EMPLOYEE BENEFIT PLANS

9 Months Ended

Sep. 30, 2012

Compensation and Retirement Disclosure [Abstract]

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

The Bank sponsors a noncontributory defined benefit cash balance pension plan (the “Cash Balance Plan”), covering all employees who qualify under length of service and other requirements. Under the Cash Balance Plan, retirement benefits are based on years of service and average earnings. The Bank’s funding policy is to contribute amounts to the Cash Balance Plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plus such additional amounts as the Bank may determine to be appropriate. The contributions to the Cash Balance Plan paid during the nine months ended September 30, 2012 totaled $0.4 million. No contributions were made during the three months ended September 30, 2012.  The contributions paid during the three and nine months ended September 30, 2011, totaled $0.6 million and $0.7 million. The Cash Balance Plan was not fully funded as of September 30, 2012 and December 31, 2011. The Bank does not expect to provide any additional funding to the Cash Balance Plan in 2012.  The annual measurement date for the Cash Balance Plan is as of December 31, and prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants.

The Bank sponsors a nonqualified Supplemental Executive Retirement Plan (“SERP”). The SERP, which is unfunded, provides certain individuals with pension benefits, outside the Bank’s noncontributory defined-benefit Cash Balance Plan, based on average earnings, years of service and age at retirement. Participation in the SERP is at the discretion of the Bank’s Board of Directors. The Bank purchased bank owned life insurance (“BOLI”) in 2002, with a face value of approximately $12.8 million covering all the participants in the SERP. Increases in the cash surrender value of the BOLI policies totaled $52 thousand and $152 thousand for the three and nine months ended September 30, 2012. During the three and nine months periods ended September 30, 2011 the cash surrender value of the BOLI policies increased $50 thousand and $147 thousand, respectively.  The cash surrender value of the BOLI owned by the Bank was $5.926 million and $5.8 million as of September 30, 2012 and December 31, 2011, respectively. The Bank has the ability and the intent to keep this life insurance in force indefinitely. The insurance proceeds may be used, at the sole discretion of the Bank, to fund the benefits payable under the SERP. The Bank does not expect to contribute to the SERP in 2012. In the second quarter of 2012, a Bank officer left before retirement age, forfeiting benefits under the SERP. This will reduce the service costs associated to this plan going forward.

The SERP and the Cash Balance Plan components of the net periodic benefit cost reflected in salaries and employee benefits expense for the nine months ended September 30, 2012 and September 30, 2011 were:

	Cash Balance Plan						SERP				Total
(Dollars in thousands)	2012			2011			2012		2011		2012			2011
Service cost	$	107		$	103		$	—	$	—	$	107		$	103
Interest cost	167			187			71		80		238			267
Expected return on plan assets	(199		)	(181		)	—		—		(199		)	(181		)
Amortization of prior service costs	1			1			—		3		1			4
Recognized net actuarial gain	159			114			13		3		172			117
Net periodic cost	$	235		$	224		$	84	$	86	$	319		$	310
The SERP and the Cash Balance Plan components of the net periodic benefit cost reflected in salaries and employee benefits expense for the three months ended September 30, 2012 and September 30, 2011 were:
(Dollars in thousands)	Cash Balance Plan						SERP				Total
	2012			2011			2012		2011		2012			2011
Service cost	$	36		$	34		$	—	$	—	$	36		$	34
Interest cost	56			62			23		27		79			89
Expected return on plan assets	(66		)	(60		)	—		—		(66		)	(60		)
Amortization of prior service costs	—			—			—		1		—			1
Recognized net actuarial gain	53			38			4		1		57			39
Net periodic cost	$	79		$	74		$	27	$	29	$	106		$	103

The Bank had a liability for the Cash Balance Plan of $1.5 million and $1.6 million for the periods ending September 30, 2012 and December 31, 2011, respectively.  The liability is included in Other Liabilities within the Consolidated Balance Sheets.  The accrued liability and accumulated benefit obligations for the SERP was $2.3 million  for the periods ending September 30, 2012 and December 31, 2011.   The balance is included in Other Liabilities within the Consolidated Balance Sheets.  The September 30, 2012 fair value of the pension plan assets is immaterially different from what was reported for December 31, 2011 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Retirement Plan Assets— In general, the Plan’s investment management organizations make reasonable efforts to control market fluctuations through appropriate techniques including, but not limited to, adequate diversification.   The specific investment strategy adopted by the plan, referred to as the Long Term Growth of Capital Strategy attempts to achieve long-term growth of capital with little concern for current income.  Typical investors in this portfolio have a relatively aggressive investment philosophy, seeking long term growth, and are not looking for current dividend income.

