Pioneer Bancorp(PBFS) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1 – Consolidated Financial Statements (Unaudited) Pioneer Bancorp, Inc.'s unaudited consolidated financial statements for periods ended December 31, 2022, are presented, covering condition, operations, and cash flows Consolidated Statements of Condition Total assets decreased to $1.83 billion due to reduced cash, partially offset by loan growth, while liabilities declined and shareholders' equity slightly increased Consolidated Statements of Condition (in thousands) | Account | Dec 31, 2022 (in millions) | Jun 30, 2022 (in millions) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $147.3 million | $376.1 million | | Securities available for sale, at fair value | $507.6 million | $481.8 million | | Net loans receivable | $1.05 billion | $982.6 million | | Total assets | $1.83 billion | $1.96 billion | | Liabilities and Shareholders' Equity | | | | Total deposits | $1.54 billion | $1.68 billion | | Total liabilities | $1.58 billion | $1.72 billion | | Total shareholders' equity | $249.7 million | $242.6 million | Consolidated Statements of Operations Net income for the three months ended December 31, 2022, was $6.2 million, stable year-over-year, while the six-month net income increased to $11.4 million driven by net interest income growth Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 (in millions) | Three Months Ended Dec 31, 2021 (in millions) | Six Months Ended Dec 31, 2022 (in millions) | Six Months Ended Dec 31, 2021 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $17.1 million | $10.5 million | $31.8 million | $20.7 million | | Provision for loan losses | ($0.4 million) | $0 | ($0.3 million) | $0.3 million | | Total noninterest income | $3.9 million | $3.9 million | $7.8 million | $7.1 million | | Total noninterest expense | $13.5 million | $6.4 million | $25.4 million | $17.8 million | | Net income | $6.2 million | $6.3 million | $11.4 million | $7.6 million | | Basic EPS | $0.25 | $0.25 | $0.45 | $0.30 | | Diluted EPS | $0.25 | $0.25 | $0.45 | $0.30 | Notes to Unaudited Consolidated Financial Statements This section details accounting policies, new standards adoption, wealth management acquisitions, ERC impact, portfolio breakdowns, and significant legal proceedings - The Company adopted ASC 842 (Leases) on July 1, 2022, resulting in the recognition of $5.8 million in right-of-use operating lease assets and $6.1 million in operating lease liabilities[23] - The Company is preparing to adopt ASU 2016-13 (CECL model) for the fiscal year beginning July 1, 2023, which is expected to have a significant impact on the methodology for calculating the allowance for loan losses[25][27] - In late 2021 and early 2022, the Company completed three acquisitions of wealth management services businesses for an aggregate of $1.665 million in cash plus contingent consideration, expanding its wealth management activities[29][30] - The Company recognized a $5.0 million Employee Retention Credit (ERC) benefit in the prior year (ended Dec 31, 2021), which is recorded as a receivable in other assets as of December 31, 2022[34] - The Company is involved in numerous legal proceedings stemming from fraudulent activity by a former customer, the 'Mann Entities' The estimated range of possible loss is $0 to $51.3 million in excess of any accrued liability These proceedings involve claims from other financial institutions, the DOJ, and former payroll clients of the Mann Entities[82][84][89] - The New York State Department of Financial Services (NYSDFS) is investigating the Bank's practices associated with the Mann Parties, which could result in monetary penalties of up to $30.0 million[108] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section analyzes financial condition, highlighting asset and deposit changes, loan growth, and increased net income driven by net interest income, while also addressing asset quality and capital adequacy Comparison of Financial Condition (Dec 31, 2022 vs. Jun 30, 2022) Total assets decreased by $129.7 million due to reduced cash, offset by loan and securities growth, while deposits fell and shareholders' equity increased Change in Financial Condition (in millions) | Account | Change ($ millions) | Change (%) | Reason | | :--- | :--- | :--- | :--- | | Total Assets | ▼ $129.7 million | -6.6% | Decrease in cash and cash equivalents | | Net Loans | ▲ $65.5 million | +6.7% | Growth in residential mortgage and commercial construction loans | | Total Deposits | ▼ $141.9 million | -8.4% | Decrease in rate-sensitive money market and demand accounts | | Shareholders' Equity | ▲ $7.1 million | +2.9% | Net income of $11.4 million offset by $4.6 million in unrealized securities losses | Comparison of Operating Results (Q2'23 vs Q2'22) Quarterly net income remained stable at $6.2 million, as a significant increase in net