12. EMPLOYEE BENEFIT PLANS

The Bank sponsors a noncontributory defined benefit cash balance pension plan (the “Cash Balance Plan”), covering all employees who qualify under length of service and other requirements. Under the Cash Balance Plan, retirement benefits are based on years of service and average earnings. The Bank's funding policy is to contribute amounts to the Cash Balance Plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plus such additional amounts as the Bank may determine to be appropriate. The contributions to the Cash Balance Plan paid during the years ended December 31, 2015 and 2014 totaled $0.4 million, respectively. The Cash Balance Plan was not fully funded as of December 31, 2015 and December 31, 2014. The measurement date for the Cash Balance Plan is December 31 and prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants.

It is expected that the Company will contribute $0.4 million to the Cash Balance Plan during 2016.

The following table shows the type of assets held in the Cash Balance Plan:

	As of December 31,
Asset Category	2015			2014

Equity securities		63.6	%		63.8	%
Debt securities		33.4	%		35.0	%
All other assets		3.0	%		1.2	%
Total		100.0	%		100.0	%

The Bank sponsors a nonqualified Supplemental Executive Retirement Plan (“SERP”). The SERP, which is unfunded, provides certain individuals with pension benefits, outside the Bank's noncontributory defined-benefit Cash Balance Plan, based on average earnings, years of service and age at retirement. Participation in the SERP is at the discretion of the Bank's Board of Directors. The Company and Bank purchased bank owned life insurance (“BOLI”) in 2002 in the aggregate amount of approximately $12.9 million face value covering all the participants in the SERP. Increases in the cash surrender value of BOLI policies totaled $0.5 million and $1.5 million for the years ended December 31, 2015 and 2014, respectively, which was primarily attributable to additional investments in BOLI of $0.3 million and $1.5 million, respectively, for certain executive officers. The cash surrender value of the BOLI owned by the Bank was $8.2 million and $7.7 million as of December 31, 2015 and 2014, respectively. The Bank has the ability and the intent to keep this life insurance in force indefinitely. The insurance proceeds may be used, at the sole discretion of the Bank, to fund the benefits payable under the SERP. During 2014, the Company collected $201 thousand on a BOLI death benefit claim.

Since there are not assets in the plan, contributions are equal to the benefits paid. It is expected that $0.2 million will be paid in benefits during 2016.

The SERP and the Cash Balance Plan components of the net periodic benefit cost reflected in salaries and employee benefits expense for the years ended December 31, 2015 and December 31, 2014 were:

	Cash Balance Plan						SERP				Total
(Dollars in thousands)	2015			2014			2015		2014		2015			2014

Service costs	$	172		$	156		$	—	$	—	$	172		$	156
Interest cost		210			236			71		80		281			316
Expected return on Plan assets		(365	)		(349	)		—		—		(365	)		(349	)
Amortization of prior service cost and recognized net actuarial gain		331			87			20		5		351			92
Net periodic pension cost	$	348		$	130		$	91	$	85	$	439		$	215

The following table shows the change in the projected benefit obligations and plan assets for the years ended December 31, 2015 and 2014:

	Cash Balance Plan						SERP						Total
(Dollars in thousands)	2015			2014			2015			2014			2015			2014

Change in projected benefit obligations:
Benefit obligation at beginning of year	$	6,432		$	5,637		$	2,111		$	1,955		$	8,543		$	7,592
Service cost		172			156			—			—			172			156
Interest cost		210			236			71			80			281			316
Actuarial gain		29			746			101			230			130			976
Benefits and expenses paid		(701	)		(343	)		(154	)		(154	)		(855	)		(497	)
Benefit obligation at end of year		6,142			6,432			2,129			2,111			8,271			8,543

Change in plan assets:
Fair value of plan assets at beginning of year		5,484			5,233			—			—			5,484			5,233
Actual return on plan assets		(39	)		244			—			—			(39	)		244
Employer contributions		350			350			154			154			504			504
Benefits and expenses paid		(701	)		(343	)		(154	)		(154	)		(855	)		(497	)
Fair value of plan assets at year end		5,094			5,484			—			—			5,094			5,484

Underfunded status	$	(1,048	)	$	(948	)	$	(2,129	)	$	(2,111	)	$	(3,177	)	$	(3,059	)

The Bank had a liability for the Cash Balance Plan of $1.0 million and $0.9 million for the periods ended December 31, 2015 and 2014, respectively. The liability is included in Other Liabilities within the Consolidated Balance Sheets. The accrued liability and accumulated benefits obligations for the SERP was $2.1 million for each of the periods ended December 31, 2015 and 2014. The balance is included in Other Liabilities within the Consolidated Balance Sheets.

The amounts in accumulated other comprehensive loss that have not been recognized as components of net periodic pension cost were:

	Cash Balance Plan						SERP						Total
(Dollars in thousands)	2015			2014			2015			2014			2015		2014

Unrecognized net actuarial loss	$	2,229		$	2,126		$	587		$	506		$	2,816	$	2,632
Unrecognized prior service cost		—			—			—			—			—		—
Total amount included in accumulated other comprehensive loss	$	2,229		$	2,126		$	587		$	506		$	2,816	$	2,632

Weighted average assumptions as of December 31:
Discount rate		3.75	%		3.50	%		3.75	%		3.50	%
Expected return on plan assets		7.00	%		7.00	%		n/a			n/a
Rate of compensation increase		3.00	%		3.00	%		3.00	%		3.00	%

Amounts in accumulated other comprehensive loss expected to be recognized in net periodic costs in 2016:

