Pension and Profit Sharing Plans

12 Months Ended

Dec. 31, 2012

Pension and Profit Sharing Plans

13. PENSION AND PROFIT SHARING PLANS:

The Company’s defined benefit pension plan was frozen effective January 1, 2004 whereby no additional years of service will accrue to participants, unless the pension plan is reinstated at a future date. The pension plan covered substantially all of the Company’s employees. The benefits for each employee were based on years of service and a percentage of the employee’s qualifying compensation during the final years of employment. The Company’s funding policy was and is to contribute annually the amount necessary to satisfy the Internal Revenue Service’s funding standards. Contributions to the pension plan, prior to freezing the plan, were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As a result of the Pension Protection Act of 2006, the Company will be required to contribute amounts in future years to fund any shortfalls. The Company has evaluated the provisions of the Act as well as the Internal Revenue Service’s funding standards to develop a plan for funding in future years. The Company made a contribution totaling $2.0 million and $1.5 million in 2012 and 2011, respectively, and is continuing to evaluate future funding amounts.

Using an actuarial measurement date of December 31, 2012 and 2011, respectively, benefit obligation activity and fair value of plan assets for the years ended December 31, 2012 and 2011, and a statement of the funded status as of December 31, 2012 and 2011, are as follows (in thousands):

	2012			2011
Reconciliation of benefit obligations:
Benefit obligation at January 1	$	24,608		$	22,263
Interest cost on projected benefit obligation		1,113			1,139
Actuarial loss		3,470			2,320
Benefits paid		(1,353	)		(1,114	)
Benefit obligation at December 31		27,838			24,608
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	$	18,077		$	17,184
Actual return on plan assets		2,387			506
Employer contributions		2,000			1,500
Benefits paid		(1,354	)		(1,114	)
Fair value of plan assets at December 31		21,110			18,076
Funded status	$	(6,728	)	$	(6,532	)

Amounts recognized as a component of accumulated other comprehensive earnings as of year-end that have not been recognized as a component of the net period benefit cost of the Company’s defined benefit pension plan are as follows (in thousands):

	2012			2011
Net actuarial loss	$	(13,184	)	$	(11,620	)
Deferred tax benefit		4,824			4,277
Amounts included in accumulated other comprehensive earnings, net of tax	$	(8,360	)	$	(7,343	)

Current authoritative accounting guidance requires an employer to recognize the overfunded or underfunded status of defined benefit post-retirement benefit plans as an asset or a liability in its balance sheet. The funded status is measured as the difference between plan assets at fair value and the benefit obligation. An employer is also required to measure the funded status of a plan as of the date of its year-end statement of financial position with changes in the funded status recognized through comprehensive income. Current authoritative accounting guidance also requires certain disclosures regarding the effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of gains or losses.

Net periodic pension cost for the years ended December 31, 2012, 2011, and 2010, included (in thousands):

	Year Ended December 31,
	2012			2011			2010
Service cost - benefits earned during the period	$	—		$	—		$	—
Interest cost on projected benefit obligation		1,113			1,139			1,159
Expected return on plan assets		(1,140	)		(1,220	)		(1,092	)
Amortization of unrecognized net loss		659			434			416
Net periodic pension cost	$	632		$	353		$	483

The following table sets forth the rates used in the actuarial calculations of the present value of benefit obligations and net periodic pension cost and the rate of return on plan assets:

	2012			2011			2010
Weighted average discount rate		3.75	%		4.65	%		5.25	%
Expected long-term rate of return on assets		6.25	%		6.75	%		6.75	%

The expected long-term rate of return on plan assets is based on historical returns and expectations of future returns based on asset mix, after consultation with our investment advisors and actuaries. The weighted average discount rate is estimated based on setting a discount rate to establish an obligation for pension benefits equivalent to an amount that, if invested in high quality fixed income securities, would produce a return that matches the expected benefit payment stream.

The major type of plan assets in the pension plan and the targeted allocation percentage as of December 31, 2012 and 2011 is as follows:

	December 31, 2012 Allocation			December 31, 2011 Allocation			Targeted Allocation
Equity securities		74	%		82	%		75	%
Debt securities		24	%		16	%		25	%
Cash and equivalents		2	%		2	%		—

The range and weighted average final maturities of debt securities held in the pension plan as of December 31, 2012 are 1.75 to 8.67 years and approximately 4.24 years, respectively. Assets held in the pension are considered either Level 1 consisting of the publicly traded common stocks and publically traded mutual funds or Level 2 consisting of agency and corporate debt securities. There were no Level 3 securities. See note 9 for a discussion of the fair value hierarchy. The breakdown by level is as follows (in thousands):

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Money market fund	$	513	$	—	$	—	$	513
Obligations of state and political subdivisions		—		708		—		708
Corporate bonds		—		1,833		—		1,833
Mortgage-backed securities		—		1,018		—		1,018
Corporate stocks and mutual funds		17,038		—		—		17,038
Total	$	17,551	$	3,559	$	—	$	21,110

First Financial Trust & Asset Management Company, National Association, a wholly owned subsidiary of the Company, manages the pension plan assets as well as the profit sharing plan assets (see below). The investment strategy and targeted allocations are based on similar strategies First Financial Trust & Asset Management Company, National Association employs for most of its managed accounts whereby appropriate diversification is achieved. First Financial Trust & Asset Management Company, National Association is prohibited from holding investments deemed to be high risk by the Office of the Comptroller of the Currency.

An estimate of the undiscounted projected future payments to eligible participants for the next five years and the following five years in the aggregate is as follows (in thousands):

Year Ending December 31,
2013	$	1,309
2014		1,393
2015		1,403
2016		1,412
2017		1,447
2018 to 2022	$	8,214

As of December 31, 2012 and 2011, the pension plan’s assets included Company common stock valued at approximately $1,202,000 and $1,030,000, respectively.

The Company also provides a profit sharing plan, which covers substantially all full-time employees. The profit sharing plan is a defined contribution plan and allows employees to contribute a percentage of their base annual salary. Employees are fully vested to the extent of their contributions and become fully vested in the Company’s contributions over a six-year vesting period. Costs related to the Company’s defined contribution plan totaled approximately $4,711,000, $4,688,000, and $4,299,000 in 2012, 2011 and 2010, respectively, and are included in salaries and employee benefits in the accompanying consolidated statements of earnings. As of December 31, 2012 and 2011, the profit sharing plan’s assets included Company common stock valued at approximately $29,043,000 and $25,715,000, respectively.

In 2004, after freezing our pension plan, we added a safe harbor match to the 401(k) plan. We match a maximum of 4% on employee deferrals of 5% of their employee compensation. Total expense for this matching in 2012, 2011 and 2010 was $1,383,000, $1,305,000 and $1,220,000, respectively, and is included in salaries and employee benefits in the statements of earnings.

The Company has a directors’ deferred compensation plan whereby the directors may elect to defer up to 100% of their directors’ fees. All deferred compensation is invested in the Company’s common stock held in a rabbi trust. The stock is held in nominee name of the trustee, and the principal and earnings of the trust are held separate and apart from other funds of the Company, and are used exclusively for the uses and purposes of the deferred compensation agreement. The accounts of the trust have been consolidated in the financial statements of the Company.