PIONEER BANCORP, INC. 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:
changes in market interest rates due to economic conditions or other factors
and/or the fiscal and monetary policy measures undertaken by
? government in response to such economic conditions, which may adversely impact
interest rates, the interest rate yield curve, interest margins, loan demand
and interest rate sensitivity;
? risks related to the variety of litigation and other proceedings described in
the "Legal Proceedings" section;
general economic conditions, either locally, regionally, or nationally,
? including flat economic growth or recession, volatility and/or lack of
liquidity in capital markets, add volatility to the global stock markets, and
increase loan delinquencies and defaults;
? the effects of inflationary pressures and the impact of rising interest rates
on borrowers' liquidity and ability to repay;
risks and uncertainties related to the Coronavirus Disease 2019 ("COVID-19")
? pandemic and resulting governmental and societal response, add volatility to
the global stock markets, and increase loan delinquencies and defaults; competition within our market area from both financial institutions or
non-financial institutions, including product and pricing pressures, which can
? in turn impact the Company's credit spreads, changes to third-party
relationships and revenues, changes in the manner of providing services,
customer acquisition and retention pressures, and the Company's ability to
attract, develop and retain qualified professionals;
? changes in the level and direction of loan delinquencies and charge-offs and
changes in estimates of the adequacy of the allowance for loan losses;
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? 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;
? 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 cost of legal expenses, including defending against significant
litigation;
? risks and uncertainties related to the restatement of certain of our historical
consolidated financial statements;
changes in accounting policies and practices, as may be adopted by the bank
? regulatory agencies, the
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;
? the potential further deterioration of the
political or other shocks; 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 endedJune 30, 2022 , under the heading "Risk Factors" and this Form 10-Q, under the heading "Risk Factors." The Company disclaims any obligation to revise or update any forward-looking statements contained in this quarterly report on Form 10-Q to reflect future events or developments.
Overview
Net Interest Income. Our primary source of income is net interest income. Net
interest income is the difference between interest income, which is the income
we earn on our loans and investments, and interest expense, which is the
interest we pay on our deposits and borrowings.
Provision for Loan Losses. The allowance for loan losses is a valuation
allowance for probable incurred credit losses. The allowance for loan losses is
increased through charges to the provision for loan losses. 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 loan 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
realized gains or losses on available for sale securities, loans or other
assets, net gains or losses in cash surrender value of bank owned life insurance
and other income.
Non-Interest Expenses. 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.
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Salaries and employee benefits consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for worker's compensation and disability insurance, health insurance, retirement plans and other employee benefits, as well as commissions and other incentives.
Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, rental expenses, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using a straight-line method based on the estimated useful lives of the related assets or the expected lease terms, if shorter.
Data processing expenses are fees we pay to third parties for use of their software and for processing customer information, deposits and loans.
Advertising and marketing includes most marketing expenses including multi-media advertising (public and in-store), promotional events and materials, civic and sales focused memberships, and community support.
Insurance premiums include expense related to various insurance policies, excluding federal deposit insurance premiums.
Federal deposit insurance premiums are payments we make to the
Professional fees includes legal and other consulting expenses.
Other expenses include expenses for professional services, office supplies, postage, telephone and other miscellaneous operating expenses.
Income Tax Expense. Our income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the carrying amounts and the tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized. Recent Developments Acquisitions OnDecember 10, 2021 andDecember 22, 2021 , the Company, through its subsidiary,Pioneer Financial Services, Inc. , completed the acquisition of certain assets of two practices engaged in the wealth management services business in theCapital Region ofNew York . The Company paid an aggregate of$1.5 million in cash and recorded$728,000 in contingent consideration payable to acquire the assets and recorded an$890,000 customer list intangible asset and goodwill in the amount of$1.3 million in conjunction with the acquisitions. The effects of the acquired assets have been included in the consolidated financial statements since the respective acquisition dates. OnMarch 16, 2022 , the Company, through its subsidiary,Pioneer Financial Services, Inc. , completed the acquisition of certain assets of a practice engaged in the wealth management services business in theCapital Region ofNew York . The Company paid$165,000 in cash and recorded$130,000 in contingent consideration payable to acquire the assets and recorded a$118,000 customer list intangible asset and goodwill in the amount of$177,000 in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since the acquisition date.
The above referenced acquisitions were made to expand the Company's wealth management services activities.
