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Note 10 - Components of Net Periodic Pension Cost
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Retirement Benefits [Text Block]

Note 10. Components of Net Periodic Pension Cost

 

The Company maintained two defined benefit pension plans, which were frozen on June 30, 2007 and September 30, 2025, respectively. The following table sets forth the net periodic pension cost of the Company’s pension plans for the periods indicated.

 

  

Three Months Ended

 

Affected Line Item in the Consolidated

  

September 30,

 

Statements of Income

  

2025

  

2024

  
  

(dollars in thousands)

  

Service cost

 $486  $- 

Salaries and employee benefits

Interest cost

  1,004   106 

Salaries and employee benefits

Expected return on plan assets

  (1,383)  (214)

Salaries and employee benefits

Net amortization

  -   43 

Salaries and employee benefits

Total periodic pension income

 $107  $(65) 

 

  

Nine Months Ended

 

Affected Line Item in the Consolidated

  

September 30,

 

Statements of Income

  

2025

  

2024

  
  

(dollars in thousands)

  

Service cost

 $486  $- 

Salaries and employee benefits

Interest cost

  1,215   318 

Salaries and employee benefits

Expected return on plan assets

  (1,843)  (642)

Salaries and employee benefits

Net amortization

  -   129 

Salaries and employee benefits

Total periodic pension income

 $(142) $(195) 

 

                Contributions

  

 The Company did not contribute to the Pension Trust for the frozen Center Bancorp plan during the nine months ended September 30, 2025. The Company does not plan on contributing amounts to this Pension Trust for the remainder of 2025. This 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. Former FLIC 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 has historically made 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 became 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 September 30, 2025, the Company froze benefit accruals under this defined benefit pension plan for all participants. The freeze does not affect retirees or vested benefits. The projected benefit obligation was remeasured using a discount rate of 5.41%, increasing the liability by $2.0 million. There were no other changes in assumptions. The freezing of the plan also resulted in the removal of projected salary increase from the liability determination, resulting in a curtailment gain of $3.5 million recognized in other income during the third quarter of 2025. The plan’s funded status improved to 134%.

 

 

 

                 Significant Actuarial Assumptions. The following table sets forth the significant actuarial assumptions used to determine the benefit obligation at the 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%   0%  N/A 

Equity mutual funds

  20% - 30%   25%  3.9% - 10.7% 

Fixed income mutual funds

  70% - 80%   75%  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