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Employee Benefits

12 Months Ended

Dec. 31, 2021

Conversion of Defined Benefit Pension Plan and Benefit Equalization Plan to Cash Balance Plan Design

Effective November 1, 2020, each of the Qualified Defined Benefit Pension Plan (“Defined Benefit Plan”) and the Non-Qualified Benefit Equalization Plan, referred to as the BEP, sponsored by the Company were amended to convert the plans from a traditional final average earnings plan design to a cash balance plan design. Benefits earned under the final average earnings plan design were frozen at October 31, 2020. Starting November 1, 2020, future benefits are earned under the cash balance plan design. Under the cash balance plan design, hypothetical account balances are established for each participant and pension benefits are generally stated as the lump sum amount in that hypothetical account. Contribution credits equal to a percentage of a participant’s annual compensation (if the participant works at least 1,000 hours during the year) and interest credits equal to the greater of the 30-Year Treasury rate for September preceding the current plan year or 3.5% are added to a participant’s account each year. For employees hired prior to November 1, 2020, annual contribution credits generally increase as the participant remains employed with the Company. Employees hired on and after November 1, 2020 receive annual contribution credits equal 5% of annual compensation, with no future increases. Notwithstanding the preceding sentence, since a cash balance plan is a defined benefit plan, the annual retirement benefit payable at normal retirement (age 65) is an annuity, which is the actuarial equivalent of the participant’s account balance under the cash balance plan design, plus their frozen benefit under the final average earnings plan design. However, under the Defined Benefit Plan, participants may elect, with the consent of their spouses if they are married, to have the benefits distributed as a lump sum rather than an annuity. The lump sum is equal to the sum of the actuarial equivalent of their frozen benefit under the final average earnings plan design, plus their cash balance account. Under the BEP, benefits are generally only payable as a lump sum, which is equal to the sum of the actuarial equivalent of their frozen benefit under the final average earnings plan design, plus their cash balance account.

Pension Plans

The Company provides pension benefits for its employees using a noncontributory, qualified defined benefit plan, through membership in the Savings Banks Employees Retirement Association (“SBERA”). The Company’s employees become eligible after attaining age 21 and completing one year of service. Under the final average earnings plan design, benefits became fully vested after three years of eligible service for individuals employed on or before October 31, 1989. For individuals employed subsequent to October 31, 1989 and who were already in the Defined Benefit Plan as of November 1, 2020, benefits became fully vested after five years of eligible service. Under the new cash balance plan design and for employees who were not already in the Defined Benefit Plan as of November 1, 2020, benefits become fully vested after three years of eligible service. The Company’s annual contribution to the plan is based upon standards established by the Pension Protection Act. The contribution is based on an actuarial method intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. SBERA offers a common and collective trust as the underlying investment structure for pension plans participating in the association. The target allocation mix for the common and collective trust portfolio calls for an equity-based investment deployment range of 47% to 61% of total common and collective trust portfolio assets. The remainder of the common and collective trust’s portfolio is allocated to fixed income securities with a target range of 24% to 38% and other investments, including global asset allocation and hedge funds, from 9% to 21%. The Trustees of SBERA, through the Association’s Investment Committee, select investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the Investment Committee to provide allocation analysis, performance measurement and to assist with manager searches. The overall investment objective is to diversify investments across a spectrum of investment types to limit risks from large market swings. The Defined Benefit Plan has a plan year end of October 31.

In connection with the Company’s acquisition of Century, the Company acquired Century’s Qualified Defined Benefit Pension Plan. At the time of the acquisition, the plan was frozen to new participants, which had occurred in 2006, and all participants in the plan were fully vested. Additionally, all Century employees retained following the acquisition were eligible to join the Company’s Defined Benefit Plan to the extent that eligibility requirements were satisfied based upon such employees’ prior service with Century.

The Company has an unfunded Defined Benefit Supplemental Executive Retirement Plan (“DB SERP”) that provides certain retired and currently employed officers with defined pension benefits in excess of qualified plan limits imposed by U.S. federal tax law. The DB SERP has a plan year end of December 31. In connection with the Company’s acquisition of Century, the Company acquired Century’s Supplemental Executive Insurance/Retirement Plan (the “Supplemental Plan”). Upon completion of the acquisition, the Supplemental Plan was merged for accounting purposes only into the Company’s DB SERP, but it will continue to be administered according to its terms. Further, the plan document of the Century Supplemental Plan contained change in control provisions which became effective upon the Company’s acquisition of Century. Accordingly, all participants of the Century Supplemental Plan were deemed to be fully vested upon the closing of the acquisition.

