RETIREMENT PLANS

12 Months Ended

Dec. 31, 2012

RETIREMENT PLANS [Abstract]

RETIREMENT PLANS

NOTE K – RETIREMENT PLANS

The Bank has a 401(k) plan, defined benefit pension plan and supplemental executive retirement plan.  Employees are immediately eligible to participate in the 401(k) plan provided they are at least 18 years of age.  Participants may elect to contribute, on a tax-deferred basis, up to 100% of gross compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code.  The Bank may, at its sole discretion, make matching contributions to each participant's account based on the amount of the participant's tax deferred contributions.  Participants are fully vested in their elective contributions and, after five years of participation in the 401(k) plan, are fully vested (20% vesting per year) in the matching contributions, if any, made by the Bank.  Matching contributions were $332,000, $319,000 and $306,000 for 2012, 2011 and 2010, respectively.

The provisions of the Bank's defined benefit pension plan ("Pension Plan" or "Plan") are governed by the rules and regulations contained in the Prototype Plan of the New York State Bankers Retirement System ("Retirement System") and the Retirement System Adoption Agreement executed by the Bank.  The Retirement System is overseen by a Board of Trustees ("Trustees") who meet quarterly and, among other things, set the investment policy guidelines.  For investment purposes, the Pension Plan's contributions are pooled with the contributions of the other participants in the Retirement System.  Assets of the Pension Plan are invested in various debt and equity securities as set forth in this note under the captions "Plan Assets" and "Fair Value of Plan Assets."  Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service.  Pension benefits are generally based on a percentage of average annual compensation during the period of creditable service.  The Bank makes annual contributions to the Pension Plan which, when taken together with participant contributions equal to 2% of their compensation, will be sufficient to fund these benefits.  The Bank's funding method, the unit credit actuarial cost method, is consistent with the funding requirements of applicable federal laws and regulations which set forth both minimum required and maximum tax deductible contributions.  Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-year period).

Significant Actuarial Assumptions.  The following table sets forth the significant actuarial assumptions used to determine the benefit obligation at December 31, 2012, 2011 and 2010 and the benefit cost for each of the Plan years then ended.

Weighted average assumptions used to determine the
benefit obligation at year end	2012			2011			2010
Discount rate		4.06	%		5.23	%		5.69	%
Rate of increase in compensation levels		3.00	%		3.00	%		3.50	%
Weighted average assumptions used to determine net pension cost
Discount rate		5.23	%		5.69	%		5.89	%
Rate of increase in compensation levels		3.00	%		3.50	%		3.50	%
Expected long-term rate of return on plan assets		7.00	%		7.00	%		7.50	%

Net Pension Cost.The following table sets forth the components of net periodic pension cost.

	2012			2011			2010
	(in thousands)
Service cost, net of plan participant contributions	$	900		$	1,227		$	1,200
Interest cost		1,368			1,336			1,190
Expected return on plan assets		(2,259	)		(2,087	)		(1,792	)
Amortization of prior service cost		23			23			23
Amortization of net actuarial loss		664			266			322
Net pension cost	$	696		$	765		$	943

The estimated prior service cost and net actuarial loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2013 are $23,000 and $631,000, respectively.

Funded Status of the Plan.  The following table sets forth the change in the projected benefit obligation and Plan assets for each year and, as of the end of each year, the funded status of the Plan and accumulated benefit obligation.

	2012			2011			2010
Change in projected benefit obligation:	(in thousands)
Projected benefit obligation at beginning of year	$	26,891		$	23,772		$	20,605
Service cost before plan participant contributions		1,142			1,456			1,444
Expenses		(235	)		(216	)		(174	)
Interest cost		1,368			1,336			1,190
Benefits paid		(916	)		(832	)		(746	)
Assumption changes		4,270			1,460			563
Experience loss (gain) and other		(1,822	)		(85	)		890
Projected benefit obligation at end of year		30,698			26,891			23,772
Change in fair value of plan assets:
Fair value of plan assets at beginning of year		33,023			29,640			24,307
Actual return on plan assets		3,460			1			2,267
Employer contributions		6,024			4,201			3,742
Plan participant contributions		242			229			244
Benefits paid		(916	)		(832	)		(746	)
Expenses		(235	)		(216	)		(174	)
Fair value of plan assets at end of year		41,598			33,023			29,640
Funded status at end of year	$	10,900		$	6,132		$	5,868
Accumulated Benefit Obligation	$	27,783		$	24,314		$	21,620

The Bank has no minimum required pension contribution and, due to the fact that the Plan is funded beyond most critical statutory thresholds, the Bank will have no opportunity to make a tax-deductible contribution for the Plan year ending September 30, 2013.

The net actuarial loss and prior service cost included in accumulated other comprehensive income as of December 31 are as follows:

	2012		2011
	(in thousands)
Net actuarial loss	$	9,878	$	9,294
Prior service cost		40		63
	$	9,918	$	9,357

Plan Assets.  The Retirement System's overall investment strategy is to have approximately 97% of its investments for long-term growth and 3% for near-term benefit payments, with a diversification of asset types, fund strategies and fund managers.

The Plan's asset allocations at December 31, 2012 and 2011, target allocations and the expected long-term rate of return by asset category are set forth in the table that follows.

