pcsb-ex991

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

Yorktown Heights, New York; October 25, 2018 – PCSB Financial Corporation (the “Company”) (NASDAQ: PCSB), parent of PCSB Bank (the "Bank"), today announced net income of $2.3 million, or $0.14 per basic and diluted share, for the three months ended September 30, 2018 compared to $2.7 million, or $0.16 per basic and diluted share, for the three months ended June 30, 2018 and $1.8 million, or $0.10 per basic and diluted share, for the three months ended September 30, 2017.

On a non-GAAP basis, which excludes certain nonrecurring items, the Company recorded net income of $2.3 million, or $0.14 per diluted share for the three months ended September 30, 2018 as compared to net income of $2.2 million, or $0.13 per diluted share for the three months ended June 30, 2018 and $1.6 million, or $0.10 per basic and diluted share, for the three months ended September 30, 2017. Reconciliations of GAAP to non-GAAP measures appear at the end of this release.

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 results for the first quarter of our fiscal year and the achievements we have made as we begin our second full year as a public company. Some of these achievements include year-over-year increases in interest income of 11.6%, net income of 32.6% and earnings per common share basic and diluted of 40.0%. The current quarter also showed a continued decline in problem assets as the ratio of non-performing assets to total assets decreased slightly to 0.43% from 0.44% for the June quarter and decreased by more than half from 0.88% a year ago. As we move forward in our second year as a public company, we will work to continue to build on these positive trends as we strive to create value for our shareholders.”

Net interest income increased $588,000, or 6.0%, to $10.5 million for the three months ended September 30, 2018, compared to the same period in 2017 and decreased $968,000 or 8.5% from the previous quarter. The increase in net interest income compared to the prior year is a result of a $55.4 million increase in average interest earning assets and a five basis point increase in the net interest margin. The increase in interest earning assets is primarily due to loan portfolio growth, partially offset by a decrease in investment securities. The net interest margin was 2.94% for the three months ended September 30, 2018, an increase from 2.89% for the three months ended September 30, 2017. The decrease in net interest income compared to the prior quarter is primarily due to the recording of $879,000 of interest income from the pay-off of two nonaccrual loans. Excluding this interest income, the net interest margin for the June quarter would have been 2.98%, compared to 2.94% in the current quarter. This four basis point decrease was primarily due to an eight basis point increase in the average rate paid on total average interest bearing liabilities.

The provision for loan losses was $58,000 for the three months ended September 30, 2018 compared to $25,000 in the prior quarter and $135,000 for the same period in 2017. Charge-offs, net of recoveries, were $3,000 for the three months ended September 30, 2018 compared to net recoveries of $255,000 for the three months ended June 30, 2018 and net charge-offs of $17,000 for the three months ended September 30, 2017. Loans classified as substandard and doubtful decreased $2.4 million, or 15.2%, to $13.0 million at September 30, 2018 from $15.4 million at June 30, 2018 and decreased $11.6 million, or 46.9%, from $24.6 million at September 30, 2017. Non-performing loans as a percent of total loans receivable was 0.62% of total loans receivable as of September 30, 2018, a decrease from 0.66% as of June 30, 2018 and 1.35% as of September 30, 2017.

Noninterest income decreased $73,000 to $641,000 for the three months ended September 30, 2018 compared to the same period in 2017, primarily due to $173,000 of gains on the sale of securities recorded in the prior year period, partially offset by $71,000 of swap fee income recorded in the current quarter. Noninterest income increased $40,000 from the three months ended June 30, 2018, primarily due to increased swap and deposit-related fee income, partially offset by $63,000 of gains on the sale of securities realized in the prior quarter.

Noninterest expense increased $114,000 to $8.0 million for the three months ended September 30, 2018 compared to the same period in 2017 and decreased $256,000 compared to the three months ended June 30, 2018. The $114,000 increase from 2017 was caused primarily by a $280,000 increase in salaries and employee benefits, partially offset by decreases in advertising and occupancy expenses and professional fees. The increase in salaries and employee

benefits was primarily due to additional staffing, partially offset by lower retirement and medical benefits costs. The $256,000 decrease in noninterest expense from the three months ended June 30, 2018 was primarily due to a $370,000 loss recorded on a receivable in the prior quarter as well as decreases in professional fees, communications and data processing expense, and occupancy expense. These decreases were partially offset by a $251,000 increase in salaries and benefits expense driven primarily by additional staffing and increased medical benefits costs, and an $87,000 increase in advertising costs.

