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Section 1: 10-Q (10-Q)

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-Q

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

PIONEER BANCORP, INC.

(Exact Name of Company as Specified in its Charter)

 

Maryland

001-38991

83-4274253

(State of Other Jurisdiction of Incorporation)

(Commission File No.)

(I.R.S. Employer Identification No.)

 

652 Albany Shaker Road, Albany, New York 12211

(Address of Principal Executive Office) (Zip Code)

(518) 730‑3999

(Issuer’s Telephone Number including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01

 

PBFS

 

The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒         NO   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES ☒        NO   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  YES ☐      NO   ☒

As of February 10, 2020, there were 25,977,679 shares outstanding of the registrant’s common stock.

 

 

 

Table of Contents

 

PIONEER BANCORP, INC.

INDEX

 

 

PART I - FINANCIAL INFORMATION 

3

Item 1 – Consolidated Financial Statements-unaudited 

3

Consolidated Statements of Condition 

3

Consolidated Statements of Operations 

4

Consolidated Statements of Comprehensive Income (Loss) 

5

Consolidated Statements of Changes in  Net Worth and Shareholders’ Equity 

6

Consolidated Statements of Cash Flows 

8

Notes to Unaudited Consolidated Financial Statements 

9

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 

38

Item 3 – Quantitative and Qualitative Disclosures About Market Risk 

56

Item 4 – Controls and Procedures 

57

PART II – OTHER INFORMATION 

58

Item 1 – Legal Proceedings 

58

Item 1A – Risk Factors 

59

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 

61

Item 3 – Defaults Upon Senior Securities 

56

Item 4 – Mine Safety Disclosures 

61

Item 5 – Other Information 

61

Item 6 – Exhibits 

61

 

 

 

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION (unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

    

December 31, 

    

June 30, 

 

 

2019

 

2019

Assets

 

 

  

 

 

  

Cash and due from banks

 

$

24,633

 

$

48,385

Federal funds sold

 

 

321

 

 

2,083

Interest-earning deposits with banks

 

 

89,930

 

 

179,641

Cash and cash equivalents

 

 

114,884

 

 

230,109

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

 

87,984

 

 

91,735

Securities held to maturity (fair value of $4,190 at December 31, 2019; and $3,887 at June 30, 2019)

 

 

4,161

 

 

3,873

Equity securities, at fair value

 

 

3,900

 

 

3,618

Federal Home Loan Bank of New York stock

 

 

1,374

 

 

924

Net loans receivable

 

 

1,079,055

 

 

1,053,938

Accrued interest receivable

 

 

4,252

 

 

4,374

Premises and equipment, net

 

 

41,540

 

 

41,710

Bank-owned life insurance

 

 

17,219

 

 

17,834

Goodwill

 

 

7,292

 

 

7,292

Other intangible assets, net

 

 

2,341

 

 

2,523

Other assets

 

 

27,796

 

 

22,062

Total assets

 

$

1,391,798

 

$

1,479,992

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Deposits:

 

 

  

 

 

  

Non-interest bearing deposits

 

$

351,436

 

$

357,523

Interest bearing deposits

 

 

788,424

 

 

973,795

Total deposits

 

 

1,139,860

 

 

1,331,318

Mortgagors’ escrow deposits

 

 

5,183

 

 

6,044

Borrowings from Federal Home Loan Bank of New York

 

 

10,000

 

 

 —

Other liabilities

 

 

8,773

 

 

7,665

Total liabilities

 

 

1,163,816

 

 

1,345,027

 

 

 

 

 

 

 

Shareholders' Equity

 

 

  

 

 

  

  Preferred stock ($0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding as of December 31, 2019)

 

 

 —

 

 

 —

  Common stock ($0.01 par value, 75,000,000 shares authorized, 25,977,679 shares issued and outstanding as of December 31, 2019)

 

 

260

 

 

 —

  Additional paid in capital

 

 

114,012

 

 

