Employee Benefits

Defined Benefit Pension Plans

The Corporation maintains a tax-qualified defined benefit pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. The Corporation also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. The supplemental retirement plans provide eligible participants with an additional retirement benefit.

In September 2013, the Corporation amended its defined benefit pension plans primarily to freeze benefit accruals after a ten-year transition period ending in December 2023. As a result, the plans were remeasured in September 2013 and a curtailment was recognized, which reduced the projected benefit obligations by $4.4 million. The impact of this was primarily recognized in other comprehensive income.

The plan is funded on a current basis, in compliance with the requirements of ERISA.

The non-qualified retirement plans provide for the designation of assets in rabbi trusts. Securities available for sale and other short-term investments designated for this purpose, with the carrying value of $7.5 million and $8.3 million are included in the Consolidated Balance Sheets at December 31, 2013 and 2012, respectively.

Pension benefit cost and benefit obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and the expected long-term rate of return on plan assets. We evaluate these assumptions at least annually. The discount rate is used to calculate the present value of the expected future cash flows for benefit obligations under our pension plans. Future decreases in discount rates would increase the present value of pension obligations and increase our pension costs. Future decreases in the long-term rate of return assumption on plan assets would increase pension costs and, in general, may increase the requirement to make funding contributions to the plans.

The following table sets forth the plans’ projected benefit obligations, fair value of plan assets and funded status as of and for the years ended:



(Dollars in thousands)	Qualified Pension Plan						Non-Qualified Retirement Plans
At December 31,	2013			2012			2013			2012
Change in Benefit Obligation:
Benefit obligation at beginning of period		$70,615			$57,257			$12,569			$11,321
Service cost	2,720			2,574			181			150
Interest cost	2,883			2,823			462			503
Actuarial (gain) loss	(8,809		)	9,535			(1,332		)	1,315
Benefits paid	(2,004		)	(1,440		)	(736		)	(720		)
Administrative expenses	(182		)	(134		)	—			—
Curtailments	(4,061		)	—			(360		)	—
Benefit obligation at end of period		$61,162			$70,615			$10,784			$12,569
Change in Plan Assets:
Fair value of plan assets at beginning of period		$51,078			$38,330			$—			$—
Actual return on plan assets	8,168			4,322			—			—
Employer contributions	5,000			10,000			736			720
Benefits paid	(2,004		)	(1,440		)	(736		)	(720		)
Administrative expenses	(182		)	(134		)	—			—
Fair value of plan assets at end of period		$62,060			$51,078			$—			$—
Funded (unfunded) status at end of period		$898			($19,537	)		($10,784	)		($12,569	)

The funded status of the qualified pension plan has been recognized in other assets in the Consolidated Balance Sheet at December 31, 2013 and in other liabilities in the Consolidated Balance Sheet at December 31, 2012. The funded status of the non-qualified retirement plans has been recognized in other liabilities in the Consolidated Balance Sheets at December 31, 2013 and 2012.

The components of accumulated other comprehensive income related to the qualified pension plan and non-qualified retirement plans, on a pre-tax basis, are summarized below:



(Dollars in thousands)	Qualified Pension Plan						Non-Qualified Retirement Plans
	Qualified Pension Plan						Non-Qualified Retirement Plans
At December 31,	2013			2012			2013			2012
Net actuarial loss		$4,510			$23,144			$2,071			$3,938
Prior service credit	(130		)	(221		)	(3		)	(5		)
Total pre-tax amounts recognized in accumulated other comprehensive income		$4,380			$22,923			$2,068			$3,933

The accumulated benefit obligation for the qualified pension plan was $53.1 million and $55.8 million at December 31, 2013 and 2012, respectively. The accumulated benefit obligation for the non-qualified retirement plans amounted to $10.4 million and $11.3 million at December 31, 2013 and 2012, respectively.

The components of net periodic benefit cost and other amounts recognized in other comprehensive income, on a pre-tax basis, were as follows:



(Dollars in thousands)	Qualified Pension Plan									Non-Qualified Retirement Plans
Years ended December 31,	2013			2012			2011			2013			2012			2011
Net Periodic Benefit Cost:
Service cost		$2,720			$2,574			$2,314			$181			$150			$71
Interest cost	2,883			2,823			2,578			462			503			495
Expected return on plan assets	(3,725		)	(2,985		)	(2,794		)	—			—			—
Amortization of prior service (credit) cost	(30		)	(33		)	(33		)	(1		)	(1		)	(1		)
Recognized net actuarial loss	1,321			982			392			175			119			16
Curtailments	(61		)	—			—			(1		)	—			—
Net periodic benefit cost		$3,108			$3,361			$2,457			$816			$771			$581
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (on a pre-tax basis):
Net loss (gain)		($14,572	)		$7,216			$8,951			($1,506	)		$1,195			$1,517
Prior service cost (credit)	30			33			33			1			1			1
Curtailments	(4,000		)	—			—			(359		)	—			—
Recognized in other comprehensive income		($18,542	)		$7,249			$8,984			($1,864	)		$1,196			$1,518
Total recognized in net periodic benefit cost and other comprehensive income		($15,434	)		$10,610			$11,441			($1,048	)		$1,967			$2,099

