15. EMPLOYEE BENEFIT PLANS

Employee Retirement Plan - The Bank sponsors the Employee Retirement Plan, a tax-qualified, noncontributory, defined-benefit retirement plan. Prior to April 1, 2000, substantially all full-time employees of at least 21 years of age were eligible for participation after one year of service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan.

The net periodic cost for the Employee Retirement Plan included the following components:

	Year Ended December 31,
	2012			2011			2010
Interest cost	$	921		$	1,012		$	1,072
Expected return on plan assets		(1,451	)		(1,442	)		(1,386	)
Actuarial adjustment		-			-			156
Net amortization and deferral		1,792			1,004			1,005
Net periodic cost	$	1,262		$	574		$	847

The funded status of the Employee Retirement Plan was as follows:

	At December 31,
	2012			2011
Accumulated benefit obligation at end of period	$	24,640		$	22,907
Reconciliation of Projected benefit obligation:
Projected benefit obligation at beginning of period	$	22,907		$	19,870
Actuarial adjustment		-			-
Interest cost		921			1,012
Actuarial loss		1,883			3,136
Benefit payments		(1,071	)		(1,058	)
Settlements		-			(53	)
Projected benefit obligation at end of period		24,640			22,907
Plan assets at fair value (investments in trust funds managed by trustee)
Balance at beginning of period		20,030			18,089
Return on plan assets		1,956			(304	)
Contributions		43			3,356
Benefit payments		(1,071	)		(1,058	)
Settlements		-			(53	)
Balance at end of period		20,958			20,030

Funded status:
Deficiency of plan assets over projected benefit obligation		(3,682	)		(2,877	)
Unrecognized loss from experience different from that assumed		N/	A		N/	A
Accrued retirement expense included in other liabilities	$	(3,682	)	$	(2,877	)

The change in accumulated other comprehensive income (loss) that resulted from the Employee Retirement Plan is summarized as follows:

	At December 31,
	2012			2011
Balance at beginning of period	$	(15,193	)	$	(11,315	)
Adjustment for change in actuarial calculation		-			-
Amortization of loss		1,792			1,004
Loss recognized during the year		(1,379	)		(4,882	)
Balance at the end of the period	$	(14,780	)	$	(15,193	)
Period end component of accumulated other comprehensive loss (net of tax)		8,107			8,333

For the years ended December 31, 2012 and 2011, the Bank used December 31^st as its measurement date for the Employee Retirement Plan. The Bank contributed $43 to the Employee Retirement Plan during the year ended December 31, 2012. The Bank expects to make contributions of $53 to the Employee Retirement Plan during the year ending December 31, 2013. During the year ending December 31, 2013, $1,803 in actuarial losses are anticipated to be recognized as a component of net periodic cost.

Major assumptions utilized to determine the net periodic cost (credit) of the benefit obligations were as follows:

	At or for the Year Ended December 31,
	2012			2011
Discount rate used for net periodic cost (credit)		4.15	%		5.26	%
Discount rate used to determine benefit obligation at period end		3.67			4.15
Expected long-term return on plan assets used for net periodic cost (credit)		7.50			8.25
Expected long-term return on plan assets used to determine benefit obligation at period end		7.50			7.50

Employee Retirement Plan assets are invested in four common collective investment funds, three of which are equity-based, and one of which is fixed-income based. These common collective investment funds are privately offered, and the Employee Retirement Plan's investment in these common collective investment funds is therefore valued by the fund managers of each respective fund based on the Employee Retirement Plan's proportionate share of units of beneficial interest in the respective funds. All of the common collective investment funds are audited, and the overwhelming majority of assets held in these funds

(which derive the unit value of the common collective investment funds) are actively traded in established marketplaces. The Employee Retirement Plan also owned investments in four registered mutual funds at December 31, 2012. These mutual funds are actively traded on national securities exchanges and are valued at their quoted market prices.

The following table sets forth by level within the fair value hierarchy a summary of the Employee Retirement Plan's investments measured at fair value on a recurring basis at December 31, 2012 (See Note 17 for a discussion of the fair value hierarchy).

