Pioneer Bancorp, Inc./MD - Quarter Report: 2023 September (Form 10-Q)

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 September 30, 2023

☐ 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) 730-3025

(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 November 13, 2023, there were 25,977,679 shares outstanding of the registrant’s common stock.

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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 Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	58
Item 4 – Controls and Procedures	58
PART II – OTHER INFORMATION	59
Item 1 – Legal Proceedings	59
Item 1A – Risk Factors	59
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3 – Defaults Upon Senior Securities	59
Item 4 – Mine Safety Disclosures	59
Item 5 – Other Information	59
Item 6 – Exhibits	60

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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)


	September 30,		June 30,
	2023		2023
Assets
Cash and due from banks	$	83,784	$	33,584
Federal funds sold		2,373		2,167
Interest-earning deposits with banks		130,387		114,727
Cash and cash equivalents		216,544		150,478

Securities available for sale, at fair value		412,275		431,667
Securities held to maturity (fair value of $21,903 at September 30, 2023; and $21,744 at June 30, 2023)		23,908		23,949
Equity securities, at fair value		2,493		2,413
Federal Home Loan Bank of New York stock		1,234		1,196
Loans receivable		1,224,573		1,166,638
Allowance for credit losses		(21,069)		(22,469)
Net loans receivable		1,203,504		1,144,169
Accrued interest receivable		7,124		7,194
Premises and equipment, net		41,455		41,617
Bank-owned life insurance		16,266		16,322
Goodwill		10,879		8,799
Other intangible assets, net		3,351		2,096
Other assets		24,374		26,291
Total assets	$	1,963,407	$	1,856,191

Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Non-interest bearing deposits	$	607,931	$	526,119
Interest bearing deposits		1,030,904		1,015,732
Total deposits		1,638,835		1,541,851
Mortgagors’ escrow deposits		3,524		7,888
Other liabilities		49,277		39,752
Total liabilities		1,691,636		1,589,491

Commitments and contingent liabilities – See Note 9

Shareholders’ Equity
Preferred stock ($0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding as of September 30, 2023 and June 30, 2023)		—		—
Common stock ($0.01 par value, 75,000,000 shares authorized, 25,977,679 shares issued and outstanding as of September 30, 2023 and June 30, 2023)		260		260
Additional paid in capital		113,491		113,543
Retained earnings		176,964		173,038
Unallocated common stock of Employee Stock Ownership Plan (“ESOP”)		(10,404)		(10,573)
Accumulated other comprehensive loss		(8,540)		(9,568)
Total shareholders’ equity		271,771		266,700
Total liabilities and shareholders’ equity	$	1,963,407	$	1,856,191

See accompanying notes to unaudited consolidated financial statements.

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PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share amounts)


	For the Three Months Ended
	September 30,
	2023		2022
Interest and dividend income:
Loans	$	16,533	$	11,513
Securities		2,568		1,934
Interest-earning deposits with banks and other		1,055		1,745
Total interest and dividend income		20,156		15,192

Interest expense:
Deposits		3,954		406
Borrowings and other		312		112
Total interest expense		4,266		518
Net interest income		15,890		14,674
Provision for credit losses		750		120
Net interest income after provision for credit losses		15,140		14,554

Noninterest income:
Bank fees and service charges		1,446		1,570
Insurance and wealth management services		1,981		1,734
Net gain (loss) on equity securities		80		(39)
Bank-owned life insurance		(56)		461
Other		123		79
Total noninterest income		3,574		3,805

Noninterest expense:
Salaries and employee benefits		6,923		6,592
Net occupancy and equipment		1,831		1,711
Data processing		1,189		1,037
Advertising and marketing		141		141
Insurance premiums		239		231
Federal Deposit Insurance Corporation insurance premiums		262		171
Professional fees		2,587		773
Other		1,233		1,212
Total noninterest expense		14,405		11,868
Income before income taxes		4,309		6,491
Income tax expense		890		1,257
Net income	$	3,419	$	5,234

Net earnings per common share:
Basic	$	0.14	$	0.21
Diluted	$	0.14	$	0.21

Weighted average shares outstanding – basic and diluted		25,194,841		25,143,924

See accompanying notes to unaudited consolidated financial statements.

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PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands)


	For the Three Months Ended
	September 30,
	2023		2022

Net income	$	3,419	$	5,234

Other comprehensive income (loss):
Unrealized losses on securities:
Unrealized holding gains (losses) arising during the period		1,391		(8,496)
		1,391		(8,496)
Tax expense (benefit)		363		(2,222)
		1,028		(6,274)
Defined benefit plan:
Change in funded status of defined benefit plans		—		—
Reclassification adjustment for amortization of net actuarial gain		—		—
		—		—
Tax expense		—		—
		—		—
Total other comprehensive income (loss)		1,028		(6,274)
Comprehensive income (loss)	$	4,447	$	(1,040)

See accompanying notes to unaudited consolidated financial statements.

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PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

(in thousands, except share amounts)



					Additional				Unallocated		Accumulated Other		Total
	Common Stock				Paid-in		Retained		Common		Comprehensive		Shareholders’
	Shares		Amount		Capital		Earnings		Stock of ESOP		Loss		Equity

Balance as of July 1, 2022		25,977,679	$	260	$	113,713	$	151,090		(11,256)	$	(11,180)	$	242,627

Net income		—		—		—		5,234		—		—		5,234
Other comprehensive loss		—		—		—		—		—		(6,274)		(6,274)
ESOP shares committed to be released (12,729 shares)		—		—		(48)		—		170		—		122
Balance as of September 30, 2022		25,977,679	$	260	$	113,665	$	156,324	$	(11,086)	$	(17,454)	$	241,709


					Additional				Unallocated		Accumulated Other		Total
	Common Stock				Paid-in		Retained		Common		Comprehensive		Shareholders’
	Shares		Amount		Capital		Earnings		Stock of ESOP		Loss		Equity

Balance as of July 1, 2023		25,977,679	$	260	$	113,543	$	173,038		(10,573)	$	(9,568)	$	266,700
Cumulative effect of change in accounting principle - Current Expected Credit Losses (1)		—		—		—		507		—		—		507

Net income		—		—		—		3,419		—		—		3,419
Other comprehensive income		—		—		—		—		—		1,028		1,028
ESOP shares committed to be released (12,729 shares)		—		—		(52)		—		169		—		117
Balance as of September 30, 2023		25,977,679	$	260	$	113,491	$	176,964	$	(10,404)	$	(8,540)	$	271,771

(1)	Adoption of Accounting Standard Update 2016-13.

See accompanying notes to unaudited consolidated financial statements.

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PIONEER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)


	For the Three Months Ended
	September 30,
	2023		2022

Cash flows from operating activities:
Net income	$	3,419	$	5,234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		671		692
Provision for credit losses		750		120
Net (accretion) amortization on securities		(370)		268
ESOP compensation		117		122
Loss (earnings) on bank-owned life insurance		56		(461)
Proceeds from sale of loans		—		100
Net gain on sale of loans		—		(2)
Net (gain) loss on equity securities		(80)		39
Deferred tax expense		37		243
Decrease (increase) in accrued interest receivable		70		(1,272)
Increase in other assets		(156)		(1,738)
Increase in other liabilities		7,920		4,624
Changes in operating leases		8		6
Net cash provided by operating activities		12,442		7,975

Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of securities available for sale		45,077		39,329
Purchases of securities available for sale		(23,924)		(80,173)
Proceeds from maturities and paydowns of securities held to maturity		1,617		1,630
Purchases of securities held to maturity		(1,576)		(1,527)
Net purchases of FHLBNY stock		(38)		(35)
Net increase in loans receivable		(57,774)		(37,288)
Purchases of premises and equipment		(373)		(65)
Proceeds from bank-owned life insurance death benefit		—		1,143
Cash paid for acquisitions		(1,980)		—
Net cash used in investing activities		(38,971)		(76,986)

Cash flows from financing activities:
Net increase in deposits		96,984		98,739
Net decrease in mortgagors’ escrow deposits		(4,364)		(2,894)
Repayment of finance lease liability		(25)		(25)
Net cash provided by financing activities		92,595		95,820

Net increase in cash and cash equivalents		66,066		26,809
Cash and cash equivalents at beginning of period		150,478		376,060
Cash and cash equivalents at end of period	$	216,544	$	402,869

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4,280	$	503
Income taxes	$	1,000	$	900
Non-cash investing and financing activity:
Loans transferred to other real estate owned	$	—	$	—
Acquisition contingent consideration payable	$	1,499	$	—
Adoption of lease accounting standard:
Right of use assets	$	—	$	6,535
Lease liabilities	$	—	$	6,883

See accompanying notes to unaudited consolidated financial statements.

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PIONEER BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

1.NATURE OF OPERATIONS

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, Anchor Agency, Inc. and Pioneer Financial Services, Inc. On July 17, 2019, the Company 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 provides diversified financial services through the Bank and its subsidiaries, with 23 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.

The interim financial data as of September 30, 2023 and for the three months ended September 30, 2023 and 2022, 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 months ended September 30, 2023 are not necessarily indicative of the results to be achieved for the remainder of fiscal 2024 or any other period.

These unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, for the year ended June 30, 2023.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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.

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 credit losses, valuation of securities and other financial instruments, the funded status and expense of employee benefit plans, legal proceedings and other contingent liabilities, and the realizability of deferred tax assets are particularly subject to change.

Reclassifications

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

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Adoption of Recent Accounting Pronouncements

Financial Instruments - Credit Losses - Topic 326

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 (referred to as the current expected credit loss 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 debt securities. For an available for sale 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 ASU 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 ASU 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 ASU are the same as the effective dates and transition requirements in ASU 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 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.

On July 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities which management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures, except for debt securities for which other-than-temporary impairment had been recognized prior to July 1, 2023 for which the Company adopted ASC 326 using the prospective transition approach. Results for reporting periods beginning after July 1, 2023, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net increase to retained earnings of $507,000 as of July 1, 2023 for the cumulative effect of adopting ASC 326. The transition adjustment includes a $2.3 million decrease to the allowance for credit losses, a $1.6 million increase to the allowance for credit losses on unfunded commitments, and a $180,000 impact to the deferred tax assets. The Company did not record an allowance for credit losses on held to maturity and available for sale debt securities on July 1, 2023, as the amount of credit risk was deemed immaterial.

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Allowance for Credit Losses on Loans

The CECL approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account deducted from the amortized cost basis of loans to present the net, lifetime amount expected to be collected on the loans. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. Individually evaluated loans are primarily non-accrual and collateral dependent loans. Loan losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and amounts expected to be charged-off.

The loan portfolio is segmented at the level at which the Company develops and documents a systematic methodology to determine its allowance for credit losses. Upon adoption of CECL, management revised the manner in which loans were pooled for similar risk characteristics. Management developed the following segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled: commercial (commercial real estate, commercial and industrial, and commercial construction), residential mortgages, home equity loans and lines, and consumer loans.

Management estimates the allowance for credit losses on loans by using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts that affect the collectability of loans. Historical loss experience was considered by the Company for estimating expected credit losses and determined the need to use peer data, with similar risk profiles, to develop and calculate the CECL reserve models.

Historical credit loss experience for the Company and peer losses by loan segments, provide a foundation for estimating an expected credit loss. The observed credit losses are converted to probability of default (“PD”) rate curves through the use of loss given default (“LGD”) risk factors that converts default rates to estimated loss for each loan segment. This is based on industry-level, observed relationships between the PD and LGD variables for each segment. The historical PD curves correspond to economic variables through historical economic cycles, which establishes a quantitative relationship between forecasted economic conditions and loan performance.

Using the historical quantitative relationship between economic conditions and loan performance, management developed a model, using selected external economic forecasts that is highly correlated for each loan segment. These forecasts are then applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line methodology.

The allowance for credit losses on loans is measured on a collective basis, when similar risk characteristics are present, with both a quantitative and qualitative analysis that is applied on a quarterly basis. The respective quantitative reserve for each segment is calculated using a PD/LGD modeling methodology, with segment-specific regression models. The discounted cash flows methodology uses expected credit losses estimated over the effective life of each loan by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level stated interest rate.

Management applies a qualitative adjustment for each segment as of the consolidated statements of condition date. The qualitative adjustments include limitations inherent in the quantitative model; changes in lending policies and procedures; changes in international, national, regional, and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; the experience, ability and depth of lending management and staff; changes in the volume and severity of past due loans; changes in value of underlying collateral; existence and effect of any concentrations of credit and changes in the levels of such concentrations; and the effect of external factors; such as competition, legal and regulatory requirements.

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics

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with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the estimated fair value of the collateral, as applicable.

Allowance for Credit Losses on Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company has exposure to a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments exposure is recognized in other liabilities on the consolidated statement of condition and is adjusted by the provision for credit losses on the consolidated statement of operations. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the estimated contractual life. The probable funding amount by segment is multiplied by the respective reserve percentage calculated in the allowance for credit losses on loans to calculate a reserve on unfunded commitments.

Allowance for Credit Losses on Securities Held to Maturity

The Company is required to utilize the CECL approach to estimate expected credit losses. Management measures expected credit losses on held to maturity debt securities on a collective basis by major security types that share similar risk characteristics. Management classifies the held to maturity debt securities portfolio into the following major security types: Corporate debt securities and municipal obligations. Expected losses are calculated on a pooled basis using a probability of default/loss given default (PD/LGD) model, based on historical credit loss data from a reliable source. Management utilizes corporate and municipal default and loss rates which provides decades of data across all corporate and municipal sectors and geographies. Management may exercise discretion to make adjustments based on environmental factors. The model calculates the expected loss for each security over the contractual life. If the risk of a held to maturity debt security no longer matches the collective assessment pool, it is removed and individually assessed for credit deterioration. Utilizing the CECL approach the Company determined that the expected credit loss on its corporate debt securities and municipal obligations portfolio was immaterial and therefore no allowance for credit losses was recorded as of July 1, 2023.

Allowance for Credit Losses on Securities Available for Sale

The impairment model for available for sale debt securities differs from the CECL approach utilized for held to maturity debt securities because available for sale debt securities are measured at fair value rather than amortized cost. For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The Company determined that the unrealized loss positions in the available for sale securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded as of July 1, 2023.

Accrued Interest Receivable

Accrued interest receivable balances are presented separately on the consolidated statements of financial condition and are not included in amortized cost when determining the allowance for credit losses. The Company does not estimate expected credit losses on accrued interest receivable on loans and investment securities, as accrued interest

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receivable is reversed or written off when the full collection of the accrued interest receivable related to a loan or investment security becomes doubtful.

