Trust Preferred Securities

9 Months Ended

Sep. 30, 2011

TRUST PREFERRED SECURITIES [Abstract]

Trust Preferred Securities [Text Block]

TRUST PREFERRED SECURITIES

In connection with our acquisition of Mercer Insurance Group, we acquired the following Trust Preferred Securities, which were outstanding as of September 30, 2011:

(In Thousands)	Issue Date	Amount		Interest Rate	Maturity Date
Financial Pacific Statutory Trust I	12/4/2002	$	5,030	LIBOR + 4.00%	12/4/2032
Financial Pacific Statutory Trust II	5/15/2003	3,017		LIBOR + 4.10%	5/15/2033
Financial Pacific Statutory Trust III	9/30/2003	7,575		LIBOR + 4.05%	9/30/2033
Total Trust Preferred Securities		$	15,622

The Trust Preferred Securities were issued by three statutory business trusts formed by Mercer Insurance Group to issue Floating Rate Capital Securities (“Trust Preferred Securities”) and to invest the proceeds in Junior Subordinated Debentures of Mercer Insurance Group. Mercer Insurance Group holds $.5 million of equity securities to capitalize the Trusts. The three trusts issued a total of $15.5 million Trust Preferred Securities to the public.

Financial Pacific Statutory Trust I (“Trust I”) is a Connecticut statutory business trust. The Trust issued 5.0 million shares of the Trust Preferred Securities at a price of $1 per share for $5.0 million. The Trust purchased $5.2 million in Junior Subordinated Debentures from Mercer Insurance Group that mature on December 4, 2032. The annual effective rate of interest at September 30, 2011 is 8.74 percent.

Financial Pacific Statutory Trust II (“Trust II”) is a Connecticut statutory business trust. The Trust issued 3.0 million shares of the Trust Preferred Securities at a price of $1 per share for $3.0 million. The Trust purchased $3.1 million in Junior Subordinated Debentures from Mercer Insurance Group that mature on May 15, 2033. The annual effective rate of interest at September 30, 2011 is 8.9 percent.

Financial Pacific Statutory Trust III (“Trust III”) is a Delaware statutory business trust. The Trust issued 7.5 million shares of the Trust Preferred Securities at a price of $1 per share for $7.5 million. The Trust purchased $7.7 million in Junior Subordinated Debentures from Mercer Insurance Group that mature on September 30, 2033. The annual effective rate of interest at September 30, 2011 is 8.89 percent.

Mercer Insurance Group has the right, at any time, so long as there are no continuing events of default, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters; but not beyond the stated maturity of the Junior Subordinated Debentures. To date no interest has been deferred. Total interest expense for the nine-month period ended September 30, 2011 was $0.7 million. Mercer Insurance Group entered into three interest rate swap agreements to economically hedge the floating interest rate on the Junior Subordinated Debentures (see Note 13 “Derivative Instruments and Hedging Activities”).

The Trust Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Junior Subordinated Debentures at maturity or their earlier redemption. Mercer Insurance Group has the right to redeem the Junior Subordinated Debentures after December 4, 2007 for Trust I, after May 15, 2008 for Trust II and after September 30, 2008 for Trust III. Mercer Insurance Group has not exercised these rights as of September 30, 2011