EMPLOYEE BENEFIT PLANS

12 Months Ended

Jun. 30, 2024

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

12.     EMPLOYEE BENEFIT PLANS

The Company maintains a noncontributory defined benefit pension plan and a defined benefit post-retirement plan. Plan assets and obligations that determine the funded status are measured as of the end of the fiscal year.

Amounts recognized in the consolidated statement of condition related to the Company’s plans are as follows as of June 30 (dollars in thousands):

	2024		2023
Other assets
Pension asset	$	18,267	$	13,911
Other liabilities
Accumulated post-retirement benefit obligation	$	1,354		1,382
Accumulated other comprehensive (income) loss, net of taxes
Pension plan	$	(7,335)	$	(3,818)
Post-retirement benefit plan		(341)		(316)
	$	(7,676)	$	(4,134)

Pension Plan

The Company maintains a noncontributory defined benefit pension plan covering substantially all of its full-time employees hired before September 1, 2019. Through December 31, 2009, pensions were paid as an annuity using a pension formula of 2.0% of the average of the five highest consecutive years of total compensation over the last ten years multiplied by credited service up to thirty years. Effective January 1, 2010, the plan was amended and service rendered thereafter is paid using a pension formula of 1.5%. Amounts contributed to the plan are determined annually on the basis of (a) the maximum amount allowable under Internal Revenue Service regulations and (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). The defined benefit pension plan was amended, effective August 31, 2019, to close the plan to new employees hired on or after September 1, 2019, therefore, no new employees hired on or after September 1, 2019 would be eligible to participate in the defined benefit pension plan.

The following table sets forth information on the Company’s defined benefit pension plan as of June 30 (dollars in thousands):

	2024		2023
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	39,020	$	40,657
Service cost		1,235		1,534
Interest cost		2,033		1,885
Actuarial gain		(1,346)		(3,473)
Benefits paid		(1,579)		(1,583)
Projected benefit obligation at end of year		39,363		39,020
Change in fair value of plan assets:
Fair value of plan assets at beginning of year		52,931		49,457
Actual return on plan assets		6,401		5,197
Benefits paid and actual expenses		(1,702)		(1,723)
Fair value of plan assets at end of year		57,630		52,931
Funded status of plan at end of year	$	18,267	$	13,911

The increase in the actuarial gain in the projected benefit obligation resulted primarily from the increase in the discount rate.

Net periodic pension cost included in salaries and employee benefits in the Company’s consolidated statements of operations included the following components (dollars in thousands):

	For the Year Ended
	June 30,
	2024		2023
Service cost	$	1,235	$	1,534
Interest cost		2,033		1,885
Expected return on plan assets		(2,862)		(2,694)
Net periodic pension cost	$	406	$	725

Amounts recognized in accumulated other comprehensive loss, before tax effect consist of net actuarial gains of $9.9 million at June 30, 2024 and net actuarial gains of $5.2 million at June 30, 2023.

The actuarial assumptions used in determining the present value of the projected benefit obligations and net periodic pension cost as of and for the years ended June 30 were as follows:

	2024		2023
Weighted average assumptions – benefit obligations
Discount rate	5.51	%	5.23	%
Annual rate of compensation increase	3.00	%	3.00	%
Weighted average assumptions – net periodic benefit cost
Discount rate	5.23	%	4.62	%
Annual rate of compensation increase	3.00	%	3.00	%
Expected long-term rate of return on plan assets	5.75	%	5.75	%

For the years ended June 30, 2024 and 2023, the discount rate assumption used was the above median curve.

Accumulated Benefit Obligation

The accumulated benefit obligation (the actuarial present value of benefits, vested and nonvested, earned by employees based on current and past compensation levels) for the Company’s defined benefit pension plan totaled $35.6 million and $35.4 million as of June 30, 2024 and 2023, respectively.

Investment Policies and Strategies

Pension plan assets are invested in various mutual funds and are held in trust by Charles Schwab Corporation. The Employer, as the Plan Sponsor, determines the appropriate strategic asset allocation versus plan liabilities.

Currently, the pension plan asset allocation targets 65% of assets to equity securities, and 35% to fixed income through a combination of short-term and long-term bond funds. The overall long-term investment objectives are to maintain plan assets at a level that will sufficiently cover long-term obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term obligations will grow. The strategy is designed to provide long-term growth of assets with the objective of achieving an investment return in excess of the costs of funding active lives, deferred vested, and all longer-term obligations. In addition, the plan’s assets are rebalanced quarterly to the target percentages for each investment option no later than the 10^th business day following the end of each calendar quarter.

