Employee Benefit Plans

12 Months Ended

Dec. 31, 2023

Employee Benefit Plans

Employee Benefit Plans

NOTE 14: Employee Benefit Plans

The Corporation’s subsidiaries maintain defined contribution plans that provide the opportunity for voluntary tax-qualified deferral to substantially all of its full-time employees who are at least 18 years of age.  These plans also provide for employer contributions as a discretionary or non-discretionary matching contribution and in some cases as a discretionary profit-sharing contribution to the account of each participant.  The total expense recognized in connection with these qualified defined contribution plans for 2023, 2022 and 2021 were $1.55 million, $1.44 million and $2.03 million, respectively.

C&F Bank has a non-contributory, defined benefit pension plan (Cash Balance Plan) for many of its full-time employees over 21 years of age.  During 2021, C&F Bank amended its Cash Balance Plan and closed the plan to new entrants hired after December 31, 2021.  Benefits earned by participants in the plan hired before January 1, 2022 were not affected by the amendment and will continue to accrue for active participants.  Under the Cash Balance Plan, the benefit account for each participant will grow each year with annual pay credits based on age and years of service and monthly interest credits based on the yield on 30-year Treasuries plus 150 basis points, but no less than three percent. C&F Bank funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.

The Corporation has a nonqualified deferred compensation plan for certain executives. The plan allows for elective deferrals of salary, bonus and commissions. The plan also allows for discretionary employer contributions to enhance retirement benefits by supplementing the benefits provided under tax-qualified plans. Expenses under this plan were $325,000, $345,000 and $296,000 in 2023, 2022 and 2021, respectively.  The deferred compensation liability under the nonqualified plan is not required to be funded, however, the currently liability is funded and held in a rabbi trust and invested according to participant elections. These investments are included in other assets and the related liability is included in other liabilities.

In 2014, the Corporation approved an additional compensation benefit for the Corporation’s Chief Executive Officer at the time to provide post-retirement medical and dental coverage for him and his spouse for life.  Expense recognized for this arrangement in 2022 and 2021 were $10,000 and $15,000, respectively.  There was no expense recognized in the year ended December 31, 2023, with all estimated amounts having been accrued. The remaining related liability is included in other liabilities.

The following table summarizes the projected benefit obligations, plan assets, funded status and related assumptions associated with the Cash Balance Plan based upon actuarial valuations.

	December 31,
(Dollars in thousands)	2023			2022
Change in benefit obligation
Projected benefit obligation, beginning	$	15,267		$	20,247
Service cost		1,377			1,837
Interest cost		728			492
Actuarial loss (gain)		527			(5,190)
Benefits paid		(1,087)			(2,119)
Projected benefit obligation, ending		16,812			15,267
Change in plan assets
Fair value of plan assets, beginning		18,356			23,470
Actual return on plan assets		2,319			(4,995)
Employer contributions		—			2,000
Benefits paid		(1,087)			(2,119)
Fair value of plan assets, ending		19,588			18,356
Funded status	$	2,776		$	3,089
Amounts recognized as an other asset	$	2,776		$	3,089
Amounts recognized in accumulated other comprehensive loss
Net loss	$	3,718		$	4,397
Prior service credits		(235)			(302)
Deferred taxes		(731)			(859)
Total recognized in accumulated other comprehensive loss	$	2,752		$	3,236
Weighted-average assumptions for benefit obligation at valuation date
Discount rate		4.7	%		4.9	%
Rate of compensation increase		3.0			3.0
Interest crediting rate		5.0			5.0

The accumulated benefit obligation was $16.81 million and $15.27 million as of the actuarial valuation dates December 31, 2023 and 2022, respectively. The actuarial loss of $527,000 on the projected benefit obligation for 2023 and the actuarial gain of $5.19 million on the projected benefit obligation for 2022 were due primarily to fluctuations in the discount rate as well as demographic changes in the population.  

