Pioneer Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the first quarter of the company’s fiscal 2023. The request labels the period “2022 Q1,” but the filing reports fiscal Q1 2023. Financial amounts below are in U.S. dollars; unless stated otherwise, figures are in millions.
Business context and financial performance
Pioneer Bancorp is a bank holding company serving individuals, businesses and municipalities through Pioneer Bank and related subsidiaries, with 22 offices in New York’s Capital Region.
| Metric | Quarter ended September 30, 2022 | Prior-year quarter / comparison |
|---|---|---|
| Interest and dividend income | $15.2 million | $10.6 million |
| Net interest income | $14.7 million | $10.2 million; up 43.4% |
| Net interest margin | 3.23% | 2.42% |
| Provision for loan losses | $0.12 million | $0.25 million |
| Noninterest income | $3.8 million | $3.2 million |
| Noninterest expense | $11.9 million | $11.4 million |
| Net income | $5.2 million | $1.4 million |
| Basic and diluted EPS | $0.21 | $0.05 |
- Interest income grew 43.1%, principally as higher market rates lifted yields on variable-rate loans, securities and interest-earning deposits. Average interest-earning assets also increased 7.8%.
- Net interest margin rose 81 basis points year over year. Average cost of interest-bearing liabilities was 0.19%, versus 0.15%.
- Noninterest income included $0.461 million of bank-owned life insurance income, primarily from a death benefit. Insurance and wealth-management revenue also increased, partly reflecting recent acquisitions.
- Operating cash flow was $8.0 million; investing cash flow was negative $77.0 million and financing cash flow was positive $95.8 million. Cash and cash equivalents ended the quarter at $402.9 million.
Financial condition, liquidity and capital
- Total assets were $2.07 billion at September 30, up $105.4 million, or 5.4%, from June 30, 2022. Net loans were $1.02 billion, up 3.8%; available-for-sale securities were $513.9 million.
- Total deposits were $1.78 billion, up $98.7 million, or 5.9%, during the quarter. Noninterest-bearing deposits rose $114.8 million, primarily reflecting seasonal municipal deposits; money-market deposits declined $42.5 million.
- Shareholders’ equity was $241.7 million, down $0.9 million from June 30. Net income was largely offset by a $6.3 million after-tax increase in unrealized securities losses.
- The filing reports $23.5 million of gross unrealized losses on available-for-sale securities and $2.2 million on held-to-maturity securities at September 30. Management attributed debt-security losses primarily to higher credit spreads and reported no additional impairment charges for the quarter.
- Management said liquidity was sufficient. Cash and cash equivalents were $402.9 million, and available-for-sale securities were $513.9 million. The company reported up to $330.6 million of FHLB borrowing capacity, none used for borrowings, with $60.0 million supporting letters of credit, plus an unused $20.0 million unsecured line of credit.
- The Bank and Pioneer Commercial Bank exceeded applicable regulatory capital requirements and were categorized as well capitalized. Pioneer Bank’s Tier 1 leverage ratio was 9.74%; its total risk-based capital ratio was 18.95%.
Changes, credit quality and outlook
- Net income increased $3.9 million year over year, mainly due to higher net interest income, higher noninterest income and a lower loan-loss provision. Higher noninterest expense and income taxes partly offset the gains.
- Nonperforming assets were $12.1 million, or 0.58% of assets, at September 30, compared with $7.0 million, or 0.36%, at June 30. Accruing loans at least 90 days past due rose to $5.6 million from $0.6 million, mainly because of a commercial real estate loan and a commercial construction loan. The company reported no nonaccruing troubled debt restructurings.
- Net charge-offs were $75,000, versus $438,000 in the prior-year quarter. The allowance for loan losses was $22.6 million, or 2.17% of loans outstanding. Classified substandard loans totaled $51.2 million; three commercial real estate relationships in accommodation and food services accounted for $30.2 million.
- The filing provides no specific earnings or growth guidance. Management stated it anticipated sufficient funds for current funding commitments and believed liquidity was adequate for short- and long-term needs. It cautioned that interim results are not necessarily indicative of future periods.
- Key risks identified include interest-rate changes, inflation and borrower repayment capacity, economic and real-estate conditions, funding costs, credit quality, fraud prevention, and legal and regulatory proceedings.
Legal matters and unusual items
- Multiple civil claims and investigations relate to alleged fraudulent activity involving the Mann Entities and the Bank’s past deposit and lending relationships. The Bank previously recorded a $2.5 million deposit-related charge and charged off its $15.8 million participation in related commercial loans; the filing reports no new charges for those matters through this quarter.
- For matters where a loss was considered reasonably possible and estimable, the company disclosed a possible loss range of $0 to $51.3 million in excess of any accrued liability. The filing does not provide a clear value for the related accrued liability and says the range is not the maximum exposure.
- NYSDFS proceedings could result in monetary penalties of up to $30.0 million, injunctive relief or other consequences. The filing says $15.0 million of the potential penalties relates to, and is not incremental to, damages sought in certain plaintiff proceedings.
- Insurance recoveries related to defense costs were $0.542 million this quarter, compared with $1.1 million a year earlier. The company says legal fees are significant and expected to continue; adverse outcomes could materially affect results, cash flows, reputation or financial condition.
- The company adopted lease accounting guidance in the quarter, recording right-of-use assets and lease liabilities; it reported no adjustment to retained earnings. It is preparing for CECL adoption, expected in fiscal 2024, but had not calculated the estimated impact and anticipated a significant effect on its allowance methodology.
Important facts for investors to verify
- Track the Mann-related lawsuits, putative class actions and NYSDFS process, including the potential overlap among claimed damages and regulatory penalties, accrued liabilities and insurance recoveries.
- Monitor delinquency trends, particularly the new 90-days-past-due commercial real estate and construction loans, and assess whether the allowance remains adequate.
- Assess whether the increase in net interest margin can persist as deposit rates adjust and funding competition changes.
- Review the effect of unrealized securities losses on equity and liquidity, and distinguish those valuation losses from realized or credit-related losses.
- Check the timing and impact of CECL adoption and subsequent disclosures regarding the expected allowance adjustment.