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Mann Entities Related Fraudulent Activity
During the first fiscal quarter of 2020 (the quarter endedSeptember 30, 2019 ), the Company became aware of potentially fraudulent activity associated with transactions by an established business customer of the Bank. The customer and various affiliated entities (collectively, the "Mann Entities") had numerous accounts with the Bank. The transactions in question related both to deposit and lending activity with the Mann Entities. For the fraudulent activity related to the Mann Entities, the Bank's potential exposure with respect to its deposit activity was approximately$18.5 million . In the first fiscal quarter of 2020, the Bank exercised its rights pursuant to state and federal law and the relevant Mann Entity general deposit account agreements to take actions to set off/recover approximately$16.0 million from general deposit corporate operating accounts held by the Mann Entities at the Bank to partially cover overdrafts/negative account balances in Mann Entity general deposit corporate operating accounts that primarily resulted from another bank returning/calling back$15.6 million in checks onAugust 30, 2019 , that the Mann Entities had deposited into and then withdrawn from their accounts at the Bank the day before. In the first fiscal quarter of 2020, the Bank recognized a charge to non-interest expense in the amount of$2.5 million based on the net negative deposit balance of the various Mann Entities' accounts after the setoffs/overdraft recoveries. Through the end of the first fiscal quarter of 2023, no additional charges to non-interest expense were recognized related to the deposit transactions with the Mann Entities. With respect to the Bank's lending activity with the Mann Entities, its potential monetary exposure was approximately$15.8 million (which represents the Bank's participation interest in the approximately$35.8 million commercial loan relationships for which the Bank is the originating lender). In the fourth fiscal quarter of 2019, the Bank recognized a provision for loan losses in the amount of$15.8 million , related to the charge-off of the entire principal balance owed to the Bank related to the Mann Entities' commercial loan relationships. During the third fiscal quarter of 2020 and the first fiscal quarter of 2021, the Bank recognized partial recoveries in the amount of$1.7 million and$34,000 , respectively, related to the charge-off of the Mann Entities' commercial loan relationships, which were credited to the allowance for loan losses. Through the end of the first fiscal quarter of 2023, no additional charges to the provision for loan losses were recognized related to the loan transactions with the Mann Entities. Several other parties and regulatory agencies are asserting claims against the Company and the Bank related to the series of transactions between the Company or the Bank, on the one hand, and the Mann Entities, on the other. The Company and the Bank continue to investigate these matters and it is possible that the Company and the Bank will be subject to similar legal, regulatory, governmental or other proceedings and additional liabilities. The ultimate timing and outcome of any such proceedings, involving the Company, or the Bank, cannot be predicted with any certainty. It also remains possible that other private parties or governmental bodies will pursue existing or additional claims against the Bank as a result of the Bank's dealings with certain of the Mann Entities or as a result of the actions taken by the Company or the Bank. The Company's and the Bank's legal fees and expenses related to these actions are significant and are expected to continue being significant. In addition, costs associated with potentially prosecuting, litigating or settling any litigation, satisfying any adverse judgments, if any, or other proceedings, could be significant. These legal, regulatory, governmental and other proceedings, claims or investigations, costs, settlements, judgments, sanctions or other expenses could have a material adverse effect on the Company's business prospects, financial condition, results of operations or cash flows or cause significant reputational harm and subject the Company to face civil litigation, significant fines, damage awards or other material regulatory consequences. The Company is pursuing all available sources of recovery and other means of mitigating the potential loss, and the Company and the Bank are vigorously defending all claims asserted against them arising out of or otherwise related to the fraudulent activity of the Mann Entities. During the three months endedSeptember 30, 2022 and 2021, the Bank recognized insurance recoveries in the amount of$542,000 and$1.1 million , respectively, related to the partial reimbursement of defense costs incurred as a result of these matters, which were credited to noninterest expense - professional fees on the consolidated statement of operations. For additional details regarding legal, other proceedings and related matters, see, "Part II, Item 1 - Legal Proceedings".
Critical Accounting Policies and Estimates
The discussion and analysis of the financial condition and results of operations
are based on our financial statements, which are prepared in conformity with
GAAP. The preparation of these financial statements requires management to make
estimates and assumptions affecting the reported amounts of assets and
liabilities, disclosure of
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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 Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the relevant balance sheet date. The amount of the allowance is based on significant estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. The methodology for determining the allowance for loan losses is considered a critical accounting estimate by management due to the high degree of judgment involved, the subjectivity of the assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. 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 performs an evaluation of the adequacy of the allowance for loan losses at least quarterly. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, credit concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions. The evaluation has specific and general components. The specific component relates to loans that are deemed to be impaired and classified as special mention, substandard, doubtful, or loss. For such loans that are also classified as impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.