Troubled Debt Restructurings and Vintage Disclosures - Topic 326

In March 2022, the FASB issued ASU 2022-02, amendments related to Troubled Debt Restructurings (TDRs) for all entities after they adopt ASU 2016-13 and amendments related to vintage disclosures that affect public business entities with investments in financing receivables, under Financial Instruments-Credit Losses (Topic 326). This ASU eliminates the guidance on TDRs in Subtopic 310-40, Receivables-Troubled Debt Restructurings, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The ASU also requires that public business entities disclose current-period gross charge-offs by year of origination. The Company adopted the standard prospectively, beginning July 1, 2023, concurrently with the adoption of ASU 2016-13. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Reference Rate Reform - Topic 848

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU and related amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2) provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The amendments for contract modifications can be elected to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. The amendments for existing hedging relationships can be elected to be applied as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of ASC Topic 848, Reference Rate Reform, from December 31, 2022, to December 31, 2024. On July 1, 2023, the Company adopted ASC 848, as amended. The adoption of this guidance did not have a material impact on our consolidated financial statements.

3.ACQUISITIONS

On July 13, 2023, the Company, through its subsidiary, Pioneer Financial Services, Inc., completed the acquisition of certain assets of Hudson Financial LLC, a company engaged in the wealth management services business in the Hudson Valley Region of New York. The Company paid an aggregate of $2.0 million in cash and recorded $1.5 million in contingent consideration payable to acquire the assets and recorded a $1.4 million customer list intangible asset and goodwill in the amount of $2.1 million in conjunction with the acquisitions. No contingent consideration was paid during the three months ended September 30, 2023. The effects of the acquired assets have been included in the consolidated financial statements since the acquisition date. The above referenced acquisition was made to expand the Company’s wealth management services activities.

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4.INVESTMENT SECURITIES

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


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2023
U.S. Government and agency obligations	$	401,100	$	—	$	(17,286)	$	383,814
Municipal obligations		28,087		—		(113)		27,974
Other debt securities		247		309		(69)		487
Total available for sale securities	$	429,434	$	309	$	(17,468)	$	412,275

June 30, 2023
U.S. Government and agency obligations	$	396,464	$	2	$	(18,737)	$	377,729
Municipal obligations		53,492		9		(67)		53,434
Other debt securities		261		309		(66)		504
Total available for sale securities	$	450,217	$	320	$	(18,870)	$	431,667

Accrued interest receivable on available for sale debt securities totaled $1.9 million at September 30, 2023 and is excluded from the estimate of credit losses.

There was no allowance for credit losses for securities available for sale as of September 30, 2023.

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


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2023
Corporate debt securities	$	20,000	$	—	$	(1,870)	$	18,130
Municipal obligations		3,908		—		(135)		3,773
Total held to maturity securities	$	23,908	$	—	$	(2,005)	$	21,903

June 30, 2023
Corporate debt securities	$	20,000	$	—	$	(2,049)	$	17,951
Municipal obligations		3,949		—		(156)		3,793
Total held to maturity securities	$	23,949	$	—	$	(2,205)	$	21,744

Accrued interest receivable on held to maturity debt securities totaled $159,000 at September 30, 2023 and is excluded from the estimate of credit losses.

There was no allowance for credit losses for securities held to maturity as of September 30, 2023.

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The estimated fair value and gross unrealized losses aggregated by security category and length of time such securities have been in a continuous unrealized loss position, is summarized as follows (dollars in thousands):


	September 30, 2023
	Less than 12 Months				12 Months or Longer				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
U.S. Government and agency obligations	$	57,422	$	(296)	$	326,392	$	(16,990)	$	383,814	$	(17,286)
Municipal obligations		27,974		(113)		—		—		27,974		(113)
Other debt securities		3		—		111		(69)		114		(69)
	$	85,399	$	(409)	$	326,503	$	(17,059)	$	411,902	$	(17,468)

Securities held to maturity:
Corporate debt securities	$	—	$	—	$	18,130	$	(1,870)	$	18,130	$	(1,870)
Municipal obligations		—		—		3,773		(135)		3,773		(135)
	$	—	$	—	$	21,903	$	(2,005)	$	21,903	$	(2,005)


	June 30, 2023
	Less than 12 Months				12 Months or Longer				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Securities available for sale:
U.S. Government and agency obligations	$	104,145	$	(1,975)	$	268,782	$	(16,762)	$	372,927	$	(18,737)
Municipal obligations		47,781		(67)		—		—		47,781		(67)
Other debt securities		14		(1)		107		(65)		121		(66)
	$	151,940	$	(2,043)	$	268,889	$	(16,827)	$	420,829	$	(18,870)

Securities held to maturity:
Corporate debt securities	$	—	$	—	$	17,951	$	(2,049)	$	17,951	$	(2,049)
Municipal obligations		—		—		3,793		(156)		3,793		(156)
	$	—	$	—	$	21,744	$	(2,205)	$	21,744	$	(2,205)

Unrealized losses on securities available for sale have not been recognized into income because the issuers' debt securities are of high credit quality (rated AA or higher), management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity.

As a result of the Company adopting ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to July 1, 2023, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of July 1, 2023 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after July 1, 2023 will be recorded in earnings when received.

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The fair value of debt securities and carrying amount, if different, by contractual maturity were as follows (dollars in thousands). Securities not due at a single maturity date are shown separately.


	September 30, 2023
	Amortized		Estimated
	Cost		Fair Value
Securities available for sale:
Due in one year or less	$	131,439	$	129,073
Due after one to five years		297,748		282,715
Other debt securities		247		487
	$	429,434	$	412,275

Securities held to maturity:
Due in one year or less	$	2,391	$	2,256
Due after one to five years		1,517		1,517
Due after five to ten years		20,000		18,130
	$	23,908	$	21,903

There were no sales of securities available for sale for the three months ended September 30, 2023 and 2022.

There were no sales of securities held to maturity for the three months ended September 30, 2023 and 2022.

There were no sales of equity securities for the three months ended September 30, 2023 and 2022.

At September 30, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of the Company’s equity. As of September 30, 2023 and June 30, 2023, the carrying value of available for sale securities pledged to secure Federal Home Loan Bank of New York (“FHLBNY”) advances and municipal deposits was $407.2 million and $428.5 million, respectively.

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5.NET LOANS RECEIVABLE

A summary of net loans receivable is as follows (dollars in thousands):


	September 30, 2023		June 30, 2023
Commercial:
Real estate	$	409,436	$	411,165
Commercial and industrial		98,388		97,307
Construction		98,361		92,714
Total commercial		606,185		601,186
Residential mortgages		514,023		463,196
Home equity loans and lines		89,465		85,477
Consumer		14,900		16,779
		1,224,573		1,166,638
Allowance for credit losses		(21,069)		(22,469)
Net loans receivable	$	1,203,504	$	1,144,169

Accrued interest receivable totaled $5.0 million at September 30, 2023 and is excluded from the estimate of credit losses.

The Company’s July 1, 2023 adoption of CECL resulted in a significant change to our methodology for estimating the allowance for credit losses. The allowance for credit losses on loans is established through a provision for credit losses based on the results of life of loan quantitative models, reserves associated with collateral-dependent loans evaluated individually and adjustments for the impact of current economic conditions not accounted for in the quantitative models. The discounted cash flow methodology is used to calculate the CECL reserve for the commercial, residential mortgages, and home equity loans and lines of credit segments. The Company uses a four-quarter reasonable and supportable forecast period based on economic forecast from the Federal Open Market Committee (“FOMC”) of the Federal Reserve's projections of civilian unemployment and year-over-year U.S. GDP growth. The forecast will revert to long-term economic conditions over a four quarter reversion period on a straight-line basis. The remaining life method is used to determine the CECL reserve for the consumer loan segment. A qualitative factor framework has been developed to adjust the quantitative loss rates for asset-specific risk characteristics or current conditions at the reporting date.

The following tables present the activity in the allowance for credit losses by portfolio segment (dollars in thousands):


	For the Three Months Ended September 30, 2023
			Cumulative Effect
	Beginning		Adjustment for the								Ending
	Balance		Adoption of ASC 326		Provisions		Charge-offs		Recoveries		Balance
Commercial	$	14,288	$	(1,307)	$	173	$	—	$	27	$	13,181
Residential mortgages		6,222		(670)		639		—		—		6,191
Home equity loans and lines of credit		1,470		(265)		89		(12)		—		1,282
Consumer		489		(69)		15		(23)		3		415
Allowance for credit losses - loans		22,469		(2,311)		916		(35)		30		21,069
Allowance for credit losses - off-balance sheet credit exposures		—		1,624		(166)		—		—		1,458
Total allowance for credit losses	$	22,469	$	(687)	$	750	$	(35)	$	30	$	22,527

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	For the Three Months Ended September 30, 2022
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for loan losses at beginning of period	$	17,818	$	2,899	$	1,388	$	419	$	22,524
Provisions charged to operations		(772)		851		(30)		71		120
Loans charged off		(34)		(24)		—		(71)		(129)
Recoveries on loans charged off		43		10		—		1		54
Allowance for loan losses at end of period	$	17,055	$	3,736	$	1,358	$	420	$	22,569

The Company established a reserve for off-balance sheet credit exposures in conjunction with its adoption of ASC 326-Financial Instruments-Credit Losses. The allowance for credit losses on off-balance sheet credit exposures is recognized as a liability (classified as a component of other liabilities in the consolidated statements of condition), with adjustments to the reserve recognized in the provision for credit losses on the consolidated statements of operations.

The following tables present the balance in the allowance for credit losses and allowance for loan losses and the recorded investment in loans by portfolio segment (dollars in thousands):


	September 30, 2023
			Residential
	Commercial		Mortgages		Home Equity		Consumer		Total
Allowance for credit losses:
Related to loans individually evaluated	$	785	$	—	$	—	$	—	$	785
Related to loans collectively evaluated		12,396		6,191		1,282		415		20,284
Ending balance	$	13,181	$	6,191	$	1,282	$	415	$	21,069

Loans:
Individually evaluated	$	11,344	$	—	$	—	$	—	$	11,344
Loans collectively evaluated		594,841		514,023		89,465		14,900		1,213,229
Ending balance	$	606,185	$	514,023	$	89,465	$	14,900	$	1,224,573


	June 30, 2023
			Residential
	Commercial		Mortgages			Home Equity	Consumer		Total
Allowance for loan losses:
Related to loans individually evaluated for impairment	$	792	$	—	$	—	$	—	$	792
Related to loans collectively evaluated for impairment		13,496		6,222		1,470		489		21,677
Ending balance	$	14,288	$	6,222	$	1,470	$	489	$	22,469

Loans:
Individually evaluated for impairment	$	11,544	$	—	$	—	$	—	$	11,544
Loans collectively evaluated for impairment		589,642		463,196		85,477		16,779		1,155,094
Ending balance	$	601,186	$	463,196	$	85,477	$	16,779	$	1,166,638

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The following table presents information related to impaired loans by class (dollars in thousands):


							For the Year Ended
	June 30, 2023						June 30, 2023
	Unpaid				Allowance for		Average		Interest
	Principal		Recorded		Loan Losses		Recorded		Income
	Balance		Investment		Allocated		Investment		Recognized
With no related allowance recorded:
Commercial:
Real estate	$	10,241	$	10,213	$	—	$	10,538	$	133
Commercial and industrial		—		—		—		—		—
Construction		—		—		—		—		—
Subtotal		10,241		10,213		—		10,538		133
With an allowance recorded:
Commercial:
Real estate		681		681		142		699		35
Commercial and industrial		650		650		650		575		—
Construction		—		—		—		—		—
Subtotal		1,331		1,331		792		1,274		35
Total	$	11,572	$	11,544	$	792	$	11,812	$	168

Interest income on nonaccrual loans is recognized using the cost recovery method. Interest income on impaired loans that were on nonaccrual status and cash-basis interest income for the year ended June 30, 2023 was nominal.

At various times, certain loan modifications are executed for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan. Substantially all of these modifications include one or a combination of the following: extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; temporary reduction in the interest rate; change in scheduled payment amount including interest only; or extensions of additional credit for payment of delinquent real estate taxes or other costs.

As previously noted in Note 2 – Summary of Significant Accounting Policies, effective July 1, 2023, the Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326)-Troubled Debt Restructurings. The Company may occasionally make modifications to loans where the borrower is considered to be experiencing financial difficulty. Types of modifications considered under ASU 2022-02 include principal reductions, interest rate reductions, term extensions, or a combination. There were no modifications to loans where the borrower is considered to be experiencing financial difficulty for the three months ended September 30, 2023.

There were no loans modified as troubled debt restructurings during the three months ended September 30, 2022. There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to September 30, 2022 which subsequently defaulted during the three months ended September 30, 2022.

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The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans (dollars in thousands):


	September 30, 2023
			Nonaccrual		Past Due
			Loans With		90 Days
			No Related		Still on		Recognized
	Nonaccrual		Allowance		Accrual		Interest Income
Commercial:
Real estate	$	7,830	$	7,830	$	4	$	—
Commercial and industrial		649		—		—		—
Construction		—		—		—		—
Residential mortgages		4,426		—		—		—
Home equity loans and lines		1,501		—		—		—
Consumer		—		—		11		—
	$	14,406	$	7,830	$	15	$	—


	June 30,
	2023
			Past Due
			90 Days
			Still on
	Nonaccrual		Accrual
Commercial:
Real estate	$	8,025	$	174
Commercial and industrial		650		—
Construction		—		3,237
Residential mortgages		4,000		120
Home equity loans and lines		1,560		—
Consumer		—		—
	$	14,235	$	3,531

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually evaluated loans.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans (dollars in thousands):


	September 30, 2023
	Amortized Cost		Collateral Type
Commercial:
Real estate	$	10,695	Commercial Real Estate Property
Commercial and industrial		649	Business Assets
Construction		—
Residential mortgages		—
Home equity loans and lines		—
Consumer		—
	$	11,344

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The following tables present the aging of the recorded investment in loans by class of loans as of (dollars in thousands):


	September 30, 2023
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	1,048	$	—	$	4,306	$	5,354	$	404,082	$	409,436
Commercial and industrial		19		—		649		668		97,720		98,388
Construction		—		—		—		—		98,361		98,361
Residential mortgages		729		699		487		1,915		512,108		514,023
Home equity loans and lines		1,046		301		528		1,875		87,590		89,465
Consumer		30		1		11		42		14,858		14,900
Total	$	2,872	$	1,001	$	5,981	$	9,854	$	1,214,719	$	1,224,573


	June 30, 2023
	30 - 59		60 - 89		90 or more
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial:
Real estate	$	4,798	$	—	$	4,458	$	9,256	$	401,909	$	411,165
Commercial and industrial		678		100		352		1,130		96,177		97,307
Construction		—		—		3,237		3,237		89,477		92,714
Residential mortgages		1,257		1,327		762		3,346		459,850		463,196
Home equity loans and lines		1,340		64		540		1,944		83,533		85,477
Consumer		18		22		—		40		16,739		16,779
Total	$	8,091	$	1,513	$	9,349	$	18,953	$	1,147,685	$	1,166,638

The Company categorizes commercial loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Commercial loans not meeting the criteria above are considered to be pass rated loans.

