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Note 13 - Employee and Postretirement Benefit Plans | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Pension and Other Postretirement Benefits Disclosure [Text Block] | 1 3 . EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS DEFINED BENEFIT PLANS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits and life insurance to employees who meet certain age and length of service requirements. Full-time employees no longer accrue service time toward the Corporation-subsidized portion of the medical benefits. The plan contains a cost-sharing feature which causes participants to pay for all future increases in costs related to benefit coverage. Accordingly, actuarial assumptions related to health care cost trend rates do not significantly affect the liability balance at December 31, 2019 and December 31, 2018 and are not expected to significantly affect the Corporation's future expenses. The Corporation uses a December 31 measurement date for the postretirement plan. In an acquisition in 2007, the Corporation assumed the Citizens Trust Company Retirement Plan, a defined benefit pension plan. This plan covers certain employees who were employed by Citizens Trust Company on December 31, 2002, when the plan was amended to discontinue admittance of any future participant and to freeze benefit accruals. Information related to the Citizens Trust Company Retirement Plan has been included in the tables that follow. The Corporation uses a December 31 measurement date for this plan. The following table shows the funded status of the defined benefit plans:
(In Thousands) |  |  |  |  |  |
|  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
CHANGE IN BENEFIT OBLIGATION: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation at beginning of year |  | $ | 870 |  |  | $ | 850 |  |  | $ | 1,349 |  |  | $ | 1,497 |
Service cost |  |  | 0 |  |  |  | 0 |  |  |  | 33 |  |  |  | 40 |
Interest cost |  |  | 28 |  |  |  | 25 |  |  |  | 50 |  |  |  | 51 |
Plan participants' contributions |  |  | 0 |  |  |  | 0 |  |  |  | 184 |  |  |  | 206 |
Actuarial (gain) loss |  |  | 91 |  |  |  | 11 |  |  |  | (63 | ) |  |  | (192 | )
Benefits paid |  |  | (13 | ) |  |  | (16 | ) |  |  | (227 | ) |  |  | (253 | )
Benefit obligation at end of year |  | $ | 976 |  |  | $ | 870 |  |  | $ | 1,326 |  |  | $ | 1,349 |
CHANGE IN PLAN ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 847 |  |  | $ | 923 |  |  | $ | 0 |  |  | $ | 0 |
Actual return on plan assets |  |  | 137 |  |  |  | (60 | ) |  |  | 0 |  |  |  | 0 |
Employer contribution |  |  | 0 |  |  |  | 0 |  |  |  | 43 |  |  |  | 47 |
Plan participants' contributions |  |  | 0 |  |  |  | 0 |  |  |  | 184 |  |  |  | 206 |
Benefits paid |  |  | (13 | ) |  |  | (16 | ) |  |  | (227 | ) |  |  | (253 | )
Fair value of plan assets at end of year |  | $ | 971 |  |  | $ | 847 |  |  | $ | 0 |  |  | $ | 0 |
Funded status at end of year |  | $ | (5 | ) |  | $ | (23 | ) |  | $ | (1,326 | ) |  | $ | (1,349 | )
At December 31, 2019 and 2018, the following pension plan and postretirement plan liability amounts were recognized in the consolidated balance sheets:
(In Thousands) |  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Accrued interest and other liabilities |  | $ | 5 |  |  | $ | 23 |  |  | $ | 1,326 |  |  | $ | 1,349 |
At December 31, 2019 and 2018, the following items included in accumulated other comprehensive income had not been recognized as components of expense:
Items not yet recognized as a component |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
of net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(In Thousands) |  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Prior service cost |  | $ | 0 |  |  | $ | 0 |  |  | $ | (248 | ) |  | $ | (279 | )
Net actuarial loss (gain) |  |  | 255 |  |  |  | 299 |  |  |  | (236 | ) |  |  | (194 | )
Total |  | $ | 255 |  |  | $ | 299 |  |  | $ | (484 | ) |  | $ | (473 | )
For the defined benefit pension plan, amortization of the net actuarial loss is expected to be $16,000 in 2020. For the postretirement plan, the estimated amount of prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2020 is a reduction in expense of $31,000, and net actuarial gain of $7,000 is expected to be amortized in 2020. The accumulated benefit obligation for the defined benefit pension plan was $976,000 at December 31, 2019 and $870,000 at December 31, 2018. The components of net periodic benefit costs from defined benefit plans are as follows:
(In Thousands) |  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Service cost |  | $ | 0 |  |  | $ | 0 |  |  | $ | 33 |  |  | $ | 40 |
Interest cost |  |  | 28 |  |  |  | 25 |  |  |  | 50 |  |  |  | 51 |
Expected return on plan assets |  |  | (22 | ) |  |  | (20 | ) |  |  | 0 |  |  |  | 0 |
Amortization of prior service cost |  |  | 0 |  |  |  | 0 |  |  |  | (31 | ) |  |  | (30 | )
Recognized net actuarial loss (gain) |  |  | 20 |  |  |  | 13 |  |  |  | (21 | ) |  |  | 0 |
Total net periodic benefit cost |  | $ | 26 |  |  | $ | 18 |  |  | $ | 31 |  |  | $ | 61 |
The weighted-average assumptions used to determine net periodic benefit cost are as follows:
