Note 16 - Pension and Other Benefits

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Retirement Benefits [Text Block]

Note 16 – 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, 2023 and 2022.

	2023			2022
	(dollars in thousands)
Change in Benefit Obligation:
Projected benefit obligation as of January 1,	$	9,317		$	14,644
Interest cost		441			311
Actuarial (gain) loss		251			(4,657	)
Benefits paid		(674	)		(981	)
Projected benefit obligation as of December 31,	$	9,335		$	9,317
Change in Plan Assets:
Fair value of plan assets as of January 1,	$	13,257		$	17,604
Actual return on plan assets		2,031			(3,366	)
Benefits paid		(674	)		(981	)
Fair value of plan assets as of December 31,	$	14,614		$	13,257
Funded status	$	5,279		$	3,940

The accumulated benefit obligation was $9.3 million for both years ended December 31, 2023 and 2022.

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, 2023, the Company expects to recognize approximately $0.2 million of the net actuarial loss as a component of net periodic pension expense during 2024.

	As of December 31,
	2023		2022
	(dollars in thousands)
Net actuarial loss recognized in accumulated other comprehensive income (pre-tax)	$	2,981	$	4,219

The pre-tax, net periodic pension expense (income) and other comprehensive income for the years ended December 31, 2023, 2022 and 2021 includes the following:

	2023			2022			2021
	(dollars in thousands)
Interest cost	$	440		$	311		$	284
Expected return on plan assets		(838	)		(949	)		(852	)
Net amortization		296			66			299
Total net periodic pension income	$	(102	)	$	(572	)	$	(269	)
Total unrealized gain recognized in other comprehensive income		(941	)		(343	)		-
Realized losses included in net income		(296	)		(66	)		(299	)
Total recognized in net periodic pension income and other comprehensive income	$	(1,339	)	$	(981	)	$	(568	)

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

	2023			2022
Discount rate		4.72	%		4.92	%
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:

	2024			2023			2022
Discount rate		4.72	%		4.92	%		2.57	%
Expected long-term return on plan assets		6.00	%		6.50	%		5.50	%
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, 2023 and 2022, 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			2023			2022			Return
Equity Securities
Domestic		56	%		66	%		58	%		3.4	%
International		9			4			4			0.8
Debt and/or fixed income securities		33			28			35			1.7
Cash and other alternative investments, including real estate funds, commodity funds, hedge funds and equity structured notes		2			2			3			0.1
Total		100	%		100	%		100	%		6.0	%

The fair values of the Company’s pension plan assets as of December 31, 2023 and 2022, by asset class, are as follows:

	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	$	-	$	-

	December 31,
	2022		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	$	262	$	262	$	-	$	-
Equity securities:
U.S. companies		7,611		7,611		-		-
International companies		569		569		-		-
Debt and/or fixed income securities		4,684		4,684		-		-
Commodity funds		95		95		-		-
Real estate funds		36		36		-		-
Total	$	13,257	$	13,257	$	-	$	-

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 20):

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 2024.

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):

2024	$	709
2025		707
2026		710
2027		752
2028		752
2029 - 2033		3,598

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 an employee’s contribution. In 2018, the 401 (k) plan was amended to provide for 100% matching of employee contributions up to 5% of employee contributions. For 2023, 2022 and 2021, employer contributions amounted to $2.6 million, $2.2 million and $1.6 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 $0.4 million, $1.4 million and $1.0 million for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively.