# Pioneer Bancorp, Inc.: Form 10-Q for the period ended Dec 31, 2023

- Company: [Pioneer Bancorp, Inc.](/companies/pbfs.md) (CIK 1769663)
- Form: 10-Q
- Filed: 2024-02-13
- Accepted by EDGAR: Feb 13, 2024, 16:08 ET
- Period: 2023-12-31
- Accession: 0001558370-24-001058
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1769663/000155837024001058/pbfs-20231231x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1769663/000155837024001058/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $4.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-07-01 to 2023-12-31 | $7.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $5.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-07-01 to 2023-12-31 | $9.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $822.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-07-01 to 2023-12-31 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | $3.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-07-01 to 2023-12-31 | $6.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-07-01 to 2023-12-31 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-07-01 to 2023-12-31 | $0.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 25,207,569 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-07-01 to 2023-12-31 | 25,201,205 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-07-01 to 2023-12-31 | $11.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Total assets | at 2023-12-31 | $1.85bn | us-gaap:Assets |
| Total liabilities | at 2023-12-31 | $1.57bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $283.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 91,803 characters.

### 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;
- the failure of financial institutions in 2023 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;
- impacts and expenses related to the proposed charter conversion of the Bank from a state-chartered savings bank to a national bank;
- risks associated with loan participations, including the risk of non-performing loans, disputes, or indemnification obligations with respect to other participants;
- 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 Corporation (“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, except as required by applicable law.

### 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, securities held to maturity and unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and securities held to maturity portfolio, as well as 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 on securities available for sale transactions, litigation-related income and other income.

***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 include 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 include legal and other consulting expenses.

Other expenses include expenses for 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.

### Recent Developments

### Proposed Charter Conversion

On December 29, 2023, the Bank filed an application with the Office of the Comptroller of the Currency (the “OCC”) to convert from a New York chartered stock savings bank to a national bank (the “Application”). If the Application is approved, the Bank will no longer be a New York savings bank subject to the regulation and examination of the New York State Department of Financial Services (“NYSDFS”) and will become a national bank subject to the regulation and examination of the OCC. In addition, the FDIC would no longer be the Bank’s federal prudential regulator but would continue to be the insurer of its deposits in accordance with federal law. We cannot provide assurance as to whether the Application will be approved or the timing of any approval.

### Balance Sheet Repositioning

On December 28, 2023, the Company completed a balance sheet repositioning, by selling $74.5 million of lower-yielding available-for-sale securities with an average book yield of approximately 0.83% and weighted average remaining life of 2.2 years, recognizing a pre-tax loss on the sale of $5.6 million. Proceeds from the sale have been redeployed into interest-earning deposits with banks with an estimated average book yield of 5.40% and ultimately the Company intends to reinvest the proceeds into securities available for sale and loans yielding current market rates during the upcoming quarter. We estimate that the repositioning transaction will improve the Company’s interest income by approximately $3.4 million over the next twelve months and is designed to provide the Company with greater flexibility in managing balance sheet growth. The transaction had a neutral impact on shareholders’ equity and book value per share as of the date of the sale, as unrealized losses on securities available for sale are already accounted for as a deduction to shareholders’ equity. This transaction is expected to have a favorable impact on the Company’s net income, net interest margin, return on average assets, and return on average equity beginning in the quarter ending March 31, 2024.

### Settlement Agreement

As previously disclosed, on December 1, 2020, the Bank filed a complaint in the Supreme Court of the State of New York (the “Action”) 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 asserted 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 contended that, among other matters, Mr. Michael Mann used the Valuewise Entities to defraud the Bank. This was because the Bank relied on the unqualified “clean” opinions on the financial statements of the Valuewise Entities for fiscal years 2010 to 2018 issued by the TBC Parties in continuing to loan money to the Valuewise Entities. 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.

On November 15, 2023, the Bank, on the one hand, and the TBC Parties, on the other hand, entered into a settlement agreement (the “Settlement Agreement”), pursuant to which the parties agreed to resolve and settle all disputes and potential claims which exist or may exist among them, including without limitation those claims asserted in the Action, as more specifically set forth in, and subject to the terms and conditions of, the Settlement Agreement. Pursuant to the Settlement Agreement, the TBC Parties made a payment of $5.95 million to the Bank, in exchange for which the Bank caused the Action to be dismissed with prejudice.

### 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.

### 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 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 accounting principles generally accepted in the United States of America (“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 on loans, securities held to maturity 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 estimated fair value of the collateral, as applicable. The allowance for credit losses on loans and securities held to maturity, 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-offs, 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.

