Note 18 - Pension and Other Benefits

Defined Benefit Plans

The Company maintains a frozen noncontributory pension plan covering employees of the Company prior to the Merger. The benefits are based on years of service and the employee’s compensation over the prior five-year period. The plan’s benefits are payable in the form of a ten year certain and life annuity. The plan is intended to be a tax-qualified defined benefit plan under Section 401(a) of the Internal Revenue Code. Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44% of a participant’s highest average compensation over a 5-year period.

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Company’s pension plans at December 31, 2018 and 2017.

	2018		2017
	(dollars in thousands)
Change in Benefit Obligation:
Projected benefit obligation at January 1,	$	13,129	$	12,682
Interest cost		427		478
Actuarial (gain) loss		(1,716)		879
Benefits paid		(871)		(910)
Projected benefit obligation at December 31,	$	10,969	$	13,129
Change in Plan Assets:
Fair value of plan assets at January 1,	$	12,609	$	12,002
Actual return on plan assets		(715)		1,517
Employer contributions		2,000		-
Benefits paid		(871)		(910)
Fair value of plan assets at December 31,	$	13,023	$	12,609
Funded status	$	2,054	$	(520)

The accumulated benefit obligation was $11.0 million and $13.1 million as of the year ended December 31, 2018 and 2017, respectively.

Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the net periodic pension expense for the plan are presented in the following table. The Company expects to recognize approximately $358,000 of the net actuarial loss reported in the following table as of December 31, 2018 as a component of net periodic pension expense during 2019.

	2018		2017
	(dollars in thousands)
Net actuarial loss recognized in accumulated other comprehensive income	$	5,265	$	5,860

The net periodic pension expense and other comprehensive income (before tax) for 2018, 2017 and 2016 includes the following:

	2018		2017		2016
	(dollars in thousands)
Interest cost	$	427	$	478	$	514
Expected return on plan assets		(765)		(640)		(617)
Net amortization		366		412		407
Total net periodic pension expense	$	28	$	250	$	304

Total gain recognized in other comprehensive income		(595)		(410)		(405)
Total recognized in net periodic expense and other comprehensive income (before tax)	$	(567)	$	(160)	$	(101)

Effective January 1, 2018, the Company implemented ASU 2017-07, “Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under ASU 2017-07, the FASB requires employers to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The table above details the affected line items within the Consolidated Statements of Income related to the net periodic pension costs for the following periods.

This ASU is also required to be applied retrospectively to all periods presented. The following table summarizes the impact of retrospective application to the Consolidated Statement of Condition for the period presented:

	2017		2016

Other components of net periodic pension expense
As previously reported	$	-	$	-
As reported under the new guidance		250		304

Salaries and employee benefits
As previously reported	$	35,128	$	31,030
As reported under the new guidance		34,878		30,726

The following table presents the weighted average assumptions used to determine the pension benefit obligations at December 31, for the following three years.

	2018			2017			2016
Discount rate		4.05	%		3.41	%		3.88	%
Rate of compensation increase		N/A			N/A			N/A

The following table presents the weighted average assumptions used to determine net periodic pension cost for the following three years:

	2018			2017			2016
	(dollars in thousands)
Discount rate		4.05	%		3.41	%		3.88	%
Expected long-term return on plan assets		5.50	%		5.50	%		5.50	%
Rate of compensation increase		N/A			N/A			N/A

The process of determining the overall expected long-term rate of return on plan assets begins with a review of appropriate investment data, including current yields on fixed income securities, historical investment data, historical plan performance and forecasts of inflation and future total returns for the various asset classes. This data forms the basis for the construction of a best-estimate range of real investment return for each asset class. An average, weighted real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range. Specific factors such as the plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.

Plan Assets

The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time. The Company’s pension plan asset allocation as of December 31, 2018 and 2017, target allocation, and expected long-term rate of return by asset are as follows:

	Target Allocation		% of Plan Assets – Year Ended 2018		% of Plan Assets – Year Ended 2017		Weighted Average Expected Long-Term Rate of Return
Equity Securities
Domestic		50%		53%		41%		3.4%
International		10%		7%		8%		0.7%
Debt and/or fixed income securities		36%		36%		49%		1.2%
Cash and other alternative investments, including real estate funds, commodity funds, hedge funds and equity structured notes		4%		4%		2%		0.2%
Total		100%	$	100%	$	100%	$	5.5%

The fair values of the Company’s pension plan assets at December 31, 2018 and 2017, by asset class, are as follows:

	December 31, 2018		Fair Value Measurements at Reporting Date Using
Asset Class			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Cash	$	298	$	298	$	-	$	-
Equity securities:
U.S. companies		6,957		6,957		-		-
International companies		901		901		-		-
Debt and/or fixed income securities		4,651		4,651
Commodity funds		161		161
Real estate funds		55		55		-		-
Total	$	13,023	$	13,023	$	-	$	-

	December 31, 2017		Fair Value Measurements at Reporting Date Using
Asset Class			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
Cash	$	175	$	175	$	-	$	-
Equity securities:
U.S. companies		5,175		5,175		-		-
International companies		1,056		1,056		-		-
Debt and/or fixed income securities		6,139		6,139
Real estate funds		64		64		-		-
Total	$	12,609	$	12,609	$	-	$	-

Fair Value of Plan Assets

The Company used the following valuation methods and assumptions to estimate the fair value of assets held by the plan (for further information on fair value methods, see Note 22):

Equity securities and real estate funds: The fair values for equity securities and real estate funds are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Debt and fixed income securities: Certain debt securities are valued at the closing price reported in the active market in which the bond is traded (Level 1 inputs). Other debt securities are valued based upon recent bid prices or the average of recent bid and asked prices when available (Level 2 inputs) and, if not available, they are valued through matrix pricing models developed by sources considered by management to be reliable. Matrix pricing, which is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

The investment manager is not authorized to purchase, acquire or otherwise hold certain types of market securities (subordinated bonds, real estate investment trusts, limited partnerships, naked puts, naked calls, stock index futures, oil, gas or mineral exploration ventures or unregistered securities) or to employ certain types of market techniques (margin purchases or short sales) or to mortgage, pledge, hypothecate, or in any manner transfer as security for indebtedness, any security owned or held by the Plan.

Cash Flows

Contributions

The Bank does not expect to make a contribution in 2019.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, for the following years are as follows (dollars in thousands):

2019	$	716
2020		712
2021		724
2022		709
2023		697
2024-2028		3,514

401(k) Plan

The Company maintains a 401(k) plan to provide for defined contributions which covers substantially all employees of the Company. Beginning with the 2014 plan year, the 401(k) plan was amended to provide for a match of 50% of elective contributions, up to 6% of an employee’s contribution. In 2018, the 401 (k) plan was amended to provide for 100% matching of employee contributions up to 5% of employee contributions. For 2018, 2017 and 2016, employer contributions amounted to $862,000, $383,000 and $351,000, respectively.