The Company grades residential mortgages, home equity loans and lines of credit and consumer loans as either non-performing or performing.

Non-performing – Loans that are over 90 days past due and still accruing interest or on nonaccrual.

Performing – Loans not meeting any of the above criteria are considered to be performing loans.

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The following table presents loans summarized by segment and class, and the risk category (dollars in thousands):


													Revolving		Revolving
													Loans		Loans
		Term Loans Amortized Cost Basis by Origination Year											Amortized		Converted
September 30, 2023	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Commercial real estate
Risk Rating
Pass	$	468	$	44,802	$	49,698	$	24,593	$	53,478	$	181,310	$	2,583	$	—	$	356,932
Special mention		—		—		—		—		16,741		3,125		—		—		19,866
Substandard		—		—		—		—		2,949		29,000		571		—		32,520
Doubtful		—		—		—		—		—		118		—		—		118
Total commercial real estate	$	468	$	44,802	$	49,698	$	24,593	$	73,168	$	213,553	$	3,154	$	—	$	409,436

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Risk Rating
Pass	$	4,169	$	8,372	$	6,210	$	3,689	$	5,296	$	9,811	$	52,726	$	—	$	90,273
Special mention		—		—		—		—		—		—		702		—		702
Substandard		—		—		1,290		178		1,882		3,242		172		—		6,764
Doubtful		—		—		—		—		—		352		297		—		649
Total commercial and industrial	$	4,169	$	8,372	$	7,500	$	3,867	$	7,178	$	13,405	$	53,897	$	—	$	98,388

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial construction
Risk Rating
Pass	$	3,135	$	15,743	$	48,858	$	22,620	$	—	$	7,172	$	200	$	—	$	97,728
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		633		—		—		633
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction	$	3,135	$	15,743	$	48,858	$	22,620	$	—	$	7,805	$	200	$	—	$	98,361

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential mortgages
Performing	$	33,041	$	214,643	$	44,711	$	59,631	$	38,261	$	119,198	$	112	$	—	$	509,597
Non-performing		—		724		563		—		609		2,530		—		—		4,426
Total residential mortgages	$	33,041	$	215,367	$	45,274	$	59,631	$	38,870	$	121,728	$	112	$	—	$	514,023

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity loans and lines of credit
Performing	$	2,590	$	7,343	$	10,268	$	3,906	$	1,465	$	15,726	$	46,666	$	—	$	87,964
Non-performing		—		—		—		—		17		481		1,003		—		1,501
Total home equity loans and lines of credit	$	2,590	$	7,343	$	10,268	$	3,906	$	1,482	$	16,207	$	47,669	$	—	$	89,465

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	12	$	—	$	12

Consumer
Performing	$	738	$	1,787	$	164	$	132	$	65	$	3,270	$	8,733	$	—	$	14,889
Non-performing		—		—		4		—		5		—		2		—		11
Total consumer	$	738	$	1,787	$	168	$	132	$	70	$	3,270	$	8,735	$	—	$	14,900

Current period gross charge-offs	$	23	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	23

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The following table presents commercial loans summarized by class of loans and the risk category (dollars in thousands):


	June 30, 2023
			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial
Real estate	$	352,874	$	1,977	$	56,196	$	118	$	411,165
Commercial and industrial		89,245		1,614		6,448		—		97,307
Construction		91,805		—		909		—		92,714
	$	533,924	$	3,591	$	63,553	$	118	$	601,186

The Company considered the performance of the loan portfolio and its impact on the allowance for loan losses. For residential mortgages, home equity loans and lines of credit and consumer loan classes, the Company also evaluated credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

As of September 30, 2023 and June 30, 2023, the Company had pledged $522.5 million and $476.6 million respectively, of residential mortgage, home equity and commercial loans as collateral for FHLBNY borrowings and stand-by letters of credit.

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6.DERIVATIVES

In the normal course of servicing our commercial customers, the Company acts as an interest rate swap counterparty for certain commercial borrowers. The Company manages its exposure to such interest rate swaps by entering into corresponding and offsetting interest rate swaps with third parties that match the terms of the interest rate swap with the commercial borrowers. These positions directly offset each other and the Company’s exposure is the fair value of the derivatives due to potential changes in credit risk of our commercial borrowers and third parties.

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At September 30, 2023, the Company held derivatives not designated as hedging instruments, comprised of back-to-back interest rate swaps, with a total notional amount of $449.0 million, consisting of $224.5 million of interest rate swaps with commercial borrowers and $224.5 million of offsetting interest rate swaps with third-party counterparties on substantially the same terms. At June 30, 2023, the Company held derivatives not designated as hedging instruments, comprised of back-to-back interest rate swaps, with a total notional amount of $455.8 million, consisting of $227.9 million of interest rate swaps with commercial borrowers and $227.9 million of offsetting interest rate swaps with third-party counterparties on substantially the same terms.

The fair value of derivatives are classified as other assets and other liabilities on the consolidated statements of condition. The estimated fair value of derivatives not designated as hedging instruments are as follows (dollars in thousands):


	September 30, 2023
	Derivative		Derivative
	Assets		Liabilities
Gross interest rate swaps	$	22,301	$	22,301
Less: cash collateral applied		(22,300)		(16)
Net amount	$	1	$	22,285


	June 30, 2023
	Derivative		Derivative
	Assets		Liabilities
Gross interest rate swaps	$	18,844	$	18,844
Less: cash collateral applied		(18,160)		(16)
Net amount	$	684	$	18,828

Under terms of the agreements with the third-party counterparties, the Company provides cash collateral to the counterparty, when required, for the initial trade. Subsequent to the trade, the margin is exchanged in either direction, based upon the estimated fair value of the underlying contracts. At September 30, 2023, the Company had received $22.3 million and deposited $16,000 as collateral for swap agreements with third-party counterparties. At June 30, 2023, the Company had received $18.2 million and deposited $16,000 as collateral for swap agreements with third-party counterparties.

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7.OTHER COMPREHENSIVE INCOME (LOSS)

The balances and changes in the components of accumulated other comprehensive loss, net of tax, are as follows (dollars in thousands):


	For the Three Months Ended September 30,
					Accumulated
	Unrealized				Other
	Gains/Losses		Defined		Comprehensive
	on Securities		Benefit Plans		Loss
2023:
Accumulated other comprehensive income (loss) as of July l, 2023	$	(13,702)	$	4,134	$	(9,568)
Other comprehensive income before reclassifications		1,028		—		1,028
Accumulated other comprehensive income (loss) as of September 30, 2023	$	(12,674)	$	4,134	$	(8,540)

2022:
Accumulated other comprehensive loss as of July l, 2022	$	(10,872)	$	(308)	$	(11,180)
Other comprehensive loss before reclassifications		(6,274)		—		(6,274)
Accumulated other comprehensive loss as of September 30, 2022	$	(17,146)	$	(308)	$	(17,454)

The amounts of income tax expense (benefit) allocated to each component of other comprehensive income (loss) were as follows (dollars in thousands):


	For the Three Months Ended
	September 30,
	2023		2022
Unrealized losses on securities:
Unrealized holdings gains (losses) arising during the period	$	363	$	(2,222)
Reclassification adjustment for gains included in net income		—		—
		363		(2,222)
Defined benefit plans:
Change in funded status		—		—
Reclassification adjustment for amortization of net actuarial gain		—		—
Reclassification adjustment for settlement recognition		—		—
		—		—
	$	363	$	(2,222)

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8.EMPLOYEE BENEFIT PLANS

The Company maintains a noncontributory defined benefit pension plan and a defined benefit post-retirement plan. Plan assets and obligations that determine the funded status are measured as of the end of the fiscal year.

Pension Plan

The Company maintains a noncontributory defined benefit pension plan covering substantially all of its full-time employees twenty-one years of age or older, with at least one year of service. Through December 31, 2009, pensions were paid as an annuity using a pension formula of 2.0% of the average of the five highest consecutive years of total compensation over the last ten years multiplied by credited service up to thirty years. Effective January 1, 2010, the plan was amended and service rendered thereafter is paid using a pension formula of 1.5%. Amounts contributed to the plan are determined annually on the basis of (a) the maximum amount allowable under Internal Revenue Service regulations and (b) the amount certified by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). The defined benefit pension plan was amended, effective August 31, 2019, to close the plan to new employees hired on or after September 1, 2019, therefore, no new employees hired on or after September 1, 2019 would be eligible to participate in the defined benefit pension plan.

Net periodic pension cost included in salaries and employee benefits in the Company’s consolidated statements of operations included the following components (dollars in thousands):


	For the Three Months Ended
	September 30,
	2023		2022
Service cost	$	389	$	444
Interest cost		553		507
Expected return on plan assets		(789)		(732)
Net periodic pension cost	$	153	$	219

Contributions

For the three months ended September 30, 2023 and 2022, the Company made no cash contributions to the plan.

Post-Retirement Healthcare Plan

The Company offers a defined benefit post-retirement plan which provides medical and life insurance benefits to employees meeting certain requirements. Effective October 1, 2006, the plan was amended so that there have been no new plan participants for medical benefits. The cost of post-retirement plan benefits is recognized on an accrual basis as employees perform services. Active employees are eligible for retiree medical coverage upon reaching age sixty with twenty-five or more years of service. Employees with a minimum of thirty years of service are eligible for individual and spousal coverage. Retirees are eligible to participate in any bank-sponsored health insurance programs. The Company’s contributions for retiree medical are limited to a monthly premium of $210 for individual coverage and $420 for employee and spousal coverage. The Company’s funding policy is to pay insurance premiums as they come due.

Net periodic post-retirement benefit cost included in salaries and employee benefits in the Company’s consolidated statements of operations included the following components (dollars in thousands):


	For the Three Months Ended
	September 30,
	2023		2022
Service cost	$	6	$	6
Interest cost		19		17
Amortization of net actuarial gain		(10)		(3)
Net periodic post-retirement benefit cost	$	15	$	20

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Employee Stock Ownership Plan

On July 17, 2019, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. The Company granted loans to the ESOP for the purchase of 1,018,325 shares of the Company’s common stock at an average price of $13.40 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 20 years at a rate per annum equal to the Prime Rate. Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at September 30, 2023 was $11.4 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 50,916 through the year 2038. Participants may receive the shares at the end of employment.

Shares held by the ESOP include the following:


	As of September 30,
	2023	2022
Allocated	203,664	152,748
Committed to be allocated	38,187	38,187
Unallocated	776,474	827,390
Total shares	1,018,325	1,018,325

Total compensation expense recognized in connection with the ESOP for the three months ended September 30, 2023 and 2022 was $117,000 and $122,000, respectively.

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9.COMMITMENTS AND CONTINGENT LIABILITIES

Off-Balance-Sheet Financing and Concentrations of Credit

The Company is a party to certain financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include the Company’s commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated statements of condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contractual notional amounts of those instruments which are presented in the tables below (dollars in thousands). The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.


	September 30, 2023
	Fixed Rate		Variable Rate		Total
Financial instruments whose contract amounts represent credit risk (including unused lines of credit and unadvanced loan funds):
Commitments to extend credit	$	17,478	$	274,476	$	291,954
Standby letters of credit		—		23,697		23,697
	$	17,478	$	298,173	$	315,651


	June 30, 2023
	Fixed Rate		Variable Rate		Total
Financial instruments whose contract amounts represent credit risk (including unused lines of credit and unadvanced loan funds):
Commitments to extend credit	$	20,541	$	277,088	$	297,629
Standby letters of credit		—		28,372		28,372
	$	20,541	$	305,460	$	326,001

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and require payment of a fee. Since certain commitments are expected to expire without being fully drawn, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, required by the Company for the extension of credit is based on management’s credit evaluation of the customer.

Commitments to extend credit may be written on a fixed rate basis thus exposing the Company to interest rate risk, given the possibility that market rates may change between commitment and actual extension of credit.

Standby letters of credit are conditional commitments issued by the Company to guarantee payment on behalf of a customer or to guarantee the performance of a customer to a third party. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Since a portion of these instruments will expire unused, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance-sheet instruments. Bank policies governing loan collateral apply to standby letters of credit at the time of credit extension.

Certain residential mortgage loans are written on an adjustable basis and include interest rate caps which limit annual and lifetime increases in interest rates. Generally, adjustable rate mortgages have an annual rate increase cap of 2% to 5% and lifetime rate increase cap of 5% to 6% above the initial loan rate. These caps expose the Company to interest rate risk should market rates increase above these limits. At September 30, 2023, approximately $184.0 million of adjustable rate residential mortgage loans had interest rate caps. In addition, certain adjustable rate residential mortgage

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loans have a conversion option whereby the borrower may elect to convert the loan to a fixed rate during a designated time period. At September 30, 2023, approximately $560,000 of the adjustable rate mortgage loans had conversion options.

The Company periodically sells residential mortgage loans to the Federal National Mortgage Association (“FNMA”). At September 30, 2023 and June 30, 2023, the Bank had no loans held for sale. In addition, the Bank has no loan commitments with borrowers at September 30, 2023 and June 30, 2023 with rate lock agreements which are intended to be held for sale, if closed. The Company generally determines whether or not a loan is held for sale at the time that loan commitments are entered into or at the time a convertible adjustable rate mortgage loan converts to a fixed interest rate. In order to reduce the interest rate risk associated with the portfolio of loans held for sale, as well as loan commitments with locked interest rates which are intended to be held for sale if closed, the Company enters into agreements to sell loans in the secondary market. At September 30, 2023 and June 30, 2023, the Company had no commitments to sell loans to unrelated investors.

Concentrations of Credit

The Company primarily grants loans to customers located in the New York State counties of Albany, Greene, Rensselaer, Schenectady, Saratoga, and Warren. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon the real estate and construction-related sectors of the economy, and general economic conditions in the Company’s market area.

