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PCSB Financial Corporation Announces Results for Three Months Ended September 30, 2017

YORKTOWN HEIGHTS, NY, Oct. 26, 2017 (GLOBE NEWSWIRE) -- PCSB Financial Corporation (the “Company”) (NASDAQ:PCSB), parent of PCSB Bank (the "Bank"), today announced net income of $1.8 million, or $0.10 per basic and diluted share, for the three months ended September 30, 2017 compared to a net loss of $1.8 million for the quarter ended June 30, 2017 and net income of $1.5 million for the three months ended September 30, 2016. The $1.8 million loss in the quarter ended June 30, 2017 primarily reflects the Company’s $5.0 million pre-tax contribution to PCSB Community Foundation.

Effective April 20, 2017, PCSB Bank completed its mutual-to-stock conversion and the Company completed its related initial public offering. Accordingly, 2016 financial results are for the Bank only.

President’s Comments
“We continue to build on our positive momentum over the past couple of years, starting with the acquisition of CMS Bank in 2015 and our successful initial public offering earlier this year,” said Joseph Roberto, Chairman, President and Chief Executive Officer of PCSB Financial Corporation. “These key initiatives have contributed to the Company’s solid core earnings performance, exhibited through the growth in net interest income of 12.5% from a year ago and 5.0% from the quarter ended June 30, 2017.”

“Our strategy moving forward is to continue to leverage the capital raised in a safe and disciplined way; allowing for sustained growth in profitability in order to create maximum value for our shareholders. Our first Annual Meeting as a public company will be held on November 15th where I look forward to meeting our shareholders.”

Income Statement Summary
Net interest income increased $1.1 million, or 12.5%, to $9.9 million for the three months ended September 30, 2017, compared to the same period in 2016 and increased $471,000, or 5.0%, compared to the previous quarter. Net interest income increased as a result of an increase in the average balances of loans and investment securities outstanding, partially offset by an increase in the average balance of advances from Federal Home Loan Bank and the average rate paid on advances. The net interest margin was 2.89% for both the three months ended September 30, 2017 and 2016, and increased from 2.81% for the three months ended June 30, 2017.

The provision for loan losses increased $109,000 to $135,000 for the three months September 30, 2017 compared to the same period in 2016 due to loan portfolio growth. The Company did not record a provision in the three months ended June 30, 2017. Charge-offs, net of recoveries, were $17,000 and $3,000 for the three months ended September 30, 2017 and 2016, respectively, and recoveries net of charge-offs was $321,000 for the three months ended June 30, 2017. Loans classified as substandard and doubtful decreased slightly to $24.6 million at September 30, 2017 from $25.1 million at June 30, 2017 and decreased $3.5 million from $28.1 million at September 30, 2016.

Noninterest income increased by $162,000 to $714,000 for the three months ended September 30, 2017 compared to the same period in 2016 and increased $67,000 from the three months ended June 30, 2017, primarily driven by $173,000 in gains on sale of securities recognized in the current period.

Noninterest expense increased $696,000 to $7.9 million for the three months ended September 30, 2017 compared to the same period in 2016 and decreased $5.0 million from the three months ended June 30, 2017. The $696,000 increase was caused primarily by increases in salaries and employee benefits of $563,000, other operating expenses of $154,000 and professional fees of $104,000, partially offset by a decrease in FDIC assessment of $137,000. The increase in salaries and benefits was due primarily to a $290,000 increase in retirement expenses, including ESOP expense which commenced in April 2017, and a $226,000 increase in salaries expense due to the hiring of additional employees. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees; and the increase in professional fees was due primarily to expenses related to being a public company. The $5.0 million decrease from the three months ended June 30, 2017 was primarily due to the $5.0 million charitable foundation contribution recorded in the previous quarter.

