14. 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,
	2015			2014			2013
Interest cost	$	998		$	1,003		$	877
Expected return on plan assets		(1,656	)		(1,774	)		(1,518	)
Amortization of unrealized loss		1,677			948			1,803
Net periodic cost	$	1,019		$	177		$	1,162

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

	At December 31,
	2015			2014
Accumulated benefit obligation at end of period	$	25,396		$	27,635
Reconciliation of Projected benefit obligation:
Projected benefit obligation at beginning of period	$	27,635		$	22,751
Interest cost		998			1,003
Actuarial (gain) loss		(1,796	)		5,166
Benefit payments		(1,289	)		(1,183	)
Settlements		(152	)		(102	)
Projected benefit obligation at end of period		25,396			27,635
Plan assets at fair value (investments in trust funds managed by trustee)
Balance at beginning of period		24,457			24,402
Return (loss) on plan assets		(355	)		1,327
Contributions		15			13
Benefit payments		(1,289	)		(1,183	)
Settlements		(152	)		(102	)
Balance at end of period		22,676			24,457
Funded status at end of year	$	(2,720	)	$	(3,178	)

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

	At December 31,
	2015			2014
Balance at beginning of period	$	(13,463	)	$	(8,798	)
Amortization of unrealized loss		1,677			948
Loss recognized during the year		(215	)		(5,613	)
Balance at the end of the period	$	(12,001	)	$	(13,463	)
Period end component of accumulated other comprehensive loss (net of tax)		6,582			7,384

For the years ended December 31, 2015 and 2014, the Bank used December 31^st as its measurement date for the Employee Retirement Plan. The Bank contributed $15 to the Employee Retirement Plan during the year ended December 31, 2015. The Bank does not expect to make contributions to the Employee Retirement Plan during the year ending December 31, 2016.

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

	At or for the Year Ended December 31,
	2015	2014	2013
Discount rate used for net periodic cost	3.72%	4.56%	3.67%
Discount rate used to determine benefit obligation at period end	3.98	3.72	4.56
Expected long-term return on plan assets used for net periodic cost	7.00	7.50	7.50
Expected long-term return on plan assets used to determine benefit obligation at period end	7.00	7.00	7.50

The Employee Retirement Plan assets are invested in two diversified investment portfolios of the Pentegra Retirement Trust (the "Trust"). The Trust, a private placement investment trust, has been granted discretion by the Bank to determine the appropriate strategic asset allocations (as governed by its Investment Policy Statement) to meet estimated plan liabilities.

The Employee Retirement Plan's asset allocation targets holding 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 four intermediate-term bond funds, all 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 was summarized as follows:

	At December 31,
	2015			2014
Asset Category
Equity securities		58	%		66	%
Debt securities (bond mutual funds)		40			32
Cash equivalents		2			2
Total		100	%		100	%

The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2015 and 2014, 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, 2015 (See Note 16 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	$	2,617		-		-	$	2,617
Domestic Mid Cap		1,098		-		-		1,098
Domestic Small Cap		402		-		-		402
International Equity		2,551		-		-		2,551
Fixed Income		9,140		-		-		9,140
Cash equivalents		338		-		-		338
Common collective investment funds:
Domestic Large Cap		-		4,028		-		4,028
Domestic Mid Cap		-		541		-		541
Domestic Small Cap		-		1,184		-		1,184
International Equity		-		777		-		777
Total Plan Assets							$	22,676

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 16 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 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 both December 31, 2015 and December 31, 2014.

Benefit payments are anticipated to be made as follows:

Year Ending December 31,
2016	$	1,579
2017		1,574
2018		1,569
2019		1,573
2020		1,568
2021 to 2025		7,640

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, 2015 and 2014, the BMP had investments, held in a rabbi trust, in the Holding Company's common stock of $14,402 and $13,232, 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,
	2015		2014		2013
Interest cost	$	375	$	347	$	281
Amortization of unrealized loss		242		98		545
Net periodic cost	$	617	$	445	$	826