 —

Retained earnings

 

 

138,124

 

 

146,068

Unallocated common stock of Employee Stock Ownership Plan ("ESOP")

 

 

(12,962)

 

 

 —

Accumulated other comprehensive loss

 

 

(11,452)

 

 

(11,103)

Total shareholders' equity

 

 

227,982

 

 

134,965

Total liabilities and shareholders' equity

 

$

1,391,798

 

$

1,479,992

 

3

Table of Contents

PIONEER BANCORP, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

December 31, 

 

December 31, 

 

    

2019

    

2018

    

2019

    

2018

Interest and dividend income:

 

 

  

 

 

  

 

 

  

 

 

  

Loans

 

$

12,691

 

$

12,400

 

$

25,841

 

$

24,461

Securities

 

 

574

 

 

691

 

 

1,196

 

 

1,269

Interest-earning deposits with banks and other

 

 

565

 

 

236

 

 

1,378

 

 

602

Total interest and dividend income

 

 

13,830

 

 

13,327

 

 

28,415

 

 

26,332

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

  

 

 

  

 

 

  

 

 

  

Deposits

 

 

1,276

 

 

964

 

 

2,603

 

 

1,946

Borrowings and other

 

 

 1

 

 

88

 

 

 1

 

 

107

Total interest expense

 

 

1,277

 

 

1,052

 

 

2,604

 

 

2,053

Net interest income

 

 

12,553

 

 

12,275

 

 

25,811

 

 

24,279

Provision for loan losses

 

 

1,520

 

 

640

 

 

17,890

 

 

1,210

Net interest income after provision for loan losses

 

 

11,033

 

 

11,635

 

 

7,921

 

 

23,069

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

  

 

 

  

 

 

  

 

 

  

Bank fees and service charges

 

 

2,382

 

 

1,941

 

 

5,013

 

 

3,737

Insurance and wealth management services

 

 

2,071

 

 

1,685

 

 

3,425

 

 

3,282

Net gain on equity securities

 

 

364

 

 

 —

 

 

282

 

 

 —

Net gain on available for sale securities transactions

 

 

51

 

 

 —

 

 

51

 

 

 —

Net gain (loss) on disposal of assets

 

 

 1

 

 

(548)

 

 

(21)

 

 

(548)

Bank-owned life insurance

 

 

503

 

 

33

 

 

527

 

 

64

Other

 

 

141

 

 

(33)

 

 

98

 

 

34

Total noninterest income

 

 

5,513

 

 

3,078

 

 

9,375

 

 

6,569

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

  

 

 

  

 

 

  

 

 

  

Salaries and employee benefits

 

 

6,576

 

 

5,306

 

 

12,551

 

 

10,991

Net occupancy and equipment

 

 

1,615

 

 

1,576

 

 

3,038

 

 

2,933

Data processing

 

 

772

 

 

758

 

 

1,544

 

 

1,448

Advertising and marketing

 

 

185

 

 

242

 

 

389

 

 

438

FDIC insurance premiums

 

 

(125)

 

 

159

 

 

(128)

 

 

355

Contribution to Pioneer Bank Charitable Foundation

 

 

 —

 

 

 —

 

 

5,446

 

 

 —

Fraudulent activity

 

 

 —

 

 

 —

 

 

2,500

 

 

 —

Professional fees

 

 

1,403

 

 

84

 

 

1,898

 

 

188

Other

 

 

1,285

 

 

1,123

 

 

2,598

 

 

2,154

Total noninterest expense

 

 

11,711

 

 

9,248

 

 

29,836

 

 

18,507

Income (loss) before income taxes

 

 

4,835

 

 

5,465

 

 

(12,540)

 

 

11,131

Income tax (benefit) expense

 

 

985

 

 

665

 

 

(3,706)

 

 

1,888

Net income (loss)

 

$

3,850

 

$

4,800

 

$

(8,834)

 

$

9,243

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

           Basic

 

$

0.15

 

