11. EMPLOYEE BENEFIT PLANS

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed, noncontributory defined benefit pension plan covering substantially all employees and officers hired prior to January 1, 2007. Additionally, the Bank assumed the noncontributory defined benefit pension plan of FNB when it was acquired during 2015. The FNB plan was frozen prior to the acquisition and therefore, no additional benefits will accrue for employees covered under that plan. These two plans are collectively referred to herein as “the Plans”. The pension plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the pension plan. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the pension plans’ actuary. For the years ended December 31, 2018, 2017 and 2016, contributions to the pension plans totaled $0, $3,000,000 and $818,000, respectively. The Board of Directors in 2018 voted to terminate the plan acquired as part of the FNB acquisition, which is expected to be completed in 2019.

In lieu of the pension plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation. The contribution amount is placed in a separate account within the 401(k) plan and is subject to a vesting requirement. Contributions by the Company totaled $151,000, $133,000 and $82,000 for 2018, 2017 and 2016, respectively.

The following table sets forth the obligation and funded status of the Plans as of December 31 (in thousands):

	2018			2017
Change in benefit obligation
Benefit obligation at beginning of year	$	19,833		$	18,603
Service cost		359			349
Interest cost		652			671
Actuarial (Gain) / Loss		(1,693	)		1,015
Benefits paid		(1,256	)		(805	)
Benefit obligation at end of year		17,895			19,833

Change in plan assets
Fair value of plan assets at beginning of year		19,992			15,786
Actual return (loss) on plan assets		(524	)		2,011
Employer contribution		-			3,000
Benefits paid		(1,256	)		(805	)
Fair value of plan assets at end of year		18,212			19,992

Funded status	$	317		$	159

Amounts not yet recognized as a component of net periodic pension cost as of December 31 (in thousands):

Amounts recognized in accumulated other
comprehensive loss consists of:	2018			2017
Net loss	$	3,811		$	4,088
Prior service cost		(80	)		(127	)
Total	$	3,731		$	3,961

The accumulated benefit obligation for the defined benefit pension plan was $17,895,000 and $19,833,000 at December 31, 2018 and 2017, respectively.

The components of net periodic benefit costs for the years ended December 31 are as follows (in thousands):

	2018			2017			2016			Affected line item on the Consolidated Statement of Income
Service cost	$	359		$	349		$	345		Salary and Employee Benefits
Interest cost		652			671			692		Other Expenses
Return on plan assets		(1,126	)		(1,094	)		(1,034	)	Other Expenses
Net amortization and deferral		186			224			219		Other Expenses
Net periodic benefit cost	$	71		$	150		$	222

The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive loss into the net periodic benefit cost (income) in 2019 is $290,000 and $(48,000), respectively.

The weighted-average assumptions used to determine benefit obligations at December 31, 2018 and 2017 is summarized in the following table. Due to the decision to terminate the pension plan acquired as part of the FNB acquisition, the discount rate for the plans will be separated for the 2018 disclosure. The rate for 2017 represents a combined rate of the plans. The change in the discount rate is the primary driver of the actuarial gain that occurred in 2018 of $1,693,000.

	2018			2017
Discount rate FCCB Plan		4.00	%		3.35	%
Discount rate FNB Plan		3.49	%		3.35	%
Rate of compensation increase		3.00	%		3.00	%

The weighted-average assumptions used to determine net periodic benefit cost (income) for the year ended December 31:

	2018			2017			2016
Discount rate		3.35	%		3.78	%		3.94	%
Expected long-term return on plan assets FCCB plan		7.00	%		7.00	%		7.00	%
Expected long-term return on plan assets FNB plan		3.00	%		7.00	%		7.00	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%

The long-term rate of return on plan assets gives consideration to returns currently being earned on plan assets as well as future rates expected to be earned. The investment objective is to maximize total return consistent with the interests of the participants and beneficiaries, and prudent investment management. The allocation of the pension plan assets is determined on the basis of sound economic principles and is continually reviewed in light of changes in market conditions. Asset allocation favors equity securities, with a target allocation of 50-70%. The target allocation for debt securities is 30-50%. At December 31, 2018, the pension plan had a sufficient cash and money market position in order to re-allocate the equity portfolio for diversification purposes and reduce risk in the total portfolio. The following table sets forth by level, within the fair value hierarchy as defined in footnote 18, the Plan’s assets at fair value as of December 31, 2018 and 2017 (dollars in thousands):