***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.

### Average Balances and Yields

The following tables set 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 December 31, 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 | ​ | $1,237,417 ​ $17,722 5.80% $1,035,604 ​ $13,506 5.28% |
| Securities | ​ | 430,497 ​ 2,601 2.42% 543,438 ​ 2,523 1.85% |
| Interest-earning deposits and other | ​ | 83,557 ​ 1,163 5.64% 213,257 ​ 1,950 3.68% |
| Total interest-earning assets | ​ | 1,751,471 ​ 21,486 4.96% 1,792,299 ​ 17,979 4.04% |
| Non-interest-earning assets | ​ | 151,562 ​ ​ 155,259 ​ ​ |
| Total assets | ​ | $1,903,033 ​ ​ $1,947,558 ​ ​ |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| **Interest-bearing liabilities:** | ​ | ​ ​ ​ ​ |
| Demand deposits | ​ | $163,487 ​ $890 2.18% $180,138 ​ $169 0.37% |
| Savings deposits | ​ | 275,506 ​ 54 0.08% 319,966 ​ 26 0.03% |
| Money market deposits | ​ | 477,479 ​ 3,030 2.54% 444,181 ​ 353 0.32% |
| Certificates of deposit | ​ | 127,043 ​ 1,113 3.52% 66,693 ​ 84 0.50% |
| Total interest-bearing deposits | ​ | 1,043,515 ​ 5,087 1.95% 1,010,978 ​ 632 0.25% |
| Borrowings and other | ​ | 27,496 ​ 305 4.47% 25,980 ​ 212 3.28% |
| Total interest-bearing liabilities | ​ | 1,071,011 ​ 5,392 2.01% 1,036,958 ​ 844 0.32% |
| Non-interest-bearing deposits | ​ | ​ 507,861 ​ ​ ​ ​ ​ ​ ​ 621,060 ​ ​ ​ ​ ​ ​ |
| Other non-interest-bearing liabilities | ​ | 47,817 ​ ​ 44,179 ​ ​ |
| Total liabilities | ​ | 1,626,689 ​ ​ 1,702,197 ​ ​ |
| Total shareholders' equity | ​ | 276,344 ​ ​ 245,361 ​ ​ |
| Total liabilities and shareholders' equity | ​ | $1,903,033 ​ ​ $1,947,558 ​ ​ |
| Net interest income | ​ | ​ $16,094 ​ ​ $17,135 ​ |
| Net interest rate spread (1) | ​ | ​ 2.94% ​ 3.72% |
| Net interest-earning assets (2) | ​ | $680,460 ​ ​ $755,341 ​ ​ |
| Net interest margin (3) | ​ | ​ 3.70% ​ 3.85% |
| Average interest-earning assets to interest-bearing liabilities | ​ | 163.53% ​ 172.84% ​ ​ |

(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.

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended December 31, 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 | ​ | $1,206,348 ​ $34,255 5.71% $1,019,730 ​ $25,018 4.93% |
| Securities | ​ | 438,324 ​ 5,169 2.35% 530,564 ​ 4,457 1.67% |
| Interest-earning deposits and other | ​ | 80,069 ​ 2,218 5.57% 259,168 ​ 3,695 2.85% |
| Total interest-earning assets | ​ | 1,724,741 ​ 41,642 4.85% 1,809,462 ​ 33,170 3.67% |
| Non-interest-earning assets | ​ | 152,212 ​ ​ ​ ​ 148,969 ​ ​ |
| Total assets | ​ | $1,876,953 ​ ​ ​ ​ $1,958,431 ​ ​ |
| **​** | ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| **Interest-bearing liabilities:** | ​ | ​ ​ ​ ​ |
| Demand deposits | ​ | $152,007 ​ $1,397 1.83% $188,757 ​ $311 0.33% |
| Savings deposits | ​ | 280,822 ​ 93 0.07% 322,296 ​ 53 0.03% |
| Money market deposits | ​ | 471,664 ​ 5,658 2.39% 455,945 ​ 501 0.22% |
| Certificates of deposit | ​ | 116,404 ​ 1,894 3.25% 69,617 ​ 173 0.49% |
| Total interest-bearing deposits | ​ | 1,020,897 ​ 9,042 1.76% 1,036,615 ​ 1,038 0.20% |
| Borrowings and other | ​ | 27,693 ​ 617 4.47% 22,245 ​ 324 2.91% |
| Total interest-bearing liabilities | ​ | 1,048,590 ​ 9,659 1.84% 1,058,860 ​ 1,362 0.26% |
| Non-interest-bearing deposits | ​ | ​ 508,361 ​ ​ ​ ​ ​ ​ ​ 614,423 ​ ​ ​ ​ ​ ​ |
| Other non-interest-bearing liabilities | ​ | 46,942 ​ ​ ​ ​ 40,194 ​ ​ |
| Total liabilities | ​ | 1,603,893 ​ ​ ​ ​ 1,713,477 ​ ​ |
| Total shareholders' equity | ​ | 273,060 ​ ​ ​ ​ 244,954 ​ ​ |
| Total liabilities and shareholders' equity | ​ | $1,876,953 ​ ​ ​ ​ $1,958,431 ​ ​ |
| Net interest income | ​ | ​ ​ ​ $31,983 ​ ​ $31,808 ​ |
| Net interest rate spread (1) | ​ | ​ ​ ​ ​ ​ 3.01% ​ 3.41% |
| Net interest-earning assets (2) | ​ | $676,151 ​ ​ ​ ​ $750,602 ​ ​ |
| Net interest margin (3) | ​ | ​ ​ ​ ​ ​ 3.71% ​ 3.52% |
| Average interest-earning assets to interest-bearing liabilities | ​ | 164.48% ​ ​ ​ 170.89% ​ |

(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.

