Employee Benefits

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Employee Benefits

17. Employee Benefits

The Company has a Qualified Defined Benefit Pension Plan (the “Plan”), which had been offered to all employees reaching minimum age and service requirements. In 2006, the Bank became a member of the Savings Bank Employees Retirement Association (“SBERA”) within which it then began maintaining the Qualified Defined Benefit Pension Plan. SBERA offers a common and collective trust as the underlying investment structure for its retirement plans. The target allocation mix for the common and collective trust portfolio calls for an equity-based investment deployment range of 43% to 57% of total portfolio assets. The remainder of the portfolio is allocated to fixed income securities with target range of 15% to 25% and other investments including global asset allocation and hedge funds from 15% to 31%.

The Trustees of SBERA, through its Investment Committee, select investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the Investment Committee to provide allocation analysis, performance measurement and to assist with manager searches. The overall investment objective is to diversify investments across a spectrum of investment types to limit risks from large market swings. The Company closed the plan to employees hired after March 31, 2006.

The measurement date for the Plan is December 31 for each year. The benefits expected to be paid in each year from 2020 to 2024 are $1,798,000, $2,023,000, $2,157,000, $2,270,000, and $2,451,000, respectively. The aggregate benefits expected to be paid in the five years from 2025 to 2029 are $15,005,000.

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy under Topic 820 are described as follows:

LEVEL 1

Inputs to the valuation methodology are quoted market prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

LEVEL 2

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly, such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other that quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

LEVEL 3

Inputs that are unobservable inputs for the asset or liability.

Below is a description of the valuation methodologies used for assets measured at fair value.

Collective Funds

Valued at either the closing price reported on the active market on which the individual securities are traded or valued at the net asset value (NAV) of units of a collective trust. The NAV, as provided by the trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. Were SBERA to initiate a full redemption of the collective trust, the investment advisor reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations will be carried out in an orderly business manner.

Equity Securities

Valued at the closing price reported on the active market on which the individual securities are traded.

Mutual Funds

Valued at the daily closing price as reported by the fund. Mutual funds held open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. The funds are required to publish their daily NAV and to transact at that price.

The mutual funds held are deemed to be actively traded.

Limited Partnerships and Hedge Funds

The funds are valued at NAV, without further adjustment, as calculated by the fund’s manager based upon the terms and conditions of the organization documents of the underlying investments, with further consideration to portfolio risks.

The following table sets forth by level, within the fair value hierarchy, the plan’s assets at fair value. Classification within the fair value hierarchy table is based upon the lowest level of any input that is significant to the fair value measurement:

The fair value of plan assets and major categories as of December 31, 2019, is as follows:

Description	Percent			NAV		Level 1		Level 2		Level 3		Total
(dollars in thousands)
Collective Funds		8.3	%	$	—	$	4,289	$	—	$	—	$	4,289
Equity Securities		9.7	%		—		5,016		—		—		5,016
Diversified Mutual Funds		31.1	%		—		16,081		—		—		16,081
Total investments measured in the fair value hierarchy		49.1	%		—		25,386		—		—		25,386
Investments measured at net asset value (1)		50.9	%		26,274		—		—		—		26,274
		100.0	%	$	26,274	$	25,386	$	—	$	—	$	51,660

(1) In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

The fair value of plan assets and major categories as of December 31, 2018, is as follows:

Description	Percent			NAV		Level 1		Level 2		Level 3		Total
(dollars in thousands)
Collective Funds		5.6	%	$	—	$	2,504	$	—	$	—	$	2,504
Equity Securities		10.9	%		—		4,863		—		—		4,863
Diversified Mutual Funds		30.7	%		—		13,612		—		—		13,612
Short-term investments		0.1	%		—		60		—		—		60
Total investments measured in the fair value hierarchy		47.3	%		—		21,039		—		—		21,039
Investments measured at net asset value (1)		52.7	%		23,398		—		—		—		23,398
		100.0	%	$	23,398	$	21,039	$	—	$	—	$	44,437

(1) In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

INVESTMENTS MEASURED USING THE NET ASSET VALUE PER SHARE PRACTICAL EXPEDIENT

The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient.

There are no participant redemption restrictions for these investments.

