranges of 4.5% to 11% and 4% to 5%, respectively. When these overall return expectations are applied to the Pension Plan’s targeted allocation, the expected rate of return was determined to be 5.50%, which is within the range of expected return. The Company’s management will continue to evaluate its actuarial assumptions, including the expected rate of return, at least annually, and will adjust as necessary.

The weighted average asset allocation of the Pension Plan at December 31, 2023 and 2022, the Pension Plan measurement date, was as follows:

Asset Category:	2023		2022
Equity mutual funds	35.39	%	35.29	%
Fixed income mutual funds	62.05	%	63.70	%
Cash/Short-term investments	2.56	%	1.01	%
	100.00	%	100.00	%

The portfolio is invested in accordance with sound investment practices. Consistent with this approach, the investment strategy is to diversify the portfolio in order to reduce risk and to maintain sufficient liquidity to meet the obligations of the Plan. The Plan’s long-term asset allocation under normal market conditions is 34% equity investment and 66% fixed income assets and other short term investments and cash equivalents. The investment objective of the allocation in equity investments emphasizes long term capital appreciation. These equity investments are diversified across market capitalization, industries, style and geographical location. The investment objective of the fixed income allocation is to generally provide a diversified source of income with an awareness of capital preservation. The primary objective of the investment philosophy is capital preservation.

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The major categories of assets in the Bank’s Pension Plan as of year-end are presented in the following table. Assets are segregated according to their investment objective by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (see Note 20 – Fair Value of Financial Instruments).

		2023		2022
		(in thousands)
Level 1:
Cash	$	-	$	-
Mutual funds:
Short-term investments:
Money market		128		50
Fixed Income:		3,225		3,314
Equities:
Small cap		283		255
Mid-Cap		149		151
Large cap		713		794
International large cap		482		434
	$	4,980	$	4,998

The mutual funds are actively traded with market quotes available on at least a daily basis. Therefore, they are Level 1 assets.

The discount rate utilized by the Company for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest ratings given by a recognized rating agency. The discount rate determined on this basis decreased from 5.22% at December 31, 2022 to 5.00% at December 31, 2023 for the Company's Pension Plan.

Expected benefit payments under the Pension Plan over the next ten years at December 31, 2023 are as follows:

	(in thousands)
2024	$	317
2025		318
2026		322
2027		317
2028		313
Year 2029 - 2033		1,652

Supplemental Executive Retirement Plans

The Bank also maintains a non-qualified supplemental executive retirement plan (the “SERP”) covering certain members of the Company’s senior management. The SERP was amended during 2003 to provide a benefit based on a percentage of final average earnings, as opposed to the fixed benefit that was provided for in the superseded plan.

On April 8, 2010, the Compensation Committee of the Board of Directors of the Company approved the adoption of the Evans Bank, N.A. Supplemental Executive Retirement Plan for Senior Executives (“the Senior Executive SERP”). The “old” SERP plan will keep its participants at the time of the creation of the Senior Executive SERP, but any future executives identified by the Board of Directors as eligible for SERP benefits will participate in the Senior Executive SERP. A participant is generally entitled to receive a benefit under the Senior Executive SERP upon a termination of employment, other than for “cause”, after the participant has completed 10 full calendar years of service with the Bank. No benefit is payable under the Senior Executive SERP if the participant’s employment is terminated for “cause” or if the participant voluntarily terminates before completing 10 full calendar years of service with the Bank. In addition, the payment of benefits under the Senior Executive SERP is conditioned upon certain agreements of the participant related to confidentiality, cooperation, non-competition, and non-solicitation. A participant will be entitled to a retirement benefit under the Senior Executive SERP if his or her employment with the Bank terminates other than for “cause”. The “accrued benefit” is based on a percentage of the participant’s final average earnings, which is determined based upon the participant’s total annual compensation over the highest consecutive five calendar years of the participant’s employment with the Bank, accrued over the participant’s “required benefit service”. The percentages and years of service requirements are set forth in each participant’s Participation Agreement, and range from 25% to 35% and from 15 to 20 years.