The effective income tax rate was 23.4% for the three months ended September 30, 2018, as compared to 31.4% for the three months ended September 30, 2017 and 28.7% for the three months ended June 30, 2018. In the three months ended September 30, 2018, the Company began to realize the full benefits of the reduction in the corporate income tax rate which became effective in January 2018.

Total assets decreased $5.7 million to $1.47 billion at September 30, 2018 from $1.48 billion at June 30, 2018. This decrease was primarily due to a decrease of $16.9 million, or 3.7%, in total investment securities, partially offset by increases of $6.2 million in cash and cash equivalents and $2.8 million in loans receivable. The $2.8 million increase in loans was the result of $33.2 million of originations, partially offset by $30.4 million of net amortization on the remaining portfolio, highlighted by the prepayment of two commercial mortgage loans totaling $10.2 million.

Total liabilities decreased $8.0 million to $1.18 billion at September 30, 2018 from $1.19 billion at June 30, 2018. This decrease was primarily due to decreases of $4.3 million in total deposits and $3.8 million in mortgage escrow funds driven primarily by expected seasonal outflows related to school and property tax payments.

Total shareholders’ equity increased $2.3 million to $289.9 million at September 30, 2018 from $287.6 million at June 30, 2018. This increase was primarily due to net income of $2.3 million and a $493,000 reduction in unearned ESOP shares for plan shares earned during the period, partially offset by $505,000 of cash dividends paid. At September 30, 2018, the Company’s book value per share and tangible book value per share were $15.96 and $15.60, respectively, compared to $15.83 and $15.47, respectively, at June 30, 2018. 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 September 30, 2018, the Bank was considered “well capitalized” under applicable regulatory guidelines.

The Board of Directors declared a regular quarterly cash dividend of $0.03 per share. The dividend is payable on or about November 30, 2018 to stockholders of record on November 16, 2018.

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.

	September 30,			June 30,
	2018			2018

ASSETS
Cash and due from banks	$	66,039		$	60,684
Federal funds sold		2,284			1,461
Cash and cash equivalents		68,323			62,145
Held to maturity debt securities, at amortized cost (fair value of $328,962 and $343,188, respectively)		340,208			353,183
Available for sale debt securities, at fair value		101,540			105,472
Total investment securities		441,748			458,655
Loans receivable, net of allowance for loan losses of $4,959 and $4,904, respectively		905,093			902,336
Accrued interest receivable		4,747			4,358
Federal Home Loan Bank stock		2,049			2,050
Premises and equipment, net		11,546			11,598
Deferred tax asset, net		2,495			2,622
Foreclosed real estate		754			460
Bank-owned life insurance		23,887			23,747
Goodwill		6,106			6,106
Other intangible assets		405			433
Other assets		7,342			5,677
Total assets	$	1,474,495		$	1,480,187
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits	$	1,022,096		$	1,025,574
Non-interest bearing deposits		131,025			131,883
Total deposits		1,153,121			1,157,457
Mortgage escrow funds		4,981			8,803
Advances from Federal Home Loan Bank		18,810			18,841
Other liabilities		7,706			7,527
Total liabilities		1,184,618			1,192,628
Commitments and contingencies		-			-
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2018 and June 30, 2018, respectively)		-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,165,110 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively)		182			182
Additional paid in capital		179,294			179,045
Retained earnings		130,189			128,365
Unearned compensation - ESOP		(12,839	)		(13,083	)
Accumulated other comprehensive loss, net of income taxes		(6,949	)		(6,950	)
Total shareholders' equity		289,877			287,559
Total liabilities and shareholders' equity	$	1,474,495		$	1,480,187

	Three Months Ended
	September 30,
	2018		2017
Interest and dividend income
Loans receivable	$	9,898	$	8,818
Investment securities		2,366		2,245
Federal funds and other		345		234
Total interest and dividend income		12,609		11,297
Interest expense
Deposits		2,056		1,267
FHLB advances		89		154
Total interest expense		2,145		1,421
Net interest income		10,464		9,876
Provision for loan losses		58		135
Net interest income after provision for loan losses		10,406		9,741
Noninterest income
Fees and service charges		418		381
Bank-owned life insurance		140		149
Gains on sales of securities, net		-		173
Other		83		11
Total noninterest income		641		714
Noninterest expense
Salaries and employee benefits		5,140		4,860
Occupancy and equipment		1,241		1,282
Communications and data processing		472		491
Professional fees		369		413
Postage, printing, stationary and supplies		138		132
FDIC assessment		93		78
Advertising		87		165
Amortization of intangible assets		28		32
Other operating expenses		440		441
Total noninterest expense		8,008		7,894
Net income before income tax expense		3,039		2,561
Income tax expense		710		805
Net income	$	2,329	$	1,756
Earnings per common share:
Basic	$	0.14	$	0.10
Diluted	$	0.14	$	0.10

Weighted average common share - basic and diluted		16,869,100		16,756,447


	Three Months Ended September 30,
	2018								2017
	Average Balance			Interest / Dividends		Average Rate			Average Balance			Interest / Dividends		Average Rate
Assets:
Loans receivable	$	903,021		$	9,898		4.38	%	$	813,244		$	8,818		4.33	%
Investment securities		453,671			2,366		2.09			486,026			2,245		1.85
Other interest-earning assets		67,222			345		2.03			69,257			234		1.34
Total interest-earning assets		1,423,914			12,609		3.54			1,368,527			11,297		3.30
Non-interest-earning assets		49,894								58,241
Total assets	$	1,473,808							$	1,426,768

Liabilities and equity:
NOW accounts	$	119,404			53		0.18		$	114,770			49		0.17
Money market accounts		58,704			139		0.94			30,100			21		0.28
Savings accounts and escrow		462,542			289		0.25			518,315			325		0.25
Time deposits		392,336			1,575		1.59			298,010			872		1.16
Total interest-bearing deposits		1,032,986			2,056		0.79			961,195			1,267		0.52
Federal Home Loan Bank advances		18,821			89		1.89			41,398			154		1.48
Total interest-bearing liabilities		1,051,807			2,145		0.81			1,002,593			1,421		0.56
Non-interest-bearing deposits		125,381								134,368
Other non-interest-bearing liabilities		7,281								8,287
Total liabilities		1,184,469								1,145,248
Total shareholders' equity		289,339								281,520
Total liabilities and shareholders' equity	$	1,473,808							$	1,426,768


Net interest income				$	10,464							$	9,876
Interest rate spread⁽¹⁾							2.73								2.74
Net interest margin⁽²⁾							2.94								2.89
Average interest-earning assets to interest-bearing liabilities		135.38	%							136.50	%

(1) Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.
(2) Net interest margin represents annualized net interest income divided by average interest-earning assets.


	As of
	September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017
Condensed Balance Sheets
Cash and cash equivalents	$	68,323	$	62,145	$	36,505	$	77,106	$	34,733
Total investment securities		441,748		458,655		473,651		470,328		475,791
Loans receivable, net		905,093		902,336		886,718		838,120		839,963
Other assets		59,331		57,051		60,095		57,714		61,219
Total assets	$	1,474,495	$	1,480,187	$	1,456,969	$	1,443,268	$	1,411,706

Total deposits and escrow	$	1,158,102	$	1,166,260	$	1,095,581	$	1,122,558	$	1,086,662
Advances from Federal Home Loan Bank		18,810		18,841		68,872		30,720		35,750
Other liabilities		7,706		7,527		7,856		7,579		7,209
Total liabilities		1,184,618		1,192,628		1,172,309		1,160,857		1,129,621
Total shareholders' equity		289,877		287,559		284,660		282,411		282,085
Total liabilities and shareholders' equity	$	1,474,495	$	1,480,187	$	1,456,969	$	1,443,268	$	1,411,706

	Quarter Ended
	September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017
Condensed Income Statements
Interest income	$	12,609	$	13,358	$	11,648	$	11,657	$	11,297
Interest expense		2,145		1,926		1,505		1,471		1,421
Net interest income		10,464		11,432		10,143		10,186		9,876
Provision for loan losses		58		25		54		200		135
Noninterest income		641		601		512		692		714
Noninterest expense		8,008		8,264		7,833		8,125		7,894
Income before income tax expense		3,039		3,744		2,768		2,553		2,561
Income tax expense		710		1,075		591		2,551		805
Net income	$	2,329	$	2,669	$	2,177	$	2	$	1,756

Earnings per share:
Basic	$	0.14	$	0.16	$	0.13	$	0.00	$	0.10
Diluted	$	0.14	$	0.16	$	0.13	$	0.00	$	0.10