|  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Citizens Trust Company Retirement Plan and postretirement plan: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  |  | 4.10 | % |  |  | 3.55 | % |  |  | 4.50 | % |  |  | 3.75 | %
Expected return on plan assets |  |  | 4.68 | % |  |  | 4.32 | % |  |  | N/A |  |  |  | N/A |
Rate of compensation increase |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
The weighted-average assumptions used to determine benefit obligations as of December 31, 2019 and 2018 are as follows:
|  | Pension |  |  | Postretirement |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Discount rate |  |  | 3.55 | % |  |  | 4.10 | % |  |  | 3.25 | % |  |  | 4.50 | %
Rate of compensation increase |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |
Estimated future benefit payments, including only estimated employer contributions for the postretirement plan, which reflect expected future service, are as follows:
(In Thousands) |  |  | Pension |  |  | Postretirement |
2020 |  |  | $ | 431 |  |  | $ | 81 |
2021 |  |  |  | 11 |  |  |  | 85 |
2022 |  |  |  | 13 |  |  |  | 89 |
2023 |  |  |  | 181 |  |  |  | 81 |
2024 |  |  |  | 11 |  |  |  | 84 |
2025-2029 |  |  |  | 349 |  |  |  | 478 |
No estimated minimum contribution to the defined benefit pension plan is required in 2020, though the Corporation may make discretionary contributions. The expected return on pension plan assets is a significant assumption used in the calculation of net periodic benefit cost. This assumption reflects the average long-term rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The fair values of pension plan assets at December 31, 2019 and 2018 are as follows:
|  | 2019 |  |  | 2018 |
Mutual funds invested principally in: |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 3 | % |  |  | 3 | %
Debt securities |  |  | 38 | % |  |  | 40 | %
Equity securities |  |  | 49 | % |  |  | 45 | %
Alternative funds |  |  | 10 | % |  |  | 12 | %
Total |  |  | 100 | % |  |  | 100 | %
C&N Bank’s Trust and Financial Management Department manages the investment of the pension plan assets. The Plan’s securities include mutual funds invested principally in debt securities, a diversified mix of large, mid- and small-capitalization U.S. stocks, foreign stocks and alternative asset classes such as real estate, commodities, and inflation-protected securities. The fair values of plan assets are determined based on Level 1 inputs (as described in Note 21 ). The Plan’s assets do not include any shares of the Corporation’s common stock. PROFIT SHARING AND DEFERRED COMPENSATION PLANS The Corporation has a profit sharing plan that incorporates the deferred salary savings provisions of Section 401 (k) of the Internal Revenue Code. The Corporation’s matching contributions to the Plan depend upon the tax deferred contributions of employees. The Corporation’s total basic and matching contributions were $891,000 in 2019 and $717,000 in 2018. The Corporation has an Employee Stock Ownership Plan (ESOP). Contributions to the ESOP are discretionary, and the ESOP uses funds contributed to purchase Corporation stock for the accounts of ESOP participants. These purchases are made on the market ( not directly from the Corporation), and employees are not permitted to purchase Corporation stock under the ESOP. The ESOP includes a diversification feature, which allows participants, upon reaching age 55 and 10 years of service (as defined), to sell up to 50% of their Corporation shares over a period of 6 years. As of December 31, 2019, and 2018, there were no shares allocated for repurchase by the ESOP. Dividends paid on shares held by the ESOP are charged to retained earnings. All Corporation shares owned through the ESOP are included in the calculation of weighted-average shares outstanding for purposes of calculating earnings per share - basic and diluted. The ESOP held 473,171 shares of Corporation stock at December 31, 2019 and 444,843 shares at December 31, 2018, all of which had been allocated to Plan participants. The Corporation’s contributions to the ESOP totaled $718,000 in 2019 and $605,000 in 2018. The Corporation has a nonqualified supplemental deferred compensation arrangement with its key officers. Charges to operating expense for officers’ supplemental deferred compensation were $251,000 in 2019 and $242,000 in 2018. The Corporation also has a nonqualified deferred compensation plan that allows selected officers the option to defer receipt of cash compensation, including base salary and any cash bonuses or other cash incentives. This nonqualified deferred compensation plan does not provide for Corporation contributions. STOCK-BASED COMPENSATION PLANS The Corporation has a Stock Incentive Plan for a selected group of senior officers. A total of 850,000 shares of common stock may be issued under the Stock Incentive Plan. Awards may be made under the Stock Incentive Plan in the form of qualified options (“Incentive Stock Options,” as defined in the Internal Revenue Code), nonqualified options, stock appreciation rights or restricted stock. Historically through December 31, 2019, all awards made under this Plan have