Legal Proceedings and Other Contingent Liabilities

In the ordinary course of business, the Company and the Bank are involved in a number of legal, regulatory, governmental and other proceedings, claims or investigations that could result in losses, including damages, fines and/or civil penalties, which could be significant concerning matters arising from the conduct of their business, including the matters described below. In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek large or indeterminate damages, the Company generally cannot predict the eventual outcome of the pending matters, timing of the ultimate resolution of these matters, or eventual loss, fines or penalties related to each pending matter. In accordance with applicable accounting guidance, the Company will establish an accrued liability when those matters present loss contingencies that are both probable and estimable. The Company’s estimates of potential losses will change over time and the actual losses may vary significantly, and there may be an exposure to loss in excess of any amounts accrued. As a matter develops, management, in conjunction with any outside counsel handling the matter, evaluate on an ongoing basis whether such matter presents a loss contingency that is probable and estimable; or where a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, whether it is possible to estimate a range of possible loss. Once the loss contingency is deemed to be both probable and estimable, the Company establishes an accrued liability and records a corresponding amount of litigation-related expense. The Company continues to monitor the matters for further developments that could affect the amount of the accrued liability that has been previously established. Excluding legal fees and expenses, litigation-related expense of $0 was recognized for the three months ended September 30, 2023 and 2022, respectively. For those matters for which a loss is reasonably possible and estimable, whether in excess of an accrued liability or where there is no accrued liability, the Company’s estimated range of possible loss is $0 to $54.4 million in excess of the accrued liability, if any, as of September 30, 2023. These estimates are based upon currently available information and are subject to significant judgment, a variety of assumptions and known and unknown uncertainties. The matters underlying the accrued liability and estimated range of possible losses are unpredictable and may change from time to time, and actual losses may vary significantly from the current estimate and accrual. The estimated range of possible loss does not represent the Company’s maximum loss exposure.

Information is provided below regarding the nature of the matters and associated claimed damages. The Company and the Bank are defending each of these matters vigorously, and the Company believes that it and the Bank have substantial defenses, including affirmative defenses, counterclaims and cross-claims to the various allegations that have been asserted. In light of the significant judgment, variety of assumptions and uncertainties involved in the matters described below, some of which are beyond the Company’s control, and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters, or matters related to or resulting from the matters described below, could have an adverse material impact on the Company’s business, prospects, financial condition,

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results of operations, cash flows, or cause significant reputational harm and subject the Company to face civil litigation, significant fines, damage awards or other material regulatory consequences.

Mann Entities Related Fraudulent Activity

During the first fiscal quarter of 2020 (the quarter ended September 30, 2019), the Company became aware of potentially fraudulent activity associated with transactions by an established business customer of the Bank. The customer and various affiliated entities (collectively, the “Mann Entities”) had numerous accounts with the Bank. The transactions in question related both to deposit and lending activity with the Mann Entities.

For the fraudulent activity related to the Mann Entities, the Bank’s potential monetary exposure with respect to its deposit activity was approximately $18.5 million. In the first fiscal quarter of 2020, the Bank exercised its rights pursuant to state and federal law and the relevant Mann Entity general deposit account agreements to take actions to set off/recover approximately $16.0 million from general deposit corporate operating accounts held by the Mann Entities at the Bank to partially cover overdrafts/negative account balances in Mann Entity general deposit corporate operating accounts that primarily resulted from another bank returning/calling back $15.6 million in checks on August 30, 2019, that the Mann Entities had deposited into and then withdrawn from their accounts at the Bank the day before. In the first fiscal quarter of 2020, the Bank recognized a charge to non-interest expense in the amount of $2.5 million based on the net negative deposit balance of the various Mann Entities’ accounts after the setoffs/overdraft recoveries. Through September 30, 2023, no additional charges to non-interest expense were recognized related to the deposit transactions with the Mann Entities.

With respect to the Bank’s lending activity with the Mann Entities, its potential exposure was approximately $15.8 million (which represents the Bank’s participation interest in the approximately $35.8 million commercial loan relationships for which the Bank is the originating lender). In the fourth fiscal quarter of 2019, the Bank recognized a provision for loan losses in the amount of $15.8 million, related to the charge-off of the entire principal balance owed to the Bank related to the Mann Entities’ commercial loan relationships. During the third fiscal quarter of 2020 and the first fiscal quarter of 2021, the Bank recognized partial recoveries in the amount of $1.7 million and $34,000, respectively, related to the charge-off of the Mann Entities’ commercial loan relationships, which were credited to the allowance for loan losses. Through September 30, 2023, no additional charges to the provision for credit losses and no additional recoveries related to the charge-off of the loans were recognized related to the loan transactions with the Mann Entities.

Several other parties and regulatory agencies are asserting claims against the Company and the Bank related to the series of transactions between the Company or the Bank, on the one hand, and the Mann Entities, on the other. The Company and the Bank continue to investigate these matters and it is possible that the Company and the Bank will be subject to similar legal, regulatory, governmental or other proceedings and additional liabilities. The ultimate timing and outcome of any such proceedings, involving the Company, or the Bank, cannot be predicted with any certainty. It also remains possible that other private parties or governmental bodies will pursue existing or additional claims against the Bank as a result of the Bank’s dealings with certain of the Mann Entities or as a result of the actions taken by the Company or the Bank. The Company’s and the Bank’s legal fees and expenses related to these actions are significant and are expected to continue being significant. In addition, costs associated with potentially prosecuting, litigating or settling any litigation, satisfying any adverse judgments, if any, or other proceedings, could be significant. These legal, regulatory, governmental and other proceedings, claims or investigations, costs, settlements, judgments, sanctions or other expenses could have a material adverse effect on the Company’s business prospects, financial condition, results of operations or cash flows or cause significant reputational harm and subject the Company to face civil litigation, significant fines, damage awards or other material regulatory consequences. The Company is pursuing all available sources of recovery and other means of mitigating the potential loss, and the Company and the Bank are vigorously defending all claims asserted against them arising out of or otherwise related to the fraudulent activity of the Mann Entities. During the three months ended September 30, 2023 and 2022, the Bank recognized insurance recoveries in the amount of $576,000 and $542,000, respectively, related to the partial reimbursement of defense costs incurred as a result of these matters, which were credited to noninterest expense – professional fees on the consolidated statements of operations. For a fuller recitation of the procedural history of each of the matters summarized below, please refer to the Company’s earlier periodic filings on Forms 10-Q and 10-K. The Pioneer Parties (as defined below) vigorously dispute the assertions and claims in each of the matters noted below.

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Legal Proceedings

On October 31, 2019, Southwestern Payroll Services, Inc. (“Southwestern”) filed a complaint against the Company and the Bank (“Pioneer Parties”), Michael T. Mann, Valuewise Corporation, MyPayrollHR, LLC and Cloud Payroll, LLC (collectively, the “Mann Parties”) in the United States District Court for the Northern District of New York. On April 10, 2023, the Court entered a memorandum decision and order granting Southwestern leave to file a third amended complaint adding Granite Solutions Groupe, Inc. (“Granite Solutions”) as a plaintiff and asserting claims against the Pioneer Parties for declaratory judgment, conversion, fraud, negligence/gross negligence, unjust enrichment/money had and received, violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, aiding and abetting conversion, and aiding and abetting fraud. Southwestern and Granite Solutions filed the third amended complaint on April 26, 2023. The third amended complaint seeks a monetary judgment of at least $39.0 million, allegedly comprised of compensatory damages in excess of $13.0 million, penalties and interest, treble damages, and punitive damages. The Pioneer Parties filed their answer to the third amended complaint on May 12, 2023. In addition to denying that Southwestern or Granite Solutions is entitled to any of the relief sought in the third amended complaint, the Pioneer Parties asserted numerous affirmative defenses, as well as counterclaims against Southwestern and cross-claims against certain of the Mann Parties for common law fraud under New York law and violations of RICO. The Pioneer Parties contend that the actions of Southwestern and certain of the Mann Parties have resulted in damages to the Pioneer Parties comprised of compensatory damages, treble damages, and attorneys’ fees and costs. The Pioneer Parties seek to recover these damages jointly and severally against all counterclaim and cross-claim defendants. Southwestern filed its answer to the counterclaims on June 2, 2023. This matter is currently in discovery.

On December 10, 2019, National Payment Corp. (“NatPay”) filed a motion to intervene as a plaintiff in Southwestern’s lawsuit against the Pioneer Parties and the Mann Parties as described above. On August 4, 2020, the magistrate judge issued a decision recommending that NatPay be allowed to intervene, which was subsequently accepted by the Court. NatPay filed its complaint in intervention on August 18, 2020. On April 10, 2023, the Court entered a memorandum decision and order granting NatPay leave to file an amended complaint asserting claims against the Pioneer Parties for declaratory judgment, conversion, fraud, negligence/gross negligence, unjust enrichment/money had and received, violations of RICO, aiding and abetting conversion, and aiding and abetting fraud. NatPay filed its amended complaint on April 13, 2023. The amended complaint seeks a monetary judgment of at least $11.4 million, allegedly comprised of compensatory damages in excess of $3.8 million, penalties and interest, treble damages, and punitive damages. The Pioneer Parties filed their answer to NatPay’s amended complaint on May 12, 2023. In addition to denying that NatPay is entitled to any of the relief sought in the third amended complaint, the Pioneer Parties asserted numerous affirmative defenses, as well as counterclaims against NatPay and cross-claims against certain of the Mann Parties for violations of RICO. The Pioneer Parties contend that the actions of NatPay and certain of the Mann Parties have resulted in damages to the Pioneer Parties comprised of compensatory damages, treble damages, and attorneys’ fees and costs. The Pioneer Parties seek to recover these damages jointly and severally against all counterclaim and cross-claim defendants. On June 23, 2023, NatPay filed a motion to dismiss the counterclaims and certain affirmative defenses of the Pioneer Parties. The Pioneer Parties filed their opposition to the motion on July 21, 2023, and the motion was fully briefed and submitted to the Court for decision on August 4, 2023. The motion remains pending before the Court. This matter is currently in discovery.

On January 21, 2020, Cachet Financial Services (“Cachet”), a third-party automated clearing house service provider, filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the Central District of California, Los Angeles Division (“Bankruptcy Court”). The Bank is not listed as a creditor in the bankruptcy proceedings. On January 20, 2022, Cachet filed an adversary proceeding complaint against the Pioneer Parties in the Bankruptcy Court. On February 16, 2023, Cachet filed an amended complaint in lieu of responding to the Pioneer Parties’ motion to dismiss. The amended complaint, like the initial complaint, alleges Michael T. Mann stole approximately $26.4 million from Cachet in August 2019 by manipulating Cachet’s “batch file specifications,” and that Mann subsequently caused approximately $8.5 million of those purportedly stolen funds to be deposited into accounts held by companies owned by Mann at Pioneer Bank. Cachet alleges Pioneer Bank refused Cachet’s request to return the approximately $8.5 million in purportedly stolen funds to Cachet. Cachet’s complaint asserts causes of action against the Pioneer Parties for avoidance and recovery of constructive fraudulent transfers, conversion, unjust enrichment, money had and received, violation of California Penal Code § 496(a), violations of RICO, aiding and abetting fraud, and declaratory relief. Cachet asserts “actual damages” of approximately $8.5 million, seeks three times its actual damages on its Section 496(a) claim (or approximately $25.6 million), and costs of suit and attorneys’ fees. Cachet also seeks “treble damages according to proof and attorneys’ fees,” and for its aiding abetting fraud claim, Cachet seeks “general, consequential and special damages in an amount to be proven at trial.” On

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April 28, 2023, the Pioneer Parties filed a motion to dismiss the amended complaint. On September 6, 2023, the Court entered an order granting in part and denying in part the Pioneer Parties’ motion. In particular, the Court dismissed Cachet’s claims for violations of RICO, violation of California Penal Code § 496(a), aiding and abetting fraud and conversion, and for declaratory relief. The Court denied the Pioneer Parties’ motion as to the claims for conversion, unjust enrichment, and money had and received. The Court permitted Cachet to file a second amended complaint. On September 20, 2023, Cachet filed a motion for reconsideration of the Court’s Order. The Pioneer Parties filed their opposition on October 26, 2023, and Cachet filed its reply on November 2, 2023. The motion remains pending before the Court. Cachet’s current deadline to file a second amended complaint is December 7, 2023.

On February 4, 2020, Berkshire Hills Bancorp Inc.’s wholly owned subsidiary Berkshire Bank (“Berkshire Bank”) filed a complaint against the Bank in the Supreme Court of the State of New York for Albany County resulting from Berkshire Bank’s participation interest in the commercial loan relationship to the Mann Entities. The complaint alleges that the Bank breached the amended and restated loan participation agreement between the Bank and Berkshire Bank dated as of June 27, 2018, breached the amended and restated loan participation agreement between the Bank and Berkshire Bank dated as of August 12, 2019, engaged in constructive fraud, engaged in fraudulent inducement, engaged in fraudulent concealment, and negligently misrepresented certain material information. The complaint seeks to recover $15.6 million and additional damages. On November 30, 2022, Berkshire Bank filed an amended complaint asserting substantially similar claims to those asserted in the original complaint, except that it excised the claim for negligent misrepresentation that the Court previously had dismissed, and included claims for breach of the loan participation agreement between the Bank and Berkshire Bank dated as of June 29, 2017 and separate claims for fraudulent inducement with respect to each of the three loan participation agreements. On January 30, 2023, the Bank filed its answer to the amended complaint and asserted counterclaims against Berkshire Bank for breach of the amended and restated loan participation agreement between the Bank and Berkshire Bank dated as of August 12, 2019, as well as a claim for a declaratory judgment that Berkshire Bank ratified the agreement and may not contest its validity. This matter is currently in discovery.

On February 4, 2020, Chemung Financial Corporation’s wholly owned subsidiary, Chemung Canal Trust Company (“Chemung”), filed a complaint against the Bank in the Supreme Court of the State of New York for Albany County resulting from Chemung’s participation interest in the commercial loan relationship to the Mann Entities. The complaint alleges that the Bank breached the participation agreement between the Bank and Chemung dated as of August 12, 2019, engaged in fraudulent activities, engaged in constructive fraud, and negligently misrepresented and omitted certain material information. The complaint seeks to recover $4.2 million and additional damages. On July 21, 2023, Chemung filed an amended complaint that asserts the same causes of actions as the original complaint (except that it excised the claim for negligent misrepresentation previously dismissed by the Court), but includes additional factual allegations. On September 19, 2023, the Bank filed its answer to the amended complaint and asserted counterclaims against Chemung for breach of the loan participation agreement between the Bank and Chemung dated as of August 12, 2019, as well as a claim for a declaratory judgment that Chemung ratified the agreement and may not contest its validity. This matter is currently in discovery.