	Quarter Ended
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Performance Ratios ⁽¹⁾:
Return on average assets		0.63	%		0.72	%		0.62	%		0.00	%		0.49	%
Return on average equity		3.22	%		3.73	%		3.06	%		0.00	%		2.44	%
Interest rate spread		2.73	%		3.04	%		2.82	%		2.85	%		2.74	%
Net interest margin		2.94	%		3.23	%		2.99	%		3.00	%		2.89	%
Adjusted Efficiency ratio ⁽²⁾		72.11	%		71.17	%		73.51	%		74.69	%		75.78	%

Noninterest income to average assets		0.17	%		0.16	%		0.14	%		0.20	%		0.20	%
Noninterest expense to average assets		2.17	%		2.24	%		2.21	%		2.30	%		2.20	%

Average interest-earning assets to average interest-bearing liabilities		135.38	%		134.26	%		136.59	%		136.51	%		136.50	%
Average equity to average assets		19.63	%		19.41	%		20.08	%		20.00	%		20.10	%
Dividend payout ratio ⁽⁵⁾		21.73	%		18.94	%		0.00	%		0.00	%		0.00	%

	As of and for the quarter ended
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Loans to deposits		78.49	%		77.96	%		81.50	%		75.21	%		77.65	%

Share Data:
Shares outstanding		18,165,110			18,165,110			18,165,110			18,165,110			18,165,110
Book value per common share	$	15.96		$	15.83		$	15.67		$	15.55		$	15.53
Tangible book value per common share ⁽³⁾	$	15.60		$	15.47		$	15.31		$	15.18		$	15.16

Asset Quality Ratios:
Non-performing assets	$	6,384		$	6,462		$	7,307		$	8,191		$	12,354
Allowance for loan losses as a percent of total loans receivable		0.54	%		0.54	%		0.52	%		0.53	%		0.62	%
Total valuation adjustment as a percent of total gross loans ⁽⁶⁾		0.70	%		0.71	%		0.70	%		0.74	%		0.85	%
Allowance for loan losses as a percent of non-performing loans		88.08	%		81.71	%		64.54	%		54.58	%		48.53	%
Non-performing loans as a percent of total loans receivable, net		0.62	%		0.66	%		0.80	%		0.97	%		1.35	%
Non-performing assets as a percent of total assets		0.43	%		0.44	%		0.50	%		0.57	%		0.88	%

Net charge-offs (recoveries)	$	3		$	(255	)	$	(99	)	$	997		$	17
Net charge-offs (recoveries) to average outstanding loans during the period ⁽¹⁾		0.00	%		(0.11	%)		(0.05	%)		0.48	%		0.01	%

Capital Ratios ⁽⁴⁾:
Tier 1 capital (to adjusted total assets)		13.85	%		13.61	%		13.97	%		13.84	%		13.52	%
Common equity Tier 1 capital (to risk-weighted assets)		21.10	%		21.11	%		21.16	%		21.64	%		21.13	%
Tier 1 capital (to risk-weighted assets)		21.10	%		21.11	%		21.16	%		21.64	%		21.13	%
Total capital (to risk-weighted assets)		21.61	%		21.62	%		21.65	%		22.13	%		21.71	%

⁽¹⁾ Performance ratios are annualized.
⁽²⁾ Adjusted efficiency ratio is a non-GAAP measure and is defined as noninterest expense, less certain nonrecurring items, divided by operating revenue, which is equal to net interest income plus non-interest income excluding certain nonrecurring items. In our judgment, the adjustments made to operating revenue allow investors and analysts to better assess our operating expenses in relation to our core operating revenue by removing the impact of certain one-time items and other discrete items that are unrelated to our core business. Reconciliations of GAAP to non-GAAP measures appear at the end of this release.
⁽³⁾Tangible book value per share is a non-GAAP measure and equals total shareholders’ equity, less goodwill and other intangible assets, divided by shares outstanding. We believe this disclosure may be meaningful to those investors who seek to evaluate our equity without giving effect to goodwill and other intangible assets. Reconciliations of GAAP to non-GAAP measures appear at the end of this release.
⁽⁴⁾Represents Bank ratios.

