UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended June 30, 20172020

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001-38065

PCSB FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Maryland

 

81-4710738

(State of Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

2651 Strang Blvd., Suite 100, Yorktown Heights, New York

 

10598

(Address of Principal Executive Offices)

 

(Zip Code)

 

(914) 248-7272

(Registrant’s Telephone Number, including area code)

Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

PCSB

 

The NASDAQ Stock Market, LLC

(Title of each class)

 

(Name of each exchange on which registered)

 

Securities Registered Pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  Yes      NO      No  

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  Yes      NO      No  

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    YES  Yes      NO      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  Yes      NO      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   

 

Accelerated filer   

 

Smaller reporting company   

 

 

 

 

 

Non-accelerated filer   

 

(Do not check if a smaller reporting company)

 

Emerging growth company   

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  Yes      NO      No  

As of December 31, 2016,2019, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $0.$302.6 million. The registrant does not have any non-voting common equity.

As of September 27, 2017,9, 2020, there were issued and outstanding 18,165,11016,801,237 shares of the Registrant’s Common Stock.Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 20172020 Annual Meeting of Stockholders (Part III).

 

 

 


 

Table of Contents

 

Item Number

Item Number

Page Number

Item Number

Page Number

PART I

PART I

PART I

 

 

1

Business

3

Business

3

1A

Risk Factors

22

Risk Factors

23

1B

Unresolved Staff Comments

29

Unresolved Staff Comments

35

2

Properties

30

Properties

35

3

Legal Proceedings

30

Legal Proceedings

35

4

Mine Safety Disclosures

30

Mine Safety Disclosures

35

 

 

 

 

PART II

PART II

PART II

5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

31

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

36

6

Selected Financial Data

32

Selected Financial Data

37

7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Management’s Discussion and Analysis of Financial Condition and Results of Operations

41

7A

Quantitative and Qualitative Disclosures About Market Risk

56

Quantitative and Qualitative Disclosures About Market Risk

61

8

Financial Statements and Supplementary Data

57

Financial Statements and Supplementary Data

62

9

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

102

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

110

9A

Controls and Procedures

102

Controls and Procedures

110

9B

Other Information

102

Other Information

110

 

 

 

 

PART III

PART III

PART III

10

Directors, Executive Officers and Corporate Governance

102

Directors, Executive Officers and Corporate Governance

111

11

Executive Compensation

102

Executive Compensation

111

12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

102

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

111

13

Certain Relationships and Related Transactions, and Director Independence

103

Certain Relationships and Related Transactions, and Director Independence

111

14

Principal Accountant Fees and Services

103

Principal Accountant Fees and Services

111

 

 

 

 

PART IV

PART IV

PART IV

 

 

 

 

15

Exhibits and Financial Statement Schedules

103

Exhibits and Financial Statement Schedules

111

16

Form 10-K Summary

105

Form 10-K Summary

113

Signatures

106

Signatures

114

 

 

 


Forward Looking Statements

This annual report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

statements of our goals, intentions and expectations;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding the quality of our loan and investment portfolios; and

statements regarding the quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

general economic conditions, either nationally or in our market areas, that are worse than expected;

extent and severity of the recent COVID-19 pandemic, including its impact on our business and operations, including the impact of lost fee revenue and 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

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

general economic conditions, either nationally or in our market areas, that are worse than expected;

our ability to access cost-effective funding;

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

fluctuations in real estate values and both residential and commercial real estate market conditions;

our ability to access cost-effective funding;

demand for loans and deposits in our market area;

fluctuations in real estate values and both residential and commercial real estate market conditions;

our ability to continue to implement our business strategies;

demand for loans and deposits in our market area;

competition among depository and other financial institutions;

our ability to continue to implement our business strategies;

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

competition among depository and other financial institutions;

adverse changes in the securities markets;

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

adverse changes in the securities markets;

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

our ability to enter new markets successfully and capitalize on growth opportunities;

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

our ability to enter new markets successfully and capitalize on growth opportunities;

changes in consumer spending, borrowing and savings habits;

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

changes in consumer spending, borrowing and savings habits;

our ability to retain key employees;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, or the Securities and Exchange Commission;

our compensation expense associated with equity allocated or awarded to our employees; and

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

our ability to retain key employees;


our compensation expense associated with equity allocated or awarded to our employees; and

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. See “Risk Factors” contained in Item 1A. We do not undertake to update any forward-looking statements, except as may be required by applicable law or regulation.

PART I

Item 1. Business

PCSB Financial Corporation

PCSB Financial Corporation (“PCSB Financial” or the “Company”), a Maryland corporation, is the bank holding company for PCSB Bank (the “Bank”). On April 20, 2017, the Company completed its initial public offering in connection with the Bank’s conversion from a mutual savings bank to a stock savings bank, selling 17,826,408 shares of common stock at a price of $10.00 per share. In addition, the Company contributed 338,702 shares of common stock and $1.6 million in cash to the PCSB Community Foundation, a charitable foundation formed in connection with the conversion. As of June 30, 2020, we had consolidated assets of $1.79 billion, consolidated deposits of $1.37 billion and consolidated equity of $273.7 million. Other than holding the common stock of PCSB Bank, PCSB Financial has not engaged in any significant business to date. In the future, we may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations; however, there are no current agreements for these activities. The Company is subject to the financial reporting requirements of the Securities and Exchange Act of 1934, as amended and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

The Company’s executive offices/headquarters are located at 2651 Strang Blvd., Suite 100, Yorktown Heights, NY 10598, and the telephone number at that address is (914) 248-7272.New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank

PCSB Bank is a New York-chartered stockcommercial bank, having converted from a savings bank that servescharter effective January 1, 2019. We serve the banking needs of customers in the Lower Hudson Valley of New York State.  We operate fromState through our executive offices/headquarters and 15 banking offices located in Dutchess (3 offices), Putnam (3 offices), Rockland (1 office) and Westchester (8 offices) Counties, New York. Our primary business activity is attracting deposits from the general public and using those funds primarily to originate and purchase commercial real estate, and business loans originateand one-to four-family loans and purchase investment securities. We are subject to comprehensive regulation and examination by the New York State Department of Financial Services (the “NYSDFS”) and by the Federal Deposit Insurance Corporation (the “FDIC”).  

Our website address is www.pcsb.com.  Information on our website is not and should not be considered a part of this annual report.

Market Area

Our primary market area encompasses all of Putnam and Westchester Counties, and parts of Dutchess and Rockland Counties in New York, which are the counties in which our offices are located, and the surrounding areas.  We view Westchester County, which borders the Bronx (New York City’s northernmost borough) and is more populous than the other counties, as a primary area for growth, particularly for commercial lending and deposit opportunities. Westchester County includes a high concentration of office, medical, retail, industrial, mixed use and multi-family real estate buildings and businesses. Our primary focus in this marketplace is small to middle market businesses in these segments. Rising real estate values and lack of available commercial space in Brooklyn and Manhattan hashave caused businesses to migrate to central and lower Westchester County, which has increased the demand for flex-industrial and multi-family property loans in our market area. Dutchess, Putnam and Rockland Counties offer similar commercial opportunities to Westchester County, but on a significantly smaller scale, and provide greater opportunities in residential mortgage lending and consumer lending and in retail deposit gathering. The close proximity of Bronx County, New York City, Fairfield County, Connecticut, and Bergen County, New


Jersey, to our market area also creates a secondary area of opportunity for office, industrial and multi-family property loans.

Competition

We face significant competition for deposits and loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our market area, many of which are significantly larger than we are and, therefore, have greater resources. We compete with these larger institutions particularly in our Westchester County market area. We also face competition for funds from other financial service companies such as brokerage firms, money market funds, mutual funds and other corporate and government securities issuers.


Competition for loans comes primarily from the many financial institutions operating in our market area. Our experience in recent years has been that many financial institutions in our market area, especially community banks and credit unions seeking to expand their commercial loan portfolios and institutions located in highly competitive Westchester County, have been willing to price commercial loans aggressively in order to gain market share. We also compete with Fintech companies, which can digitally deliver banking products and services without the expenses associated with physical branch offices and without the regulatory compliance obligations and expenses to which banks are subject.

Lending Activities

Commercial Real Estate Loans. At June 30, 2017,2020, commercial real estate loans were $437.7$807.1 million, or 53.8%63.6%, of our total loan portfolio.gross loans receivable. Our commercial real estate loans are generally secured by properties used for business purposes such as office buildings, industrial facilities and retail facilities, and multi-family properties. At June 30, 2017,2020, multi-family residential real estate loans, which are described below, totaled $91.5$206.5 million.  Excluding multi-family loans, $78.1$101.5 million of our commercial real estate portfolio was owner occupied real estate and $268.1$499.1 million was secured by income producing, or non-owner occupied real estate.

At June 30, 2017, substantially all2020, a substantial portion of our commercial real estate loans were secured by properties located in the lower Hudson Valley; however, we will originate commercial real estate loans on properties located outside this area based on an established relationship with a strong borrower.We intend to continue to grow our commercial real estate loan portfolio while maintaining prudent underwriting standards. In addition to originating these loans, we also purchase and participate in commercial real estate loans with other financial institutions. At June 30, 2020, we had $174.9 million in commercial real estate loan participations and whole loan purchases, which constituted 21.7% of our commercial real estate loan portfolio, as compared with $145.9 million in commercial real estate loan participations and whole loan purchases, which constituted 22.4% of our commercial real estate loan portfolio at June 30, 2019. Such loans are independently underwritten according to our policies and require satisfactory documentation review by our legal counsel before we will purchase or participate in such loans.

We originate a variety of adjustable-rate commercial real estate loans with terms and amortization periods generally up to 25 years, which may include balloon payment loans. Interest rates and payments on our adjustable-rate loans adjust every five, seven or ten years and generally are indexed to the prime rate or the corresponding Treasury rate, plus a margin. We generally include pre-payment penalties on commercial real estate loans we originate.  

In underwriting commercial real estate loans, we consider a number of factors, which include the current and projected ratio of net cash flow to the loan’s debt service requirement (generally requiring a minimum of 120%)1.20x), the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Commercial real estate loans are generally originated in amounts up to 75% of the appraised value or the purchase price of the property securing the loan, whichever is lower. Generally, guarantees are obtained from commercial real estate customers. In addition, the borrower’s and guarantor’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates. We encourage our commercial business borrowers to maintain their primary deposit accounts with us, which would enhance our interest rate spread and overall profitability. As a result of the pandemic, underwriting of commercial real estate loans includes status of rent payments and tenant lease amendments,


confirming stability of property cash flow, with structural enhancements including but not limited to static debt service reserves being required, as necessary.

