Note 15 – Employee Benefit Plans

Pension Plan

FNB has maintained a defined benefit pension plan. In September 2006, the Board of Directors of FNB 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 FNB and remained an active employee as of December 31, 2006 qualified for a grandfathering provision. In November 2010, FNB'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. FNB'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)
	2011			2010
Change in Benefit Obligation
Benefit obligation at beginning of year	$	12,529		$	11,700
Service cost		—			181
Interest cost		712			687
Net actuarial loss		1,970			495
Benefits paid		(614	)		(534	)

Benefit obligation at end of year	$	14,597		$	12,529


Change in Plan Assets
Fair value of plan assets at beginning of year	$	8,696		$	7,445
Actual return on plan assets		352			985
Employer contributions		800			800
Benefits paid		(614	)		(534	)

Fair value of plan assets at December 31	$	9,234		$	8,696


Funded Status at End of Year	$	(5,363	)	$	(3,833	)


Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	(5,363	)	$	(3,833	)


Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss	$	7,290		$	5,392

Net amount recognized	$	7,290		$	5,392


Weighted-Average Allocation of Plan Assets at End of Year
Equity securities		64	%		62	%
Debt securities		33			35
Cash and cash equivalents		1			1
Fixed income funds		2			2

Total		100	%		100	%


Weighted-Average Plan Assumptions at End of Year
Discount rate		4.75	%		5.60	%
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. The return is based exclusively on historical returns, without adjustments.

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


(dollars in thousands)	2011			2010			2009

Net Periodic Pension Cost/(Income)
Service cost	$	—		$	181		$	199
Interest cost		712			687			675
Expected return on plan assets		(690	)		(595	)		(553	)
Amortization of prior service cost		—			1			4
Amortization of net actuarial loss		411			367			307

Total pension cost	$	433		$	641		$	632

Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income:
Net actuarial loss/(gain)	$	1,897		$	(262	)	$	558
Amortization of prior service credit		—			(1	)		(4	)

Total recognized in other comprehensive loss/(income)		1,897			(263	)		554

Total Recognized in Net Periodic Pension Cost and Other Comprehensive Loss	$	2,330		$	378		$	1,186

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 $0.5 million and $0, respectively.

FNB's investment policies and strategies for the pension plan use a target allocation of 50% to 60% for equity securities and 40% to 50% for debt securities. 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 8.94% at December 31, 2011, 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, 2011


(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Equity securities	$	5,912	$	5,912	$	—
Debt securities		3,191		—		3,191
Other		131		—		131

Total fair value of pension assets	$	9,234	$	5,912	$	3,322

December 31, 2010


(dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Equity securities	$	5,378	$	5,378	$	—
Debt securities		3,239		—		3,239
Other		79		—		79

Total fair value of pension assets	$	8,696	$	5,378	$	3,318

The equity securities measured at fair value consist primarily of stock mutual funds (Level 1 inputs) and common and collective trust funds (Level 2 inputs). Debt securities include corporate bonds and bond mutual funds (Level 1 inputs), U.S. government and agency securities and obligations of state and political subdivisions (Level 2 inputs). Other investments consist of cash, money market deposits and certificates of deposit (Level 2 inputs). For further information regarding levels of input used to measure fair value, refer to Note 21.

In 2011, FNB contributed $0.8 million to its pension plan. FNB expects to contribute $0.8 million to its pension plan in 2012. However, the assets of the FNB 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 2012 through 2016 are as follows: $0.7 million in 2012, $0.7 million in 2013, $0.8 million in 2014, $0.8 million in 2015 and $0.8 million in 2016. The estimated benefit payments to be paid in the aggregate for the five year period from 2017 through 2021 are $4.3 million. The estimated benefit payments are based on the same assumptions used to measure the benefit obligation at December 31, 2011 and include estimated future employee service.

Supplemental Executive Retirement Plan

FNB has a noncontributory, nonqualified supplemental executive retirement plan ("SERP"), covering certain executive employees. Annual benefits payable under the SERP 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. In 2010, the Board of Directors of FNB 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.

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


(dollars in thousands)
	2011			2010
Change in Benefit Obligation
Benefit obligation at beginning of year	$	2,057		$	2,909
Service cost		—			189
Interest cost		137			120
Amendments to plan		—			—
Net actuarial loss/(gain)		60			(658	)
Benefits paid		(274	)		(503	)

Benefit obligation at end of year	$	1,980		$	2,057

Change in Plan Assets
Employer contributions	$	274		$	503
Benefits paid		(274	)		(503	)

Fair value of plan assets at end of year	$	—		$	—


Funded Status at December 31	$	(1,980	)	$	(2,057	)


Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	1,980		$	2,057

Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial gain	$	(594	)	$	(761	)
Prior service cost		187			234

Net amount recognized	$	(407	)	$	(527	)


Weighted-Average Plan Assumption at End of Year:
Discount rate		4.75	%		5.60	%

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


(dollars in thousands)	2011			2010			2009

Net Periodic SERP Cost
Service cost	$	—		$	189		$	226
Interest cost		137			120			150
Amortization of prior service cost		48			48			47
Amortization of net actuarial gain		(108	)		(37	)		(7	)

Net periodic SERP cost	$	77		$	320		$	416


Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income
Net actuarial loss/(gain)	$	168		$	(621	)	$	(458	)
Amortization of prior service credit		(48	)		(48	)		(47	)

Total recognized in other comprehensive loss/(income)		120			(669	)		(505	)


Total Recognized in Net Periodic SERP (Income)/Cost and Other Comprehensive Income/(Loss)	$	197		$	(349	)	$	(89	)

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 $(70,500) and $47,900 respectively.

