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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2019
Employee Benefit Plans |
Employee Benefit Plans | NOTE 13: Employee Benefit Plans C&F Bank maintains a Defined Contribution Profit-Sharing Plan (the Profit-Sharing Plan) sponsored by the Virginia Bankers Association (VBA). The Profit-Sharing Plan includes a 401(k) savings provision that authorizes a maximum voluntary deferral of up to 95 percent of covered compensation (with a partial company match), subject to statutory limitations. The Profit-Sharing Plan provides for an annual discretionary contribution to the account of each eligible employee based in part on C&F Bank’s profitability for a given year and on each participant’s yearly earnings. All full-time employees who have attained the age of 18 and have at least one month of service are eligible to participate. Contributions and earnings may be invested in various investment vehicles offered through the VBA. All employee contributions are fully vested upon contribution. An employee is 20 percent vested in C&F Bank’s contributions after two years of service, 40 percent after three years, 60 percent after four years, 80 percent after five years and fully vested after six years, or earlier in the event of retirement, death or attainment of age 65 while an employee. The amounts charged to expense under this plan were $903,000, $896,000 and $799,000 in 2019, 2018 and 2017, respectively. C&F Mortgage maintains a Defined Contribution 401(k) Savings Plan that authorizes a voluntary salary deferral of up to 100 percent of compensation (with a discretionary company match), subject to statutory limitations. Substantially all employees who have attained the age of 18 are eligible to participate on the first day of the next month following employment date. The plan provides for an annual discretionary contribution to the account of each eligible employee based in part on C&F Mortgage’s profitability for a given year and on each participant’s contributions to the plan. Contributions may be invested in various investment funds offered under the plan. All employee contributions are fully vested upon contribution. An employee is vested 25 percent in the employer’s contributions after two years of service, 50 percent after three years, 75 percent after four years, and fully vested after five years. The amounts charged to expense under this plan were $392,000, $220,000 and $216,000 in 2019, 2018 and 2017, respectively. C&F Finance maintains a Defined Contribution 401(k) and Profit-Sharing Plan sponsored by the VBA with plan features similar to the Profit-Sharing Plan of C&F Bank. The amounts charged to expense under this plan were $223,000, $190,000 and $223,000 in 2019, 2018 and 2017, respectively. Individual performance bonuses are awarded annually to certain senior members of management of C&F Bank and C&F Finance under the Corporation's Management Incentive Plan (MIP). The Corporation’s Compensation Committee determines the bonuses to be paid to the Chief Executive Officer and the President of the Corporation. The Chief Executive Officer recommends the bonuses to be paid to the remaining officers participating in the MIP. In determining the awards, individual performance and the Corporation’s performance, including growth rate, returns on average assets and equity, asset quality measures and absolute levels of income are considered. In addition, the Compensation Committee, based on the recommendations of the Chief Executive Officer, determines the bonuses to be paid to other members of management of C&F Bank and C&F Finance who do not participate in the MIP. The expense for these bonus awards is accrued in the year of performance. Expenses under these plans were $1.97 million, $1.95 million and $1.70 million in 2019, 2018 and 2017, respectively. In accordance with employment agreements for certain senior officers of C&F Mortgage, performance bonuses of $1.48 million, $762,000 and $759,000 were expensed in 2019, 2018 and 2017, respectively. Performance used in determining the awards is directly related to the profitability of C&F Mortgage. C&F Bank has a non-contributory, defined benefit pension plan (Cash Balance Plan) for all full-time employees over 21 years of age. 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 prior year’s December average yield on 30-year Treasuries plus 150 basis points. 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 salary and bonus deferrals. The plan also allows for employer contributions to make up for limitations on covered compensation imposed by the Internal Revenue Code with respect to the Profit-Sharing Plan and Cash Balance Plan and to enhance retirement benefits by providing supplemental contributions from time to time. Expenses under this plan were $294,000, $297,000 and $253,000 in 2019, 2018 and 2017, respectively. Investments for this plan are held in a Rabbi trust. These investments are included in other assets and the related liability is included in other liabilities. On December 16, 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 insurance premiums for him and his spouse for life. There were no expenses under this arrangement in 2019; however, in 2018 and 2017 expenses were $88,000 and $81,000, respectively. The related liability is included in other liabilities. The following table summarizes the projected benefit obligations, plan assets, funded status and rate assumptions associated with the Cash Balance Plan based upon actuarial valuations.