If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be a lengthy process with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.

At June 30, 2017,2020, our largest commercial real estate loan had an outstanding balance of $9.7$26.5 million and is secured by a non-owner occupiednon-owner-occupied industrial property. At June 30, 2017,2020, this loan was performing according to its original terms.

Multi-Family Residential Real Estate Loans. At June 30, 2017,2020, multi-family real estate loans were $91.5$206.5 million, or 11.3%16.3%, of our total loan portfolio.loans gross receivable. Our multi-family real estate loans are generally secured by properties consisting of five to 100 rental units in our market area.  In addition to originating these loans, we also purchase and participate in multi-family residential real estate loans with other financial institutions. At June 30, 2020, we had $93.6 million in multi-family residential real estate loan purchases and participations, which constituted 45.3% of our multi-family residential real estate loan portfolio, as compared with $68.1 million in multi-family residential real estate loan participations, which constituted 44.5% of our multi-family residential real estate loan portfolio at June 30, 2019. Such loans are independently underwritten according to our policies and require satisfactory documentation review by our legal counsel before we will purchase or participate in such loans.


We originate a variety of adjustable-rate multi-family residential real estate loans with terms and amortization periods generally up to 30 years, which may include balloon loans. Interest rates and payments on our adjustable-rate loans adjust every five, seven or ten years and generally are indexed to the prime rate or the corresponding Treasury rate, plus a margin. We generally include pre-payment penalties on multi-family residential real estate loans we originate.  

In underwriting multi-family residential real estate loans, we consider a number of factors, which include the current and projected ratio of net cash flow to the loan’s debt service requirement (generally requiring a minimum of 120%)1.20x), the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Multi-family residential real estate loans are generally originated in amounts up to 75% of the appraised value or the purchase price of the property securing the loan, whichever is lower.  Generally, guarantees are obtained from multi-family residential real estate customers. In addition, the borrower’s and guarantor’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates. We encourage our commercial business borrowers to maintain their primary deposit accounts with us, which would enhance our interest rate spread and overall profitability. As a result of the pandemic, underwriting of commercial real estate loans includes status of rent payments and tenant lease amendments, confirming stability of property cash flow, with structural enhancements including but not limited to static debt service reserves being required, as necessary.

At June 30, 2017,2020, our largest multi-family residential real estate loan had an outstanding balance of $7.4$23.5 million and is secured by a 208-unit76-unit apartment complex.  At June 30, 2017,2020, this loan was performing according to its original terms.  

Commercial Business Loans.  We originate commercial term loans and variableadjustable rate lines of credit to a variety of small and medium sized businesses in our market area. These loans are generally secured by business assets, and we may support this collateral with junior liens on real property. At June 30, 2017,2020, commercial business loans were $80.1$164.3 million, or 9.8%12.9% of our total loan portfolio.gross loans receivable, of which $49.6 million, or 30.2%, were loans originated under the Small Business Administration’s (“SBA”) Payroll Protection Program (“PPP”) established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Customers for theseour commercial loans include professional businesses, multi-generational family-owned businesses, and not for profit businesses. We encourage our commercial business borrowers to maintain their primary deposit accounts with us, which would enhance our interest rate spread and overall profitability.


As of June 30, 2020, commercial loans included $49.6 million of PPP loans, consisting of loans to over 300 business employing over 4,300 employees across our local communities with an average loan size of approximately $161,000. These loans are fully guaranteed by the SBA and are subject to forgiveness by the SBA, upon application by the borrower, to the extent that loan proceeds were utilized by the borrower for qualifying expenses under the PPP. Any loan, or portion thereof, that is not forgiven by the SBA will bear an interest rate of 1% per annum for a term of 24 months.

As of June 30, 2020, commercial loans include a $23.6 million loan to a third-party originatior secured by 364 individual loans primarily to medical professionals. The underlying loans are independently underwritten according to our policies and require satisfactory documentation review by our legal counsel. The Company services the underlying loans and maintains a 50% loss-sharing agreement with the third-party originating institution.

The commercial business loans we offer include term loans and revolving lines of credit. Commercial loans and lines of credit are made with either variablefixed or fixedadjustable rates of interest. VariableAdjustable rates are based on the prime rate, plus a margin. Commercial business loans typically have shorter terms to maturity, higher interest rates than commercial real estate loans, and may involve more credit risk because of the type and nature of the collateral.

When makingunderwriting commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. Depending on the collateral used to secure the loans, commercial loans are generally made in amounts of up to 75% of the value of the collateral securing the loan. All of these loans are secured by assets of the respective borrowers. As a result of the pandemic, underwriting and approved structure of commercial loans include cash flow forecasts for the Borrower including the consideration of the Borrower’s accounts receivable and payable vendors, as well as any pandemic impacts to their customers and vendors, respectively.

At June 30, 2017, $11.7 million of business loans are to developers to purchase land. These loans are underwritten for projects with appropriate construction or development approvals already in place, have variable rates of interest and terms up to 3 years.  Additionally, these loans are made in amounts up to 50% of the land value.

At June 30, 2017,2020, our largest commercial business loan had an outstanding balance of $6.9$23.6 million and is secured by a commercial condominium property. At364 individual loans primarily to medical professionals. As June 30, 2017, this2020, 65 of the 364 underlying loans had been granted short-term payment deferrals of 90-days in connection with the CARES Act in response to the COVID-19 pandemic. As of August 31, 2020, all loan waspayment deferrals have expired, of which one loan is 30 days past due. For additional discussion regarding payment deferrals, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asset Quality”. All other underlying loans, with the exception of one loan with an outstanding principal balance of $31,000, were performing according to itstheir original terms.

Construction Loans. We originate loans to finance the construction of one- to four-family residential properties, and commercial and multi-family properties. At June 30, 2017,2020, construction and land development loans were $22.4$11.1 million, or 2.8%0.9% of our total loan portfolio,gross loans receivable, consisting of $13.9$6.3 million of one- to four-family residential construction loans and $8.5$4.8 million of commercial and multi-family real estate construction loans. The majority of these loans are secured by properties located in our primary market area. PCSB Bank will occasionally, through a local nonprofit, fund the construction of low-income multi-family properties.

Most of our construction loans are interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 24 months. Interest is generally a variablean adjustable rate based on the prime rate,


plus a margin. At the end of the construction phase, the loan may convert to a permanent mortgage loan or the loan may be payable in full. Loans generally can be made with a maximum loan-to-value ratio of 75% of the appraised market value upon completion of the project. Before making a commitment to fund a construction loan, we generally require an appraisal of the property by an independent licensed appraiser. We also generally require an inspection of the property before disbursement of funds during the term of the construction loan. Loan proceeds are disbursed periodically in increments as construction progresses and as inspection by our approved inspectors warrant.

At June 30, 2017,2020, our largest construction and land development loan had an outstanding balance of $5.0$3.7 million and is secured by a 12-unit mixed use condominium project.hotel. At June 30, 2017,2020, this loan was performing according to its original terms.

Residential Mortgage Loans. Our one- to four-family residential loan portfolio consists of mortgage loans that enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the


owner. At June 30, 2017,2020, one- to four-family residential real estate loans were $217.8$255.4 million, or 26.8%20.1% of our total loan portfolio,gross loans receivable, consisting of $190.2$219.1 million of fixed-rate loans and $27.6$36.3 million of adjustable-rate loans. In addition to originating these loans, we also purchase and participate in residential mortgage loans from other financial institutions. At June 30, 2020, purchased and participated loans totaled $38.8 million, or 15.2% of the residential mortgage loan portfolio, as compared to $64.5 million, or 24.3% of the residential mortgage loan portfolio as of June 30, 2019.  

We offer fixed-rate and adjustable-rate residential mortgage loans with maturities up to 30 years. Some of the properties include two- to four-unit properties, all of which are classified as residential mortgage loans. Our one- to four-family residential mortgage loans that we originate, or purchase are generally underwritten according to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency. We also originate loans above the conforming limits, which are referred to as “jumbo loans.” We generally underwrite jumbo loans, whether originated or purchased, in a manner similar to conforming loans. Jumbo loans are common in our market area. We generally retain one- to four-family residential mortgage loans in our portfolio.

We originate our adjustable-rate one- to four-family residential mortgage loans with initial interest rate adjustment periods of one, three, five, seven or ten years, based on changes in a designated market index. These loans are limited to a 200 basis point initial increase in their interest rate, a 200 basis point increase in their interest rate annually after the initial adjustment, and a maximum upward adjustment of 400 to 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan in conformance with the underwriting guidelines set forth by Fannie Mae and Freddie Mac in the secondary mortgage market. In particular, we determine whether a borrower qualifies for an adjustable-rate mortgage loan with an initial fixed-rate period of five years or less based on the ability to repay both principal and interest using an interest rate which is 2.0% above the initial interest rate, including a reasonable estimate of real estate taxes and insurance, and taking into account the maximum debt-to-income ratio stipulated in the underwriting guidelines in the secondary mortgage market. The qualification for an adjustable-rate mortgage loan with an initial fixed-rate period exceeding five years is based on the borrower’s ability to repay at the initial fixed interest rate.

We will originate one- to four-family residential mortgage loans with loan-to-value ratios up to 80% without private mortgage insurance. We will originate loans with loan-to-value ratios of up to 95% with private mortgage insurance and where the borrower’s debt service does not exceed 45% of the borrower’s monthly cash flow. To encourage lending to low- and moderate-income home buyers, we have several in-house developed programs which can include low down payments, lender-paid PMI, a lower than market interest rate, or a grant to be used towards closing costs.

We generally do not offer “interest only” mortgage loans on one- to four-family residential properties. We do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan.  Additionally, outside of the loan programs mentioned previously, we do not offer “subprime loans” (loans that are made with low down-payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation).


Home Equity Lines of Credit.  At June 30, 2017,2020, the outstanding balance owed on home equity lines of credit was $41.9$29.8 million, or 5.2 %2.4% of our total loan portfolio.gross loans receivable. Home equity lines of credit have adjustable rates of interest that are indexed to the prime rate, plus a margin.

The procedures for underwriting home equity lines of credit include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount.


The home equity lines of credit that we originate are revolving lines of credit which generally have a term of 25 years, with draws available for the first ten years. Our 25-year lines of credit are interest only during the first ten years and amortize on a fifteen-year basis thereafter. We generally originate home equity lines of credit with loan-to-value ratios of up to 75% when combined with the principal balance of the existing first mortgage loan, although loan-to-value ratios may occasionally exceed 75% on a case-by-case basis. Maximum loan-to-value ratios are determined based on an applicant’s credit score, property value, loan amount and debt-to-income ratio. Rates are adjusted monthly based on changes in a designated market index.

Other Loans. We offer consumer and business installmentdeposit overdraft loans. At June 30, 2017,2020, other loans were $13.7 million, or 1.7% of total loans,$481,000, and included $233,000$328,000 of personal loans and $13.5 million$153,000 of business installment loans.overdrafts. The procedures for underwriting consumer and installmentthese loans include an assessment of the applicant’s and guarantor’s, if applicable, payment history on other debts and ability to meet existing obligations and payments on the proposed loan.

Loan Underwriting Risks

Commercial and Multi-Family Real Estate Loans. Loans secured by commercial and multi-family real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project.property. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on commercial and multi-family real estate loans. In reaching a decision on whether to make a commercial or multi-family real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally requiredrequire that the properties securing these real estate loans have debt service coverage ratios (the ratio of earningsnet operating income before debt service to debt service) of at least 1.20x. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.for all commercial and multi-family real estate loans.

Construction Loans.  Our construction loans are based upon estimates of costs and values and the absorption associated with the completed project. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations.  All construction loans require an unlimited guarantee of completion (construction, including certificate of occupancy) for the project.

Construction lending involves additional risks when compared with permanent residential lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of state and local governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. This type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the


borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Typically, for-rent commercially occupied properties require minimum pre-leasing; and for condominiums or cooperative for sale development loans, the project is underwritten as a multi-family rental property. Our ability to continue to originate a significant amount of construction loans is dependent on the strength of the housing and commercial real estate markets in our market areas.

Commercial Business Loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s


business andas the collateral securing these loans may fluctuate in value. Our commercial business loans are originated primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of real estate, accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself.  Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

Adjustable-Rate Loans.  While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is somewhat limited by the annual and lifetime interest rate adjustment limits on residential loans.

Consumer Loans.  Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Loan Approval Procedures and Authority

Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our boardBoard of directorsDirectors and management. The boardBoard of directorsDirectors has granted loan approval authority to certain senior officers up to prescribed limits not exceeding $4.0$5.0 million depending on the officer’s experience. Loans approved under these officer authorities require dual signatures of the loan officer assigned to the loan and the officer with the appropriate approval authority. Loans in excess of $4.0$5.0 million and up to $17.0$15.0 million require approval of the Loan Committee of the boardBoard of directors,Directors, as do any extensions of credit to classified borrowers or extensions of credit in excess of $2.0 million.million or loans up to $5.0 million that involve an exception to policy. Loans greater than $15.0 million and loans greater than $5.0 million that involve exceptions to policy including loans in excess of our internal loans-to-one borrower limitation, must be authorized by the Loan CommitteeBoard of the board of directors.  Exceptions are reported to the board of directors monthly.Directors.

Investment Activities

We have legal authority to invest in various types of investment securities and liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, residential and commercial mortgage-backed securities, municipal government securities, deposits at the Federal Home Loan Bank of New York (“FHLBNY”), certificates of deposit of federally insured institutions, and investment grade corporate bonds. We also are required


to maintain an investment in Federal Home Loan Bank of New YorkFHLBNY stock, which investment is based on the level of our Federal Home Loan BankFHLBNY borrowings. Although we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at June 30, 2017. At June 30, 2017,2020, our investment portfolio had a fair value of $495.4$318.9 million and consisted primarily of U.S. Government securities, U.S. Government agency securities, including residential and commercial mortgage-backed securities, collateralized mortgage obligations, and investment grade corporate and municipal bonds.

We also have the authority under applicable law to invest in derivative securities. Derivatives may be used to manage the Company’s exposure to interest rate movements or to provide service to customers. The Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the


Company executes with a third party in order to minimize the net risk exposure resulting from such transactions. The notional amount of all derivatives to which we are a party is $159.2 million as of June 30, 2020.

Our investment objectives are to provide and maintain liquidity, to establish an acceptable level of interest rate and credit risk, to provide a use of funds when demand for loans is weak and to generate a favorable return. Our boardBoard of directorsDirectors has the overall responsibility for the investment portfolio, including approval of our investment policy. Our management is responsible for implementation of the investment policy and monitoring our investment performance. The Asset/Liability Committee reviews the status of our investment portfolio quarterly.  See Note 43 to Notes to Consolidated Financial Statements.

Sources of Funds

General. Deposits have traditionally been our primary source of funds for our lending and investment activities. To a lesser degree, we also use borrowings, primarily Federal Home Loan Bank of New YorkFHLBNY advances and brokered deposits, to supplement cash flow needs, as needed. In addition, funds are derived from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposit Accounts. The substantial majority of our deposits are from depositors who reside in our primary market area. Deposits are attracted through the offering of a broad selection of deposit instruments for both individuals and businesses. At June 30, 2017,2020, our deposits totaled $1.1$1.37 billion and included $38.4$67.5 million of municipal deposits held by our commercial bank subsidiary, PCSB Commercial Bank.brokered time deposits.

Deposit account terms vary according to the minimum balance required, the time period that funds must remain on deposit, and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability, and customer preferences and concerns. We generally review our deposit mix and pricing on a weekly basis. Our deposit pricing strategy has generally been to offer competitive rates and services and to periodically offer special rates in order to attract deposits of a specific type or term.

Borrowings. We primarily utilize advances from the Federal Home Loan Bank of New YorkFHLBNY to supplement our supply of investable funds. The Federal Home Loan BankFHLBNY functions as a central reserve bank providing credit for its member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan BankFHLBNY and are authorized to apply for advances on the security of such stock and securities which are obligations of, or guaranteed by, the United States. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’sFHLBNY’s assessment of the institution’s creditworthiness. At June 30, 2017,2020, we had $393.3the ability to borrow up to $218.4 million of available borrowing capacity with the Federal Home Loan Bank of New YorkFHLBNY and had $42.6$106.1 million in advances outstanding. All of our borrowings from the Federal Home Loan BankFHLBNY are secured by investment securities. At June 30, 2017,2020, we also had an available line of credit with the Federal Reserve Bank of New York’s (“FRB”) discount window program of $85.9$108.7 million, none of which was outstanding at that date. This line of credit is secured by certain qualifying 1-4 family residential mortgage loans.

Personnel

At June 30, 2017,2020, we had 157160 full-time and 2715 part-time employees, none of whom is represented by a collective bargaining unit. We believe we have a good working relationship with our employees.


Subsidiaries

PCSB Bank is the wholly-owned subsidiary of PCSB Financial. PCSB Bank has threetwo wholly-owned subsidiaries:  PCSB Commercial Bank, PCSB Funding Corp. and PCSBUpCounty Realty Ltd.  PCSB Commercial Bank, a New York-chartered special purpose commercial bank, is authorized to accept deposits from New York municipalities.Corp. PCSB Funding Corp., a Delaware corporation, is a real estate investment trust that holds certain mortgage assets. PCSBUpCounty Realty Ltd.Corp., a New York corporation, holds title to real estate properties foreclosed upon by PCSB Bank.


Regulation and Supervision

General

PCSB Bank is a New York-chartered savingscommercial bank and is the wholly-owned subsidiary of PCSB Financial, a Maryland corporation, which is a registered bank holding company. PCSB Bank’s deposits are insured up to applicable limits by the FDIC. PCSB Bank is subject to extensive regulation by the NYSDFS, as its chartering agency, and by the FDIC, as its deposit insurer. PCSB Bank is required to file reports with, and is periodically examined by, the FDIC and the NYSDFS concerning its activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. PCSB Bank is a member of the Federal Home Loan Bank of New York.FHLBNY.

As a registered bank holding company, PCSB Financial is regulated by the Board of Governors of the Federal Reserve BoardSystem (the “Federal Reserve Board”) and NYSDFS. PCSB Financial is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board and the NYSDFS. PCSB Financial is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

The regulatory and supervisory structure establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of depositors and the deposit insurance funds, rather than for the protection of stockholders and creditors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies concerning the establishment of deposit insurance assessment fees, classification of assets and establishment of adequate loan loss reserves for regulatory purposes.

The Dodd-Frank Act made extensive changes in the regulation of depository institutions and their holding companies. The Dodd-Frank Act created a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau is responsible for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function previously assigned to prudential regulators, and now has the authority to impose new requirements. However, institutions of less than $10 billion in assets, such as PCSB Bank, continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their federal prudential regulator, although the Consumer Financial Protection Bureau has back-up authority to examine and enforce consumer protection laws against all institutions, including institutions with less than $10 billion in assets.

In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, directed changes in the way that institutions are assessed for deposit insurance, mandated the imposition of tougher consolidated capital requirements on holding companies, required the issuance of regulations requiring originators of securitized loans to retain a percentage of the risk for the transferred loans, imposed regulatory rate-setting for certain debit card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and contained a number of reforms related to mortgage originations. The Dodd-Frank Act has increased our compliance costs and we expect that these costs will persist.

The Dodd-Frank Act contained the so-called “Volcker Rule,” which generally prohibits banking organizations from engaging in proprietary trading and from investing in, sponsoring or having certain relationships with hedge or private equity funds (“covered funds”). The federal agencies have issued a final rule implementing the Volcker Rule which, among other things, requires banking organizations to restructure and limit certain of their investments in and relationships with covered funds.  PCSB Bank does not engage in activities subject to the Volcker Rule.


Any change in applicable laws or regulations, whether by the NYSDFS, the FDIC, the Federal Reserve Board, New York State or the U.S. Congress, could have a material adverse impact on the operations and financial performance of PCSB Financial and PCSB Bank. In addition, PCSB Financial and PCSB Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve Board. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of PCSB Financial and PCSB Bank.

