PENSION, PROFIT SHARING, AND OTHER EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2022

PENSION, PROFIT SHARING, AND OTHER EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

The Company maintains a qualified, noncontributory, defined benefit pension plan (the “Pension Plan”). Benefits after January 1, 2005, are based on the benefit earned as of December 31, 2004, plus benefits earned in future years of service based on the employee’s compensation during each such year. All benefit accruals for employees were frozen as of December 31, 2007 based on past service, and thus salary increases and additional years of service after such date no longer affect the defined benefit provided by the Pension Plan, although additional vesting may continue to occur.

The Company's funding policy is to contribute amounts to the Pension Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company contributes additional amounts as it deems appropriate based on benefits attributed to service prior to the date of the Pension Plan freeze. The Pension Plan invests primarily in a diversified portfolio of managed fixed income and equity funds.

On March 30, 2022, the Board of Directors approved the termination of the Pension Plan with the effective date of June 30, 2022. The Company has executed plan amendments regarding the Pension Plan termination and filed an Application for Determination for Terminating Pension Plan with the Internal Revenue Service (“IRS”) for a determination as to the tax-qualified status of the Pension Plan at the time of termination. The Company also prepared and filed appropriate notices and documents related to the Pension Plan’s termination and wind-down with the Pension Benefit Guaranty Corporation (“PBGC”).

After receiving approval from the IRS and the PBGC, which is expected to be in 2023, the Company will make an additional cash contribution, if necessary, in order to fully fund the Pension Plan on a plan termination basis, followed by the purchase of annuity contracts to transfer its remaining liabilities under the Pension Plan. The actual amount of this cash contribution, if any, will depend

upon the nature and timing of participant settlements, as well as prevailing market conditions. In addition, the Company expects to recognize a non-cash pension settlement charge upon settlement of the obligations of the Pension Plan.

All participants who are not already receiving annuities will be given the opportunity to elect a lump sum payout. Benefit obligations of participants who do not elect a lump sum or who are being paid in an annuity form will be transferred under an annuity contract from a highly-rated insurance company that will pay and administer future benefit payments. There will be no change in the benefit earned by Pension Plan participants as a result of these actions. The Pension Plan termination is subject to regulatory approvals and the Company has the right to change the effective date of the Pension Plan termination or to revoke its decision to terminate the Pension Plan, but it has no intent to do so.

The Pension Plan’s funded status at December 31 is as follows:


(In thousands)	2022		2021
Reconciliation of Projected Benefit Obligation:
Projected obligation at January 1	$	48,079	$	52,426
Interest cost	1,301		1,269
Actuarial (gain)/ loss	376		(22)
Benefit payments	(2,106)		(1,115)
Increase/ (decrease) related to change in assumptions	(12,111)		(2,040)
Settlement - lump sum payments	—		(2,439)
Projected obligation at December 31	35,539		48,079
Reconciliation of Fair Value of Plan Assets:
Fair value of plan assets at January 1	45,207		48,357
Actual return on plan assets	(10,814)		(596)
Employer contributions	—		1,000
Benefit payments	(2,106)		(1,115)
Settlement - lump sum payments	—		(2,439)
Fair value of plan assets at December 31	$	32,287	$	45,207

Funded status at December 31	$	(3,252)	$	(2,872)

Accumulated benefit obligation at December 31	$	35,539	$	48,079

Unrecognized net actuarial loss	$	10,736	$	11,030
Net periodic pension cost not yet recognized	$	10,736	$	11,030

Weighted average assumptions used to determine benefit obligations at December 31 are presented in the following table:


	2022	2021	2020
Discount rate	5.10%	2.80%	2.50%
Rate of compensation increase	N/A	N/A	N/A

The components of net periodic benefit cost for the years ended December 31 are presented in the following table:


(In thousands)	2022		2021		2020
Interest cost on projected benefit obligation	$	1,301	$	1,269	$	1,437
Expected return on plan assets	(1,410)		(1,247)		(1,821)
Recognized net actuarial loss	783		909		874
Settlement charge	—		560		—
Net periodic benefit cost	$	674	$	1,491	$	490

Components of the net periodic benefit cost are recorded in salaries and employee benefits expense in the Consolidated Statement of Income.

Weighted average assumptions used to determine net periodic benefit cost for years ended December 31 are presented in the following table:


	2022	2021	2020
Discount rate	2.80%	2.50%	3.25%
Expected return on plan assets	3.75%	3.25%	4.75%
Rate of compensation increase	N/A	N/A	N/A

The expected rate of return on assets of 3.75% reflects the Pension Plan’s predominant investment of assets in fixed income mutual funds and was developed as a weighted average rate based on the target asset allocation of the Pension Plan. Key economic inputs used included future inflation, economic growth, and interest rate environment.

The following table reflects the components of the net unrecognized benefits costs that is reflected in accumulated other comprehensive income/ (loss) for the periods indicated. Additions/ reductions represent the change in the unrecognized actuarial gain/ loss during the period. Reclassifications represent the portion of the unrecognized benefits that are recognized each period as a component of the net periodic benefit cost.


(In thousands)	Unrecognized Net Loss
Included in accumulated other comprehensive loss at January 1, 2020	$	11,177
Reductions during the year	(4,256)
Reclassifications due to recognition as net periodic pension cost	(874)
Increase related to change in assumptions	6,672
Included in accumulated other comprehensive loss as of December 31, 2020	12,719
Reductions during the year	1,842
Reclassifications due to recognition as net periodic pension cost	(909)
Settlement charge	(560)
Increase related to change in assumptions	(2,062)
Included in accumulated other comprehensive loss as of December 31, 2021	11,030
Additions during the year	12,224
Reclassifications due to recognition as net periodic pension cost	(783)
Settlement charge	—
Decrease related to change in assumptions	(11,735)
Included in accumulated other comprehensive loss as of December 31, 2022	10,736
Applicable tax effect	(2,734)
Included in accumulated other comprehensive loss net of tax effect at December 31, 2022	$	8,002

Amount expected to be recognized as part of net periodic pension cost in the next fiscal year	$	1,160

There are no plan assets expected to be returned to the employer in the next twelve months.

The following items have not yet been recognized as a component of net periodic benefit cost at December 31:


(In thousands)	2022		2021		2020
Net actuarial loss	$	10,736	$	11,030	$	12,719
Net periodic benefit cost not yet recognized	$	10,736	$	11,030	$	12,719

Pension Plan Assets

The Company’s Pension Plan weighted average allocations at December 31 are presented in the following table:


	2022		2021
Asset Category:
Equity Securities Mutual Funds	—	%	11.5	%
Fixed Income Mutual Funds	100.0	%	88.5	%
Total pension plan assets	100.0	%	100.0	%

The Company has a written investment policy approved by the board of directors that governs the investment of the defined benefit pension fund trust portfolio. The investment policy is designed to provide limits on risk that is undertaken by the investment managers both in terms of market volatility of the portfolio and the quality of the individual assets that are held in the portfolio. The investment

policy statement focuses on the following areas of concern: preservation of capital, diversification, risk tolerance, investment duration, rate of return, liquidity, and investment management costs.

The Company has constituted the Retirement Plans Investment Committee (“RPIC”) in part to monitor the investments of the Pension Plan as well as to recommend to executive management changes in the Investment Policy Statement which governs the Pension Plan’s investment operations. These recommendations include asset allocation changes based on a number of factors including the investment horizon for the Pension Plan. The Company uses outside third parties to advise RPIC on the Pension Plan’s investment matters.

Investment strategies and asset allocations are based on careful consideration of Pension Plan liabilities, the Pension Plan’s funded status and the Company’s financial condition. Investment performance and asset allocation are measured and monitored on an ongoing basis. Management allocates plan assets towards fixed income securities in order to align expected cash outflows with its funding source. This asset allocation has been set after taking into consideration the Pension Plan’s current frozen status and the current ongoing plan terminations.

