Item 4.02(a)Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
The Restatement results from a technical accounting correction to reflect the Mann Entities-related $15.8 million Loan Balances Impairment as a recognized (Type I) subsequent event in the quarter and fiscal year ended June 30, 2019, rather than as a disclosure only nonrecognized (Type II) subsequent event recognized in the quarter ended September 30, 2019, notwithstanding that the Company and the Bank did not start to become aware of the events causing the Impairment until the quarter ended September 30, 2019 (capitalized terms defined below).
On February 12, 2021, the Audit Committee (the “Committee”) of the Board of Directors of Pioneer Bancorp, Inc. (the “Company”), after consultation with management, determined that certain financial statements previously issued by the Company should be restated and no longer relied upon (the “Restatement”). The following financial statements of the Company are impacted by the Restatement: (a) the audited consolidated financial statements for the fiscal years ended June 30, 2019 and June 30, 2020, as reported in the Company’s Annual Reports on Form 10-K for those years, and (b) the unaudited consolidated financial statements for the periods ended September 30, 2019, December 31, 2019, March 31, 2020, and September 30, 2020, as reported in the Company’s Quarterly Reports on Form 10-Q.
As previously disclosed, after the Company’s fiscal year ended June 30, 2019, but prior to December 10, 2019, the date the financial statements for that year were issued, the Company became aware of fraudulent activity associated with transactions by an established business customer of Pioneer Bank (the “Bank”), a subsidiary of the Company. The customer, Michael Mann, and various affiliated entities (collectively, the “Mann Entities”) had numerous general deposit corporate operating accounts and loans with the Bank.
As reflected in its Current Report on Form 8-K filed on September 11, 2019, the Company’s potential exposure with respect to the Mann Entities’ lending activity was approximately $15.8 million (the “Loan Balances”). Subsequently, the Company learned that Mr. Mann had perpetrated a concealed fraud on the Bank and many other parties. In the second quarter of fiscal 2020, the Company concluded that due to the impact of the potential fraudulent activity, the Loan Balances were impaired and, as a result, recorded a provision for loan losses in the amount of $15.8 million in the first quarter of fiscal 2020 related to the charge-off of the entire Loan Balances (the “Impairment”). The Company has provided detailed information regarding the impact the fraud perpetrated by the Mann Entities had on the Company, including in its Annual Report on Form 10-K for the year ended June 30, 2019 (the “2019 Form 10-K”), and subsequent filings with the Securities Exchange Commission (the “SEC”).
The nature and amount of the Loan Balances Impairment was classified as a disclosure only nonrecognized (Type II) subsequent event in the Company’s 2019 Form 10-K as filed with the SEC on December 10, 2019. This amount was recognized in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as filed with the SEC on December 16, 2019.
In July 2020, the Company received a comment letter from the staff of the SEC Division of Corporation Finance (the “Staff”) related to, among other matters, the classification of the Loan Balances Impairment as a disclosure only nonrecognized (Type II) subsequent event in the Company’s 2019 Form 10-K. The Company and the Staff engaged in several discussions regarding the Staff’s position, based on technical accounting precepts, that the Loan Balances should be deemed impaired as of June 30, 2019, and the Loan Balances Impairment should have been recognized by the Company in the quarter and fiscal year ended June 30, 2019 as a Type I subsequent event and not as a disclosure only nonrecognized (Type II) subsequent event.
In its communications with the Staff, the Company described that its original determination that the Loan Balances Impairment was a Type II subsequent event in the Company’s 2019 Form 10-K recognized in the quarter ended September 30, 2019, was based on the unique circumstances of the event.