Set forth below is a brief description of material regulatory requirements that are or will be applicable to PCSB Bank and PCSB Financial. The description is limited to certain material aspects of the statutes and regulations that are addressed and is not intended to be a complete description of such statutes and regulations and their effects on PCSB Bank and PCSB Financial.


New York Banking Laws and Supervision

PCSB Bank, as a New York savingschartered commercial bank, is regulated and supervised by the NYSDFS, which is required to regularly examine each state-chartered bank. The approval of the NYSDFS is required to establish or close branches, to merge with another bank to issue stock and to undertake many other activities. Any New York savingscommercial bank that does not operate according to the regulations, policies and directives of the NYSDFS may be sanctioned. The NYSDFS may suspend or remove directors or officers of a savingscommercial bank who have violated the law, conducted a bank’s business in a manner that is unsafe, unsound or contrary to the depositors’ interests, or been negligent in the performance of their duties. In addition, the NYSDFS has the authority to appoint a receiver or conservator if it is determined that the savingscommercial bank is conducting its business in an unsafe or unauthorized manner, and under certain other circumstances.

The powers that New York-chartered savingscommercial banks can exercise under these laws include, but are not limited to, the following:

Lending Activities. A New York-chartered savingscommercial bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, variable-rate loans, participation loans, graduated payment loans, construction and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made according to applicable regulations. Commercial loans may be made to corporations and other commercial enterprises with or without security. Consumer and personal loans may also be made with or without security.

Deposit Powers. A New York chartered commercial bank may offer a variety of deposit products to individuals, businesses, and state and local governments and their agencies and departments, including checking, NOW, money market, savings, IRA and certificate of deposit accounts. Commercial banks may accept deposits at their branches and ATM’s and may also provide online and mobile deposit services as well as cash management services such as escrow, sweep and lockbox accounts.

Investment Activities.  In general, PCSB Bank may invest in certain types of debt securities (including certain corporate debt securities and obligations of federal, state and local governments and agencies), certain types of corporate equity securities and certain other assets. However, these investment authorities are constrained by federal law.  See “—Federal Bank Regulation—Investment Activities” for such federal restrictions.

Loans to One Borrower Limitations. Under the New York Banking Law, PCSB Bank’s total loans or extensions of credit to a single borrower or group of related borrowers cannot exceed, with specified exceptions, 15% of its capital stock, surplus fund and undivided profits. The Bank’s lending limit as of June 30, 20172020 was $29.4$34.3 million. PCSB Bank may lend additional amounts up to 10% if the loans or extensions of credit are fully secured by readily-marketable collateral. At June 30, 2017,2020, PCSB Bank complied with these loans-to-one-borrower limitations.  At June 30, 2017,2020, PCSB Bank’s largest aggregate amount of loans to one borrower was $22.0 million.$32.5 million, of which $7.5 million was outstanding as of June 30, 2020.

Dividends. Under New York banking law, PCSB Bank is permitted to declare and pay dividends out of its net profits, unless there is an impairment of capital.  Additionally, the approval of the NYSDFS is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments provided for in the applicable law.

Loans to Directors and Executive Officers. Under applicable NYSDFS regulations (which are substantially similar to applicable federal banking regulations), PCSB Bank generally may not make a loan or other extension of credit to any of its executive officers or directors unless the loan or other extension of credit (i) is made on terms,


including interest rate and collateral, that are not more favorable to the executive officer or director than those customarily offered by PCSB Bank to persons who are not executive officers or directors and who are not employed by PCSB Bank, and (ii) does not involve more than the normal risk of repayment or present other unfavorable features. Depending on the size of the loan or other extension of credit, prior approval of PCSB Bank’s boardBoard of directorsDirectors (with the interested party, if a director, abstaining from participating directly or indirectly in the voting) may be required. As of and during the year ended June 30, 2020, we made no loans to executive officers or directors.


Assessments. As a New York state-chartered savingscommercial bank, PCSB Bank is required to pay to the NYSDFS a general assessment fee in connection with the NYSDFS’ regulation and supervision (including examination) of PCSB Bank. Each state institution is billed five times per each fiscal year, with four estimated quarterly assessments set as approximately 25% of the annual amount based on the NYSDFS’ estimated annual budget at the time of the billing, and a final assessment, or “true-up,” based on the NYSDFS’ actual expenses for the fiscal year.  The FDIC does not charge a state bank for supervision, although as discussed below, it charges all insured depository institutions deposit insurance assessments in connection with its administration of the Deposit Insurance Fund.

Regulatory Enforcement Authority. Any New York bank that does not operate according to the regulations, policies and directives of the NYSDFS may be subject to sanctions for non-compliance, including seizure of the property and business of the savingscommercial bank and suspension or revocation of its charter. The NYSDFS may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the savingscommercial bank’s business in a manner which is unsafe, unsound or contrary to the depositors’ interests or been negligent in the performance of their duties. In addition, upon finding that a bank has engaged in an unfair or deceptive act or practice, the NYSDFS may issue an order to cease and desist and impose a fine on the savingscommercial bank concerned.  New York consumer protection and civil rights statutes applicable to PCSB Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damage and attorney’s fees in the case of certain violations of those statutes.

Recent New York LegislativeLegislation and Regulatory Developments.Regulation. The New York State Legislature and the NYSDFS have adopted and proposed new laws and regulations and issued new guidance in a number of areas affecting PCSB Bank’s operations. These include:

The New York Legislature has enacted new Section 9-x of the New York Banking Law. This new statute requires New York chartered banks to offer forbearance of any payment due on a residential mortgage to mortgagors who: i) have their primary residence in New York; ii) can demonstrate financial hardship as a result of COVID-19; and iii) are in arrears or have applied for loss mitigation during the period from March 7, 2020 until the date on which the provisions of Executive Orders issued by the Governor of the State of New York that closed or otherwise restricted public or private businesses or places of public accommodation, or required postponement or cancellation of all non-essential gatherings of individuals, no longer apply in the county in which the mortgagor’s residence is located. Such Executive Order provisions currently apply in whole or in part in all of the counites within the Bank’s market area and therefore new Banking Law Section 9-x applies to substantially all of the Bank’s residential mortgages.

In June 2016, the New York Legislature enacted legislation to address "zombie properties", meaning residential property abandoned by a homeowner after the initiation, but prior to the completion of, a foreclosure proceeding. Under thisThe new law a mortgagee bank has a duty to maintain and secure a residential real property where there is a reasonable basis to believe it is vacant and abandoned, and faces civil penalties up to $500 per violation, per property, per day for failing to do so. As enacted, the legislation does not apply to PCSB Bank because we originate, own, service and maintain our own mortgages and we originate less than 0.3 percent of one- to four-family real property mortgages in New York. However, there can be no assurance that any future amendments to this law will not include us.

In June 2016, the NYSDFS adopted a regulation that requires New York chartered banks to maintain programsmake applications for forbearance of payments due on mortgages on New York residential property widely available to monitorqualified mortgagors and filter transactionsgrant qualified mortgagors forbearance of all monthly payments due on such mortgage for potential Bank Secrecy Act and anti-money laundering violations and prevent transactions with sanctioned entities. The regulation requires regulated institutions annuallya period of up to submit a board resolution or senior officer compliance finding confirming steps taken to ascertain compliance180 days, with the regulation. Underoption to extend the new regulation, which became effective January 1, 2017, banks are requiredforbearance for up to review their transaction-monitoringan additional 180 days if the mortgagor demonstrates continued financial hardship. A bank may not charge additional interest, late fees or penalties during the forbearance period or negatively report the forbearance to a credit bureau and filtering programsmust demonstrate adherence to the law before commencing a foreclosure action stemming from missed payments on a mortgage subject to the law. A bank that determines that it cannot offer forbearance because it lacks sufficient capital or liquidity or the ability to operate in a safe and ensuresound manner must so notify the NYDFS, furnish detailed supporting documentation to the NYDFS and advise the mortgagor that they are reasonably designed to comply with risk-based safeguards. The institutions also must adopt (athe or she may file a complaint regarding the institution’s option) an annual board resolution or senior officer compliance finding to certify compliancedenial of forbearance with the regulation beginning April 15, 2018.  The resolution or finding must state that documents, reports, certifications and opinions of officers and other relevant parties have been reviewed by the board of directors or senior official to certify compliance with the regulation. We are assessing the extent to which the new regulation duplicates the federal Bank Secrecy Act compliance requirements and whether it will require us to augment our compliance resources.NYDFS.

The New York Legislature has enacted legislation to address "zombie properties", meaning residential property abandoned by a homeowner after the initiation, but prior to the completion of, a foreclosure proceeding. Under this law, a mortgagee bank has a duty to maintain and secure a residential real property where there is a reasonable basis to believe it is vacant and abandoned, and faces civil penalties up to $500 per violation, per property, per day for failing to do so. As enacted, the legislation does not apply to PCSB Bank because we originate, own, service and maintain our own mortgages and we originate less than 0.3 percent of one- to four-family real property mortgages in New York. However, there can be no assurance that any future amendments to this law will not include us.

In March 2017, the NYSDFS adopted a regulation which requires New York chartered banks to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of the savings bank. The regulation, which is similar to guidance issued by the federal bank regulators, requires regulated financial institutions to establish a cybersecurity program; adopt a written

The NYSDFS has adopted a regulation that requires New York chartered banks to maintain programs to monitor and filter transactions for potential Bank Secrecy Act and anti-money laundering violations and


 

prevent transactions with sanctioned entities. The regulation requires regulated institutions annually to submit a board resolution or senior officer compliance finding confirming steps taken to ascertain compliance with the regulation. Under the regulation, banks are required to review their transaction-monitoring and filtering programs and ensure that they are reasonably designed to comply with risk-based safeguards. The institutions also must adopt (at the institution’s option) an annual board resolution or senior officer compliance finding to certify compliance with the regulation. The resolution or finding must state that documents, reports, certifications and opinions of officers and other relevant parties have been reviewed by the board of directors or senior official to certify compliance with the regulation.

The NYSDFS has adopted a regulation which requires New York chartered banks to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of the commercial bank. The regulation, which is similar to guidance issued by the federal bank regulators, requires regulated financial institutions to establish a cybersecurity program; adopt a written cybersecurity policy; designate a Chief Information Security Officer responsible for implementing, overseeing and enforcing its new program and policy; and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties, along with a variety of other requirements to protect the confidentiality, integrity and availability of information systems. Certain sections of theThe regulation have transitional periods requiring compliance 180 days to 2 years from the effective day, withrequires annual written certification of compliance to NYSDFS commencing on February 15, 2018.NYSDFS. We believe that our cybersecurity policies and procedures comply with the new regulation.

