15. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”), a Retirement Profit Sharing 401(k) Plan, an Employees’ Pension Plan, which is currently frozen, a supplemental executive defined benefit plan, a supplemental executive defined contribution plan , non-qualified supplemental executive retirement plans (“SERP”), a Postretirement Life Insurance Plan, which was curtailed in 2013, and a Long-Term Incentive Plan.

Under the Penn Security Bank and Trust Company ESOP, amounts voted by the Company’s Board of Directors are paid into the ESOP and each employee is credited with a share in proportion to their annual compensation. All contributions to the ESOP are invested in or will be invested primarily in Company stock. Distribution of a participant’s ESOP account occurs upon retirement, death or termination in accordance with the plan provisions.

At December 31, 2013 and 2012, the Penn Security Bank and Trust Company ESOP held 104,964 and 102,623 shares, respectively, of the Company’s stock, all of which were allocated to specific participant accounts. These shares are treated the same for dividend purposes and earnings per share calculations as are any other outstanding shares of the Company’s stock. The Company contributed $218 and $105 to the ESOP plan during the years ended December 31, 2013 and 2012, respectively. The Company did not make a contribution for the year ended December 31, 2011 to the ESOP Plan.

Under the Penn Security Bank and Trust Company Retirement Profit Sharing Plan, amounts approved by the Board of Directors have been paid into a fund and each employee was credited with a share in proportion to their annual compensation. Upon retirement, death or termination, each employee is paid the total amount of their credits in the fund in one of a number of optional ways in accordance with the plan provisions. Effective July 1, 2008, the Retirement Profit Sharing Plan became a 401(k) Deferred Compensation and Profit Sharing Plan for eligible employees. Eligible employees may elect deferrals of up to the maximum amounts permitted by law.

The Penn Security Bank and Trust Company Retirement Profit Sharing Plan’s contributions included a Safe Harbor contribution of $310, $306 and $284, during the years ended December 31, 2013, 2012 and 2011, respectively, and a discretionary match of $234, $221 and $209 during the years ended December 31, 2013, 2012 and 2011, respectively, equal to one-half of employee deferrals, up to a maximum match of 3%.

Peoples Neighborhood Bank has an Employee Stock Ownership and Profit-Sharing Plan (“Plan”) with 401(k) provisions. The Plan is for the benefit of all employees who meet the eligibility requirements set forth in the Plan. The amount of contributions to the Plan, including 401(k) matching contributions, is at the discretion of the Board of Directors. Company contributions to the employee stock ownership plan are allocated to participant accounts based on their percentage of total compensation for the Plan year. At December 31, 2013, 263,559 shares of the Company’s common stock were held in the Plan. In the event a terminated Plan participant desires to sell his or her shares of the Company’s stock, or for certain employees who elect to diversify their account balances, the Company may be required to purchase the shares from the participant at their fair market value. There was no expense associated with the plan during 2013.

Penn Security Bank and Trust Company had established a Supplemental Executive Defined Contribution Plan to replace 401(k) plan benefits lost due to compensation limits imposed on qualified plans by Federal tax law. The annual benefit is a maximum of 6% of the executive compensation in excess of Federal limits. At December 31, 2013 and 2013 the total liability associated with this plan was $36 and $29 at December 31, 2013 and 2012, respectively. The expense associated with the plan was $7, $4 and $4 for 2013, 2012 and 2011, respectively.

The Company has SERPs for the benefit of certain officers of the Company. At December 31, 2013 and 2012, other liabilities include $1,432 and $1,418 accrued under the Plans.

Under the Penn Security Bank and Trust Company Employees’ Pension Plan (currently under curtailment), amounts computed on an actuarial basis were being paid by the Company into a trust fund. The plan provided for fixed benefits payable for life upon retirement at the age of 65, based on length of service and compensation levels as defined in the plan. As of June 22, 2008 no further benefits are being accrued in this plan. Plan assets of the trust fund are invested and administered by the Trust Department of Peoples Security Bank and Trust Company.

The Postretirement Life Insurance Plan was an unfunded, non-vesting defined benefit plan for employees of Penn Security Bank and Trust Company hired after July 1, 1995; which provided postretirement life insurance benefit of $50,000 at retirement, then decreasing to $5,000 at age 75. Employees hired prior to July 1, 1995 were entitled to three times their salary at retirement. During 2013 the company entered into an agreement with an insurance company to transfer all risk and obligation for benefits payable as to the current retiree group in exchange for a one time fixed payment, additionally the company eliminated retiree life insurance for current employees.

Compensation expense includes approximately $164, $77 and $34 relating to these supplemental executive retirement plans for the years ended December 31, 2013, 2012 and 2011, respectively.