### 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended December 31, 2023 vs. 2022 ​ ​ Increase (Decrease) Due to Volume ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Rate ​ ​ | ​ ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Six Months Ended December 31, 2023 vs. 2022 ​ ​ Increase (Decrease) Due to Volume ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Rate ​ ​ | ​ ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans | ​ | $2,784 | ​ | $1,432 | ​ | $4,216 | ​ | $4,934 | ​ | $4,303 | ​ | $9,237 |
| Securities | ​ | (590) | ​ | 668 | ​ | 78 | ​ | (867) | ​ | 1,579 | ​ | 712 |
| Interest-earning deposits and other | ​ | (1,533) | ​ | 746 | ​ | (787) | ​ | (3,580) | ​ | 2,103 | ​ | (1,477) |
| Total interest-earning assets | ​ | 661 | ​ | 2,846 | ​ | 3,507 | ​ | 487 | ​ | 7,985 | ​ | 8,472 |
| **​** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities:** | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  |
| Demand deposits | ​ | (17) | ​ | 738 | ​ | 721 | ​ | (71) | ​ | 1,157 | ​ | 1,086 |
| Savings deposits | ​ | (4) | ​ | 32 | ​ | 28 | ​ | (8) | ​ | 48 | ​ | 40 |
| Money market deposits | ​ | 28 | ​ | 2,649 | ​ | 2,677 | ​ | 18 | ​ | 5,139 | ​ | 5,157 |
| Certificates of deposit | ​ | 134 | ​ | 895 | ​ | 1,029 | ​ | 185 | ​ | 1,536 | ​ | 1,721 |
| Total interest-bearing deposits | ​ | 141 | ​ | 4,314 | ​ | 4,455 | ​ | 124 | ​ | 7,880 | ​ | 8,004 |
| Borrowings and other | ​ | 13 | ​ | 80 | ​ | 93 | ​ | 92 | ​ | 201 | ​ | 293 |
| Total interest-bearing liabilities | ​ | 154 | ​ | 4,394 | ​ | 4,548 | ​ | 216 | ​ | 8,081 | ​ | 8,297 |
| Change in net interest income | ​ | $507 | ​ | $(1,548) | ​ | $(1,041) | ​ | $271 | ​ | $(96) | ​ | $175 |

### Comparison of Financial Condition at December 31, 2023 and June 30, 2023

***Total Assets.*** Total assets of $1.85 billion at December 31, 2023 decreased $3.3 million, or 0.2%, from $1.86 billion at June 30, 2023. The decrease was due primarily to a decrease of $111.3 million, or 25.8% in securities available for sale and a decrease of $10.9 million, or 7.2%, in cash and cash equivalents, largely offset in by an increase of $119.6 million, or 10.5%, in net loans receivable 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 $139.6 million at December 31, 2023, decreased $10.9 million, or 7.2%, from $150.5 million at June 30, 2023. This decrease was primarily a result of a net decrease in deposits of $19.8 million coupled with an increase in net loans receivable of $119.6 million, offset in part by a decrease in securities available for sale of $111.3 million during the six months ended December 31, 2023.

***Securities Available for Sale.*** Total securities available for sale of $320.4 million at December 31, 2023 decreased $111.3 million, or 25.8%, from $431.7 million at June 30, 2023. The decrease was primarily due to sales of $74.5 million and maturities of $71.8 million, offset in part by purchases of U.S. Government and agency obligations and municipal obligations of $26.6 million and a decrease in net unrealized losses of $13.2 million (including a $5.6 million decrease related to losses realized from the sale of securities available for sale described in “Recent Developments”) during the six months ended December 31, 2023.

***Net Loans Receivable.*** Net loans receivable of $1.26 billion at December 31, 2023 increased $119.6 million, or 10.5%, from $1.14 billion at June 30, 2023. By loan category, residential mortgage loans increased by $105.3 million, or 22.7%, to $568.5 million at December 31, 2023 from $463.2 million at June 30, 2023, commercial construction loans increased by $13.9 million, or 15.0%, to $106.6 million at December 31, 2023 from $92.7 million at June 30, 2023, home equity loans and lines of credit increased by $6.9 million, or 8.1%, to $92.4 million at December 31, 2023 from $85.5 million at June 30, 2023. These increases were partially offset by a decrease in commercial and industrial loans of $5.6 million, or 5.8%, to $91.7 million at December 31, 2023 from $97.3 million at June 30, 2023 and a decrease in consumer loans of $2.1 million, or 12.6%, to $14.7 million at December 31, 2023 from $16.8 million at June 30, 2023. Commercial real estate loans were unchanged at $411.2 million at December 31, 2023 as compared to June 30, 2023.

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. The decrease in commercial and industrial loans was due to lower utilization rates of commercial and industrial lines of credit.

***Deposits.*** Total deposits of $1.52 billion at December 31, 2023 decreased $19.7 million, or 1.3%, from $1.54 billion at June 30, 2023. By deposit category, non-interest-bearing demand accounts decreased by $52.4 million, or 10.0%, to $473.7 million at December 31, 2023 from $526.1 million at June 30, 2023 and savings accounts decreased by $23.7 million, or 8.0%, to $273.3 million at December 31, 2023 from $297.0 million at June 30, 2023. These decreases were partially offset by an increase in certificates of deposit by $33.0 million, or 28.2%, to $150.0 million at December 31, 2023 from $117.0 million at June 30, 2023 (included in certificates of deposit were brokered deposits which decreased by $4.9 million to $31.6 million at December 31, 2023 from $36.5 million at June 30, 2023), an increase in demand accounts by $21.8 million, or 15.7%, to $160.6 million at December 31, 2023 from $138.8 million at June 30, 2023 and an increase in money market accounts by $1.6 million, or 0.3%, to $464.5 million at December 31, 2023 from $462.9 million at June 30, 2023.