In October 2016, the NYSDFS issued guidance regarding incentive compensation. The guidance prohibits the payment by New York chartered banks of incentive compensation tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer, without effective risk management, oversight and control. Banks considering the adoption of such incentive compensation plans must balance between risks and rewards, emplace effective controls and risk management and have strong corporate governance, including active and effective oversight by the board of directors. We will ensure that any incentive compensation plan we adopt will conform to this guidance. See “Management – Executive Compensation-Proposed Short-Term Incentive Plan”.

The NYSDFS has issued guidance regarding incentive compensation. The guidance prohibits the payment by New York chartered banks of incentive compensation tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer, without effective risk management, oversight and control. Banks considering the adoption of such incentive compensation plans must balance between risks and rewards, emplace effective controls and risk management and have strong corporate governance, including active and effective oversight by the board of directors. We have and will continue to ensure that any incentive compensation plan we adopt will conform to this guidance. See “Management – Executive Compensation-Proposed Short-Term Incentive Plan”.

New York has other statutes and regulations that are similar to the federal provisions discussed below.

Federal Bank Regulation

Capital Requirements.  Under FDIC regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as PCSB Bank, are required to comply with minimum leverage capital requirements. The minimum leverage capital leverage requirement is a ratio of Tier 1 capital to total assets that is not less than 4.0%. Tier 1 capital consists of “CET1” and “Additional Tier 1 capital” instruments meeting specified requirements. CET1 is defined as common stock, plus related surplus, and retained earnings plus limited amounts of minority interest in the form of common stock, less the majority of the regulatory deductions.

The FDIC regulations require state non-member banks to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit substitutes and residual interests) to risk-weighted categories ranging from 0% to 1,250%, with higher levels of capital being required for the categories perceived as representing greater risk.

State non-member banks must maintain a minimum ratio of total capital to risk-weighted assets of at least 8.0%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital and Tier 2 capital.  Tier 1 capital consists of common stock, plus related surplus and retained earnings.  Under the new capital rules, for most banking organizations, the most common form of Additional Tier 1 capital is noncumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for loan and lease losses, in each case, subject to the new capital rules’ specific requirements. Banks that engage in


specified levels of trading activities are subject to adjustments in their risk basedrisk-based capital calculation to ensure the maintenance of sufficient capital to support market risk.

In July 2013, theThe FDIC and the other federal bank regulatory agencies have issued a final rule that has revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases thea minimum Tier 1 capital to risk-based assets requirement (from 4% to 6%(6% of risk-weighted assets), sets the leverage ratio at a uniform 4% of total assets and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.  PCSB Bank has elected to exercise its one-time option to opt-out of the requirement under the final rule to include


certain “available-for-sale” securities holdings for purposes of calculating its regulatory capital requirements. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” which, whenas fully phased in, will consistconsists of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule became effective on January 1, 2015. The “capital conservation buffer” will bewas phased in fromover a four-year period through January 1, 2016 to2019. As of January 1, 2019, when the full capital conservation buffer will be effective.was fully phased in.

The Federal Deposit Insurance Corporation Improvement Act requiredrequires each federal banking agency to revise its risk-based capital standards for insured institutions to ensure that those standards take adequate account of interest-rate risk, concentration of credit risk, and the risk of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The FDIC, along with the other federal banking agencies, adopted a regulation providing that the agencies will take into account the exposure of a bank’s capital and economic value to changes in interest rate risk in assessing a bank’s capital adequacy. The FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.

Among other things, Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the EGRRCPA), which became law on May 24, 2018, requires the federal banking agencies to develop regulations establishing a “community bank leverage ratio” for banks and holding companies with less than $10 billion in consolidated assets and a qualifying risk profile. In 2019, the federal banking agencies jointly issued a final rule to implement Section 201. The rule, which became effective on January 1, 2020, provides certain qualifying institutions with an optional, simpler method to measure capital adequacy. Under the rule, banks and bank holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9 percent, will be eligible to opt into the community bank leverage ratio ("CBLR") framework. Qualifying organizations that elect to use the CBLR framework, and that maintain a leverage ratio greater than 9 percent, will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the banking agencies' capital rules. Qualifying organizations will also be deemed to have met the "well capitalized" ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act. The Bank has not opted into the CBLR framework as of June 30, 2020.

Standards for Safety and Soundness. As required by statute, theThe federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness to implement safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit system,systems, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Investment Activities. All state-chartered FDIC-insured banks, including savingscommercial banks, are generally limited in their investment activities to principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law, subject to certain exceptions. For example, state chartered banks may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national


securities exchange or the Nasdaq Global Market and in the shares of an investment company registered under the Investment Company Act of 1940. The maximum permissible investment is 100% of Tier 1 Capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New York law, whichever is less.

In addition, the FDIC is authorized to permit such a state bank to engage in state-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if it meets all applicable capital requirements and it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund. The FDIC has adopted procedures for institutions seeking approval to engage in such activities or investments. In addition, a nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

Interstate Banking and Branching. Federal law permits well capitalized and well managed bank holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, the Dodd-Frank Act permits banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state.

Prompt Corrective Regulatory Action.  Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.


TheUnder FDIC has adopted regulations, to implement the prompt corrective action legislation. Anan institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. At June 30, 2017,2020, PCSB Bank was classified as a “well capitalized” institution.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.


Transaction with Affiliates and Regulation W of the Federal Reserve Regulations. Transactions between banks and their affiliates are governed by federal law. An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. In a holding company context, the parent bank holding company and any companies which are controlled by such parent holding company are affiliates of the bank (although subsidiaries of the bank itself, except financial subsidiaries, are generally not considered affiliates). Generally, Section 23A of the Federal Reserve Act and the Federal Reserve Board’s Regulation W limit the extent to which the bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of such institution’s capital stock and surplus, and with all such transactions with all affiliates to an amount equal to 20.0% of such institution’s capital stock and surplus.  Section 23B applies to “covered transactions” as well as to certain other transactions and requires that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from, and issuance of a guarantee to an affiliate, and other similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a bank to an affiliate. In addition, loans or other extensions of credit by the financial institution to the affiliate are required to be collateralized according to the requirements set forth in Section 23A of the Federal Reserve Act.

Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to a bank’s insiders, i.e., executive officers, directors and principal shareholders. Under Section 22(h) of the Federal Reserve Act, loans to a director, an executive officer and to a greater than 10.0% shareholder of a financial institution, and certain affiliated interests of these, together with all other outstanding loans to such person and affiliated interests, may not exceed specified limits. Section 22(h) of the Federal Reserve Act also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons and also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus. Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers.


Enforcement. The FDIC has extensive enforcement authority over insured state savingscommercial banks, including PCSB Bank. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” It may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Federal Insurance of Deposit Accounts. PCSB Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposit accounts in PCSB Bank are insured up to a maximum of $250,000 for each separately insured depositor.

The FDIC imposes an assessment for deposit insurance on all depository institutions. Under its risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by regulation, with less risky institutions paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 21 1/2 to 4530 basis points of each institution’s total assets less tangible capital. The FDIC may increase or decrease the scale uniformly, except that no adjustment can deviate by more than two basis points from the base scale without notice and comment rulemaking. The FDIC’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits.

The Dodd-Frank Act increasedestablished a minimum Designated Reserve Ratio (DRR) for the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured depositsequal to 1.35% of estimated insured deposits. TheThere is no statutory maximum on the DRR and the law provides for dividends to be paid insured institutions from the fund when the DRR exceeds 1.5%.  However, the FDIC must seekis granted broad discretion in determining whether to achievesuspend or limit the 1.35% ratio by September 30, 2020.  Insured institutions with assetsdeclaration or payment of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC. It has recently exercised that discretion by establishing a long range fund ratio of 2%.any dividends.


The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of PCSB Bank. Future insurance assessment rates cannot be predicted.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of PCSB Bank’s deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019.

Privacy Regulations. FDIC regulations generally require that PCSB Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, PCSB Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. PCSB Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.


Community Reinvestment Act. Under the Community Reinvestment Act, or CRA, as implemented by FDIC, a state non-member bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of a state non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to acquire branches and other financial institutions. The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. PCSB Bank’s latest FDIC CRA rating was “Satisfactory.”

New York has its own statutory counterpart to the CRA, which is applicable to PCSB Bank. New York law requires the NYSDFS to consider a bank’s record of performance under New York law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution.  PCSB Bank’s most recent rating under New York law was “Satisfactory.”

Consumer Protection and Fair Lending Regulations. New York savingscommercial banks are subject to a variety of federal and New York statutes and regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes, including Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts and practices against consumers, authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations. New York’s Attorney General has vigorously enforced fair lending and other consumer protection laws. The Dodd Frank Act added a new statute that prohibits unfair, deceptive or abusive acts practices against consumers, which can be enforced by the Consumer Financial Protection Bureau, the FDIC and state Attorneys General. The Superintendent of Financial Services of the State of New York has stated that NYSDFS will vigorously enforce consumer protection laws to the extent that federal bank regulators reduce such enforcement.

USA Patriot Act. PCSB Bank is subject to the USA PATRIOT Act, which gave federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act provided measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act.


CARES Act

In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020.  Among other things, the CARES Act includes the following provisions impacting financial institutions like the Bank:

Temporary Troubled Debt Restructurings Relief.  The CARES Act allows banks to elect to suspend requirements under accounting principles generally accepted in the United States of America (“GAAP”) for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020.  Federal banking agencies are required to defer to the determination of the banks making such suspension. Refer to Note 4 in the Notes to the Consolidated Financial Statements for additional detail.

Small Business Administration Paycheck Protection Program.  The CARES Act authorizes the SBA’s Paycheck Protection Program (“PPP”).  The PPP authorizes for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt.  The loans are provided through participating financial institutions, such as the Bank, that process loan applications and service the loans. Refer to the Lending Activities discussion earlier in this section for additional details.

