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,
	2014			2013			2012
Interest cost	$	1,003		$	877		$	921
Expected return on plan assets		(1,774	)		(1,518	)		(1,451	)
Amortization of unrealized loss		948			1,803			1,792
Net periodic cost	$	177		$	1,162		$	1,262

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

	At December 31,
	2014			2013
Accumulated benefit obligation at end of period	$	27,635		$	22,751
Reconciliation of Projected benefit obligation:
Projected benefit obligation at beginning of period	$	22,751		$	24,640
Interest cost		1,003			877
Actuarial (gain) loss		5,166			(1,541	)
Benefit payments		(1,183	)		(1,099	)
Settlements		(102	)		(126	)
Projected benefit obligation at end of period		27,635			22,751
Plan assets at fair value (investments in trust funds managed by trustee)
Balance at beginning of period		24,402			20,958
Return on plan assets		1,327			4,156
Contributions		13			513
Benefit payments		(1,183	)		(1,099	)
Settlements		(102	)		(126	)
Balance at end of period		24,457			24,402
Funded status at end of year	$	(3,178	)	$	1,651

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

	At December 31,
	2014	2013
Balance at beginning of period	$(8,798)	$(14,780)
Amortization of unrealized loss	948	1,803
Gain (loss) recognized during the year	(5,613)	4,179
Balance at the end of the period	$(13,463)	$(8,798)
Period end component of accumulated other comprehensive loss (net of tax)	7,384	4,826

For the years ended December 31, 2014 and 2013, the Bank used December 31^st as its measurement date for the Employee Retirement Plan. The Bank contributed $13 to the Employee Retirement Plan during the year ended December 31, 2014. The Bank expects to make contributions of $14 to the Employee Retirement Plan during the year ending December 31, 2015. During the year ending December 31, 2015, $1,677 in actuarial losses are anticipated to be recognized as a component of net periodic cost.

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

	At or for the Year Ended December 31,
	2014	2013	2012
Discount rate used for net periodic cost	4.56%	3.67%	4.15%
Discount rate used to determine benefit obligation at period end	3.72	4.56	3.67
Expected long-term return on plan assets used for net periodic cost	7.50	7.50	7.50
Expected long-term return on plan assets used to determine benefit obligation at period end	7.00	7.50	7.50

The Employee Retirement Plan assets are invested in two diversified investment portfolios of the Pentegra Retirement Trust (the "Trust"), a private placement investment fund, that has been given discretion by the Bank to determine the appropriate strategic asset allocation versus plan liabilities, as governed by the Trust's Investment Policy Statement.

The Employee Retirement Plan's asset allocation targets to hold 65% of assets in equity securities via investment in the Long-Term Growth Equity Portfolio ("LTGE"), 34% in intermediate-term investment grade bonds via investment in the Long-Term Growth Fixed-Income Portfolio ("LTGFI"), and 1% in a cash equivalents portfolio (for liquidity). Asset rebalancing is performed at least annually, with interim adjustments when the investment mix varies in excess of 10% from the target.

The LTGE is a diversified portfolio of six registered mutual funds and seven common collective trust funds. The LTGE holds a diversified mix of equity funds in order to gain exposure to the U.S. and non-U.S. equity markets. The common collective investment funds held by the LTGE were privately offered, and the Employee Retirement Plan's investment in these common collective investment funds was 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 six registered mutual funds held by the LTGE are all actively traded on national securities exchanges and are valued at their quoted market prices.

The LTGFI is a diversified portfolio that invests in two intermediate-term bond funds, both of which are registered mutual funds. These mutual funds are actively traded on national securities exchanges and are valued at their quoted market prices.

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,
	2014	2013
Asset Category
Equity securities	66%	71%
Debt securities (bond mutual funds)	32	29
Cash equivalents	2	-
Total	100%	100%

The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2014 and 2013, respectively.

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, 2014 (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	$2,920	-	-	$2,920
Domestic Mid Cap	1,417	-	-	1,417
Domestic Small Cap	499	-	-	499
International Equity	3,076	-	-	3,076
Fixed Income	7,786	-	-	7,786
Cash equivalents	687	-	-	687
Common collective investment funds:
Domestic Large Cap	-	5,012	-	5,012
Domestic Mid Cap	-	679	-	679
Domestic Small Cap	-	1,483	-	1,483
International Equity	-	898	-	898
Total Plan Assets				$24,457

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, 2013 (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	$6,621	-	-	$6,621
Domestic Small Cap	3,455	-	-	3,455
International Equity	2,790	-	-	2,790
Fixed Income	4,747	-	-	4,747
Common collective investment funds:
Domestic Large Cap	-	4,435	-	4,435
Fixed Income	-	2,354	-	2,354
Total Plan Assets				$24,402

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 annual rates of return in the ranges of 6% to 8% and 3% to 5%, respectively. The long-term inflation rate was estimated to be 2.5%. When these overall return expectations were applied to the Employee Retirement Plan's target allocation, the expected annual rate of return was determined to be 7.00% at December 31, 2014 and 7.50% at December 31, 2013.