	Fair Value Measurements Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs(Level 3)	Total
Mutual Funds (all registered and publicly traded):
Domestic Large Cap	$3,437	-	-	$3,437
Domestic Small Cap	2,596	-	-	2,596
International Equity	2,414			2,414
Common collective investment funds
Domestic Large Cap	-	5,022	-	5,022
Fixed Income	-	7,489	-	7,489
Total Plan Assets				$20,958

The following table sets forth by level within the fair value hierarchy a summary of the Employee Retirement Plan's investments measured at fair value on a recurring basis at December 31, 2011 (See Note 17 for a discussion of the fair value hierarchy).

	Fair Value Measurements Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs(Level 3)	Total
Mutual Funds (all registered and publicly traded) :
Domestic Large Cap	$1,793	-	-	$1,793
Domestic Small Cap	2,366	-	-	2,366
Common collective investment funds
Domestic Large Cap	-	6,045	-	6,045
International Equity	-	2,207	-	2,207
Fixed Income	-	7,619	-	7,619
Total Plan Assets				$20,030

The long-term investment objective of the Employee Retirement Plan is to be invested 65% in equity mutual funds and 35% in bond mutual funds. If the Employee Retirement Plan is underfunded under its guidelines, the bond fund portion will be temporarily increased to 50% in the manner prescribed under its guidelines, in order to lessen asset value volatility. When the Employee Retirement Plan is no longer underfunded, the bond fund portion will be returned to 35%. Asset rebalancing is performed at least annually, with interim adjustments when the investment mix varies in excess of 10% from the target.

The investment goal is to achieve investment results that will contribute to the proper funding of the Employee Retirement Plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the trust function managing the assets of the Employee Retirement Plan are expected to provide a reasonable return on investment. Performance volatility is also monitored. Risk and volatility are further managed by the distinct investment objectives of each of the trust funds and the diversification within each fund.

The weighted average allocation by asset category of the assets of the Employee Retirement Plan were summarized as follows:

	At December 31,
	2012			2011
Asset Category
Equity securities		64	%		62	%
Debt securities (bond mutual funds)		36			38
Total		100	%		100	%

The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2012 and 2011, respectively.

The expected long-term rate of return assumptions on Employee Retirement Plan assets were established based upon historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Employee Retirement Plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5% to 9% and 2% to 6%, respectively. The long-term inflation rate was estimated to be 3%. When these overall return expectations were applied to the Employee Retirement Plan's target allocation, the expected rate of return was determined to be 7.50% at December 31, 2012 and 2011.

Benefit payments, which reflect expected future service (as appropriate), are anticipated to be made as follows:

Year Ending December 31,
2013	$	1,487
2014		1,469
2015		1,478
2016		1,475
2017		1,449
2018 to 2022		6,996

BMP and Director Retirement Plan - The Holding Company and Bank maintain the BMP, which exists in order to compensate executive officers for any curtailments in benefits due to statutory limitations on benefit plans. As of December 31, 2012 and 2011, the BMP had investments in the Holding Company's common stock of $10,951 and $9,799, respectively. Benefit accruals under the defined benefit portion of the BMP were suspended on April 1, 2000, when they were suspended under the Employee Retirement Plan.

Effective July 1, 1996, the Company established the Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of termination of Board service or at age 75. The Director Retirement Plan was frozen on March 31, 2005, and only outside directors serving prior to that date are eligible for benefits.

