(18.) EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

Employees that meet specified eligibility conditions are eligible to participate in the Company sponsored 401(k) plan. Under the plan, participants may make contributions, in the form of salary deferrals, up to the maximum Internal Revenue Code limit. Until December 31, 2015, the Company matched a participant's contributions up to 4.5% of compensation, calculated at 100% of the first 3% of compensation and 50% of the next 3% of compensation deferred by the participant. The Company is also permitted to make additional discretionary matching contributions, although no such additional discretionary contributions were made in 2017, 2016 or 2015. The expense included in salaries and employee benefits in the consolidated statements of income for this plan amounted to $1.3 million in 2015. Effective January 1, 2016, the 401(k) Plan was amended to discontinue the Company's matching contribution.

Defined Benefit Pension Plan

The Company participates in The New York State Bankers Retirement System (the "Plan"), a defined benefit pension plan covering substantially all employees. For employees hired prior to December 31, 2006, who met participation requirements on or before January 1, 2008 ("Tier 1 Participant"), the benefits are generally based on years of service and the employee's highest average compensation during five consecutive years of employment.

Effective January 1, 2016, the Plan was amended to open the Plan to eligible employees who were hired on and after January 1, 2007 ("Tier 2 Participant"), and provide these eligible participants with a cash balance benefit formula.

The following table provides a reconciliation of the Company's changes in the Plan's benefit obligations, fair value of assets and a statement of the funded status as of and for the year ended December 31 (in thousands):


		2017			2016
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	63,002		$	59,232
Service cost		3,140			2,885
Interest cost		2,449			2,402
Actuarial (gain) loss		5,016			1,210
Benefits paid and plan expenses		(3,171	)		(2,727	)
Projected benefit obligation at end of period		70,436			63,002
Change in plan assets:
Fair value of plan assets at beginning of period		75,252			72,358
Actual return on plan assets		11,267			5,621
Employer contributions		-			-
Benefits paid and plan expenses		(3,171	)		(2,727	)
Fair value of plan assets at end of period		83,348			75,252
Funded status at end of period	$	12,912		$	12,250

The accumulated benefit obligation was $65.2 million and $58.0 million at December 31, 2017 and 2016, respectively.

The Company's funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of Internal Revenue Code. The Company has no minimum required contribution for the 2018 fiscal year.

Estimated benefit payments under the Plan over the next ten years at December 31, 2017 are as follows (in thousands):


2018	$	2,846
2019		2,885
2020		3,109
2021		3,311
2022		3,528
2023 - 2027		20,500

Net periodic pension cost consists of the following components for the years ended December 31 (in thousands):


		2017			2016			2015
Service cost	$	3,140		$	2,885		$	2,324
Interest cost on projected benefit obligation		2,449			2,402			2,328
Expected return on plan assets		(4,775	)		(4,600	)		(4,820	)
Amortization of unrecognized loss		1,142			938			926
Amortization of unrecognized prior service cost		17			20			20
Net periodic pension cost	$	1,973		$	1,645		$	778

The actuarial assumptions used to determine the net periodic pension cost were as follows:


	2017		2016		2015
Weighted average discount rate	4.00	%	4.21	%	3.86	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%
Expected long-term rate of return	6.50	%	6.50	%	6.50	%

The actuarial assumptions used to determine the projected benefit obligation were as follows:


	2017		2016		2015
Weighted average discount rate	3.49	%	4.00	%	4.21	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%

The weighted average discount rate was based upon the projected benefit cash flows and the market yields of high grade corporate bonds that are available to pay such cash flows.

The weighted average expected longterm rate of return is estimated based on current trends in the Plan's assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No. 27, "Selection of Economic Assumptions for Measuring Pension Obligations" for long term inflation, and the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the longterm rate of return:

The long term rate of return considers historical returns. Adjustments were made to historical returns in order to reflect expectations of future returns. These adjustments were due to factor forecasts by economists and longterm U.S. Treasury yields to forecast longterm inflation. In addition, forecasts by economists and others for longterm GDP growth were factored into the development of assumptions for earnings growth and per capita income.

The Plan's overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for Plan assets are shown in the table below. Cash equivalents consist primarily of government issues (maturing in less than three months) and short term investment funds. Equity securities primarily include investments in common stock, depository receipts, preferred stock, commingled pension trust funds, exchange traded funds and real estate investment trusts. Fixed income securities include corporate bonds, government issues, credit card receivables, mortgage backed securities, municipals, commingled pension trust funds and other asset backed securities. Other investments are real estate interests and related investments held within a commingled pension trust fund.