Income tax expense increased $158,000 to $805,000 for the three months ended September 30, 2017 compared to the same period in 2016 and was caused by the $458,000 increase in pre-tax income. The Company recorded a $1.0 million income tax benefit for the quarter ended June 30, 2017 as the Company had a pre-tax loss of $2.8 million. The effective income tax rate was 31.4% and 30.8% for the three months ended September 30, 2017 and 2016, respectively.

Balance Sheet Summary

Total assets decreased $14.8 million to $1.41 billion at September 30, 2017 from $1.43 billion at June 30, 2017. This decrease was primarily due to decreases of $25.8 million in cash and cash equivalents and $19.6 million in total investment securities, partially offset by an increase of $30.3 million in net loans receivable. The decrease in cash and cash equivalents and investment securities was primarily utilized to fund the growth in the loan portfolio and the decrease in liabilities. The $30.3 million increase in net loans was primarily due to increases of $32.3 million in commercial mortgage loans and $1.7 million in other loans secured, partially offset by decreases of $2.2 million in residential mortgage loans and $1.9 million in commercial loans.

Total liabilities decreased $17.0 million to $1.13 billion at September 30, 2017 from $1.15 billion at June 30, 2017. This decrease was primarily due to decreases of $6.8 million in advances from FHLB, $6.8 million in total deposits and $3.1 million in mortgage escrow funds.

Total shareholders’ equity increased $2.2 million to $282.1 million at September 30, 2017 from $279.8 million at June 30, 2017. This increase was primarily due to net income of $1.8 million and a $607,000 reduction in unearned ESOP shares for plan shares earned during the period. At September 30, 2017 the Company’s book value per share and tangible book value per share were $15.53 and $15.16, respectively, compared to $15.41 and $15.04, respectively, at June 30, 2017. At September 30, 2017, 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 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)
September 30, June 30,
2017 2017
ASSETS
Cash and due from banks $30,354 $59,115
Federal funds sold 4,379 1,371
Cash and cash equivalents 34,733 60,486
Investment Securities:
Held to maturity investment securities, at amortized cost 369,213 383,551
(fair value of $368,537 and $383,588, respectively)
Available for sale securities, at fair value 106,610 111,889
Total investment securities 475,823 495,440
Loans receivable, net of allowance for loan losses of $5,268 and $5,150, respectively 839,963 809,648
Accrued interest receivable 4,178 3,693
Federal Home Loan Bank stock 2,622 3,132
Premises and equipment, net 12,903 12,959
Deferred tax asset, net 4,825 4,770
Foreclosed real estate 977 977
Bank-owned life insurance 23,328 23,179
Goodwill 6,106 6,106
Other intangible assets 527 559
Other assets 5,721 5,509
Total assets $1,411,706 $1,426,458
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits $948,222 $952,109
Non-interest bearing deposits 133,485 136,352
Total deposits 1,081,707 1,088,461
Mortgage escrow funds 4,955 8,084
Advances from Federal Home Loan Bank 35,750 42,598
Other liabilities 7,209 7,469
Total liabilities 1,129,621 1,146,612
Commitment and contingencies - -
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued
or outstanding as of September 30, 2017 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 September 30, 2017 and June 30, 2017, respectively)
182 182
Additional paid in capital 178,234 177,993
Retained earnings 122,904 121,148
Unallocated common stock of Employee Stock Ownership Plan ("ESOP") (13,913) (14,262)
Accumulated other comprehensive loss, net of income taxes (5,322) (5,215)
Total shareholders' equity 282,085 279,846
Total liabilities and shareholders' equity $1,411,706 $1,426,458