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

Year Ending December 31,
2015		$1,616
2016		1,639
2017		1,625
2018		1,616
2019		1,613
2020 to 2024		7,858

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, 2014 and 2013, the BMP had investments, held in a rabbi trust, in the Holding Company's common stock of $13,232 and $13,595, 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,
	2014	2013	2012
Interest cost	$347	$281	$304
Amortization of unrealized loss	98	545	372
Net periodic cost	$445	$826	$676

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

	At December 31,
	2014			2013
Accumulated benefit obligation at end of period	$	11,077		$	8,645
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	8,645		$	8,958
Interest cost		347			281
Benefit payments		(181	)		(181	)
Actuarial (gain) loss		2,266			(413	)
Projected benefit obligation at end of period		11,077			8,645
Plan assets at fair value:
Balance at beginning of period		-			-
Contributions		181			181
Benefit payments		(181	)		(181	)
Balance at end of period		-			-
Funded status at the end of the year:	$	(11,077	)	$	(8,645	)

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

	At December 31,
	2014	2013
Balance at beginning of period	$(1,081)	$(2,039)
Adjustment for change in actuarial calculation	-	-
Amortization of unrealized loss	98	545
Gain (loss) recognized during the year	(2,267)	413
Balance at the end of the period	$(3,250)	$(1,081)
Period end component of accumulated other comprehensive loss (net of tax)	1,782	593

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,
	2014	2013	2012
Discount rate used for net periodic cost – BMP	4.00%	3.09%	3.77%
Discount rate used for net periodic cost – Director Retirement Plan	4.22	3.30	3.84
Discount rate used to determine BMP benefit obligation at period end	3.39	4.00	3.09
Discount rate used to determine Director Retirement Plan benefit obligation at period end	3.49	4.22	3.30

As of December 31, 2014 and 2013, 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.

Actuarial projections performed as of December 31, 2014 assumed the Bank will contribute $604 to the BMP and $188 to the Director Retirement Plan during the year ending December 31, 2015 in order to pay benefits due under the respective plans. During the year ending December 31, 2015, actuarial losses of $70 related to the BMP and $172 related to the 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,
2015		$792
2016		831
2017		819
2018		807
2019		792
2020 to 2024		3,870

There is no defined contribution cost incurred by the Holding Company or the Bank under the Director Retirement Plan. Defined contribution costs incurred by the Company related to the BMP were $1,789, $2,377 and $1,935 for the years ended December 31, 2014, 2013 and 2012, respectively.

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 medical benefits. 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 commence or commenced collecting retirement benefits from the Retirement Plan 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,
	2014	2013	2012
Service cost	$41	$60	$83
Interest cost	232	227	236
Amortization of unrealized loss	-	48	2
Net periodic cost	$273	$335	$321

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

	At or for the Year Ended December 31,
	2014	2013	2012
Discount rate used for net periodic cost	4.72%	3.72%	4.28%
Rate of increase in compensation levels used for net periodic cost	3.50	3.50	3.50
Discount rate used to determine benefit obligation at period end	3.80	4.72	3.72
Rate of increase in compensation levels used to determine benefit obligation at period end	3.50	3.50	3.50

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

As of December 31, 2014, an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $4. 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,
	2014	2013
Accumulated benefit obligation at end of period	$4,284	$4,998
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$4,998	$6,191
Service cost	41	60
Interest cost	232	227
Actuarial gain (loss)	309	(1,352)
Benefit payments	(95)	(128)
Plan amendments	(1,201)	-
Projected benefit obligation at end of period	4,284	4,998
Plan assets at fair value:
Balance at beginning of period	-	-
Contributions	95	128
Benefit payments	(95)	(128)
Balance at end of period	-	-
Funded status:
Deficiency of plan assets over projected benefit obligation	(4,284)	(4,998)
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	$(4,284)	$(4,998)

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

	At December 31,
	2014	2013
Balance at beginning of period	$400	$(1,000)
Amortization of unrealized loss	-	48
Gain (loss) recognized during the year	(309)	1,352
Plan amendments	1,201	-
Balance at the end of the period	$1,292	$400
Period end component of accumulated other comprehensive loss (net of tax)	(709)	(219)

As of December 31, 2014 and 2013, 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 6.5% in 2015 and was assumed to decrease gradually to 5.0% 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 $153. 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 $140.