The Company has an unfunded Benefit Equalization Plan (“BEP”) to provide retirement benefits to certain employees whose retirement benefits under the Defined Benefit Plan are limited per the Internal Revenue Code. The BEP has a plan year end of October 31. In connection with the Company’s acquisition of Century, any Century employee retained following the acquisition and whose retirement benefits under the Defined Benefit Plan are limited per the Internal Revenue Code were added to the BEP. Additionally, such Century employees were credited for prior service with Century for purposes of determining vesting and eligibility pursuant to the BEP.

The Company also has an unfunded Outside Directors’ Retainer Continuance Plan (“ODRCP”) that provides pension benefits to outside directors who retire from service. The ODRCP has a plan year end of December 31. Effective December 31, 2020, the Company closed the ODRCP to new participants and froze benefit accruals for active participants.

Obligations and Funded Status

The funded status and amounts recognized in the Company’s Consolidated Financial Statements for the Defined Benefit Plan, the DB SERP, the BEP and the ODRCP are set forth in the following table:


	As of and for the Year Ended December 31,
	2021		2020		2019
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of the year	$	361,147	$	396,769	$	302,317
Service cost	31,660		25,970		18,926
Interest cost	5,694		9,657		10,996
Amendments	(1,106)		(133,439)		—
Actuarial (gain) loss	(1,697)		78,095		74,828
Acquisitions	125,854		—		—
Benefits paid	(20,045)		(15,905)		(10,298)
Benefit obligation at end of the year	$	501,507	$	361,147	$	396,769

Change in plan assets:
Fair value of plan assets at beginning of year	$	449,643	$	378,879	$	305,154
Actual return on plan assets	50,879		48,895		60,723
Acquisitions	63,468		—		—
Employer contribution	2,111		37,773		23,300
Benefits paid	(20,045)		(15,904)		(10,298)
Fair value of plan assets at end of year	546,056		449,643		378,879
Overfunded (underfunded) status	$	44,549	$	88,496	$	(17,890)

Reconciliation of funding status:
Past service credit (cost)	$	120,792	$	131,482	$	(25)
Unrecognized net loss	(128,402)		(161,045)		(113,022)
Prepaid benefit cost	52,159		118,059		95,157
Overfunded (underfunded) status	$	44,549	$	88,496	$	(17,890)

Accumulated benefit obligation	$	501,507	$	361,147	$	290,429

Amounts recognized in accumulated other comprehensive income (“AOCI”), net of tax:
Unrecognized past service credit (cost)	$	86,837	$	94,522	$	(18)
Unrecognized net loss	(92,308)		(115,775)		(81,251)
Net amount	$	(5,471)	$	(21,253)	$	(81,269)

In accordance with the Pension Protection Act, the Company was not required to make any contributions to the Defined Benefit Plan for the plan year beginning November 1, 2021; however, the Company expects to make a contribution of

$7.2 million during such plan year. During the year ended December 31, 2020, the Company made contributions to the Defined Benefit Plan of $32.5 million.

The net actuarial gain of $1.7 million during the year ended December 31, 2021 was primarily attributable to higher returns on plan assets than initially assumed and an increase in the discount rate assumption which was partially offset by changes in demographic assumptions and in the participant mortality rate assumption, which were revised to reflect management’s best estimate as of December 31, 2021, used for determining the benefit obligation. The net actuarial loss of $78.1 million and $74.8 million during the years ended December 31, 2020 and 2019, was primarily attributable to a decrease in the discount rate assumption used for determining the benefit obligation in both years from the corresponding prior year.

Actuarial Assumptions

The assumptions used in determining the benefit obligations at December 31, 2021 and 2020 were as follows:


	DB Plan				BEP				DB SERP				ODRCP
	As of December 31,				As of December 31,				As of December 31,				As of December 31,
	2021		2020		2021		2020		2021		2020		2021		2020
Discount rate	2.65	%	2.26	%	2.32	%	1.77	%	2.68	%	1.63	%	2.32	%	1.81	%
Rate of increase in compensation levels	4.50	%	5.25	%	4.50	%	5.25	%	—	%	—	%	—	%	—	%
Interest rate credit for determining projected cash balance	3.50	%	3.50%		3.50	%	3.50%		N/A		N/A		N/A		N/A

The assumptions used in determining the net periodic benefit cost for the years ended December 31, 2021, 2020, and 2019 were as follows:


	DB Plan
	For the Year Ended December 31,
	2021		2020		2019
Discount rate - benefit cost	2.26	%	3.16	%	4.25	%
Rate of compensation increase	5.25	%	5.25	%	5.25	%
Expected rate of return on plan assets	7.50	%	7.50	%	7.50	%


