16. 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:

	2013			2012
	(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year	$	36,139		$	34,091
Interest cost	1,370			1,585
Actuarial (gains) losses	(2,969		)	2,923
Benefits paid	(2,357		)	(2,460		)
Benefit obligation at end of the year	32,183			36,139

Change in plan assets
Fair value of plan assets at beginning of year	23,780			22,559
Actual return on plan assets	4,712			2,235
Employer contributions	1,647			1,446
Benefits paid	(2,357		)	(2,460		)
Fair value of plan assets at end of year	27,782			23,780

Funded status at end of year	$	(4,401	)	$	(12,359	)

Amounts recognized in AOCI
Net actuarial losses	$	(10,895	)	$	(19,205	)

Benefit obligation actuarial assumptions
Weighted average discount rate	4.7		%	4.0		%

	2013			2012			2011
	(Dollars in thousands)
Components of net periodic benefit cost
Interest cost	$	1,370		$	1,585		$	1,668
Expected return on plan assets	(1,762		)	(1,791		)	(1,821		)
Amortization of net actuarial losses	2,390			2,385			2,263
Net periodic benefit cost	$	1,998		$	2,179		$	2,110

Net periodic cost actuarial assumptions
Weighted average discount rate	4.0		%	4.8		%	5.1		%
Expected long-term rate of return on plan assets	7.5		%	8.0		%	8.0		%

The unrecognized net actuarial losses included in AOCI expected to be recognized in net periodic benefit cost during 2014 is approximately $1.2 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,
	2013		2012

Equity securities	59.9	%	64.7	%
Debt securities	34.6		32.6
Other	5.5		2.7
Total	100	%	100	%

Equity securities included the Company’s common stock in the amounts of $76 thousand and $59 thousand at December 31, 2013 and 2012, 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, 2013 and 2012 by asset category were as follows:

	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
December 31, 2013
Money market accounts	$	1,841	$	—	$	—	$	1,841
Mutual funds	9,795		—		—		9,795
Government obligations	—		3,450		—		3,450
Common stocks	8,744		—		—		8,744
Preferred stocks	255		—		—		255
Corporate bonds and debentures	—		3,697		—		3,697
	$	20,635	$	7,147	$	—	$	27,782

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

We expect to contribute approximately $1.8 million to our defined benefit retirement plan in 2014.

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

Year ending December 31:
2014	$	2,427
2015	2,413
2016	2,432
2017	2,411
2018	2,401
2019-2023	11,393
Total	$	23,477

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:

	2013			2012
	(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year	$	9,944		$	8,558
Interest cost	411			426
Actuarial (gains) losses	(1,033		)	1,175
Benefits paid	(215		)	(215		)
Benefit obligation at end of year	9,107			9,944

Change in plan assets
Fair value of plan assets at beginning of year	—			—
Employer contributions	215			215
Benefits paid	(215		)	(215		)
Fair value of plan assets at end of year	—			—

Funded status at end of year	$	(9,107	)	$	(9,944	)

Amounts recognized in AOCI
Net transition obligation	$	(164	)	$	(181	)
Prior service cost	(119		)	(137		)
Net actuarial losses	(379		)	(1,482		)
Total amounts recognized in AOCI	$	(662	)	$	(1,800	)

Benefit obligation actuarial assumptions
Weighted average discount rate	5.0		%	4.2		%

	2013			2012			2011
	(Dollars in thousands)
Components of net periodic benefit cost
Interest cost	$	411		$	426		$	412
Amortization of net transition obligation	17			17			17
Amortization of prior service cost	18			18			18
Amortization of net actuarial (gains) losses	71			(4		)	(17		)
Net periodic benefit cost	$	517		$	457		$	430

Net periodic cost actuarial assumptions
Weighted average discount rate	4.2		%	5.0		%	5.0		%

The estimated amortization of components included in AOCI that will be recognized into net periodic cost for 2014 is as follows (in thousands):

Amortization of net transition obligation	$	17
Amortization of prior service cost	18
Amortization of net actuarial losses	2

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 2014.

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

Year ending December 31:
2014	$	215
2015	211
2016	225
2017	415
2018	411
2019-2023	2,425
Total	$	3,902