|  | December 31, |
(Dollars in thousands) |  | 2019 |  | 2018 |
Change in benefit obligation |  |  |  |  |  |  |
Projected benefit obligation, beginning |  | $ | 17,205 |  | $ | 17,808 |
Service cost |  |  | 1,218 |  |  | 1,232 |
Interest cost |  |  | 609 |  |  | 521 |
Actuarial loss (gain) |  |  | 2,834 |  |  | (1,308) |
Benefits paid |  |  | (1,072) |  |  | (1,048) |
Projected benefit obligation, ending |  |  | 20,794 |  |  | 17,205 |
Change in plan assets |  |  |  |  |  |  |
Fair value of plan assets, beginning |  |  | 20,156 |  |  | 19,254 |
Actual return on plan assets |  |  | 3,722 |  |  | (1,050) |
Employer contributions |  |  | — |  |  | 3,000 |
Benefits paid |  |  | (1,072) |  |  | (1,048) |
Fair value of plan assets, ending |  |  | 22,806 |  |  | 20,156 |
Funded status |  | $ | 2,012 |  | $ | 2,951 |
Amounts recognized as an other asset |  | $ | 2,012 |  | $ | 2,951 |
Amounts recognized in accumulated other comprehensive loss |  |  |  |  |  |  |
Net loss |  | $ | 5,239 |  | $ | 5,017 |
Prior service credits |  |  | (504) |  |  | (572) |
Deferred taxes |  |  | (995) |  |  | (933) |
Total recognized in accumulated other comprehensive loss |  | $ | 3,740 |  | $ | 3,512 |
Weighted-average assumptions for benefit obligation at valuation date |  |  |  |  |  |  |
Discount rate |  |  | 2.9 | % |  | 4.0 | %
Rate of compensation increase |  |  | 3.0 |  |  | 3.0 |
Interest crediting rate |  |  | 5.0 |  |  | 5.0 |
The accumulated benefit obligation was $20.79 million and $17.21 million as of the actuarial valuation dates December 31, 2019 and 2018, respectively. The following table summarizes the components of net periodic benefit cost and rate assumptions associated with the Cash Balance Plan.
|  |  | Year Ended December 31, |
(Dollars in thousands) |  |  | 2019 |  | 2018 |  | 2017 |
Components of net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |
Service cost, included in salaries and employee benefits |  |  | $ | 1,218 |  | $ | 1,232 |  | $ | 1,120 |
Other components of net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |
Interest cost |  |  |  | 609 |  |  | 521 |  |  | 552 |
Expected return on plan assets |  |  |  | (1,297) |  |  | (1,413) |  |  | (1,138) |
Amortization of prior service credit |  |  |  | (68) |  |  | (62) |  |  | (61) |
Amortization of net obligation at transition |  |  |  | — |  |  | — |  |  | — |
Recognized net actuarial losses |  |  |  | 187 |  |  | 125 |  |  | 154 |
Other components of net periodic benefit cost, included in other noninterest income |  |  |  | (569) |  |  | (829) |  |  | (493) |
Net periodic benefit cost |  |  | $ | 649 |  | $ | 403 |  |  | 627 |
|  | January 1, |
|  | 2019 |  | 2018 |  | 2017 |
Weighted-average assumptions for net periodic benefit cost |  |  |  |  |  |  |
Discount rate |  | 4.0 | % | 3.3 | % | 3.7 | %
Expected return on plan assets |  | 7.3 |  | 7.3 |  | 7.3 |
Rate of compensation increase |  | 3.0 |  | 3.0 |  | 3.0 |
The benefits expected to be paid by the plan in the next ten years are as follows:
(Dollars in thousands) |  |  |  |
2020 |  | $ | 4,460 |
2021 |  |  | 615 |
2022 |  |  | 828 |
2023 |  |  | 1,492 |
2024 |  |  | 1,252 |
2025 – 2029 |  |  | 7,466 |
|  | $ | 16,113 |
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, |
|  | 2019 |  | 2018 |
Mutual funds-fixed income |  | 38 | % | 42 | %
Mutual funds-equity |  | 62 |  | 58 |
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, 2019 and 2018. For more information about fair value measurements, see “Note 18: Fair Value of Assets and Liabilities.”
|  | December 31, 2019 |
|  | Fair Value Measurements Using |  | Assets at Fair |
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |
Mutual funds-fixed income 1 |  | $ | 8,744 |  | $ | — |  | $ | — |  | $ | 8,744 |
Mutual funds-equity 2 |  |  | 14,062 |  |  | — |  |  | — |  |  | 14,062 |
Cash and equivalents 3 |  |  | — |  |  | — |  |  | — |  |  | — |
Total pension plan assets |  | $ | 22,806 |  | $ | — |  | $ | — |  | $ | 22,806 |
|  | December 31, 2018 |
|  | Fair Value Measurements Using |  | Assets at Fair |
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Value |
Mutual funds-fixed income 1 |  | $ | 8,497 |  | $ | — |  | $ | — |  | $ | 8,497 |
Mutual funds-equity 2 |  |  | 11,659 |  |  | — |  |  | — |  |  | 11,659 |
Cash and equivalents 3 |  |  | — |  |  | — |  |  | — |  |  | — |
Total pension plan assets |  | $ | 20,156 |  | $ | — |  | $ | — |  | $ | 20,156 |
| 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.

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