 

 —

 

$

(0.35)

 

 

 —

           Diluted

 

$

0.15

 

 

 —

 

$

(0.35)

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

           Weighted average shares outstanding - basic and diluted

 

 

24,997,541

 

 

 —

 

 

24,984,812

 

 

 —

 

 

4

Table of Contents

PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

December 31, 

 

December 31, 

 

    

2019

    

2018

    

2019

    

2018

Net income (loss)

 

$

3,850

 

$

4,800

 

$

(8,834)

 

$

9,243

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized gains/losses on securities:

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized holding gains (losses) arising during the period

 

 

64

 

 

(1,125)

 

 

389

 

 

(1,236)

Reclassification adjustment for gains included in net income

 

 

(51)

 

 

 —

 

 

(51)

 

 

 —

 

 

 

13

 

 

(1,125)

 

 

338

 

 

(1,236)

Tax effect

 

 

 4

 

 

(295)

 

 

88

 

 

(324)

 

 

 

 9

 

 

(830)

 

 

250

 

 

(912)

Defined benefit plan:

 

 

  

 

 

  

 

 

  

 

 

  

Change in funded status of defined benefit plans

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Reclassification adjustment for amortization of net actuarial loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Tax effect

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total other comprehensive income (loss)

 

 

 9

 

 

(830)

 

 

250

 

 

(912)

Comprehensive income (loss)

 

$

3,859

 

$

3,970

 

$

(8,584)

 

$

8,331

 

 

5

Table of Contents

PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET WORTH (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

Undivided

 

Comprehensive

 

Net

 

    

 

Surplus

    

Profits

    

Loss

    

Worth

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2018

 

$

10,658

 

$

116,394

 

$

(8,989)

 

$

118,063

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

4,443

 

 

 —

 

 

4,443

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(82)

 

 

(82)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2018

 

$

10,658

 

$

120,837

 

$

(9,071)

 

$

122,424

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

4,800

 

 

 —

 

 

4,800

Other comprehensive loss

 

 

 —

 

 

 —

 

 

(830)

 

 

(830)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

$

10,658

 

$

125,637

 

$

(9,901)

 

$

126,394

6

Table of Contents

PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

    

 

    

    

 

    

 

    

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Unallocated

 

Other

 

Total

 

 

Common Stock

 

Paid-in

 

Retained

 

Common

 

Comprehensive

 

Shareholders'

 

 

Shares

 

Amount

    

Capital

    

Earnings

    

Stock of ESOP

    

Loss

    

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

 —

 

$

 —

 

$

 —

 

$

146,068

 

$

 —

 

$

(11,103)

 

$

134,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of change in accounting principle - revenue recognition (1)

 

 

 —

 

 

 —

 

 

 —

 

 

291

 

 

 —

 

 

 —

 

 

291

Cumulative effect of change in accounting principle - equity securities (2)

 

 

 —

 

 

 —

 

 

 —

 

 

599

 

 

 —

 

 

(599)

 

 

 —

Net loss

 

 

 —

 

 

 —

 

 

 —

 

 

(12,684)

 

 

 —

 

 

 —

 

 

(12,684)

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

241

 

 

241

Issuance of common stock to the mutual holding company

 

 

14,287,723

 

 

143

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

143

Issuance of common stock for the initial public offering, net of offering costs

 

 

11,170,402

 

 

112

 

 

108,800

 

 

 —

 

 

 —

 

 

 —

 

 

108,912

Issuance of common stock to the Pioneer Bank Charitable Foundation

 

 

519,554

 

 

 5

 

 

5,191

 

 

 —

 

 

 —

 

 

 —

 

 

5,196

Purchase of common stock by the ESOP (1,018,325 shares)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(13,644)

 

 

 —

 

 

(13,644)

ESOP shares committed to be released (25,458 shares)

 

 

 —

 

 

 —

 

 

16

 

 

 —

 

 

341

 

 

 —

 