	As of
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Mortgage loans:
Residential mortgages	$	249,894		$	250,578		$	253,847		$	213,716		$	215,551
Commercial mortgage		495,944			495,265			484,810			481,169			469,983
Construction		16,890			17,352			16,098			16,379			23,104
Net deferred loan origination costs		859			1,041			1,203			210			384
Total mortgage loans		763,587			764,236			755,958			711,474			709,022
Commercial and consumer loans:
Commercial loans		110,196			104,135			96,096			89,941			93,180
Home equity credit lines		35,191			37,395			38,220			40,158			42,044
Consumer and overdrafts		344			745			344			251			213
Net deferred loan origination costs		734			729			724			767			772
Total commercial and consumer loans		146,465			143,004			135,384			131,117			136,209
Total loans receivable		910,052			907,240			891,342			842,591			845,231
Allowance for loan loss		(4,959	)		(4,904	)		(4,624	)		(4,471	)		(5,268	)
Loans receivable, net	$	905,093		$	902,336		$	886,718		$	838,120		$	839,963

	Quarter Ended
	September 30, 2018		June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Computation of Adjusted Net Income and Earnings Per Share
Net income	$	2,329	$	2,669		$	2,177		$	2		$	1,756
Adjustments⁽¹⁾:
Losses on other receivables		-		292			-			132			-
Nonaccrual loan interest earned		-		(694	)		-			(94	)		-
Gain on sale of securities		-		(49	)		-			-			(114	)
Deferred tax re-measurement charge		-					(182	)		1,752			-
Adjusted net income	$	2,329	$	2,218		$	1,995		$	1,792		$	1,642

Average number of common shares outstanding used to calculate basic earnings per common share		16,869,100		16,844,747			16,820,726			16,791,305			16,756,447

Adjusted earnings per common share (basic and diluted):	$	0.14	$	0.13		$	0.12		$	0.11		$	0.10

⁽¹⁾Amounts included in income before income tax expense are presented net of tax.

	Quarter Ended
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Computation of Efficiency Ratio
Noninterest expense	$	8,008		$	8,264		$	7,833		$	8,125		$	7,894
Adjustments:
Losses on other receivables		-			(370	)		-			(200	)		-
Adjusted noninterest expense	$	8,008		$	7,894		$	7,833		$	7,925		$	7,894

Net interest income	$	10,464		$	11,432		$	10,143		$	10,186		$	9,876
Noninterest income		641			601			512			692			714
Total revenue		11,105			12,033			10,655			10,878			10,590
Adjustments:
Nonaccrual loan interest earned		-			(879	)		-			(142	)		-
Gain on sale of securities		-			(63	)		-			-			(173	)
Adjusted operating revenue	$	11,105		$	11,091		$	10,655		$	10,736		$	10,417

Efficiency ratio		72.11	%		68.68	%		73.51	%		74.69	%		74.54	%
Adjusted efficiency ratio		72.11	%		71.17	%		73.51	%		73.82	%		75.78	%

	As of
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Computation of Tangible Book Value per Common Share
Total shareholders' equity	$	289,877		$	287,559		$	284,660		$	282,411		$	282,085
Adjustments:
Preferred stock		-			-			-			-			-
Common shareholders' equity		289,877			287,559			284,660			282,411			282,085
Adjustments:
Goodwill		(6,106	)		(6,106	)		(6,106	)		(6,106	)		(6,106	)
Other intangible assets		(405	)		(433	)		(463	)		(495	)		(527	)
Tangible common shareholders' equity	$	283,366		$	281,020		$	278,091		$	275,810		$	275,452

Common shares outstanding		18,165,110			18,165,110			18,165,110			18,165,110			18,165,110

Book value per share	$	15.96		$	15.83		$	15.67		$	15.55		$	15.53
Adjustments:
Effects of intangible assets		(0.36	)		(0.36	)		(0.36	)		(0.37	)		(0.37	)

Tangible book value per common share	$	15.60		$	15.47		$	15.31		$	15.18		$	15.16

	As of
	September 30,		June 30,		March 31,		December 31,		September 30,
	2018		2018		2018		2017		2017
Demand deposits	$	131,024	$	131,883	$	127,319	$	150,830	$	133,461
Now accounts		121,449		117,875		114,899		118,462		110,646
Money market accounts		79,266		49,885		40,374		31,021		28,590
Savings		425,189		465,441		482,968		502,469		504,291
Time deposits		396,193		392,373		322,425		311,547		304,719
Total deposits	$	1,153,121	$	1,157,457	$	1,087,985	$	1,114,329	$	1,081,707