The obligations related to the two SERP plans are indirectly funded by various life insurance contracts naming the Bank as beneficiary. The Bank has also indirectly funded the SERPs, as well as other benefits provided to other employees, through bank-owned life insurance. The Bank uses an actuarial method of amortizing unrecognized net gains or losses which result from actual experience and assumptions being different than those that are projected. The amortization method the Bank is using recognizes the net gains or losses over the average remaining service period of active employees, which exceeds the required amortization.

Selected financial information for the two SERP plans is as follows:

	2023		2022
Change in benefit obligation:		(in thousands)
Benefit obligation at the beginning of the year	$	5,048	$	5,754
Service cost		144		131
Interest cost		250		124
Actuarial gain		(188)		(553)
Benefits paid		(285)		(408)
Benefit obligation at the end of the year		4,969		5,048
Change in plan assets:
Fair value of plan assets at the beginning of year		-		-
Actual return on plan assets		-		-
Employer contributions		285		408
Benefits paid		(285)		(408)
Fair value of plan assets at the end of year		-		-
Funded status	$	(4,969)	$	(5,048)
Amount recognized in the Consolidated Balance Sheets consist of:
Accrued benefit liabilities	$	(4,969)	$	(5,048)
Amount recognized in the Accumulated Other Comprehensive Loss consists of:
Net actuarial loss	$	188	$	376
Prior service cost		-		-
Net amount recognized in equity - pre-tax	$	188	$	376
Accumulated benefit obligation at year end	$	4,842	$	4,922

Assumptions used by the Bank in the determination of SERP information consisted of the following:

	2023		2022		2021
Discount rate for projected benefit obligation	4.89	%	5.10	%	2.23	%
Discount rate for net periodic pension cost	5.10	%	2.23	%	1.66	%
Salary scale	3.00	%	3.00	%	3.00	%

The discount rate utilized by the Company for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest ratings given by a recognized rating agency. The discount rate determined on this basis decreased from 5.10% at December 31, 2022 to 4.89% at December 31, 2023 (i.e. the measurement date) for the SERP.

The components of net periodic benefit cost consisted of the following:

	2023		2022		2021
	(in thousands)
Service cost	$	144	$	131	$	148
Interest cost		250		124		100
Net amortization and deferral		-		209		314
Net periodic benefit cost	$	394	$	464	$	562

Expected benefit payments under the SERP over the next ten years at December 31, 2023 are as follows:

	(in thousands)
2024	$	285
2025		3,003
2026		285
2027		285
2028		285
Year 2029 - 2033		926

Other Compensation Plans

The Company has a non-qualified deferred compensation plan whereby directors and certain officers may defer a portion of their base pre-tax compensation. Additionally, the Company has a non-qualified executive incentive retirement plan, whereby the Company defers on behalf of certain officers a portion of their base compensation until retirement or termination of service, subject to certain vesting arrangements. Aggregate expense under these plans was approximately $0.1 million in 2023, and $0.2 million in 2022 and 2021. The benefit obligation, included in other liabilities in the Company’s consolidated balance sheets, was $1.8 million at December 31, 2023 and was 1.9 million at December 31, 2022.

These benefit plans are indirectly funded by bank-owned life insurance contracts with a total aggregate cash surrender value of approximately $42.8 million and $41.8 million at December 31, 2023 and 2022, respectively. Increases in cash surrender value are included in other non-interest income on the Company’s Consolidated Statements of Income. Endorsement split-dollar life insurance benefits have also been provided to directors and certain officers of the Bank and its subsidiaries during employment.

The Company acquired a deferred compensation plan from FSB during 2020 which requires the Company to make scheduled payments to the participants. At December 31, 2023, this plan consisted of one participant that receives $5 thousand in monthly payments through June 2033. The benefit obligation, included in other liabilities in the Company’s consolidated balance sheets, was $0.6 million at December 31, 2023.

The Company also has a defined contribution retirement and thrift 401(k) Plan (the “401(k) Plan”) for its employees who meet certain length of service and age requirements. The provisions of the 401(k) Plan allow eligible employees to contribute a portion of their annual salary, up to the IRS statutory limit. The 401(k) plan includes a Qualified Automatic Contribution Arrangement (“QACA”). This arrangement features automatic deferred contributions with annual escalation, a QACA matching contribution, and an additional matching contribution. Employees vest in employer contributions over six years. The Company’s expense under the 401(k) Plan was approximately $1.4 million in each of 2023, 2022 and 2021, respectively.