DEFERRED COMPENSATION PLAN

12 Months Ended

Dec. 31, 2019

DEFERRED COMPENSATION PLAN

DEFERRED COMPENSATION PLAN

NOTE 15 — DEFERRED COMPENSATION PLAN

Prior to the recapitalization in 2004, as an incentive to retain key members of management and directors, the Corporation established a deferred compensation plan, with benefits based on the number of years the individuals have served the Corporation.  This plan was discontinued and no longer applies to current officers and directors.  A liability was recorded on a present value basis and discounted using the rates in effect at the time the deferred compensation agreement was entered into.  The liability may change depending upon changes in long-term interest rates.  The liability at December 31, 2019 and 2018, for vested benefits under this plan, was $51,000 and $82,000, respectively.  These benefits were originally contracted to be paid over a ten to fifteen-year period.  The final payment is scheduled to occur in 2023.  The deferred compensation plan is unfunded; however, the Bank maintains life insurance policies on the majority of the plan participants.  The cash surrender value of the policies was $1.498 million and $1.443 million at December 31, 2019 and 2018, respectively. 

Peninsula Financial Corporation, acquired by the Corporation in December 2014, also had a deferred compensation plan, which was similar in nature to the Corporation’s discontinued plan.  The liability for this plan at December 31, 2019 and 2018, for vested benefits under this plan was $.757 million and $.900 million, respectively.  The bank owned life insurance policy as of December 31, 2019 and 2018 had cash surrender values of $1.773 million and $1.760 million, respectively.  This Plan was also discontinued by the Corporation and will not apply to future employees or directors of the Corporation.

First Federal of Northern Michigan, acquired in May 2018 had a deferred compensation plan, which was similar in nature to the Corporation’s discontinued plan.  The liability for this plan at December 31, 2019, for vested benefits under this plan was $.343 million.  The bank owned life insurance policy as of December 31, 2019 had a cash surrender value of $5.320 million.  This Plan was also discontinued by the Corporation and will not apply to future employees or directors of the Corporation.

Deferred compensation expense for the three plans was $99,000 and $92,000 for 2019 and 2018 respectively.