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

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

YORKTOWN HEIGHTS, N.Y., Jan. 24, 2019 (GLOBE NEWSWIRE) -- PCSB Financial Corporation (the “Company”) (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 December 31, 2018 compared to $2.3 million, or $0.14 per basic and diluted share, for the three months ended September 30, 2018 and $2,000, or $0.00 per basic and diluted share, for the three months ended December 31, 2017.

On a non-GAAP basis, which excludes certain nonrecurring items, the Company recorded net income of $2.2 million, or $0.13 per diluted share for the three months ended December 31, 2018 as compared to net income of $2.3 million, or $0.14 per diluted share for the three months ended September 30, 2018 and $1.8 million, or $0.11 per diluted share, for the three months ended December 31, 2017. Reconciliations of GAAP to non-GAAP measures appear at the end of this release.

In conjunction with grants under the stockholder-approved 2018 Equity Incentive Plan, the Company recorded $482,000, $364,000 net of taxes, of stock-based compensation expense in the current quarter. No such expense was recorded in the previous quarter or prior year period. The $482,000 of expense is a partial quarter's worth of expense, the annualized cost of which is approximately $3.3 million, or $829,000 quarterly.

President’s Comments
Commenting on the Company’s results, Joseph Roberto, Chairman, President and Chief Executive Officer of PCSB Financial Corporation, said, “We are pleased with our achievements in our second year as a public company. Some of these achievements include current year asset growth and deposit growth of 5.2% and 5.9%, respectively, and a year-over-year increase in adjusted net income of 32.8%. The current quarter also showed a continued decline in problem assets as the ratio of non-performing assets to total assets decreased to 0.27% from 0.43% for the September quarter and decreased by more than half, from 0.57% a year ago. During the second quarter, we also began the process of capital management by announcing our first share repurchase program. As we continue to move forward in our second year as a public company, we hope to build on these results as we strive to create value for our shareholders.

Additionally, as of December 31, 2018, we are excited by our recently announced conversion to a commercial bank and look forward to the business opportunities this organizational change will provide us including additional products and services to our customers and a better position in which to compete in the Municipal deposit markets.”

Income Statement Summary
Net interest income increased $558,000, or 5.5%, to $10.7 million for the three months ended December 31, 2018, compared to the same period in 2017 and increased $280,000 or 2.7% from the previous quarter. The increase in net interest income compared to the prior year is primarily a result of a $79.5 million increase in average interest earning assets. The increase in average interest earning assets is primarily due to loan portfolio growth, partially offset by a decrease in investment securities. The net interest margin was 3.00% for the three months ended December 31, 2018, unchanged from the prior year quarter, as asset growth and a higher yielding asset mix offset the increased cost of funds driven by higher market interest rates. The increase in net interest income compared to the prior quarter is primarily due to continued balance sheet growth and a six basis point increase in net interest margin, driven by the Company’s ability to control the increase in the cost of funds despite continued increases in short-term market rates.

The provision for loan losses was $6,000 for the three months ended December 31, 2018 compared to $58,000 in the prior quarter and $200,000 for the same period in 2017. Charge-offs, net of recoveries, were $21,000 for the three months ended December 31, 2018 compared to $3,000 for the three months ended September 30, 2018 and $997,000 for the three months ended December 31, 2017. Loans classified as substandard and doubtful decreased $2.8 million, or 22.1%, to $10.2 million at December 31, 2018 from $13.0 million at September 30, 2018 and decreased $8.1 million, or 44.3%, from $18.3 million at December 31, 2017. Non-performing loans as a percent of total loans receivable was 0.39% as of December 31, 2018, a decrease from 0.62% as of September 30, 2018 and 0.97% as of December 31, 2017.

Noninterest income increased $228,000 to $920,000 for the three months ended December 31, 2018 compared to the same period in 2017, primarily due to a $155,000 gain on the sale of bank premises, $55,000 in gains on the sale of securities, and $76,000 of swap income recorded in the current quarter, partially offset by $99,000 of one-time loan related fee income recorded in the prior year quarter. Noninterest income increased $279,000 from the three months ended September 30, 2018, primarily due to the aforementioned gains on the sale of bank premises and securities, as well as $24,000 of gains on the sale of REO and increases in deposit-related fees.

