Employee Benefit Plans

Pension Plan

COB maintains a defined benefit pension plan. In September 2006, the Board of Directors of COB approved a modified freeze to the pension plan. Effective December 31, 2006, no new employees were eligible to enter the plan. Participants who were at least age 40, had earned 10 years of vesting service as an employee of COB and remained an active employee as of December 31, 2006 qualified for a grandfathering provision. In November 2010, COB’s Board of Directors approved an additional amendment to the plan which ceased participant benefit accruals as of December 31, 2010. The retirement benefits of all other participants in the pension plan were frozen as of December 31, 2006.

Benefits are based on the employee's compensation, years of service and age at retirement. COB's funding policy is to contribute annually to the plan an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes.

The following table sets forth the plan’s change in benefit obligation, plan assets and the funded status of the pension plan, using a December 31 measurement date, and amounts recognized in the consolidated statements as of December 31:



(dollars in thousands)
	2013			2012
Change in Benefit Obligation
Benefit obligation at beginning of year	$	15,342		$	14,597
Service cost	—			—
Interest cost	646			668
Net actuarial (gain) loss	(1,219		)	758
Benefits paid	(804		)	(681		)
Benefit obligation at end of year	$	13,965		$	15,342
Change in Plan Assets
Fair value of plan assets at beginning of year	$	12,370		$	9,234
Actual return on plan assets	1,265			1,017
Employer contributions	—			2,800
Benefits paid	(804		)	(681		)
Fair value of plan assets at December 31	$	12,831		$	12,370
Funded Status at End of Year	$	(1,134	)	$	(2,972	)
Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	(1,134	)	$	(2,972	)
Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss	$	5,223		$	7,312
Net amount recognized	$	5,223		$	7,312
Weighted-Average Allocation of Plan Assets at End of Year
Equity securities	65		%	62		%
Debt securities	35			36
Cash and cash equivalents	—			2
Fixed income funds	—			—
Total	100		%	100		%
Weighted-Average Plan Assumptions at End of Year
Discount rate	5.10		%	4.25		%
Expected long-term rate of return on plan assets	8.00		%	8.00		%
Rate of increase in compensation levels	5.50		%	5.50		%

The expected long-term rate of return on plan assets considers the portfolio as a whole and not on the sum of the returns on individual asset categories.

Components of net periodic pension cost (income) and other amounts recognized in other comprehensive income are as follows:



(dollars in thousands)	2013			2012			2011
Net Periodic Pension Cost (Income)
Service cost	$	—		$	—		$	—
Interest cost	646			668			712
Expected return on plan assets	(958		)	(804		)	(690		)
Amortization of prior service cost	—			—			—
Amortization of net actuarial loss	562			524			411
Total pension cost	$	250		$	388		$	433
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income:
Net actuarial loss (gain)	$	(2,089	)	$	22		$	1,897
Amortization of prior service credit	—			—			—
Total recognized in other comprehensive loss (income)	(2,089		)	22			1,897
Total Recognized in Net Periodic Pension Cost and Other Comprehensive Loss	$	(1,839	)	$	410		$	2,330

The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income/(loss) into net periodic pension cost over the next year are approximately $0.4 million and $0, respectively.

COB’s investment policies and strategies for the pension plan use a target allocation for equity and for debt securities based on the funding status of the plan. The investment goals attempt to maximize returns while remaining within specific risk management policies. While the risk management policies permit investment in specific debt and equity securities, a significant percentage of total plan assets are maintained in mutual funds, approximately 99.7% at December 31, 2013, to assist in investment diversification. Generally the investments are readily marketable and can be sold to fund benefit payment obligations as they become payable.

The following table provides the fair values of investments held in the pension plan by major asset category:

December 31, 2013



(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Equity securities	$	8,321	$	8,321	$	—
Debt securities	4,473		4,473		—
Other	37		37		—
Total fair value of pension assets	$	12,831	$	12,831	$	—

December 31, 2012



(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Equity securities	$	7,752	$	7,752	$	—
Debt securities	4,429		4,429		—
Other	189		189		—
Total fair value of pension assets	$	12,370	$	12,370	$	—

The equity securities measured at fair value consist primarily of stock mutual funds (Level 1 inputs). Debt securities include corporate bonds, bond mutual funds, U.S. government and agency securities and obligations of state and political subdivisions (Level 1 inputs). Other investments consist of money market deposits (Level 1 inputs). For further information regarding levels of input used to measure fair value, refer to Note 20.

In 2013, COB contributed $0 to its pension plan. COB expects to contribute $150 thousand to its pension plan in 2014. However, the assets of the COB Employees Pension Plan are less in value than the present value of the accrued benefits (vested and unvested) of the participants in the Pension Plan on a termination and projected benefit obligation basis.

