12.	PENSION AND PROFIT SHARING PLANS:

The Company’s defined benefit pension plan was frozen effective January 1, 2004, whereby no new participants will be added to the Plan and no additional years of service will accrue to participants, unless the pension plan is reinstated at a future date. The pension plan covered substantially all of the Company’s employees at the time. The benefits for each employee were based on years of service and a percentage of the employee’s qualifying compensation during the final years of employment. The Company’s funding policy was and is to contribute annually the amount necessary to satisfy the Internal Revenue Service’s funding standards. Contributions to the pension plan, prior to freezing the plan, were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As a result of the Pension Protection Act of 2006 (the “Protection Act”), the Company will be required to contribute amounts in future years to fund any shortfalls. The Company has evaluated the provisions of the Protection Act as well as the Internal Revenue Service’s funding standards to develop a plan for funding in future years. As a result, the Company made a contribution totaling $500,000 in both 2016 and 2015, and is continuing to evaluate future funding amounts.

During 2016 and 2014, as permitted by the Internal Revenue Service, the Company offered settlement of a portion of its pension obligations to those plan participants who no longer were employed by the Company. As a result of the partial settlement of the plan, the Company recognized $267,000 and $2,909,000 for the years ended December 31, 2016 and 2014, respectively, in additional pension expense, before income tax, a component of noninterest expense. The effect of this transaction was relatively neutral to shareholders’ equity since the recorded pension obligation associated with the plan participants who accepted the settlement closely approximated the amount offered to such plan participants and the amount recognized in pension expense had been previously recognized as unrealized losses in other comprehensive earnings. In connection with this partial settlement, the Company paid $649,000 and $10,626,000 out of pension plan assets and the number of participants was reduced by 38 and 335, in 2016 and 2014, respectively. The Company’s investment risk and administrative expense associated with the Company’s pension plan has been significantly reduced going forward.

Using an actuarial measurement date of December 31, 2016 and 2015, benefit obligation activity and fair value of plan assets for the years ended December 31, 2016 and 2015, and a statement of the funded status as of December 31, 2016 and 2015, are as follows (dollars in thousands):


	2016			2015
Reconciliation of benefit obligations:
Benefit obligation at January 1	$	16,002		$	15,581
Interest cost on projected benefit obligation		665			622
Actuarial loss (gain)		139			635
Benefits paid, including partial settlement of certain participant balances		(1,353	)		(836	)


Benefit obligation at December 31	$	15,453		$	16,002


Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	$	14,820		$	15,458
Actual return on plan assets		1,820			(302	)
Employer contributions		500			500
Benefits paid, including partial settlement of certain participant balances		(1,353	)		(836	)


Fair value of plan assets at December 31		15,787			14,820


Funded status	$	334		$	(1,182	)

Amounts recognized as a component of accumulated other comprehensive earnings as of year-end that have not been recognized as a component of the net period benefit cost of the Company’s defined benefit pension plan are as follows (in thousands):


	2016			2015

Net actuarial loss	$	(4,688	)	$	(6,098	)
Deferred tax benefit		1,641			2,134


Amounts included in accumulated other comprehensive earnings, net of tax	$	(3,047	)	$	(3,964	)

Net periodic benefit cost for the years ended December 31, 2016, 2015, and 2014, are as follows (dollars in thousands):


	Year Ended December 31,
	2016			2015			2014
Service cost - benefits earned during the period	$	—		$	—		$	—
Interest cost on projected benefit obligation		665			622			1,131
Expected return on plan assets		(912	)		(948	)		(1,497	)
Amortization of unrecognized net loss		375			222			337
Recognized loss on partial settlement of certain participant balances		267			—			2,909


Net periodic pension benefit expense (benefit)	$	395		$	(104	)	$	2,880

The following table sets forth the rates used in the actuarial calculations of the present value of benefit obligations and net periodic pension cost and the rate of return on plan assets:


	2016			2015			2014
Weighted average discount rate		4.25	%		4.25	%		4.10	%

Expected long-term rate of return on assets		6.25	%		6.25	%		6.25	%

The weighted average discount rate is estimated based on setting a discount rate to establish an obligation for pension benefits equivalent to an amount that, if invested in high quality fixed income securities, would produce a return that matches the expected benefit payment stream. The expected long-term rate of return on plan assets is based on historical returns and expectations of future returns based on asset mix, after consultation with our investment advisors and actuaries.