Actual loan losses may be significantly more than the allowance we have established which could have a material negative effect on our financial results.
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
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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.Investment Securities . Available-for-sale and held-to-maturity debt securities are reviewed by management on a quarterly basis, and more frequently when economic or market conditions warrant, for possible other-than-temporary impairment. In determining other-than-temporary impairment, management considers many factors, including the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statement of operations. The assessment of whether other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Pension Obligations. We maintain a non-contributory defined benefit pension plan covering substantially all of our full-time employees hired beforeSeptember 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. 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. 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 42
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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 table sets forth average balances, average yields and costs, and
certain other information for the periods indicated. No tax-equivalent yield
adjustments have been made, as the effects would be immaterial. All average
balances are daily average balances. Non-accrual loans were included in the
computation of average balances. The yields set forth below include the effect
of deferred fees, discounts, and premiums that are amortized or accreted to
interest income or interest expense, as applicable.
For the
Three Months Ended
2022 2021
Average Average Average Average
Outstanding Yield/Cost Outstanding Yield/Cost
Balance Interest (4) Balance Interest (4)
(Dollars in thousands)
Interest-earning assets:
Loans $ 1,003,857 $ 11,513 4.63 % $ 1,064,438 $ 10,034 3.79 %
Securities 517,691 1,934 1.49 % 286,032 430 0.60 % Interest-earning deposits and other
305,078 1,745 2.29 % 343,438 152 0.18 % Total interest-earning assets
1,826,626 15,192 3.34 % 1,693,908 10,616 2.51 %
Non-interest-earning assets 142,974 138,774
Total assets $ 1,969,600 $ 1,832,682
Interest-bearing liabilities:
Demand deposits $ 197,377 $ 143 0.29 % $ 180,008 $ 59 0.13 %
Savings deposits 324,626 27 0.03 % 302,896 25 0.03 %
Money market deposits 467,630 146 0.12 % 455,465 94 0.08 %
Certificates of deposit 72,540 90 0.49 % 92,370 180 0.78 % Total interest-bearing deposits
1,062,173 406 0.15 % 1,030,739 358 0.14 %
Borrowings and other 18,510 112 2.42 % 5,059 23 1.82 %
Total interest-bearing liabilities 1,080,683 518 0.19 % 1,035,798 381 0.15 % Non-interest-bearing deposits
607,786 540,732
Other non-interest-bearing liabilities 36,584
17,882
Total liabilities 1,725,053 1,594,412
Total shareholders' equity 244,547 238,270
Total liabilities and shareholders'
equity $ 1,969,600 $ 1,832,682
Net interest income $ 14,674 $ 10,235
Net interest rate spread (1) 3.15 % 2.36 %Net interest-earning assets (2)$ 745,943 $ 658,110 Net interest margin (3) 3.23 % 2.42 % Average interest-earning assets to interest-bearing liabilities 169.03 % 163.54 %
Net interest rate spread represents the difference between the weighted (1) average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total
interest-earning assets.
(4) Annualized.
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Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our
net interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The total column represents the sum of the
prior two columns. For purposes of this table, changes attributable to both rate
and volume, which cannot be segregated, have been allocated proportionately
based on the changes due to rate and the changes due to volume.