The decrease in non-interest-bearing demand and savings accounts was primarily related to migration of funds to higher interest-bearing accounts. The increase in certificates of deposit was primarily related to a migration of funds from savings and other lower rate interest-bearing accounts. The increase in demand accounts was primarily related to an increase in deposits by one large deposit relationship. 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 second fiscal quarter of 2024. As of December 31, 2023 and June 30, 2023, estimated uninsured deposits, net of collateralized deposits, totaled $239.6 million and $228.4 million, or 15.7% and 14.8% of total deposits, respectively.

***Total Shareholders’ Equity.*** Total shareholders’ equity of $283.8 million at December 31, 2023 increased $17.1 million, or 6.4%, from $266.7 million at June 30, 2023 primarily as a result of net income of $6.6 million, a decrease in accumulated other comprehensive loss of $9.7 million and the net increase of $507,000 related to the day-one CECL adjustment during the six months ended December 31, 2023.

### Comparison of Operating Results for the Three Months Ended December 31, 2023 and December 31, 2022

***General.*** Net income decreased by $3.0 million to $3.2 million for the three months ended December 31, 2023 as compared to $6.2 million for the three months ended December 31, 2022. The decrease was primarily due to an increase in non-interest expense of $2.3 million, an increase in provision for credit losses of $1.5 million and a decrease in net interest income of $1.0 million, partially offset by an increase in non-interest income of $889,000 and a decrease in income tax expense of $970,000.

***Interest and Dividend Income.*** Interest and dividend income increased $3.5 million, or 19.5%, to $21.5 million for the three months ended December 31, 2023, from $18.0 million for the three months ended December 31, 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 92 basis points increase in the average yield on interest-earning assets to 4.96% for the three months ended December 31, 2023, from 4.04% for the three months ended December 31, 2022. The increase in the average yield on interest-earning assets was driven by an 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 $40.8 million from $1.79 billion for the three months ended December 31, 2022 to $1.75 billion for the three months ended December 31, 2023.

Interest income on loans increased $4.2 million, or 31.2%, to $17.7 million for the three months ended December 31, 2023 from $13.5 million for the three months ended December 31, 2022. Interest income on loans increased due to a $201.8 million increase in the average balance of loans to $1.24 billion for the three months ended December 31, 2023 from $1.04 billion for the three months ended December 31, 2022, coupled with a 52 basis points increase in the average yield on loans to 5.80% for the three months ended December 31, 2023 from 5.28% for the three months ended December 31, 2022. The increase in the average balance of loans was principally due to purchases of residential mortgage loans. 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 December 31, 2023 and market related increases in interest rates on new loans as compared to the same period in the prior year.

Interest income on securities increased $78,000, or 3.1%, to $2.6 million for the three months ended December 31, 2023 from $2.5 million for the three months ended December 31, 2022. Interest income on securities increased due to a 57 basis points increase in the average yield on securities to 2.42% for the three months ended December 31, 2023 from 1.85% for the three months ended December 31, 2022, offset in part by a $112.9 million decrease in the average balance of securities to $430.5 million for the three months ended December 31, 2023 from $543.4 million for the three months ended December 31, 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 December 31, 2023 partially 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 six months ended December 31, 2023. The balance sheet repositioning transaction discussed in “Recent Developments” is expected to have a favorable impact on the average yield on securities beginning in the quarter ending March 31, 2024.

Interest income on interest-earning deposits with banks and other decreased $787,000 to $1.2 million for the three months ended December 31, 2023 from $2.0 million for the three months ended December 31, 2022. Interest income on interest-earning deposits with banks and other decreased due to a $129.7 million decrease in average balances on interest-earning deposits with banks and other to $83.6 million for the three months ended December 31, 2023 from $213.3 million for the three months ended December 31, 2022 primarily due to the funding of loans, offset in part by a 196 basis points increase in the average yield on interest-earning deposits with banks and other to 5.64% for the three months ended December 31, 2023 from 3.68% for the three months ended December 31, 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 $4.5 million to $5.4 million for the three months ended December 31, 2023 from $844,000 for the three months ended December 31, 2022 as a result of an increase in interest expense on deposits and on borrowings and other. The increase was primarily due to a 169 basis points increase in the average cost of interest-bearing liabilities to 2.01% for the three months ended December 31, 2023 from 0.32% for the three months ended December 31, 2022, as well as a shift in interest-bearing liabilities mix to higher interest rate liability accounts.

Interest expense on interest-bearing deposits increased $4.5 million to $5.1 million for the three months ended December 31, 2023 from $632,000 for the three months ended December 31, 2022. Interest expense on interest-bearing deposits increased primarily due to a 170 basis points increase in the average cost of interest-bearing deposits to 1.95% for the three months ended December 31, 2023 from 0.25% for the three months ended December 31, 2022, as well as a shift in interest-bearing deposit mix to higher interest rate deposit accounts and an increase in average interest-bearing deposits of $32.5 million to $1.04 billion for the three months ended December 31, 2023 from $1.01 billion for the three months ended December 31, 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-cost money market deposits and certificates of deposit. The increase in the average balance of interest-bearing deposits was due to higher average certificates of deposit balances (included in certificates of deposit were brokered deposits which increased by $13.3 million, on average, for the three months ended December 31, 2023 as compared to the same period in the prior year).