On April 30, 2020, the U.S. Department of Justice (“DOJ”), with the authorization of a delegate of the Secretary of the Treasury, filed a civil complaint against the Company and the Bank (and Cloud Payroll, LLC) in the United States District Court for the Northern District of New York. The complaint alleges, among other things, that the Pioneer Parties wrongfully set off approximately $7.3 million from an account held by Cloud Payroll to apply towards debts allegedly owed to the Bank by Cloud Payroll and other affiliates of Michael Mann. The complaint alleges that the funds in question were comprised of payroll taxes and thus subject to a statutory trust under 26 U.S.C. § 7501 that prohibited the Bank from setting off those funds to apply towards debts owed to the Bank. The complaint seeks return of any payroll taxes, plus interest. On October 21, 2020, the DOJ filed an amended complaint that dropped one of the DOJ’s claims against the Pioneer Parties but continues to seek return of any payroll taxes, plus interest. The amended complaint relates to the same set of facts described above in “Mann Entities Related Fraudulent Activity”, and the alleged payroll taxes, plus interest, sought in this proceeding may be part of the recovery sought in the Southwestern and NatPay complaints described above. On November 4, 2020, the Pioneer Parties filed their answer and affirmative defenses to the DOJ’s amended complaint. This matter is currently in discovery.

On August 31, 2020, AXH Air-Coolers, LLC (“AXH”) filed a complaint against the Pioneer Parties, and unnamed employees of the Pioneer Parties in the United States District Court for the Northern District of New York. The complaint alleges that the Pioneer Parties wrongfully converted certain tax funds belonging to AXH, were unjustly enriched by the

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wrongful taking of tax funds belonging to AXH, and were grossly negligent in allowing AXH’s tax funds to be misappropriated, offset, converted, or stolen. The prayer for relief in AXH’s complaint seeks $336,000, plus penalties and interest, attorney’s fees, and punitive damages. The complaint relates to the same set of facts as the DOJ complaint as described above, and the alleged taxes sought in the DOJ, Southwestern, and NatPay complaints. On August 12, 2022, AXH filed an amended complaint asserting gross negligence, unjust enrichment, and accounting claims against the Pioneer Parties. The amended complaint seeks the same relief as in the original complaint. On August 26, 2022, the Pioneer Parties filed their answer to the amended complaint. This matter is currently in discovery.

On December 1, 2020, the Bank filed a complaint in the Supreme Court of the State of New York against Teal, Becker & Chiaramonte, CPAs, P.C. (“TBC”), Mr. Pasquale M. Scisci and Mr. Vincent Commisso (collectively, with TBC, the “TBC Parties”), alleging professional malpractice by the TBC Parties in auditing the annual consolidated financial statements of Valuewise Corporation and its subsidiaries (“Valuewise Entities”) for the fiscal years 2010 to 2018. The Bank asserts that the TBC Parties were aware that the primary, if not the exclusive, reason the Valuewise Entities engaged TBC to audit their financial statements was to provide the Bank with accurate financial information that the Bank would rely on in evaluating whether to provide loans to the Valuewise Entities. The Bank contends that, among other matters, Mr. Michael Mann used the Valuewise Entities to defraud the Bank because of the professional malpractice of the TBC Parties and that if the TBC Parties had not committed professional malpractice by issuing unqualified “clean” opinions on the financial statements of the Valuewise Entities for fiscal years 2010 to 2018, the Bank would never have continued loaning money to the Valuewise Entities. The Bank seeks to recover damages of at least $34.1 million (plus interest) sustained by it as a result of the professional malpractice of the TBC Parties. The TBC Parties filed their answer to the Bank’s complaint on February 12, 2021. On February 28, 2022, the TBC Parties filed a motion to dismiss the complaint. On October 4, 2022, the Court entered a decision and order denying the motion in its entirety. This matter is currently in discovery.

On May 14, 2021, the Bank filed a verified petition for a hearing, pursuant to 21 U.S.C. § 853(n)(2), to adjudicate the validity of the Bank’s interest in approximately $14.9 million in cash and securities forfeited by Michael Mann pursuant to a preliminary order of forfeiture in U.S. v. Mann filed in United States District Court for the Northern District of New York. The Bank’s petition alleges that it has a valid security interest in the forfeited property, and that the forfeited property should thus be turned over to the Bank. On June 28, 2021, the government filed a motion to dismiss the Bank’s petition. On July 30, 2021, the Bank filed opposition to the government’s motion to dismiss the Bank’s petition. On August 13, 2021, the government filed a reply to the Bank’s opposition to the government’s motion to dismiss the Bank’s petition. On October 14, 2022, the magistrate judge assigned to the case entered a report and recommendation recommending the motion to dismiss the Bank’s petition be granted in part and denied in part. On October 28, 2022, the Bank filed an objection to the magistrate judge’s report and recommendation. The government filed its opposition to the Bank’s objection on November 21, 2022. The objection currently is pending before the Court.

On August 15, 2022, Granite Solutions filed a complaint against the Pioneer Parties, Michael T. Mann, Valuewise Corporation, Cloud Payroll LLC, Ross Personal Consultants, Inc., Always Live Holdings, LLC, Kaningo LLC, Hire Flux, LLC, Hire Flux Holdings, LLC, Viverant LLC, and Heutmaker Business Advisors, LLC, in the United States District Court for the Northern District of New York. The complaint relates to the same set of facts as the DOJ and AXH complaints as described above, and the alleged taxes sought in the DOJ, Southwestern, and NatPay complaints. Like the proposed amended complaint in the Southwestern matter that sought to add Granite Solutions described above, the complaint asserts claims against the Pioneer Parties for declaratory judgment, conversion, fraud, negligence/gross negligence, unjust enrichment/money had and received, violations of RICO, aiding and abetting conversion, and aiding and abetting fraud. The complaint seeks compensatory damages in excess of $1 million, plus penalties and interest, treble damages, and punitive damages. On November 22, 2022, the Court entered an order postponing the Pioneer Parties’ time to respond to the complaint until 30 days after the Court’s entry of an order resolving the above-described appeals pending in the Southwestern/NatPay matter. On April 25, 2023, Granite Solutions voluntarily dismissed the case without prejudice in light of the April 10, 2023 memorandum decision and order of the district court in the Southwestern/NatPay matter permitting Southwestern to serve a third amended complaint that, among other things, joins Granite Solutions as a plaintiff.

On September 2, 2022, two substantially similar putative class action complaints were filed against the Pioneer Parties in the Supreme Court of the State of New York for Albany County. The first complaint was filed by Brandes & Yancy PLLC and Ricardo’s Restaurant, Inc., two alleged clients of Southwestern which seek to assert claims on behalf of all current or former Southwestern clients based on the same set of facts as the DOJ, AXH, and Granite Solutions complaints as described above, and the alleged taxes sought in the DOJ, Southwestern, and NatPay complaints. The second complaint

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was filed by O’Malley’s Oven LLC and Legat Architects, Inc., two alleged clients of MyPayrollHR.Com, LLC and ProData Payroll Services, Inc., affiliates of Cloud Payroll, LLC (collectively, “Cloud Payroll”). Similar to the first complaint described above, the two named plaintiffs in the second complaint seek to assert claims on behalf of all current or former Cloud Payroll clients based on the same set of facts as the DOJ, AXH, and Granite Solutions complaints as described above, and the alleged taxes sought in the DOJ, Southwestern, and NatPay complaints. Both complaints assert claims against the Pioneer Parties for conversion, gross negligence, unjust enrichment, money had and received, tortious interference with contract, aiding and abetting fraud, and a declaratory judgment. Both complaints also seek to recover compensatory and punitive damages, plus pre-judgment interest, costs, expenses, disbursements, and reasonable attorneys’ fees. The Pioneer Parties acknowledged service of the complaints as of December 30, 2022. On February 28, 2023, the Pioneer Parties filed motions to dismiss the complaints. On April 7, 2023, the plaintiffs filed amended complaints that assert the same causes of action but include additional allegations. On April 27, 2023, the Pioneer Parties elected to withdraw their pending motions to dismiss and file renewed motions to dismiss the amended complaints. The Pioneer Parties filed renewed motions to dismiss on June 26, 2023. On August 25, 2023, plaintiffs in both putative class actions filed their responses to the renewed motions to dismiss filed by the Pioneer Parties. On October 6, 2023, the Pioneer Parties filed their reply to the response of the plaintiffs. The motion remains pending before the Court.

The Company and the Bank have received inquiries and requests for information from regulatory agencies relating to some of the entities and events that are the subjects of certain lawsuits described above. This has resulted in, or may in the future result in, regulatory agency investigations, litigation, subpoenas, enforcement actions, and related sanctions or costs. The Company and the Bank continue to cooperate with inquiries and respond to requests as appropriate.

The New York State Department of Financial Services (the “NYSDFS”) has made requests for production of documents, conducted interviews with Bank employees, and taken other investigatory actions with respect to the Bank’s practices associated with the Mann Parties. The Bank has complied with these requests, producing responsive, non-privileged documents to the NYSDFS. In Summer 2021, NYSDFS informed the Bank that if the parties could not reach a negotiated resolution related to NYSDFS’s findings arising from the Bank’s practices associated with the Mann Parties, NYSDFS would proceed to an administrative hearing on the issue. It is unknown whether the parties will be able to resolve the matter. A resolution could involve monetary penalties, injunctive relief, and other regulatory consequences. The monetary penalties could be up to $30.0 million, though, $15.0 million of these potential monetary penalties relate to and are not incremental to the damages sought by the plaintiffs in the Southwestern, NatPay, DOJ, Cachet, AXH, Granite Solutions, and putative class action proceedings described in this section.

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10.FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2). The fair value of derivatives are classified as a component of other assets and other liabilities on the consolidated statements of condition.

The fair value of individually analyzed loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments result in a Level 3 classification of the inputs for determining fair value.

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Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):


			Fair Value Measurements at
			September 30, 2023 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale securities:
U.S. Government and agency obligations	$	383,814	$	383,814	$	—	$	—
Municipal obligations		27,974		—		27,974		—
Other debt securities		487		—		487
Total available for sale securities		412,275		383,814		28,461		—
Equity securities		2,493		2,493		—		—
Derivative assets		1		—		1		—
Total	$	414,769	$	386,307	$	28,462	$	—

Liabilities:
Derivative liabilities	$	22,285	$	—	$	22,285	$	—
Total	$	22,285	$	—	$	22,285	$	—


			Fair Value Measurements at
			June 30, 2023 Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale securities:
U.S. Government and agency obligations	$	377,729	$	377,729	$	—	$	—
Municipal obligations		53,434		—		53,434		—
Other debt securities		504		—		504
Total available for sale securities		431,667		377,729		53,938		—
Equity securities		2,413		2,413		—		—
Derivative assets		684		—		684		—
Total	$	434,764	$	380,142	$	54,622	$	—

Liabilities:
Derivative liabilities	$	18,828	$	—	$	18,828	$	—
Total	$	18,828	$	—	$	18,828	$	—

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Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below (dollars in thousands):


			Fair Value Measurements Using
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2023
Individually evaluated loans:
Commercial loans	$	539	$	—	$	—	$	539

June 30, 2023
Impaired loans:
Commercial loans	$	539	$	—	$	—	$	539

Individually evaluated loans, which are assets measured at fair value on a non-recurring basis, using the fair value of collateral for collateral dependent loans, had a carrying amount of $1.3 million with a valuation allowance of $785,000 resulting in an estimated fair value of $539,000 as of September 30, 2023. Individually evaluated loans had a carrying amount of $1.3 million with a valuation allowance of $792,000 resulting in an estimated fair value of $539,000 as of June 30, 2023.

The Company had no other real estate owned at September 30, 2023 or June 30, 2023.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands):

Significant

Significant Unobservable

Valuation

Unobservable

Input Range

Fair Value

Technique

Inputs

(Weighted Average)

September 30, 2023

Individually evaluated loans:

Commercial loans

539

Appraisal of collateral (1)

Liquidation expense (2)

11.0%

June 30, 2023

Impaired loans:

Commercial loans

539

Appraisal of collateral (1)

Liquidation expense (2)

11.0%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.

(2)	Estimated selling costs.

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The carrying and estimated fair values of financial assets and liabilities were as follows (dollars in thousands):


	September 30, 2023
						Fair Value Measurements Using
							Significant
					Active Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	216,544	$	216,544	$	216,544	$	—	$	—
Securities available for sale		412,275		412,275		383,814		28,461		—
Securities held to maturity		23,908		21,903		—		21,903		—
Equity securities		2,493		2,493		2,493		—		—
FHLBNY stock		1,234		1,234		—		1,234		—
Net loans receivable		1,203,504		1,135,940		—		—		1,135,940
Accrued interest receivable		7,124		7,124		—		7,124		—
Derivative assets		1		1		—		1		—

Financial liabilities
Deposits
Savings, money market, and demand accounts	$	1,510,214	$	1,510,214	$	—	$	1,510,214	$	—
Time deposits		128,621		126,253		—		126,253		—
Mortgagors’ escrow deposits		3,524		3,524		—		3,524		—
Accrued interest payable		70		70		—		70		—
Derivative liabilities		22,285		22,285		—		22,285		—


	June 30, 2023
						Fair Value Measurements Using
							Significant
					Active Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	150,478	$	150,478	$	150,478	$	—	$	—
Securities available for sale		431,667		431,667		377,729		53,938		—
Securities held to maturity		23,949		21,744		—		21,744		—
Equity securities		2,413		2,413		2,413		—		—
FHLBNY stock		1,196		1,196		—		1,196		—
Net loans receivable		1,144,169		1,095,366		—		—		1,095,366
Accrued interest receivable		7,194		7,194		—		7,194		—
Derivative assets		684		684		—		684		—

Financial liabilities
Deposits
Savings, money market, and demand accounts	$	1,424,874	$	1,424,874	$	—	$	1,424,874	$	—
Time deposits		116,977		114,596		—		114,596		—
Mortgagors’ escrow deposits		7,888		7,888		—		7,888		—
Accrued interest payable		84		84		—		84		—
Derivative liabilities		18,828		18,828		—		18,828		—

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Short-Term Financial Instruments

The fair value of certain financial instruments are estimated to approximate their carrying amounts because the remaining term to maturity or period to repricing of the financial instrument is less than ninety days. Such financial instruments include cash and cash equivalents, accrued interest receivable and payable, and mortgagor’s escrow deposits.