Three Months Ended September 30,
2022 vs. 2021
Total
Increase (Decrease) Due to Increase
Volume Rate (Decrease)
(Dollars in thousands)
Interest-earning assets:
Loans $ (609) $ 2,088 $1,479
Securities 529 975
1,504
Interest-earning deposits and other (19) 1,612
1,593
Total interest-earning assets (99) 4,675
4,576
Interest-bearing liabilities: Demand deposits 6 78 84 Savings deposits 2 - 2 Money market deposits 3 49 52 Certificates of deposit (33) (57) (90)
Total interest-bearing deposits (22) 70
48
Borrowings and other 79 10
89
Total interest-bearing liabilities 57 80
137
Change in net interest income $ (156) $ 4,595 $ 4,439 Comparison of Financial Condition at
Total Assets. Total assets increased$105.4 million , or 5.4%, to$2.07 billion atSeptember 30, 2022 from$1.96 billion atJune 30, 2022 . The increase was due primarily to an increase of$37.1 million , or 3.8%, in net loans receivable, an increase of$32.1 million , or 6.7% in securities available for sale and an increase of$26.8 million , or 7.1% in cash and cash equivalents. Cash and Cash Equivalents. Total cash and cash equivalents increased$26.8 million , or 7.1%, to$402.9 million atSeptember 30, 2022 from$376.1 million atJune 30, 2022 . This increase was primarily a result of a net increase in deposits of$98.7 million offset in part by an increase in net loans receivable of$37.1 million and an increase in securities available for sale of$32.1 million during the three months endedSeptember 30, 2022 . Securities Available for Sale. Total securities available for sale increased$32.1 million , or 6.7%, to$513.9 million atSeptember 30, 2022 from$481.8 million atJune 30, 2022 . The increase was primarily due to purchases ofU.S Government and agency obligations during the three months endedSeptember 30, 2022 . Net Loans. Net loans of$1.02 billion atSeptember 30, 2022 increased$37.1 million , or 3.8%, from$982.6 million atJune 30, 2022 . By loan category, one-to four-family residential real estate loans increased by$32.3 million , or 12.0%, to$302.6 million atSeptember 30, 2022 from$270.3 million atJune 30, 2022 , commercial real estate loans increased$6.5 million , or 1.4%, to$460.0 million atSeptember 30, 2022 from$453.5 million atJune 30, 2022 , commercial construction loans increased by$5.1 million , or 7.1%, to$76.2 million atSeptember 30, 2022 from$71.1 million atJune 30, 2022 and home equity loans and lines of credit increased by$755,000 , or 0.9%, to$82.0 million atSeptember 30, 2022 from$81.2 million atJune 30, 2022 . These increases were partially offset by a decrease in commercial and industrial loans of$5.7 million , or 5.5%, to$97.5 million atSeptember 30, 2022 from$103.2 million atJune 30, 2022 and a decrease in consumer loans of$2.2 million , or 10.0%, to$20.1 million atSeptember 30, 2022 from$22.3 million atJune 30, 2022 . The increase in one-to four-family residential real estate loans and commercial real estate loans were both related to loan funding outpacing loan payoffs. The increase in commercial construction loans was related to the funding of loan commitments which outpaced payoffs and conversion of loans to permanent financing. The
decrease in commercial and
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industrial loans was primarily related to reduced line of credit utilization
during the three months ended September 30, 2022 , as well as, forgiveness of PPP
loans which declined $1.6 million from $1.8 million at June 30, 2022 to $191,000
at September 30, 2022 . The decrease in consumer loans was primarily related to
reduced line of credit utilization during the three months ended September 30,
2022 .
Deposits. Total deposits increased $98.7 million , or 5.9%, to $1.78 billion at
September 30, 2022 from $1.68 billion at June 30, 2022 . The increase in deposits
was primarily related to an increase in non-interest bearing demand accounts of
$114.8 million , or 19.3%, to $708.3 million at September 30, 2022 from $593.5
million at June 30, 2022 and an increase in demand accounts of $40.1 million , or
21.9%, to $222.9 million at September 30, 2022 from $182.8 million at June 30,
2022 . These increases were partially offset by a decrease in money market
accounts of $42.5 million , or 8.5%, to $454.7 million at September 30, 2022 from
$497.2 million at June 30, 2022 , a decrease in savings accounts of $2.3 million ,
or 0.7%, to $324.0 million at September 30, 2022 from $326.3 million at June 30,
2022 and a decrease in certificates of deposit of $11.4 million , or 14.2%, to
$69.2 million at September 30, 2022 from $80.6 million at June 30, 2022 . The
increase in non-interest-bearing demand accounts and interest-bearing demand
accounts was primarily related to growth in municipal deposits due to
seasonality. The decrease in money market accounts was principally related to
outflows in municipal depositor accounts. The decrease in certificates of
deposit was primarily due to the maturity of various accounts.
Total Shareholders' Equity. Total shareholders' equity decreased $918,000 , or
0.4%, to $241.7 million at September 30, 2022 from $242.6 million at June 30,
2022 primarily as a result of an increase in unrealized holding losses on
securities available for sale of $6.3 million due to the increase in market
interest rates, largely offset by net income of $5.2 million for the three month
period ended September 30, 2022 .
Comparison of Operating Results for the Three Months Ended
General. Net income increased by$3.9 million , or 285.7%, to$5.2 million for the three months endedSeptember 30, 2022 as compared to$1.4 million for the three months endedSeptember 30, 2021 . The increase was primarily due to a$4.4 million increase in net interest income, a$605,000 increase in non-interest income and a$130,000 decrease in the provision for loan losses, offset in part by a$462,000 increase in non-interest expense and a$843,000 increase in income tax expense. Interest and Dividend Income. Interest and dividend income increased$4.6 million , or 43.1%, to$15.2 million for the three months endedSeptember 30, 2022 , from$10.6 million for the three months endedSeptember 30, 2021 due to increases in interest income on loans, securities, and interest-earning deposits and other. The increase was the result of an 83 basis points increase in the average yield on interest-earning assets to 3.34% for the three months endedSeptember 30, 2022 , from 2.51% for the three months endedSeptember 30, 2021 . The increase in the average yield on interest-earning assets was driven by a significant increase in variable rate loan yields and yields on interest-earning deposits with banks due to rising market interest rates, as well as due to market related increases in interest rates on new loans and securities. Average interest-earning assets also increased by$132.7 million from$1.69 billion for the three months endedSeptember 30, 2021 to$1.83 billion for the three months endedSeptember 30, 2022 . Interest income on loans increased$1.5 million , or 14.7%, to$11.5 million for the three months endedSeptember 30, 2022 from$10.0 million for the three months endedSeptember 30, 2021 . Interest income on loans increased due to an 84 basis points increase in the average yield on loans to 4.63% for the three months endedSeptember 30, 2022 from 3.79% for the three months endedSeptember 30, 2022 , offset in part by a$60.6 million decrease in the average balance of loans to$1.00 billion for the three months endedSeptember 30, 2022 from$1.06 billion for the three months endedSeptember 30, 2021 . The increase in average yield on loans was primarily due to loans tied to variable short-term rates, offset in part by a$575,000 decrease in PPP loan related interest income to$44,000 for the three months endedSeptember 30, 2022 from$619,000 for the three months endedSeptember 30, 2021 . The decrease in the average balance of loans was principally due to commercial loan payoffs and forgiveness of customer PPP loans. Interest income on securities increased$1.5 million , or 349.8%, to$1.9 million for the three months endedSeptember 30, 2022 from$430,000 for the three months endedSeptember 30, 2021 . Interest income on securities increased due to an 89 basis points increase in the average yield on securities to 1.49% for the three months endedSeptember 30, 2022 from 0.60% for the three months endedSeptember 30, 2021 , as well as, a$231.7 million increase in the average 45
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balance of securities to$517.7 million for the three months endedSeptember 30, 2022 from$286.0 million for the three months endedSeptember 30, 2021 . The increase in the average balance of securities was due to purchases ofU.S. government and agency and municipal obligation securities outpacing maturities and sales throughout the later part of fiscal year 2022 and during the three months endedSeptember 30, 2022 . The increase in average yield on securities was due to higher market rates of interest for new securities that were purchased during the quarter endedSeptember 30, 2022 replacing scheduled maturities of lower yieldingU.S. government and agency and municipal obligation securities. Interest income on interest-earning deposits with banks and other increased$1.6 million to$1.7 million for the three months endedSeptember 30, 2022 from$152,000 for the three months endedSeptember 30, 2021 . Interest income on interest-earning deposits with banks and other increased due to a 211 basis points increase in the average yield on interest-earning deposits with banks and other to 2.29% for the three months endedSeptember 30, 2022 from 0.18% for the three months endedSeptember 30, 2021 , marginally offset by a decrease of$38.3 million in average balances on interest-earning deposits with banks and other to$305.1 million for the three months endedSeptember 30, 2022 from$343.4 million for the three months endedSeptember 30, 2021 . Interest Expense. Interest expense increased$137,000 , or 36.0%, to$518,000 for the three months endedSeptember 30, 2022 from$381,000 for the three months endedSeptember 30, 2021 as a result of an increase in interest expense on borrowings and other, as well as, on deposits. The increase was primarily due to a four basis points increase in the average cost of interest-bearing liabilities to 0.19% for the three months endedSeptember 30, 2022 from 0.15% for the three months endedSeptember 30, 2021 , as well as, a$44.9 million increase in the