 

357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2019

 

 

25,977,679

 

$

260

 

$

114,007

 

$

134,274

 

$

(13,303)

 

$

(11,461)

 

$

223,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

3,850

 

 

 —

 

 

 —

 

 

3,850

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 9

 

 

 9

ESOP shares committed to be released (25,458 shares)

 

 

 —

 

 

 —

 

 

 5

 

 

 —

 

 

341

 

 

 —

 

 

346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

 

 

25,977,679

 

$

260

 

$

114,012

 

$

138,124

 

$

(12,962)

 

$

(11,452)

 

$

227,982


(1)

Adoption of Accounting Standard Update 2014-09.

(2)

Adoption of Accounting Standard Update 2016-01.

7

Table of Contents

PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

December 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net (loss) income

 

$

(8,834)

 

$

9,243

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

1,452

 

 

1,389

Provision for loan losses

 

 

17,890

 

 

1,210

Net accretion on securities

 

 

(229)

 

 

(262)

ESOP compensation

 

 

703

 

 

 —

Earnings on bank-owned life insurance

 

 

(527)

 

 

(64)

Proceeds from sale of loans

 

 

 —

 

 

228

Net loss on the sale, disposal or write-down of premises and equipment, and other real estate owned

 

 

21

 

 

548

Net gain on equity securities

 

 

(282)

 

 

 —

Net gain on available for sale securities transactions

 

 

(51)

 

 

 —

Deferred tax (benefit) expense

 

 

(612)

 

 

437

Decrease (increase) in accrued interest receivable

 

 

122

 

 

(415)

     Stock contribution to Pioneer Bank Charitable Foundation

 

 

5,196

 

 

 —

Increase in other assets

 

 

(4,979)

 

 

(4,942)

Increase in other liabilities

 

 

1,108

 

 

398

Net cash provided by operating activities

 

 

10,978

 

 

7,770

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

  

 

 

  

Proceeds from maturities, paydowns and calls of securities available for sale

 

 

37,256

 

 

25,878

Purchases of securities available for sale

 

 

(32,887)

 

 

(45,933)

Proceeds from maturities and paydowns of securities held to maturity

 

 

3,208

 

 

4,312

Purchases of securities held to maturity

 

 

(3,496)

 

 

(3,290)

Net purchases of FHLBNY stock

 

 

(450)

 

 

(1,350)

Net increase in loans receivable

 

 

(43,106)

 

 

(44,455)

Purchases of premises and equipment

 

 

(1,100)

 

 

(1,264)

Proceeds from sale of premises and equipment, and other real estate owned

 

 

138

 

 

398

Proceeds from bank-owned life insurance death benefit

 

 

1,142

 

 

 —

Net cash used in investing activities

 

 

(39,295)

 

 

(65,704)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

  

 

 

  

Net decrease in deposits

 

 

(191,457)

 

 

(35,303)

Net decrease in mortgagors’ escrow deposits

 

 

(861)

 

 

(587)

Net increase in borrowings from FHLBNY

 

 

10,000

 

 

30,000

Issuance of common stock

 

 

109,055

 

 

 —

Purchase of shares by the ESOP

 

 

(13,644)

 

 

 —

Net cash used in financing activities

 

 

(86,907)

 

 

(5,890)

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(115,224)

 

 

(63,824)

Cash and cash equivalents at beginning of period

 

 

230,109

 

 

120,280

Cash and cash equivalents at end of period

 

$

114,885

 

$

56,456

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

  

 

 

  

Cash paid during the period for:

 

 

  

 

 

  

Interest

 

$

2,587

 

$

2,027

Income taxes

 

$

1,800

 

$

3,500

Non-cash investing and financing activity:

 

 

  

 

 

  

Loans transferred to other real estate owned

 

$

99

 

$

 —

 

 

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PIONEER BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principals of Consolidation

Pioneer Bancorp, Inc. (the “Company”) is a mid-tier stock holding company whose wholly owned subsidiary is Pioneer Bank (the “Bank”). The Bank is a New York State chartered savings bank whose wholly owned subsidiaries are Pioneer Commercial Bank, Pioneer Financial Services, Inc., and Anchor Agency, Inc.

