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Note 17 - Pension and Other Benefits
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Retirement Benefits [Text Block]

Note 17 – Pension and Other Benefits

 

Defined Benefit Plans

 

The Company maintains a frozen, noncontributory pension plan covering employees of the Company prior to the merger with Legacy ConnectOne. The benefits are based on years of service and the employee’s compensation over the prior five-year period. The plan’s benefits are payable in the form of a ten-year certain and life annuity. The plan is intended to be a tax-qualified defined benefit plan under Section 401(a) of the Internal Revenue Code. Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44% of a participant’s highest average compensation over a 5-year period.

 

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Company’s pension plans as of December 31, 2024 and 2023.

 

  

2024

  

2023

 
  

(dollars in thousands)

 

Change in Benefit Obligation:

        

Projected benefit obligation as of January 1,

 $9,335  $9,317 

Interest cost

  424   441 

Actuarial (gain) loss

  (433)  251 

Benefits paid

  (1,121)  (674)

Projected benefit obligation as of December 31,

 $8,205  $9,335 

Change in Plan Assets:

        

Fair value of plan assets as of January 1,

 $14,614  $13,257 

Actual return on plan assets

  2,211   2,031 

Benefits paid

  (1,121)  (674)

Fair value of plan assets as of December 31,

 $15,704  $14,614 

Funded status

 $7,499  $5,279 

 

The accumulated benefit obligation was $8.2 million and $9.3 million for the years ended December 31, 2024 and 2023, respectively.

 

 

Amounts recognized as a component of accumulated other comprehensive loss as of the periods presented that have not been recognized as a component of the net periodic pension expense for the plan are presented in the following table. As of December 31, 2024, the Company expects to recognize approximately $0.5 million of the net actuarial loss as a component of net periodic pension expense during 2025.

 

  

As of December 31,

 
  

2024

  

2023

 
  

(dollars in thousands)

 

Net actuarial loss recognized in accumulated other comprehensive income (pre-tax)

 $967  $2,981 

 

The pre-tax, net periodic pension expense (income) and other comprehensive income for the years ended December 31, 2024, 2023 and 2022 includes the following:

 

  

2024

  

2023

  

2022

 
  

(dollars in thousands)

 

Interest cost

 $424  $440  $311 

Expected return on plan assets

  (856)  (838)  (949)

Net amortization

  171   296   66 

Settlement loss

  55   -   - 

Total net periodic pension income

 $(206) $(102) $(572)
             

Actuarial gain

  (1,788)  (941)  (343)

Net amortization included in net income

  (171)  (296)  (66)

Settlement loss included in net income

  (55)  -   - 

Total changes recognized in other comprehensive income

  (2,014)  (1,237)  (409)

Total recognized in net periodic pension income and other comprehensive income

 $(2,220) $(1,339) $(981)

 

 

 

The following table presents the weighted average assumptions used to determine the pension benefit obligations as of December 31, for the following periods.

 

 

2024

 

2023

 

Discount rate

 5.38% 4.72%

Rate of compensation increase

 N/A  N/A 

 

The following table presents the weighted average assumptions used to determine net periodic pension cost for the following three years:

 

  

2025

  

2024

  

2023

 
             

Discount rate

  5.38%  4.72%  4.92%

Expected long-term return on plan assets

  6.00%  6.00%  6.50%

Rate of compensation increase

  N/A   N/A   N/A 

 

The process of determining the overall expected long-term rate of return on plan assets begins with a review of appropriate investment data, including current yields on fixed income securities, historical investment data, historical plan performance and forecasts of inflation and future total returns for the various asset classes. This data forms the basis for the construction of a best-estimate range of real investment returns for each asset class. A weighted average real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range. Specific factors such as the plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.