Market volatility risk is controlled by limiting the asset allocation of the most volatile asset class, equities, to no more than 70% of the portfolio and by ensuring that there is sufficient liquidity to meet distribution requirements from the portfolio without disrupting long-term assets. Diversification of the equity portion of the portfolio is controlled by limiting the value of any initial acquisition so that it does not exceed 5% of the market value of the portfolio when purchased. The policy requires the sale of any portion of an equity position when its value exceeds 10% of the portfolio. Fixed income market volatility risk is managed by limiting the term of fixed income investments to five years. Fixed income investments must carry an “A” or better rating by a recognized credit rating agency. Corporate debt of a single issuer may not exceed 10% of the market value of the portfolio. The investment in derivative instruments such as “naked” call options, futures, commodities, and short selling is prohibited. Investment in equity index funds and the writing of “covered” call options (a conservative strategy to increase portfolio income) are permitted. Foreign currency-denominated debt instruments are not permitted. At December 31, 2022, management is of the opinion that there are no significant concentrations of risk in the assets of the Pension Plan with respect to any single entity, industry, country, commodity or investment fund that are not otherwise mitigated by the Federal Deposit Insurance Corporation ("FDIC") insurance available to the participants of the Pension Plan and collateral pledged for any such amount that may not be covered by FDIC insurance. Investment performance is measured against industry accepted benchmarks. The risk tolerance and asset allocation limitations imposed by the policy are consistent with attaining the rate of return assumptions used in the actuarial funding calculations. The RPIC committee meets quarterly to review the activities of the investment managers to ensure adherence with the Investment Policy Statement.

Fair Values

The fair values of the Company’s Pension Plan assets by asset category at December 31 are presented in the following tables:


	2022
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Asset Category:
Mutual funds:
Large cap U.S. equity funds	$	—	$	—	$	—	$	—
Small/Mid cap U.S. equity funds	—		—		—		—
International equity funds	—		—		—		—
Short-term fixed income funds	9,517		22,770		—		32,287
Total mutual funds	9,517		22,770		—		32,287
Total pension plan assets	$	9,517	$	22,770	$	—	$	32,287


	2021
(In thousands)	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Asset Category:
Mutual funds:
Large cap U.S. equity funds	$	2,231	$	575	$	—	$	2,806
Small/Mid cap U.S. equity funds	—		1,536		—		1,536
International equity funds	875		—		—		875
Short-term fixed income funds	9,558		30,432		—		39,990
Total mutual funds	12,664		32,543		—		45,207
Total pension plan assets	$	12,664	$	32,543	$	—	$	45,207

Contributions

The decision as to whether or not to make a plan contribution and the amount of any such contribution is dependent on a number of factors. Such factors include the investment performance of the plan assets in the current economy and, since the Pension Plan is currently frozen, the remaining investment horizon of the Pension Plan. After consideration of these factors, the Company made no contribution during 2022. Management continues to monitor the funding level of the Pension Plan and may make contributions as necessary during 2023.

Estimated Future Benefit Payments

Benefit payments, which reflect expected future service, as appropriate, that are expected to be paid for the years ending December 31 are presented in the following table:


(In thousands)	Pension Benefits
2023	$	2,430
2024	2,900
2025	2,280
2026	2,880
2027	2,950
Thereafter	13,590

Sandy Spring Bank 401(k) Plan

The Sandy Spring Bank 401(k) Plan (“the 401(k)”) is voluntary and covers all eligible employees after 90 days of service. The 401(k) provides that employees contributing to the 401(k) receive a matching contribution of 100% of the first 4% of compensation and 50% of the next 2% of compensation subject to employee contribution limitations. The Company matching contribution vests immediately. The 401(k) permits employees to purchase shares of the Company’s common stock with their 401(k) contributions, Company match, and other contributions under the 401(k). The Company’s matching contribution to the 401(k), which is included in salaries and employee benefits in non-interest expenses in the Consolidated Statements of Income, totaled $5.9 million, $6.0 million, and $5.3 million in 2022, 2021 and 2020, respectively.

Deferred Compensation Plans

The Executive Incentive Retirement Plan ("Executive Plan") is a non-qualified deferred compensation plan that provides for contributions to be made to the participants’ plan accounts based on the attainment of a level of financial performance determined annually by the board of directors. The Company ceased making contributions to the Executive Plan after adoption of the Non-Qualified Deferred Compensation Plan (“NQDC Plan”) in late 2021. The NQDC Plan provides participants with the option to defer receipt of a portion of their base salary and annual cash incentives. Participant contributions are fully vested at all times. At its sole discretion, the Company may credit participant accounts with company contributions. In 2022, executive officers were selected by the

board of directors for contributions to be made to their plan accounts based on the attainment of a level of financial performance compared to a selected group of peer banks. Benefit costs related to the Executive Plan and NQDC Plan included in salaries and employee benefits in non-interest expenses in the Consolidated Statements of Income for 2022, 2021 and 2020 were $0.7 million, $0.7 million, and $0.6 million, respectively.