EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2013

EMPLOYEE BENEFITS [Abstract]

EMPLOYEE BENEFITS

10. EMPLOYEE BENEFITS

Retirement Plan

The Company’s retirement plan is noncontributory and covers substantially all eligible employees. The plan conforms to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006, which requires certain funding rules for defined benefit plans. The Company’s policy is to accrue for all pension costs and to fund the maximum amount allowable for tax purposes. Actuarial gains and losses that arise from changes in assumptions concerning future events are amortized over a period that reflects the long-term nature of pension expense used in estimating pension costs.

On December 31, 2012, certain provisions of the Company’s retirement plan were changed which affected all participants in this plan and froze the participation of new entrants into the pension plan for all remaining employees in 2012. These changes froze the plan such that no additional pension benefits would accumulate.

The tables below set forth the status of the Company’s pension plan at December 31 for the years presented, the time at which the annual valuation of the plan is made.

The following table sets forth the plan’s change in benefit obligation (in thousands):

	2013			2012			2011
Benefit obligation at start of year	$	45,376		$	53,028		$	42,570
Service cost		-			2,665			2,179
Interest cost		1,993			2,218			2,250
Actuarial (gain) loss		(3,970	)		(3,789	)		7,671
Benefits paid and expected expenses		(1,686	)		(1,777	)		(1,642	)
Curtailment		-			(6,969	)		-
Benefit obligation at end of year	$	41,713		$	45,376		$	53,028

The following table sets forth the plan’s change in plan assets (in thousands):

	2013			2012			2011
Fair value of plan assets at start of year	$	37,595		$	34,817		$	32,830
Actual return on plan assets		5,758			3,615			13
Employer contribution		-			1,000			3,700
Benefits paid and actual expenses		(1,897	)		(1,837	)		(1,726	)
Fair value of plan assets at end of year	$	41,456		$	37,595		$	34,817

The following table presents the plan’s funded status and amounts recognized in the consolidated statements of condition (in thousands):

	2013			2012
Prepaid pension cost	$	4,696		$	4,632
Unrecognized net loss		(4,953	)		(12,413	)
Underfunded status	$	(257	)	$	(7,781	)
Amount included in other liabilities	$	(257	)	$	(7,781	)
Accumulated benefit obligation	$	41,713		$	45,376

In December 2012, the Company made an annual minimum contribution of $1 million for the plan year ended September 30, 2013. There was no additional minimum required contribution for the plan year ended September 30, 2013. The Company does not expect to contribute to its pension plan in 2014.

The following table presents estimated benefits to be paid during the years indicated (in thousands):

2014	$	1,969
2015		2,105
2016		2,178
2017		2,268
2018		2,319
2019-2023		12,439

The following table summarizes the net periodic pension (credit) cost (in thousands):

	2013			2012			2011
Service cost	$	-		$	2,665		$	2,179
Interest cost on projected benefit obligations		1,993			2,218			2,250
Expected return on plan assets		(2,301	)		(2,362	)		(2,238	)
Net amortization and deferral		244			1,628			974
Curtailment gain		-			(1	)		-
Net periodic pension (credit) cost		(64	)		4,148			3,165
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial (gain) loss		(7,460	)		(13,578	)		5,348
Total recognized in other comprehensive income		(7,460	)		(13,578	)		5,348
Total recognized in net periodic pension (credit) cost and other comprehensive income	$	(7,524	)	$	(9,430	)	$	8,513
Weighted-average discount rate		4.50	%		4.27	%		5.38	%
Rate of increase in future compensation		0.00	%		3.50	%		3.50	%
Expected long-term rate of return on assets		7.00	%		7.00	%		7.00	%

The assumptions used in the measurement of the Company’s pension obligation at December 31, 2013 were:

· Weighted-average discount rate of 5.33%;

· Rate of increase in future compensation of 0.00%;

· Expected long-term rate of return on assets was not applicable.

The following table summarizes the net periodic pension credit expected for the year ended December 31, 2014. This amount is subject to change if a significant plan-related event should occur before the end of fiscal 2014 (in thousands):

	Projected
	2014
Service cost	$	-
Interest cost on projected benefit obligations		2,158
Expected return on plan assets		(2,547	)
Net amortization and deferral		25
Net periodic pension credit	$	(364	)
Weighted-average discount rate		4.50	%
Rate of increase in future compensation		0.00	%
Expected long-term rate of return on assets		7.00	%

The Company’s pension plan weighted-average asset allocations at December 31, 2013 and 2012, by asset category are as follows:

	At December 31,
Asset category	2013			2012
Cash		1	%		13	%
Equity securities		60			45
Debt securities		39			42
Total		100	%		100	%

The following table summarizes the fair value measurements of the Company’s pension plan assets on a recurring basis as of December 31, 2013 (in thousands):

	Fair Value Measurements Using
	Active Markets for			Significant
	Identical Assets			Other
	Quoted Prices			Observable Inputs
Description	(Level 1)			(Level 2)			Total
Short-term investment funds		$	290		$	-		$	290
Common collective trusts:
U.S. equity securities			9,395			-			9,395
Non - U.S. equity securities			15,654			-			15,654
U.S. fixed income securities			-			13,692			13,692
Non - U.S. fixed income securities			-			2,425			2,425
Total		$	25,339		$	16,117		$	41,456