The Company provides diversified financial services through the Bank and its subsidiaries, with 22 offices in the Capital Region of New York State. The Company, through its subsidiaries, offers a broad array of deposit, lending, and other financial services to individuals, businesses, and municipalities.   There are no significant concentrations of loans to any one customer or industry. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the Bank’s market area.

The consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s wholly owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation. Financial information for the periods before the Company’s mutual holding company reorganization offering on July 17, 2019 are those of the Bank and its subsidiaries.

The interim financial data as of December 31, 2019 and for the three and six months ended December 31, 2019 and 2018, respectively, is unaudited and reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented in conformance with accounting principles generally accepted in the United States of America (“GAAP”).  The results of operations for the three and six months ended December 31, 2019 are not necessarily indicative of the results to be achieved for the remainder of fiscal 2020 or any other period.

These unaudited interim consolidated financial statements should be read in conjunction with the Company’s 2019 Annual Report on Form 10-K for the year ended June 30, 2019.

Mutual Holding Company Reorganization and Minority Stock Issuance

On July 17, 2019, Pioneer Bancorp, Inc. became the holding company of the Bank when it closed its stock offering in connection with the completion of the reorganization of the Bank into the two-tier mutual holding company form of organization. The Company sold 11,170,402 shares of common stock at a price of $10.00 per share, for net proceeds of $109.1 million, issued 14,287,723 shares to Pioneer Bancorp, MHC and contributed 519,554 shares of common stock and $250,000 in cash to the Pioneer Bank Charitable Foundation. The Company established an ESOP which owns 1,018,325 shares of common stock of the Company. The remaining amount of subscription proceeds received and recorded as a liability on June 30, 2019, was refunded to subscribers. Pioneer Bancorp, MHC now owns 55% of the common stock of the Company.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ substantially from those estimates. The allowance for loan losses, valuation of securities and other financial instruments, the funded status and expense of employee benefit plans, and the realizability of deferred tax assets are particularly subject to change.

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Reclassifications

Amounts in the prior period’s consolidated financial statements are reclassified whenever necessary to conform to the current period’s presentation.

Adoption of Recent Accounting Pronouncements

On July 1, 2019, the Company adopted Accounting Standard Update (“ASU”) 2014-09 amending guidance on “Revenue from Contracts with Customers (Topic 606)” and all subsequent ASU’s that modified Topic 606.  The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services.  This ASU replaces most existing revenue recognition guidance under GAAP.  A significant amount of the Company’s revenues are derived from net interest income on financial assets and liabilities, which are excluded from the scope of the amended guidance.  With respect to noninterest income, the Company has identified revenue streams within the scope of the guidance, which include insurance revenues, wealth management services, service charges on deposits, interchange income, and gains (losses) from the transfer of other real estate owned.  The Company recorded a net increase to beginning retained earnings of $291,000 as of July 1, 2019 due to the cumulative impact of adopting Topic 606, primarily driven by the recognition of insurance commission income. The adoption of Topic 606 did not have a significant impact on the Company’s consolidated financial statements as of and for the three and six-month periods ended December 31, 2019. Refer to Note 10 for additional disclosures required by Topic 606.

On July 1, 2019, the Company adopted ASU 2016-01 amending guidance on “Financial Instruments (Subtopic 825-10)”.  This amendment addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  These amendments require equity securities to be measured at fair value with changes in the fair value to be recognized through net income. The amendments also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. The Company evaluated its preferred stock holdings and concluded that the preferred stocks are not considered equity securities subject to ASU 2016-01. As of June 30, 2019, the Company had equity investments with a cost of $2.8 million and an estimated fair value of $3.6 million.  On July 1, 2019, the Company recorded a cumulative-effect adjustment to increase retained earnings in the amount of $599,000 representing the unrealized gain, net of tax, on these equity securities.  Changes in fair value during the three and six-months ended December 31, 2019 have been recognized in net income.

