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President’s Comments

“We are extremely pleased with the Company’s solid quarter and six-month financial performance which resulted in solid earnings”, said Joseph D. Roberto, Chairman, President & Chief Executive Officer of PCSB Financial Corporation. “Despite a difficult operating environment, our strong financial results year over year reflect continued net interest margin expansion along with continued control over operating expenses. We are encouraged by our ability to grow net loans over 10.0% annualized during the quarter despite some significant paydowns. With respect to credit quality, although we have seen recent increases in non-performing loans, our conservative underwriting has provided us strong LTVs and we believe these are isolated issues and not indicative of systemic risks in the loan portfolio. I am proud of our PCSB team who remain a source of strength to our customers and look forward to continuing to invest in the communities we serve which we believe will create sustainable value for our shareholders.”

Income Statement Summary

Net income for the current quarter was $4.3 million, which increased $674,000 from the linked quarter and $1.6 million from the prior year quarter. The change from the linked quarter is primarily due to a $723,000 increase in net interest income and a $582,000 increase in noninterest income, partially offset by increases of $251,000 in provision for loan losses, $199,000 in income tax expense, and $181,000 in noninterest expense. The change from the prior year quarter is primarily due to a $1.7 million increase in net interest income and a $452,000 increase in noninterest income, partially offset by increases of $298,000 in income tax expense, $157,000 in provision for loan losses and $114,000 in noninterest expense.

Net interest income was $13.3 million for the current quarter, increases of $723,000, or 5.8%, compared to the linked quarter and $1.7 million, or 14.8%, compared to the prior year quarter. The increase compared to the linked quarter is primarily the result of a 15 basis point increase in the tax equivalent net interest margin and a $7.9 million, or 0.4%, increase in average interest-earning assets. The increase in net interest income compared to the prior year period is primarily the result of a 27 basis point increase in the tax equivalent net interest margin and an $81.6 million, or 4.8%, increase in average interest-earning assets.

The Company recognized PPP loan interest and origination fee income (net of costs) of $332,000 in the current quarter, compared to $373,000 in the linked quarter and $159,000 in the prior year quarter. Unearned origination fees (net of costs) on PPP loans totaled $366,000 as of December 31, 2021 and will be recognized in income over the remaining lives of the loans. The timing of such recognition is largely dependent on the timing of forgiveness, which the Company expects to be substantially complete by June 30, 2022.

The tax equivalent net interest margin was 2.97% for the current quarter, reflecting increases of 15 basis points compared to 2.82% in the linked quarter and 27 basis points compared to 2.70% in the prior year quarter. During the current quarter, the Company recognized $555,000 of loan prepayment income. Adjusted net interest margin, which excludes the effects of loan prepayment income and PPP loan interest and fees, was 2.75% for the current quarter compared to 2.71% in the linked quarter and 2.64% in the prior year quarter. Reductions in the cost of funds were partially offset by a decrease in adjusted asset yield compared to the prior year quarter, driven by lower market interest rates. Reconciliations of GAAP to non-GAAP financial measures are included at the end of this release.

Tax equivalent yield on interest-earning assets for the current quarter was 3.33%, increases of 13 basis points from the linked quarter and 1 basis point from the prior year quarter. Excluding the effects of non-recurring PPP loan income and loan prepayment income, the tax equivalent yield on interest-earning assets for the current quarter was 3.11%, an increase of 2 basis points from the linked quarter and a decrease of 16 basis points from the same quarter last year. The decrease in yield compared to the prior year quarter is a result of the loan and investment portfolios continuing to re-price downward due to lower market interest rates, however the decline in asset yields (excluding the effects of PPP income) has slowed and reversed in recent quarters due to a more favorable yield curve and earning asset composition.

The cost of interest-bearing deposits was 0.39% for the current quarter, decreases of 2 basis points and 32 basis points from 0.41% and 0.71% in the linked quarter and prior year quarter, respectively. In response to lower market interest rates and increased liquidity levels, deposit rate reductions have been implemented throughout the last 2 years, the effects of which continue to be realized. As of quarter end, the weighted average cost of interest-bearing deposits was 0.32%. The cost of interest-bearing liabilities was 0.47% for the current quarter, decreases of 2 basis points from 0.49% in the linked quarter and 34 basis points from 0.81% in the prior year quarter. Over the next 12 months, the Company has $40.0 million of wholesale funding maturing, comprised of FHLB advances and brokered time deposits, with a weighted average cost of 2.07%.

The provision for loan losses was $264,000 for current quarter, compared to $13,000 for the linked quarter and $107,000 for the prior year quarter. Loans on COVID-19 related payment deferral totaled $13.7 million, or 1.10% of gross loans, as of December 31, 2021, compared to $27.3 million, or 2.21% of gross loans, as of June 30, 2021. Recoveries, net of charge-offs, were $6,000 for the current quarter compared to $265,000 for the linked quarter and charge-offs, net of recoveries, of $102,000 for the prior year quarter. Non-performing loans as a percent of total loans receivable (excluding PPP loans) was 0.64% as of December 31, 2021, an increase from 0.48% as of June 30, 2021. The increase in non-performing loans over the last 12 months primarily includes three commercial relationships totaling $6.3 million, including $2.7 million of loans secured by multi-family commercial real estate (including 1 relationship consisting of 2 construction loans totaling $1.5 million) with a weighted average loan-to-value ratio of 68.8% and one loan for $3.6 million secured by non-owner-occupied retail commercial real estate with a loan-to-value ratio of 53.9%.

