Business context and reporting period
This is a Form 10-Q for the quarter ended March 31, 2019—not 2018 Q3 as indicated in the request. The financial statements are for Pioneer Savings Bank and subsidiaries. Pioneer Bancorp, Inc. was formed as the proposed mid-tier holding company; as of March 31, 2019, it had no assets, liabilities, or business activity beyond organization. The Bank operated 22 offices in New York’s Capital Region.
Unless noted otherwise, amounts below are in millions of dollars. Income and cash-flow figures compare the three or nine months ended March 31, 2019 with the comparable 2018 period; balance-sheet comparisons are to June 30, 2018.
Financial performance and condition
| Metric | Three months | Nine months | Balance sheet / notes |
|---|---|---|---|
| Net income | $4.8 vs. $3.4; up 39.9% | $14.0 vs. $7.4; up 90.5% | |
| Net interest income | $12.5 vs. $11.0; up 12.8% | $36.7 vs. $31.9; up 15.3% | Net interest margin: 4.23% vs. 3.87% for the quarter; 4.10% vs. 3.76% year to date. |
| Interest and dividend income / expense | Income $13.6 vs. $11.8; expense $1.1 vs. $0.8 | Income $39.9 vs. $34.1; expense $3.2 vs. $2.3 | Quarterly average earning-asset yield rose to 4.62% from 4.15%; average cost of interest-bearing liabilities rose to 0.56% from 0.39%. |
| Provision for loan losses | $0.57 vs. $0.45 | $1.78 vs. $1.40 | Allowance $14.1, or 1.34% of loans, at March 31, 2019. |
| Noninterest income / expense | Income $4.0 vs. $3.1; expense $9.6 vs. $9.2 | Income $10.5 vs. $9.1; expense $28.2 vs. $27.2 | Year-to-date noninterest income included a $0.58 loss on asset disposal, primarily from a branch sale. |
| Income taxes | $1.44 vs. $1.05; effective rates 23.1% and 23.5% | $3.33 vs. $5.01; effective rates 19.2% and 40.5% | 2019 included a $0.58 tax benefit from final evaluation of deferred taxes; 2018 included a $1.2 charge related to the Tax Cuts and Jobs Act. |
| Assets, loans, deposits and net worth | Not applicable | Assets $1,385.5; net loans $1,040.6; deposits $1,243.8; net worth $131.8. | |
| Cash flow | Nine-month figures | Operating cash flow $7.9; investing cash flow $(63.1); financing cash flow $91.7; cash and equivalents increased $36.5 to $156.8. | |
| Debt and liquidity | Not applicable | No borrowings outstanding at March 31, 2019 or June 30, 2018. FHLBNY capacity was $375.7, of which $224.0 supported municipal-deposit letters of credit; an unsecured $20.0 line was undrawn. |
Material changes versus prior comparable periods
- Assets rose $101.4 million (7.9%) from June 30, 2018, led by loan growth of $54.7 million and cash growth of $36.5 million. Deposits increased $93.6 million (8.1%); management attributed much of the deposit increase to seasonal municipal balances.
- Loans grew in residential mortgages, commercial real estate, and consumer lending, partly offset by declines in commercial and industrial and construction loans.
- Higher asset yields and growth in earning assets lifted net interest income and margins. Deposit and borrowing costs also increased, reflecting higher rates and deposit competition.
- Nonperforming assets were $13.1 million (0.94% of assets) at March 31, 2019, compared with $9.6 million (0.75%) at June 30, 2018. Nonaccrual loans were $12.8 million. Year-to-date net charge-offs increased to $1.2 million from $0.3 million, including $1.0 million of partial charge-offs involving two commercial and industrial borrower relationships.
- Net worth rose $13.7 million, mainly from nine-month net income, partly offset by a $0.32 million increase in accumulated other comprehensive loss.
Outlook, management commentary, risks and unusual items
- No specific earnings or financial guidance was provided. Management said liquidity was sufficient for short- and long-term needs and anticipated sufficient funding for current commitments. It noted that $61.2 million of certificates of deposit were due within one year and could require replacement funding at higher rates.
- The Bank reported that it exceeded regulatory capital requirements and was “well capitalized.” At March 31, 2019, reported ratios included 9.94% Tier 1 leverage, 12.51% common equity Tier 1, and 13.79% total risk-based capital.
- Key stated risks include local economic and real estate conditions, credit quality and allowance estimates, deposit retention and funding costs, interest-rate and securities-market movements, competition, regulation, and execution and integration of acquisitions. The loan portfolio is concentrated in the Bank’s New York market and has substantial exposure to real estate and construction-related sectors.
- The mutual holding company reorganization and minority stock offering were pending at March 31. The filing describes regulatory approvals and an effective registration statement in May 2019; reorganization costs of $0.699 million had been deferred in other assets, with costs to be expensed if the transaction failed. The filing checks “No” to whether required Exchange Act reports had been filed during the preceding 12 months; this status merits verification.
- Subsequent to quarter-end, the Bank agreed to acquire Jaeger & Flynn Associates for stated consideration of $12.75 million, subject to adjustments and performance-based installments. Closing was anticipated late in the third calendar quarter of 2019, subject to conditions.
- Management reported ordinary-course legal proceedings but did not expect aggregate exposure to materially affect the Bank’s financial statements. No troubled debt restructurings were reported for the periods shown. The Bank identified expected credit loss accounting (CECL) as a significant upcoming methodology change; its financial impact had not yet been calculated.
Important facts for investors to verify
- Confirm the reporting period: the filing covers the quarter ended March 31, 2019, despite the request’s “2018 Q3” label.
- Review the significant rise in nonperforming assets and charge-offs, including the two commercial and industrial relationships, and assess subsequent recoveries and allowance adequacy.
- Assess deposit seasonality, municipal-deposit concentration, upcoming certificate maturities, and the effect of deposit pricing on margins and liquidity.
- Verify completion, final terms, funding, and integration outcomes for the reorganization/stock offering and the proposed Jaeger & Flynn acquisition.
- Check the filing’s “No” response on prior-period Exchange Act reporting and reconcile it with the company’s filing history; also note that it reported no common shares issued and outstanding as of June 20, 2019.
- Evaluate the unrealized losses in available-for-sale securities, including the Bank of America preferred security, and the eventual CECL adoption impact, which management said was not yet quantified.