Securities

Fair values of securities available for sale, securities held to maturity and equity securities are determined as outlined earlier in this footnote.

FHLBNY Stock

The fair value of FHLB stock approximates its carrying value due to transferability restrictions.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, including residential real estate, commercial real estate, and consumer loans and whether the interest rates are fixed and/or variable.

The estimated fair values of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the respective loan portfolio.

Estimated fair values for nonperforming loans are based on estimated cash flows discounted using a rate commensurate with the credit risk involved. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

Derivatives

Fair values of derivative assets and liabilities are determined as outlined earlier in this footnote.

Deposits

The estimated fair value of deposits with no stated maturity, such as savings, money market and demand deposits, is regarded to be the amount payable on demand. The estimated fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using market rates for time deposits with similar maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposits as compared to the cost of borrowing funds in the market.

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11.REVENUE RECOGNITION

In general, for revenue not associated with financial instruments, guarantees and lease contracts, we apply the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when performance obligation is satisfied. Our contracts with customers are generally short term in nature, typically due within one year or less or cancellable by us or our customer upon a short notice period. Performance obligations for our customer contracts are generally satisfied at a single point in time, typically when the transaction is complete. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognized revenue and the related costs to provide our services on a net basis in our financial statements. These transactions primarily relate to insurance and brokerage commissions, and fees derived from our customers' use of various interchange and ATM/debit card networks.

Revenue associated with financial instruments, including revenue from loans and securities is excluded from the scope of the accounting guidance for revenue from contracts with customers. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the accounting guidance for revenue from contracts with customers. The accounting guidance for revenue from contracts with customers is applicable to noninterest revenue streams such as deposit related fees, interchange fees, and insurance and wealth management services commissions.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of the accounting guidance for revenue from contracts with customers, for the three months ended September 30, 2023 and 2022.


	For the Three Months Ended September 30,
	2023		2022

	(Dollars in thousands)
Non-interest Income
In scope
Insurance services	$	595	$	614
Wealth management services		1,386		1,120
Service charges on deposit accounts		627		700
Card services income		748		767
Other		123		78
Non-interest income in scope		3,479		3,279

Non-interest income out of scope		95		526

Total non-interest income	$	3,574	$	3,805

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12.LEASES

The Company leases certain branches under various non-cancelable operating leases that may contain extension options. Reasonably certain extension options are included in the determination of lease term for accounting purposes. The Company has also entered into a long-term ground lease with a bargain purchase option and into office equipment leases which have been classified as finance leases. The leases may require additional payments for maintenance, taxes, insurance, service, and other costs which are not included in calculating the lease liability.

For all asset classes the Company made an accounting policy election to not separate lease components and non-lease components and treat both as a single lease component for lease accounting purposes. The right-of-use (“ROU”) assets and lease liabilities are based on the stated lease consideration as identified in the underlying agreements.

When known or determinable, the Company uses the rate implicit in the lease in determining the present value of lease payments. Otherwise, the incremental borrowing rate is used which is based on information provided by FHLBNY for a secured borrowing arrangement of a comparable term.

The Company made an accounting policy election to not apply the lease accounting requirements to short-term lease arrangements with an initial term of 12 months or less.

The ROU assets are included in premises and equipment and lease liabilities are included in other liabilities in the Company’s consolidated statements of condition.

The following tables include quantitative data related to the Company’s operating and finance leases:


	As of September 30, 2023		As of June 30, 2023

	(In thousands, except weighted-average information)
Right of use assets:
Finance leases	$	583	$	608
Operating leases		5,547		5,448
	$	6,130	$	6,056
Lease liabilities:
Finance leases	$	693	$	711
Operating leases		5,817		5,713
	$	6,510	$	6,424

Other information:
Weighted-average remaining lease term for finance leases (in years)		67.2		64.9
Weighted-average remaining lease term for operating leases (in years)		13.8		14.2
Weighted-average discount rate for finance leases		5.66		5.62
Weighted-average discount rate for operating leases		3.90		3.87

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	For the Three Months Ended September 30,
	2023		2022

	(Dollars in thousands)
Lease expense:
Finance lease expense
Amortization of ROU assets	$	25	$	25
Interest on lease liabilities		8		8
Operating lease expense		159		151
Variable lease expense		51		50
Total:	$	243	$	234

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Finance cash flows from finance leases (i.e. principal portion)	$	25	$	25
Operating cash flows from operating leases	$	151	$	145

Maturities of finance and operating lease liabilities are as follows:


	Finance leases		Operating leases

	(Dollars in thousands)
Within the twelve months ended September 30,
2024	$	131	$	636
2025		117		628
2026		30		593
2027		30		578
2028		30		573
Thereafter		2,580		4,587
Total undiscounted cash flows		2,918		7,595
Less: present value discount		(2,225)		(1,778)
Total lease liabilities	$	693	$	5,817

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13.EARNINGS PER SHARE

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. There were no potentially diluted common stock equivalents as of September 30, 2023 or September 30, 2022.


	For the Three Months Ended September 30,
	2023		2022

	(Dollars in thousands, except share and per share amounts)
Net income applicable to common stock	$	3,419	$	5,234

Average number of common shares outstanding		25,977,679		25,977,679
Less: Average unallocated ESOP shares		782,838		833,755
Average number of common shares outstanding used to calculate basic and diluted earnings per common share		25,194,841		25,143,924

Net earnings per common share:
Basic	$	0.14	$	0.21
Diluted	$	0.14	$	0.21

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

Statement Regarding Forward-Looking Statements

Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” or “may.” The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. No assurance can be given that the future results covered by forward-looking statements will be achieved. Certain forward-looking statements are included in this Form 10-Q, principally in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition to the factors described in Item 1A – Risk Factors, factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

●

inflation and changes in market interest rates that reduce our margins and yields, reduce the fair value of financial instruments or reduce our volume of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in our portfolio or sold in the secondary market;

●

risks related to the variety of litigation, investigations, and other proceedings described in the “Legal Proceedings” section of this report;

●

general economic conditions, either nationally or in our market area, that are worse than expected;

●

recent events involving the failure of financial institutions which have adversely affected market sentiment toward regional banks, which may result in decreased deposits and increased regulatory costs that could adversely affect our liquidity, our business, and the market price of our common stock;

●

competition within our market area that is stronger than expected;

●

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of our allowance for credit losses;

●

our ability to access cost-effective funding;

●

fluctuations in real estate values and both residential and commercial real estate market conditions;

●

demand for loans and deposits in our market area;

●

changes in our partnership with a third-party mortgage banking company;

●

our ability to continue to implement our business strategies;

●

competition among depository and other financial institutions, as well as other non-traditional competitors;

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●

risks and uncertainties related to the Coronavirus Disease 2019 pandemic and resulting governmental and societal response;

●

adverse changes in the securities markets;

●

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

●

our ability to manage market risk, credit risk and operational risk;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

the imposition of tariffs or other domestic or international governmental polices impacting the value of the products of our borrowers;

●

our ability to successfully integrate into our operations any assets, liabilities or systems we may acquire, as well as new management personnel or customers, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

●

changes in consumer spending, borrowing and savings habits;

●

our ability to maintain our reputation;

●

our ability to prevent or mitigate fraudulent activity;

●

changes in our costs of legal expenses, including defending against significant litigation;

●

any future Federal Deposit Insurance Corporate (“FDIC”) insurance premium increases, or special assessments may adversely affect our earnings;

●

fluctuations in the stock market may have a significant adverse effect on transaction fees, client activity and client investment portfolio gains and losses related to our wealth management business;

●

a breach in security of our information systems, including the occurrence of a cyber incident or a deficiency in cyber security;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

our ability to attract and retain key employees;

●

our ability to evaluate the amount and timing of recognition of future tax assets and liabilities;

●

our compensation expense associated with equity benefits allocated or awarded to our employees in the future; and

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Additional factors that may affect our results are discussed in the annual report on Form 10-K for the fiscal year ended June 30, 2023, under the heading “Risk Factors” and this Form 10-Q, under the heading “Risk Factors.” The Company disclaims any obligation to revise or update any forward-looking statements contained in this quarterly report on Form 10-Q to reflect future events or developments.

Overview

Net Interest Income. Our primary source of income is net interest income. Net interest income is the difference between interest income, which is the income we earn on our loans and investments, and interest expense, which is the interest we pay on our deposits and borrowings.

Provision for Credit Losses. We charge provisions for credit losses to operations in order to maintain our allowance for credit losses on loans and allowance for credit losses on unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are expected to be advanced at the statements of condition date. Loans are charged against the allowance when management believes that the collectability of the principal loan amount is not probable. Recoveries on loans previously charged-off, if any, are credited to the allowance for credit losses when realized.

Non-interest Income. Our primary sources of non-interest income are banking fees and service charges, insurance and wealth management services income. Our non-interest income also includes net gains or losses on equity securities, net gains or losses in cash surrender value of bank owned life insurance and other income.

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Non-Interest Expense. Our non-interest expenses consist of salaries and employee benefits, net occupancy and equipment, data processing, advertising and marketing, insurance premiums, federal deposit insurance premiums, professional fees, and other general and administrative expenses.

Salaries and employee benefits consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for worker’s compensation and disability insurance, health insurance, retirement plans and other employee benefits, as well as commissions and other incentives.

Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, rental expenses, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using a straight-line method based on the estimated useful lives of the related assets or the expected lease terms, if shorter.

Data processing expenses are fees we pay to third parties for use of their software and for processing customer information, deposits and loans.

Advertising and marketing includes most marketing expenses including multi-media advertising (public and in-store), promotional events and materials, civic and sales focused memberships, and community support.

Insurance premiums include expense related to various insurance policies, excluding federal deposit insurance premiums.

Federal deposit insurance premiums are payments we make to the FDIC for insurance of our deposit accounts.

Professional fees includes legal and other consulting expenses.

Other expenses include expenses for professional services, office supplies, postage, telephone and other miscellaneous operating expenses.

Income Tax Expense. Our income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized.

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Recent Developments

Acquisition

On July 13, 2023, the Company, through its subsidiary, Pioneer Financial Services, Inc., completed the acquisition of certain assets of Hudson Financial LLC, a company engaged in the wealth management services business in the Hudson Valley Region of New York. The Company paid an aggregate of $2.0 million in cash and recorded $1.5 million in contingent consideration payable to acquire the assets and recorded a $1.4 million customer list intangible asset and goodwill in the amount of $2.1 million in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since the acquisition date. This acquisition was made to expand the Company’s wealth management services activities and increased Pioneer’s assets under management to more than $1 billion at September 30, 2023.

Mann Entities Related Fraudulent Activity

For additional details regarding legal, other proceedings and related matters see “Item 1 Consolidated Financial Statements – Note 9 – Commitments and Contingent Liabilities – Legal Proceedings and Other Contingent Liabilities.”

Critical Accounting Policies and Estimates

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies and estimates discussed below to be critical accounting policies and estimates. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to continue to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our critical accounting policies and estimates:

Allowance for Credit Losses. The allowance for credit losses consists of the allowance for credit losses for loans and unfunded commitments. Effective July 1, 2023, the measurement of Current Expensed Credit Losses (“CECL”) on financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the

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estimated fair value of the collateral, as applicable. The allowance for credit losses for loans, as reported in our consolidated statements of condition, are adjusted by a provision for credit losses, which is recognized in earnings, and reduced by the charge-off of loans, net of recoveries. The allowance for credit losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws and is included in other liabilities on the Company’s consolidated statements of condition. All loan information presented as of June 30, 2023 or a prior date is presented in accordance with previously applicable GAAP (the incurred loss method).

As a substantial percentage of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. Management carefully reviews the assumptions supporting such appraisals to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolios. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolios, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to our reported earnings.

Actual loan losses may be significantly more than the allowance we have established which could have a material negative effect on our financial results.

Legal Proceedings and Other Contingent Liabilities. In the ordinary course of business, we are involved in a number of legal, regulatory, governmental and other proceedings, claims or investigations that could result in losses, including damages, fines and/or civil penalties, which could be significant concerning matters arising from the conduct of our business. In view of the inherent difficulty of predicting the outcome of such matters, particularly where the claimants seek large or indeterminate damages, we generally cannot predict the eventual outcome of the pending matters, timing of the ultimate resolution of these matters, or eventual loss, fines or penalties related to each pending matter. In accordance with applicable accounting guidance, we will establish an accrued liability when those matters present loss contingencies that are both probable and estimable. Our estimate of potential losses will change over time and the actual losses may vary significantly, and there may be an exposure to loss in excess of any amounts accrued. As a matter develops, management, in conjunction with any outside counsel handling the matter, evaluate on an ongoing basis whether such matter presents a loss contingency that is probable and estimable; or where a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, whether it is possible to estimate a range of possible loss. Once the loss contingency is deemed to be both probable and estimable, we establish an accrued liability and record a corresponding amount of litigation-related expense. We continue to monitor the matters for further developments, including our interactions with various regulatory agencies with supervisory authority over us, that could affect the amount of the accrued liability that has been previously established. These estimates are based upon currently available information and are subject to significant judgment, a variety of assumptions and known and unknown uncertainties. The matters underlying the accrued liability and estimated range of possible losses are unpredictable and may change from time to time, and actual losses may vary significantly from the current estimate and accrual which could have a material negative effect on our financial results. The estimated range of possible loss does not represent our maximum loss exposure.

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Fair Value Measurements. The fair value of a financial instrument is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the particular asset or liability in an orderly transaction between market participants on the measurement date. We estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices as of the measurement date are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded.

Pension Obligations. We maintain a non-contributory defined benefit pension plan covering substantially all of our full-time employees hired before September 1, 2019. The benefits are developed from actuarial valuations and are based on the employee’s years of service and compensation. Actuarial assumptions such as interest rates, expected return on plan assets, turnover, mortality and rates of future compensation increases have a significant impact on the costs, assets and liabilities of the plan. Pension expense is the net of service cost, interest cost, return on plan assets and amortization of gains and losses not immediately recognized.

Income Taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for temporary differences between carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. We recognize interest and/or penalties related to income tax matters in other expense. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is more than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Management determines the need for a deferred tax valuation allowance based upon the realizability of tax benefits from the reversal of temporary differences creating the deferred tax assets, as well as the amounts of available open tax carrybacks, if any.

We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings.

