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PCSB Financial Corporation Announces Third Quarter Results and Declares Quarterly Cash Dividend

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YORKTOWN HEIGHTS, N.Y., April 26, 2018 (GLOBE NEWSWIRE) -- PCSB Financial Corporation (the "Company") (NASDAQ:PCSB), parent of PCSB Bank (the "Bank"), today announced net income of $2.2 million, or $0.13 per basic and diluted share, for the three months ended March 31, 2018 compared to $2,000, or $0.00 per basic and diluted share, for the quarter ended December 31, 2017 and $1.9 million for the three months ended March 31, 2017. For the nine months ended March 31, 2018, net income was $3.9 million, or $0.23 per basic and diluted share, compared to $5.0 million for the nine months ended March 31, 2017. Results for the nine months ended March 31, 2018 include a $1.6 million tax re-measurement charge associated with federal tax law changes enacted in the second quarter.

The following nonrecurring items were recorded in the periods indicated:

  • In connection with the passage of the Tax Cuts and Jobs Act, the Company recorded a $1.6 million charge to income tax expense for the nine months ended March 31, 2018, including a $182,000 benefit recorded in the current quarter, primarily reflecting a write-down of our deferred tax assets resulting from a decrease in the corporate income tax rate from 34% to 21%.
  • A $173,000 pre-tax gain on sale of securities recorded during the nine months ended March 31, 2018.
  • A $919,000 pre-tax curtailment of the Bank's defined benefit plan resulting in a reduction to the salaries and benefits component of noninterest expense recorded in the three and nine months ended March 31, 2017.
  • A $1.6 million settlement on an acquired loan included in other noninterest income in the nine months ended March 31, 2017.
  • A $521,000 lease write-down expense in the nine months ended March 31, 2017.

On a non-GAAP basis, which excludes the nonrecurring items discussed above, the Company recorded net income of $2.0 million and $5.4 million for the three and nine months ended March 31, 2018, or $0.12 and $0.32 per diluted share, respectively. This compares to non-GAAP net income of $1.3 and $3.7 million for the three and nine months ended March 31, 2017. Reconciliations of GAAP to non-GAAP measures begin on page 12.

Effective April 20, 2017, PCSB Bank completed its mutual-to-stock conversion and the Company completed its related initial public offering. Accordingly, financial results for dates and periods prior to April 20, 2017 are for the Bank only.

President's Comments
Commenting on the Company's results, Joseph D. Roberto, Chairman, President and Chief Executive Officer of PCSB Financial Corporation, said, "I am proud of the Company's accomplishment as we bring to a close our one-year anniversary as a public company. Some of these accomplishments include a $77.1 million (9.5%) increase in net loans from June 30, 2017, along with a 15.0% increase in net interest income leading to continued earnings growth and operating efficiency. Additionally, we continue to reduce problem assets as the Bank's non-performing asset to total assets declined to 0.50% at March 31, 2018 from 0.91% at June 30, 2017. These results continue to follow our strategy to leverage our capital in a safe and disciplined way in order to maximize stockholder value. We also continue to be focused on capital management and I am pleased to announce our first quarterly cash dividend of $0.03 per share."

Income Statement Summary
Net interest income increased $1.2 million, or 13.2%, to $10.1 million for the three months ended March 31, 2018, compared to the same period in 2017 and decreased $43,000 from the previous quarter.  The increase in net interest income compared to the prior year is a result of a $172.6 million increase in average net interest earning assets and a 3 basis point increase in the net interest margin. The increase in net interest earning assets is due to the Company deploying the capital raised in the initial public offering into loans receivable and investments. The net interest margin was 2.99% for the three months ended March 31, 2018, increasing from 2.96% for the three months ended March 31, 2017 and down slightly from 3.00% for the three months ended December 31, 2017.

The provision for loan losses decreased $181,000 to $54,000 for the three months March 31, 2018 compared to the same period in 2017 due to increases in specific reserves on impaired loans in the prior year period.  The provision for loan losses decreased $146,000 compared to prior quarter due primarily to recoveries realized in the current quarter.  Recoveries, net of charge-offs, were $99,000 for the three months ended March 31, 2018, compared to charge-offs net of recoveries, of $997,000 for the three months ended December 31, 2017 and $33,000 for the three months ended March 31, 2017.  Loans classified as substandard and doubtful decreased $1.0 million or 5.2% to $19.6 million at March 31, 2018 from $20.6 million at December 31, 2017 and decreased $5.6 million or 22.2% from $25.1 million at June 30, 2017. Non-performing loans were 0.80% of gross loans as of March 31, 2018, down from 0.97% as of December 31, 2017 and 1.48% as of June 30, 2017.

Noninterest income decreased $114,000 to $512,000 for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to higher loan-related fees earned in the prior year period, and decreased $180,000 from the three months ended December 31, 2017, due primarily to higher loan-related fees and nonrecurring rental income on the settlement of a nonperforming asset earned in the prior quarter.