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

	At December 31,
	2015			2014
Accumulated benefit obligation at end of period	$	11,062		$	11,077
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	11,077		$	8,645
Interest cost		375			347
Benefit payments		(171	)		(181	)
Actuarial (gain) loss		(219	)		2,266
Projected benefit obligation at end of period		11,062			11,077
Plan assets at fair value:
Balance at beginning of period		-			-
Contributions		171			181
Benefit payments		(171	)		(181	)
Balance at end of period		-			-
Funded status at the end of the year:	$	(11,062	)	$	(11,077	)

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

	At December 31,
	2015			2014
Balance at beginning of period	$	(3,250	)	$	(1,081	)
Amortization of unrealized loss		242			98
Gain (loss) recognized during the year		220			(2,267	)
Balance at the end of the period	$	(2,788	)	$	(3,250	)
Period end component of accumulated other comprehensive loss (net of tax)		1,529			1,782

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,
	2015	2014	2013
Discount rate used for net periodic cost – BMP	3.39%	4.00%	3.09%
Discount rate used for net periodic cost – Director Retirement Plan	3.49	4.22	3.30
Discount rate used to determine BMP benefit obligation at period end	3.54	3.39	4.00
Discount rate used to determine Director Retirement Plan benefit obligation at period end	3.67	3.49	4.22

As of December 31, 2015 and 2014, 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, 2015 assumed the Bank will contribute $686 to the BMP and $208 to the Director Retirement Plan during the year ending December 31, 2016 in order to pay benefits due under the respective plans. During the year ending December 31, 2016, actuarial losses of $73 related to the BMP and $88 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,
2016	$	894
2017		882
2018		867
2019		849
2020		859
2021 to 2025		4,026

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 $1,900, $1,789 and $2,377 for the years ended December 31, 2015, 2014 and 2013, 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,
	2015			2014		2013
Service cost	$	9		$	41	$	60
Interest cost		94			232		227
Curtailment gain(1)		(3,394	)		-		-
Amortization of unrealized loss		(19	)		-		48
Net periodic (credit) cost	$	(3,310	)	$	273	$	335

(1) The Postretirement Plan was amended effective March 31, 2015, whereby post-amendment retirees are not eligible to participate in the plan. The amendment resulted in a curtailment gain.

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

	At or for the Year Ended December 31,
	2015	2014	2013
Discount rate used for net periodic cost	3.80%	4.72%	3.72%
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	3.58	3.80	4.72
Rate of increase in compensation levels used to determine benefit obligation at period end	3.50	3.50	3.50

As of December 31, 2015, an escalation in the assumed medical care cost trend rates by 1% in each year would increase the net periodic cost by approximately $3. A decline in the assumed medical care cost trend rates by 1% in each year would decrease the net periodic cost by approximately $3.

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

	At December 31,			At December 31,
	2015			2014
Accumulated benefit obligation at end of period	$	1,825		$	4,284
Reconciliation of projected benefit obligation:
Projected benefit obligation at beginning of period	$	4,284		$	4,998
Service cost		9			41
Interest cost		94			232
Actuarial gain (loss)		(143	)		309
Benefit payments		(89	)		(95	)
Plan amendments		-			(1,201	)
Curtailment		(2,330	)		-
Projected benefit obligation at end of period		1,825			4,284
Plan assets at fair value:
Balance at beginning of period		-			-
Contributions		89			95
Benefit payments		(89	)		(95	)
Balance at end of period		-			-
Funded status:
Deficiency of plan assets over projected benefit obligation		(1,825	)		(4,284	)
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	$	(1,825	)	$	(4,284	)

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

	At December 31,
	2015			2014
Balance at beginning of period	$	1,292		$	400
Amortization of unrealized loss		(19	)		-
Gain (loss) recognized during the year		142			(309	)
Recognition of prior service cost		(1,064	)		-
Plan amendments		-			1,201
Balance at the end of the period	$	351		$	1,292
Period end component of accumulated other comprehensive loss (net of tax)		(192	)		(709	)

As of December 31, 2015 and 2014, 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% for 2016 and was assumed to decrease gradually to 5.0% in 2022 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 $32. 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 $29.

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, 2015 and 2014. 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.