Noninterest expense increased $455,000 to $8.6 million for the three months ended December 31, 2018 compared to the same period in 2017 and increased $572,000 compared to the three months ended September 30, 2018. The $455,000 increase from 2017 was caused primarily by a $574,000 increase in salaries and employee benefits, partially offset by a $110,000 decrease in losses on a receivable. The increase in salaries and employee benefits was primarily due to $482,000 of stock-based compensation expense recorded in the current quarter, as well as a $199,000 increase in salaries and short-term incentive comp as a result of additional staffing, partially offset by lower retirement and medical benefits costs. The $572,000 increase in noninterest expense from the three months ended September 30, 2018 was primarily due to a $304,000 increase in salaries and benefits expense driven primarily by higher stock-based compensation, partially offset by lower salary expense, a $90,000 loss on a receivable recorded in the current quarter, and a net increase of $178,000 in all other expenses.

The effective income tax rate was 24.5% for the three months ended December 31, 2018, as compared to a tax rate, adjusted for the one-time effects of the Tax Cuts and Jobs Act, of 31.3% for the three months ended December 31, 2017 and 23.4% for the three months ended September 30, 2018. Beginning on July 1, 2018, the Company began to realize the full benefits of the reduction in the corporate income tax rate which became effective in January 2018.

Balance Sheet Summary
Total assets increased $77.1 million to $1.56 billion at December 31, 2018 from $1.48 billion at June 30, 2018. This increase was primarily due to increases of $81.0 million in cash and cash equivalents and $2.0 million in loans receivable, partially offset by a decrease of $6.2 million in total investment securities. The increase in cash and cash equivalents is primarily due to increases in deposits and FHLB advances. The $2.0 million increase in loans was the result of $75.3 million of originations, partially offset by $73.3 million of net amortization on the remaining portfolio, highlighted by $25.0 million of loan prepayments on four commercial mortgage loans and one residential mortgage loan.

Total liabilities increased $75.9 million to $1.27 billion at December 31, 2018 from $1.19 billion at June 30, 2018. This increase was primarily due to increases of $67.9 million in total deposits and $7.4 million in FHLB advances. Deposits as of December 31, 2018 includes a $7.5 million net increase in brokered time deposits and a transient balance of $28.4 million in one non-interest bearing customer account, the majority of which is expected to be withdrawn from the Bank in January 2019. Excluding this transient balance, deposit growth year to date is $39.5 million or 3.4%, concentrated primarily in money market and time deposit accounts.

Total shareholders’ equity increased $1.2 million to $288.8 million at December 31, 2018 from $287.6 million at June 30, 2018. This increase was primarily due to net income of $4.7 million and a $970,000 reduction in unearned ESOP shares for plan shares earned during the period, partially offset by the repurchase of $4.3 million in common stock and $1.0 million of cash dividends paid. As of December 31, 2018, the Company had repurchased 222,070 shares, at an average cost of $19.52 per share, which represents 24% of the 908,256 shares authorized for repurchase under the existing plan. At December 31, 2018, the Company’s book value per share and tangible book value per share were $15.62 and $15.27, 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 December 31, 2018, the Bank was considered “well capitalized” under applicable regulatory guidelines.

Dividend
The Board of Directors declared a regular quarterly cash dividend of $0.03 per share. The dividend is payable on or about March 1, 2019 to stockholders of record on February 15, 2019.

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 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)