2018	Level I		Level II		Level III		Total		Allocation
Assets
Cash and cash equivalents	$	5,057	$	-	$	-	$	5,057		27.8	%
Equity Securities		4,891		-		-		4,815		26.8	%
Mutual Funds and ETF's		5,114		-		-		5,114		28.1	%
Corporate Bonds		-		3,150		-		3,150		17.3	%
Municipal Bonds				-				-		0.0	%
U.S. Agency Securities		-		-		-		-		0.0	%
Certificate of deposit		-		-		-		-		0.0	%
Total	$	15,062	$	3,150	$	-	$	18,212		100.0	%

2017	Level I		Level II		Level III		Total		Allocation
Assets
Cash and cash equivalents	$	3,827	$	-	$	-	$	3,827		19.1	%
Equity Securities		6,018		-		-		6,018		30.1	%
Mutual Funds and ETF's		6,090		-		-		6,090		30.5	%
Corporate Bonds		-		3,469		-		3,469		17.4	%
Municipal Bonds				105				105		0.5	%
U.S. Agency Securities		-		483		-		483		2.4	%
Certificate of deposit		-		-		-		-		0.0	%
Total	$	15,935	$	4,057	$	-	$	19,992		100.0	%

Equity securities include the Company’s common stock in the amounts of $610,000 (3.4% of total plan assets) and $684,000 (3.4% of total plan assets) at December 31, 2018and 2017, respectively.

The Bank expects to contribute $500,000 to its pension plans in 2019. Expected future benefit payments that the Bank estimates from its pension plan are as follows (in thousands):

2019	$	7,863
2020		1,238
2021		1,080
2022		531
2023		559
2024 - 2028		5,907

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k). Under the plan, the Company also makes required contributions on behalf of the eligible employees. The Company’s contributions vest immediately. Contributions by the Company totaled $433,000, $388,000 and $351,000 for 2018, 2017 and 2016, respectively.

Directors’ Deferred Compensation Plan

The Company’s directors may elect to defer all or portions of their fees until their retirement or termination from service. Amounts deferred under the deferred compensation plan earn interest based upon the highest current rate offered to certificate of deposit customers. Amounts deferred under the deferred compensation plan are not guaranteed and represent a general liability of the Company. As of December 31, 2018 and 2017, an obligation of $921,000 and $928,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $22,000, $19,000 and $15,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the Plan) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Company’s common stock and maybe subject to certain vesting requirements including in the case of employees, continuous employment or service with the Company. In April of 2016, the Company’s shareholders authorized a total of 150,000 shares of the Company’s common stock to be made available under the Plan. As of December 31, 2018, 135,582 shares remain available to be issued under the Plan. The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation. The following table details the vesting, awarding and forfeiting of restricted shares during 2018:

	2018
				Weighted
				Average
	Shares			Market Price
Outstanding, beginning of year		8,783		$	51.20
Granted		5,826			62.74
Vested		(4,845	)		50.94
Outstanding, end of year		9,764		$	58.21

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period. Compensation expense related to restricted stock was $256,000, $214,000 and $193,000 for the years ended December 31, 2018, 2017 and 2016, respectively. The per share weighted-average grant-date fair value of restricted shares granted during 2017, 2016 and 2015 was $62.74, $53.84 and $48.13, respectively. At December 31, 2018, the total compensation cost related to nonvested awards that has not yet been recognized was $568,000, which is expected to be recognized over the next 3 years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan (“SERP”) for certain executives to compensate those executive participants in the Company’s noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At December 31, 2018 and 2017, an obligation of $1,751,000 and $1,571,000, respectively, was included in other liabilities for the SERP in the Consolidated Balance Sheet. Expenses related to the SERP totaled $180,000, $111,000 and $121,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

Deferred Compensation Plan

The Company in 2018 initiated a non-qualified executive deferred compensation plan for eligible employees designated by the Board of Directors. At December 31, 2018 and 2017, an obligation of $95,000 and $0, respectively, was included in other liabilities for the deferred compensation plan in the Consolidated Balance Sheet. Expenses related to the deferred compensation plan totaled $95,000, $0 and $0 for the years ended December 31, 2018, 2017 and 2016, respectively.

Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees acquired through the acquisition of the FNB. At December 31, 2018 and 2017 an obligation of $704,000 and $716,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to the salary continuation plan totaled $53,000, $54,000 and $62,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

Continuation of Life Insurance Plan

The Company, as part of the acquisition of FNB, has promised a continuation of life insurance coverage to certain persons post-retirement. GAAP requires the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person’s term of service. The estimated present value of future benefits to be paid totaled $648,000 and $578,000 at December 31, 2018 and 2017, respectively, which is included in other liabilities in the Consolidated Balance Sheet. Expenses for the plan total $70,000 and $9,000 for the years ended December 31, 2018 and 2017, respectively. There were no expenses related to this plan during the year ended December 31, 2016.