PCSB Financial Corporation Announces Second Fiscal Quarter Financial Results and Declares Quarterly Cash Dividend

YORKTOWN HEIGHTS, N.Y., Jan. 28, 2021 (GLOBE NEWSWIRE) -- PCSB Financial Corporation (the "Company") PCSB, parent of PCSB Bank (the "Bank"), today announced net income of $2.7 million, or $0.18 per diluted share, for the three months ended December 31, 2020 compared to $2.7 million, or $0.18 per diluted share, for the three months ended September 30, 2020 and $2.4 million, or $0.14 per diluted share, for the three months ended December 31, 2019. Net income was $5.4 million, or $0.36 per diluted share, for the six months ended December 31, 2020, compared to $5.2 million, or $0.32 per diluted, for the six months ended December 31, 2019.

On a non-GAAP basis, which excludes certain nonrecurring items, the Company recorded adjusted net income of $2.6 million, or $0.17 per diluted share, for the three months ended December 31, 2020 compared to adjusted net income of $2.7 million, or $0.17 per diluted share, for the three months ended September 30, 2020 and $2.3 million, or $0.14 per diluted share, for the three months ended December 31, 2019. Adjusted net income was $5.2 million, or $0.35 per diluted share, for the six months ended December 31, 2020 compared to $4.7 million, or $0.29 per diluted share, for the six months ended December 31, 2019. Reconciliations of GAAP to non-GAAP measures appear at the end of this release.

On January 27, 2021, the Board of Directors declared a regular quarterly cash dividend of $0.04 per share. The dividend is payable on or about February 26, 2021 to stockholders of record as of the close of business on February 12, 2021.

Second Quarter Highlights

• Earnings before income taxes of $3.5 million for the quarter increased $54,000 or 1.6% from the linked quarter and $454,000 or 14.9% from the same quarter last year.
• Net interest income of $11.5 million for the current quarter decreased $30,000 or 0.3% from the linked quarter and decreased $150,000 or 1.3% from the same quarter last year.
• The net interest margin was 2.70% for the quarter, an increase from 2.69% in the linked quarter but a decrease from 2.94% for the same quarter last year.
• Cost of interest-bearing deposits was 0.71% for the quarter, a decrease from 0.80% in the linked quarter and 1.20% for the same quarter last year.
• The efficiency ratio was 70.72% for the current quarter compared to 70.86% for the linked quarter and 71.82% for the prior year quarter.
• Average loans receivable, excluding SBA Paycheck Protection Program ("PPP") loans, of $1.20 billion for the current quarter, an increase of 1.6% compared to the same quarter last year.
• Average deposits of $1.38 billion for the current quarter, an increase of 11.0% compared to the same quarter last year.
• Non-performing loans of $1.7 million increased $50,000 year-over-year and equates to 0.13% of total net loans receivable as of December 31, 2020.

President's Comments

Commenting on the Company's performance, Joseph D. Roberto, Chairman, President and Chief Executive Officer of PCSB Financial Corporation, said, "I am pleased with the Company's operating and financial results despite the challenges presented by the prolonged pandemic. As our quarter and six-month results indicate, we continue to provide stable core earnings and very strong asset quality. We continue to follow strong safety protocols to protect the health and well-being of our employees and customers including the technology that allows them to work and bank remotely when necessary. Meanwhile, with additional funding available for PPP loans we will continue to be a source of strength to our customers and communities in addressing their financial needs during these uncertain economic times. As we look ahead to 2021, we are optimistic that the latest stimulus package along with the progress on vaccinations will lead not only to a strong national economic recovery but opportunities for continued long-term growth and profitability for our shareholders."

Loan Payment Deferrals

The COVID-19 pandemic has created extensive disruptions to the local economy and our customers. Through December 31, 2020, the Company has granted loan payment deferrals on 320 consumer and commercial loans whose borrowers have demonstrated financial hardship caused by COVID-19 with loan balances totaling $213.6 million. As of December 31, 2020, 26 loans totaling $31.9 million were still on deferral. Of those loans still on deferral as of December 31, 2020, $6.2 million are scheduled to resume payments prior to March 31, 2021, with the remainder scheduled to resume payments prior to January 31, 2022, however as we continue to assess our borrowers' financial condition and individual circumstances in the coming weeks and months, additional payment deferrals may be granted.