Noninterest income of $1.2 million for the current quarter increased $582,000 compared to the linked quarter and $452,000 compared to the prior year quarter. The increase compared to the linked quarter was primarily due to increases of $548,000 in gains on the sale of premises and $35,000 in gains on the sale of loans. The increase compared to the prior year quarter was primarily due to increases of $548,000 in gains on the sale of premises, $62,000 in bank-owned life insurance income, $44,000 in fees and service charges and $41,000 in gains on the sale of loans, partially offset by a $238,000 decrease in swap income. During the current quarter, the Company sold a parcel of unused land, resulting in the gain discussed above.

Noninterest expense of $8.8 million for the current quarter increased $181,000 compared to the linked quarter and $114,000 compared to the prior year quarter. The increase compared to the linked quarter was primarily due to higher salaries and benefits, postage and printing, as well as professional costs. Noninterest expenses increased compared to the prior year quarter primarily due to increases in salaries and benefits, including ESOP costs, and New York State capital-based taxes, which were largely offset by lower pension costs.

The effective income tax rate was 20.4% for the current quarter, as compared to 19.9% for the linked quarter and 22.9% for the prior year quarter. The decrease in the effective tax rate for the current quarter compared to the prior year quarter is the result of increases in tax-exempt municipal bond income and bank-owned life insurance income.

Balance Sheet Summary

Total assets increased $13.2 million to $1.89 billion at December 31, 2021 as compared to June 30, 2021, as increases of $39.0 million in total investment securities and $14.2 million in net loans receivable were partially offset by a decrease of $39.0 million in cash and cash equivalents. The increase in investment securities was the result of the Company deploying excess liquidity and included increases of $29.8 million in state and municipal securities, $8.5 million in corporate securities and $5.8 million in mortgage-backed securities, partially offset by a $5.1 million decrease in U.S. government and agency bonds. Net loans receivable increased $14.2 million, primarily the result of increases in commercial mortgage loans and construction loans of $41.0 million and $1.7 million, respectively, partially offset by decreases in commercial loans and residential mortgage loans of $15.6 million and $11.5 million, respectively. The decrease in commercial loans includes a decrease in PPP loans of $24.3 million, driven by forgiveness and paydowns.

Total liabilities increased $12.9 million to $1.61 billion at December 31, 2021 compared to June 30, 2021 as an increase of $31.4 million in deposits was partially offset by decreases of $11.3 million in other liabilities and $7.6 million in FHLB advances. The $31.4 million increase in deposits includes increases in money market, NOW and savings accounts of $28.5 million, $21.4 million and $5.5 million, respectively, partially offset by decreases in time deposits and demand accounts of $20.7 million and $3.3 million, respectively.

Total shareholders’ equity increased $274,000 to $274.8 million at December 31, 2021 as compared to $274.6 million as of June 30, 2021. The increase for the six months ended December 31, 2021 was primarily due to net income of $7.9 million and $2.5 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the period, partially offset by the repurchase of $8.2 million (440,666 shares) of common stock and $1.7 of cash dividends declared and paid. As of December 31, 2021, there were 122,417 shares available to be repurchased under the current stock repurchase plan.

At December 31, 2021, the Company’s book value per share and tangible book value per share were $17.92 and $17.51, respectively, compared to $17.41 and $17.01, respectively, at June 30, 2021. Reconciliations of book value per share (GAAP measure) to tangible book value per share (non-GAAP measure) appear at the end of this release. At December 31, 2021, the Bank was considered “well capitalized” under applicable regulatory guidelines.

About PCSB Financial Corporation and PCSB Bank

PCSB Financial Corporation is the bank holding company for PCSB Bank. PCSB Bank is a New York-chartered commercial bank that has served the banking needs of its customers in the Lower Hudson Valley of New York State since 1871. It operates from its executive offices/headquarters and 14 branch offices located in Dutchess, Putnam, Rockland and Westchester Counties in New York.

This News Release contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions.

Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company's control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following: the duration, extent and severity of the COVID-19 pandemic, including its impact on our business and operations and on our customers, the impact of lost fee revenue and increased operating expenses, as well as its effect on our customers and issuers of securities, including their ability to make timely payments on obligations, service providers and on economies and markets more generally, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company’s control; there may be increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the Company's business; changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company's financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company’s business; technological changes may be more difficult or expensive than the Company anticipates; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

Contact: Joseph D. Roberto
Chairman, President and Chief Executive Officer
(914) 248-7272

PCSB Financial Corporation and Subsidiaries
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PCSB Financial Corporation and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures (unaudited)
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