average balance of interest-bearing liabilities. Interest expense on interest-bearing deposits increased$48,000 , or 13.4%, to$406,000 for the three months endedSeptember 30, 2022 from$358,000 for the three months endedSeptember 30, 2021 . Interest expense on interest-bearing deposits increased primarily due to a one basis point increase in the average cost of interest-bearing deposits to 0.15% for the three months endedSeptember 30, 2022 from 0.14% for the three months endedSeptember 30, 2021 and by a change in mix to non-time deposits as interest-bearing deposits increased by$31.4 million to$1.06 billion for the three months endedSeptember 30, 2022 from$1.03 billion for the three months endedSeptember 30, 2021 . The increase in the average cost of deposits was a result of higher market deposit rates in the interest-bearing demand and money market deposit categories. The increase in average interest-bearing deposits was primarily due to increases in various non-time deposit categories throughout the later part of fiscal year 2022 and during the quarter endedSeptember 30, 2022 . Net Interest Income. Net interest income increased$4.4 million , or 43.4%, to$14.7 million for the three months endedSeptember 30, 2022 compared to$10.2 million for the three months endedSeptember 30, 2021 . The increase was a result of a 79 basis points increase in the net interest rate spread to 3.15% for the three months endedSeptember 30, 2022 from 2.36% for the three months endedSeptember 30, 2021 . Net interest margin increased 81 basis points to 3.23% for the three months endedSeptember 30, 2022 from 2.42% for the three months endedSeptember 30, 2021 . Net interest-earning assets increased by$87.8 million to$745.9 million for the three months endedSeptember 30, 2022 from$658.1 million for the three months endedSeptember 30, 2021 . Provision for Loan Losses. We recorded a provision for loan losses of$120,000 for the three months endedSeptember 30, 2022 compared to$250,000 for the three months endedSeptember 30, 2021 . The decrease in provision was primarily due to improved credit quality and lower net charge-offs. Net charge-offs decreased to$75,000 for the three months endedSeptember 30, 2022 , compared to$438,000 for the three months endedSeptember 30, 2021 . Non-performing assets decreased to$12.1 million , or 0.58% of total assets, atSeptember 30, 2022 , compared to$20.6 million , or 1.05% of total assets, atSeptember 30, 2021 . The allowance for loan losses was$22.6 million , or 2.17% of total loans outstanding, atSeptember 30, 2022 and$23.1 million , or 2.15% of total net loans outstanding, atSeptember 30, 2021 . Non-Interest Income. Non-interest income increased$605,000 , or 18.9%, to$3.8 million for the three months endedSeptember 30, 2022 from$3.2 million for the three months endedSeptember 30, 2021 . The increase was primarily due to an increase in bank-owned life insurance income of$460,000 and an increase in insurance and wealth management services revenue of$173,000 . The increase in bank-owned life insurance income was due to a gain recognized from a death benefit. The increase in insurance and wealth management services revenue was primarily due to the recent wealth management acquisitions. 46
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Non-Interest Expense. Non-interest expense increased$454,000 , or 4.0%, to$11.9 million for the three months endedSeptember 30, 2022 as compared to$11.4 million for the three months endedSeptember 30, 2021 . The increase in non-interest expense was primarily due to an increase in salaries and employee benefits expense of$367,000 . Salaries and employee benefits expense primarily increased due to compensation expense from annual merit increases. Income Tax Expense. Income tax expense increased$843,000 to$1.3 million for the three months endedSeptember 30, 2022 from$414,000 for the three months endedSeptember 30, 2021 , due to an increase in income before income taxes. Our effective tax rate was 19.4% for the three months endedSeptember 30, 2022 compared to 23.4% for the three months endedSeptember 30, 2021 . The decrease in our effective tax rate was primarily due to the increase in tax-exempt income for the three months endedSeptember 30, 2022 as compared to the prior year period.
Asset Quality and Allowance for Loan Losses
Asset Quality. Loans are reviewed on a regular basis. Management determines that
a loan is impaired or 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
determined to be impaired, the measurement of the loan in the allowance for loan
losses is based on the present value of expected future cash flows, except that
all collateral-dependent loans are measured for impairment 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 loan 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.
A loan is classified as a troubled debt restructuring if, for economic or legal
reasons related to the borrower's financial difficulties, we grant a concession
to the borrower that we would not otherwise consider. 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.