The table below provides additional detail for those loans on deferral as of December 31, 2020 (dollar amounts in thousands):

      ⁽¹⁾   Includes first and second lien residential mortgages of $5.2 million and $294,000, respectively.
      ⁽²⁾   Includes loans classified as special mention and substandard of $2.5 million and $15.2 million, respectively.
      ⁽³⁾   Generally based on collateral values upon origination.

As of December 31, 2020, the Company does not participate in leveraged lending, shared national credits or credit card lending.

Income Statement Summary

Net income for the three months ended December 31, 2020 was $2.7 million, unchanged from the linked quarter and a $341,000 increase from $2.4 million in the prior year period. The change from the prior year period is primarily due to a $305,000 decrease in provision for loan loss, a $196,000 increase in noninterest income and a $103,000 decrease in noninterest expenses, partially offset by a $150,000 decrease in net interest income and a $113,000 increase in income tax expense.

Net interest income was $11.5 million for the quarter ended December 31, 2020, decreases of $30,000, or 0.3%, compared to the linked quarter, and $150,000, or 1.3%, compared to the prior year quarter. The decrease compared to the linked quarter is primarily the result of a $11.0 million, or 0.6%, decrease in average interest-earning assets, partially offset by a 1 basis point increase in net interest margin. The decrease in net interest income compared to the prior year period is primarily the result of a 24 basis point decrease in net interest margin, partially offset by a $118.3 million, or 7.4% increase in average interest-earning assets.

The net interest margin was 2.70% for the current quarter reflecting an increase of 1 basis point compared to 2.69% in the linked quarter and a 24 basis point decrease compared to 2.94% in the prior year quarter. When compared to the prior year period, despite continued asset growth and a decrease in funding costs, margin compression has resulted from significant decreases in market interest rates over the past year and a less profitable asset mix due to an increase in cash and cash equivalents. However, in the current quarter, the reduction in funding costs more than offset the decrease in asset yields, resulting in slight net interest margin expansion.

Net interest margin, excluding the effect of PPP loans was 2.66% for the current quarter compared to 2.63% in the linked quarter and 2.94% in the prior year quarter. Net interest margin, excluding the effect of PPP loans was 2.65% for the current year to date period compared to 2.98% in the prior year period.

The Company has experienced significant excess liquidity balances beginning in the June 2020 quarter due to deposit growth stemming from the various impacts of the pandemic, including, but not limited to, government stimulus, a decrease in consumer and commercial spending, and reduced loan growth due to suppressed originations and higher prepayment rates. Excluding the effects of this excess liquidity, net interest margin is estimated to have been 2.89% and 2.86% for the current and linked quarters, respectively. Some level of excess liquidity is expected to continue for the foreseeable future and is largely dependent on future government stimulus programs.

The yield on interest-earning assets for the current quarter was 3.32%, a 5 basis point decrease from the prior quarter and a 62 basis point decrease from the prior year quarter. A $54.3 million or 4.6% increase in average loans compared to the prior year quarter was more than offset by a decrease in asset yields, a result of decreases in market interest rates, the origination of lower yielding PPP loans, and significant increases in liquidity over the last nine months. The rate of asset yield decrease has slowed in recent quarters due to a more stable yield curve and earning asset composition.

The cost of interest-bearing deposits was 0.71% for the current quarter, decreases of 9 basis points from 0.80% in the prior quarter and 49 basis points from 1.20% in the prior year quarter. In response to the significant decrease in market interest rates in March 2020, deposit rate reductions have been implemented throughout the last year, the effects of which continue to be realized. At December 31, 2020, the weighted average cost of interest-bearing deposits was 0.54%. The cost of interest-bearing liabilities was 0.81% for the current quarter, decreases of 8 basis points from 0.89% in the prior quarter and 50 basis points from 1.31% in the prior year quarter. Over the remainder of the current fiscal year, the Company has $60.0 million of wholesale funding maturing, comprised of FHLB advances and brokered time deposits, with a weighted average cost of 2.08%. Additionally, over the same period the Company has $155.2 million of non-brokered time deposits maturing with a current weighted average cost of 1.05%. If interest rates stay constant, the Company expects the cost of these deposits to be reduced significantly.