Noninterest expense increased $1.3 million to $7.8 million for the three months ended March 31, 2018 compared to the same period in 2017 and decreased $292,000 from the three months ended December 31, 2017. The $1.3 million increase was caused primarily by increases in salaries and employee benefits, primarily reflecting a $919,000 curtailment gain recognized in the prior year period related to the defined benefit pension plan, $192,000 of net increases in other retirement expenses, including ESOP expense which commenced in April 2017, and a $181,000 increase in salaries expense due primarily to increased staffing. Additionally, salaries and employee benefits expense increased $2.2 million to $14.4 million for the nine months ended March 31, 2018 compared to the prior year, primarily due to a $1.8 million increase in ESOP expense and a $598,000 increase due to additional headcount, partially offset by a $73,000 net decrease in defined benefit pension and other retirement plan costs. Occupancy expense and other operating expenses were unchanged compared to the prior year quarter as increases in Director and Officer insurance expense and other professional fees associated with being a public company were offset by lower FDIC assessments and expenses on foreclosed real estate. The $292,000 decrease in noninterest expense from the three months ended December 31, 2017 was primarily due to a loss recorded on a receivable in the three months ended December 31, 2017 as well as lower advertising costs.

Income tax expense decreased $287,000 or 32.7% to $591,000 for the three months ended March 31, 2018 compared to the same period in 2017 due to a $182,000 tax benefit from the adjustment of the re-measurement charge associated with the recent tax reform and the related reduction of the corporate income tax rate from 34% to 21%. The effective income tax rate was 21.4% (27.9% excluding the effects of the current quarter re-measurement charge) for the three months ended March 31, 2018 as compared to 31.7% for the three months ended March 31, 2017. Income tax expense decreased $2.0 million compared to the three months ended December 31, 2017 due primarily to the $1.8 million deferred tax re-measurement charge recorded in the prior quarter.

Balance Sheet Summary
Total assets increased $30.5 million to $1.46 billion at March 31, 2018 from $1.43 billion at June 30, 2017.  This increase was primarily due to an increase of $77.1 million in net loans receivable, partially offset by decreases of $24.0 million and $21.8 million in cash and cash equivalents and total investment securities, respectively. The $77.1 million increase in net loans included increases of $47.2 million in commercial mortgage loans, $36.1 million in residential mortgage loans, and $2.6 million in commercial loans, partially offset by decreases of $6.3 million in construction loans and $3.7 million in home equity lines of credit. Loan growth was funded by decreases in cash and cash equivalents and investment securities, as well as increased FHLB advances.

Total liabilities increased $25.7 million to $1.17 billion at March 31, 2018 from $1.15 billion at June 30, 2017.  This increase was primarily due to a $26.3 million increase in advances from FHLB. 

Total shareholders' equity increased $4.9 million to $284.7 million at March 31, 2018 from $279.8 million at June 30, 2017.  This increase was primarily due to net income of $3.9 million and a $1.7 million reduction in unearned ESOP shares for plan shares earned during the period, partially offset by other comprehensive losses of $861,000 due largely to increased unrealized losses in the available for sale investment securities portfolio driven by increased market interest rates.  At March 31, 2018, the Company's book value per share and tangible book value per share were $15.67 and $15.31, respectively, compared to $15.41 and $15.04, respectively, at June 30, 2017.  For reconciliations of book value per share (GAAP measure) to tangible book value per share (non-GAAP measure), see page 14. At March 31, 2018, the Bank was considered "well capitalized" under applicable regulatory guidelines.

Dividend
The Board of Directors has declared a regular quarterly cash dividend of $0.03 per share. The dividend is payable on or about May 25, 2018 to stockholders of record on May 11, 2018.

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 stock savings bank and 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 15 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 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
Consolidated Balance Sheets (unaudited)
(amounts in thousands, except share data)

    March 31,     June 30,  
    2018     2017  
ASSETS                
Cash and due from banks   $ 35,307     $ 59,115  
Federal funds sold     1,198       1,371  
Cash and cash equivalents     36,505       60,486  
Investment Securities:                
Held to maturity investment securities, at amortized cost
  (fair value of $357,761 and $383,588, respectively)
    366,362       383,551  
Available for sale securities, at fair value     107,321       111,889  
Total investment securities     473,683       495,440  
Loans receivable, net of allowance for loan losses of $4,624 and $5,150, respectively     886,718       809,648  
Accrued interest receivable     4,458       3,693  
Federal Home Loan Bank stock     4,112       3,132  
Premises and equipment, net     12,522       12,959  
Deferred tax asset, net     2,832       4,770  
Foreclosed real estate     142       977  
Bank-owned life insurance     23,609       23,179  
Goodwill     6,106       6,106  
Other intangible assets     463       559  
Other assets     5,819       5,509  
Total assets   $ 1,456,969     $ 1,426,458  
LIABILITIES AND SHAREHOLDERS' EQUITY                
Interest bearing deposits   $ 960,666     $ 952,109  
Non-interest bearing deposits     127,319       136,352  
Total deposits     1,087,985       1,088,461  
Mortgage escrow funds     7,596       8,084  
Advances from Federal Home Loan Bank     68,872       42,598  
Other liabilities     7,856       7,469  
Total liabilities     1,172,309       1,146,612  
Commitments and contingencies     -       -  
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2018 and June 30, 2017, respectively)     -       -  
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,165,110 shares issued and outstanding as of March 31, 2018 and June 30, 2017, respectively)
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