	Pension Benefits						Postretirement Life Insurance Benefits
December 31,	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation, beginning	$	15,506		$	14,450		$	3,193		$	3,004
Service cost								35			48
Interest cost		646			673			111			139
Plan curtailment								(2,764	)
Change in experience		99			88						4
Change in assumptions		(1,324	)		978						145
Benefits paid		(716	)		(683	)		(575	)		(147	)

Benefit obligation, ending		14,211			15,506						3,193

Change in plan assets:
Fair value of plan assets, beginning		11,343			11,026
Actual return on plan assets		1,623			637
Employer contributions		167			363
Benefits paid		(716	)		(683	)

Fair value of plan assets, ending		12,417			11,343

Funded status at end of year	$	(1,794	)	$	(4,163	)	$			$	(3,193	)

Amounts recognized in the balance sheet are as follows:


	Pension Benefits						Postretirement Life Insurance Benefits
December 31,	2013			2012			2013	2012
Liabilities	$	1,794		$	4,163		$	$	3,193
Amounts recognized in the accumulated other comprehensive loss consist of:
Net actuarial loss (gain)		(3,883	)		(6,252	)			(1,273	)
Deferred taxes		1,359			2,091				620

Net amount recognized	$	(2,524	)	$	(4,161	)	$	$	(653	)

The accumulated benefit obligation for the defined benefit pension plan was $14,211 and $15,506 at December 31, 2013 and 2012, respectively.

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


	Pension Benefits
Years Ended December 31,	2013			2012			2011
Net periodic pension cost:
Service cost
Interest cost	$	646		$	673		$	700
Expected return on plan assets		(825	)		(809	)		(903	)
Amortization of prior service cost
Amortization of unrecognized net loss		180			136			82
Curtailment loss

Net periodic pension cost	$	1		$			$	(121	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)		(2,369	)		739			1,351
Prior service cost
Deferred tax		805			(251	)		(459	)

Total recognized in other comprehensive income		(1,564	)		488			892

Total recognized in net period pension cost and other comprehensive income	$	(1,563	)	$	488		$	771

	Postretirement Life Insurance Benefits
Years Ended December 31,	2013			2012			2011
Components of net periodic pension cost:
Service cost	$	35		$	48		$	43
Interest cost		111			139			147
Amortization of prior service cost								7
Amortization of unrecognized net gain		96			111			105

Net periodic other benefit cost	$	242		$	298		$	302

Changes in plan assets and benefit obligations recognized in other comprehensive income:
Net loss (gain)		(1,273	)		185			148
Prior service cost								8
Amortization of prior service cost								(7	)
Deferred tax		620			(63	)		(53	)

Total recognized in other comprehensive income		(653	)		122			96

Total recognized in net period pension cost and other comprehensive income	$	(411	)	$	420		$	398

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $101.

Weighted-average assumptions used to determine benefit obligations were as follows:


	Pension Benefits						Postretirement Life Insurance Benefits
December 31,	2013			2012			2013	2012
Discount rate		5.00	%		4.25	%			4.25	%
Expected long-term return on plan assets		7.50	%		7.50	%
Rate of compensation increase									3.00	%

The expected long-term return on plan assets was determined using average historical returns of the Company’s plan assets.

The Company’s pension plan weighted-average asset allocations at December 31, 2013 and 2012, by asset category are as follows:


December 31,	2013			2012
Asset Category:
Equity securities		59.9	%		56.2	%
Corporate bonds		16.8			18.9
U.S. Government securities		20.8			21.2
Cash and cash equivalents		2.5			3.7

		100.0	%		100.0	%

Fair Value Measurement of pension plan assets at December 31, 2013 and 2012 is as follows:


December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Observable Inputs (Level 3)
Cash	$	316	$	316
Equity securities:
U.S. large cap		6,993		6,993
International		442		442
Fixed income securities:
U.S. Treasuries		995			$	995
U.S. Government agencies		1,579				1,579
Corporate bonds		2,092				2,092

Total	$	12,417	$	7,751	$	4,666


December 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Observable Inputs (Level 3)
Cash	$	419	$	419
Equity securities:
U.S. large cap		6,068		6,068
International		307		307
Fixed income securities:
U.S. Treasuries		1,024			$	1,024
U.S. Government agencies		1,380				1,380
Corporate bonds		2,145				2,145

Total	$	11,343	$	6,794	$	4,549

The Company investment policies and strategies with respect to the pension plan include: (i) the Trust and Investment Division’s equity philosophy is Large-Cap Core with a value bias. We invest in individual high-grade common stocks that are selected from our approved list; (ii) diversification is maintained by having no more than 20% in any industry sector and no individual equity representing more than 10% of the portfolio; and (iii) the fixed income style is conservative but also responsive to the various needs of our individual clients. Fixed income securities consist of U.S. Government Agencies or corporate bonds rated “A” or better. The Company targets the following allocation percentages: (i) cash equivalents 10%; (ii) fixed income 40% ; and (iii) equities 50%.

There is no Company stock included in equity securities at December 31, 2013 or 2012. The Company expects to contribute $315 to the Employees’ Pension Plan in 2014.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the next five years and in the aggregate for the five years thereafter:


	Pension Benefits
2014	$	729
2015		781
2016		793
2017		811
2018		863
Thereafter	$	4,484