	BEP
	For the Year Ended December 31,
	2021		2020		2019
Discount rate - benefit cost	1.77	%	3.15	%	4.25	%
Rate of compensation increase	5.25	%	5.25	%	5.25	%
Expected rate of return on plan assets	—	%	—	%	—	%


	DB SERP
	For the Year Ended December 31,
	2021		2020		2019
Discount rate - benefit cost	1.63	%	2.72	%	4.25	%
Rate of compensation increase	—	%	—	%	—	%
Expected rate of return on plan assets	—	%	—	%	—	%


	ODRCP
	For the Year Ended December 31,
	2021		2020		2019
Discount rate - benefit cost	1.81	%	2.86	%	4.25	%
Rate of compensation increase	—	%	3.00	%	3.00	%
Expected rate of return on plan assets	—	%	—	%	—	%

In general, the Company has selected its assumptions with respect to the expected long-term rate of return based on prevailing yields on high quality fixed income investments increased by a premium for equity return expectations.

To determine the discount rate used in calculating the benefit obligation and the benefit cost for all of its defined benefit plans, the Company uses the spot rate approach whereby the individual spot rates on the FTSE above-median yield curve are applied to each corresponding year’s projected cash flow used to measure the respective plan’s service cost and interest cost.

The Company owns a percentage of the SBERA defined benefit common collective trust. Based upon this ownership percentage, plan assets managed by SBERA on behalf of the Company amounted to $546.1 million and $449.6 million at December 31, 2021 and 2020, respectively. Investments held by the common collective trust include Level 1, 2 and 3 assets such as: collective funds, equity securities, mutual funds, hedge funds and short-term investments. The Fair Value Measurements and Disclosures Topic of the FASB ASC stipulates that an asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As such, the Company classifies its interest in the common collective trust as a Level 3 asset.

The table below presents a reconciliation of the Company’s interest in the SBERA common collective trust during the years indicated:


	For the Year Ended December 31,
	2021		2020
	(In thousands)
Balance at beginning of year	$	449,643	$	378,879
Net realized and unrealized gains and (losses)	50,878		48,895
Contributions	—		32,515
Benefits paid	(17,934)		(10,646)
Acquisition	63,469		—
Balance at end of year	$	546,056	$	449,643

Components of Net Periodic Benefit Cost

The components of net pension expense for the plans for the periods indicated are as follows:


	For the Year Ended December 31,
	2021		2020		2019
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	31,660	$	25,970	$	18,926
Interest cost	5,694		9,657		10,996
Expected return on plan assets	(33,333)		(29,610)		(23,617)
Past service (credit) cost	(11,796)		(1,931)		44
Recognized net actuarial loss	13,400		10,787		7,242
Net periodic benefit cost	$	5,625	$	14,873	$	13,591

Service costs for the Defined Benefit Plan, the BEP, and the DB SERP are recognized within salaries and employee benefits in the statement of income. Service costs for the ODRCP are recognized within professional services in the statement of income. The remaining components of net periodic benefit cost are recognized in other noninterest expense in the statement of income.

Benefits expected to be paid

The following table summarizes estimated benefits to be paid from the Defined Benefit Plan and BEP for the plan years beginning on November 1, and the DB SERP and ODRCP for the plan years beginning January 1:


Year	(In thousands)
2022	$	54,475
2023	42,176
2024	40,411
2025	43,103
2026	43,438
In aggregate for 2027-2030	216,891

Employee Tax Deferred Incentive Plan

The Company has an employee tax deferred incentive plan, otherwise known as a 401(k) plan, under which the Company makes voluntary contributions within certain limitations. All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan. The amount contributed by the Company is included in salaries and employee benefits expense. The amounts contributed to the plan for the years ended December 31, 2021, 2020, and 2019, were $4.6 million, $4.4 million and $4.2 million, respectively.

Employee Stock Ownership Plan

As part of the IPO completed on October 14, 2020, the Company established a tax-qualified Employee Stock Ownership Plan to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $149.4 million from the Company to purchase 14,940,652 common shares during the IPO and in the open market. The loan is payable in annual installments over 30 years at an interest rate equal to the Prime rate as published in the The Wall Street Journal. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan.

The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation. Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated balance sheets. Dividends on unallocated shares are used to pay the ESOP debt.

Total compensation expense recognized in connection with the ESOP was $9.4 million for the year ended December 31, 2021, compared with a $2.4 million expense recognized during the year ended December 31, 2020. The ESOP made an upfront principal payment of $1.0 million on the loan during year ended December 31, 2020 which resulted in the release and allocation of 63,690 shares and compensation expense of $0.9 million. The Company recorded additional compensation expense of $1.5 million related to the accrual of the loan payment during year ended December 31, 2020. The ESOP made a loan payment during the year ended December 31, 2021 of $7.9 million, of which $3.0 million was allocated to the principal portion of the payment, while $4.9 million was allocated to the interest portion of the payment. During the year ended December 31, 2021, the Company committed 501,444 shares to be allocated. The number of shares committed to be released per year is 501,426 through 2049 and 231,124 in the year 2050.

