17. PENSION PLANS

Defined Benefit Retirement Plan

The bank has a defined benefit retirement plan that covered substantially all of its employees who were employed during the period that the plan was in effect. The plan was initially curtailed in 1986, and accordingly, plan benefits were fixed as of that date. Effective January 1, 1991, the bank reactivated its defined benefit retirement plan. As a result of the reactivation, employees for whom benefits were fixed in 1986 began to accrue additional benefits under a new formula that became effective January 1, 1991. Employees who were not participants at curtailment, but who were subsequently eligible to join, became participants effective January 1, 1991. Under the reactivated plan, benefits are based upon the employees’ years of service and their highest average annual salaries in a 60-consecutive-month period of service, reduced by benefits provided from the bank’s terminated money purchase pension plan. The reactivation of the defined benefit retirement plan resulted in an increase of $5.9 million in the unrecognized prior service cost, which was amortized over a period of 13 years. Effective December 31, 2002, the bank curtailed its defined benefit retirement plan, and accordingly, plan benefits were fixed as of that date.

The following tables set forth information pertaining to the defined benefit retirement plan:

	December 31,
	2012			2011
	(Dollars in thousands)
Change in benefit obligation
Benefit obligation at January 1	$	34,091		$	33,633
Interest cost	1,585			1,668
Actuarial loss	2,923			1,014
Benefits paid	(2,460		)	(2,224		)
Benefit obligation at December 31	36,139			34,091

Change in plan assets
Fair value of assets at January 1	22,559			23,220
Actual return on plan assets	2,235			168
Employer contributions	1,446			1,395
Benefits paid	(2,460		)	(2,224		)
Fair value of assets at December 31	23,780			22,559
Funded status	$	(12,359	)	$	(11,532	)

Amounts recognized in the consolidated balance sheets
Accrued benefit liability	$	(12,359	)	$	(11,532	)
Components of accumulated other comprehensive income:
Unrecognized net actuarial loss	(19,205		)	(19,111		)
Net amount recognized	$	6,846		$	7,579

Benefit obligation actuarial assumptions
Weighted average discount rate	4.0		%	4.8		%

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Components of net periodic cost
Interest cost	$	1,585		$	1,668		$	1,790
Expected return on plan assets	(1,791		)	(1,821		)	(1,710		)
Recognized net loss	2,385			2,263			1,962
Net periodic cost	2,179			2,110			2,042

Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net loss	(93		)	(404		)	(414		)
Total recognized in other comprehensive income	(93		)	(404		)	(414		)
Total recognized in net periodic cost and other comprehensive income	$	2,272		$	2,514		$	2,456

Net periodic cost actuarial assumptions
Weighted average discount rate	4.8		%	5.1		%	5.9		%
Expected long-term rate of return on plan assets	8.0		%	8.0		%	8.0		%

The unrecognized net actuarial loss included in AOCI expected to be recognized in net periodic pension cost during 2013 is approximately $2.4 million.

The long-term rate of return on plan assets reflects the weighted-average long-term rates of return for the various categories of investments held in the plan. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the plan investments.

The defined benefit retirement plan assets consist primarily of equity and debt securities. Our asset allocations by asset category were as follows:

	December 31,
	2012		2011

Equity securities	65	%	62	%
Debt securities	32		32
Other	3		6
Total	100	%	100	%

Equity securities included the Company’s common stock in the amounts of $59 thousand and $49 thousand at December 31, 2012 and 2011, respectively.

Our investment strategy for the defined benefit retirement plan is to maximize the long-term rate of return on plan assets while maintaining an acceptable level of risk. The investment policy establishes a target allocation for each asset class that is reviewed periodically and rebalanced when considered appropriate.