consisted of Incentive Stock Options or restricted stock. Incentive Stock Options have an exercise price equal to the market value of the stock at the date of grant, vest after 6 months and expire after 10 years. There are 223,867 shares available for issuance under the Stock Incentive Plan as of December 31, 2019. Also, the Corporation has an Independent Directors Stock Incentive Plan. This plan permits awards of nonqualified stock options and/or restricted stock to non-employee directors. A total of 235,000 shares of common stock may be issued under the Independent Directors Stock Incentive Plan. The recipients’ rights to exercise stock options under this plan expire 10 years from the date of grant. The exercise prices of all stock options awarded under the Independent Directors Stock Incentive Plan are equal to market value as of the dates of grant. There are 109,965 shares available for issuance under the Independent Directors Stock Incentive Plan as of December 31, 2019. Total stock-based compensation expense is as follows:
(In Thousands) |  | 2019 |  |  | 2018 |
Restricted stock |  | $ | 798 |  |  | $ | 855 |
Stock options |  |  | 0 |  |  |  | 0 |
Total |  | $ | 798 |  |  | $ | 855 |
The following summarizes non-vested restricted stock activity for the year ended December 31, 2019:
|  |  |  |  |  | Weighted |
|  |  |  |  |  | Average |
|  | Number |  |  | Grant Date |
|  | of Shares |  |  | Fair Value |
Outstanding, December 31, 2018 |  |  | 60,345 |  |  | $ | 23.81 |
Granted |  |  | 48,137 |  |  | $ | 24.47 |
Vested |  |  | (36,524 | ) |  | $ | 23.21 |
Forfeited |  |  | (3,758 | ) |  | $ | 25.08 |
Outstanding, December 31, 2019 |  |  | 68,200 |  |  | $ | 24.53 |
Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period, adjusted for estimated and actual forfeitures. As of December 31, 2019, there was $822,000 total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.4 years. In 2019 and 2018, the Corporation awarded shares of restricted stock under the Stock Incentive Plan, as follows:
|  | 2019 |  |  | 2018 |
Time-based awards to independent directors |  |  | 7,620 |  |  |  | 9,086 |
Time-based awards to employees |  |  | 26,827 |  |  |  | 17,147 |
Performance-based awards to employees |  |  | 13,690 |  |  |  | 8,289 |
Total |  |  | 48,137 |  |  |  | 34,522 |
Time-based restricted stock awards granted under the Independent Directors Stock Incentive Plan in 2019 and 2018 vest over one -year terms. Time-based restricted stock awards granted to employees in 2019 and 2018 vest ratably over three -year terms, subject to continued employment and satisfactory job performance. Performance-based restricted stock awards granted in 2019 and 2018 vest ratably over three -year terms, with vesting contingent upon meeting conditions based on the Corporation’s earnings as specified in the agreements. There were no stock options granted in 2019 or 2018. A summary of stock option activity is presented below:
|  | 2019 |  |  | 2018 |
|  |  |  |  |  | Weighted |  |  |  |  |  |  | Weighted |
|  |  |  |  |  | Average |  |  |  |  |  |  | Average |
|  |  |  |  |  | Exercise |  |  |  |  |  |  | Exercise |
|  | Shares |  |  | Price |  |  | Shares |  |  | Price |
Outstanding, beginning of year |  |  | 115,714 |  |  | $ | 18.49 |  |  |  | 165,660 |  |  | $ | 18.49 |
Granted |  |  | 0 |  |  |  |  |  |  |  | 0 |  |  |  |  |
Exercised |  |  | (31,304 | ) |  | $ | 17.65 |  |  |  | (41,210 | ) |  | $ | 18.69 |
Forfeited |  |  | 0 |  |  |  |  |  |  |  | 0 |  |  |  |  |
Expired |  |  | (8,513 | ) |  | $ | 19.88 |  |  |  | (8,736 | ) |  | $ | 17.50 |
Outstanding, end of year |  |  | 75,897 |  |  | $ | 18.69 |  |  |  | 115,714 |  |  | $ | 18.49 |
Options exercisable at year-end |  |  | 75,897 |  |  | $ | 18.69 |  |  |  | 115,714 |  |  | $ | 18.49 |
Weighted-average fair value of options forfeited |  |  |  |  |  |  | N/A |  |  |  |  |  |  |  | N/A |
The weighted-average remaining contractual term of outstanding stock options at December 31, 2019 was 2.7 years. The aggregate intrinsic value of stock options outstanding was $726,000 at December 31, 2019. The total intrinsic value of options exercised was $276,000 in 2019 and $291,000 in 2018. The Corporation has issued shares from treasury stock for almost all stock option exercises through December 31, 2019. Management does not anticipate that stock repurchases will be necessary to accommodate stock option exercises in 2020. In January 2020, the Corporation awarded 30,381 shares of restricted stock under the Stock Incentive Plan and 7,580 shares of restricted stock under the Independent Directors Stock Incentive Plans. The 2020 restricted stock awards under the Stock Incentive Plan vest ratably over three years and vesting for approximately one -half of the restricted shares awarded to Executive Officers depends on the Corporation meeting performance-based targets each year. The 2020 restricted stock issued under the Independent Directors Stock Incentive Plan vests over one year. Total estimated stock-based compensation for 2020 is $920,000. The restricted stock awards made in January 2020 are not included in the tables above.

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