The major type of plan assets in the pension plan and the targeted allocation percentage as of December 31, 2016 and 2015 is as follows:


	December 31, 2016 Allocation			December 31, 2015 Allocation			Targeted Allocation
Equity securities		77	%		74	%		75	%
Debt securities		22	%		25	%		25	%
Cash and equivalents		1	%		1	%		—

The range and weighted average final maturities of debt securities held in the pension plan as of December 31, 2016 are 2.52 to 11.34 years and approximately 5.08 years, respectively. Assets held in the pension plan are considered either Level 1 consisting of the money market funds, publicly traded common stocks and publically traded mutual funds or Level 2 consisting of obligations of state and political subdivisions, corporate bonds and mortgage-backed securities. There were no Level 3 securities. See note 8 for a discussion of the fair value hierarchy. The breakdown by level is as follows (dollars in thousands):


	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Money market fund	$	100	$	—	$	—	$	100
Obligations of state and political subdivisions		—		659		—		659
Corporate bonds		—		885		—		885
Mortgage-backed securities		—		956		—		956
Corporate stocks and mutual funds		13,187		—		—		13,187


Total	$	13,287	$	2,500	$	—	$	15,787

First Financial Trust & Asset Management Company, National Association, a wholly owned subsidiary of the Company, manages the pension plan assets as well as the profit sharing plan assets (see below). The investment strategy and targeted allocations are based on similar strategies First Financial Trust & Asset Management Company, National Association employs for most of its managed accounts whereby appropriate diversification is achieved. First Financial Trust & Asset Management Company, National Association is prohibited from holding investments deemed to be high risk by the Office of the Comptroller of the Currency.

An estimate of the undiscounted projected future payments to eligible participants for the next five years and the following five years in the aggregate is as follows (in thousands):


Year Ending December 31,

2017			856
2018			872
2019			892
2020			913
2021			935
2022 forward			4,861

As of December 31, 2016 and 2015, the pension plan’s total assets included First Financial Bankshares, Inc. common stock valued at approximately $2,786,000 and $1,859,000, respectively.

The Company also provides a profit sharing plan, which covers substantially all full-time employees. The profit sharing plan is a defined contribution plan and allows employees to contribute a percentage of their base annual salary. Employees are fully vested to the extent of their contributions and become fully vested in the Company’s contributions over a six-year vesting period. Costs related to the Company’s defined contribution plan totaled approximately $3,221,000, $5,455,000 and $5,324,000 in 2016, 2015 and 2014, respectively, and are included in salaries and employee benefits in the accompanying consolidated statements of earnings. As of December 31, 2016 and 2015, the profit sharing plan’s assets included First Financial Bankshares, Inc. common stock valued at approximately $60,270,000 and $41,599,000, respectively.

In 2004, after freezing our pension plan, we added a safe harbor match to the 401(k) plan. We match a maximum of 4% on employee deferrals of 5% of their employee compensation. Total expense for this matching in 2016, 2015 and 2014 was $2,331,000, $2,043,000 and $1,699,000, respectively, and is included in salaries and employee benefits in the statements of earnings.

The Company has a directors’ deferred compensation plan whereby the directors may elect to defer up to 100% of their directors’ fees. All deferred compensation is invested in the Company’s common stock held in a rabbi trust. The stock is held in nominee name of the trustee, and the principal and earnings of the trust are held separate and apart from other funds of the Company, and are used exclusively for the uses and purposes of the deferred compensation agreement. The accounts of the trust have been consolidated in the financial statements of the Company.