EMPLOYEE BENEFITS |
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Employee Benefits Including Defined Benefit Plans and Share-based Compensation Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFITS | EMPLOYEE BENEFITS Deferred Compensation Agreements Southside Bank has deferred compensation agreements with 23 of its executive officers, which generally provide for payment of an aggregate amount of $8.4 million over a maximum period of 15 years after retirement or death. Of the 23 executives included in the agreements, payments have commenced to ten former executives and/or their beneficiaries. Deferred compensation expense was $173,000, $201,000 and $353,000 for the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018, the deferred compensation plan liability totaled $3.2 million and $3.4 million, respectively. Health Insurance We provide accident and health insurance for substantially all employees through a self-funded insurance program. The cost of health care benefits was $7.9 million, $6.5 million and $5.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. Our healthcare plan provides health insurance coverage for any retiree having 50 years of service with the Company. In addition, the eligible retiree must have Medicare coverage, including part A, part B and part D. There was one retiree participating in the health insurance plan as of December 31, 2019 and 2018. There were two retirees participating in the health insurance plan as of December 31, 2017. Employee Stock Ownership Plan We have an Employee Stock Ownership Plan (the “ESOP”) which covers substantially all employees. Contributions to the ESOP are at the sole discretion of the board of directors. We contributed $700,000 to the ESOP for the years ended December 31, 2019 and 2018, and $350,000 for the year ended December 31, 2017. At December 31, 2019 and 2018, the ESOP owned 283,097 and 277,492 shares of common stock, respectively. These shares are treated as externally held shares for dividend and earnings per share calculations. Long-term Disability We have an officer’s long-term disability income policy which provides coverage in the event they become disabled as defined under its terms. Individuals are automatically covered under the policy if they (a) have been elected as an officer, (b) have been an employee of Southside Bank for three years and (c) receive earnings of $50,000 or more on an annual basis. The policy provides, among other things, that should a covered individual become totally disabled he would receive two-thirds of his current salary, not to exceed $15,000 per month. The benefits paid out of the policy are limited by the benefits paid to the individual under the terms of our other Company-sponsored benefit plans. Split Dollar Agreements We originally entered into split dollar agreements with eight of our executive officers. The agreements provide we will be the beneficiary of bank owned life insurance (“BOLI”) insuring the executives’ lives. The agreements provide the executives the right to designate the beneficiaries of the death benefits guaranteed in each agreement. The agreements originally provided for death benefits of an initial aggregate amount of $4.5 million. Prior to an executive’s retirement, his individual amount is increased annually on the anniversary date of the agreement by inflation adjustment factors of either 3% or 5%. As of December 31, 2019, three of the executives remained actively employed with us. Death benefits under this agreement were paid during 2018 for one retired covered officer and during 2013 for one active covered officer. As of December 31, 2019, the estimated death benefits for the six executives total $4.5 million. The agreements also state that after the executive’s retirement, we shall also pay an annual gross-up bonus to the executive in an amount sufficient to enable the executive to pay federal income tax on both the economic benefit and on the gross-up bonus. For the years ended December 31, 2019, 2018 and 2017, we recorded a credit to expense of $12,000, $250,000 and $3,000, respectively, to record the post retirement liability associated with the split dollar post retirement bonuses. For the years ended December 31, 2019 and 2018, the split dollar liability totaled $1.3 million and $1.4 million, respectively. 401(k) Plan We have a 401(k) defined contribution plan (the “401(k) Plan”) covering substantially all employees that permits each participant to make before- or after-tax contributions subject to certain limits imposed by the Internal Revenue Code. Beginning January 1, 2017, eligible employees may participate in the 401(k) Plan after they have worked at least 30 days with the Company. For the years ended December 31, 2019, 2018 and 2017, expense attributable to the 401(k) Plan totaled $1.6 million, $1.5 million and $613,000, respectively. Pension Plans We have a defined benefit pension plan (the “Plan”) pursuant to which participants are entitled to benefits based on final average monthly compensation and years of credited service determined in accordance with plan provisions. Entrance into the Plan by new employees was frozen effective December 31, 2005. Employees hired after December 31, 2005 are not eligible to participate in the Plan. All participants in the Plan are fully vested. Benefits are payable monthly commencing on the later of age 65 or the participant’s date of retirement. Eligible participants may retire at reduced benefit levels after reaching age 55. We contribute amounts to the pension fund sufficient to satisfy funding requirements of the Employee Retirement Income Security Act. Plan assets included 240,666 shares of our stock at December 