The investments measured using the net asset value per share practical expedient as of December 31, 2019, is as follows:

(dollars in thousands)	Percent			Fair Value
Collective Funds by Category:
Equity		19.3	%	$	9,932
US debt securities		15.2	%		7,874
International equities		10.1	%		5,208
Limited Partnerships by Category:
Emerging markets		3.2	%		1,635
Multi-strategy		1.2	%		644
Hedge Funds by Category:
Global opportunities (2)		0.5	%		259
Private investment entities and/or separately managed accounts (3)		1.4	%		722
		50.9	%	$	26,274

The investments measured using the net asset value per share practical expedient as of December 31, 2018, is as follows:

(dollars in thousands)	Percent			Fair Value
Collective Funds by Category:
Equity		20.8	%	$	9,204
Diversified		0.0	%		—
US debt securities		12.1	%		5,386
International equities		9.7	%		4,311
Limited Partnerships by Category:
Emerging markets		2.9	%		1,289
Multi-strategy		1.9	%		826
Hedge Funds by Category:
Multi-strategy (1)		3.6	%		1,593
Global opportunities (2)		0.3	%		150
Private investment entities and/or separately managed accounts (3)		1.4	%		639
		52.7	%	$	23,398

(1) This category includes investments in hedge funds that pursue multiple strategies to diversify risks and reduce volatility. Fund objectives are to seek above-average rates of return and long-term capital growth through in-vestments, which are fund of funds with a diversified portfolio of private investment entities and/or separately managed accounts managed by investment managers or achieve superior risk-adjusted capital appreciation over the long-term, generally through an investment, which invests in private investment funds and discretional managed accounts, structured notes, swaps or other similar products. The fair values of the investments in this category have been determined using the net asset value per share of the fund(s).

(2) This category has an investment strategy to pursue a hybrid absolute return via portfolio managers, secondaries, and co-investments with a flexible and opportunistic mandate tactically allocating capital to look to capitalize on market dislocations and inefficiencies. The opportunities are expected to fall within the following strategies: Niche Alternatives and Private Credit and Hedge Fund secondaries. The fair value of the investments in this category have been determined using the last sales price, for listed securities, and in accordance with the agreement terms for portfolio-managed investments, notes, swaps, and other similar products.

(3) The Fund’s investment objective is to invest in highly attractive, select investment opportunities by maintaining investments through private investment entities and/or separately managed accounts (each, an Investment or a Portfolio and collectively, the Investments or the Portfolios) with investment management professionals (each a Manager and collectively, the Managers) specializing in various alternative investment strategies. The Managers have broad investment experience and the ability to leverage their existing relationships with corporate management teams, investment banks and other institutions to gain access to certain investment opportunities. As such, the Manager is presented with “best idea” investment opportunities, typically in asset classes where market dislocations or other events have created attractive investment opportunities. The Managers are not restricted in the investment strategies that they may employ across different asset classes and regions. The Manager anticipates that any number of strategies will be eligible for consideration for investment by the Fund and the Fund reserves the right to invest in any particular strategy or asset class it deems appropriate.

The Company has a Supplemental Executive Insurance/Retirement Plan (the Supplemental Plan), which is limited to certain officers and employees of the Company. The Supplemental Plan is voluntary. Under the Supplemental Plan, each participant will receive a retirement benefit based on compensation and length of service. Life insurance policies, which are owned by the Company, are purchased covering the lives of each participant.

The benefits expected to be paid in each year from 2020 to 2024 are $2,373,000, $2,318,000, $2,409,000, $2,692,000 and $3,138,000, respectively. The aggregate benefits expected to be paid in the five years from 2025 to 2029 are $18,017,000.