The estimated benefit payments for each year ending December 31 from 2014 through 2018 are as follows: $0.8 million in 2014, $0.8 million in 2015, $0.9 million in 2016, $0.9 million in 2017 and $0.9 million in 2018. The estimated benefit payments to be paid in the aggregate for the five year period from 2019 through 2023 are $4.5 million. The estimated benefit payments are based on the same assumptions used to measure the benefit obligation at December 31, 2013 and include estimated future employee service.

Supplemental Executive Retirement Plans

COB has maintained three noncontributory, nonqualified supplemental executive retirement plans (“SERPs”), covering certain executive employees.

Annual benefits payable under the first of these SERPs are based on factors similar to those for the pension plan, with offsets related to amounts payable under the pension plan and social security benefits. SERP costs, which are actuarially determined using the projected unit credit method and recorded on an unfunded basis, are charged to current operations and credited to a liability account on the consolidated balance sheet. In 2010, the Board of Directors approved an amendment to the plan which stopped additional benefit accrual under the SERP after December 31, 2010. This action did not impact a participant's vested or accrued benefit in the plan. In September, 2012 the Board of Directors approved an amendment to terminate the Plan. The amendment provides for lump sum cash distributions of participant benefits in accordance with Internal Revenue Code Section 409A. These payments were made in 2013 and there are no further obligations under this SERP.

In connection with the acquisition by COB of Carolina Fincorp, Inc. in 2000, CommunityOne assumed the obligations of Richmond Savings Bank, Inc., SSB under its Nonqualified Supplemental Retirement Plan. There was one retired executive covered under this plan, who was entitled to a retirement benefit of $30,000 per year payable for 10 years. Benefit payments began in 2012. In September, 2012 the Board of Directors approved an amendment to terminate the Plan. The amendment provided for a lump sum cash distribution of the participant benefit in accordance with Internal Revenue Code Section 409A. These payments were made during 2013 and there are no future obligations under this SERP.

As a result of the acquisition of Integrity Financial Corporation in 2006, CommunityOne assumed the obligations of a nonqualifying deferred compensation plan for the former president of Integrity. Under the plan provisions, benefit payments began in 2006 and are payable for 10 years. During 2013, 2012 and 2011, provisions of $17,000, $39,000, and $49,000 respectively, were expensed for future benefits to be provided under this plan. The total liability under this plan was $0.3 million at December 31, 2013 and $0.4 million at December 31, 2012, respectively, and is included in other liabilities in the accompanying consolidated balance sheets. Payments amounting to $78,000 in 2013, $80,000 in 2012 and $76,000 in 2011 were made under the provisions of this SERP.

The following table sets forth the change in benefit obligation, plan assets and the funded status of the three SERPs, using a December 31 measurement date, and amounts recognized in the consolidated statements as of December 31:



(dollars in thousands)
	2013			2012
Change in Benefit Obligation
Benefit obligation at beginning of year	$	1,345		$	1,980
Service cost	—			—
Interest cost	84			107
Amendments to plan	—			—
Net actuarial loss (gain)	(13		)	(457		)
Benefits paid	(1,153		)	(285		)
Benefit obligation at end of year	$	263		$	1,345
Change in Plan Assets
Employer contributions	$	1,153		$	285
Benefits paid	(1,153		)	(285		)
Fair value of plan assets at end of year	$	—		$	—
Funded Status at December 31	$	(263	)	$	(1,345	)
Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	263		$	1,345
Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial gain	$	—		$	(1,002	)
Prior service cost	—			155
Net amount recognized	$	—		$	(847	)
Weighted-Average Plan Assumption at End of Year:
Discount rate	7.00		%	7.00		%

The increase in the assumed discount rate is the result of COB's decision to terminate the SERP plan and pay out the remaining balance in 2013.

Components of net periodic SERP cost and other amounts recognized in other comprehensive loss are as follows:



(dollars in thousands)	2013			2012			2011
Net Periodic SERP Cost
Service cost	$	—		$	—		$	—
Interest cost	84			107			137
Amortization of prior service cost	155			31			48
Amortization of net actuarial gain	(1,015		)	(48		)	(108		)
Net periodic SERP cost	$	(776	)	$	90		$	77
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income
Net actuarial loss (gain)	$	1,002		$	(409	)	$	168
Amortization of prior service credit	(155		)	(31		)	(48		)
Total recognized in other comprehensive loss (income)	847			(440		)	120
Total Recognized in Net Periodic SERP (Income) Cost and Other Comprehensive Income (Loss)	$	71		$	(350	)	$	197

The estimated net (gain) loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic SERP cost over the next year are approximately $0 and $0 respectively.

The remaining SERP is an unfunded plan. Consequently, there are no plan assets or cash contribution requirements other than for the direct payment of benefits.

Other Postretirement Defined Benefit Plans

COB has maintained a postretirement benefit plan, which provides medical and life insurance benefits to retirees who obtained certain age and service requirements. The medical plan is contributory, with retiree contributions adjusted whenever medical insurance rates change. The life insurance plan is noncontributory.