The combined net periodic cost for the defined benefit portions of the BMP and the Director Retirement Plan included the following components:

	Year Ended December 31,
	2012		2011		2010
Service cost	$	-	$	-	$	-
Interest cost		304		346		358
Actuarial adjustment		-		-		198
Unrecognized gain		371		242		46
Net periodic cost	$	675	$	588	$	602

The combined funded status of the defined benefit portions of the BMP and the Director Retirement Plan was as follows:

	At December 31,
	2012			2011
Accumulated benefit obligation at end of period	$	8,958		$	8,112
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	8,112		$	7,186
Adjustment for change in measurement date		-			-
Service cost		-			-
Interest cost		304			346
Benefit payments		(159	)		(129	)
Actuarial loss		701			709
Projected benefit obligation at end of period		8,958			8,112
Plan assets at fair value:
Balance at beginning of period		-			-
Contributions		159			129
Benefit payments		(159	)		(129	)
Balance at end of period		-			-
Funded status:
Deficiency of plan assets over projected benefit obligation		(8,958	)		(8,112	)
Contributions by employer		N/	A		N/	A
Unrecognized (gain) loss from experience different from that assumed		N/	A		N/	A
Unrecognized net past service liability		N/	A		N/	A
Accrued expense included in other liabilities	$	(8,958	)	$	(8,112	)

The combined change in accumulated other comprehensive income that resulted from the BMP and Director Retirement Plan is summarized as follows:

	At December 31,
	2012			2011
Balance at beginning of period	$	(1,710	)	$	(1,242	)
Adjustment for change in actuarial calculation		-			-
Amortization of loss		372			242
Loss recognized during the year		(701	)		(710	)
Balance at the end of the period	$	(2,039	)	$	(1,710	)
Period end component of accumulated other comprehensive loss (net of tax)		1,119			938

Major assumptions utilized to determine the net periodic cost and benefit obligations for both the BMP and Director Retirement Plan were as follows:

	At or For the Year Ended December 31,
	2012			2011
Discount rate used for net periodic cost (credit) – BMP		3.77	%		4.82	%
Discount rate used for net periodic cost (credit) – Director Retirement Plan		3.84			4.92
Discount rate used to determine BMP benefit obligation at period end		3.09			3.77
Discount rate used to determine Director Retirement Plan benefit obligation at period end		3.30			3.84

As of December 31, 2012 and 2011, the Bank used December 31^st as its measurement date for both the BMP and Director Retirement Plan. Both the BMP and Director Retirement Plan are unfunded non-qualified benefit plans that are not anticipated to ever hold assets for investment. Any contributions made to either the BMP or Director Retirement Plan are expected to be used immediately to pay benefits that accrue.

The Bank expects to contribute $483 to the BMP and $186 to the Director Retirement Plan during the year ending December 31, 2013 in order to pay benefits due under the respective plans. During the year ending December 31, 2013, $546 in aggregate actuarial losses related to the BMP and Director Retirement Plan are anticipated to be recognized as a component of net periodic cost.

Combined benefit payments under the BMP and Director Retirement Plan, which reflect expected future service (as appropriate), are anticipated to be made as follows:

Year Ending December 31,
2013	$	669
2014		667
2015		662
2016		686
2017		670
2018 to 2022		3,122

There is no defined contribution cost incurred by the Holding Company or Bank under the Director Retirement Plan. Defined contribution costs incurred by the Company related to the BMP were $1,935, $1,577 and $1,539 for the years ended December 31, 2012, 2011 and 2010, respectively.

As a result of modifications made to the BMP early in 2010, the Company reclassified $8,007 from other liabilities to stockholders' equity related to the ESOP benefit component of the BMP during the year ended December 31, 2010.

Postretirement Benefit Plan - The Bank offers the Postretirement Benefit Plan to its retired employees who provided at least five consecutive years of credited service and were active employees prior to April 1, 1991, as follows:

(1) Qualified employees who retired prior to April 1, 1991 receive the full medical coverage in effect at the time of retirement until their death at no cost to such retirees;

(2) Qualified employees retiring on or after April 1, 1991 are eligible for continuation of the medical coverage in effect at the time of retirement until their death. Throughout retirement, the Bank will continue to pay the premiums for the coverage not to exceed the premium amount paid for the first year of retirement coverage. Should the premiums increase, the employee is required to pay the differential to maintain full medical coverage.

Postretirement Benefit Plan benefits are available only to full-time employees who commenced collecting retirement benefits immediately upon termination of service from the Bank. The Bank reserves the right at any time, to the extent permitted by law, to change, terminate or discontinue any of the group benefits, and can exercise the maximum discretion permitted by law in administering, interpreting, modifying or taking any other action with respect to the plan or benefits.