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, 2014 and 2013. 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 $145 to the Postretirement Benefit Plan during the year ending December 31, 2015 in order to pay benefits due under the plan. During the year ending December 31, 2015, no actuarial gain or 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,
2015		$145
2016		155
2017		161
2018		168
2019		171
2020 to 2024		893

401(k) Plan - The Bank also maintains the 401(k) Plan, which covers substantially all of its employees. The Bank made discretionary contributions totaling $701, $679 and $647 to eligible 401(k) Plan participants during the years ended December 31, 2014, 2013 and 2012, 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 $8,827 and $10,016 at December 31, 2014 and 2013, 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 $3,222 and $3,401 at December 31, 2014 and December 31, 2013, 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, 2014, 2013 and 2012. The ESOP benefit expense is recorded based upon the fair value of the award shares, and totaled $1,730, $1,753 and $1,691, respectively, for the years ended December 31, 2014, 2013 and 2012. Included in ESOP expense were dividends on unallocated common stock that were paid to participants. These dividends totaled $525, $569 and $613 during the years ended December 31, 2014, 2013 and 2012, 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 price of each option award was determined based upon the fair market value of the Holding Company's common stock on the respective grant dates. Compensation expense recorded during the years ended December 31, 2014, 2013 and 2012 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.

There were no stock options granted during the years ended December 31, 2014 and 2013. The weighted average fair value per option at the date of grant for stock options granted during the year indicated was estimated as follows:

	Year Ended December 31, 2012
Estimated fair value on date of grant	$4.09
Pricing methodology utilized	Black- Scholes
Expected life (in years)	6.53
Interest rate	1.21%
Volatility	45.17
Dividend yield	4.04

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

	At or for the Year Ended December 31,
	2014	2013	2012
Options outstanding – beginning of period	1,615,771	2,456,137	2,893,760
Options granted	-	-	24,440
Weighted average exercise price of grants	$-	$-	$13.86
Options exercised	16,960	833,334	455,051
Weighted average exercise price of exercised options	$16.45	$13.47	$12.32
Options that expired prior to being exercised	618,895	7,032	7,012
Weighted average exercise price of forfeited options	$19.90	$16.93	$19.90
Options outstanding - end of period(1)	979,916	1,615,771	2,456,137
Weighted average exercise price of outstanding options - end of period	$14.74	$16.74	$15.63
Remaining options available for grant	925,626	1,043,074	249,230
Vested options at end of period	960,641	1,563,493	2,317,799
Weighted average exercise price of vested options – end of period	$14.73	$16.80	$15.78
Cash received for option exercise cost	278	11,228	5,608
Income tax benefit recognized	30	531	319
Compensation expense recognized	110	194	309
Remaining unrecognized compensation expense	31	141	335
Weighted average remaining years for which compensation expense is to be recognized	0.3	1.2	1.8
Intrinsic value of options exercised during the period	$6	$2,569	$871
Intrinsic value of outstanding options at period end	1,690	2,243	722
Intrinsic value of vested options at period end	1,674	2,129	531

(1) At December 31, 2014, 2013 and 2012, respectively, expected forfeitures were immaterial.

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, 2014 were as follows:

	Outstanding Options		Vested Options
Exercise Prices	Amount	Weighted Average Contractual Years Remaining	Amount	Weighted Average Contractual Years Remaining
$8.34	24,582	4.3	24,582	4.3
$12.75	39,589	5.3	39,589	5.3
$13.74	370,062	2.3	370,062	2.3
$13.86	17,108	7.3	17,108	7.3
$15.10	257,579	0.4	257,579	0.4
$15.46	85,183	6.3	65,908	6.3
$16.45	59,360	0.1	59,360	0.1
$16.73	46,453	3.6	46,453	3.6
$18.18	80,000	3.4	80,000	3.4
Total	979,916	2.4	960,641	2.3

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 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, 2014, 2013 and 2012 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,
	2014	2013	2012
Unvested allocated shares – beginning of period	318,314	328,003	324,454
Shares granted	121,333	145,925	141,289
Shares vested	141,361	155,614	135,369
Shares forfeited	8,626	-	2,371
Unvested allocated shares – end of period	289,660	318,314	328,003
Unallocated shares – end of period	-	-	-
Compensation recorded to expense	$1,976	$2,011	$1,842
Income tax benefit recognized	41	104	70
Fair value of shares vested during the period	$2,266	$1,944	$1,834
Weighted average remaining years for which compensation expense is to be recognized	1.2	1.2	1.3

Long Term Cash Incentive Payment Plan – During the years ended December 31, 2014, 2013 and 2012, the Company established long term incentive award programs to certain officers that will ultimately be settled in cash. For each award, a threshold (50% of target), target (100% of target) and maximum (150% of target) payment opportunity is eligible to be earned over a three-year performance period based on the Company's relative performance on certain measurement goals. 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, 2014, a liability totaling $1,596 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, 2014, 2013 and 2012, total expense recognized related to long-term cash incentive payment plan awards were $467, $639 and $717, respectively.