Interest expense on borrowings and other liabilities increased $93,000 to $305,000 for the three months ended December 31, 2023 from $212,000 for the three months ended December 31, 2022 due primarily to the increase in average cost of borrowings and other liabilities of 119 basis points to 4.47% for the three months ended December 31, 2023 from 3.28% for the three months ended December 31, 2022, 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 $1.5 million to $27.5 million for the three months ended December 31, 2023 from $26.0 million for the three months ended December 31, 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 continued pressure on net interest margin over the next quarter.

***Net Interest Income.*** Net interest income decreased $1.0 million, or 6.1%, to $16.1 million for the three months ended December 31, 2023 compared to $17.1 million for the three months ended December 31, 2022 as net interest margin decreased 15 basis points to 3.70% for the three months ended December 31, 2023 from 3.85% for the three months ended December 31, 2022. Additionally, net interest-earning assets decreased by $74.8 million to $680.5 million for the three months ended December 31, 2023 from $755.3 million for the three months ended December 31, 2022 as a result of a shift in deposit mix which increased interest-bearing deposits, as well as a decrease in securities and interest-earning deposits. Net interest rate spread decreased 78 basis points to 2.94% for the three months ended December 31, 2023 from 3.72% for the three months ended December 31, 2022.

***Provision for Credit Losses.*** The provision for credit losses was $1.1 million for the three months ended December 31, 2023 as compared to a credit to the provision of $400,000 for the three months ended December 31, 2022. The provision for credit losses for the three months ended December 31, 2023 was primarily due to growth in the loan portfolio. Non-performing assets were $12.0 million, or 0.65% of total assets, at December 31, 2023, compared to $17.7 million, or 0.96% of total assets, at June 30, 2023 and $18.5 million, or 1.01% of total assets, at December 31, 2022. The allowance for credit losses on loans was $21.4 million at December 31, 2023 and $22.2 million at December 31, 2022, representing 1.66% and 2.08% of total loans outstanding, respectively. Net charge-offs were $366,000, or an annualized 0.12% of average loans, for the three months ended December 31, 2023 compared to net recoveries of $22,000, or an annualized (0.01%) of average loans, for the three months ended December 31, 2022.

***Non-Interest Income.*** Non-interest income increased $889,000, or 22.5%, to $4.8 million for the three months ended December 31, 2023 as compared to $3.9 million for the three months ended December 31, 2022. Noninterest income increased primarily as a result of $6.0 million of income from the previously announced settlement of litigation as described in “Recent Developments” and also from a $569,000 increase in insurance and wealth management income, offset in part by a $5.6 million loss on sale of securities available for sale from the balance sheet repositioning transaction as described in “Recent Developments”. The increase in insurance and wealth management services income was primarily due to the acquisition of Hudson Financial LLC which expanded our wealth management business into the Hudson Valley Region of New York.

***Non-Interest Expense.*** Non-interest expense increased $2.3 million, or 17.0%, to $15.8 million for the three months ended December 31, 2023 as compared to $13.5 million for the three months ended December 31, 2022. The increase was primarily due to an increase in professional fees of $1.7 million, an increase in salaries and employee benefits expense of $237,000 and an increase in data processing of $238,000. Professional fees increased due to legal fees and expenses. Salaries and employee benefits expense increased due to compensation expense from annual merit increases. Data processing expense increased due to an increase in online, mobile and other banking transaction volumes.

***Income Tax Expense.*** Income tax expense decreased $970,000 to $822,000 for the three months ended December 31, 2023 as compared to $1.8 million for the three months ended December 31, 2022 primarily due to a decrease in income before income taxes. Our effective tax rate was 20.5% for the three months ended December 31, 2023 compared to 22.5% for the three months ended December 31, 2022.

### Comparison of Operating Results for the Six Months Ended December 31, 2023 and December 31, 2022

***General.*** Net income decreased by $4.8 million to $6.6 million for the six months ended December 31, 2023 as compared to $11.4 million for the six months ended December 31, 2022. The decrease was primarily due to an increase in non-interest expense of $4.8 million and an increase in provision for credit losses of $2.2 million, partially offset by a decrease in income tax expense of $1.3 million, an increase in non-interest income of $658,000 and an increase in net interest income of $175,000.

***Interest and Dividend Income.*** Interest and dividend income increased $8.4 million, or 25.5%, to $41.6 million for the six months ended December 31, 2023, from $33.2 million for the six months ended December 31, 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 118 basis points increase in the average yield on interest-earning assets to 4.85% for the six months ended December 31, 2023, from 3.67% for the six months ended December 31, 2022. The increase in the average yield on interest-earning assets was driven by an 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 $84.7 million from $1.81 billion for the six months ended December 31, 2022 to $1.72 billion for the six months ended December 31, 2023.

