Pioneer Bancorp, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022, compared with fiscal 2021. The supplied filing is not a 2021 fourth-quarter report. Pioneer Bancorp is a New York community banking and financial services company operating primarily through Pioneer Bank, with 22 offices in New York’s Capital Region.
Financial performance and condition
| Metric | FY2022 / June 30, 2022 | Prior comparable period |
|---|---|---|
| Total assets | $1.964 billion | $1.796 billion |
| Net loans | $982.6 million | $1.082 billion |
| Deposits | $1.680 billion | $1.531 billion |
| Shareholders’ equity | $242.6 million | $237.8 million |
| Net interest income | $42.4 million | $41.8 million |
| Net income / diluted EPS | $10.3 million / $0.41 | $1.1 million / $0.04 |
| Net interest margin | 2.41% | 2.79% |
| Efficiency ratio | 77.35% | 88.34% |
| Cash and cash equivalents | $376.1 million | $325.0 million |
- Interest and dividend income was $43.8 million and noninterest income was $14.1 million. Combined, these were lower than the prior year’s $59.7 million, primarily due to weaker equity-security results.
- Net income improved substantially, but included a $5.0 million employee retention credit benefit recorded as a reduction of noninterest expense. Lower loan-loss provision expense and lower litigation-related expense also contributed.
- The provision for loan losses was a $550,000 credit, versus $4.1 million of expense in FY2021. Net charge-offs declined to $185,000 from $3.6 million. The allowance was $22.5 million, or 2.04% of loans.
- Net cash provided by operating activities was $50.0 million; investing activities used $148.0 million and financing activities provided $149.2 million. Cash and cash equivalents increased $51.1 million during the year.
- There were no FHLB advances outstanding at year-end. Of $313.6 million in FHLB funding capacity, $32.0 million supported standby letters of credit, leaving $281.6 million available; a separate $20 million unsecured line was undrawn.
- The Bank was classified as well capitalized. Its total risk-based capital ratio was 19.25%, and Tier 1 leverage ratio was 9.48%.
Material changes and business developments
- Assets rose 9.4%, largely as deposits and available-for-sale securities increased; net loans fell 9.2%. Commercial and industrial loans declined $64.7 million, substantially reflecting PPP forgiveness and repayment. PPP loans fell from $51.5 million to $1.8 million.
- Deposits grew 9.8%; noninterest-bearing accounts reached $593.5 million. Municipal deposits were $456.2 million, or 27.1% of deposits. Uninsured deposits were approximately $817.3 million.
- Available-for-sale securities increased to $481.8 million. Their fair value was $14.7 million below amortized cost; the resulting market-value effects contributed to accumulated other comprehensive loss, which increased to $11.2 million.
- Nonperforming assets improved to $7.0 million, or 0.36% of assets, from $22.3 million, or 1.24%. However, classified substandard loans rose to $53.1 million from $38.4 million, including migration of commercial real estate relationships in accommodation and food services.
- The company acquired assets of three local wealth-management practices for cash and contingent consideration, recording $1.5 million of goodwill in total. Wealth-management assets under management were $690.8 million.
Outlook, risks and unusual items
- Management described a relationship-focused strategy emphasizing moderate growth, commercial lending, core deposits, and expansion of insurance and wealth-management services. No specific earnings or financial guidance was provided.
- Management said COVID-19 could continue to affect FY2023 and later results, but the scale and timing were uncertain and not estimable. There were no COVID-related hardship payment deferrals outstanding at June 30, 2022.
- Rate and inflation risks are material: management noted the Federal Reserve’s rate increases and warned that deposit costs could rise faster than asset yields. Its modeled net portfolio value decreased 0.7% under a 200-basis-point rate increase and 4.6% under a 200-basis-point decrease.
- Credit exposure is concentrated in real estate: approximately 87.5% of loans were secured by real estate, and commercial real estate represented 45.3% of loans. Construction commitments included $57.2 million undrawn.
- The company faces substantial litigation and regulatory proceedings related to alleged fraudulent activity involving the Mann Entities. For matters deemed reasonably possible and estimable, the disclosed possible loss range was $0 to $51.3 million in excess of any accrual; the company cautioned this is not its maximum exposure. Potential NYSDFS penalties were described as up to $30 million, with $15 million not incremental to damages sought in specified proceedings. Outcomes and insurance recoveries remain uncertain.
- The company recognized $3.8 million in FY2022 insurance recoveries related to legal defense costs. It reported $1.2 million in litigation-related expense, excluding legal fees and expenses.
- Management reported disclosure controls and internal control over financial reporting were effective at June 30, 2022. The company had previously restated certain historical financial statements and said remediation of the related material weakness was completed; its auditor did not attest to internal controls.
- CECL adoption was scheduled for fiscal 2024. Management had not quantified its impact but expected a significant effect on the allowance methodology. The filing also notes LIBOR transition risk and adoption of SOFR as the preferred benchmark for new contracts beginning in 2022.
Most important facts for investors to verify
- Read the legal-proceedings disclosures and subsequent developments; compare asserted claims, accruals, insurance coverage, and the stated loss range without treating that range as a maximum.
- Assess whether FY2022 earnings are repeatable after separating the $5.0 million employee retention credit, provision credit, litigation costs and recoveries, and equity-security losses.
- Review commercial real estate and hospitality credit quality, the increase in substandard loans, and the adequacy of the allowance, including the expected CECL transition effect.
- Monitor the large municipal and uninsured deposit balances, deposit pricing and retention, and liquidity if those funds leave or become more expensive.
- Evaluate the effect of rising rates on net interest margin, securities values and capital; verify sensitivity assumptions and the impact of unrealized available-for-sale losses.
- Confirm that acquisitions contribute recurring wealth-management revenue and that internal-control remediation remains effective.