Goodwill and Intangible Assets. The excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, is recorded as goodwill. Goodwill is carried at its acquired value and is reviewed annually for impairment, or when events or changes in circumstances indicate that carrying amounts may be impaired.

Acquired identifiable intangible assets that have finite lives are amortized over their useful economic life. Customer relationship intangibles are generally amortized over fifteen years based upon the projected discounted cash flows of the accounts acquired. Core deposit premium related to the Bank’s assumption of certain deposit liabilities is being amortized over fifteen years. Acquired identifiable intangible assets that are amortized are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may be impaired.

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Average Balances and Yields

The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense, as applicable.


	For the Three Months Ended September 30,
	2023							2022
	Average					Average		Average					Average
	Outstanding					Yield/Cost		Outstanding					Yield/Cost
	Balance			Interest		(4)		Balance			Interest		(4)

	(Dollars in thousands)
Interest-earning assets:
Loans	$	1,175,279		$	16,533	5.70	%	$	1,003,857		$	11,513	4.63	%
Securities		446,152			2,568	2.30	%		517,691			1,934	1.49	%
Interest-earning deposits and other		76,581			1,055	5.58	%		305,078			1,745	2.29	%
Total interest-earning assets		1,698,012			20,156	4.79	%		1,826,626			15,192	3.34	%
Non-interest-earning assets		153,684							142,974
Total assets	$	1,851,696						$	1,969,600

Interest-bearing liabilities:
Demand deposits	$	140,526		$	507	1.44	%	$	197,377		$	143	0.29	%
Savings deposits		286,139			39	0.05	%		324,626			27	0.03	%
Money market deposits		466,276			2,627	2.25	%		467,630			146	0.12	%
Certificates of deposit		105,764			781	2.96	%		72,540			90	0.49	%
Total interest-bearing deposits		998,705			3,954	1.58	%		1,062,173			406	0.15	%
Borrowings and other		27,890			312	4.51	%		18,510			112	2.42	%
Total interest-bearing liabilities		1,026,595			4,266	1.66	%		1,080,683			518	0.19	%
Non-interest-bearing deposits		508,862							607,786
Other non-interest-bearing liabilities		46,464							36,584
Total liabilities		1,581,921							1,725,053
Total shareholders' equity		269,775							244,547
Total liabilities and shareholders' equity	$	1,851,696						$	1,969,600
Net interest income				$	15,890						$	14,674
Net interest rate spread (1)						3.13	%						3.15	%
Net interest-earning assets (2)	$	671,417						$	745,943
Net interest margin (3)						3.76	%						3.23	%
Average interest-earning assets to interest-bearing liabilities		165.40	%						169.03	%

(1)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

(4)	Annualized.

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Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior two columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.


	Three Months Ended September 30,
	2023 vs. 2022
					Total
	Increase (Decrease) Due to				Increase
	Volume		Rate		(Decrease)

Interest-earning assets:
Loans	$	2,132	$	2,888	$	5,020
Securities		(297)		931		634
Interest-earning deposits and other		(1,955)		1,265		(690)
Total interest-earning assets		(120)		5,084		4,964

Interest-bearing liabilities:
Demand deposits		(52)		416		364
Savings deposits		(3)		15		12
Money market deposits		—		2,481		2,481
Certificates of deposit		58		633		691
Total interest-bearing deposits		3		3,545		3,548
Borrowings and other		74		126		200
Total interest-bearing liabilities		77		3,671		3,748
Change in net interest income	$	(197)	$	1,413	$	1,216

Comparison of Financial Condition at September 30, 2023 and June 30, 2023

Total Assets. Total assets of $1.96 billion at September 30, 2023 increased $107.2 million, or 5.8%, from $1.86 billion at June 30, 2023. The increase was due primarily to an increase of $66.1 million, or 43.9%, in cash and cash equivalents and an increase of $59.3 million, or 5.2% in net loans receivable, offset in part by a decrease of $19.4 million, or 4.5%, in securities available for sale as we shifted the composition of interest-earning assets from securities available for sale to net loans receivable.

Cash and Cash Equivalents. Total cash and cash equivalents of $216.5 million at September 30, 2023, increased $66.1 million, or 43.9%, from $150.5 million at June 30, 2023. This increase was primarily a result of a net increase in deposits of $97.0 million and a decrease in securities available for sale of $19.4 million, offset in part by an increase in net loans receivable of $59.3 million during the three months ended September 30, 2023.

Securities Available for Sale. Total securities available for sale of $412.3 million at September 30, 2023 decreased $19.4 million, or 4.5%, from $431.7 million at June 30, 2023. The decrease was primarily due to maturities of $45.1 million, offset in part by purchases of U.S. Government and agency obligations and municipal obligations of $23.9 million and a decrease in net unrealized losses of $1.4 million during the three months ended September 30, 2023.

Net Loans Receivable. Net loans receivable of $1.20 billion at September 30, 2023 increased $59.3 million, or 5.2%, from $1.14 billion at June 30, 2023. By loan category, residential mortgage loans increased by $50.8 million, or 11.0%, to $514.0 million at September 30, 2023 from $463.2 million at June 30, 2023, commercial construction loans increased by $5.7 million, or 6.1%, to $98.4 million at September 30, 2023 from $92.7 million at June 30, 2023, home equity loans and lines of credit increased by $4.0 million, or 4.7%, to $89.5 million at September 30, 2023 from $85.5 million at June 30, 2023 and commercial and industrial loans increased by $1.1 million, or 1.1%, to $98.4 million at September 30, 2023 from $97.3 million at June 30, 2023. These increases were partially offset by a decrease in consumer loans of $1.8 million, or 11.2%, to $15.0 million at September 30, 2023 from $16.8 million at June 30, 2023 and a decrease in commercial real estate loans of $1.8 million, or 0.4%, to $409.4 million at September 30, 2023 from $411.2 million at June 30, 2023.

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The increase in residential mortgage loans was primarily related to the Bank’s asset allocation shift, using investment securities cash flow and cash to fund higher yielding assets. The Bank’s relationship with a third-party mortgage banking company facilitated a significant increase in residential mortgage loan volume, despite the rising interest rate environment. The increase in commercial construction loans was due to funding of increased construction commitments. The increase in home equity loans and lines of credit was due to increased utilization rates of home equity lines of credit.

Deposits. Total deposits of $1.64 billion at September 30, 2023 increased $97.0 million, or 6.3%, from $1.54 billion at June 30, 2023. By deposit category, non-interest-bearing demand accounts increased by $81.8 million, or 15.6%, to $607.9 million at September 30, 2023 from $526.1 million at June 30, 2023, money market accounts increased by $14.2 million, or 3.1%, to $477.1 million at September 30, 2023 from $462.9 million at June 30, 2023, certificates of deposit increased by $11.6 million, or 10.0%, to $128.6 million at September 30, 2023 from $117.0 million at June 30, 2023 (included in certificates of deposit were brokered deposits which decreased by $16.5 million to $20.0 million at September 30, 2023 from $36.5 million at June 30, 2023), and demand accounts increased by $7.6 million, or 5.5%, to $146.4 million at September 30, 2023 from $138.8 million at June 30, 2023, partially offset by a decrease in savings accounts of $18.2 million, or 6.1%, to $278.8 million at September 30, 2023 from $297.0 million at June 30, 2023. The increase in non-interest-bearing demand accounts and money market accounts was primarily related to growth in municipal deposits due to seasonality. The increase in certificates of deposit was primarily related to a migration of funds from savings and other lower rate interest-bearing accounts, partially offset by a decrease in brokered deposits. The effects of the Federal Reserve Board’s rapidly tightening monetary policy, inflation, and higher rate alternatives continued to have an impact on deposit balances in the first fiscal quarter of 2024. As of September 30, 2023 and June 30, 2023, estimated uninsured deposits, net of collateralized deposits, totaled $230.7 million and $228.4 million, respectively.

Total Shareholders’ Equity. Total shareholders’ equity of $271.8 million at September 30, 2023 increased $5.1 million, or 1.9%, from $266.7 million at June 30, 2023 primarily as a result of net income of $3.4 million, a decrease in accumulated other comprehensive loss of $1.0 million and the net increase of $507,000 related to the day-one CECL adjustment during the three months ended September 30, 2023.

Comparison of Operating Results for the Three Months Ended September 30, 2023 and September 30, 2022

General. Net income decreased by $1.8 million to $3.4 million for the three months ended September 30, 2023 as compared to $5.2 million for the three months ended September 30, 2022. The decrease was primarily due to an increase in non-interest expense of $2.5 million, an increase in provision for credit losses of $630,000 and a decrease in noninterest income of $231,000, offset in part by an increase in net interest income of $1.2 million.

Interest and Dividend Income. Interest and dividend income increased $5.0 million, or 32.7%, to $20.2 million for the three months ended September 30, 2023, from $15.2 million for the three months ended September 30, 2022 due to increases in interest income on loans and securities, offset in part by a decrease in interest income on interest-earning deposits with banks and other. The increase was the result of a 145 basis points increase in the average yield on interest-earning assets to 4.79% for the three months ended September 30, 2023, from 3.34% for the three months ended September 30, 2022. The increase in the average yield on interest-earning assets was driven by a significant increase in variable rate loan yields and yields on interest-earning deposits with banks due to rising market interest rates, as well as due to market related increases in interest rates on new loans and securities. Average interest-earning assets decreased by $128.6 million from $1.83 billion for the three months ended September 30, 2022 to $1.70 billion for the three months ended September 30, 2023.

Interest income on loans increased $5.0 million, or 43.6%, to $16.5 million for the three months ended September 30, 2023 from $11.5 million for the three months ended September 30, 2022. Interest income on loans increased due to a 107 basis points increase in the average yield on loans to 5.70% for the three months ended September 30, 2023 from 4.63% for the three months ended September 30, 2022 and a $171.4 million increase in the average balance of loans to $1.18 billion for the three months ended September 30, 2023 from $1.00 billion for the three months ended September 30, 2022. The increase in average yield on loans was primarily due to loans tied to variable short-term rates which increased during the three months ended September 30, 2023 and market related increases in interest rates on new loans as compared to the same period in the prior year. The increase in the average balance of loans was principally due to purchases of residential mortgage loans.

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Interest income on securities increased $634,000, or 32.8%, to $2.6 million for the three months ended September 30, 2023 from $1.9 million for the three months ended September 30, 2022. Interest income on securities increased due to an 81 basis points increase in the average yield on securities to 2.30% for the three months ended September 30, 2023 from 1.49% for the three months ended September 30, 2022, offset in part by, a $71.5 million decrease in the average balance of securities to $446.2 million for the three months ended September 30, 2023 from $517.7 million for the three months ended September 30, 2022. The increase in average yield on securities was due to higher market rates of interest for new securities that were purchased during the three months ended September 30, 2023 replacing scheduled maturities of lower yielding U.S. government and agency and municipal obligation securities. The decrease in the average balance of securities was due to maturities of U.S. government and agency and municipal obligation securities outpacing purchases throughout the later part of fiscal year 2023 and continuing during the three months ended September 30, 2023.

Interest income on interest-earning deposits with banks and other decreased $690,000 to $1.1 million for the three months ended September 30, 2023 from $1.7 million for the three months ended September 30, 2022. Interest income on interest-earning deposits with banks and other decreased due to a $228.5 million decrease in average balances on interest-earning deposits with banks and other to $76.6 million for the three months ended September 30, 2023 from $305.1 million for the three months ended September 30, 2022, offset in part by a 329 basis points increase in the average yield on interest-earning deposits with banks and other to 5.58% for the three months ended September 30, 2023 from 2.29% for the three months ended September 30, 2022 primarily as a result of the increase in the Federal Funds target rate during calendar year 2022 and continuing in the first half of calendar year 2023.

Interest Expense. Interest expense increased $3.7 million, or 723.6%, to $4.3 million for the three months ended September 30, 2023 from $518,000 for the three months ended September 30, 2022 as a result of an increase in interest expense on deposits, as well as, on borrowings and other. The increase was primarily due to a 147 basis points increase in the average cost of interest-bearing liabilities to 1.66% for the three months ended September 30, 2023 from 0.19% for the three months ended September 30, 2022, as well as, a shift in interest-bearing liabilities mix to higher interest rate liability accounts.

Interest expense on interest-bearing deposits increased $3.5 million, or 873.9%, to $4.0 million for the three months ended September 30, 2023 from $406,000 for the three months ended September 30, 2022. Interest expense on interest-bearing deposits increased primarily due to a 143 basis points increase in the average cost of interest-bearing deposits to 1.58% for the three months ended September 30, 2023 from 0.15% for the three months ended September 30, 2022 offset in part by a decrease in average interest-bearing deposits of $63.5 million to $998.7 million for the three months ended September 30, 2023 from $1.06 billion for the three months ended September 30, 2022. The increase in the average cost of interest-bearing deposits was primarily due to the increase in market interest rates and a shift in the mix of deposits to higher costing money market deposits and certificates of deposit. The decrease in the average balance of interest-bearing deposits was due to increased competition for deposits.

Interest expense on borrowings and other liabilities increased $200,000 to $312,000 for the three months ended September 30, 2023 from $112,000 for the three months ended September 30, 2022 due primarily to the increase in average cost of borrowings and other liabilities of 209 basis points as a result of the increase in the Federal Funds target rate throughout calendar year 2022 and continued in the first half of calendar year 2023, coupled with an increase in average borrowings and other liabilities of $9.4 million to $27.9 million for the three months ended September 30, 2023 from $18.5 million for the three months ended September 30, 2022.

We continue to monitor the effects the precipitous increase in market rates are having on deposit rates and we anticipate the impact will lead to a continued increase in rates on deposits and other interest-bearing liabilities. The expected increase in rates on deposits is reflective of our strategy to maintain a strong core deposit base and continue to provide competitive offerings to customers. We have been and will be proactive in managing customer relationships with depositors, particularly larger consumer, commercial and municipal customers, as an important component of this strategy. In addition, we expect the increase in funding costs due to higher deposit costs, the increase in use of brokered deposits and potentially an increase in the use of higher cost wholesale borrowings may result in pressure on net interest margin over the new few quarters.

Net Interest Income. Net interest income increased $1.2 million, or 8.3%, to $15.9 million for the three months ended September 30, 2023 compared to $14.7 million for the three months ended September 30, 2022 as net interest

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margin increased 53 basis points to 3.76% for the three months ended September 30, 2023 from 3.23% for the three months ended September 30, 2022. However, net interest-earning assets decreased by $74.5 million to $671.4 million for the three months ended September 30, 2023 from $745.9 million for the three months ended September 30, 2022 as a result of a shift in deposit mix which increased interest-bearing deposits, as well as, a decrease in interest-earning deposits and other. Net interest rate spread decreased to 3.13% for the three months ended September 30, 2023 from 3.15% for the three months ended September 30, 2022.