On July 1, 2019, the Company adopted ASU 2016‑15 which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are intended to reduce diversity in practice. The amendment covers the following cash flows: Cash payments for debt prepayment or extinguishment costs will be classified in financing activities. Upon settlement of zero-coupon bonds and bonds with insignificant cash coupons, the portion of the payment attributable to imputed interest will be classified as an operating activity, while the portion of the payment attributable to principal will be classified as a financing activity. Cash paid by an acquirer that is not soon after a business combination for the settlement of a contingent consideration liability will be separated between financing activities and operating activities. Cash payments up to the amount of the contingent consideration liability recognized at the acquisition date will be classified in financing activities; any excess will be classified in operating activities. Cash paid soon after the business combination will be classified in investing activities. Cash proceeds received from the settlement of insurance claims will be classified on the basis of the related insurance coverage (that is, the nature of the loss). Cash proceeds from lump-sum settlements will be classified based on the nature of each loss included in the settlement. Cash proceeds received from the settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies will be classified as cash inflows from investing activities. Cash payments for premiums on COLI and BOLI may be classified as cash outflows for investing, operating, or a combination of both. A transferor’s beneficial interest obtained in a securitization of financial assets will be disclosed as a noncash activity, and cash received from beneficial interests will be classified in investing activities. Distributions received from equity method investees will be classified using either a cumulative earnings approach or a look- through approach as an accounting policy election. The ASU contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgment is required to estimate and allocate cash flows) versus when an

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entity should classify the aggregate amount into one class of cash flows on the basis of predominance. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

On July 1, 2019, the Company adopted ASU 2016‑18 related to guidance on “Statement of Cash Flows (Topic 230) Restricted Cash” which addresses diversity in practice from entities classifying and presenting transfers between cash and restricted cash as operating, investing or financing activities or as a combination of those activities in the statement of cash flows. The ASU requires entities to show the changes in the total cash, cash equivalents, restricted cash and restricted cash equivalents in the Statement of Cash Flows. As a result, transfers between such categories will no longer be presented in the Statement of Cash Flows. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

On July 1, 2019, the Company adopted ASU 2017‑07 related to guidance on “Compensation - Retirement Benefits (Topic 715)” which improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. ASU 2017‑07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

Impact of Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016‑02 to its guidance on “Leases (Topic 842)”. The new leases standard applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606. Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The amendments in ASU 2016‑02 are effective for the Company for the fiscal year beginning July 1, 2021. Early adoption is permitted. The adoption of this ASU will result in a gross up of the Consolidated Statements of Condition for right-of-use assets and associated lease liabilities for operating leases in which the Company is the lessee. In July 2018, the FASB issued ASU No. 2018‑10, Codification Improvements to Topic 842 - Leases to address certain narrow aspects of the guidance issued in ASU No. 2016‑02. In July 2018, the FASB issued ASU No. 2018‑11, Leases (Topic 842): Targeted Improvements, which amends FASB Accounting Standards Codification (ASC), Leases (Topic 842), to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract. In December 2018, the FASB issued ASU No. 2018‑20, Narrow-Scope Improvements for Lessors, which addresses issues related to (1) sales tax and similar taxes collected from lessees, (2) certain lessor costs, and (3) recognition of variable payments for contracts with lease and non-lease components. The Company is evaluating the significance and other effects of adoption on the consolidated financial statements and related disclosures. The Company is performing its accounting analysis of its branch building and other leases underlying contracts. The Company is currently evaluating the potential impact on adoption of this ASU on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016‑13 to its guidance on “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016‑13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model