	Defined Benefit Pension Plan						Supplemental Insurance/ Retirement Plan
	2019			2018			2019			2018
(dollars in thousands)
Change projected in benefit obligation
Benefit obligation at beginning of year	$	40,509		$	47,065		$	40,405		$	42,579
Service cost		1,103			1,411			1,024			1,107
Interest cost		1,892			1,481			1,926			1,386
Actuarial (gain)/loss		7,099			(8,263	)		7,537			(3,591	)
Benefits paid		(1,169	)		(1,185	)		(916	)		(1,076	)
Projected benefit obligation at end of year	$	49,434		$	40,509		$	49,976		$	40,405
Change in plan assets
Fair value of plan assets at beginning of year	$	44,437		$	48,422
Actual return (loss) on plan assets		8,392			(2,800	)
Employer contributions		—			—
Benefits paid		(1,169	)		(1,185	)
Fair value of plan assets at end of year	$	51,660		$	44,437
(Unfunded) Funded status	$	2,226		$	3,928		$	(49,976	)	$	(40,405	)
Accumulated benefit obligation	$	49,434		$	40,509		$	45,238		$	36,984
Weighted-average assumptions as of December 31
Discount rate—Liability		3.71	%		4.76	%		3.71	%		4.79	%
Discount rate—Expense		4.76	%		3.49	%		4.79	%		3.42	%
Expected return on plan assets		7.50	%		8.00	%		NA			NA
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%
Components of net periodic benefit cost
Service cost	$	1,103		$	1,411		$	1,024		$	1,107
Interest cost		1,892			1,481			1,926			1,386
Expected return on plan assets		(3,275	)		(3,813	)		—			—
Recognized prior service cost		—			(100	)		114			114
Recognized net losses		916			904			435			706
Net periodic cost (benefit)	$	636		$	(117	)	$	3,499		$	3,313
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Amortization of prior service cost	$	—		$	100		$	(114	)	$	(114	)
Net (gain) loss		1,066			(2,554	)		7,101			(4,298	)
Total recognized in other comprehensive income		1,066			(2,454	)		6,987			(4,412	)
Total recognized in net periodic benefit cost and other comprehensive income	$	1,702		$	(2,571	)	$	10,486		$	(1,099	)

	Plan			December 31, 2019 Supplemental Plan			Total			Plan			December 31, 2018 Supplemental Plan			Total
(dollars in thousands)
Prior service cost	$	—		$	(307	)	$	(307	)	$	—		$	(421	)	$	(421	)
Net actuarial loss		(12,920	)		(17,971	)		(30,891	)		(11,854	)		(10,870	)		(22,724	)
Total	$	(12,920	)	$	(18,278	)	$	(31,198	)	$	(11,854	)	$	(11,291	)	$	(23,145	)

The following table summarizes the amounts included in Accumulated Other Comprehensive Loss at December 31, 2019, expected to be recognized as components of net periodic benefit cost in the next year:

	Plan		Supplemental Plan
Amortization of prior service cost to be recognized in 2020	$	—	$	114
Amortization of loss to be recognized in 2020		1,041	$	849

Assumptions for the expected return on plan assets and discount rates in the Company’s Plan and Supplemental Plan are periodically reviewed. As part of the review, management in consultation with independent consulting actuaries performs an analysis of expected returns based on the plan’s asset allocation. This forecast reflects the Company’s and actuarial firm’s expected return on plan assets for each significant asset class or economic indicator. The range of returns developed relies on forecasts and on broad market historical benchmarks for expected return, correlation and volatility for each asset class. Also, as a part of the review, the Company’s management in consultation with independent consulting actuaries performs an analysis of discount rates based on expected returns of high-grade fixed income debt securities.

Prior to December 31, 2018, the Company utilized a full yield curve approach in the estimation of the service and interest components of the net periodic pensionable cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows.

Beginning December 31, 2018, the discount rate was determined by preparing an analysis of the respective plan’s expected future cash flows and high-quality fixed-income investments currently available and expected to be available during the period to maturity of the benefits. Mortality assumptions are based on the RP 2015 Mortality Table projected with Scale MP 2016.

This methodology more accurately matches yields to the expected benefit payments than the previous method. The discount rate used is an estimate of the rate at which the plans could settle their obligations. Rather than using a rate and curve developed using a bond portfolio, this method selects individual bonds to match to the expected cash flows of the Plans. This provides a more accurate depiction of the true cost to the plans to settle the obligations as the Plans could theoretically go into the marketplace and purchase the specific bonds used in the analysis in order to settle the obligations of the Plans.

The financial impact of the enhanced estimate to the discount rate amounted to approximately $6,800,000 decrease in the projected benefit obligations for the combined plans at December 31, 2018.

The Company offers a 401(k) defined contribution plan for all employees reaching minimum age and service requirements. The plan is voluntary and employee contributions are matched by the Company at a rate of 33.3% for the first 6% of compensation contributed by each employee. The Company’s match totaled $458,000 for 2019, $454,000 for 2018 and $445,000 for 2017. Administrative costs associated with the plan are absorbed by the Company.

The Company has a cash incentive plan that is designed to reward our executives and officers for the achievement of annual financial performance goals of the Company as well as business line, department and individual performance. The plan supports the philosophy that management be measured for their performance as a team in the attainment of these goals. Discretionary bonus expense amounted to $2,364,000, $2,355,000 and $1,859,000 in 2019, 2018, and 2017, respectively.

The Company does not offer any postretirement programs other than pensions.