The Cash Balance Plan contains provisions that allow participants the option of receiving their pension benefits in a lump sum upon retirement or, in certain cases, prior to retirement. The Corporation’s accounting policy is to record these payments as a settlement only if, in the aggregate for a given year, they exceed the sum of the annual service cost and interest cost for the Cash Balance Plan.  During the year ended December 31, 2021, lump sum pension settlement payments to retired and active participants totaled $5.37 million, which exceeded the settlement threshold, and as a result, the Corporation recognized non-cash settlement charges totaling $1.26 million before income taxes during 2021.  The non-cash charge accelerated the recognition of a portion of previously unrecognized net actuarial losses in accumulated other comprehensive loss. There were no lump sum pension settlement payments which exceeded the settlement threshold during 2023 or 2022.    

The following table summarizes the components of net periodic benefit cost and related assumptions associated with the Cash Balance Plan.

	Year Ended December 31,
(Dollars in thousands)	2023		2022		2021
Components of net periodic benefit cost:
Service cost, included in salaries and employee benefits	$	1,377	$	1,837	$	1,970
Other components of net periodic benefit cost:
Interest cost		728		492		458
Expected return on plan assets		(1,284)		(1,660)		(1,733)
Amortization of prior service credit		(67)		(68)		(68)
Pension settlement charges		—		—		1,261
Recognized net actuarial losses		171		38		243
Other components of net periodic benefit cost, included in other noninterest expense		(452)		(1,198)		161
Net periodic benefit cost	$	925	$	639	$	2,131

	January 1,
	2023		2022		2021
Weighted-average assumptions for net periodic benefit cost
Discount rate	4.9	%	2.5	%	2.1	%
Expected return on plan assets	7.3		7.3		7.3
Rate of compensation increase	3.0		3.0		3.0
Interest crediting rate	5.0		5.0		5.0

The benefits expected to be paid by the plan in the next ten years are as follows:

(Dollars in thousands)
2024	$	1,429
2025		663
2026		968
2027		928
2028		1,767
2029 – 2033		10,679

C&F Bank selects the expected long-term rate of return on assets in consultation with its investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset classes held or anticipated to be held by the trust and for the trust itself. Undue weight is not given to recent experience, which may not continue over the measurement period. Higher significance is placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plan is assumed to continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly within periodic costs).

C&F Bank’s defined benefit pension plan’s weighted average asset allocations by asset category are as follows:

	December 31,
	2023		2022
Mutual funds-fixed income	40	%	38	%
Mutual funds-equity	60		62
Cash and equivalents	*		*
	100	%	100	%

* Less than one percent.

The following table summarizes the fair value of the defined benefit plan assets as of December 31, 2023 and 2022. For more information about fair value measurements, see “Note 19: Fair Value of Assets and Liabilities.”

	December 31, 2023
	Fair Value Measurements Using						Assets at Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Mutual funds-fixed income 1	$	7,835	$	—	$	—	$	7,835
Mutual funds-equity 2		11,753		—		—		11,753
Cash and equivalents 3		—		—		—		—
Total pension plan assets	$	19,588	$	—	$	—	$	19,588

	December 31, 2022
	Fair Value Measurements Using						Assets at Fair
(Dollars in thousands)	Level 1		Level 2		Level 3		Value
Mutual funds-fixed income 1	$	6,975	$	—	$	—	$	6,975
Mutual funds-equity 2		11,381		—		—		11,381
Cash and equivalents 3		—		—		—		—
Total pension plan assets	$	18,356	$	—	$	—	$	18,356

1 This category includes investments in mutual funds focused on fixed income securities with both short-term and long-term investments. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the funds.

2 This category includes investments in mutual funds focused on equity securities with a diversified portfolio and includes investments in large cap and small cap funds, growth funds, international focused funds and value funds. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the funds.

3 This category comprises cash and short-term cash equivalent funds. The funds are valued at cost which approximates fair value.

The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of 40 percent fixed income and 60 percent equities. The investment advisor selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the plan’s investment strategy. The investment manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of the trustee to administer the investments of the trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the trust.