Interest income on loans increased $9.3 million, or 36.9%, to $34.3 million for the six months ended December 31, 2023 from $25.0 million for the six months ended December 31, 2022. Interest income on loans increased due to a $186.6 million increase in the average balance of loans to $1.21 billion for the six months ended December 31, 2023 from $1.02 billion for the six months ended December 31, 2022, coupled with a 78 basis points increase in the average yield on loans to 5.71% for the six months ended December 31, 2023 from 4.93% for the six months ended December 31, 2022. The increase in the average balance of loans was principally due to purchases of residential mortgage loans. The increase in average yield on loans was primarily due to loans tied to variable short-term rates which increased during the six months ended December 31, 2023 and market related increases in interest rates on new loans as compared to the same period in the prior year.

Interest income on securities increased $712,000, or 16.0%, to $5.2 million for the six months ended December 31, 2023 from $4.5 million for the six months ended December 31, 2022. Interest income on securities increased due to a 68 basis points increase in the average yield on securities to 2.35% for the six months ended December 31, 2023 from 1.67% for the six months ended December 31, 2022, offset in part by an $92.3 million decrease in the average balance of securities to $438.3 million for the six months ended December 31, 2023 from $530.6 million for the six months ended December 31, 2022. The increase in average yield on securities was due to higher market rates of interest for new securities that were purchased during the six months ended December 31, 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 six months ended December 31, 2023. The balance sheet repositioning transaction discussed in “Recent Developments” is expected to have a favorable impact on the average yield on securities beginning in the quarter ending March 31, 2024.

Interest income on interest-earning deposits with banks and other decreased $1.5 million to $2.2 million for the six months ended December 31, 2023 from $3.7 million for the six months ended December 31, 2022. Interest income on interest-earning deposits with banks and other decreased due to a $179.1 million decrease in average balances on interest-earning deposits with banks and other to $80.1 million for the six months ended December 31, 2023 from $259.2 million for the six months ended December 31, 2022 primarily due to the funding of loans, offset in part by a 272 basis points increase in the average yield on interest-earning deposits with banks and other to 5.57% for the six months ended December 31, 2023 from 2.85% for the six months ended December 31, 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 $8.3 million to $9.7 million for the six months ended December 31, 2023 from $1.4 million for the six months ended December 31, 2022 as a result of an increase in interest expense on deposits and on borrowings and other. The increase was primarily due to a 158 basis points increase in the average cost of interest-bearing liabilities to 1.84% for the six months ended December 31, 2023 from 0.26% for the six months ended December 31, 2022, as well as a shift in interest-bearing liabilities mix to higher interest rate liability accounts.

Interest expense on interest-bearing deposits increased $8.0 million to $9.0 million for the six months ended December 31, 2023 from $1.0 million for the six months ended December 31, 2022. Interest expense on interest-bearing deposits increased primarily due to a 156 basis points increase in the average cost of interest-bearing deposits to 1.76% for the six months ended December 31, 2023 from 0.20% for the six months ended December 31, 2022, as well as a shift in interest-bearing deposit mix to higher interest rate deposit accounts, offset in part by a decrease in average interest-bearing deposits of $15.7 million to $1.02 billion for the six months ended December 31, 2023 from $1.04 billion for the six months ended December 31, 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.

Interest expense on borrowings and other liabilities increased $293,000 to $617,000 for the six months ended December 31, 2023 from $324,000 for the six months ended December 31, 2022 due primarily to the increase in average cost of borrowings and other liabilities of 156 basis points to 4.47% for the six months ended December 31, 2023 from 2.91% for the six months ended December 31, 2022, 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 $5.5 million to $27.7 million for the six months ended December 31, 2023 from $22.2 million for the six months ended December 31, 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 continued pressure on net interest margin over the next quarter.

***Net Interest Income.*** Net interest income increased $175,000, or 0.6%, to $32.0 million for the six months ended December 31, 2023 compared to $31.8 million for the six months ended December 31, 2022 as net interest margin increased 19 basis points to 3.71% for the six months ended December 31, 2023 from 3.52% for the six months ended December 31, 2022. Net interest-earning assets decreased by $74.4 million to $676.2 million for the six months ended December 31, 2023 from $750.6 million for the six months ended December 31, 2022 as a result of a shift in deposit mix which increased interest-bearing deposits, as well as a decrease in securities and interest-earning deposits. Net interest rate spread decreased 40 basis points to 3.01% for the six months ended December 31, 2023 from 3.41% for the six months ended December 31, 2022.

***Provision for Credit Losses.*** The provision for credit losses was $1.9 million for the six months ended December 31, 2023 as compared to a credit to the provision of $280,000 for the six months ended December 31, 2022. The provision for credit losses for the six months ended December 31, 2023 was primarily due to growth in the loan portfolio. Non-performing assets were $12.0 million, or 0.65% of total assets, at December 31, 2023, compared to $17.7 million, or 0.96% of total assets, at June 30, 2023 and $18.5 million, or 1.01% of total assets, at December 31, 2022. The allowance for credit losses on loans was $21.4 million at December 31, 2023 and $22.2 million at December 31, 2022, representing 1.66% and 2.08% of total loans outstanding, respectively. Net charge-offs were $371,000, or an annualized 0.06% of average loans, for the six months ended December 31, 2023 compared to $52,000, or an annualized 0.01% of average loans, for the six months ended December 31, 2022.