Other Regulations

Interest and other charges collected or contracted for by PCSB Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:

Truth in Lending Act, which requires lenders to disclose the terms and conditions of consumer credit;

Truth in Lending Act, which requires lenders to disclose the terms and conditions of consumer credit;

Real Estate Settlement Procedures Act, which requires lenders to disclose the nature and costs of the real estate settlement process and prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts;

Real Estate Settlement Procedures Act, which requires lenders to disclose the nature and costs of the real estate settlement process and prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts;

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Equal Credit Opportunity Act and the New York Executive Law, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Equal Credit Opportunity Act and the New York Executive Law, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;


Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and

Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and

Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state laws.

Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state laws.

The deposit operations of PCSB Bank also are subject to, among others, the:

Truth in Savings Act, which requires financial institutions to disclose the terms and conditions of their deposit accounts;

Truth in Savings Act, which requires financial institutions to disclose the terms and conditions of their deposit accounts;

Expedited Funds Availability Act, which requires banks to make funds deposited in transaction accounts available to their customers within specified time frames;

Expedited Funds Availability Act, which requires banks to make funds deposited in transaction accounts available to their customers within specified time frames;

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and


Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

New York banking laws and regulations, which governs deposit powers.

New York banking laws and regulations, which governs deposit powers.

Federal Reserve System

Federal Reserve Board regulations require depository institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). TheFor 2020, the regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $115.1$127.5 million or less (which may be adjusted by the Federal Reserve Board) the reserve requirement is 3.0% and the amounts greater than $115.1$127.5 million require a 10.0% reserve (which may be adjusted annually by the Federal Reserve Board between 8.0% and 14.0%). The first $15.5$16.9 million of otherwise reservable balances (which may be adjusted by the Federal Reserve Board) are exempted from the reserve requirements.  PCSB Bank is in compliance with these requirements.  

Federal Home Loan Bank System

PCSB Bank is a member of the Federal Home Loan BankFHLB System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan BankFHLB provides a central credit facility primarily for member institutions.  Members of the Federal Home Loan BankFHLB are required to acquire and hold shares of capital stock in the Federal Home Loan Bank.FHLB. PCSB Bank complied with this requirement at June 30, 2017.2020. Based on redemption provisions of the Federal Home Loan Bank of New York,FHLBNY, the stock has no quoted market value and is carried at cost. PCSB Bank reviews for impairment based on the ultimate recoverability of the cost basis of the Federal Home Loan Bank of New YorkFHLBNY stock. At June 30, 2017,2020, no impairment has been recognized.

At its discretion, the Federal Home Loan Bank of New YorkFHLBNY may declare dividends on the stock. The Federal Home Loan Banks are required to provide funds for certain purposes including the resolution of insolvent thrifts in the late 1980s and to contributing funds for affordable housing programs. These requirementsprograms, which could reduce the amount of dividends that the Federal Home Loan BanksFHLB pay to their members and result in the Federal Home Loan BanksFHLB imposing a higher rate of interest on advances to their members. While the FHLBNY currently pays a dividend on its capital stock, there can be no assurance that such dividends will continue in the future. Further, there can be no assurance that the impact of recent or future legislation on the Federal Home Loan BanksFHLB also will not cause a decrease in the value of the Federal Home Loan Bank of New YorkFHLBNY stock held by PCSB Bank.  


Holding Company Regulation

PCSB Financial, as a bank holding company, is subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. In addition, the Federal Reserve Board has enforcement authority over PCSB Financial and its non-savings banknon-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings bank.

A bank holding company is generally prohibited from engaging in non-banking activities or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. PCSB Financial has not elected to become a financial holding company.


PCSB Financial is subject to the Federal Reserve Board’s capital adequacy guidelines for bank holding companies (on a consolidated basis), which have historically been similar to, though less stringent than, those of the FDIC for PCSB Bank. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to depository institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities would no longer be includable as Tier 1 capital, as is currently the case with bank holding companies, subject to certain grandfathering rules.  The previously discussed final rule regarding regulatory capital requirements implements the Dodd-Frank Act as to bank holding company capital standards.  Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks apply to bank holding companies (with greater than $1.0 billion of assets) at January 1, 2015.  As is the case with depository institutions themselves, the capital conservation buffer will be phased-in between 2016 and 2019.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The Federal Reserve Board has issued a policy statement regarding capital distributions, including dividends, by bank holding companies. In general, the policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of PCSB Financial to pay dividends or otherwise engage in capital distributions.


Under the Federal Deposit Insurance Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default.

The status of PCSB Financial as a registered bank holding company under the Bank Holding Company Act of 1956 will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

New York Holding Company Regulation.  PCSB Financial is subject to regulation under New York banking law. Among other requirements, PCSB Financial must receive the approval of the NYSDFS before acquiring 10% or more of the voting stock of another banking institution, or to otherwise acquire a banking institution by merger or purchase.

Federal Securities Laws

PCSB Financial’s common stock is registered with the Securities and Exchange Commission. PCSB Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

Emerging Growth Company Status

PCSB Financial qualifies as an emerging growth company under the The Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion (adjusted for inflation) during its most recently completed fiscal year qualifies as an “emerging growth company.”  

An “emerging growth company” may choose not to hold shareholder votes to approve annual executive compensation (more frequently referred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting and can provide scaled disclosure regarding executive compensation. Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company but must make such election when the company is first required to file a registration statement.  Such an election is irrevocable during the period a company is an emerging growth company. PCSB Financial has elected to comply with new or amended accounting pronouncements in the same manner as a public company.


A companyPCSB Financial loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.0 billion (adjusted for inflation) or more; (ii) the last day of theits fiscal year of the issuer following the fifth anniversary of the date of the first sale of the Company’s common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933;1933, which will be June 30, 2022; (iii) the date on which such companyit has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such companyit is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

Smaller Reporting Company Status

PCSB Financial qualifies as a “smaller reporting company” under the federal securities laws.  To qualify, a company must have a public float (i.e., aggregate market value of a company’s securities held by non-affiliates) of less than $250 million.  A company with less than $100 million in annual revenues and either no public float or a public float that is less than $700 million also qualifies.  Smaller reporting companies are eligible to provide scaled disclosures in its periodic reports filed with the Securities and Exchange Commission (“SEC”).

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. PCSB Financial has policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.


Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as PCSB Financial unless the Federal Reserve Board has been given 60 days’ prior written notice and not disapproved the proposed acquisition. The Federal Reserve Board considers several factors in evaluating a notice, including the financial and managerial resources of the acquirer and competitive effects. Control, as defined under the applicable regulations, means the power, directly or indirectly, to direct the management or policies of the company or to vote 25% or more of any class of voting securities of the company. Acquisition of more than 10% of any class of a bank holding company’s voting securities constitutes a rebuttable presumption of control under certain circumstances, including where, as is the case with PCSB Financial, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.  

Federal regulations provide that no company may acquire control (as defined in the Bank Holding Company Act) of a bank holding company without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board. In addition, under the New York Banking Law, for a period of three years following completion of a conversion to stock form, no person may directly or indirectly offer to acquire or acquire beneficial ownership of more than 10% of any class of equity security of a converting mutual savings bank without prior written approval of NYSDFS.

Taxation

Federal Taxation

General.  PCSB Financial and PCSB Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to PCSB Financial and PCSB Bank.

Method of Accounting. For federal income tax purposes, PCSB Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns.


Minimum Tax.  The Internal Revenue Code As a result of 1986, as amended, imposes anthe aforementioned tax reform, the alternative minimum tax at a rate ofis reduced from 20% on a base of regularto 0% for all tax years beginning after December 31, 2017. Alternative minimum tax credit carryforwards from prior tax years can be applied to reduce future taxable income plusand are refundable, subject to certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income.  Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years.limitations. At June 30, 2017,2020, PCSB Bank had no alternative minimum tax credit carryforwards.

Net Operating Loss Carryovers. Generally, for federal income tax purposes, a financial institution may carry backforward net operating losses indefinitely and are subject to the preceding twoa limitation of 80% of taxable years and forward to the succeeding 20 taxable years.income. State income tax rules may differ from federal rules. See Note to Notes13 to Consolidated Financial Statements for additional information.

Charitable Contributions Carryovers. Generally, charitable contributions are limited to 10% of taxable income, however financial institutions may carryforward unused contributions for up to 5 years. Additionally, the CARES Act temporarily increased the charitable contribution deduction limit from 10% to 25% of taxable income for 2020 for current year contributions. At June 30, 2020, the Company has charitable contributions carryforwards totaling $1.4 million, for which we expect to fully realize the benefit. See Note 13 to Consolidated Financial Statements for additional information.

Capital Loss Carryovers.Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeductednot deducted loss remaining after the five-year carryover period is not deductible. At June 30, 2017,2020, PCSB Bank had no capital loss carryovers.

Corporate Dividends. We may generally exclude from our income 100% of dividends received from PCSB Bank as a member of the same affiliated group of corporations. To date, no dividends have been paid by PCSB Bank.

Audit of Tax Returns.  PCSB Bank’s  The Company’s New York State tax returns are currently undergoing routine audit for tax years 2016 through 2018. The Company’s federal income tax returns and New York Statevarious other state income tax returns have not been audited in the last three years.


State Taxation

In March 2014, tax legislation was enacted that changed the manner in which financial institutions and their affiliates are taxed in New York State.  Taxable income is apportioned to New York State based on the location of the taxpayer’s customers, with special rules for income from certain financial transactions. The location of the taxpayer’s offices and branches are not relevant to the determination of income apportioned to New York State. The statutory tax rate is currently 6.5%. An alternative tax of 0.15%0.05% on apportioned capital is imposed to the extent that it exceeds the tax on apportioned income. The New York State alternative tax is capped at $5 million for a tax year and is gradually phased out over a six-year period.period, becoming fully phased out beginning January 1, 2021. Thrift institutions that maintain a qualified residential loan portfolio are entitled to a specially computed modification that reduces the income taxable to New York State.

The Company is also taxed in Connecticut and New Jersey, primarily as a result of income earned on loans where the borrower or the real estate collateral underlying the loan is located in these states.

Item 1A.Risk Factors

In the ordinary course of operating our business, we are exposed to a variety of risks inherent to the financial services industry. The following discusses what we believe to be the significant risk factors that could affect our business and operations. If any of the following conditions or events actually occur, our business, financial condition or results of operations could be negatively affected, the market price of your investment in the Company’s common stock could decline, and you could lose all or a part of your investment in the Company’s common stock.