The following table summarizes the fair value measurements of the Company’s pension plan assets on a recurring basis as of December 31, 2012 (in thousands):

	Fair Value Measurements Using
	Active Markets for			Significant
	Identical Assets			Other
	Quoted Prices			Observable Inputs
Description	(Level 1)			(Level 2)			Total
Investment in securities
Short-term investment funds		$	39		$	4,813		$	4,852
Equity securities			17,073			-			17,073
Fixed income securities
Auto loan receivable			-			204			204
Collateralized mortgage obligations			-			4,074			4,074
Corporate bonds			-			3,549			3,549
Government-issued securities			-			7,834			7,834
Other asset-backed			-			9			9
Total		$	17,112		$	20,483		$	37,595

The following is a description of the valuation methodologies used for pension assets measured at fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

For pension assets, Level 1 securities consist primarily of short-term investment funds and equity securities which include investments in common stock and depository receipts. Level 2 securities consist of fixed income securities including corporate bonds, government issues and mortgage-backed securities.

During 2013, all of the assets of the Company’s retirement plan were transferred to State Street Bank & Trust from the New York State Bankers Retirement System. An investment manager, Mercer Investment Management, is responsible for the implementation of the plan’s investment policies and for appointing and terminating sub-advisors to manage the plan’s assets. The plan’s overall investment strategy is to invest in a mix of growth assets (primarily equities) with the objective of achieving long-term growth and hedging assets (primarily fixed income) with the objective of matching the plan’s liabilities. At December 31, 2013, the plan’s assets were invested in 13 common collective trust funds, which use 26 sub-advisors.

The following table presents target investment allocations for 2014 by asset category:

	Target Allocation
Asset Category	2014
Cash equivalents		0 - 5	%
Equity securities		54 - 64	%
Fixed income securities		36 - 46	%

Director’s Retirement Income Agreement of the Bank of the Hamptons

On April 11, 1994, the Company acquired Hamptons Bancshares, Inc., which had a director’s deferred compensation plan. The liability for this plan was approximately $138 thousand at December 31, 2013 and 2012. Expenses of approximately $10 thousand in 2013, $24 thousand in 2012 and $10 thousand in 2011 are included in the consolidated statements of operations. In 2013, the Company paid approximately $10 thousand to participants.

Deferred Compensation

In 1986, the Board approved a deferred compensation plan. Under this plan, certain employees and Directors of the Company elected to defer compensation aggregating approximately $177 thousand in 1986 in exchange for stated future payments to be made at specified dates. The rate of return on the initial deferral was guaranteed. For purposes of financial reporting, expenses of approximately $71 thousand and $58 thousand were recorded in 2013 and 2011, respectively. Income of approximately $13 thousand was recorded in 2012.

During 2013, the Company made payments of approximately $46 thousand to participants of this plan. The Company had purchased life insurance policies on the plan’s participants based upon reasonable actuarial benefit and other financial assumptions where the present value of the projected cash flows from the insurance proceeds approximated the present value of the projected cost of the employee benefit. The Company was the named beneficiary on the policies. In 2013, the Company surrendered these policies. Net insurance expense related to the policies aggregated approximately $155 thousand and $156 thousand in 2012 and 2011, respectively. There was no such expense in 2013.

In 1999, the Board approved a non-qualified deferred compensation plan. Under this plan, certain employees and Directors of the Company may elect to defer some or all of their compensation in exchange for a future payment of the compensation deferred, with accrued interest, at retirement. Participants deferred compensation totaling $95 thousand, $64 thousand and $100 thousand during 2013, 2012 and 2011, respectively. Payments of $356 thousand, $383 thousand and $335 thousand were made to participants during 2013, 2012 and 2011, respectively.

Post-Retirement Benefits Other Than Pension

The Company formerly provided life insurance benefits to employees meeting eligibility requirements. Employees hired after December 31, 1997 were not eligible for retiree life insurance. No other welfare benefits were provided. In the second quarter of 2013, the Company terminated all post-retirement life insurance benefits and recorded a non-recurring gain of $1.7 million as a credit to employee compensation and benefits expense in the Company’s consolidated statements of operations.

401(k) Retirement Plan

The Bank has a 401(k) Retirement Plan and Trust (“401(k) Plan”). Employees who have attained the age of 21 and have completed one-half month of service and 40 hours worked have the option to participate. Employees may currently elect to contribute up to $17,500. The Bank may match up to one-half of the employee’s contribution up to a maximum of 6% of the employee’s annual gross compensation. Employees are fully vested immediately in their own contributions and the Bank’s matching contributions. Bank contributions under the 401(k) Plan amounted to $486 thousand, $110 thousand and $394 thousand during 2013, 2012 and 2011, respectively. The Bank funds all amounts when due. Contributions to the 401(k) Plan may be invested in various bond, equity, money market or diversified funds as directed by each employee. The 401(k) Plan does not allow for investment in the Company’s common stock.