The SERP is an unfunded plan. 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 2012 through 2016 are as follows: $0.2 million in 2012, $0.1 million in 2013, $0.1 million in 2014, $0.1 million in 2015 and $0.1 million in 2016. The estimated benefit payments to be paid in the aggregate for the five-year period from 2017 through 2021 are $0.6 million. The estimated benefit payments are based on the same assumptions used to measure the benefit obligation at December 31, 2011 and include estimated future employee service.

As a result of the acquisition of Integrity Financial Corporation in 2006, CommunityOne assumed the obligations of a non-qualifying 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 2011, 2010 and 2009 provisions of $49,000, $26,000 and $43,000, respectively, were expensed for future benefits to be provided under this plan. The total liability under this plan was $0.4 million at December 31, 2011 and at December 31, 2010, respectively, and is included in other liabilities in the accompanying consolidated balance sheets. Payments amounting to $76,000 in 2011, $70,000 in 2010 and $60,000 in 2009 were made under the provisions of the plan.

Granite has also 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 Granite expense for the years ended December 31, 2011, 2010, and 2009. The plan is in the process of being terminated and the two remaining balances will be paid out in 2012.

Other Postretirement Defined Benefit Plans

FNB 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 FNB and remained an active employee as of December 31, 2006 qualified for a grandfathering provision. In November 2010, FNB'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)
	2011			2010
Change in Benefit Obligation
Benefit obligation at beginning of year	$	1,670		$	1,587
Service cost		—			18
Interest cost		74			90
Net actuarial (gain)/loss		(224	)		28
Plan participant contributions		80			87
Benefits paid		(141	)		(140	)

Benefit obligation at end of year	$	1,459		$	1,670

Change in Plan Assets
Employer contributions	$	61		$	53
Plan participant contributions		80			87
Benefits paid		(141	)		(140	)

Fair value of plan assets at end of year	$	—		$	—


Funded Status at December 31	$	(1,459	)	$	(1,670	)


Amounts Recognized in the Consolidated Balance Sheets
Other Liabilities	$	1,459		$	1,670


Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial loss	$	169		$	393
Prior service credit		(25	)		(29	)

Net amount recognized	$	144		$	364


Weighted-Average Plan Assumption at End of Year:
Discount rate		4.75	%		5.60	%

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, 2011 or the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2011.

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


(dollars in thousands)	2011			2010			2009

Net Periodic Postretirement Benefit Cost
Service cost	$	—		$	18		$	22
Interest cost		74			90			91
Amortization of prior service credit		(4	)		(4	)		(4	)
Amortization of net actuarial loss		—			22			19

Net periodic postretirement benefit cost	$	70		$	126		$	128


Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income
Net actuarial (gain)/loss	$	(223	)	$	6		$	55
Amortization of prior service cost		4			4			4

Total recognized in other comprehensive (income)/loss		(219	)		10			59


Total Recognized in Net Periodic Postretirement Benefit Cost and Other Comprehensive (Income)/Loss	$	(149	)	$	136		$	187

The estimated net (gain)/loss and prior service cost that will be amortized from accumulated other comprehensive income/(loss) into net periodic postretirement benefit cost over the next year are $2,900 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 2012 through 2016 are as follows: $0.1 million in 2012, $0.1 million in 2013, $0.1 million in 2014, $0.1 million in 2015 and $0.1 million in 2016. The estimated benefit payments to be paid in the aggregate for the five year period from 2017 through 2021 are $0.4 million. The estimated benefit payments are based on the same assumptions used to measure the benefit obligation at December 31, 2011 and include estimated future employee service.

Matching Retirement/Savings Plan

FNB 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 FNB based on the plan formula, which is $.50 for each dollar on the first 6% of eligible pay deferred by the employee under the plan. Additionally, commencing in 2007, FNB 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. FNB did not make a discretionary contribution in 2011 or 2010. The matching and discretionary contributions amounted to $0.4 million in 2011, $0.5 million in 2010, and $0.7 million in 2009.

Granite sponsors a tax-qualified profit-sharing and savings retirement plan covering substantially all Granite employees. Contributions to the plan are made at the discretion of the Board of Directors but may not exceed the maximum amount allowable for federal income tax purposes. There were no contributions made for the years ended December 31, 2011, 2010 and 2009. 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 $.50 for each dollar on the first 6% of eligible pay deferred by the employee under the plan.