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The table below sets forth the amounts and categories of our non-performing
assets at the dates indicated. There were no non-accruing troubled debt
restructurings as of
At At
September 30, June 30,
2022 2022
(Dollars in thousands)
Non-accrual loans:
Commercial real estate $ 1,023 $ 756
Commercial and industrial - 38
Commercial construction - -One- to four-family residential real estate 3,822
3,975
Home equity loans and lines of credit 1,613
1,672 Consumer - - Total non-accrual loans 6,458 6,441 Accruing loans past due 90 days or more: Commercial real estate 1,494 200 Commercial and industrial 1,135 378 Commercial construction 2,979 -
One- to four-family residential real estate -
-
Home equity loans and lines of credit -
-
Consumer -
1
Total accruing loans past due 90 days or more 5,608
579 Real estate owned: Commercial real estate - - Commercial and industrial - - Commercial construction - -
One- to four-family residential real estate -
-
Home equity loans and lines of credit -
-
Consumer - -
Total real estate owned - -
Total non-performing assets$ 12,066 $
7,020
Total accruing troubled debt restructured loans $ 2,182
Total non-performing loans to total loans 1.16 % 0.70 % Total non-performing assets to total assets 0.58 %
0.36 %
Non-accrual loans were relatively unchanged fromJune 30, 2022 toSeptember 30, 2022 . Accruing loans past due 90 days or more increased$5.0 million to$5.6 million atSeptember 30, 2022 from$579,000 atJune 30, 2022 primarily due to a commercial real estate loan and a commercial construction loan that became 90 days or more past due atSeptember 30, 2022 . 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." When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies 48 Table of Contents
problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific loss allowances.
The following table sets forth our amounts of all classified loans and loans
designated as special mention as of
At At
September 30, June 30,
2022 2022
(In thousands)
Classification of Loans:
Substandard $ 51,171 $ 53,119
Doubtful - 38
Loss - -
Total Classified Loans $ 51,171 $ 53,157
Special Mention $ 8,992 $ 9,307
Total substandard loans at September 30, 2022 and June 30, 2022 , include three
commercial real estate loan relationships in the accommodation and food service
industry totaling $30.2 million and $30.3 million , respectively. Total
substandard loans decreased $1.9 million to $51.2 million at September 30, 2022
from $53.1 million at June 30, 2022 primarily due to one relationship being
upgraded to the pass category, as well as, loan payments. Total special mention
commercial loans decreased $314,000 to $9.0 million at September 30, 2022 from
$9.3 million at June 30, 2022 due to loan payments.
Allowance for Loan Losses. The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb probable credit
losses inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectability of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances for
loans that are individually classified as impaired are generally determined
based on collateral values or the present value of estimated cash flows. Because
of uncertainties associated with national and regional economic conditions,
collateral values, and future cash flows on impaired loans, it is reasonably
possible that management's estimate of probable credit losses inherent in the
loan portfolio and the related allowance may change materially in the near-term.
The allowance is increased by a provision for loan losses, which is charged to
expense and reduced by full and partial charge-offs, net of recoveries. Changes
in the allowance relating to impaired loans are charged or credited to the
provision for loan losses. Management's periodic evaluation of the adequacy of
the allowance is based on various factors, including, but not limited to,
historical loss experience, current economic conditions, delinquency statistics,
geographic and industry concentrations, the adequacy of the underlying
collateral, the financial strength of the borrower, results of internal loan
reviews and other qualitative and quantitative factors which could affect
potential credit losses.
In addition, the New York State Department of Financial Services (the "NYSDFS")
and the Federal Deposit Insurance Corporation periodically review our allowance
for loan losses and as a result of such reviews, we may have to materially
adjust our allowance for loan losses or recognize further loan charge-offs.
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The following table sets forth activity in our allowance for loan losses for the
periods indicated.
At or for the
Three Months Ended September 30,
2022 2021
(Dollars in thousands)Allowance at beginning of period $ 22,524
$ 23,259 Provision for loan losses 120 250 Charge offs: Commercial real estate 31 - Commercial and industrial 3 380 Commercial construction - -
One- to four-family residential real estate 24 - Home equity loans and lines of credit -
40
Consumer 71 28
Total charge-offs 129 448
Recoveries:
Commercial real estate - -
Commercial and industrial 43 8
Commercial construction - -One- to four-family residential real estate 10 - Home equity loans and lines of credit -
-
Consumer 1 2