31, 2019 and 2018. Our stock included in the Plan assets was purchased at fair value. During 2019, our funded status declined, and at December 31, 2019, we had an unfunded status of $6.2 million compared to an unfunded status of $1.1 million at December 31, 2018. The deterioration was a result of a decrease in the discount rate at December 31, 2019 compared to December 31, 2018 to better reflect current market conditions, partially offset by greater than expected return on the fair value of plan assets and the updated mortality assumption at December 31, 2019, compared to December 31, 2018. In connection with the acquisition of Omni, we acquired the OmniAmerican Bank Defined Benefit Plan (the “Acquired Plan”) which was remeasured at fair value. The Acquired Plan originally called for benefits to be paid to eligible employees at retirement based primarily upon years of service and the compensation levels at retirement. As of December 31, 2006, the benefits under the Acquired Plan were frozen by Omni. No further benefits have been or will be earned by employees since that date. In addition, no new participants may be added to the Acquired Plan after December 31, 2006. During 2019, our funded status declined and at December 31, 2019, we had an unfunded status of $107,000 compared to a funded status of $197,000 at December 31, 2018. The deterioration was a result of a decrease in the discount rate to better reflect the current market conditions and the updated mortality assumption at December 31, 2019, compared to December 31, 2018, partially offset by a greater than expected return on the fair value of plan assets since December 31, 2018. We have a nonfunded supplemental retirement plan (the “Restoration Plan”) for our employees whose benefits under the principal retirement plan are reduced because of compensation deferral elections or limitations under federal tax laws. Both the Plan and the Restoration Plan were amended effective January 1, 2013 to change the formula for determining death benefits for participants who die while in service of Southside and who are early retirement eligible on their date of death. We use a measurement date of December 31 for our plans.
Amounts related to our defined benefit pension plans and restoration plan recognized as a component of other comprehensive income (loss) were as follows (in thousands):
The noncash adjustment to the Plan liabilities, consisting of changes in prior service cost and net loss, was $7.4 million for the year ended December 31, 2019. Net amounts recognized in net periodic benefit cost and other comprehensive income (loss) were as follows (in thousands):
Amounts recognized as a component of accumulated other comprehensive income (loss) were as follows (in thousands):
Net periodic pension cost and postretirement benefit cost included the following components (in thousands):
The amounts in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost during 2020 are as follows (in thousands):
The Plan and Acquired Plan assets, which consist primarily of marketable equity and debt instruments, are valued using market quotations in active markets for identical assets, market quotations for similar assets in active or non-active markets or the net asset value (“NAV”) provided by the plan administrator. The Plans’ obligations and the annual pension expense are determined by independent actuaries and through the use of a number of assumptions. Key assumptions in measuring the Plans’ obligations include the discount rate, the rate of salary increases and the estimated future return on plan assets. In determining the discount rate, we utilized a cash flow matching analysis to determine a range of appropriate discount rates for the defined benefit pension plans and restoration plan. In developing the cash flow matching analysis, we had our actuaries construct a portfolio of high quality noncallable bonds to match as closely as possible the timing of future benefit payments of the Plans at December 31, 2019. We utilized a bond selection-settlement approach that selects a portfolio of bonds from a universe of high quality corporate bonds rated AA by at least half of the rating agencies available. Based on the results of this cash flow matching analysis, we were able to determine an appropriate discount rate. Salary increase assumptions are based upon historical experience and anticipated future management actions. The expected long-term rate of return assumption reflects the average return expected based on the investment strategies and asset allocation of the assets invested to provide for the Plans’ liabilities. We considered broad equity and bond indices, long-term return projections and actual long-term historical Plan performance when evaluating the expected long-term rate of return assumption. The assumptions used to determine the benefit obligation were as follows:
The assumptions used to determine net periodic pension cost and postretirement benefit cost were as follows:
Material changes in pension benefit costs may occur in the future due to changes in these assumptions. Future annual amounts could be impacted by changes in the number of Plan participants, changes in the level of benefits provided, changes in the discount rates, changes in the expected long-term rate of return, changes in the level of contributions to the Plan and other factors. The major categories of assets in the Plan and the Acquired Plan are presented in the following table (in thousands). Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 “Fair Value Measurements and Disclosures,” utilized to measure fair value (see “Note 13 – Fair Value Measurement”). Our Restoration Plan is unfunded.
