10. EMPLOYEE BENEFIT PLANS

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed, noncontributory defined benefit pension plan covering substantially all employees and officers. The pension plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank and compensation rates near retirement. The Bank’s funding policy is to make annual contributions, if needed, based upon the funding formula developed by the pension plan’s actuary. For the years ended December 31, 2013 and 2012, contributions to the pension plan totaled $1,000,000 and $750,000, respectively.

The pension plan was amended to cease eligibility for employees with a hire date of January 1, 2007 or later. In lieu of the pension plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee’s base compensation. The contribution amount will be placed in a separate account within the 401(k) plan and will be subject to a vesting requirement. Contributions by the Company totaled $40,000, $30,000 and $18,000 for 2013, 2012 and 2011, respectively.

The pension plan was also amended, effective January 1, 2008, for employees who are still eligible to participate. The amended pension plan calls for benefits to be paid to eligible employees based primarily upon years of service with the Bank and compensation rates during employment. Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the pension plan.

The following table sets forth the obligation and funded status as of December 31 (in thousands):

		2013		2012

Change in benefit obligation
Benefit obligation at beginning of year	$	10,017	$	8,387
Service cost		342		330
Interest cost		363		344
Actuarial (Gain) / Loss		(380)		1,207
Benefits paid		(603)		(251)
Benefit obligation at end of year		9,739		10,017

Change in plan assets
Fair value of plan assets at beginning of year		8,761		7,472
Actual return on plan assets		1,361		790
Employer contribution		1,000		750
Benefits paid		(603)		(251)
Fair value of plan assets at end of year		10,519		8,761

Funded status	$	780	$	(1,256)

Amounts not yet recognized as a component of net periodic pension cost (in thousands):

Amounts recognized in accumulated other
comprehensive loss consists of:
	Net loss	$	2,008	$	3,375
	Prior service cost		(315)		(357)
Total		$	1,693	$	3,018

The accumulated benefit obligation for the defined benefit pension plan was $9,739,000 and $10,017,000 at December 31, 2013 and 2012, respectively.

The components of net periodic benefit costs for the periods ending December 31 are as follows (in thousands):

		2013		2012		2011
Service cost	$	342	$	330	$	328
Interest cost		363		344		402
Expected return on plan assets		(673)		(565)		(595)
Net amortization and deferral		257		135		46
Net periodic benefit cost	$	289	$	244	$	181

The estimated net loss and prior service cost (benefit) that will be amortized from accumulated other comprehensive loss into the net periodic benefit cost in 2014 is $93,000 and $(45,000), respectively.

The weighted-average assumptions used to determine benefit obligations at December 31:

	2013	2012
Discount rate	4.30%	3.30%
Rate of compensation increase	3.00%	3.00%

The weighted-average assumptions used to determine net periodic benefit cost for the year ended December 31:

	2013	2012	2011
Discount rate	3.30%	4.00%	5.25%
Expected long-term return on plan assets	7.50%	7.50%	8.00%
Rate of compensation increase	3.00%	3.00%	3.00%

The long-term rate of return on plan assets gives consideration to returns currently being earned on plan assets as well as future rates expected to be earned. The investment objective is to maximize total return consistent with the interests of the participants and beneficiaries, and prudent investment management. The allocation of the pension plan assets is determined on the basis of sound economic principles and is continually reviewed in light of changes in market conditions. Asset allocation favors equity securities, with a target allocation of 50-70%. The target allocation for debt securities is 30-50%. At December 31, 2013, the pension plan had a sufficient cash and money market position in order to re-allocate the equity portfolio for diversification purposes and reduce risk in the total portfolio. The following table sets forth by level, within the fair value hierarchy as defined in footnote 17, the Plan’s assets at fair value as of December 31, 2013 and 2012 (in thousands):

2013	Level I	Level II	Level III	Total	Allocation
Assets
Cash and cash equivalents	$ 648	$ -	$ -	$ 648	6.2%
Equity Securities
U.S. Companies	3,879	-	-	3,879	36.8%
Mutual Funds and ETF's (a)	3,903	-	-	3,903	37.1%
Corporate Bonds	-	1,525	-	1,525	14.5%
U.S. Agency Securities	-	564	-	564	5.4%
Total	$ 8,430	$ 2,089	$ -	$ 10,519	100.0%

2012	Level I	Level II	Level III	Total	Allocation
Assets
Cash and cash equivalents	$ 525	$ -	$ -	$ 525	6.0%
Equity Securities
U.S. Companies	3,121	-	-	3,121	35.6%
Mutual Funds and ETF's (a)	3,058	-	-	3,058	34.9%
Corporate Bonds	-	1,149	-	1,149	13.1%
U.S. Agency Securities	-	908	-	908	10.4%
Total	$ 6,704	$ 2,057	$ -	$ 8,761	100.0%

(a)	This category comprises mutual funds investing in domestic large-cap, mid-caps, small caps, international large cap, emerging markets and commodities.

Equity securities include the Company’s common stock in the amounts of $575,000 (5.5% of total plan assets) and $436,000 (5.0% of total plan assets) at December 31, 2013 and 2012, respectively.

The Bank expects to contribute $500,000 to its pension plan in 2014. Expected future benefit payments that the Bank estimates from its pension plan are as follows (in thousands):

2014		$ 373
2015		257
2016		376
2017		495
2018		428
2019 - 2023		5,506

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k). Under the plan, the Company also makes required contributions on behalf of the eligible employees. The Company’s contributions vest immediately. Contributions by the Company totaled $255,000, $245,000 and $230,000 for 2013, 2012 and 2011, respectively.

Directors’ Deferred Compensation Plan

The Company’s directors may elect to defer all or portions of their fees until their retirement or termination from service. Amounts deferred under the deferred compensation plan earn interest based upon the highest current rate offered to certificate of deposit customers. Amounts deferred under the deferred compensation plan are not guaranteed and represent a general liability of the Company. As of December 31, 2013 and 2012, an obligation of $981,000 and $1,001,000, respectively, was included in other liabilities for this plan in the consolidated balance sheet. Amounts included in interest expense on the deferred amounts totaled $16,000, $16,000 and $22,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the Plan) whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements. Awards granted under the Plan are in the form of the Company’s common stock and are subject to certain vesting requirements including in the case of employees, continuous employment or service with the Company. In total, 100,000 shares of the Company’s common stock have been authorized under the Plan, which terminates April 18, 2016. As of December 31, 2013, 67,756 shares remain available to be issued under the Plan. The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted shares during 2013:

	2013
		Weighted
		Average
	Shares	Market Price
Outstanding, beginning of year	8,646	$ 35.51
Granted	3,027	48.21
Forfeited	(55)	37.10
Vested	(4,446)	33.62
Outstanding, end of year	7,172	$ 42.02

Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period. Compensation expense related to restricted stock was $155,000, $141,000 and $145,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The weighted-average grant-date fair value of restricted shares granted during 2013, 2012 and 2011 was $48.21, $37.68 and $37.16. At December 31, 2013 the total compensation cost related to nonvested awards that has not yet been recognized was $301,000, which is expected to be recognized over the next 2.25 years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan (“SERP”) for certain executives to compensate those executive participants in the Company’s noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At December 31, 2013 and 2012, an obligation of $1,046,000 and $901,000, respectively, was included in other liabilities for this plan in the consolidated balance sheet. Expenses related to this plan totaled $145,000, $92,000 and $62,000 for the years ended December 31, 2013, 2012 and 2011.