Determination of Long-Term Rate-of-Return

The long-term rate-of-return-on-assets assumption was set based on historical returns earned by equities and fixed-income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed-income securities were assumed to earn real rates of return in the ranges of 5-9% and 1-4%, respectively. The long-term inflation rate was estimated to be 2.3%.

Contributions

For the fiscal year ending June 30, 2024, the Company is not required to make a cash contribution to the plan, but may elect to do so.

Estimated Future Benefit Payments

The benefit payments expected to be paid over the next ten years are as follows (dollars in thousands):

Fiscal year ending June 30,
2025	$	1,200
2026		1,288
2027		1,477
2028		1,615
2029		1,800
Years 2030 – 2034		11,795

The Company’s pension plan asset allocation at June 30, 2024 and 2023, target allocation for 2024, and expected long-term rate of return by asset category are as follows:

			Percentage of				Weighted-
	Target		Plan Assets at				Average Expected
	Allocation		Year End				Long-Term Rate
Asset Category	2024		2024		2023		of Return
Equity securities	65.0	%	62.7	%	63.2	%	5.00 – 9.00	%
Fixed income securities	35.0	%	37.3	%	36.8	%	1.00 – 4.00	%
Total			100.0	%	100.0	%

Fair Value of Plan Assets

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.

The Company used the following methods and significant assumptions to estimate the fair value of each type of plan asset:

Equity, Debt, Investment Funds and Other Securities

The fair values for securities 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). 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 swap and the Secured Overnight Financing Rate (“SOFR”) curves that are updated to incorporate loss severities, volatility, credit spread and optionality. 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 fair values of the pension plan assets at June 30, by asset category, are as follows (dollars in thousands):

			June 30, 2024
			Fair Value Measurements
				Quoted Prices in		Significant		Significant
				Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Mutual funds
American Funds New World R6	$	2,866	$	2,866	$	—	$	—
Cohen & Steers Real Estate SECS I		1,747		1,747		—		—
Fidelity Capital & Income Fund		2,883		2,883		—		—
PIMCO Commodities Plus Strat Fd Inst		1,733		1,733		—		—
PIMCO Long Term Credit Bond Inst		8,547		8,547		—		—
PIMCO Low Duration Incm Fd I		2,312		2,312		—		—
Vanguard Developed Mkts Index Inst		7,505		7,505		—		—
Vanguard Growth Index Fund Instl		8,031		8,031		—		—
Vanguard Mid Cap Index Funds Admiral		4,028		4,028		—		—
Vanguard Small Cap I		3,479		3,479		—		—
Vanguard Value Index Instl Shares		8,066		8,066		—		—
Western Asset Core Bd Fd I		5,745		5,745		—		—
Cash		688		688		—		—
Total plan assets	$	57,630	$	57,630	$	—	$	—

			June 30, 2023
			Fair Value Measurements
				Quoted Prices in		Significant		Significant
				Active Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Mutual funds
American Funds New World R6	$	2,636	$	2,636	$	—	$	—
Cohen & Steers Real Estate SECS I		1,616		1,616		—		—
Fidelity Capital & Income Fund		2,616		2,616		—		—
PIMCO Commodities Plus Strat Fd Inst		1,546		1,546		—		—
PIMCO Long Term Credit Bond Inst		7,913		7,913		—		—
PIMCO Low Duration Incm Fd I		2,082		2,082		—		—
Vanguard Developed Mkts Index Inst		6,681		6,681		—		—
Vanguard Growth Index Fund Instl		7,763		7,763		—		—
Vanguard Mid Cap Index Funds Admiral		3,808		3,808		—		—
Vanguard Small Cap I		3,261		3,261		—		—
Vanguard Value Index Instl Shares		7,465		7,465		—		—
Western Asset Core Bd Fd I		5,160		5,160		—		—
Cash		384		384		—		—
Total plan assets	$	52,931	$	52,931	$	—	$	—

There were no significant transfers between Level 1 and Level 2 during the years ended June 30, 2024 and 2023.

Post-Retirement Healthcare Plan

The Company offers a defined benefit post-retirement plan which provides medical and life insurance benefits to employees meeting certain requirements. Effective October 1, 2006, the plan was amended so that there have been no new plan participants for medical benefits. The cost of post-retirement plan benefits is recognized on an accrual basis as employees perform services. Active employees are eligible for retiree medical coverage upon reaching age sixty with twenty-five or more years of service. Employees with a minimum of thirty years of service are eligible for individual and spousal coverage. Retirees are eligible to participate in any bank-sponsored health insurance programs. The Company’s contributions for retiree medical are limited to a monthly premium of $210 for individual coverage and $420 for employee and spousal coverage. The Company’s funding policy is to pay insurance premiums as they come due.