In conjunction with the modified freeze of the pension plan, the postretirement medical and life insurance plan was also amended. Effective December 31, 2006, no new employees are eligible to enter the postretirement medical and life insurance plan. Participants who were at least age 40, had earned 10 years of vesting service as an employee of COB and remained an active employee as of December 31, 2006 qualified for a grandfathering provision. In November 2010, COB’s Board of Directors approved an additional amendment to the plan which ceased participant benefit accruals as of December 31, 2010.

The following table sets forth the plans change in benefit obligation, plan assets and the funded status of the postretirement plans, using a December 31 measurement date, and amounts recognized in the consolidated statements as of December 31:



(dollars in thousands)
	2013			2012
Change in Benefit Obligation
Benefit obligation at beginning of year	$	1,377		$	1,459
Service cost	—			—
Interest cost	57			63
Net actuarial (gain) loss	(223		)	(84		)
Plan participant contributions	81			79
Benefits paid	(154		)	(140		)
Benefit obligation at end of year	$	1,138		$	1,377
Change in Plan Assets
Employer contributions	$	73		$	61
Plan participant contributions	81			79
Benefits paid	(154		)	(140		)
Fair value of plan assets at end of year	$	—		$	—
Funded Status at December 31	$	(1,138	)	$	(1,377	)
Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	1,138		$	1,377
Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial loss	$	(138	)	$	86
Prior service credit	(16		)	(21		)
Net amount recognized	$	(154	)	$	65
Weighted-Average Plan Assumption at End of Year:
Discount rate	5.10		%	4.25		%

Increasing or decreasing the assumed medical cost trend rate by one percentage point would not have a significant effect on either the postretirement benefit obligation at December 31, 2013 or the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2013.

Components of net postretirement benefit cost and other amounts recognized in other comprehensive income are as follows:



(dollars in thousands)	2013			2012			2011
Net Periodic Postretirement Benefit Cost
Service cost	$	—		$	—		$	—
Interest cost	57			63			74
Amortization of prior service credit	(4		)	(4		)	(4		)
Amortization of net actuarial loss	—			—			—
Net periodic postretirement benefit cost	$	53		$	59		$	70
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income
Net actuarial (gain) loss	$	(223	)	$	(84	)	$	(223	)
Amortization of prior service cost	4			4			4
Total recognized in other comprehensive (income) loss	(219		)	(80		)	(219		)
Total Recognized in Net Periodic Postretirement Benefit Cost and Other Comprehensive (Income) Loss	$	(166	)	$	(21	)	$	(149	)

The estimated net (gain) loss and prior service credit that will be amortized from accumulated other comprehensive income/(loss) into net periodic postretirement benefit cost over the next year are $(4,000) and $(4,200).

The postretirement medical and life insurance plans are unfunded plans. Consequently, there are no plan assets or cash contribution requirements other than for the direct payment of benefits.

The estimated benefit payments for each year ending December 31 from 2014 through 2018 are as follows: $65,000 in 2014, $68,000 in 2015, $68,000 in 2016, $69,000 in 2017 and $70,000 in 2018. The estimated benefit payments to be paid in the aggregate for the five year period from 2019 through 2023 are $0.4 million. The estimated benefit payments are based on the same assumptions used to measure the benefit obligation at December 31, 2013 and include estimated future employee service.

Matching Retirement/Savings Plan

COB has a matching retirement/savings plan which permits eligible employees to make contributions to the plan up to a specified percentage of compensation as defined by the plan. A portion of the employee contributions are matched by COB based on the plan formula, which is $0.50 for each dollar on the first 6% of eligible pay deferred by the employee under the plan. Additionally, commencing in 2007, COB on a discretionary basis may make an annual contribution up to a specified percentage of compensation as defined by the plan to the account of each eligible employee. COB did not make a discretionary contribution in 2013, 2012 or 2011. The matching and discretionary contributions amounted to $0.5 million in 2013, $0.6 million in 2012, and $0.4 million in 2011.

Granite sponsored a tax-qualified profit-sharing and savings retirement plan covering substantially all Granite employees. Contributions to the plan were made at the discretion of the Board of Directors but were not permitted to exceed the maximum amount allowable for federal income tax purposes. There were no Company contributions made for the years ended December 31, 2013 and 2012. The plan permits eligible employees to make contributions to the plan up to a specified percentage of compensation as defined by the plan. Effective January 1, 2012, the plan was amended to provide a match on a portion of the employee contributions. The match is based on the plan formula, which is $0.50 for each dollar on the first 6% of eligible pay deferred by the employee under the plan. During July 2012, Granite's plan and COB's plan were merged together into an amended and restated CommunityOne 401(k) plan.

Granite sponsored a non-tax qualified profit-sharing supplemental executive retirement plan for certain executive officers, which allowed Granite to supplement the level of the executive officers' retirement incomes over that which is obtainable through the tax-qualified profit-sharing retirement plan sponsored by Granite. There was no expense for the years ended December 31, 2013 and 2012. The plan was terminated in October, 2011 and two remaining balances were paid out in 2012. There are no future obligations under this plan.