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RETIREMENT PLANS:
 12 Months Ended
Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]  
RETIREMENT PLANS

15. RETIREMENT PLANS:

 

Employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist primarily of the Corporation's stock and obligations of U.S. Government agencies. Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. This plan was frozen for the majority of employees as of December 31, 2012.Those employees will be eligible to participate in a 401K plan that the Corporation can contribute a discretionary match of the pay contributed by the employee. In addition the ESOP plan will continue in place for all employees.

 

Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of $3.64 million, $7.11 million and $1.30 million in 2012, 2011 and 2010. The Corporation contributed $1.44 million, $1.56 million and $1.35 million to the ESOP in 2012, 2011 and 2010.

 

The Corporation uses a measurement date of December 31, 2012.

 

Net periodic benefit cost and other amounts recognized in other comprehensive income included the following components:

 

(Dollar amounts in thousands)   2012     2011     2010  
Service cost - benefits earned   $ 4,872     $ 3,542     $ 3,093  
Interest cost on projected benefit obligation     3,667       3,688       3,313  
Expected return on plan assets     (3,258 )     (4,003 )     (3,400 )
Net amortization and deferral     2,434       1,152       964  
Net periodic pension cost     7,715       4,379       3,970  
                         
Net loss (gain) during the period     3,842       17,868       4,466  
Curtailment gain     (5,700 )     -       -  
Amortization of prior service cost     (166 )     (166 )     18  
Amortization of unrecognized gain (loss)     (2,270 )     (986 )     (982 )
Total recognized in other comprehensive income (loss)     (4,294 )     16,716       3,502  
Total recognized net periodic pension cost and other comprehensive income   $ 3,421     $ 21,095     $ 7,472  

 

The estimated net loss and prior service costs (credits) for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $2.1 million and $(16) thousand.

 

The information below sets forth the change in projected benefit obligation, reconciliation of plan assets, and the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels.

 

(Dollar amounts in thousands)   2012     2011  
Change in benefit obligation:                
Benefit obligation at January 1   $ 84,908     $ 67,006  
Service cost     4,872       3,542  
Interest cost     3,667       3,688  
Actuarial (gain) loss     (4,747 )     12,689  
Benefits paid     (1,893 )     (2,017 )
Benefit obligation at December 31     86,807       84,908  
                 
Reconciliation of fair value of plan assets:                
Fair value of plan assets at January 1     53,935       48,464  
Actual return on plan assets     371       (1,176 )
Employer contributions     5,078       8,664  
Benefits paid     (1,893 )     (2,017 )
Fair value of plan assets at December 31     57,491       53,935  
                 
Funded status at December 31 (plan assets less benefit obligation)   $ (29,316 )   $ (30,973 )

 

Amounts recognized in accumulated other comprehensive income at December 31, 2012 and 2011 consist of:

 

(Dollar amounts in thousands)   2012     2011  
Net loss (gain)   $ 3,842     $ 17,867  
Prior service cost (credit)     166       166  
    $ 4,008     $ 18,033  

 

The accumulated benefit obligation for the defined benefit pension plan was $79,869 and $73,560 at year-end

2012 and 2011.

 

Principal assumptions used:   2012     2011  
Discount rate     4.05 %     4.40 %
Rate of increase in compensation levels     3.50       3.50  
Expected long-term rate of return on plan assets     6.00       6.00  

 

The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan's target asset allocation. Management estimated the rate by which plan assets would perform based on historical experience as adjusted for changes in asset allocations and expectations for future return on equities as compared to past periods.

 

Plan Assets — The Corporation's pension plan weighted-average asset allocation for the years 2012 and 2011 by asset category are as follows:

 

            Pension     ESOP  
    Pension Plan   ESOP   Pecentage of Plan     Pecentage of Plan  
    Target Allocation   Target Allocation   Assets at December 31,     Assets at December 31,  
ASSET CATEGORY   2012   2012   2012     2011     2012     2011  
Equity securities   61-63 % 99-100 %   55 %     49 %     98 %     99 %
Debt securities   33-36 % 0-0     33 %     36 %     0 %     0 %
Other   1-6 % 0-1     12 %     15 %     2 %     1 %
TOTAL             100 %     100 %     100 %     100 %

 

Fair Value of Plan Assets — Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

 

Equity, Debt, Investment Funds and Other Securities — The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

 

The fair value of the plan assets at December 31, 2012 and 2011, by asset category, is as follows:

 

          Fair Value Measurments at  
          December 31, 2012 Using:  
          Quoted Prices     Significant        
          in Active     Other     Significant  
          Markets for     Obsevable     Obsevable  
          Identical Assets     Inputs     Inputs  
(Dollar amounts in thousands)   Total     (Level 1)     (Level 2)     (Level 3)  
Plan assets                                
Equity securities   $ 43,393     $ 43,393     $ -     $ -  
Debt securities     10,597       -       10,597       -  
Investment Funds     3,501       3,501       -       -  
Total plan assets   $ 57,491     $ 46,894     $ 10,597     $ -  

 

          Fair Value Measurments at  
          December 31, 2011 Using:  
          Quoted Prices     Significant        
          in Active     Other     Significant  
          Markets for     Obsevable     Obsevable  
          Identical Assets     Inputs     Inputs  
(Dollar amounts in thousands)   Total     (Level 1)     (Level 2)     (Level 3)  
Plan assets                                
Equity securities   $ 40,475     $ 40,475     $ -     $ -  
Debt securities     8,566       -       8,566       -  
Investment Funds     4,894       4,894       -       -  
Total plan assets   $ 53,935     $ 45,369     $ 8,566     $ -  

 

The investment objective for the retirement program is to maximize total return without exposure to undue risk. Asset allocation favors equities, with a target allocation of approximately 88%. This target includes the Corporation's ESOP, which is 100% invested in corporate stock. Other investment allocations include fixed income securities and cash.

