12.	PENSION AND PROFIT SHARING PLANS:

The Company’s defined benefit pension plan was frozen effective January 1, 2004, whereby no new participants will be added to the Plan and 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 at the time. 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 “Protection Act”), the Company will be required to contribute amounts in future years to fund any shortfalls. The Company has evaluated the provisions of the Protection 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 $250,000 and $1,000,000 in 2014 and 2013, respectively, and is continuing to evaluate future funding amounts.

During 2014, as permitted by the Internal Revenue Service, the Company offered settlement of a portion of its pension obligations to those plan participants who no longer were employed by the Company. As a result of the partial settlement of the plan, the Company recognized $2,909,000, before income tax, in pension expense, a component of noninterest expense. The effect of this transaction was relatively neutral to shareholders’ equity since the recorded pension obligation associated with the plan participants who accepted the settlement closely approximated the amount offered to such plan participants and the amount recognized in pension expense had been previously recognized as unrealized losses in other comprehensive earnings. As a result, the Company paid $10,626,000 out of pension plan assets, or approximately 43% of the total outstanding obligation balance, to plan participants and the number of participants was reduced by 335, or 44%. The Company’s investment risk and administrative expense associated with the Company’s pension plan should be significantly reduced going forward.

Using an actuarial measurement date of December 31, 2014 and 2013, benefit obligation activity and fair value of plan assets for the years ended December 31, 2014 and 2013, and a statement of the funded status as of December 31, 2014 and 2013, are as follows (dollars in thousands):


	2014			2013
Reconciliation of benefit obligations:
Benefit obligation at January 1	$	25,499		$	27,838
Interest cost on projected benefit obligation		1,131			1,020
Actuarial loss (gain)		1,075			(2,097	)
Benefits paid, including partial settlement of certain participant balances		(12,124	)		(1,262	)


Benefit obligation at December 31	$	15,581		$	25,499


Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	$	25,467		$	21,110
Actual return on plan assets		1,865			4,619
Employer contributions		250			1,000
Benefits paid, including partial settlement of certain participant balances		(12,124	)		(1,262	)


Fair value of plan assets at December 31		15,458			25,467


Funded status	$	(123	)	$	(32	)

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):


	2014			2013

Net actuarial loss	$	(4,435	)	$	(6,975	)
Deferred tax benefit		1,762			2,651


Amounts included in accumulated other comprehensive earnings, net of tax	$	(2,673	)	$	(4,324	)

Net periodic pension benefit cost for the years ended December 31, 2014, 2013, and 2012, are as follows (dollars in thousands):


	Year Ended December 31,
	2014			2013			2012
Service cost - benefits earned during the period	$	—		$	—		$	—
Interest cost on projected benefit obligation		1,131			1,020			1,113
Expected return on plan assets		(1,497	)		(1,293	)		(1,140	)
Amortization of unrecognized net loss		337			786			659
Recognized loss on partial settlement of certain participant balances		2,909			—			—


Net periodic pension benefit expense	$	2,880		$	513		$	632

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:


	2014			2013			2012
Weighted average discount rate		4.10	%		4.75	%		3.75	%

Expected long-term rate of return on assets		6.25	%		6.25	%		6.25	%

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 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 major type of plan assets in the pension plan and the targeted allocation percentage as of December 31, 2014 and 2013 is as follows:


	December 31, 2014 Allocation			December 31, 2013 Allocation			Targeted Allocation
Equity securities		75	%		75	%		75	%
Debt securities		24	%		24	%		25	%
Cash and equivalents		1	%		1	%		—

The range and weighted average final maturities of debt securities held in the pension plan as of December 31, 2014 are 3.01 to 13.34 years and approximately 7.73 years, respectively. Assets held in the pension plan are considered either Level 1 consisting of the money market funds, publicly traded common stocks and publically traded mutual funds or Level 2 consisting of obligations of state and political subdivisions, corporate bonds and mortgage-backed securities. There were no Level 3 securities. See note 8 for a discussion of the fair value hierarchy. The breakdown by level is as follows (dollars in thousands):


	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

Money market fund	$	281	$	—	$	—	$	281
Obligations of state and political subdivisions		—		687		—		687
Corporate bonds		—		791		—		791
Mortgage-backed securities		—		1,178		—		1,178
Corporate stocks and mutual funds		12,521		—		—		12,521


Total	$	12,802	$	2,656	$	—	$	15,458

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,

2015			784
2016			805
2017			855
2018			874
2019			899
2020 forward			4,754

As of December 31, 2014 and 2013, the pension plan’s total assets included First Financial Bankshares, Inc. common stock valued at approximately $1,933,000 and $2,037,000, 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 $5,324,000, $5,686,000 and $4,711,000 in 2014, 2013 and 2012, respectively, and are included in salaries and employee benefits in the accompanying consolidated statements of earnings. As of December 31, 2014 and 2013, the profit sharing plan’s assets included First Financial Bankshares, Inc. common stock valued at approximately $42,008,000 and $46,979,000, 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 2014, 2013 and 2012 was $1,699,000, $1,560,000 and $1,383,000, 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.