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Note 13 - Employee and Postretirement Benefit Plans
 12 Months Ended
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.