 

The plan is prohibited from investing in the following: private placement equity and debt transactions; letter stock and uncovered options; short-sale margin transactions and other specialized investment activity; and fixed income or interest rate futures. All other investments not prohibited by the plan are permitted.

 

Equity securities include First Financial Corporation common stock in the amount of $27.2 million (49 percent of total plan assets) and $28.3 million (53 percent of total plan assets) at December 31, 2012 and 2011, respectively. Other equity securities are predominantly stocks in large cap U.S. companies.

 

Contributions — The Corporation expects to contribute $2.1 million to its pension plan and $550 thousand to its ESOP in 2013.

 

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:

 

PENSION BENEFITS
(Dollar amounts in thousands)
2013   $ 2,009  
2014     2,312  
2015     2,564  
2016     2,872  
2017     5,068  
2018-2022     18,374  

 

Supplemental Executive Retirement Plan — The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers. The provisions of the SERP allow the Plan's participants who are also participants in the Corporation's defined benefit pension plan to receive supplemental retirement benefits to help recompense for benefits lost due to the imposition of IRS limitations on benefits under the Corporation's tax qualified defined benefit pension plan. Expenses related to the plan were $163 thousand in 2012 and $200 thousand in 2011. The plan is unfunded and has a measurement date of December 31. The amounts recognized in other comprehensive income in the current year are as follows:

 

(Dollar amounts in thousands)   2012     2011     2010  
Net loss (gain) during the period   $ 442     $ 486     $ (90 )
Amortization of prior service cost     -       (74 )     (74 )
Amortization of unrecognized gain (loss)     (79 )     39       66  
Total recognized in other comprehensive income (loss)   $ 363     $ 451     $ (98 )

 

The Corporation has $2.5 million and $2.0 million recognized in the balance sheet as a liability at December 31, 2012 and 2011. Amounts in accumulated other comprehensive income consist of $718 thousand net loss at December 31, 2012 and $355 thousand net loss at December 31, 2011. The estimated loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $68 thousand.

 

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:

 

(Dollar amounts on thousands)
2013   $ -  
2014     -  
2015     253  
2016     250  
2017     248  
2018-2022     1,191  

 

The Corporation also provides medical benefits to certain employees subsequent to their retirement. The Corporation uses a measurement date of December 31. Accrued post-retirement benefits as of December 31, 2012 and 2011 are as follows:

 

    December 31,  
(Dollar amounts in thousands)   2012     2011  
Change in benefit obligation:                
Benefit obligation at January 1   $ 4,057     $ 4,500  
Service cost     60       61  
Interest cost     173       194  
Plan participants' contributions     62       62  
Actuarial (gain) loss     311       (472 )
Benefits paid     (268 )     (288 )
Benefit obligation at December 31   $ 4,395     $ 4,057  
                 
Funded status at December 31   $ 4,395     $ 4,057  

 

Amounts recognized in accumulated other comprehensive income consist of a net loss of $402 thousand and $59 thousand in transition obligation at December 31, 2012 and $91thousand net loss and $120 thousand in transition obligation at December 31, 2011. The post-retirement benefits paid in 2012 and 2011 of $268 thousand and $288 thousand, respectively, were fully funded by company and participant contributions.

 

The estimated transition obligation for the post-retirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $59 thousand.

 

Weighted average assumptions at December 31:

 

    December 31,  
    2012     2011  
Discount rate     4.05 %     4.40 %
Initial weighted health care cost trend rate     7.50       7.50  
Ultimate health care cost trend rate     5.00       5.00  
Year that the rate is assumed to stabilize and remain unchanged     2015       2015  

 

Post-retirement health benefit expense included the following components:

 

    Years Ended December 31,  
(Dollar amounts in thousands)   2012     2011     2010  
Service cost   $ 60     $ 59     $ 64  
Interest cost     173       194       218  
Amortization of transition obligation     60       60       60  
Recognized actuarial loss     -       -       12  
Net periodic benefit cost   $ 293     $ 313     $ 354  
                         
Net loss (gain) during the period   $ 311     $ (469 )   $ -  
Amortization of prior service cost     (60 )     (60 )     (60 )
Amortization of unrecognized gain (loss)     -       -       (153 )
Total recognized in other comprehensive income (loss)   $ 251     $ (529 )   $ (213 )
Total recognized net periodic benefit cost and other comprehensive income   $ 544     $ (216 )   $ 141  

 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

 

    1% Point     1% Point  
(Dollar amounts in thousands)   Increase     Decrease  
Effect on total of service and interest cost components   $ 71     $ (63 )
Effect on post-retirement benefit obligation     3       (3 )

 

Contributions — The Corporation expects to contribute $234 thousand to its other post-retirement benefit plan in 2013.

 

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:

 

(Dollar amounts in thousands)
2013   $ 234  
2014     242  
2015     255  
2016     268  
2017     270  
2018-2022     1,348