Pioneer Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2020 (the second quarter and first half of fiscal 2021). Unless noted otherwise, dollar amounts are in millions. The company is a New York-based community banking organization operating 22 offices in the Capital Region.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Prior-year quarter | Six months ended Dec. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Net interest income | $10.7 | $12.6 | $21.0 | $25.8 |
| Provision for loan losses | $1.6 | $1.5 | $2.3 | $2.1 |
| Noninterest income | $4.7 | $5.5 | $8.3 | $9.4 |
| Noninterest expense | $11.4 | $11.7 | $22.8 | $29.8 |
| Net income | $1.9 | $3.9 | $3.3 | $2.9 |
| Basic and diluted EPS | $0.08 | $0.15 | $0.13 | $0.12 |
| Net interest margin | 3.01% | 3.94% | 2.99% | 4.05% |
The prior-year six-month figures are restated. The filing attributes the quarterly earnings decline mainly to lower net interest income and noninterest income. First-half net income rose despite lower net interest income and fee income, principally because prior-year expenses included a $5.4 million charitable foundation contribution and a $2.5 million Mann Entities deposit-fraud charge.
- Interest and dividend income fell 18.7% in the quarter and 21.5% for six months, reflecting sharply lower asset yields after market-rate reductions and the addition of 1% PPP loans. Deposit-cost reductions partly offset the yield pressure.
- Quarterly noninterest income fell 14.3%; lower bank fees and service charges and lower bank-owned life insurance income were partly offset by equity-security gains. Six-month noninterest income fell 12.0%, including $1.4 million in equity-security gains.
- Quarterly provision expense was $1.6 million; first-half provision was $2.3 million. First-half net charge-offs were $1.8 million, including $1.6 million of commercial and industrial charge-offs. The allowance was $23.4 million, or 2.06% of loans, at December 31.
Financial condition, cash flow and liquidity
- At December 31, total assets were $1.574 billion, up 3.1% from June 30. Net loans were $1.111 billion, down 3.2%; deposits were $1.323 billion, up 4.1%; and shareholders’ equity was $227.4 million.
- Cash and cash equivalents were $196.0 million, up $39.1 million since June 30. Six-month operating cash flow was $5.8 million, investing cash flow was negative $18.0 million, and financing cash flow was positive $51.4 million. The financing inflow primarily reflected $52.6 million of deposit growth.
- The filing reports no outstanding FHLB borrowings at December 31. The Bank had $369.1 million of FHLB borrowing capacity, of which $145.0 million supported municipal-deposit letters of credit; reported unused capacity was $224.1 million. It also had a $20.0 million unsecured correspondent-bank line with no balance outstanding.
- Available-for-sale securities totaled $130.4 million. Management stated that liquidity was adequate and cited cash, securities and borrowing capacity as funding sources.
- The Bank was classified as well capitalized. Pioneer Bank’s Tier 1 leverage ratio was 11.43%; its Common Tier 1, Tier 1 risk-based and total risk-based capital ratios were 16.19%, 16.19% and 17.46%, respectively. Pioneer Commercial Bank’s Tier 1 leverage ratio was 8.39%.
- The filing does not identify material funded debt on the consolidated balance sheet; confirm debt and borrowing details in the full statements and notes.
Material changes, outlook and risks
- Restatement: On February 12, 2021, the Audit Committee concluded that specified previously issued financial statements should be restated and no longer relied upon. The correction moved recognition of a $15.8 million Mann Entities loan impairment to fiscal 2019 rather than the September 2019 quarter. As a result, the six months ended December 31, 2019 were restated to net income of $2.873 million from a previously reported net loss of $8.834 million. Other annual and interim periods were also affected.
- Control deficiency: Disclosure controls were deemed ineffective as of December 31, 2020 because a previously disclosed material weakness remained. It concerned accounting review of significant loan modifications occurring after quarter-end. Management was redesigning controls; remediation had not yet been demonstrated as effective.
- COVID-19 and credit: Payment deferrals had declined from June, to 24 commercial loans totaling $40.6 million and nine consumer loans totaling $2.6 million. Management warned that delinquencies, nonperforming loans and provisions could rise as relief periods end. Special-mention commercial loans increased to $35.5 million from $6.5 million at June 30, including borrowers in accommodation and food services and arts and recreation.
- PPP: The Bank held 531 PPP loans totaling $54.5 million; it had received forgiveness payments on 158 loans totaling $21.3 million. Management expected to participate in the next PPP round. Forgiveness timing may cause interest-income volatility.
- Margin outlook: Management expected the next quarter’s net interest margin to remain depressed, excluding PPP effects, because lower asset yields were not expected to be fully offset by lower funding costs. No formal earnings or full-year financial guidance was provided.
- Mann Entities litigation and investigations: Multiple lawsuits and regulatory inquiries relate to the customer’s alleged fraud and the Bank’s handling of funds and loan participations. Claims include at least $9.8 million sought by Southwestern, at least $4 million by NatPay, $15.6 million by Berkshire Bank, $4.2 million by Chemung, and claims concerning alleged payroll-tax funds, including a DOJ claim and an AXH claim for $336,000 plus other amounts. Some claims may overlap. The company says reasonably possible losses cannot currently be estimated; adverse judgments, settlements, legal expenses or regulatory action could materially affect results, liquidity or reputation. The Bank is also seeking at least $34.1 million from its former auditor, an asserted recovery rather than a liability.
- The company reported a $1.7 million partial recovery on Mann Entities loans in fiscal 2020 and $34,000 in the first quarter of fiscal 2021; no additional related loan provision or deposit-fraud charge was reported through the quarter. Outcomes and further recoveries remain uncertain.
Most important facts for investors to verify
- Review the restated financial statements and determine which previously issued periods are affected; assess the implications of the continuing material weakness and remediation progress.
- Track net interest margin, funding costs, PPP forgiveness and the pace of loan and deposit growth.
- Monitor allowance coverage, charge-offs, past-due and nonperforming loans, commercial loan classifications, and the borrowers still receiving COVID-related relief.
- Follow developments in Mann Entities-related lawsuits and regulatory inquiries, including any accruals, estimated loss ranges, legal expenses or recoveries.
- Confirm regulatory capital and available liquidity, including actual borrowing availability after collateral requirements.