The Postretirement Benefit Plan net periodic cost included the following components:

	Year Ended December 31,
	2012		2011		2010
Service cost	$	83	$	133	$	114
Interest cost		236		345		316
Unrecognized past service liability	-		-		-
Amortization of unrealized loss		2		116		55
Net periodic cost	$	321	$	594	$	485

Major assumptions utilized to determine the net periodic cost were as follows:

	At or for the Year Ended December 31,
	2012			2011
Discount rate used for net periodic cost (credit)		4.28	%		5.48	%
Rate of increase in compensation levels used for net periodic cost (credit)		3.50			3.50
Discount rate used to determine benefit obligation at period end		3.72			4.28
Rate of increase in compensation levels used to determine benefit obligation at period end		3.50			3.50

As of December 31, 2012, an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $5. A decline in the assumed medical care cost trend rates by 1% in each year would decrease the net periodic cost by approximately $5.

The funded status of the Postretirement Benefit Plan was as follows:

	At December 31,			At December 31,
	2012			2011
Accumulated benefit obligation at end of period	$	6,191		$	8,988
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	8,988		$	6,372
Adjustment for change in measurement date	-			-
Service cost		83			133
Interest cost		236			345
Actuarial (gain) loss		(2,955	)		2,316
Benefit payments		(161	)		(178	)
Projected benefit obligation at end of period		6,191			8,988
Plan assets at fair value:
Balance at beginning of period	-			-
Contributions		161			178
Benefit payments		(161	)		(178	)
Balance at end of period	-			-
Funded status:
Deficiency of plan assets over projected benefit obligation		(6,191	)		(8,988	)
Unrecognized loss from experience different from that assumed		N/	A		N/	A
Unrecognized net past service liability		N/	A		N/	A
Accrued expense included in other liabilities	$	(6,191	)	$	(8,988	)

The change in accumulated other comprehensive income (loss) that resulted from the Postretirement Benefit Plan is summarized as follows:

	At December 31,
	2012			2011
Balance at beginning of period	$	(4,007	)	$	(1,856	)
Amortization of loss		2			116
Gain (Loss) recognized during the year		3,005			(2,267	)
Balance at the end of the period	$	(1,000	)	$	(4,007	)
Period end component of accumulated other comprehensive loss (net of tax)		549			2,198

As of December 31, 2012 and 2011, the Bank used December 31^st as its measurement date for the Postretirement Benefit Plan. The assumed medical care cost trend rate used in computing the accumulated Postretirement Benefit Plan obligation was 8.0% in 2012 and was assumed to decrease gradually to 5.00% in 2018 and remain at that level thereafter. An escalation in the assumed medical care cost trend rates by 1% in each year would increase the accumulated Postretirement Benefit Plan obligation by approximately $106. A decline in the assumed medical care cost trend rates by 1% in each year would reduce the accumulated Postretirement Benefit Plan obligation by approximately $112.

GAAP provides guidance on both accounting for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act") to employers that sponsor postretirement health care plans which provide prescription drug benefits, and measuring the accumulated postretirement benefit obligation ("APBO") and net periodic postretirement benefit cost, and the

effects of the Act on the APBO. The Company determined that the benefits provided by the Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under the Act. The effects of an expected subsidy on payments made under the Postretirement Benefit Plan were treated as an actuarial gain for purposes of calculating the APBO as of December 31, 2012 and 2011. The Company remains in the process of claiming this subsidy from the government, and, as a result, the Bank cannot determine the amount of subsidy it will ultimately receive.

The Postretirement Benefit Plan is an unfunded non-qualified benefit plan that is not anticipated to ever hold assets for investment. Any contributions made to the Postretirement Benefit Plan are expected to be used immediately to pay benefits that accrue.

The Bank expects to contribute $187 to the Postretirement Benefit Plan during the year ending December 31, 2013 in order to pay benefits due under the plan. During the year ending December 31, 2013, $49 of actuarial losses are anticipated to be recognized as components of net periodic cost.