Our emphasis on commercial real estate and commercial business lending involves risks that could adversely affect our financial condition and results of operations.

We originate and purchase commercial real estate and commercial business loans. At June 30, 2017,2020, our commercial real estate and commercial business loans totaled $517.8$971.4 million, or 63.6%76.6% of our loan portfolio. While these types of loans are potentially more profitable than residential mortgage loans, they are generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. These loans also generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, any charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. See “—Loan Underwriting Risks.”

The level of our commercial real estate loan portfolio subjects us to additional regulatory scrutiny.

The FDIC and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land (“ADC loans”) represent 100% or more of total risk-based capital, or (ii) total reported loans secured by multi-family and non-owner occupied, non-farm, non-residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total risk-based capital. At June 30, 2020, the Bank’s ADC loans and total commercial real estate loans represented 9% and 324% of total risk-based capital, respectively.

The purpose of the guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Our bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us or that may result in a curtailment of our multi-family and commercial real estate lending and/or the requirement that we maintain higher levels of regulatory capital, either of which would adversely affect our loan originations and profitability. We believe the Company has adequate risk management and monitoring policies and procedures in place to address the requirements of the guidance.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.  

We maintain an allowance for loan losses, which is established through a provision for loan losses, that represents management’s best estimate of probable incurred losses within the existing portfolio of loans. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. In


determining the adequacy of the allowance for loan losses, we rely on our experience and our evaluation of economic conditions. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio and adjustment may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Consequently, a problem with one or more loans could require us to significantly increase the level of our provision for loan losses. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Material additions to the allowance would materially decrease our net income.  


The FASB has issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.

The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which replaces the current "incurred loss" model for recognizing credit losses with an "expected


loss" model referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held to maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current U.S. GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, the Company expects that the adoption of the CECL model will materially affect how we determine the allowance for loan losses and could require the Company to increase our allowance significantly. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If the Company is required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect the Company's business, financial condition and results of operations. In October 2019, the FASB unanimously voted to delay the implementation of the standard for three years for certain companies, including small reporting companies (as defined by the SEC), non-SEC public companies and private companies. The Company currently qualifies as a small reporting company and is subject to the delayed implementation. Therefore, the amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2023, including interim periods within that fiscal year. As a result, the Company’s allowance for loan loss may not be comparable to the allowance for credit losses (“ACL”) established by other financial institutions that have adopted CECL. The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies and the additional data requirements necessary to implement the Update and has engaged a third-party software service provider to assist in the Company's implementation.

A worsening of economic conditions could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our results of operations.

Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in our primary market area. Local economic conditions have a significant impact on our residential real estate, commercial real estate, construction and consumer loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans.

Deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

demand for our products and services may decline;

demand for our products and services may decline;

loan delinquencies, problem assets and foreclosures may increase;

loan delinquencies, problem assets and foreclosures may increase;

collateral for loans, especially real estate, may decline in value, in turn reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans;

collateral for loans, especially real estate, may decline in value, in turn reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans;

the value of our securities portfolio may decline; and

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

Moreover, a significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

A continuation of the historicallyChanges in interest rates and/or a continual low interest rate environment may hurt our net interest income and operating results.  

During the past seven years, it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.  As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at lower levels than available before 2008.  As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which can lower interest expense as interest rates decrease.  However, our ability to lower our interest expense will be limited at these interest rate levels while the average yield on our interest-earning assets may continue to decrease.  Although the Federal Reserve Board has increased interest rates recently, market interest rates are still at historically low levels.  A continuation of a low interest rate environment may adversely affect our net interest income, which in turn would likely have an adverse effect on our profitability.  


Changes in interest rates could hurtreduce our profits.

Our profitability, like that of most financial institutions, depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our


results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates.  

Since March 2020, it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.  This can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.  As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which can lower interest expense as interest rates decrease.  However, our ability to lower our interest expense will be limited at current interest rate levels while the average yield on our interest-earning assets may decrease more than our cost of interest-bearing liabilities.  

If interest rates rise and if rates on our deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest rate spread, which would have a negative effect on our profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs.  Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income.  If interest rates rise, we expect that our net portfolio value of equity would decrease. Net portfolio value of equity represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. At June 30, 2017,2020, and assuming a 200 basis point increase in market interest rates, we estimate that our net portfolio value of equity would decrease by $35.8$20.6 million, or 15.0%6.7%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk—Net Portfolio Value Simulation.”

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, changes in interest rates can still have a material adverse effect on our financial condition and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.  For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

Changes in the valuation of our securities portfolio could hurtreduce our profits and reduce our capital levels.  

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent, given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free rates. In analyzing an equity issuer’s financial condition, management considers industry analysts’ reports, financial performance and projected target prices of investment analysts within a one-year time frame. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. Except for a nominal investment in a community development fund, PCSB Bank has no equity securities in its portfolio. Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase or decrease our shareholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes. Declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Securities Portfolio.”


Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision governsgovern the activities in which an institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of PCSB Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance, monetary laws, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of federal and state taxation, regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firms. These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations as could our interpretation of those changes.

Strong competition within our market area could hurtreduce our profits and slow growth.  

We face intense competition in making loans and attracting deposits. Price competition for loans and deposits sometimes results in us charging lower interest rates on our loans and paying higher interest rates on our deposits and may reduce our net interest income. Competition also makes it more difficult, and costly to attract and retain qualified employees. Many of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. Our competitors often aggressively price loan and deposit products when they enter into new lines of business or new market areas. If we are not able to effectively compete in our market area, our profitability may be negatively affected. The greater resources and broader offering of deposit and loan products of some of our competitors may also limit our ability to increase our interest-earning assets.  

We have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.

In July 2013, the federal banking agencies approved a new rule that has substantially amended regulatory risk-based capital rules. The final rule implements the regulatory capital reforms from the Basel Committee on Banking Supervision (“Basel III”) and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which were effective for us on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios.  The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised.  We have elected to exercise our one-time option to opt-out of the requirement under the final rule to include certain “available-for-sale” securities holdings for purposes of calculating our regulatory capital requirements.  The final rule also establishes a “capital conservation buffer” of 2.5%, and, when fully phased in, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement has been phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.  

We have analyzed the effects of these new capital requirements, and we believe that we would meet all of these new requirements, including the full 2.5% capital conservation buffer, as if these new requirements had been in effect since June 30, 2017.


The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.  Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets.  Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying out dividends or buying back shares.  See “Supervision and Regulation—Federal Bank Regulation—Capital Requirements.”

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches.  During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developedimplemented policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

Legal and regulatory proceedings and related matters could adversely affect us.

We, and other participants in the financial services industry upon whom we rely to operate, have been and may in the future become involved in litigation and regulatory proceedings. Most of these proceedings we consider to be in the normal course of our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters and we may not prevail in any proceeding or litigation. Additionally, regulatory proceedings and litigation can be costly and could divert management resources from the Company’s business. Regardless of the merits of a particular claim, and whether or not we ultimately prevail, litigation and regulatory proceedings could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

Various factors may make takeover attempts more difficult to achieve.


Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of PCSB Financial without our Board of Directors’ prior approval.

Under Federal Reserve Board regulations, for a period of three years following completion of the conversion and offering, no person may directly or indirectly acquire or offer to acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding company creates a rebuttable presumption that the acquirer “controls” the bank holding company. Also, a bank holding company must obtain the prior approval of the Federal Reserve Board and the NYSDFS before, among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, including PCSB Bank.

There also are provisions in our articles of incorporation that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of the shares of common stock outstanding. Furthermore, shares of restricted stock and stock options that we have granted or may grant to employees and directors, stock ownership by our management and directors, employment agreements that we have entered into with our executive officers and other factors may make it more difficult for companies or persons to acquire control of the Company without the consent of our Board of Directors. Taken as a whole, these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.  

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These additional sources consist primarily of advances from the Federal Home Loan Bank.FHLB and wholesale deposits. As we continue to grow, we are likely to become more dependent on these sources. Adverse operating results or changes in industry conditions could lead to difficulty or an inability in accessing these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

Our success depends on retaining certain key personnel.

Our performance largely depends on the talents and efforts of highly skilled individuals who comprise our senior management team. We rely on key personnel to manage and operate our business, including major revenue generating functions such as loan and deposit generation. The loss of key staff may adversely affect our ability to maintain and manage these functions effectively, which could negatively affect our revenues. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a decrease in our net income.  Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.  


System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we and our third-party service providers use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any breach, damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations due to the time and money needed to correct the issue. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in


and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, withThe Company has emplaced controls to defeat threats to its operating systems. Despite these safeguards, the helpCompany cannot be certain that all of third-party service providers, intendits systems are entirely free from vulnerability to continue to implement security technology and establish operational procedures designed to preventattack or other technological difficulties or failures, such damage, our security measures may not be successful.as cyber-attacks. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations. We have general liability and cyber-related insurance, however there are limitations on coverage as well as dollar amount. Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer losses.

Our business may be adversely affected by fraud and other financial crimes.

Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, losses may still occur.occur which could cause both financial and reputational harm.

We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.

Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations. Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues. Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations and financial condition.

We continually encounter technological change and the failure to understand and adapt to these changes could adversely affect our business.

The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. Technology has lowered barriers to entry and made it possible for "non-


banks" to offer traditional bank products and services using innovative technological platforms such as Fintech and Blockchain. These "digital banks" may be able to achieve economies of scale and offer better pricing for banking products and services than we can. Our future success will depend, in part, on the ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations. Many competitors have substantially greater resources to invest in technological improvements. There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, its financial condition and results of operations.

Managing reputational risk is important to attracting and maintaining customers, investors and employees.

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could adversely affect our operating results.

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing our consolidated financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions at a specified date. These estimates and assumptions are based on management’s best estimates and experience at that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our valuation of investment securities, our determination of our income tax provision, our determination of goodwill impairment, and our evaluation of the adequacy of our allowance for loan losses.


Our operations may be adversely affected if our external vendors do not perform as expected.

PCSB FinancialThe Company relies on certain external vendors to provide products and services necessary to maintain its day-to-day operations. These include, but are not limited to, data processing and storage, recording and monitoring transactions, internet connections and network access. The Company’s operations are exposed to the risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could disrupt the Company’s operations. If we are unable to find alternative sources for our vendors’ services and products quickly and cost-effectively, the failures of our vendors could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.