Prohibited investments include commodities and futures contracts, private placements, options, transactions which would result in unrelated business taxable income, and other investments prohibited by ERISA.

Equity investments must be listed on the New York, American, World, or other similar stock exchanges traded in the over-the-counter market with the requirement that such stocks have adequate liquidity relative to the size of the investment.

Fixed income investments must have a credit rating of B or better from Standard and Poor’s or Moody’s.  The fixed income portfolio should be constructed so as to have an average maturity not exceeding 10 years.  No more than 5% of the fixed income portfolio should be invested in any one issuer.  (U.S. Treasury and Agency securities are exempt from this restriction.)

Cash and equivalent instruments that are acceptable are repurchase agreements, bankers’ acceptances, U.S. treasury bills, money market funds, and certificates of deposit.

The portfolio shall be structured to meet financial objectives over a period of 11 or more years.  Over that time horizon, the total rate of return should equal at least 103% of the applicable blended benchmark returns and place in the top half of group performance.  Benchmarks which may be used for portfolio performance comparison are as follows:

• U.S. Large Cap Equities: S&P 500, Russell 1000, Russell 1000 Value, and Russell 1000 Growth

• U.S. Mid Cap Equities: S&P 400 Mid Cap, Russell Mid Cap Value, and Russell Mid Cap Growth

• U.S. Small Cap Equities: S&P 600 Small Cap, Russell 2000 Value, and Russell 2000 Growth

• Non-U.S. Equities: MSCI EAFE IL

• Fixed Income: Barclay's Capital Intermediate Government/Credit Index

• Cash:  U.S. 3-Month Treasury Bill

401(k) Plan —The Bank sponsors a 401(k) plan. Participation in the 401(k) plan is voluntary.  Employees become eligible after completing 90 days of service and attaining age 21. Employees may elect to contribute up to 12% of their compensation to the 401(k) plan. The Bank matches 100% of each employee’s contribution, up to a maximum of 6% of compensation. The Bank’s contributions to the 401(k) plan were $55 thousand and $158 thousand, respectively, for the three and nine months ended September 30, 2012.  The Bank’s contributions to the 401(k) plan were $43 thousand and $137 thousand, respectively, for the three and nine months ended September 30, 2011.

Deferred Compensation Plan —The Bank sponsors a nonqualified deferred compensation plan. The plan, which is unfunded, permits certain management employees to defer compensation in order to provide retirement and death benefits. The plan allows participants to receive the balance of the 6% Bank matching contribution on the 401(k) plan that would otherwise be forfeited to comply with the Internal Revenue Code. At September 30, 2012 and December 31, 2011, the amount of the non-qualified deferred compensation plan liability was $0.3 million. A participant in this plan retired during the three months ended June 30, 2012, and will be paid out his balance in the first quarter of 2013.

Post-retirement Benefits —The Bank provides certain post-retirement benefits to select former executive officers. As of September 30, 2012 and December 31, 2011, the amount of the liability for these benefits was approximately $0.2 million.

Split Dollar Benefits —In 2002, upon investing in BOLI policies, the Company granted certain executives a split dollar life benefit by which the beneficiaries of the executive would receive a portion of the death benefit, excluding any cash surrender value, of the BOLI upon the executive’s demise.  Amounts are accrued by a charge to employee benefits. As of September 30, 2012 and December 31, 2011, $0.2 million was recorded in other liabilities for the split dollar benefit. During the quarter ended June 30, 2012, a Bank officer left before retirement age, forfeiting his split dollar benefit. This will reduce the service costs associated with this plan going forward.