The estimated prior service credit and net loss for the qualified pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2014 are ($23) thousand and $461 thousand, respectively. The estimated prior service credit and net loss for the non-qualified retirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2014 are ($1) thousand and $71 thousand, respectively.

Assumptions

The measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2013 and 2012 were as follows:



	Qualified Pension Plan		Non-Qualified Retirement Plans
	2013	2012	2013	2012
Measurement date	Dec 31, 2013	Dec 31, 2012	Dec 31, 2013	Dec 31, 2012
Discount rate	4.875%	4.125%	4.600%	3.750%
Rate of compensation increase	3.750%	3.750%	3.750%	3.750%

The measurement date and weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2013, 2012 and 2011 were as follows:



	Qualified Pension Plan			Non-Qualified Retirement Plans
	2013	2012	2011	2013	2012	2011
Measurement date	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Discount rate	4.125%	5.000%	5.625%	3.800%	4.625%	5.125%
Expected long-term return on plan assets	7.250%	7.750%	8.000%	—%	—%	—%
Rate of compensation increase	3.750%	3.750%	3.750%	3.750%	3.750%	3.750%

The expected long-term rate of return on plan assets is based on what the Corporation believes is realistically achievable based on the types of assets held by the plan and the plan’s investment practices. The assumption is updated at least annually, taking into account the asset allocation, historical asset return trends on the types of assets held and the current and expected economic conditions. At December 31, 2012, the measurement date used in the determination of net periodic benefit cost for 2013, the Corporation determined that a reduction to 7.25% in the expected long-term rate of return was necessary, based upon expected market performance.

The discount rate assumption for defined benefit pension plans is reset on the measurement date. A discount rate was selected for each plan by matching expected future benefit payments stream to a yield curve based on a selection of high-quality fixed-income debt securities.

Plan Assets

The following table presents the fair values of the qualified pension plan’s assets at December 31, 2013:



(Dollars in thousands)
	Fair Value Measurements Using						Assets at Fair Value
December 31, 2013	Level 1		Level 2		Level 3		Assets at Fair Value
Assets:
Cash and cash equivalents		$2,236		$—		$—		$2,236
Obligations of U.S. government agencies and U.S. government-sponsored enterprises	—		2,025		—		2,025
States and political subdivisions	—		2,218		—		2,218
Corporate bonds	—		11,069		—		11,069
Common stocks	24,406		—		—		24,406
Mutual funds	20,106		—		—		20,106
Total plan assets		$46,748		$15,312		$—		$62,060

The following table presents the fair values of the qualified pension plan’s assets at December 31, 2012:



(Dollars in thousands)
	Fair Value Measurements Using						Assets at Fair Value
December 31, 2012	Level 1		Level 2		Level 3		Assets at Fair Value
Assets:
Cash and cash equivalents		$7,274		$—		$—		$7,274
Obligations of U.S. government agencies and U.S. government-sponsored enterprises	—		1,059		—		1,059
States and political subdivisions	—		2,218		—		2,218
Corporate bonds	—		10,378		—		10,378
Common stocks	15,892		—		—		15,892
Mutual funds	14,750		—		—		14,750
Total plan assets		$37,916		$13,655		$—		$51,571

The qualified pension plan uses fair value measurements to record fair value adjustments to the securities held in its investment portfolio.

When available, the qualified pension plan uses quoted market prices to determine the fair value of securities; such items are classified as Level 1. This category includes cash equivalents, common stock and mutual funds which are exchange-traded.

Level 2 securities in the qualified pension plan include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose values are determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes corporate bonds, municipal bonds, obligations of U.S. government agencies and U.S. government-sponsored enterprises and mortgage backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3. As of December 31, 2013 and 2012, the qualified pension plan did not have any securities in the Level 3 category.