Amounts in accumulated other comprehensive loss expected to be

recognized in net periodic pension cost in 2016:

(Dollars in Thousands)	Cash Balance Plan		SERP		Total

Net actuarial loss	$	175	$	25	$	200
Prior service cost		—		—		—
Total expected to be recognized	$	175	$	25	$	200

Assets expected to be returned to the Company in 2016	$	—	$	—	$	—

The estimated expected benefits payments for the Cash Balance Plan and SERP are:

(Dollars in thousands)
For the Years Ending December 31:	Cash Balance Plan		SERP		TOTAL

2016		654		154		808
2017		436		152		588
2018		452		150		602
2019		466		148		614
2020		402		146		548
2021-2025		2,053		688		2,741
Total	$	4,463	$	1,438	$	5,901

Retirement Plan Assets— In general, the Cash Balance Plan's investment management organizations make reasonable efforts to control market fluctuations through appropriate techniques including, but not limited to, adequate diversification. The specific investment strategy adopted by the plan referred to as the Long Term Growth of Capital Strategy, attempts to achieve long-term growth of capital with little concern for current income. Typical investors in this portfolio have a relatively aggressive investment philosophy, seeking long-term growth, and are not looking for current dividend income.

Prohibited investments include commodities and futures contracts, private placements, options, transactions which would result in unrelated business taxable income, and other investments prohibited by Employee Retirement Income Security Act.

The target range of allocation percentages for each major category of plan assets was:

Asset Category	Target Weight			Minimum Weight			Maximum Weight

Cash		0	%		0	%		10	%
Equities:
US		66	%		56	%		76	%
Non-US		7	%		0	%		14	%
Fixed Income		27	%		20	%		37	%

Equity investments must be listed on the New York, American, World, or other similar stock exchanges traded in the over-the-counter market with the requirement that such stocks have adequate liquidity relative to the size of the investment.

Fixed income investments must have a credit rating of B or better from Standard and Poor's or Moody's. The fixed income portfolio should be constructed so as to have an average maturity not exceeding 10 years. No more than 5% of the fixed income portfolio should be invested in any one issuer. U.S. Treasury and Agency securities are exempt from this restriction.

Cash and equivalent instruments that are acceptable are repurchase agreements, bankers' acceptances, U.S. treasury bills, money market funds, and certificates of deposit.

The portfolio shall be structured to meet financial objectives over a period of 11 or more years. Over that time horizon, the total rate of return should equal at least 103% of the applicable blended benchmark returns and place in the top half of group performance. Benchmarks which may be used for portfolio performance comparison are as follows:

•

U.S. Large Cap Equities: S&P 500, Russell 1000, Russell 1000 Value, and Russell 1000 Growth

•

U.S. Mid Cap Equities: S&P 400 Mid Cap, Russell Mid Cap Value, and Russell Mid Cap Growth

•

U.S. Small Cap Equities: S&P 600 Small Cap, Russell 2000 Value, and Russell 2000 Growth

•

Non-U.S. Equities: MSCI EAFE IL

•

Fixed Income: Lehman Brothers Intermediate Government/Corporate

•

Cash: U.S. 3-Month Treasury Bill

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels were:

December 31, 2015	Level 1		Level 2		Level 3
(Dollars in thousands)	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
Asset Category	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)

Cash	$	150	$	—	$	—
Equity Security:
Large-Cap		106		1,333		—
Mid-Cap		373		463		—
Small-Cap		100		457		—
Global and International		7		404		—
Emerging Market		—		—		—
Fixed Income – Bonds		573		480		—
Other		—		648		—
Total	$	1,309	$	3,785	$	—

December 31, 2014	Level 1		Level 2		Level 3
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
Asset Category	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)

Cash	$	66	$	—	$	—
Equity Security:
Large-Cap		19		1,610		—
Mid-Cap		469		500		—
Small-Cap		509		—		—
Global and International		21		371		—
Emerging Market		—		—		—
Fixed Income – Bonds		636		578		—
Other		—		705		—
Total	$	1,720	$	3,764	$	—

401(k) Plan —The Bank sponsors a 401(k) plan. Participation in the 401(k) plan is voluntary. Employees become eligible after completing 90 days service and attaining age 21. Employees may elect to contribute up to 12% of their compensation to the 401(k) plan. The Bank matches 100% of each employee's contribution, up to a maximum of 6% of compensation. The Bank's contribution to the 401(k) plan was $0.2 million in each of the years ended December 31, 2015 and 2014.

Deferred Compensation Plan —The Bank sponsors a nonqualified deferred compensation plan. The plan, which is unfunded, permits certain management employees to defer compensation in order to provide retirement and death benefits. The plan allows participants to receive the balance of the 6% Bank matching contribution on the 401(k) plan that would otherwise be forfeited to comply with the Internal Revenue Code. At both December 31, 2015 and 2014, the amount of the non-qualified deferred compensation plan liability was $ 0.1 million and $0.2 million respectively.

Post-retirement Benefits —The Bank provides certain post-retirement benefits to select former executive officers. As of December 31, 2015 and 2014, the amount of the liability for these benefits was approximately $0.2 million.

Split Dollar Benefits —In 2002, upon investing in BOLI policies, the Company granted certain executives a split dollar life benefit by which the beneficiaries of the executive would receive a portion of the non-cash surrender value death benefit of the BOLI upon the executive's demise. Thereafter, amounts are accrued by a charge to employee benefits. As of December 31, 2015 and 2014, $0.2 million was recorded in other liabilities for the split dollar benefit.