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(referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities.  For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. The amendments in this ASU are effective for the Company for the fiscal year beginning July 1, 2023. An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). In November 2018, the FASB issued ASU 2018‑19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which aligns the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements and clarifies the scope of the guidance in the amendments in ASU 2016‑13. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.  ASU 2019-04 clarifies or addresses stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13 related to measuring the allowance for loan losses under the new guidance. The effective dates and transition requirements for the amendments related to this Update are the same as the effective dates and transition requirements in Update 2016-13. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments Credit Losses clarifying certain amendments to various provisions of ASU No. 2016-13 relating to (1) purchased financial assets with credit deterioration, (2) financial assets secured by collateral maintenance agreements, (3) transition relief for troubled debt restructurings, and (4) disclosure relief when the practical expedient for accrued interest receivables is applied. The initial adjustment will not be reported in earnings and therefore will not have any material impact on our consolidated results of operations, but it is expected that it will have an impact on our consolidated financial position at the date of adoption of this ASU. At this time, we have not calculated the estimated impact that this ASU will have on our allowance for loan losses, however, we anticipate it will have a significant impact on the methodology process we utilize to calculate the allowance. Alternative methodologies are currently being considered. Data requirements and integrity are being reviewed and enhancements incorporated into standard processes. The Company is currently evaluating the potential impact on adoption of this ASU on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017‑08 to its guidance on “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20) related to premium amortization on purchased callable debt securities. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for the Company for the fiscal year beginning July 1, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosure about a change in accounting principle. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In August 2018, the FASB issued ASU 2018‑13 to its guidance on “Fair Value Measurement (Topic 820)”. This update modifies the disclosure requirements on fair value measurements. The following disclosure requirements were removed from Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The following disclosure requirements were modified in Topic 820: (1) in lieu of a rollforward for Level 3 fair value measurements, a nonpublic

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entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. In addition, the amendments eliminate at a minimum from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in ASU No. 2018‑13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018‑13 and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In August 2018, the FASB has issued ASU  2018‑14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715‑20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”, that applies to all employers that sponsor defined benefit pension or other postretirement plans. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The following disclosure requirements were removed from Subtopic 715‑20: (1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year; (2) the amount and timing of plan assets expected to be returned to the employer; (3) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law; related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan; (4) for nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets; and (5) for public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. The following disclosure requirements were added to Subtopic 715‑20: (1) the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715‑20‑50‑3, which state that the following information for defined benefit pension plans should be disclosed: (1) the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets; and (2) the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. ASU No. 2018‑14 is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In April 2019, the FASB issued an Update (ASU 2019-04), Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

The amendments to Topic 326 and other Topics in this Update include items related to the amendments in Update 2016-13 discussed at the June 2018 and November 2018 Credit Losses TRG meetings. The amendments clarify or address

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stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13 on a number of different topics, including the following: 

·

Accrued Interest

·

Transfers between Classifications or Categories for Loans and Debt Securities

·

Recoveries

·

Consideration of Prepayments in Determining the Effective Interest Rate

·

Consideration of Estimated Costs to Sell When Foreclosure Is Probable

·

Vintage Disclosures— Line-of-Credit Arrangements Converted to Term Loans

·

Contractual Extensions and Renewals

The ASU also covered a number of issues that related to hedge accounting including:

·

Partial-Term Fair Value Hedges of Interest Rate Risk

·

Amortization of Fair Value Hedge Basis Adjustments

·

Disclosure of Fair Value Hedge Basis Adjustments

·

Consideration of the Hedged Contractually Specified Interest Rate under the Hypothetical Derivative Method

·

Scoping for Not-for-Profit Entities

·

Hedge Accounting Provisions Applicable to Certain Private Companies and Not-for- Profit Entities

·

Application of a First- Payments-Received Cash Flow Hedging Technique to Overall Cash Flows on a Group of Variable Interest Payments

·

Transition Guidance

For Codification Improvements specific to ASU 2016-01, the following topics were covered within ASU 2019-04:

·

Scope Clarifications

·

Held-to-Maturity Debt Securities Fair Value Disclosures

·

Applicability of Topic 820 to the Measurement Alternative

·

Remeasurement of Equity Securities at Historical Exchange Rates

ASU 2019-04 has various implementation dates dependent on a number of factors as it pertains to the above items.