Total recoveries 54 10
Net charge-offs 75 438
Allowance at end of period $ 22,569 $ 23,071
Allowance to non-performing loans 187.10 % 117.27 % Allowance to total loans outstanding at the end of the period 2.17 % 2.15 % Net charge-offs to average loans outstanding during the period (1) 0.01 % 0.16 % (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 theFederal Home Loan Bank of New York . AtSeptember 30, 2022 , we had the ability to borrow up to$330.6 million , of which none was utilized for borrowings and$60.0 million was utilized as collateral for letters of credit issued to secure municipal deposits. AtSeptember 30, 2022 , we also had a$20.0 million unsecured line of credit with a correspondent bank with no outstanding balance. We cannot predict what the impact of the events described in "Recent Developments -Mann Entities Related Fraudulent Activity" above may have on our Liquidity and Capital Resources beyond the first quarter of fiscal 2023. 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 ofSeptember 30, 2022 . 50 Table of Contents 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. AtSeptember 30, 2022 , cash and cash equivalents totaled$402.9 million . Securities classified as available-for-sale, which provide additional sources of liquidity, totaled$513.9 million atSeptember 30, 2022 . 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 ofSeptember 30, 2022 totaled$47.4 million , or 2.66%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits andFederal 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 theFederal Deposit Insurance Corporation . AtSeptember 30, 2022 , we exceeded all applicable regulatory capital requirements, and were considered "well capitalized" under regulatory guidelines. The Bank andPioneer 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 andPioneer 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). UnderBasel 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$10 billion . A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies have set the Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition. The Bank andPioneer Commercial Bank did not elect to become subject to the Community Bank Leverage Ratio as ofSeptember 30, 2022 . As ofSeptember 30, 2022 , the Bank andPioneer Commercial Bank met all capital adequacy requirements to which they were subject. Further, the most recentFDIC notification categorized the Bank andPioneer Commercial Bank as well capitalized institutions under the prompt corrective action regulations. There have been no conditions or events since the notification that management believes have changed the Bank's orPioneer Commercial Bank's capital classification. 51 Table of Contents
The actual capital amounts and ratios for the Bank and
To be Well
For Capital Capitalized Under
For Capital Adequacy Purposes Prompt
Actual Adequacy Purposes with Capital Buffer Corrective Action
Amount Ratio Amount
Ratio Amount Ratio Amount
Tier 1 (leverage) capital$ 191,347 9.74 %$ 78,559 4.00 % N/A N/A$ 98,198 5.00 % Risk-based capital Common Tier 1$ 191,347 17.69 %$ 48,670 4.50 %$ 75,709 7.00 %$ 70,301 6.50 % Tier 1$ 191,347 17.69 %$ 64,893 6.00 %$ 91,932 8.50 %$ 86,525 8.00 % Total$ 204,978 18.95 %$ 86,525 8.00 %$ 113,564 10.50 %$ 108,156 10.00 % As of June 30, 2022 Tier 1 (leverage) capital$ 185,892 9.48 %$ 78,405 4.00 % N/A N/A$ 98,006 5.00 % Risk-based capital Common Tier 1$ 185,892 17.98 %$ 46,515 4.50 %$ 72,357 7.00 %$ 67,189 6.50 % Tier 1$ 185,892 17.98 %$ 62,021 6.00 %$ 87,862 8.50 %$ 82,694 8.00 % Total$ 198,932 19.25 %$ 82,694 8.00 %$ 108,536 10.50 %$ 103,368 10.00 % To be Well For Capital Capitalized Under For Capital Adequacy Purposes Prompt Actual Adequacy Purposes with Capital Buffer Corrective Action Amount Ratio Amount
Ratio Amount Ratio Amount
Tier 1 (leverage) capital$ 40,603 8.12 %$ 20,005 4.00 % N/A N/A$ 25,006 5.00 % Risk-based capital Common Tier 1$ 40,603 34.58 %$ 5,283 4.50 %$ 8,218 7.00 %$ 7,631 6.50 % Tier 1$ 40,603 34.58 %$ 7,044 6.00 %$ 9,980 8.50 %$ 9,392 8.00 % Total$ 40,603 34.58 %$ 9,392 8.00 %$ 12,328 10.50 %$ 11,741 10.00 % As of June 30, 2022 Tier 1 (leverage) capital$ 39,264 7.65 %$ 20,532 4.00 % N/A N/A$ 25,665 5.00 % Risk-based capital Common Tier 1$ 39,264 40.43 %$ 4,370 4.50 %$ 6,797 7.00 %$ 6,312 6.50 % Tier 1$ 39,264 40.43 %$ 5,826 6.00 %$ 8,254 8.50 %$ 7,768 8.00 % Total$ 39,264 40.43 %$ 7,768 8.00 %$ 10,196 10.50 %$ 9,711 10.00 % 52 Table of Contents
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. AtSeptember 30, 2022 , we had$308.8 million of commitments to originate or purchase loans, comprised of$172.4 million of commitments under commercial loans and lines of credit (including$45.1 million of unadvanced portions of commercial construction loans),$61.9 million of commitments under home equity loans and lines of credit,$67.0 million of commitments to purchase one- to four-family residential real estate loans and$7.5 million of unfunded commitments under consumer lines of credit. In addition, atSeptember 30, 2022 , the Company had$29.7 million in standby letters of credit outstanding. Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.
Impact of Inflation and Changing Prices
Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
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