PENSION PLANS

12 Months Ended

Dec. 31, 2019

17. PENSION PLANS

Defined Benefit Retirement Plan

The bank has a defined benefit retirement plan that covered substantially all of its employees who were employed during the period that the plan was in effect. The plan was initially curtailed in 1986, and accordingly, plan benefits were fixed as of that date. Effective January 1, 1991, the bank reactivated its defined benefit retirement plan. As a result of the reactivation, employees for whom benefits were fixed in 1986 began to accrue additional benefits under a new formula that became effective January 1, 1991. Employees who were not participants at curtailment, but who were subsequently eligible to join, became participants effective January 1, 1991. Under the reactivated plan, benefits are based upon the employees' years of service and their highest average annual salaries in a 60-consecutive-month period of service, reduced by benefits provided from the bank's terminated money purchase pension plan. The reactivation of the defined benefit retirement plan resulted in an increase of $5.9 million in the unrecognized prior service cost, which was amortized over a period of 13 years. Effective December 31, 2002, the bank curtailed its defined benefit retirement plan, and accordingly, plan benefits were fixed as of that date.

The following tables set forth information pertaining to the defined benefit retirement plan:



	Year Ended December 31,
	2019			2018
	(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	20,746		$	23,471
Interest cost	828			796
Actuarial (gains) losses	1,677			(1,714		)
Benefits paid	(1,648		)	(1,807		)
Benefit obligation at end of the year	21,603			20,746

Change in plan assets, at fair value:
Fair value of plan assets at beginning of year	19,874			22,832
Actual return on plan assets	3,083			(1,151		)
Benefits paid	(1,648		)	(1,807		)
Fair value of plan assets at end of year	21,309			19,874

Funded status at end of year	$	(294	)	$	(872	)

Amounts recognized in AOCI:
Net actuarial losses	$	(6,625	)	$	(8,137	)

Benefit obligation actuarial assumptions:
Weighted average discount rate	3.1		%	4.2		%



	Year Ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Components of net periodic benefit cost:
Interest cost	$	828		$	796		$	926
Expected return on plan assets	(996		)	(1,206		)	(1,036		)
Amortization of net actuarial losses	1,101			979			1,191
Net periodic benefit cost	$	933		$	569		$	1,081

Net periodic cost actuarial assumptions:
Weighted average discount rate	4.2		%	3.6		%	4.1		%
Expected long-term rate of return on plan assets	5.3		%	5.5		%	5.5		%

The unrecognized net actuarial losses included in AOCI expected to be recognized in net periodic benefit cost during 2020 is approximately $0.8 million.

The long-term rate of return on plan assets reflects the weighted-average long-term rates of return for the various categories of investments held in the plan. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the plan investments.

The defined benefit retirement plan assets consist primarily of equity and debt securities. Our asset allocations by asset category were as follows:



	December 31,
	2019		2018
Equity securities	39.1	%	48.4	%
Debt securities	57.5		46.9
Other	3.4		4.7
Total	100.0	%	100.0	%

Equity securities included the Company's common stock in the amount of $0.1 million at December 31, 2019 and 2018.

Our investment strategy for the defined benefit retirement plan is to maximize the long-term rate of return on plan assets while maintaining an acceptable level of risk. The investment policy establishes a target allocation for each asset class that is reviewed periodically and rebalanced when considered appropriate.

The fair values of the defined benefit retirement plan as of December 31, 2019 and 2018 by asset category were as follows:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
December 31, 2019
Money market accounts	$	727	$	—	$	—	$	727
Mutual funds	13,434		—		—		13,434
Government obligations	—		2,587		—		2,587
Common stocks	2,475		—		—		2,475
Preferred stocks	173		—		—		173
Corporate bonds and debentures	—		1,913		—		1,913
Total	$	16,809	$	4,500	$	—	$	21,309



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
December 31, 2018
Money market accounts	$	931	$	—	$	—	$	931
Mutual funds	10,537		—		—		10,537
Government obligations	—		2,192		—		2,192
Common stocks	4,122		—		—		4,122
Preferred stocks	146		—		—		146
Corporate bonds and debentures	—		1,946		—		1,946
Total	$	15,736	$	4,138	$	—	$	19,874

We are not required by funding regulations or laws to make any contributions to our defined benefit retirement plan in 2020.

Estimated future benefit payments in each of the next five years and in the aggregate for the five years thereafter are as follows (dollars in thousands):



Year Ending December 31:
2020	$	1,769
2021	1,718
2022	1,652
2023	1,606
2024	1,541
2025-2029	6,617
Total	$	14,903

Supplemental Executive Retirement Plans

In 1995, 2001, 2004 and 2006, our bank established Supplemental Executive Retirement Plans ("SERP") that provide certain officers of the Company with supplemental retirement benefits. On December 31, 2002, the 1995 and 2001 SERP were curtailed. In conjunction with the merger with CB Bancshares, Inc. ("CBBI"), we assumed CBBI's SERP obligation.

The following tables set forth information pertaining to the SERP:



	Year Ended December 31,
	2019			2018
	(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year	$	10,355		$	11,219
Interest cost	430			389
Actuarial (gains) losses	1,517			(907		)
Benefits paid	(331		)	(346		)
Benefit obligation at end of year	11,971			10,355

Change in plan assets
Fair value of plan assets at beginning of year	—			—
Employer contributions	331			346
Benefits paid	(331		)	(346		)
Fair value of plan assets at end of year	—			—

Funded status at end of year	$	(11,971	)	$	(10,355	)

Amounts recognized in AOCI
Net transition obligation	$	(64	)	$	(82	)
Prior service cost	(14		)	(31		)
Net actuarial losses	(2,583		)	(1,082		)
Total amounts recognized in AOCI	$	(2,661	)	$	(1,195	)

Benefit obligation actuarial assumptions
Weighted average discount rate	3.0		%	4.2		%



	Year Ended December 31,
	2019			2018			2017
	(Dollars in thousands)
Components of net periodic benefit cost
Interest cost	$	430		$	389		$	429
Amortization of net actuarial (gains) losses	16			174			102
Amortization of net transition obligation	18			18			18
Amortization of prior service cost	18			18			18
Settlement	—			—			138
Net periodic benefit cost	$	482		$	599		$	705

Net periodic cost actuarial assumptions
Weighted average discount rate	4.2		%	3.5		%	4.1		%

The estimated amortization of components included in AOCI that will be recognized into net periodic benefit cost for 2020 is as follows (dollars in thousands):



Amortization of net actuarial losses	$	16
Amortization of net transition obligation	18
Amortization of prior service cost	18

The SERP holds no plan assets other than employer contributions that are paid as benefits during the year. We expect to contribute $0.3 million to the SERP in 2020.

Estimated future benefit payments reflecting expected future service for the SERP in each of the next five years and in the aggregate for the five years thereafter are as follows (dollars in thousands):



Year Ending December 31:
2020	$	329
2021	320
2022	490
2023	661
2024	653
2025-2029	4,051
Total	$	6,504