 

Plan Assets

 

The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time. The Company’s pension plan asset allocation as of December 31, 2024 and 2023, target allocation, and expected long-term rate of return by asset are as follows:

 

              

Weighted

 
              

Average

 
      

% of Plan

  

% of Plan

  

Expected

 
      

Assets –

  

Assets –

  

Long-Term

 
  

Target

  

Year Ended

  

Year Ended

  

Rate of

 
  

Allocation

  

2024

  

2023

  

Return

 

Equity Securities

                

Domestic

  60%  70%  66%  4.0%

International

  7   3   4   0.6 

Debt and/or fixed income securities

  31   24   28   1.3 

Cash and other alternative investments, including real estate funds, commodity funds, hedge funds and equity structured notes

  2   3   2   0.1 

Total

  100%  100%  100%  6.0%

 

 

 

The fair values of the Company’s pension plan assets as of December 31, 2024 and 2023, by asset class, are as follows:

 

  

December 31,

             
  

2024

  

Fair Value Measurements at Reporting Date Using

 
      

Quoted Prices

  

Significant

     
      

in Active

  

Other

  

Significant

 
      

Markets for

  

Observable

  

Unobservable

 
      

Identical Assets

  

Inputs

  

Inputs

 

Asset Class

     

(Level 1)

  

(Level 2)

  

(Level 3)

 
  

(dollars in thousands)

 

Cash

 $393  $393  $-  $- 

Equity securities:

                

U.S. companies

  10,952   10,952   -   - 

International companies

  475   475   -   - 

Debt and/or fixed income securities

  3,807   3,807   -   - 

Commodity funds

  52   52   -   - 

Real estate funds

  25   25   -   - 

Total

 $15,704  $15,704  $-  $- 

 

  

December 31,

             
  

2023

  

Fair Value Measurements at Reporting Date Using

 
      

Quoted Prices

  

Significant

     
      

in Active

  

Other

  

Significant

 
      

Markets for

  

Observable

  

Unobservable

 
      

Identical Assets

  

Inputs

  

Inputs

 

Asset Class

     

(Level 1)

  

(Level 2)

  

(Level 3)

 
  

(dollars in thousands)

 

Cash

 $201  $201  $-  $- 

Equity securities:

                

U.S. companies

  9,647   9,647   -   - 

International companies

  654   654   -   - 

Debt and/or fixed income securities

  4,012   4,012   -   - 

Commodity funds

  62   62   -   - 

Real estate funds

  38   38   -   - 

Total

 $14,614  $14,614  $-  $- 

 

Fair Value of Plan Assets

 

The Company used the following valuation methods and assumptions to estimate the fair value of assets held by the plan (for further information on fair value methods, see Note 21):

 

Equity securities and real estate funds: The fair values for equity securities and real estate funds are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

 

 

Debt and fixed income securities: Certain debt securities are valued at the closing price reported in the active market in which the bond is traded (Level 1 inputs). Other debt securities are valued based upon recent bid prices or the average of recent bid and asked prices when available (Level 2 inputs) and, if not available, they are valued through matrix pricing models developed by sources considered by management to be reliable. Matrix pricing, which is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to continuous yield or quoted market pricing curves. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

 

The investment manager is not authorized to purchase, acquire or otherwise hold certain types of market securities (subordinated bonds, real estate investment trusts, limited partnerships, naked puts, naked calls, stock index futures, oil, gas or mineral exploration ventures or unregistered securities) or to employ certain types of market techniques (margin purchases or short sales) or to mortgage, pledge, hypothecate, or in any manner transfer as security for indebtedness, any security owned or held by the Plan.

 

Cash Flows

 

Contributions

 

The Bank does not expect to make a contribution in 2025.

 

Estimated Future Benefit Payments

 

The following benefit payments, which reflect expected future service, as appropriate, for the following years are as follows (dollars in thousands):

 

2025

 $732 

2026

  734 

2027

  774 

2028

  773 

2029

  761 

2030 - 2034

  3,544 

 

401(k) Plan

 

The Company maintains a 401(k) plan to provide for defined contributions which covers substantially all employees of the Company. Beginning with the 2014 plan year, the 401(k) plan was amended to provide for a match of 50% of elective contributions, up to 6% of employee salaries. In 2018, the 401 (k) plan was amended to provide for 100% matching of employee contributions up to 5% of employee salaries. For 2024, 2023 and 2022, employer contributions amounted to $2.8 million, $2.6 million and $2.2 million, respectively.

 

Supplemental Executive Retirement Plan (“SERP”)

 

During 2019 and in 2022, the Company adopted supplemental executive retirement plans (“SERP’s”) for the benefit of several of its executive officers. Each SERP is a non-qualified plan which provides supplemental retirement benefits to the participating officers of the Company. SERP compensation expense was $1.2 million, $0.4 million and $1.4 million for the years ended December 31, 2024, December 31, 2023 and December 31, 2022, respectively.