Benefit payments under the Postretirement Benefit Plan, which reflect expected future service (as appropriate), are expected to be made as follows:

Year Ending December 31,
2013	$	187
2014		194
2015		202
2016		210
2017		216
2018 to 2022		1,134

401(k) Plan - The Bank also maintains the 401(k) Plan, which covers substantially all of its employees. The Bank made discretionary contributions totaling $647, $641 and $563 to eligible 401(k) Plan participants during the years ended December 31, 2012, 2011 and 2010, respectively, which were recognized as a component of compensation expense.

The 401(k) Plan owned participant investments in the Holding Company's common stock for the accounts of participants totaling $8,976 and $8,041 at December 31, 2012 and 2011, respectively.

ESOP - The Holding Company adopted the ESOP in connection with the Bank's June 26, 1996 conversion to stock ownership. The ESOP borrowed $11,638 from the Holding Company and used the funds to purchase 3,927,825 shares of the Holding Company's common stock. The loan was originally to be repaid principally from the Bank's discretionary contributions to the ESOP over a period of time not to exceed 10 years from the date of the conversion. Effective July 1, 2000, the loan agreement was amended to extend the repayment period to thirty years from the date of the conversion, with the right of optional prepayment. The loan had an outstanding balance of $3,567 and $3,721 at December 31, 2012 and December 31, 2011, respectively, and a fixed rate of 8.0%.

Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Shares released from the ESOP suspense account are allocated among participants on the basis of compensation, as defined in the plan, in the year of allocation. ESOP distributions vest at a rate of 25% per year of service, beginning after two years, with full vesting after five years or upon attainment of age 65, death, disability, retirement or a "change of control" of the Holding Company as defined in the ESOP. Common stock allocated to participating employees totaled 78,155 shares during each of the years ended December 31, 2012, 2011 and 2010. The ESOP benefit expense is recorded based upon the fair value of the award shares, and totaled $1,691, $1,640 and $1,700, respectively, for the years ended December 31, 2012, 2011 and 2010. Included in ESOP expense were dividends on unallocated common stock that were paid to participants. These dividends totaled $613, $656 and $700 during the years ended December 31, 2012, 2011 and 2010, respectively.

Stock Option Activity

The Company has made stock option grants to outside Directors and certain officers under the Stock Plans. All option shares granted have a ten-year life. The option shares granted to the outside Directors vest over one year, while the option shares granted to officers vest ratably over four years. The exercise cost of each option award was determined based upon the fair market value of the Company's common stock on the respective grant dates. Compensation expense recorded during the years ended December 31, 2012, 2011 and 2010 was determined based upon the fair value of the option shares on the respective dates of grant, as determined utilizing a recognized option pricing methodology.

The weighted average fair value per option at the date of grant for stock options granted during the years indicated was estimated as follows:

	Year Ended December 31,
	2012			2011			2010
Estimated fair value on date of grant	$	4.09		$	4.82		$	3.70
Pricing methodology utilized	Black- Scholes			Black- Scholes			Black- Scholes
Expected life (in years)		6.53			6.80			5.99
Interest rate		1.21	%		2.59	%		2.76	%
Volatility		45.17			42.35			43.69
Dividend yield		4.04			3.62			4.39

Combined stock option activity related to the Stock Plans was as follows:

	At or for the Year Ended December 31,
	2012		2011		2010
Options outstanding – beginning of period		2,893,760		3,213,007		3,266,920
Options granted		24,440		91,583		97,294
Weighted average exercise price of grants	$	13.86	$	15.46	$	12.75
Options exercised		455,051		385,758		87,825
Weighted average exercise price of exercised options	$	12.32	$	10.93	$	11.53
Options forfeited		7,012		25,072		63,382
Weighted average exercise price of forfeited options	$	19.90	$	15.76	$	12.66
Options outstanding - end of period(1)		2,456,137		2,893,760		3,213,007
Weighted average exercise price of outstanding options - end of period	$	15.63	$	15.13	$	14.63
Remaining options available for grant		249,230		412,588		623,304
Vested options at end of period		2,317,799		2,682,156		2,792,434
Weighted average exercise price of vested options – end of period	$	15.78	$	15.30	$	14.92
Cash received for option exercise cost		5,608		3,669		1,012
Income tax benefit recognized		319		371		27
Compensation expense recognized		309		528		967
Remaining unrecognized compensation expense		335		543		567
Weighted average remaining years for which compensation expense is to be recognized		1.8		2.7		1.7
Intrinsic value of options exercised during the period	$	871	$	1,209	$	251
Intrinsic value of outstanding options at period end		722		639		4,003
Intrinsic value of vested options at period end		531		395		3,132