Equity securities	Dividend discount model, the smoothed earnings yield model and the equity risk premium
	model
Fixed income securities	Current yieldtomaturity and forecasts of future yields
Other financial instruments	Comparison of the specific investment's risk to that of fixed income and equity instruments
	and using judgment

The Plan currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio at the time of purchase or greater than 8% at market value in any one issuer. Effective June 2013, the issuer of any security purchased must be located in a country in the Morgan Stanley Capital International World Index. In addition, the following are prohibited:


Equity securities	Short sales
	Unregistered stocks
	Margin purchases
Fixed income securities	Mortgage backed derivatives that have an inverse floating rate coupon or that are interest only
	securities
	Any ABS that is not issued by the U.S. Government or its agencies or its instrumentalities
	Generally, securities of less than Baa2/BBB quality may not be purchased
	Securities of less than A-quality may not in the aggregate exceed 13% of the investment
	manager's portfolio.
	An investment manager's portfolio of commercial MBS and ABS shall not exceed 10% of the
	portfolio at the time of purchase.
Other financial instruments	Unhedged currency exposure in countries not defined as "high income economies" by the
	World Bank

All other investments not prohibited by the Plan are permitted. At December 31, 2017 and 2016, the Plan held certain investments which are no longer deemed acceptable to acquire. The Plan continues to allow managers to maintain currently prohibited positions which were not prohibited at the time of purchase. These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the Plan.

The target allocation range below is both historic and prospective in that it has not changed since prior to 2013. It is the asset allocation range that the investment managers have been advised to adhere to and within which they may make tactical asset allocation decisions.


						Weighted
						Average
	2017	Percentage of Plan Assets				Expected
	Target	at December 31,				Long-term
	Allocation	2017		2016		Rate of Return
Asset category:
Cash equivalents	0 – 20%	6.4	%	6.1	%	0.18	%
Equity securities	40 – 60	50.2		47.9		4.02
Fixed income securities	40 – 60	40.2		42.6		2.06
Other financial instruments	0 – 5	3.2		3.4		0.24

Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value (see Note 19 - Fair Value Measurements).

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments valued using the NAV (Net Asset Value) are classified as level 2 if the Plan can redeem its investment with the investee at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered a level 3. If the Plan can redeem the investment at the NAV at a future date, the Plan's assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset.

The Plan uses the Thomson Reuters Pricing Service to determine the fair value of equities excluding commingled pension trust funds, the pricing service of IDC Corporate USA to determine the fair value of fixed income securities excluding commingled pension trust funds and JP Morgan Chase Bank, N.A. ("JPMorgan") and Northern Trust ("NT") to determine the fair value of commingled pension trust funds.

The following is a table of the pricing methodology and unobservable inputs used by JPMorgan and NT in pricing commingled pension trust funds ("CPTF"):


	Principal Valuation
	Technique(s) Used	Unobservable Inputs
CPTF - Fixed Income:
CPTF (Corporate High Yield) of	Market, Comparable Securities	EBITDA Multiple
JPMorgan
CPTF (High Yield) of JPMorgan	Market	None
CPTF (Long Duration Investment	Market, NAV, Comparable Securities,	None
Grade) of JPMorgan	Discounted Cash Flow
CPTF (Emerging Markets Strategic	Market, Comparable Securities	None
Debt) of JPMorgan (formerly known as
JPMorgan Emerging Markets Local
Currency Debt)
CPTF (Emerging Markets - Fixed	Market, Comparable Securities	None
Income) of JPMorgan
NT Collective Aggregate Bond Index	NAV	None
Fund - Lending

CPTF – Other:
CPTF (Strategic Property) of JPMorgan	Market, Income Approach, Debt	Credit Spreads, Discount Rate, Loan to
	Service and Sales Comparison	Value Ratio, Terminal Capitalization
		Rate and Value per Square Foot

When valuing Commingled Pension Trust Funds (Equity) JPMorgan uses a market methodology and does not rely on unobservable inputs in those valuations.

The following table sets forth a summary of the changes in the Plan's level 3 assets for the years ended December 31, 2017 and 2016:


Level 3 assets, January 1, 2016	$	2,670
Realized Gain		52
Sales		(381	)
Unrealized gains		296
Level 3 assets, December 31, 2016		2,637
Realized Gain		43
Purchases		103
Sales		(224	)
Unrealized gains		82
Level 3 assets, December 31, 2017	$	2,641

The major categories of Plan assets measured at fair value on a recurring basis as of December 31 are presented in the following tables (in thousands).


		Level 1		Level 2		Level 3		Total
		Inputs		Inputs		Inputs		Fair Value
2017
Cash equivalents:
Cash (including foreign currencies)	$	726	$	-	$	-	$	726
Short term investment funds		-		4,635		-		4,635
Total cash equivalents		726		4,635		-		5,361
Equity securities:
Common stock		14,523		-		-		14,523
Depository receipts		368		-		-		368
Commingled pension trust funds		-		26,613		-		26,613
Preferred stock		320		-		-		320
Total equity securities		15,211		26,613		-		41,824
Fixed income securities:
Collateralized mortgage obligations		-		585		-		585
Commingled pension trust funds		-		19,524		-		19,524
Corporate bonds		-		3,068		-		3,068
FNMA		-		167		-		167
Government securities		-		10,117		-		10,117
Mortgage backed securities		-		61		-		61
Total fixed income securities		-		33,522		-		33,522
Other investments:
Commingled pension trust funds - Realty		-		-		2,641		2,641
Total Plan investments	$	15,937	$	64,770	$	2,641	$	83,348

At December 31, 2017, the portfolio was managed by two investment firms, with control of the portfolio split approximately 59% and 37% under the control of the investment managers with the remaining 4% under the direct control of the Plan. A portfolio concentration in two of the commingled pension trust funds and a short term investment fund of 15%, 6% and 6%, respectively, existed at December 31, 2017.