PCSB Financial Corporation and Subsidiaries
Consolidated Statements of Operations (unaudited)
(amounts in thousands, except share and per share data)
Three Months Ended September 30,
2017 2016
Interest and dividend income
Loans $8,818 $8,525
Investment securities 2,245 1,480
Federal funds and other 234 104
Total interest and dividend income 11,297 10,109
Interest expense
Deposits 1,267 1,284
FHLB advances 154 50
Total interest expense 1,421 1,334
Net interest income 9,876 8,775
Provision for loan losses 135 26
Net interest income after provision for loan losses 9,741 8,749
Noninterest income
Fees and service charges 276 242
Gains on sales of securities, net 173 -
Bank-owned life insurance 149 167
Other 116 143
Total noninterest income 714 552
Noninterest expense
Salaries and employee benefits 4,813 4,250
Occupancy and equipment 1,282 1,291
Professional fees 413 309
Advertising 165 139
Postage, printing, stationary and supplies 132 133
FDIC assessment 78 215
Amortization of intangible assets 32 36
Other operating expenses 979 825
Total noninterest expense 7,894 7,198
Net income before income tax expense 2,561 2,103
Income tax expense 805 647
Net income $1,756 $1,456
Earnings per common share:
Basic $0.10 N/A
Diluted $0.10 N/A
Weighted average common share - basic and diluted 16,756,447 N/A

PCSB Financial Corporation and Subsidiaries
Condensed Financial Information (unaudited)
(amounts in thousands)
For the Quarter Ended
Condensed Income StatementsSeptember 30, June 30, March 31, December 31, September 30,
20172017201720162016
Interest income $11,297 $10,723 $10,276 $9,850 $10,109
Interest expense 1,421 1,318 1,318 1,323 1,334
Net interest income 9,876 9,405 8,958 8,527 8,775
Provision for loan losses 135 - 235 562 26
Noninterest income 714 647 626 2,259 552
Noninterest expense 7,894 12,859 6,580 7,794 7,198
Income before income tax expense (benefit) 2,561 (2,807) 2,769 2,430 2,103
Income tax expense (benefit) 805 (1,017) 878 758 647
Net income (loss)$1,756 $(1,790)$1,891 $1,672 $1,456
As of
Condensed Balance SheetsSeptember 30, June 30, March 31, December 31, September 30,
20172017201720162016
Cash and cash equivalents$34,733 $60,486 $178,409 $48,327 $60,423
Total investment securities 475,823 495,440 391,359 367,954 374,662
Loans receivable, net 839,963 809,648 776,756 766,681 763,915
Other assets 61,187 60,884 60,797 57,921 55,444
Total assets$1,411,706 $1,426,458 $1,407,321 $1,240,883 $1,254,444
Total deposits and escrow$1,086,662 $1,096,545 $1,121,201 $1,114,457 $1,121,041
Advances from Federal Home Loan Bank 35,750 42,598 24,446 4,022 11,051
Other liabilities 7,209 7,469 144,404 9,647 10,846
Total liabilities 1,129,621 1,146,612 1,290,051 1,128,126 1,142,938
Total shareholders' equity 282,085 279,846 117,270 112,757 111,506
Total liabilities and shareholders' equity$1,411,706 $1,426,458 $1,407,321 $1,240,883 $1,254,444

PCSB Financial Corporation and Subsidiaries
Selected Financial Data (unaudited)
(amounts in thousands, except per share amounts)
For the Quarter Ended
September 30, June 30, March 31, December 31, September 30,
20172017201720162016
Performance Ratios (1):
Return on average assets 0.49% -0.50% 0.59% 0.54% 0.46%
Return on average equity 2.44% -2.69% 6.62% 5.95% 5.24%
Interest rate spread 2.74% 2.69% 2.87% 2.80% 2.80%
Net interest margin 2.89% 2.81% 2.96% 2.89% 2.89%
Efficiency ratio (2) 75.78% 78.18% 78.24% 79.3% 77.17%
Earnings per share:
Basic$0.10 n/a n/a n/a n/a
Diluted$0.10 n/a n/a n/a n/a
Noninterest income to average assets 0.20% 0.18% 0.20% 0.73% 0.17%
Noninterest expense to average assets 2.20% 3.60% 2.07% 2.51% 2.27%
Average interest-earning assets to average interest-bearing liabilities 136.50% 130.71% 118.73% 119.42% 120.00%
Equity to assets (3) 20.10% 18.65% 8.97% 9.17% 8.76%
Net charge-offs (recoveries) to average outstanding loans during the period 0.01% -0.16% 0.02% 0.00% 0.00%