***Non-Interest Income.*** Non-interest income increased $658,000, or 8.5%, to $8.4 million for the six months ended December 31, 2023 as compared to $7.8 million for the six months ended December 31, 2022. Noninterest income increased primarily as a result of $6.0 million of income from the previously announced settlement of litigation as described in “Recent Developments” and also from a $816,000 increase in insurance and wealth management income, offset in part by a $5.6 million loss on sale of securities available for sale from the balance sheet repositioning transaction as described in “Recent Developments”. The increase in insurance and wealth management services income was primarily due to the acquisition of Hudson Financial LLC which expanded our wealth management business into the Hudson Valley Region of New York.

***Non-Interest Expense.*** Non-interest expense increased $4.8 million, or 19.0%, to $30.2 million for the six months ended December 31, 2023 as compared to $25.4 million for the six months ended December 31, 2022. The increase was primarily due to an increase in professional fees of $3.6 million, an increase in salaries and employee benefits expense of $569,000 and an increase in data processing of $390,000. Professional fees increased due to legal fees and expenses. Salaries and employee benefits expense increased due to compensation expense from annual merit increases. Data processing expense increased due to an increase in online, mobile and other banking transaction volumes.

***Income Tax Expense.*** Income tax expense decreased $1.3 million to $1.7 million for the six months ended December 31, 2023 as compared to $3.0 million for the six months ended December 31, 2022 primarily due to a decrease in income before income taxes. Our effective tax rate was 20.6% for the six months ended December 31, 2023 compared to 21.1% for the six months ended December 31, 2022.

### 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 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Non-accrual loans: | ​ ​ ​ ​ | ​ ​ ​ At ​ December 31, ​ 2023 ​ | ​ ​ ​ At June 30, 2023 ​ ​ |
| --- | --- | ---: | ---: |
| Commercial real estate | ​ | $6,338 ​ | $8,025 ​ |
| Commercial and industrial | ​ | 199 ​ | 650 ​ |
| Commercial construction | ​ | — ​ | — ​ |
| Residential mortgages | ​ | 3,877 ​ | 4,000 ​ |
| Home equity loans and lines of credit | ​ | 1,565 ​ | 1,560 ​ |
| Consumer | ​ | — ​ | — ​ |
| Total non-accrual loans | ​ | 11,979 ​ | 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 | ​ | — ​ | — ​ |
| Total accruing loans past due 90 days or more | ​ | 4 ​ | 3,531 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Real estate owned: | ​ | ​ | ​ |
| Commercial real estate | ​ | — ​ | — ​ |
| Commercial and industrial | ​ | — ​ | — ​ |
| Commercial construction | ​ | — ​ | — ​ |
| Residential mortgages | ​ | — ​ | — ​ |
| Home equity loans and lines of credit | ​ | 51 ​ | — ​ |
| Consumer | ​ | — ​ | — ​ |
| Total real estate owned | ​ | 51 ​ | — ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total non-performing assets | ​ | $12,034 ​ | $17,766 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total non-performing loans to total loans | ​ | 0.93% | 1.52% |
| Total non-performing assets to total assets | ​ | 0.65% | 0.96% |

Non-accrual loans decreased $2.2 million to $12.0 million at December 31, 2023 from $14.2 million at June 30, 2023 primarily due to the payoff of several commercial real estate loans, as well as the charge-off of one commercial and industrial loan. Accruing loans past due 90 days or more decreased $3.5 million to $4,000 at December 31, 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 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 December 31, 2023 and June 30, 2023.

*(In thousands)*

| ​ ​ ​ ​ ​ Classification of Loans: | ​ ​ ​ ​ ​ | ​ ​ At December 31, 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ At June 30, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Substandard | ​ | $36,081 | ​ | $69,233 |
| Doubtful | ​ | 229 | ​ | 118 |
| Loss | ​ | — | ​ | — |
| Total Classified Loans | ​ | $36,310 | ​ | $69,351 |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Special Mention | ​ | $26,608 | ​ | $3,591 |

Total substandard loans decreased $33.1 million to $36.1 million at December 31, 2023 from $69.2 million at June 30, 2023 primarily due to the migration from substandard to special mention of three commercial real estate loan relationships totaling $16.7 million, $4.9 million and $3.1 million secured by a hotel and two separate senior housing facilities, 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 and one commercial and industrial loan relationship totaling $1.8 million and secured by business assets. These decreases were partially offset by one commercial real estate loan relationship totaling $3.3 million that migrated from special mention to substandard, secured by a theater.