(1) At December 31, 2012, 2011 and 2010, respectively, all outstanding options were ultimately expected to vest.

The range of exercise prices and weighted-average remaining contractual lives of both outstanding and vested options (by option exercise cost) as of December 31, 2012 were as follows:

		Outstanding Options				Vested Options
Exercise Prices		Amount		Weighted Average Contractual Years Remaining		Amount		Weighted Average Contractual Years Remaining
$	8.34		71,148		6.3		42,532		7.3
$	12.75		78,871		7.3		51,407		8.3
$	13.16		146,708		0.1		146,708		1.1
$	13.74		859,375		4.3		859,375		5.3
$	13.86		24,440		9.3		-		-
$	14.92		34,425		5.2		34,425		6.2
$	15.10		318,492		2.4		318,492		3.4
$	15.46		91,583		8.3		33,765		9.3
$	16.45		76,320		2.1		76,320		3.1
$	16.73		51,943		5.6		51,943		6.6
$	18.18		80,000		5.4		80,000		6.4
$	19.90		622,832		1.1		622,832		2.1
Total			2,456,137		3.4		2,317,799		3.1

Restricted Stock Awards

The Company has made restricted stock award grants to outside Directors and certain officers under the 2004 Stock Incentive Plan. Awards made to the outside Directors vest over a one year, while officer awards vest ratably over four years. All awards were made at the fair value of the Holding Company's common stock on the award date. Compensation expense on all restricted stock awards was thus recorded during the years ended December 31, 2012, 2011 and 2010 based upon the fair value of the shares on the respective dates of grant.

The following is a summary of activity related to the restricted stock awards granted under the 2004 Stock Incentive Plan:

	At or for the Year Ended December 31,
	2012		2011		2010
Unvested allocated shares – beginning of period		324,454		309,783		295,066
Shares granted		141,289		126,304		143,083
Shares vested		135,369		109,649		95,107
Shares forfeited		2,371		1,984		33,259
Unvested allocated shares – end of period		328,003		324,454		309,783
Unallocated shares – end of period		-		-	‑
Compensation recorded to expense	$	1,842	$	1,578	$	1,228
Income tax benefit recognized		70		60		85
Fair value of shares vested during the period	$	1,834	$	1,671	$	1,204
Weighted average remaining years for which compensation expense is to be recognized		1.3		1.3		1.3

Long Term Cash Incentive Payment Plan – During the years ended December 31, 2012, 2011 and 2010, the Company made long term incentive awards to certain officers that were payable in cash. During the year ended December 31, 2012, such awards were made to eight executive officers, while, during the years ended December 31, 2011 and 2010, such awards were made to only one executive officer. For each award, a threshold (50% of target), target (100% of target) and maximum (150% of target) payment opportunity is eligible to be earned based on the Company's relative performance on certain measurement goals over a three-year measurement period. Both the measurement goals and the peer group utilized to determine the Company's relative performance are established at the onset of the measurement period and cannot be altered subsequently.

At December 31, 2012, a liability totaling $1,194 was recorded for expected future payments under the long-term cash incentive payment plan. This liability reflects the expectation of the most likely payment outcome determined for each individual incentive award (based upon both period-to-date actual and estimated future results for each award period). During the years ended December 31, 2012, 2011 and 2010, total expense recognized related to long-term cash incentive payment plan awards were $717, $595 and $587, respectively.