		Level 1		Level 2		Level 3		Total
		Inputs		Inputs		Inputs		Fair Value
2016
Cash equivalents:
Foreign currencies	$	99	$	-	$	-	$	99
Short term investment funds		-		4,454		-		4,454
Total cash equivalents		99		4,454		-		4,553
Equity securities:
Common stock		13,326		-		-		13,326
Depository receipts		391		-		-		391
Commingled pension trust funds		-		22,302		-		22,302
Total equity securities		13,717		22,302		-		36,019
Fixed income securities:
Collateralized mortgage obligations		-		633		-		633
Commingled pension trust funds		-		18,151		-		18,151
Corporate bonds		-		2,862		-		2,862
FNMA		-		579		-		579
Government securities		-		9,783		-		9,783
Mortgage backed securities		-		35		-		35
Total fixed income securities		-		32,043		-		32,043
Other Investments:
Commingled pension trust funds - Realty		-		-		2,637		2,637
Total Plan investments	$	13,816	$	58,799	$	2,637	$	75,252

At December 31, 2016, the portfolio was managed by two investment firms, with control of the portfolio split approximately 58% and 38% under the control of the investment managers with the remaining 4% under the direct control of the Plan. A portfolio concentration in two of the commingled pension trust funds and a short term investment fund of 14%, 6% and 6%, respectively, existed at December 31, 2016.

Postretirement Benefit Plan

An entity acquired by the Company provided health and dental care benefits to retired employees who met specified age and service requirements through a postretirement health and dental care plan in which both the acquired entity and the retirees shared the cost. The plan provided for substantially the same medical insurance coverage as for active employees until their death and was integrated with Medicare for those retirees aged 65 or older. In 2001, the plan's eligibility requirements were amended to curtail eligible benefit payments to only retired employees and active employees who had already met the then-applicable age and service requirements under the Plan. In 2003, retirees under age 65 began contributing to health coverage at the same cost-sharing level as that of active employees. Retirees ages 65 or older were offered new Medicare supplemental plans as alternatives to the plan historically offered. The cost sharing of medical coverage was standardized throughout the group of retirees aged 65 or older. In addition, to be consistent with the administration of the Company's dental plan for active employees, all retirees who continued dental coverage began paying the full monthly premium. The accrued liability included in other liabilities in the consolidated statements of financial condition related to this plan amounted to $151 thousand and $149 thousand as of December 31, 2017 and 2016, respectively. The postretirement expense for the plan that was included in salaries and employee benefits in the consolidated statements of income was not significant for the years ended December 31, 2017, 2016 and 2015. The plan is not funded.

The components of accumulated other comprehensive loss related to the defined benefit plan and postretirement benefit plan as of December 31 are summarized below (in thousands):


		2017			2016
Defined benefit plan:
Net actuarial loss	$	(14,348	)	$	(16,966	)
Prior service credit (cost)		5			(12	)
		(14,343	)		(16,978	)
Postretirement benefit plan:
Net actuarial loss		(190	)		(198	)
Prior service credit		169			237
		(21	)		39
Total		(14,364	)		(16,939	)
Deferred tax benefit		5,723			6,717
Amounts included in accumulated other comprehensive loss	$	(8,641	)	$	(10,222	)

Changes in plan assets and benefit obligations recognized in other comprehensive income on a pre-tax basis during the years ended December 31 are as follows (in thousands):


		2017			2016
Defined benefit plan:
Net actuarial gain (loss)	$	1,475		$	(189	)
Amortization of net loss		1,142			938
Amortization of prior service cost		17			20
		2,634			769
Postretirement benefit plan:
Net actuarial loss		(15	)		(53	)
Amortization of net loss		24			17
Amortization of prior service credit		(68	)		(67	)
		(59	)		(103	)
Total recognized in other comprehensive income	$	2,575		$	666

For the year ending December 31, 2018, the estimated net loss and prior service credit for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost is $750 thousand and $72 thousand, respectively.

Supplemental Executive Retirement Agreements

The Company has non-qualified Supplemental Executive Retirement Agreements ("SERPs") covering five former executives. The unfunded pension liability related to the SERPs was $1.9 million and $2.1 million at December 31, 2017 and 2016, respectively. SERP expense was $194 thousand, $88 thousand, and $408 thousand for 2017, 2016 and 2015, respectively.