In December 2019, the FASB issued ASU 2019-12, Income Taxes Topic 740.  This update simplifies and improves accounting for income taxes by eliminating certain exceptions to the general rules and clarifying or amending other current guidance. The scope of FASB ASC Subtopic 740-10, Income Taxes -Overall, has been amended to require that, if a franchise (or similar tax) is partially based on income, (1) deferred tax assets and liabilities should be recognized and accounted for pursuant to FASB ASC 740, as should the amount of current tax expense that is based on income, and (2) any incremental amount incurred should be recorded as a non-income-based tax. Note that under the amended guidance, the effect of potentially paying a non-income-based tax in future years need not be considered in evaluating the realizability of deferred tax assets. The amendments in this ASU are effective for the Company for the fiscal year beginning July 1, 2022. Early adoption is permitted, including adoption in an interim period. If early adoption is elected, all of the amended guidance must be adopted in the same period. If early adoption is initially applied in an interim period, any adjustments should be reflected as of the beginning of the annual period that includes that interim period.  The Company is currently evaluating the potential impact on adoption of this ASU on our consolidated financial statements.

 

2.PENDING ACQUISITION

On April 24, 2019, the Company entered into a stock purchase agreement with Jaeger & Flynn Associates, Inc., a New York insurance agency (“JFA”), which provides employee benefits products and services, commercial and personal insurance products, and human resources consulting services. Pursuant to the stock purchase agreement, the Company will acquire 100% of the outstanding shares of capital stock of JFA. JFA will become a wholly owned subsidiary of the Bank.

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Pursuant to the terms of the stock purchase agreement, the Company will pay an aggregate purchase price of $12.75 million. The purchase price may be adjusted upward or downward as described below and will be payable in four installments with $3.75 million being paid at closing (the “closing payment”) and $3.0 million paid following the first, second and third anniversaries of the closing (each an “installment payment”).

The $3.75 million closing payment will be adjusted downward if there is (i) any indebtedness outstanding at the closing date or (ii) a shortfall from the target working capital of JFA, determined as of closing. Full payment of each installment payment is contingent upon JFA achieving its target Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as adjusted to reflect the difference, if any, between Anchor Agency, Inc.’s EBITDA and pro-forma EBITDA, for each of the three 12‑month periods immediately following the closing date (each the “performance period”). Each installment payment will be adjusted downward if either: (i) there is a negative difference between JFA’s EBITDA and target EBITDA during the performance period or (ii) JFA experiences a decline in organic revenue by 5% or more for the performance period compared to the prior 12‑month period. Each installment payment, however, is subject to an earn-out adjustment (with no maximum amount) equal to 50% of the positive difference between JFA’s EBITDA and target EBITDA for each performance period so long as JFA meets or exceeds organic revenue growth targets for the applicable performance period.

The transaction is subject to customary closing conditions. The Company currently anticipates that the transaction will be completed after receiving regulatory approval.

3.INVESTMENT SECURITIES

The amortized cost and estimated fair value of securities are as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Securities available for sale:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Government and agency obligations

 

$

71,799

 

$

133

 

$

(1)

 

$

71,931

Mortgage-backed securities - residential

 

 

92

 

 

 2

 

 

 —

 

 

94

Asset-backed securities

 

 

68

 

 

52

 

 

(2)

 

 

118

Collateralized mortgage obligations - residential

 

 

478

 

 

342

 

 

(35)

 

 

785

Municipal obligations

 

 

9,555

 

 

29

 

 

 —

 

 

9,584

Total debt securities

 

 

81,992

 

 

558

 

 

(38)

 

 

82,512

Preferred stocks

 

 

6,007

 

 

47

 

 

(582)