The provision for loan losses was $107,000 for the three months ended December 31, 2020 compared to $109,000 in the linked quarter and $412,000 for the prior year quarter. Charge-offs, net of recoveries, were $102,000 for the three months ended December 31, 2020 compared to $76,000 for the linked quarter and $189,000 for the prior year quarter. Non-performing loans as a percent of total loans receivable was 0.13% as of December 31, 2020, a decrease from 0.17% as of September 30, 2020 and 0.14% as of December 31, 2019.

Noninterest income of $743,000 for the three months ended December 31, 2020 increased $149,000 compared to the linked quarter and $196,000 compared to the prior year quarter. The increase compared to the linked quarter was primarily due to a $109,000 increase in swap income and a $41,000 increase in fees and service charges. The increase compared to the prior year quarter was primarily due to a $238,000 increase in swap income, partially offset by a decrease of $39,000 in fees and service charges. The reduction in fees and service charge income compared to the prior year quarter was due to the effects of reduced customer transaction activity since the start of the COVID-19 pandemic, however fee and service charge income has increased compared to the linked quarter.

Noninterest expense of $8.7 million for the three months ended December 31, 2020 increased $67,000 compared to the linked quarter and decreased $103,000 compared to the prior year quarter. The increase compared to the linked quarter was primarily due to increases of $103,000 in professional fees, $93,000 in pension costs and $88,000 in all other non-interest expenses, partially offset by a $130,000 decrease in communications and data processing and $87,000 in salaries and benefits. The decrease compared to the prior year quarter was caused primarily by decreases of $369,000 in salaries and benefits and $61,000 in communication and data processing costs, partially offset by increases of $124,000 in professional fees, $122,000 in FDIC insurance premiums and $81,000 in all other expenses. The Bank applied small bank assessment credits of $108,000 which fully offset its FDIC assessment for the prior year quarter. All available credits were applied as of June 30, 2020.

The effective income tax rate was 22.9% for the three months ended December 31, 2020, as compared to 22.5% for the prior year quarter. The Company expects an effective tax rate of approximately 21.5% for the year ending June 30, 2021.

Balance Sheet Summary

Total assets decreased $2.0 million to $1.79 billion at December 31, 2020 as compared to June 30, 2020. However, the mix of assets changed due to decreases of $23.4 million in net loans receivable and $3.0 million in total investment securities, which was mostly offset by an increase of $26.2 million in cash and cash equivalents. The $23.4 million decrease in net loans receivable was the result of decreases in residential mortgages of $17.4 million, commercial mortgages of $5.8 million, commercial loans of $3.6 million, which included a decrease in PPP loans of $13.9 million, and home equity lines of credit of $2.2 million, partially offset by an increase in construction loans of $6.5 million. The increase in cash and cash equivalents is a result of an increase in deposits and reduced loan originations experienced during the quarter due to reduced economic activity resulting from the COVID-19 pandemic.

Total liabilities increased $2.3 million to $1.52 billion at December 31, 2020 as a $4.0 million increase in deposits which was partially offset by a $1.7 million decrease in all other liabilities.

Total shareholders' equity decreased $4.4 million to $269.3 million at December 31, 2020 as compared to June 30, 2020. This decrease was primarily due to the repurchase of $11.3 million (784,170 shares) of common stock and $1.2 million of cash dividends declared and paid, partially offset by net income of $5.4 million and $2.3 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the period. As of December 31, 2020, there were 60,737 shares available to be repurchased under the current stock repurchase plan. On January 20, 2021, the stock repurchase plan was completed, in which the Company repurchased a total of 844,907 shares at an average price of $14.24 per share.

At December 31, 2020, the Company's book value per share and tangible book value per share were $16.73 and $16.34, respectively, compared to $16.20 and $15.82, respectively, at June 30, 2020. 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, 2020, 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 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 duration, extent and severity of the COVID-19 pandemic, including its impact on our business and operations, 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

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