Retirement Plans and Other Postretirement Benefits

Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law; these plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants; all current participants are now retired. Information on these plans are aggregated and reported under “Retirement Plans” within this footnote.

The Corporation also provides certain postretirement healthcare and life insurance benefits for retired employees. Information on these benefits is reported under “Other Postretirement Benefits” within this footnote.

The Corporation sponsors a 401(k) deferred salary savings plan, which is a qualified defined contribution plan, and which covers all employees of the Corporation and its subsidiaries, and provides that the Corporation makes matching contributions as defined by the plan. Expense recorded by the Corporation for the 401(k) deferred salary savings plan for the years ended December 31, 2016, 2015 and 2014 was $1.2 million, $1.0 million, and $836 thousand, respectively.

The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP) which was established in 1981 prior to the existence of a 401(k) deferred salary savings plan, employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. Expense recorded by the Corporation for the SNQPP for the years ended December 31, 2016 and 2015 was $52 thousand and $285 thousand, respectively. The Corporation recognized income in 2014 of $44 thousand primarily due to an increase in the weighted average discount rate from 4.0% for 2013 to 4.9% for 2014.

Information with respect to the Retirement Plans and Other Postretirement Benefits follows:



	Retirement Plans						Other Postretirement Benefits
(Dollars in thousands)	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	49,810		$	51,390		$	2,834		$	2,896
Service cost	661			756			46			59
Interest cost	2,071			1,953			133			110
Actuarial loss (gain)	413			(1,915		)	36			(141		)
Benefits paid	(2,400		)	(2,374		)	(81		)	(90		)
Settlements	(3,166		)	—			—			—
Benefit obligation at end of year	$	47,389		$	49,810		$	2,968		$	2,834

Change in plan assets:
Fair value of plan assets at beginning of year	$	41,490		$	41,437		$	—		$	—
Actual return on plan assets	3,314			246			—			—
Benefits paid	(2,400		)	(2,374		)	(81		)	(90		)
Settlements	(3,166		)	—			—			—
Employer contribution and non-qualified benefit payments	2,180			2,181			81			90
Fair value of plan assets at end of year	$	41,418		$	41,490		$	—		$	—
Funded status	(5,971		)	(8,320		)	(2,968		)	(2,834		)
Unrecognized net actuarial loss	22,018			24,628			767			756
Unrecognized prior service costs	(746		)	(1,029		)	—			—
Net amount recognized	$	15,301		$	15,279		$	(2,201	)	$	(2,078	)

In the fourth quarter of 2016, the Corporation offered to vested participants in the pension plan, who were no longer employees, the option of a one-time lump-sum payment in lieu of any future benefits that would have been payable from the plan. As a result, lump-sum payments from the plan were $3.2 million and exceeded the service cost and interest cost for the year triggering a settlement. The settlement was measured as of December 31, 2016 because the majority of lump sum payments occurred during December 2016. The settlement cost was $1.4 million. The amount represents a reclassification of accumulated other comprehensive income to pension expense (included in salaries and benefit expense in the statement of income) and had no impact on shareholders' equity.

Information for the pension plan with an accumulated benefit obligation in excess of the fair value of plan assets is shown below.



	At December 31,
(Dollars in thousands)	2016		2015
Projected benefit obligation	$	45,129	$	47,543
Accumulated benefit obligation	42,178		44,125
Fair value of plan assets	41,418		41,490

Components of net periodic benefit cost (income) were as follows:



	Retirement Plans									Other Post Retirement Benefits
(Dollars in thousands)	2016			2015			2014			2016		2015		2014
Service cost	$	661		$	756		$	528		$	46	$	59	$	75
Interest cost	2,071			1,953			1,900			133		110		128
Expected return on plan assets	(3,041		)	(3,100		)	(2,929		)	—		—		—
Amortization of net actuarial loss	1,296			1,308			649			25		54		17
Accretion of prior service cost	(283		)	(280		)	(281		)	—		—		(7		)
Settlement cost	1,434			—			—			—		—		—
Net periodic benefit cost (income)	$	2,138		$	637		$	(133	)	$	204	$	223	$	213



(Dollars in thousands)	Retirement Plans			Other Postretirement Benefits
Expected amortization expense for 2017:
Amortization of net actuarial loss	$	1,227		$	208
Accretion of prior service cost	(283		)	—

During 2017, the Corporation expects to contribute approximately $160 thousand to the Retirement Plans and approximately $121 thousand to Other Postretirement Benefits.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid:



(Dollars in thousands)	Retirement Plans		Other Postretirement Benefits
For the fiscal year ending:
2017	$	2,687	$	121
2018	2,743		123
2019	2,798		129
2020	2,818		133
2021	2,865		140
Years 2022-2026	14,542		783

Weighted-average assumptions used to determine benefit obligations at December 31, 2016 and 2015 were as follows:



	Retirement Plans				Other Postretirement Benefits
	2016		2015		2016		2015
Assumed discount rate	4.0	%	4.3	%	4.0	%	4.3	%
Assumed salary increase rate	3.0		3.0		—		—

The benefit obligation for all plans at December 31, 2016 was based on the RP-2014 mortality table using the projection scale MP-2016 published by the Society of Actuaries.

Weighted-average assumptions used to determine net periodic costs for the years ended December 31, 2016 and 2015 were as follows. The discount rate was determined utilizing the Citigroup Pension Discount Curve. Historical investment returns is the basis used to determine the overall expected long-term rate of return on assets.



	Retirement Plans				Other Postretirement Benefits
	2016		2015		2016		2015
Assumed discount rate	4.3	%	3.9	%	4.3	%	3.9	%
Assumed long-term rate of investment return	7.5		7.5		—		—
Assumed salary increase rate	3.0		3.0		—		—

The Corporation's pension plan asset allocation at December 31, 2016 and 2015, by asset category was as follows:



	Percentage of Plan Assets at December 31,
	2016		2015
Asset Category:
Equity securities	61	%	59	%
Debt securities	38		40
Other	1		1
Total	100	%	100	%

Plan assets include marketable equity securities, corporate and government debt securities, and certificates of deposit. The investment strategy is to keep a 60% equity to 40% fixed income mix to achieve the overall expected long-term rate of return of 7.5%. Equity securities do not include any common stock of the Corporation.

The major categories of assets in the Corporation’s pension plan at year-end are presented in the following table. Assets are segregated by the level of the valuation inputs within the fair value hierarchy described in Note 18, “Fair Value Disclosures.”



	Fair Value Measurements at December 31,
(Dollars in thousands)	2016		2015
Level 1:
Mutual funds	$	26,292	$	25,550
Short-term investments	549		622
Level 2:
U.S. government obligations	3,544		4,811
Corporate bonds	6,468		5,752
Level 3:
Certificates of deposit	4,565		4,755
Total fair value of plan assets	$	41,418	$	41,490

The following table provides a reconciliation of the beginning and ending balances for measurements in hierarchy Level 3 at December 31, 2016 and 2015:



(Dollars in thousands)	Balance at December 31, 2015		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2016
Certificates of deposit	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565
Total Level 3 assets	$	4,755	$	—	$	—	$	675	$	(865	)	$	4,565

(Dollars in thousands)	Balance at December 31, 2014		Total Unrealized (Losses) or Gains		Total Realized Gains or (Losses)		Purchases		Maturities/ Redemptions			Balance at December 31, 2015
Certificates of deposit	$	4,035	$	—	$	—	$	1,805	$	(1,085	)	$	4,755
Total Level 3 assets	$	4,035	$	—	$	—	$	1,805	$	(1,085	)	$	4,755