										Weighted
				Percentage of Plan Assets						Average Expected
	Target			at December 31,						Long-term
	Allocation			2012			2011			Rates of Return
Cash equivalents		0% - 20	%		12.8	%		10.6	%	<1.00%
Equity securities		40% - 60	%		45.5	%		47.9	%	8.00 to 10.00%
Fixed income securities		40% - 60	%		41.7	%		41.5	%	5.00 to 6.00%
Other financial instruments		0% - 5	%		-			-		-
					100.0	%		100.0	%	6.50 to 7.50%

The weighted average expected long-term rate of return is estimated based on historical returns and adjusted to reflect future expectations.  Such adjustments are based on, among other things, forecasts by economists of long-term inflation and GDP growth, earnings growth and per capita income.  The following methodologies were used in determining the long-term rate of return:

·   Equity securities - dividend discount model, the smoothed earnings yield model and the equity risk premium model.

·   Fixed income securities - current yield-to-maturity and forecasts of future yields.

·   Other financial instruments – comparison of the specific investment's risk to that of fixed income and equity instruments and using judgment.

The system currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio value at the time of purchase or having greater than 8% of the market value of the assets invested in any one issuer.  Additionally, the Plan is prohibited from investing in the following instruments:

·   Equity securities – short sales, unregistered securities and margin purchases.

·   Fixed income securities – mortgage backed derivatives that have an inverse floating rate coupon or that are interest only securities; any asset backed security that is not issued by the U.S. government, its agencies or its instrumentalities; securities of less than Baa2/BBB quality; and securities of less than A-quality that in the aggregate exceed 10% of the investment manager's portfolio.

·   Other financial instruments – unhedged currency exposure in countries not defined as "high income economies" by the World Bank.

At December 31, 2012, the System holds certain investments that are no longer deemed acceptable to acquire.  These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the System.

Fair Value of Plan Assets.  The fair value of the Plan assets at December 31, 2012 and 2011, by asset category, is summarized below.

			Fair Value Measurements at December 31, 2012 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:	(in thousands)
Short term investment funds	$	5,099	$	-	$	5,099	$	-
Government issues		226		-		226		-
Foreign currencies		43		43		-		-
Total cash equivalents		5,368		43		5,325		-
Equities:
Common stock		18,319		18,319		-		-
Depository receipts		410		410		-		-
Preferred stock		81		81		-		-
Real estate investment trust		81		81		-		-
Total equities		18,891		18,891		-		-
Fixed income securities:
Auto loan receivable		225		-		225		-
Collateralized mortgage obligations		4,508		-		4,508		-
Corporate bonds		3,927		-		3,927		-
Federal Home Loan Mortgage Corp		516		-		516		-
Federal National Mortgage Assoc		2,064		-		2,064		-
Government National Mortgage Assoc. I		22		-		22		-
Government National Mortgage Assoc. II		96		-		96		-
Government issues		5,926		-		5,926		-
Municipals		45		-		45		-
Other asset backed		10		-		10		-
Total fixed income securities		17,339		-		17,339		-
Total Plan Assets	$	41,598	$	18,934	$	22,664	$	-

			Fair Value Measurements at December 31, 2011 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash equivalents:	(in thousands)
Short term investment funds	$	3,448	$	-	$	3,448	$	-
Foreign currencies		57		57		-		-
Total cash equivalents		3,505		57		3,448		-
Equities:
Common stock		15,442		15,442		-		-
Depository receipts		332		332		-		-
Preferred stock		49		49		-		-
Total equities		15,823		15,823		-		-
Fixed income securities:
Auto loan receivable		4		-		4		-
Collateralized mortgage obligations		3,227		-		3,227		-
Corporate bonds		2,935		-		2,935		-
Federal Home Loan Mortgage Corp		569		-		569		-
Federal National Mortgage Assoc.		1,758		-		1,758		-
Government National Mortgage Assoc. I		24		-		24		-
Government National Mortgage Assoc. II		123		-		123		-
Government issues		4,979		-		4,979		-
Municipals		39		-		39		-
Other asset backed		37		-		37		-
Total fixed income securities		13,695		-		13,695		-
Total Plan Assets	$	33,023	$	15,880	$	17,143	$	-

The definition of Level 1, 2 and 3 fair value measurements is included in Note N to these consolidated financial statements.

At December 31, 2012 and 2011, the Plan's short-term investment funds amounted to approximately 12% and 10%, respectively, of the Plans total assets and represented investments in the State Street Bank & Trust Company Short Term Investment Fund.

Estimated Future Benefit Payments.  The following benefit payments, which reflect expected future service as appropriate, are expected to be made by the Plan.

Year	Amount
	(in thousands)
2013	$	1,083
2014		1,242
2015		1,367
2016		1,518
2017		1,688
2018-2022		9,852

The Bank's Supplemental Executive Retirement Plan ("SERP") currently covers the Bank's CEO.  The benefit under the SERP is equal to the additional amount that the CEO would be entitled to under the Pension and 401(k) plans in the absence of Internal Revenue Code limitations.  SERP expense was $45,000, $151,000 and $126,000 in 2012, 2011 and 2010, respectively.