Total special mention loans increased by $23.0 million to $26.6 million at December 31, 2023 from $3.6 million at June 30, 2023 primarily due to the migration from substandard to special mention of three commercial real estate loan relationships totaling $16.7 million, $4.9 million and $3.1 million secured by a hotel and two separate senior housing facilities, respectively. These increases were partially offset by one loan commercial real estate loan relationship totaling $3.3 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 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.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ At or for the Six Months Ended December 31, 2023 | ​ ​ ​ 2022 |
| --- | --- | ---: | ---: |
| Allowance at beginning of period | ​ | $22,469 ​ | $22,524 ​ |
| Cumulative effect adjustment for the adoption of ASU 2016-13 | ​ | ​ (2,311) ​ | ​ — ​ |
| Provision for credit losses | ​ | 1,575 ​ | (280) ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Charge offs: | ​ | ​ | ​ |
| Commercial real estate | ​ | — ​ | 31 ​ |
| Commercial and industrial | ​ | 345 ​ | 11 ​ |
| Commercial construction | ​ | — ​ | — ​ |
| Residential mortgages | ​ | — ​ | 24 ​ |
| Home equity loans and lines of credit | ​ | 12 ​ | — ​ |
| Consumer | ​ | 69 ​ | 101 ​ |
| Total charge-offs | ​ | 426 ​ | 167 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Recoveries: | ​ | ​ | ​ |
| Commercial real estate | ​ | — ​ | — ​ |
| Commercial and industrial | ​ | 43 ​ | 53 ​ |
| Commercial construction | ​ | — ​ | — ​ |
| Residential mortgages | ​ | — ​ | 42 ​ |
| Home equity loans and lines of credit | ​ | 1 ​ | 14 ​ |
| Consumer | ​ | 11 ​ | 6 ​ |
| Total recoveries | ​ | 55 ​ | 115 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Net charge-offs | ​ | 371 ​ | 52 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance at end of period | ​ | $21,362 ​ | $22,192 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance to non-performing loans | ​ | 178.27% | 119.88% |
| Allowance to total loans outstanding at the end of the period | ​ | 1.66% | 2.07% |
| Net charge-offs to average loans outstanding during the period (1) | ​ | 0.06% | 0.01% |

(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 December 31, 2023, we had the ability to borrow up to $448.7 million, of which none was utilized for borrowings and $130.0 million was utilized as collateral for letters of credit issued to secure municipal deposits. At December 31, 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 the Bank Term Funding Program and the discount window lending program, and access to the reciprocal and brokered deposit markets. The Bank Term Funding Program will cease making new loans on March 11, 2024 and will no longer be an additional source of liquidity. 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 second 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 December 31, 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 December 31, 2023, cash and cash equivalents totaled $139.6 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $320.4 million at December 31, 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 December 31, 2023 totaled $106.3 million, or 6.98%, 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 December 31, 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 December 31, 2023.

As of December 31, 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):

| ​ ​ ​ ​ ​ ​ Pioneer Bank: As of December 31, 2023 ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Actual Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ For Capital Adequacy Purposes Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ For Capital Adequacy Purposes with Capital Buffer Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ To be Well Capitalized Under Prompt Corrective Action Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Ratio ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | --- | --- | --- | ---: | --- | ---: |
| Tier 1 (leverage) capital | ​ | $212,593 |  | 11.30% | $75,270 |  | 4.00% | ​ N/A |  | N/A ​ | $94,087 |  | 5.00% |
| Risk-based capital | ​ |  |  | ​ |  |  |  | ​ |  | ​ |  |  | ​ |
| Common Tier 1 | ​ | $212,593 |  | 18.31% | $52,247 |  | 4.50% | $81,274 |  | 7.00% | $75,468 |  | 6.50% |
| Tier 1 | ​ | $212,593 |  | 18.31% | $69,663 |  | 6.00% | $98,689 |  | 8.50% | $92,884 |  | 8.00% |
| Total | ​ | $227,214 |  | 19.57% | $92,884 |  | 8.00% | $121,910 |  | 10.50% | $116,105 |  | 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% |

| ​ ​ ​ ​ ​ ​ Pioneer Commercial Bank: As of December 31, 2023 ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Actual Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ For Capital Adequacy Purposes Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ For Capital Adequacy Purposes with Capital Buffer Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ Ratio ​ ​ ​ ​ ​ ​ | ​ ​ To be Well Capitalized Under Prompt Corrective Action Amount ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Ratio ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | --- | --- | --- | ---: | --- | ---: |
| Tier 1 (leverage) capital | ​ | $49,309 |  | 9.72% | $20,285 |  | 4.00% | ​ N/A |  | N/A ​ | $25,357 |  | 5.00% |
| Risk-based capital | ​ |  |  | ​ |  |  |  | ​ |  | ​ | ​ |  | ​ |
| Common Tier 1 | ​ | $49,309 |  | 57.03% | $3,891 |  | 4.50% | $6,053 |  | 7.00% | $5,620 |  | 6.50% |
| Tier 1 | ​ | $49,309 |  | 57.03% | $5,188 |  | 6.00% | $7,350 |  | 8.50% | $6,917 |  | 8.00% |
| Total | ​ | $49,309 |  | 57.03% | $6,917 |  | 8.00% | $9,079 |  | 10.50% | $8,647 |  | 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% |

### 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 December 31, 2023, we had $290.2 million of commitments to originate or purchase loans, comprised of $161.2 million of commitments under commercial loans and lines of credit (including $35.7 million of unadvanced portions of commercial construction loans), $67.9 million of commitments under home equity loans and lines of credit, $53.9 million of commitments to purchase residential mortgage loans and $7.2 million of unfunded commitments under consumer lines of credit. In addition, at December 31, 2023, we had $20.8 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.

## Controls and procedures

As filed, 2,716 characters.

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 December 31, 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 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.

There were no changes in the Company’s internal control over financial reporting that occurred during the second 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.

## Risk factors

As filed, 584 characters.

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.

Filed Feb 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-001058. Last ingested by Listed: Oct 30, 2026, 16:56 ET. No prices; not investment advice.