interest income and margin expansion was offset by higher non-interest expenses, influenced by a prior-year ERC benefit - Net income decreased slightly by $74,000 (1.2%) to $6.2 million[210] - Net interest income increased by $6.6 million (63.3%) to $17.1 million, driven by rising interest rates[219] - Net interest margin expanded significantly by 144 basis points to 3.85%[219] - Non-interest expense increased by $7.1 million, largely because the prior-year period included a one-time $5.0 million ERC benefit[224] - A credit to the provision for loan losses of $0.4 million was recorded, compared to no provision in the prior-year quarter, due to improved credit quality[220] Comparison of Operating Results (Six Months Ended Dec 31, 2022 vs 2021) Six-month net income increased by 50.0% to $11.4 million, driven by a substantial rise in net interest income and margin expansion, partially offset by higher non-interest expenses Six-Month Operating Results Comparison (in millions) | Metric | Six Months Ended Dec 31, 2022 ($ millions) | Six Months Ended Dec 31, 2021 ($ millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | $11.4 million | $7.6 million | +50.0% | | Net Interest Income | $31.8 million | $20.7 million | +53.5% | | Provision for Loan Losses | ($0.28 million) | $0.25 million | -212.0% | | Non-Interest Income | $7.8 million | $7.1 million | +8.4% | | Non-Interest Expense | $25.4 million | $17.8 million | +42.6% | - The increase in non-interest expense was primarily due to the recognition of a non-recurring $5.0 million ERC benefit in the prior-year period, along with higher salaries and professional fees[239] Asset Quality and Allowance for Loan Losses Asset quality deteriorated with non-performing assets increasing to $18.5 million, primarily due to past-due loans, while the allowance for loan losses slightly decreased to $22.2 million Non-Performing Assets (in thousands) | Category | Dec 31, 2022 (in millions) | Jun 30, 2022 (in millions) | | :--- | :--- | :--- | | Non-accrual loans | $6.1 million | $6.4 million | | Accruing loans past due 90 days or more | $12.4 million | $579 | | Real estate owned | $0 | $0 | | Total non-performing assets | $18.5 million | $7.0 million | | NPA / Total Assets | 1.01% | 0.36% | - The increase in accruing past due loans was primarily due to loans that were matured and in the credit renewal process at year-end[245] - The allowance for loan losses stood at $22.2 million, or 2.07% of total loans, down from $22.5 million at June 30, 2022[252] Liquidity and Capital Resources The company maintains strong liquidity through deposits and borrowing capacity, exceeding all regulatory capital requirements and remaining 'well capitalized' - Primary liquidity sources are deposits, loan/security cash flows, and FHLB borrowings[254] - At December 31, 2022, the company had access to $335.1 million in FHLB borrowing capacity and a $20.0 million unsecured line of credit, both with no outstanding balances[254] Pioneer Bank Capital Ratios (as of Dec 31, 2022) | Ratio | Actual | Requirement (Well Capitalized) | | :--- | :--- | :--- | | Tier 1 (leverage) capital | 10.29% | 5.00% | | Common Tier 1 | 18.37% | 6.50% | | Tier 1 | 18.37% | 8.00% | | Total | 19.63% | 10.00% | Item 3 – Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Pioneer Bancorp, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - A smaller reporting company is not required to provide the information relating to this item[268] Item 4 – Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of December 31, 2022, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective[270] - There were no changes in internal control over financial reporting during the second quarter of fiscal year 2023 that materially affected, or are reasonably likely to materially affect, these controls[273] PART II – OTHER INFORMATION PART II – OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and a list of filed exhibits Item 1 – Legal Proceedings This section refers to detailed legal proceedings, primarily related to the 'Mann Entities' fraud, as discussed in Note 10 of the Consolidated Financial Statements - The company is involved in legal proceedings which are discussed in detail in Note 10 to the Consolidated Financial Statements[274] Item 1A – Risk Factors No material changes have occurred to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes have occurred to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 2022[274] Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[275] Item 6 – Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files Filed Exhibits | Exhibit No. | Description | | :--- | :--- | | 31.1 | CEO Certification (Rule 13a-14(a) / 15d-14(a)) | | 31.2 | CFO Certification (Rule 13a-14(a) / 15d-14(a)) | | 32 | CEO and CFO Certification (Section 1350) | | 101 | Inline XBRL Financial Statements | | 104 | Inline XBRL Cover Page Data |