The following table presents share information held by the ESOP:


	As of December 31,
	2021		2020
	(Dollars in thousands)
Allocated shares	63,690		63,690
Shares committed to be allocated	605,908		104,464
Unallocated shares	14,271,054		14,772,498
Total shares	14,940,652		14,940,652
Fair value of unallocated shares (in thousands)	$	287,847	$	240,939

Defined Contribution Supplemental Executive Retirement Plan

The Company’s DC SERP, a defined contribution supplemental executive retirement plan, allows certain senior officers to earn benefits calculated as a percentage of their compensation. The participant benefits are adjusted based upon a deemed investment performance of measurement funds selected by the participant. These measurement funds are for tracking purposes and are used only to track the performance of a mutual fund, market index, savings instrument, or other designated investment or portfolio of investments. The Company recorded expense related to the DC SERP of $0.9 million, $0.9 million and $1.3 million in the years ended December 31, 2021, 2020, and 2019, respectively. The total amount due to participants under this plan was included in other liabilities on the Company’s balance sheets and amounted to $33.4 million and $27.6 million at December 31, 2021 and 2020, respectively. Effective December 31, 2021, the Company closed the DC SERP to new participants and froze benefit accruals for active participants.

Deferred Compensation Plans

The Company sponsors three plans which allow for elective compensation deferrals by directors, former trustees, and certain senior-level employees. Each plan allows its participants to designate deemed investments for deferred amounts from certain options which include diversified choices, such as exchange traded funds and mutual funds. Portfolios with various risk profiles are available to participants with the approval of the Compensation Committee of the Board of Directors. The Company purchases and sells investments which track the deemed investment choices, so that it has available funds to meet its payment liabilities. Deferred amounts, adjusted for deemed investment performance, are paid at the time of a participant designated date or event, such as separation from service, death, or disability. The total amounts due to participants under the three plans were included in other liabilities on the Company’s balance sheets and amounted to $31.5 million and $28.9 million at December 31, 2021 and 2020, respectively.

Rabbi Trust Variable Interest Entity

The Company established a rabbi trust to meet its obligations under certain executive non-qualified retirement benefits and deferred compensation plans and to mitigate the expense volatility of the aforementioned retirement plans. The rabbi trust is considered a VIE as the equity investment at risk is insufficient to permit the trust to finance its activities without additional subordinated financial support from the Company. The Company is considered the primary beneficiary of the rabbi trust as it has the power to direct the activities of the rabbi trust that significantly affect the rabbi trust’s economic performance and it has the obligation to absorb losses of the rabbi trust that could potentially be significant to the rabbi trust by virtue of its contingent call options on the rabbi trust’s assets in the event of the Company’s bankruptcy. As the primary beneficiary of this VIE, the Company consolidates the rabbi trust investments. In general, the rabbi trust investments and any earnings received thereon are accumulated, reinvested and used exclusively for trust purposes. These rabbi trust investments consist primarily of cash and cash equivalents, U.S. government agency obligations, equity securities, mutual funds and other exchange-traded funds, and are recorded at fair value in other assets in the Company's consolidated balance sheets. Changes in fair value are recorded in noninterest income.

Assets held in rabbi trust accounts by plan type, at fair value, were as follows:


	As of December 31,
	2021		2020
	(In thousands)
DB SERP	$	20,810	$	22,616
BEP	13,202		7,198
ODRCP	4,316		4,251
DC SERP	32,041		28,134
Deferred compensation plans	34,002		29,484
Total rabbi trust assets	$	104,371	$	91,683

Investments in rabbi trust accounts are recorded at fair value within the Company’s consolidated balance sheets with changes in fair value recorded through noninterest income. The following tables present the book value, net unrealized gain or loss, and market value of assets held in rabbi trust accounts by asset type for each of the plans included in the rabbi trust:


	DB SERP
	As of December 31, 2021						As of December 31, 2020
	Book Value		Unrealized Gain/(Loss)		Fair Value		Book Value		Unrealized Gain/(Loss)		Fair Value
Asset Type	(In thousands)
Cash and cash equivalents	$	831	$	—	$	831	$	1,208	$	—	$	1,208
Equities (1)	9,993		5,788		15,781		10,822		5,508		16,330
Fixed income	4,174		24		4,198		4,854		224		5,078
Total assets	$	14,998	$	5,812	$	20,810	$	16,884	$	5,732	$	22,616