Provision for Credit Losses. The provision for credit losses was $750,000 for the three months ended September 30, 2023 as compared to $120,000 for the three months ended September 30, 2022. The provision for credit losses for the three months ended September 30, 2023 was primarily due to growth in the loan portfolio. Non-performing assets were $14.4 million, or 0.73% of total assets, at September 30, 2023, compared to $17.7 million, or 0.96% of total assets, at June 30, 2023 and $12.1 million, or 0.58% of total assets, at September 30, 2022. The allowance for credit losses on loans was $21.1 million at September 30, 2023 and $22.6 million at September 30, 2022, representing 1.72% and 2.17% of total loans outstanding, respectively. Net charge-offs were $5,000, or an annualized 0.00% of average loans, for the three months ended September 30, 2023 compared to net charge-offs of $75,000, or an annualized 0.03% of average loans, for the three months ended September 30, 2022.

Non-Interest Income. Non-interest income decreased $231,000, or 6.1%, to $3.6 million for the three months ended September 30, 2023 as compared to $3.8 million for the three months ended September 30, 2022. Noninterest income decreased primarily from a decrease in bank-owned life insurance income of $517,000, offset in part by an increase in insurance and wealth management services income of $247,000. The decrease in bank-owned life insurance income was primarily due to recognition of a death benefit in the prior year period. The increase in insurance and wealth management services income was primarily due to the acquisition of Hudson Financial LLC which expanded Pioneer’s wealth management business into the Hudson Valley Region of New York.

Non-Interest Expense. Non-interest expense increased $2.5 million, or 21.4%, to $14.4 million for the three months ended September 30, 2023 as compared to $11.9 million for the three months ended September 30, 2022. The increase was primarily due to an increase in professional fees of $1.8 million and an increase in salaries and employee benefits expense of $331,000. Professional fees increased due to legal fees and expenses. Salaries and employee benefits expense increased due to compensation expense from annual merit increases.

Income Tax Expense. Income tax expense decreased $367,000 to $890,000 for the three months ended September 30, 2023 as compared to $1.3 million for the three months ended September 30, 2022 primarily due to a decrease in income before income taxes. Our effective tax rate was 20.7% for the three months ended September 30, 2023 compared to 19.4% for the three months ended September 30, 2022. The increase in effective tax rate was due to a decrease in tax-exempt income.

Asset Quality and Allowance for Credit Losses

Asset Quality. Loans are reviewed on a regular basis. Management determines that a loan is non-performing when it is probable that at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is individually analyzed, the measurement of the loan in the allowance for credit losses is based on the present value of expected future cash flows, except that all collateral-dependent loans are measured based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and is in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair market value, less estimated costs to sell. Any excess of the recorded value of the loan over the fair market value of the property is charged against the allowance for credit losses, or, if the existing allowance is inadequate, charged to expense in the current period. After acquisition, all costs incurred in

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maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

We may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that we would not otherwise consider resulting in a modified loan. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.


	At			At
	September 30,			June 30,
	2023			2023

	(Dollars in thousands)
Non-accrual loans:
Commercial real estate	$	7,830		$	8,025
Commercial and industrial		649			650
Commercial construction		—			—
Residential mortgages		4,426			4,000
Home equity loans and lines of credit		1,501			1,560
Consumer		—			—
Total non-accrual loans		14,406			14,235

Accruing loans past due 90 days or more:
Commercial real estate		4			174
Commercial and industrial		—			—
Commercial construction		—			3,237
Residential mortgages		—			120
Home equity loans and lines of credit		—			—
Consumer		11			—
Total accruing loans past due 90 days or more		15			3,531

Real estate owned:
Commercial real estate		—			—
Commercial and industrial		—			—
Commercial construction		—			—
Residential mortgages		—			—
Home equity loans and lines of credit		—			—
Consumer		—			—
Total real estate owned		—			—

Total non-performing assets	$	14,421		$	17,766

Total non-performing loans to total loans		1.18	%		1.52	%
Total non-performing assets to total assets		0.73	%		0.96	%

Non-accrual loans were relatively unchanged at September 30, 2023 from June 30, 2023. Accruing loans past due 90 days or more decreased $3.6 million to $15,000 at September 30, 2023 from $3.5 million at June 30, 2023 primarily due to one commercial construction loan relationship that was made current during the first fiscal quarter of 2024.

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured

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institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention.”

The following table sets forth our amounts of all classified loans and loans designated as special mention as of September 30, 2023 and June 30, 2023.


	At		At
	September 30,		June 30,
	2023		2023

	(In thousands)
Classification of Loans:
Substandard	$	45,856	$	69,233
Doubtful		767		118
Loss		—		—
Total Classified Loans	$	46,623	$	69,351

Special Mention	$	20,568	$	3,591

Total substandard loans decreased $23.3 million to $45.9 million at September 30, 2023 from $69.2 million at June 30, 2023 primarily due to the migration from substandard to special mention of two commercial real estate loan relationships totaling $16.7 million and $3.1 million secured by a hotel and a senior housing facility, respectively. The decrease was also due to the migration from substandard to pass of one commercial real estate loan relationship totaling $5.0 million and secured by a hotel/banquet facilities. These decreases were partially offset by one commercial real estate loan relationship totaling $3.4 million that migrated from special mention to substandard, secured by a theater.

Total special mention loans increased by $17.0 million to $20.6 million at September 30, 2023 from $3.6 million at June 30, 2023 primarily due to the migration from substandard to special mention of two commercial real estate loan relationships totaling $16.7 million and $3.1 million secured by a hotel and a senior housing facility, respectively. These increases were partially offset by one loan commercial real estate loan relationship totaling $3.4 million that migrated from special mention to substandard, secured by a theater.

Allowance for Credit Losses on Loans. Effective July 1, 2023, the measurement of CECL on loans requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the estimated fair value of the collateral, as applicable. The allowance for credit losses on loans, as reported in our consolidated statements of condition, are adjusted by a provision for credit losses, which is recognized in earnings, and reduced by the charge-off of loans, net of recoveries. All loan information presented as of June 30, 2023 or a prior date is presented in accordance with previously applicable GAAP (the incurred loss method).

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolios, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts

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utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to our reported earnings.

In addition, the NYSDFS and the FDIC periodically review our allowance for credit losses on loans and as a result of such reviews, we may have to materially adjust our allowance for credit losses on loans or recognize further loan charge-offs.

The following table sets forth activity in our allowance for credit losses on loans for the periods indicated.


	At or for the
	Three Months Ended September 30,
	2023			2022

	(Dollars in thousands)
Allowance at beginning of period	$	22,469		$	22,524
Cumulative Effect Adjustment for the Adoption of ASC 326		(2,311)			—
Provision for credit losses		916			120

Charge offs:
Commercial real estate		—			31
Commercial and industrial		—			3
Commercial construction		—			—
Residential mortgages		—			24
Home equity loans and lines of credit		12			—
Consumer		23			71
Total charge-offs		35			129

Recoveries:
Commercial real estate		—			—
Commercial and industrial		27			43
Commercial construction		—			—
Residential mortgages		—			10
Home equity loans and lines of credit		—			—
Consumer		3			1
Total recoveries		30			54

Net charge-offs		5			75

Allowance at end of period	$	21,069		$	22,569

Allowance to non-performing loans		146.10	%		187.10	%
Allowance to total loans outstanding at the end of the period		1.72	%		2.17	%
Net charge-offs to average loans outstanding during the period (1)		0.00	%		0.03	%

(1)	Annualized.

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities. We also have the ability to borrow from the Federal Home Loan Bank of New York. At September 30, 2023, we had the ability to borrow up to $427.2 million, of which none was utilized for borrowings and $120.0 million was utilized as collateral for letters of credit issued to secure municipal deposits. At September 30, 2023, we also had a $20.0 million unsecured line of credit with a correspondent bank with no outstanding balance, as well as the ability to borrow from the Federal Reserve Bank of New York through

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the Bank Term Funding Program and the discount window lending program, and access to the reciprocal and brokered deposit markets. We cannot predict what the impact of the events described in “Recent Developments – Mann Entities Related Fraudulent Activity” above may have on our Liquidity and Capital Resources beyond the first quarter of fiscal 2024.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had enough sources of liquidity to satisfy our short and long-term liquidity needs as of September 30, 2023.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any period. At September 30, 2023, cash and cash equivalents totaled $216.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $412.3 million at September 30, 2023.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of September 30, 2023 totaled $94.2 million, or 5.75%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources. We are subject to various regulatory capital requirements administered by NYSDFS and the FDIC. At September 30, 2023, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines.

The Bank and Pioneer Commercial Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of the bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and Pioneer Commercial Bank to maintain minimum capital amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to average assets (as defined), and common equity Tier 1, Tier 1 and total capital (as defined) to risk-weighted assets (as defined). Under Basel III rules, banks must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios in order to avoid limitations on distributions and certain discretionary bonus payments to executive officers. The required capital conservation buffer is 2.50%.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies developed a "Community Bank Leverage Ratio" (the ratio of a bank's tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition. The Bank and Pioneer Commercial Bank did not elect to become subject to the Community Bank Leverage Ratio as of September 30, 2023.

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As of September 30, 2023, the Bank and Pioneer Commercial Bank met all capital adequacy requirements to which they were subject. Further, the most recent FDIC notification categorized the Bank and Pioneer Commercial Bank as well capitalized institutions under the prompt corrective action regulations. There have been no conditions or events since the notification that management believes have changed the Bank’s or Pioneer Commercial Bank’s capital classification.

The actual capital amounts and ratios for the Bank and Pioneer Commercial Bank are presented in the following tables (dollars in thousands):


													To be Well
									For Capital				Capitalized Under
					For Capital				Adequacy Purposes				Prompt
	Actual				Adequacy Purposes				with Capital Buffer				Corrective Action
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Pioneer Bank:
As of September 30, 2023

Tier 1 (leverage) capital	$	209,206	11.39	%	$	73,474	4.00	%		N/A	N/A		$	91,842	5.00	%
Risk-based capital
Common Tier 1	$	209,206	18.31	%	$	51,426	4.50	%	$	79,996	7.00	%	$	74,282	6.50	%
Tier 1	$	209,206	18.31	%	$	68,568	6.00	%	$	97,138	8.50	%	$	91,424	8.00	%
Total	$	223,593	19.57	%	$	91,424	8.00	%	$	119,994	10.50	%	$	114,280	10.00	%

As of June 30, 2023

Tier 1 (leverage) capital	$	208,576	11.47	%	$	72,733	4.00	%		N/A	N/A		$	90,916	5.00	%
Risk-based capital
Common Tier 1	$	208,576	18.85	%	$	49,795	4.50	%	$	77,459	7.00	%	$	71,926	6.50	%
Tier 1	$	208,576	18.85	%	$	66,393	6.00	%	$	94,057	8.50	%	$	88,524	8.00	%
Total	$	222,513	20.11	%	$	88,524	8.00	%	$	116,188	10.50	%	$	110,655	10.00	%


													To be Well
									For Capital				Capitalized Under
					For Capital				Adequacy Purposes				Prompt
	Actual				Adequacy Purposes				with Capital Buffer				Corrective Action
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Pioneer Commercial Bank:
As of September 30, 2023

Tier 1 (leverage) capital	$	47,667	9.95	%	$	19,167	4.00	%		N/A	N/A		$	23,959	5.00	%
Risk-based capital
Common Tier 1	$	47,667	46.44	%	$	4,619	4.50	%	$	7,185	7.00	%	$	6,672	6.50	%
Tier 1	$	47,667	46.44	%	$	6,159	6.00	%	$	8,725	8.50	%	$	8,212	8.00	%
Total	$	47,667	46.44	%	$	8,212	8.00	%	$	10,778	10.50	%	$	10,265	10.00	%

As of June 30, 2023

Tier 1 (leverage) capital	$	46,284	9.39	%	$	19,709	4.00	%		N/A	N/A		$	24,636	5.00	%
Risk-based capital
Common Tier 1	$	46,284	54.81	%	$	3,800	4.50	%	$	5,911	7.00	%	$	5,489	6.50	%
Tier 1	$	46,284	54.81	%	$	5,067	6.00	%	$	7,178	8.50	%	$	6,756	8.00	%
Total	$	46,284	54.81	%	$	6,756	8.00	%	$	8,867	10.50	%	$	8,444	10.00	%

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. The financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At September 30, 2023, we had $292.0 million of commitments to originate or purchase loans, comprised of $156.0 million of commitments under commercial loans and lines of credit (including $21.8 million of unadvanced portions of commercial construction loans), $62.9 million of commitments under home equity loans and lines of credit, $65.8 million of commitments to purchase residential mortgage loans and $7.2 million of unfunded commitments under consumer lines of credit. In addition, at September 30, 2023, we had $23.7 million in standby letters of credit outstanding.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Impact of Inflation and Changing Prices

Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information relating to this item.

Item 4 – Controls and Procedures

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. As of September 30, 2023, the Company’s management, including the Company’s Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15 and 15d-15(e) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and

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procedures must necessarily reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Effective July 1, 2023, the Company adopted the CECL accounting guidance. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. Other than described above, there were no changes in the Company’s internal control over financial reporting that occurred during the first quarter of the fiscal year ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

Certain legal proceedings in which we are involved are discussed in “Part I, Item 1–Consolidated Financial Statements- Note 9 – Commitments and Contingent Liabilities – Legal Proceedings and Other Contingent Liabilities.”

Item 1A – Risk Factors

There have been no material changes to the risk factors set forth under Item 1.A. Risk Factors as set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023 (“Form 10-K”). Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth in the Form 10-K also are a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Item 2 – Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not applicable

Item 5 – Other Information

None

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Item 6 – Exhibits


Exhibit No.		Description

31.1		Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer
31.2		Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer
32		Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
101		The following materials from Pioneer Bancorp, Inc. Form 10-Q for the three months ended September 30, 2023, formatted in Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes.
104		Cover Page Interactive Data File (embedded in the cover page formatted in Inline XBRL)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PIONEER BANCORP, INC.

(registrant)


November 14, 2023		/s/ Thomas L. Amell
		Thomas L. Amell
		President and Chief Executive Officer

November 14, 2023		/s/ Patrick J. Hughes
		Patrick J. Hughes
		Executive Vice President and Chief Financial Officer