The fair values of the defined benefit retirement plan as of December 31, 2012 and 2011 by asset category were as follows:

	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
December 31, 2012
Money market accounts	$	1,022	$	—	$	—	$	1,022
Mutual funds	9,524		—		—		9,524
Government obligations	—		3,317		—		3,317
Common stocks	6,213		—		—		6,213
Preferred stocks	279		—		—		279
Corporate bonds and debentures	—		3,425		—		3,425
	$	17,038	$	6,742	$	—	$	23,780

December 31, 2011
Money market accounts	$	1,869	$	—	$	—	$	1,869
Mutual funds	439		—		—		439
Government obligations	—		3,264		—		3,264
Common stocks	5,376		—		—		5,376
Exchange traded funds	8,494		—		—		8,494
Preferred stocks	226		—		—		226
Corporate bonds and debentures	—		2,891		—		2,891
	$	16,404	$	6,155	$	—	$	22,559

We expect to contribute approximately $1.7 million to our defined benefit retirement plan in 2013.

Estimated future benefit payments are as follows (in thousands):

Year ending December 31:
2013	$	2,342
2014	2,372
2015	2,360
2016	2,384
2017	2,362
2018-2022	11,518
Total	$	23,338

Supplemental Executive Retirement Plans

In 1995, 2001, 2004 and 2006, our bank established Supplemental Executive Retirement Plans (“SERP”) that provide certain officers of the Company with supplemental retirement benefits. On December 31, 2002, the 1995 and 2001 SERP were curtailed. In conjunction with the merger with CB Bancshares, Inc. (“CBBI”), we assumed CBBI’s SERP obligation.

The following tables set forth information pertaining to the SERP:

	December 31,
	2012			2011
	(Dollars in thousands)
Change in benefit obligation
Benefit obligation at January 1	$	8,558		$	7,755
Interest cost	426			412
Actuarial loss	1,175			606
Benefits paid	(215		)	(215		)
Benefit obligation at December 31	9,944			8,558

Change in plan assets
Fair value of assets at January 1	—			—
Employer contributions	215			215
Benefits paid	(215		)	(215		)
Fair value of assets at December 31	—			—
Funded status	$	(9,944	)	$	(8,558	)

Amounts recognized in the consolidated balance sheets
Accrued benefit liability	$	(9,944	)	$	(8,558	)
Components of accumulated other comprehensive income:
Unrecognized transition obligation	(181		)	(198		)
Unamortized prior service cost	(137		)	(154		)
Unrecognized net actuarial loss	(1,482		)	(304		)
Net amount recognized	$	(8,144	)	$	(7,902	)

Benefit obligation actuarial assumptions
Weighted average discount rate	4.2		%	5.0		%
Weighted average rate of compensation increase	5.0		%	5.0		%

	Year Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Components of net periodic cost
Service cost	$	—		$	—		$	42
Interest cost	426			412			435
Amortization of unrecognized transition obligation	17			17			17
Recognized prior service cost	18			18			17
Recognized net gain	(4		)	(17		)	(29		)
Net periodic cost	457			430			482

Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net loss	(1,179		)	(624		)	(307		)
Amortization of prior service cost	17			18			17
Amortization of transition obligation	17			18			17
Total recognized in other comprehensive income	(1,145		)	(588		)	(273		)

Total recognized in net periodic cost and other comprehensive income	$	1,602		$	1,018		$	755

Net periodic cost actuarial assumptions
Weighted average discount rate	5.0		%	5.0		%	6.1		%
Weighted average rate of compensation increase	5.0		%	5.0		%	5.0		%

The estimated amortization of components included in AOCI that will be recognized into net periodic cost for 2013 is as follows (in thousands):

Amortization of transition obligation	$	17
Amortization of prior service cost	18
Amortization of net actuarial gain	71

The SERP holds no plan assets other than employer contributions that are paid as benefits during the year. We expect to contribute $0.2 million to the SERP in 2013.

Estimated future benefit payments reflecting expected future service for the SERP are as follows (in thousands):

Year ending December 31:
2013	$	215
2014	211
2015	208
2016	223
2017	413
2018-2022	2,109
Total	$	3,379