Note

. Employee Benefit Plans

Prior to the merger, both Grayson National Bank (Grayson) and Bank of Floyd (Floyd) had qualified noncontributory defined benefit pension plans in place which covered substantially all of each bank’s employees. The benefits in each plan are primarily based on years of service and earnings. Both Grayson and Floyd plans were amended to freeze benefit accruals for all eligible employees prior to the effective date of the merger. A summary of each plan follows:

Grayson Plan

The following is a summary of the plan’s funded status as of

December 31:

(dollars in thousands)	2019			2018

Change in benefit obligation
Benefit obligation at beginning of year	$	4,493		$	5,223
Interest cost		182			173
Actuarial (gain) loss		827			(824	)
Benefits paid		(267	)		(79	)
Settlement (gain) loss		(13	)		-
Benefit obligation at end of year		5,222			4,493
Change in plan assets
Fair value of plan assets at beginning of year		8,092			8,513
Actual return on plan assets		1,332			(342	)
Benefits paid		(267	)		(79	)
Fair value of plan assets at end of year		9,157			8,092
Funded status at the end of the year	$	3,935		$	3,599

(dollars in thousands)	2019			2018

Amounts recognized in the Balance Sheet
Plan benefit cost	$	5,169		$	4,912
Unrecognized net actuarial loss		(1,234	)		(1,313	)
Amount recognized in other assets	$	3,935		$	3,599

Amounts recognized in accumulated comprehensive income (loss)
Unrecognized net actuarial loss	$	(1,234	)	$	(1,313	)
Deferred taxes		259			275
Amount recognized in accumulated comprehensive income (loss), net	$	(975	)	$	(1,038	)

Prepaid benefit detail
Benefit obligation	$	(5,222	)	$	(4,493	)
Fair value of assets		9,157			8,092
Unrecognized net actuarial loss		1,234			1,313
Prepaid benefit cost		5,169			4,912

Components of net periodic pension cost
Interest cost	$	182		$	173
Expected return on plan assets		(551	)		(576	)
Recognized net loss due to settlement		71			-
Recognized net actuarial loss		41			30
Net periodic benefit expense		(257	)		(373	)

Additional disclosure information
Accumulated benefit obligation	$	5,222		$	4,493
Vested benefit obligation	$	5,222		$	4,493
Discount rate used for net periodic pension cost		4.25	%		3.50	%
Discount rate used for disclosure		3.25	%		4.25	%
Expected return on plan assets		7.00	%		7.00	%
Rate of compensation increase		N/A			N/A
Average remaining service (years)		11			12

Using the same fair value hierarchy described in Note

14,

the fair values of the Company’s pension plan assets, by asset category, are as follows:

(dollars in thousands)	Total		Level 1		Level 2		Level 3

December 31, 2019
Cash equivalents and short term investments	$	-	$	-	$	-	$	-
Mutual funds – equities		4,749		4,749		-		-
Mutual funds – fixed income		4,408		4,408		-		-
Total assets at fair value	$	9,157	$	9,157	$	-	$	-

December 31, 2018
Cash equivalents and short term investments	$	-	$	-	$	-	$	-
Mutual funds – equities		3,848		3,848		-		-
Mutual funds – fixed income		4,244		4,244		-		-
Total assets at fair value	$	8,092	$	8,092	$	-	$	-

Estimated Future Benefit Payments

(dollars in thousands)	Pension Benefits

2020	$	430
2021		275
2022		230
2023		1,206
2024		425
2025 – 2029		1,303
	$	3,869

Funding Policy

It has been Bank practice to contribute the maximum tax-deductible amount each year as determined by the plan administrator. As a result of prior year contributions exceeding the minimum requirements, a Prefunding Balance existed as of

December 31, 2019

and there is

required contribution for

2020.

Based on this we do

not

anticipate making a contribution to the plan in

2020.

Long-Term Rate of Return

The plan sponsor selects the expected long-term rate-of-return-on-assets assumption in consultation with their 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 – that

may

not

continue over the measurement period – with higher significance 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 the 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 estimated within periodic cost).

Asset Allocation

The pension plan’s weighted-average asset allocations at

December 31, 2019

and

2018,

by asset category are as follows:

	2019			2018

Mutual funds – fixed income		48	%		52	%
Mutual funds – equity		52	%		48	%
Cash and equivalents		0	%		0	%
Total		100	%		100	%

The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of

percent fixed income and

percent equities. The Investment Manager 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.

Floyd Plan

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), a tax-qualified defined-benefit pension plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and is a multiple-employer plan under the Employee Retirement Income Security Act of

1974

and the Internal Revenue Code. There are

collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section

413

(C) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan, contributions made by a participating employer

may

be used to provide benefits to participants of other participating employers.

Funded Status (market value of plan assets divided by funding target) as of

July 1

	2019 Valuation			2018 Valuation
Source	Report			Report

Bank of Floyd Plan		103.97	%		106.44	%

Employer Contributions

Plan expenses paid by the Company totaled approximately

$64

thousand and

$54

thousand for the years ended

December 31, 2019

and

2018,

respectively.