We did not have any plan assets with Level 3 input fair value measurements at December 31, 2019 or 2018. Our overall investment strategy is to realize long-term growth of the Plan within acceptable risk parameters, while funding benefit payments from dividend and interest income, to the extent possible. The target allocations for plan assets are 55.0% equities, 44.5% fixed income and 0.5% cash equivalents. Equity securities are diversified among U.S. and international (both developed and emerging), large, mid and small caps, value and growth securities and real estate investment trusts (“REITs”). The investment objective of equity funds is long-term capital appreciation with current income. Fixed income securities include government agencies, CDs, corporate bonds, municipal bonds and MBS. The investment objective of fixed income funds is to maximize investment return while preserving investment principal. Mutual funds are primarily used for equity and REITs because of the superior diversification they provide. As of December 31, 2019, expected future benefit payments related to the Plan, the Acquired Plan and the Restoration Plan were as follows (in thousands):
We do not expect to make additional contributions to the Plan, the Acquired Plan or the Restoration Plan in 2020. Share-based Incentive Plans 2017 Incentive Plan On May 10, 2017, our shareholders approved the Southside Bancshares, Inc. 2017 Incentive Plan (the “2017 Incentive Plan”), which is a stock-based incentive compensation plan. A total of 2,460,000 shares of our common stock were reserved and available for issuance pursuant to awards granted under the 2017 Incentive Plan. This amount includes a number of additional shares (not to exceed 410,000) underlying awards outstanding as of May 10, 2017 under the Company’s 2009 Incentive Plan that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason. Under the 2017 Incentive Plan, we are authorized to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and qualified performance-based awards or any combination thereof to selected employees, officers, directors and consultants of the Company and its affiliates. As of December 31, 2019, there were 1,307,964 shares remaining available for grant for future awards. All share data has been adjusted to give retroactive recognition to stock dividends, where applicable. Reference to incentive plans refers to the 2017 Incentive Plan and predecessor incentive plans. As of December 31, 2019, 2018 and 2017, there were 737,434, 612,740 and 366,292 unvested awards outstanding, respectively. For the years ended December 31, 2019, 2018 and 2017, there was $2.4 million, $2.3 million and $1.8 million of share-based compensation expense related to the incentive plans, respectively, and $501,000, $487,000 and $635,000 of income tax benefit related to the stock compensation expense, respectively. As of December 31, 2019, 2018 and 2017, there was $7.7 million, $5.8 million and $3.8 million of unrecognized compensation cost related to the incentive plans, respectively. The remaining cost at December 31, 2019 is expected to be recognized over a weighted-average period of 2.97 years. The nonqualified stock options (“NQSOs”) have contractual terms of 10 years and vest in equal annual installments over either a three- or four-year period. The fair value of each restricted stock units (“RSUs”) is the ending stock price on the date of grant. The RSUs vest in equal annual installments over a three- or four-year period. Each award is evidenced by an award agreement that specifies the option price, if applicable, the duration of the award, the number of shares to which the award pertains and such other provisions as the board of directors determines. Historically, shares issued in connection with stock compensation awards have been issued from available authorized shares. Beginning in the second quarter of 2017, shares were issued from available treasury shares. Shares issued in connection with stock compensation awards along with other related information are presented in the following table without the retroactive recognition of stock dividends (in thousands, except share amounts):
The estimated weighted-average grant-date fair value per option and the underlying Black-Scholes option-pricing model assumptions are summarized in the following table for years in which we granted NQSOs pursuant to the incentive plans:
A combined summary of activity in our share-based plans as of December 31, 2019 is presented below:
Other information regarding options outstanding and exercisable as of December 31, 2019 is as follows:
The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $6.2 million and $4.7 million at December 31, 2019, respectively. The weighted-average remaining contractual life of options exercisable at December 31, 2019 was 5.38 years. The total intrinsic value of stock options exercised during the years ended December 31, 2019, 2018 and 2017 was $1.1 million, $1.4 million and $1.8 million, respectively.
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