    December 31,     June 30,  
    2018     2018  
ASSETS                
Cash and due from banks   $ 141,569     $ 60,684  
Federal funds sold     1,550       1,461  
Cash and cash equivalents     143,119       62,145  
Held to maturity debt securities, at amortized cost
   (fair value of $351,701 and $343,188, respectively)
    359,777       353,183  
Available for sale debt securities, at fair value     92,686       105,472  
Total investment securities     452,463       458,655  
Loans receivable, net of allowance for loan losses of $4,943 and $4,904,
respectively
    904,377       902,336  
Accrued interest receivable     4,457       4,358  
Federal Home Loan Bank stock     2,385       2,050  
Premises and equipment, net     11,429       11,598  
Deferred tax asset, net     2,436       2,622  
Foreclosed real estate     572       460  
Bank-owned life insurance     24,026       23,747  
Goodwill     6,106       6,106  
Other intangible assets     376       433  
Other assets     5,569       5,677  
Total assets   $ 1,557,315     $ 1,480,187  
LIABILITIES AND SHAREHOLDERS' EQUITY                
Interest bearing deposits   $ 1,063,211     $ 1,025,574  
Non-interest bearing deposits     162,113       131,883  
Total deposits     1,225,324       1,157,457  
Mortgage escrow funds     9,085       8,803  
Advances from Federal Home Loan Bank     26,279       18,841  
Other liabilities     7,845       7,527  
Total liabilities     1,268,533       1,192,628  
Commitments and contingencies     -       -  
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares
issued or outstanding as of December 31, 2018 and June 30, 2018,
respectively)
    -       -  
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295
and 18,165,110 shares issued, and 18,490,225 and 18,165,110 shares
outstanding as of December 31, 2018 and June 30, 2018, respectively)
    187       182  
Additional paid in capital     180,003       179,045  
Retained earnings     131,993       128,365  
Unearned compensation - ESOP     (12,594 )     (13,083 )
Accumulated other comprehensive loss, net of income taxes     (6,471 )     (6,950 )
Treasury stock, at cost (222,070 shares as of December 31, 2018 and no
shares as of June 30, 2018)
    (4,336 )     -  
Total shareholders' equity     288,782       287,559  
Total liabilities and shareholders' equity   $ 1,557,315     $ 1,480,187  


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)
(amounts in thousands, except share and per share data)

    Three Months Ended     Six Months Ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
                                 
Interest and dividend income                                
Loans receivable   $ 10,321     $ 9,171     $ 20,219     $ 17,989  
Investment securities     2,428       2,269       4,794       4,514  
Federal funds and other     491       217       836       451  
Total interest and dividend income     13,240       11,657       25,849       22,954  
Interest expense                                
Deposits     2,375       1,307       4,431       2,574  
FHLB advances     121       164       210       318  
Total interest expense     2,496       1,471       4,641       2,892  
Net interest income     10,744       10,186       21,208       20,062  
Provision for loan losses     6       200       64       335  
Net interest income after provision for loan
losses
    10,738       9,986       21,144       19,727  
Noninterest income                                
Fees and service charges     457       412       875       793  
Bank-owned life insurance     139       145       279       294  
Gains on sales of securities, net     55       -       55       173  
Other     269       135       352       146  
Total noninterest income     920       692       1,561       1,406  
Noninterest expense                                
Salaries and employee benefits     5,444       4,870       10,584       9,730  
Occupancy and equipment     1,284       1,296       2,525       2,578  
Communications and data processing     482       479       954       970  
Professional fees     417       379       786       792  
Postage, printing, stationary and supplies     178       142       316       274  
FDIC assessment     124       64       217       142  
Advertising     131       179       218       344  
Amortization of intangible assets     28       33       56       65  
Other operating expenses     492       683       932       1,124  
Total noninterest expense     8,580       8,125       16,588       16,019  
Net income before income tax expense     3,078       2,553       6,117       5,114  
Income tax expense     754       2,551       1,464       3,356  
Net income   $ 2,324     $ 2     $ 4,653     $ 1,758  
Earnings per common share:                                
Basic   $ 0.14     $ -     $ 0.28     $ 0.10  
Diluted   $ 0.14     $ -     $ 0.28     $ 0.10  
Weighted average common shares:                                
Basic     16,852,718       16,791,305       16,860,942       16,773,883  
Diluted     16,868,464       16,791,305       16,868,815       16,773,883  


PCSB Financial Corporation and Subsidiaries

Net Interest Margin Analysis (unaudited)
(dollar amounts in thousands)

                                               
  Three Months Ended December 31,  
  2018     2017  
  Average
Balance
    Interest /
Dividends
    Average
Rate
    Average
Balance
    Interest /
Dividends
    Average
Rate
 
Assets:                                              
Loans receivable $ 909,368     $ 10,321       4.53 %   $ 827,614     $ 9,171       4.43 %
Investment securities   439,919       2,428       2.21       473,641       2,269       1.92  
Other interest-earning assets   85,874       491       2.27       54,388       217       1.58  
Total interest-earning assets   1,435,161       13,240       3.69       1,355,643       11,657       3.44  
Non-interest-earning assets   57,567                       58,665                  
Total assets $ 1,492,728                     $ 1,414,308                  
                                               