PCSB Financial Corporation and Subsidiaries
Selected Financial Data (unaudited) - Continued
(amounts in thousands, except share and per share amounts)
As of
September 30, June 30, March 31, December 31, September 30,
20172017201720162016
Loans to deposits 77.65% 74.38% 69.70% 69.21% 68.40%
Share Data:
Shares outstanding 18,165,110 18,165,110 n/a n/a n/a
Book value per common share$15.53 $15.41 n/a n/a n/a
Tangible book value per common share (4)$15.16 $15.04 n/a n/a n/a
Asset Quality Ratios:
Allowance for loan losses as a percent of total gross loans 0.62% 0.63% 0.62% 0.60% 0.53%
Allowance for loan losses as a percent of non-performing loans 48.53% 42.66% 41.58% 65.86% 46.49%
Non-performing loans as a percent of total loans 1.28% 1.48% 1.49% 0.91% 1.14%
Non-performing assets as a percent of total assets 0.84% 0.92% 0.95% 0.74% 0.78%
Capital Ratios(5):
Tier 1 capital (to adjusted total assets) 13.52% 13.65% 9.13% 9.28% 8.85%
Common equity Tier 1 capital (to risk-weighted assets) 21.13% 21.69% 13.99% 14.05% 13.89%
Tier 1 capital (to risk-weighted assets) 21.13% 21.69% 13.99% 14.05% 13.89%
Total capital (to risk-weighted assets) 21.71% 22.27% 14.57% 14.62% 14.39%
(1) Performance ratios are annualized.
(2) Efficiency ratio is a non-GAAP measure and is defined as noninterest expense, less certain nonrecurring items, divided by our 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 volatility that is associated with certain one-time items and other discrete items that are unrelated to our core business.
(3) Represents average shareholders' equity divided by average total assets.
(4) 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.
(5) Represents Bank ratios.

PCSB Financial Corporation and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures (unaudited)
(amounts in thousands, except share and per share amounts)
For the Quarter Ended
Computation of Efficiency RatioSeptember 30, June 30, March 31, December 31, September 30,
20172017201720162016
Noninterest expense$7,894 $12,859 $6,580 $7,794 $7,198
Less:
PCSB Community Foundation contribution - 5,000 - - -
Defined benefit pension plan curtailment - - (919) - -
Write-down of operating lease obligation - - - 521
Adjusted noninterest expense$7,894 $7,859 $7,499 $7,273 $7,198
Net interest income$9,876 $9,405 $8,958 $8,527 $8,775
Noninterest income 714 647 626 2,259 552
Less:
Settlement on acquired loan - - - 1,615 -
Gain on sale of securities 173 - - - -
Adjusted operating revenue$10,417 $10,052 $9,584 $9,171 $9,327
Efficiency ratio 75.78% 78.18% 78.24% 79.30% 77.17%
As of
Computation of Tangible Book Value per Common ShareSeptember 30, June 30, March 31, December 31, September 30,
20172017201720162016
Total shareholders' equity$282,085 $279,846 $117,270 $112,757 $111,506
Less:
Preferred stock - - - - -
Common shareholders' equity 282,085 279,846 117,270 112,757 111,506
Less:
Goodwill 6,106 6,106 6,106 6,106 6,106
Other intangible assets 527 559 593 629 666
Tangible common shareholders' equity$275,452 $273,181 $110,571 $106,022 $104,734
Common shares outstanding 18,165,110 18,165,110 n/a n/a n/a
Book value per share$15.53 $15.41 n/a n/a n/a
Less:
Effects of intangible assets$0.37 $0.37 n/a n/a n/a
Tangible book value per common share$15.16 $15.04 n/a n/a n/a


Source:PCSB Financial Corporation