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Note 10 - Components of Net Periodic Pension Cost | 6 Months Ended
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Jun. 30, 2025
Notes to Financial Statements |
Retirement Benefits [Text Block] | Note 10. Components of Net Periodic Pension Cost The Company maintained a non-contributory defined benefit pension plan for substantially all of its employees until June 30, 2007, at which time the Company froze the plan. The following table sets forth the net periodic pension cost of the Company’s pension plan for the periods indicated.
|  | Three Months Ended |  | Affected Line Item in the Consolidated
|  | June 30, |  | Statements of Income
|  | 2025 |  |  | 2024 |  |
|  | (dollars in thousands) |  |
Service cost |  | $ | - |  |  | $ | - |  |
Interest cost |  |  | 105 |  |  |  | 106 |  | Salaries and employee benefits
Expected return on plan assets |  |  | (230 | ) |  |  | (214 | ) | Salaries and employee benefits
Net amortization |  |  | - |  |  |  | 43 |  | Salaries and employee benefits
Total periodic pension income |  | $ | (125 | ) |  | $ | (65 | ) |
|  | Six Months Ended |  | Affected Line Item in the Consolidated
|  | June 30, |  | Statements of Income
|  | 2025 |  |  | 2024 |  |
|  | (dollars in thousands) |  |
Service cost |  | $ | - |  |  | $ | - |  |
Interest cost |  |  | 211 |  |  |  | 212 |  | Salaries and employee benefits
Expected return on plan assets |  |  | (460 | ) |  |  | (428 | ) | Salaries and employee benefits
Net amortization |  |  | - |  |  |  | 86 |  | Salaries and employee benefits
Total periodic pension income |  | $ | (249 | ) |  | $ | (130 | ) |
Contributions The Company did not contribute to the Pension Trust during the six months ended June 30, 2025. The Company does not plan on contributing amounts to the Pension Trust for the remainder of 2025. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust. FLIC Merger In the FLIC merger, the company acquired a defined benefit pension plan with a net funded status of $11.2 million as of the acquisition date. Employees were eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service. Pension benefits are generally based on a percentage of average annual compensation during the period of creditable service. The Bank makes contributions to the Pension Plan which, when taken together with participant contributions equal to 2% of their compensation, will be sufficient to fund these benefits. The Bank’s funding method, the unit credit actuarial cost method, is consistent with the funding requirements of applicable federal laws and regulations which set forth both minimum required and maximum tax deductible contributions. Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four year period). An internal management committee oversees the affairs of the pension plan and acts as named fiduciary. Effective for June 30, 2025, the Board of Directors approved that no new participants will be permitted in the pension plan, and existing participants could no longer contribute. In addition, the Board of Directors approved to freeze the plan effective September 30, 2025. Once frozen, participants will no longer accrue benefits. Significant Actuarial Assumptions. The following table sets forth the significant actuarial assumptions used to determine the benefit obligation at acquisition date:
Weighted average assumptions used to determine the benefit obligation: |  |  |
Discount rate |  |  | 5.80 | %
Rate of increase in compensation levels |  |  | 4.00 | %
Weighted average assumptions used to determine net pension cost: |  |  |
Discount rate |  |  | 5.68 | %
Rate of increase in compensation levels |  |  | 4.00 | %
Expected long-term rate of return on plan assets |  |  | 6.00 | %
Plan Assets. The objective for the Plan’s assets is to generate long-term investment returns from both income and capital appreciation which outpaces the rate of inflation, while maintaining sufficient liquidity to ensure the Plan’s ability to pay all anticipated benefit and expense obligations when due. The Plan may maintain a de minimis amount of cash equivalents, with the remaining assets allocated across two broadly-defined financial asset categories: (1) equity, both domestic and international; and (2) fixed income of various durations and issuer type. The goal of the equity allocation is to supplement the Bank’s contributions to the Plan when the Plan is underfunded and increase surplus when the Plan is overfunded. The fixed income component will include longer-duration bonds designed to match and hedge the characteristics of the Plan’s liabilities. Cash equivalents, under normal circumstances, will be temporary holdings for the purpose of paying expenses and monthly benefits. For fixed income investments: (1) the minimum average credit quality shall be investment grade (Standard & Poor’s BBB or Moody’s Baa) or higher; and (2) no more than 5% of the portfolio may be invested in securities with ratings below investment grade, and none may be rated below investment grade at the time of purchase. Reasonable precautions are taken to avoid excessive concentrations to protect the portfolio against unfavorable outcomes within an asset class. Specifically, the following guidelines are in place:
| ● | With the exception of fixed income investments explicitly guaranteed by the U.S. government, no single investment security shall represent more than 5% of total Plan assets; and
| ● | With the exception of passively managed investment vehicles seeking to match the returns of broadly diversified market indices or diversified investment vehicles chosen specifically to hedge the interest rate risk embedded in Plan liabilities, no single investment pool or investment company (mutual fund) shall comprise more than 10% of total plan assets.
The portfolio will be rebalanced to the target asset allocation, if needed, no less often than quarterly. Unless expressly authorized in writing by the Committee, the following investing activities are prohibited:
| ● | Purchasing securities on margin;
| ● | Pledging or hypothecating securities, except for loans of securities that are fully collateralized;
| ● | Purchasing or selling derivative securities for speculation or leverage; and
| ● | Engaging in investment strategies that have the potential to amplify or distort the risk of loss beyond a level that is reasonably expected given the objectives of the portfolio.
The Plan’s actual asset allocations, target allocations and expected long-term rates of return by asset category at acquisition date are set forth in the following tables.
|  |  |  |  |  |  |  |  |  | Weighted |
|  |  |  |  |  |  |  |  |  | Average |
|  |  |  |  |  |  |  |  |  | Expected |
|  |  |  |  |  |  |  |  |  | Long-Term |
|  | Target |  |  | % of Plan |  |  | Rate of |
|  | Allocation |  |  | Assets |  |  | Return |
Cash equivalents |  |  | 0% - 1% |  |  |  | — | % |  |  | N/A |
Equity mutual funds |  |  | 20% - 30% |  |  |  | 25.0 | % |  |  | 3.9% to 10.7% |
Fixed income mutual funds |  |  | 70% - 80% |  |  |  | 75.0 | % |  |  | 2.5% - 6.8% |
|  |  |  |  |  |  | 100 | % |  |  | 2.8% - 7.8% |
The ranges for the weighted average expected long-term rates of return for equity funds, bond funds and total plan assets set forth in the preceding table represent an average of all expected allocation percentile returns. For these purposes the trustee utilizes a third party capital markets model (the “model”), which forecasts distributions of future returns for a wide array of broad asset classes. The theoretical and empirical foundation of the model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk. At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available historical monthly financial and economic data. Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service as appropriate, are expected to be made by the Plan.
Year (dollars in thousands) |  |  | Amount |
2026 |  |  | $ | 3,156 |
2027 |  |  |  | 3,293 |
2028 |  |  |  | 3,442 |
2029 |  |  |  | 3,537 |
2030 |  |  |  | 3,627 |
2031 - 2035 |  |  |  | 19,505 |

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