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,
2016	$	116
2017		113
2018		109
2019		104
2020		97
2021 to 2025		390

401(k) Plan - The Bank also maintains the 401(k) Plan, which covers substantially all of its employees. The Bank made discretionary contributions totaling $692, $701 and $679 to eligible 401(k) Plan participants during the years ended December 31, 2015, 2014 and 2013, 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 $9,721 and $8,827 at December 31, 2015 and 2014, 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 $3,028 and $3,222 at December 31, 2015 and December 31, 2014, 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, 2015, 2014 and 2013. The ESOP benefit expense is recorded based upon the fair value of the award shares, and totaled $1,754, $1,730 and $1,753, respectively, for the years ended December 31, 2015, 2014 and 2013. Included in ESOP expense were dividends on unallocated common stock that were paid to participants. These dividends totaled $481, $525 and $569 during the years ended December 31, 2015, 2014 and 2013, 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, 2015, 2014 and 2013 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, 2015, 2014 and 2013.

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

	At or for the Year Ended December 31,
	2015		2014		2013
Options outstanding – beginning of period		979,916		1,615,771		2,456,137
Options granted		-		-		-
Weighted average exercise price of grants	$	-	$	-	$	-
Options exercised		455,310		16,960		833,334
Weighted average exercise price of exercised options	$	14.39	$	16.45	$	13.47
Options that expired prior to being exercised		59,360		618,895		7,032
Weighted average exercise price of forfeited options	$	16.45	$	19.90	$	16.93
Options outstanding - end of period(1)		465,246		979,916		1,615,771
Weighted average exercise price of outstanding options - end of period	$	14.87	$	14.74	$	16.74
Remaining options available for grant		858,489		925,626		1,043,074
Vested options at end of period		465,246		960,641		1,563,493
Weighted average exercise price of vested options – end of period	$	14.87	$	14.73	$	16.80
Cash received for option exercise cost		6,549		278		11,228
Income tax benefit recognized		264		30		531
Compensation expense recognized		31		110		194
Remaining unrecognized compensation expense		-		31		141
Weighted average remaining years for which compensation expense is to be recognized		-		0.3		1.2
Intrinsic value of options exercised during the period	$	1,143	$	6	$	2,569
Intrinsic value of outstanding options at period end		1,273		1,690		2,243
Intrinsic value of vested options at period end		1,273		1,674		2,129

(1) At December 31, 2015, 2014 and 2013, 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, 2015 were as follows:

		Outstanding Options				Vested Options
Exercise Prices		Amount		Weighted Average Contractual Years Remaining		Amount		Weighted Average Contractual Years Remaining
$	8.34		13,713		3.3		13,713		3.3
$	12.75		33,682		4.3		33,682		4.3
$	13.74		192,750		1.3		192,750		1.3
$	13.86		17,108		6.3		17,108		6.3
$	15.46		83,371		5.3		83,371		5.3
$	16.73		44,622		2.6		44,622		2.6
$	18.18		80,000		2.4		80,000		2.4
Total			465,246		1.4		465,246		1.4

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, 2015, 2014 and 2013 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,
	2015		2014		2013
Unvested allocated shares – beginning of period		289,660		318,314		328,003
Shares granted		68,069		121,333		145,925
Shares vested		132,377		141,361		155,614
Shares forfeited		1,458		8,626		-
Unvested allocated shares – end of period		223,894		289,660		318,314
Unallocated shares – end of period		-		-		-
Compensation recorded to expense	$	1,855	$	1,976	$	2,011
Income tax benefit recognized		39		41		104
Fair value of shares vested during the period	$	1,652	$	2,266	$	1,944
Weighted average remaining years for which compensation expense is to be recognized		1.0		1.2		1.2

Long Term Cash Incentive Payment Plan – During the years ended December 31, 2015, 2014 and 2013, the Company established long term incentive award programs to certain officers that will ultimately be settled in cash. For each award, threshold (50% of target), target (100% of target) and maximum (150% of target) payment opportunities are 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, 2015, a liability totaling $1,802 was recorded for expected future payments under the long-term cash incentive payment plan. This liability reflected 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, 2015, 2014 and 2013, total expense recognized related to long-term cash incentive payment plan awards were $946, $467 and $639, respectively.