The following table sets forth the plan’s funded status and amounts recognized in the Company’s consolidated financial statements at June 30 (dollars in thousands):

	2024		2023
Change in accumulated post-retirement benefit obligation:
Accumulated benefit obligation at beginning of year	$	1,382	$	1,545
Service cost		19		22
Interest cost		72		67
Actuarial gain		(63)		(193)
Benefits paid		(56)		(59)
Accumulated benefit obligation at end of year		1,354		1,382
Change in plan assets:
Fair value of plan assets at beginning of year		—		—
Employer contributions		56		59
Benefits paid		(56)		(59)
Fair value of plan assets at end of year		—		—
Unfunded status at end of year	$	(1,354)	$	(1,382)

The increase in the actuarial gain in the accumulated benefit obligation resulted primarily from the increase in the discount rate.

Net periodic post-retirement benefit cost included in salaries and employee benefits in the Company’s consolidated statements of income included the following components (dollars in thousands):

	For the Year Ended
	June 30,
	2024		2023
Service cost	$	19	$	22
Interest cost		72		67
Amortization of net actuarial gain		(30)		(16)
Net periodic post-retirement benefit cost	$	61	$	73

Amounts recognized in accumulated other comprehensive loss, before tax effect, at June 30, consist of (dollars in thousands):

	2024		2023
Net actuarial gain	$	(461)	$	(427)

The discount rates used in determining the accumulated post-retirement benefit obligation were 5.51% and 5.23% at June 30, 2024 and 2023, respectively.

For the years ended June 30, 2024 and 2023, the discount rate assumption used was the above median curve.

For measurement purposes, the medical care cost trend rate has no effect on the Company’s cost since the insurance premiums are a fixed amount (capped). However, increasing or decreasing the benefit cost cap for plan participants could have a significant impact on the accumulated benefit obligation and employer cost.

The projected benefit payments under the plan over the next ten years are as follows (dollars in thousands):

Fiscal year ending June 30,
2025	$	97
2026		88
2027		87
2028		74
2029		78
Years 2030 – 2034		452

401(k) Plan

The Company maintains a defined contribution 401(k) plan covering substantially all employees meeting certain eligibility requirements. Participants may contribute up to the maximum amount allowed under the Internal Revenue Code. The Company matches 100% on the first 1% of employee contributions and 50% on the next 5% after the employee has completed one year of service. The 401(k) plan contribution expense is included in salaries and employee benefits in the consolidated statements of operations and was approximately $498,000 and $458,000 for the years ended June 30, 2024 and 2023, respectively.

Employee Stock Ownership Plan

On July 17, 2019, the Company established an ESOP to provide eligible employees the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. The Company granted loans to the ESOP for the purchase of 1,018,325 shares of the Company’s common stock at an average price of $13.40 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate. Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at June 30, 2024 was $11.0 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 50,916 through the year 2038. Participants receive the shares at the end of employment.

Shares held by the ESOP include the following:

	As of June 30,
	2024	2023
Allocated	254,580	203,664
Committed to be allocated	25,458	25,458
Unallocated	738,287	789,203
Total shares	1,018,325	1,018,325

Total compensation expense recognized in connection with the ESOP for the years ended June 30, 2024 and 2023 was $472,000 and $513,000, respectively.

Supplemental Retirement and Deferred Compensation Plans

The Company has a Deferred Compensation Plan for directors and certain of its officers. Under the plan, participants can elect to defer all, or portion of their directors fees, or salaries and/or bonuses, and invest those funds in various investment fund options. At June 30, 2024 and 2023, the Company had an accrued benefit liability of $378,000 and $374,000, respectively included in other liabilities in the consolidated statements of condition. Changes in the accrued benefit liability equal the changes in the fair values of the invested assets, additional deferrals, less participant payments, if any.

The Company had a Targeted Benefit Supplemental Retirement Plan for executives. At June 30, 2023, the Company had an accrued benefit liability of $201,000 included in other liabilities in the consolidated statements of condition. During the year ended June 30, 2024, the final payments were made to participants. Effective June 2010, the plan was terminated and there have been no additional contributions. There were no provisions for the years ended June 30, 2024 and 2023. Changes in the accrued benefit liability equal the changes in the fair values of designated assets, less participant payments.