Employee Benefit Plans

9 Months Ended

Sep. 30, 2020

Note 7 - Employee Benefit Plans

For additional detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 11 of the Company’s Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all employees and officers hired prior to January 1, 2007. Additionally, the Bank assumed the noncontributory defined benefit pension plan of the First National Bank of Fredericksburg (FNB) when FNB was acquired in December 2015. The FNB plan was closed and all assets were distributed in the fourth quarter of 2019. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans’ actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation. The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan and the line item on the Consolidated Statement of Income where such amounts are included, for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			Affected line item on the Consolidated Statement of Income
Service cost	$	82		$	78		$	247		$	256		Salary and Employee Benefits
Interest cost		83			123			249			401		Other Expenses
Expected return on plan assets		(215	)		(187	)		(646	)		(595	)	Other Expenses
Partial Settlement		-			-			307			-		Other Expenses
Net amortization and deferral		59			60			175			181		Other Expenses
Net periodic benefit cost	$	9		$	74		$	332		$	243

The Bank expects to contribute $250,000 to the Pension Plan during the fourth quarter of 2020.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the “Plan”) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including continuous employment or service with the Company. In April of 2016, the Company’s stockholders authorized a total of 150,000 shares of the Company’s common stock to be made available under the Plan. As of September 30, 2020, 124,479 shares remain available to be issued under the Plan. The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted stock during the three and nine months ended September 30, 2020:

	Three months				Nine months
	Unvested Shares		Weighted Average Market Price		Unvested Shares			Weighted Average Market Price
Outstanding, beginning of period		10,786	$	56.60		10,877		$	60.11
Granted		85		58.37		4,732			51.29
Forfeited		-		-		-			-
Vested		-		-		(4,738	)		(59.32	)
Outstanding, end of period		10,871	$	56.61		10,871		$	56.61

Compensation expense related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $248,000 and $219,000 for the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, compensation expense totaled $83,000 and $78,000, respectively. At September 30, 2020, the total compensation cost related to nonvested awards that had not yet been recognized was $615,000, which is expected to be recognized over the next three years.