The asset allocations of the qualified pension plan at December 31, 2013 and 2012, by asset category were as follows:



December 31,	2013		2012
Asset Category:
Equity securities	63.8	%	55.0	%
Fixed securities	32.6	%	30.9	%
Cash and cash equivalents	3.6	%	14.1	%
Total	100.0	%	100.0	%

The assets of the qualified defined benefit pension plan trust (the “Pension Trust”) are managed to balance the needs of cash flow requirements and long-term rate of return. Cash inflow is typically comprised of invested income from portfolio holdings and Bank contributions, while cash outflow is for the purpose of paying plan benefits and certain plan expenses. As early as possible each year, the trustee is advised of the projected schedule of employer contributions and estimations of benefit payments. As a general rule, the trustee shall invest the funds so as to produce sufficient income to cover benefit payments and maintain a funded status that exceeds the regulatory requirements for tax-qualified defined benefit plans.

The investment philosophy used for the Pension Trust emphasizes consistency of results over an extended market cycle, while reducing the impact of the volatility of the security markets upon investment results. The assets of the Pension Trust should be protected by substantial diversification of investments, providing exposure to a wide range of quality investment opportunities in various asset classes, with a high degree of liquidity.

The investment objective with respect to the Pension Trust assets is to provide capital appreciation with a current income component. At any time, the portfolio will typically be invested in the following ranges: 50% to 70% in equities; 30% to 50% in fixed income; and 0% to 10% in cash and cash equivalents. The trustee investment manager will have authorization to invest within these ranges, making decisions based upon market conditions.

Fixed income bond investments should be limited to those in the top four categories used by the major credit rating agencies. High yield bond funds may be used to provide exposure to this asset class as a diversification tool provided they do not exceed 10% of the portfolio. In order to reduce the volatility of the annual rate of return of the bond portfolio, attention will be given to the maturity structure of the portfolio in the light of money market conditions and interest rate forecasts. The assets of the Pension Trust will typically have a laddered maturity structure, avoiding large concentrations in any single year. Common stock and equity holdings provide opportunities for dividend and capital appreciation returns. Holdings will be appropriately diversified by maintaining broad exposure to large-, mid- and small-cap stocks as well as international equities. Concentration in small-cap, mid-cap and international equities is limited to 20%, 20% and 30% of the equity portfolio, respectively. Investment selection and mix of equity holdings should be influenced by forecasts of economic activity, corporate profits and allocation among different segments of the economy while ensuring efficient diversification. The fair value of equity securities of any one issuer will not be permitted to exceed 10% of the total fair value of equity holdings of the Pension Trust. Investments in publicly traded real estate investment trust securities and low-risk derivatives securities such as callable securities, floating rate notes, mortgage backed securities and treasury inflation protected securities, are permitted.

Cash Flows

Contributions

The Internal Revenue Code permits flexibility in plan contributions so that normally a range of contributions is possible. The Corporation’s current funding policy has been generally to contribute the minimum required contribution and additional amounts up to the maximum deductible contribution. The Corporation expects to contribute $3.0 million to the qualified pension plan in 2014. In addition, the Corporation expects to contribute $751 thousand in benefit payments to the non-qualified retirement plans in 2014.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:



(Dollars in thousands)	Qualified Pension Plan		Non-Qualified Plans
2014		$3,832		$751
2015	3,276		770
2016	3,550		770
2017	3,029		764
2018	3,077		757
Years 2019 - 2022	18,244		3,801

401(k) Plan

The Corporation’s 401(k) Plan provides a specified match of employee contributions for substantially all employees. In addition, substantially all employees hired after September 30, 2007, who are ineligible for participation in the qualified defined benefit pension plan, will receive a non-elective employer contribution of 4%. Total employer matching contributions under this plan amounted to $1.6 million, $1.4 million and $1.2 million in 2013, 2012 and 2011, respectively.

Other Incentive Plans

The Corporation maintains several non-qualified incentive compensation plans. Substantially all employees participate in one of the incentive compensation plans. Incentive plans provide for annual or more frequent payments based on individual, business line and/or corporate performance targets (measured in terms of the Corporation’s net income, earnings per share and return on equity). Total incentive based compensation amounted to $13.4 million, $13.5 million and $10.7 million in 2013, 2012 and 2011, respectively. In general, the terms of incentive plans are subject to annual renewal and may be terminated at any time by the Board of Directors.

Deferred Compensation Plan

The Amended and Restated Nonqualified Deferred Compensation Plan provides supplemental retirement and tax benefits to directors and certain officers. The plan is funded primarily through pre-tax contributions made by the participants. The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Corporation’s Consolidated Balance Sheets. The participants in the plan bear the risk of market fluctuations of the underlying assets. The accrued liability related to this plan amounted to $7.1 million and $6.2 million at December 31, 2013 and 2012, respectively, and is included in other liabilities on the accompanying Consolidated Balance Sheets. The corresponding invested assets are reported in other assets.