Liabilities and equity:                                              
NOW accounts $ 116,381       52       0.18     $ 112,147       48       0.17  
Money market accounts   101,078       280       1.10       29,014       22       0.30  
Savings accounts and escrow   416,687       252       0.24       509,888       309       0.24  
Time deposits   403,652       1,791       1.76       306,756       928       1.20  
Total interest-bearing deposits   1,037,798       2,375       0.91       957,805       1,307       0.54  
Federal Home Loan Bank advances   22,106       121       2.15       35,293       164       1.85  
Total interest-bearing liabilities   1,059,904       2,496       0.94       993,098       1,471       0.59  
Non-interest-bearing deposits   135,470                       130,614                  
Other non-interest-bearing liabilities   6,506                       7,765                  
Total liabilities   1,201,880                       1,131,477                  
Total shareholders' equity   290,848                       282,831                  
Total liabilities and shareholders' equity $ 1,492,728                     $ 1,414,308                  
                                               
                                               
Net interest income         $ 10,744                     $ 10,186          
Interest rate spread (1)                   2.75                       2.85  
Net interest margin (2)                   3.00                       3.00  
Average interest-earning assets to interest-
bearing liabilities
  135.40 %                     136.51 %                
                                               
(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.  


PCSB Financial Corporation and Subsidiaries

Net Interest Margin Analysis (unaudited) - Continued
(dollar amounts in thousands)

                                               
  Six Months Ended December 31,  
  2018     2017  
  Average
Balance
    Interest /
Dividends
    Average
Rate
    Average
Balance
    Interest /
Dividends
    Average
Rate
 
Assets:                                              
Loans receivable $ 906,194     $ 20,219       4.46 %   $ 820,429     $ 17,989       4.38 %
Investment securities   446,795       4,794       2.15       479,833       4,514       1.88  
Other interest-earning assets   76,548       836       2.17       61,822       451       1.45  
Total interest-earning assets   1,429,537       25,849       3.61       1,362,084       22,954       3.37  
Non-interest-earning assets   53,731                       58,453                  
Total assets $ 1,483,268                     $ 1,420,537                  
                                               
Liabilities and equity:                                              
NOW accounts $ 117,893       105       0.18     $ 113,458       97       0.17  
Money market accounts   79,891       419       1.04       29,557       43       0.29  
Savings accounts and escrow   439,615       540       0.25       514,102       633       0.25  
Time deposits   397,994       3,367       1.68       302,382       1,801       1.18  
Total interest-bearing deposits   1,035,393       4,431       0.85       959,499       2,574       0.53  
Federal Home Loan Bank advances   20,463       210       2.03       38,346       318       1.65  
Total interest-bearing liabilities   1,055,856       4,641       0.87       997,845       2,892       0.58  
Non-interest-bearing deposits   130,425                       132,491                  
Other non-interest-bearing liabilities   6,894                       8,026                  
Total liabilities   1,193,175                       1,138,362                  
Total shareholders' equity   290,093                       282,175                  
Total liabilities and shareholders' equity $ 1,483,268                     $ 1,420,537                  
                                               
                                               
Net interest income         $ 21,208                     $ 20,062          
Interest rate spread (1)                   2.74                       2.79  
Net interest margin (2)                   2.97                       2.95  
Average interest-earning assets to interest-
bearing liabilities
  135.39 %                     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.  


PCSB Financial Corporation and Subsidiaries

Condensed Financial Information (unaudited)
(amounts in thousands, except per share data)

null
                                
  As of  
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
  December 31,
2017
 
Condensed Balance Sheets                          
Cash and cash equivalents $ 143,119   $ 68,323   $ 62,145   $ 36,505   $ 77,106  
Total investment securities   452,463     441,748     458,655     473,651     470,328  
Loans receivable, net   904,377     905,093     902,336     886,718     838,120  
Other assets   57,356     59,331     57,051     60,095     57,714  
Total assets $ 1,557,315   $ 1,474,495   $ 1,480,187   $ 1,456,969   $ 1,443,268  
                               
Total deposits and escrow $ 1,234,409   $