Counterparties expose the Company to risks.

The Company intends to use derivative financial instruments, primarily interest rate swaps, which will expose it to financial and contractual risks with counterparty banks. Additionally, the Company maintains correspondent bank relationships, manages certain loan participations, and engages in securities transactions and other activities with financial counterparties which are customary in the banking business. Financial risks are inherent in these counterparty relationships.


Our inability to achieve profitability on new branches may negatively affect our earnings.

We may pursue further expansion through de novo branching or the purchase of branches from other financial institutions. The profitability of these branches will depend on whether the income that we generate from the new branches will offset the increased expenses resulting from operating these branches. We expect that it may take a period of time before these branches can become profitable, especially in areas in which we do not have an established presence. During this period, the expense of operating these branches may negatively affect our net income.

The risks presented by acquisitions could adversely affect the Company's financial condition and result of operations.

The Company’s business strategy includes growth through acquisitions, which present risks, including: regulatory approval delays, operations and personnel integration challenges, potential ongoing business disruption, difficulty maintaining uniform standards, controls, procedures and policies, issues with information systems integration and the impairment of relationships with employees and customers as a result of changes in ownership and management. Further, the asset quality or other financial characteristics of a company may deteriorate after the acquisition agreement is signed or after the acquisition closes.

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.  

Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions, increased cybersecurity threats, and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk.  Accordingly, we could suffer losses as a result of our failure to anticipate and manage these risks.  


We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

Any future action by the U.S. Congress lowering the federal corporate income tax rate and/or eliminating the federal corporate alternative minimum tax could reduce our net deferred tax asset and cause a corresponding charge against earnings.

The net deferred tax asset reported on our balance sheet represents the net amount of income taxes expected to be received upon the reversal of temporary differences between the bases of assets and liabilities as measured by enacted tax laws, and their bases as reported in the financial statements. As of December 31, 2016, our net deferred tax asset was computed using the federal statutory rate of 34%.

The President of the United States and members of Congress have announced plans to lower the federal corporate income tax rate from its current level of 34% and to eliminate the corporate alternative minimum tax.  If these plans ultimately result in the enactment of new laws lowering the corporate income tax rate and/or eliminating the corporate alternative minimum tax, our net deferred tax asset would need to be re-measured. This could result in a reduction of the deferred tax asset in the period of the law change and a corresponding charge against earnings, which could be offset by a reduction of the income tax provision in the year of enactment and future years.

The Company’s stock is subject to market risk.

The Corporation’s common stock is included in the Russell® 3000 and Russell® 2000 Indexes, which are reconstituted annually. Upon reconstitution in May 2017, the average market capitalization of companies in the Russell® 2000 was $1.2 billion, the capitalization of the largest company in the index was $4.4 billion and the capitalization of the smallest company was $144 million. The Corporation’s market capitalization on June 30, 2017 was $309.9 million. The Corporation believes that inclusion in the Russell® indexes has positively impacted the price, trading volume and liquidity of its common stock. Conversely, if the Corporation’s market capitalization falls below the minimum necessary to be included in the indexes at any future reconstitution date, the opposite could occur.

Loan participations could expose the Company to losses.

We purchase and participate in residential, business and commercial real estate loans with other financial institutions. The agreements documenting these transactions typically provide for retention by the selling institution of the servicing of the participated loans and require that institution to service the loan with the same degree of care that it uses for loans in its portfolio. However, if the servicing institution fails to administer loans in accordance with its contractual obligations, for example, by neglecting to enforce lender’s rights and remedies against a defaulting borrower, or by waiving or modifying loan terms without our consent, we could incur significant losses, including loss of the outstanding principal balance.


Our ability to pay dividends or to repurchase our common stock is subject to regulatory limitations and other limitations.

PCSB Financial is a separate legal entity from our subsidiary, the Bank, and we do not have significant operations of our own. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the Bank’s regulators could assert that payment of dividends or other payments may result in an unsafe or unsound practice. If the Bank is unable to pay dividends to us or we are required to contribute capital to the Bank, we may not be able to pay dividends on or repurchase our common stock.

It is likely we will be required to transition away from the use of the London interbank offered rate (“LIBOR”) in the future.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next several years. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.

The market transition away from LIBOR to an alternative reference could:

adversely affect the interest rates paid or received on, and the revenue and expenses associate with, the Company’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;

adversely affect the value of the Company’s floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;

prompt inquiries or other actions from regulators in respect of the Company’s preparation and readiness for the replacement of LIBOR with an alternative reference rate;

result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based loans, deposits, and securities; and

require the transition to or development of appropriate systems and analytics to effectively transition the Company’s risk management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as the Federal Reserve Bank of New York’s Secured Overnight Finance Rate (“SOFR”).

The manner and impact of this transition, as well as the effects of these developments on the Company’s funding costs, loan and investment and trading securities portfolios, asset-liability management, and business, are uncertain.

The performance of our multifamily and mixed-use loans could be adversely impacted by regulation.

On June 14, 2019, the New York State legislature passed the Housing Stability and Tenant Protection Act of 2019, impacting about one million rent regulated apartment units. Among other things, the new legislation: (i) curtails rent increases from Material Capital Improvements and Individual Apartment Improvements; (ii) all but eliminates the ability for apartments to exit rent regulation; (iii) does away with vacancy decontrol and high-income deregulation; and (iv) repealed the 20% vacancy bonus. While it is too early to measure the full long-term impact of the legislation, in total, it generally limits a landlord’s ability to increase rents on rent regulated apartments and makes it more difficult to convert rent regulated apartments to market rate apartments. As a result, the value of the collateral located in New York State securing the Company’s multi-family loans or the future net operating income of such properties could be potentially impaired.


The COVID-19 pandemic has adversely impacted our business and financial results and that of many of our customers, and the ultimate impact will depend on future developments, which are highly uncertain, cannot be predicted and outside of our control, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has created extensive disruptions to the global and U.S. economies and to the lives of individuals throughout the world. The New York City Metropolitan area and environs have one of the highest incidence of COVID-19 in the nation, and the neighboring Tri-State area of New Jersey and Connecticut also has been particularly affected by COVID-19.  Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.  If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in this Form 10-K could be exacerbated and the effects of COVID-19 could have a material adverse impact on us in a number of ways as described in more detail below.

Credit Risk – Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrowers. Concern about the spread of COVID-19 has caused and may continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments. Hotel and restaurant operators and others in the leisure, hospitality and travel industries and the agricultural industry, among other industries, have been particularly hurt by COVID-19. For additional details on the Company’s exposure to industries deemed more susceptible to these events, see the Management Discussion & Analysis section of this Form 10-K. If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our credit exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment like now, our customers depend more on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity. Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program under the CARES Act (“PPP”) whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers that we would have otherwise extended credit. Additionally, it is the Company’s understanding that loans funded through PPP are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for loan losses through a provision for loan losses charged to earnings.

Strategic Risk – Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities. The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets.


Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses. The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating loans.

Operational Risk – Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

Interest Rate Risk/Market Value Risk – Our net interest income, lending and investment activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on financial markets and market stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in prevailing fair market values of our investment securities and other assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Legal Risk-Litigation related to the COVID-19 pandemic has been commenced against some banks. These lawsuits assert a variety of claims, including alleged mishandling of the Paycheck Protection Program, violations of executive orders and regulatory guidance prohibiting or limiting debt collection, evictions and foreclosures, discriminatory program administration, workplace safety claims and claims alleging minimization in securities filings of the COVID effect on operations. The Company is not a party to any such litigation, and we are not aware of any facts which may give rise to such litigation. While we believe our strong compliance and risk culture, proactive pandemic actions and clear communication with our customers employees and shareholders mitigate this legal risk, there can be no assurance that we will not become a party to COVID related litigation.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.


The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Item 1B. Unresolved Staff Comments

Not applicable.


Item 2. Properties

At June 30, 2017,2020, we conducted business through our administrative/executive offices/headquarters office in Yorktown Heights and our 15 banking offices located in Brewster (main banking office), Eastchester, Fishkill, Greenburgh, Jefferson Valley, Kent, Mahopac, Mount Kisco, Mount Vernon, New City, Pawling (2 branch offices), East White Plains, Somers, and Yorktown Heights, all of which are located in New York.  We own 4 and lease 1211 of our properties.  At June 30, 2017,2020, the net book value of our land, buildings, furniture, fixtures and equipment was $13.0$11.3 million. The Company’s and Bank’s executive offices/headquarters are located in a leased facility at 2651 Strang Blvd., Suite 100, Yorktown Heights, New York.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.


PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

The Company’s shares of common stock are traded on the NASDAQ Capital Market under the symbol “PCSB”. The approximate number of stockholdersshareholders of record of the Company’s common stock as of June 30, 2017 is 1,594.

The Company completed its initial public offering on April 20, 2017, and its stock commenced trading on April 21, 2017. The following table sets forth for the periods indicated the intra-day high and low sales prices per share of common stock as reported by The Nasdaq Stock Market. To date, the Company has not paid any dividends to its stockholders. See “Dividends” below. On June 30, 2017, the closing market price of the Company’s common stock2020 was $17.06.

 

 

Year Ended June 30, 2017

 

 

 

High

 

 

Low

 

 

Dividend

 

Fourth Quarter (from April 21, 2017)

 

$

17.95

 

 

$

15.76

 

 

$

 

Third Quarter

 

N/A

 

 

N/A

 

 

 

 

Second Quarter

 

N/A

 

 

N/A

 

 

 

 

First Quarter

 

N/A

 

 

N/A

 

 

 

 

Dividends

The Company’s board of directors has the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements.  In determining whether to pay a cash dividend and the amount of such cash dividend, the board of directors is expected to take into account a number of factors, including capital requirements, our consolidated financial condition and results of operations, other uses of funds for the long-term value of stockholders, tax considerations, statutory and regulatory limitations and general economic conditions. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by applicable law, may be paid in addition to, or in lieu of, regular cash dividends.  PCSB Financial files a consolidated tax return with PCSB Bank.  Accordingly, any cash distributions made by us to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes. Additionally, pursuant to applicable regulations, during the three-year period following our recently completed stock offering, we will not take any action to declare an extraordinary dividend to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. In addition, the Federal Reserve Board has established requirements with respect to the maintenance of appropriate levels of capital by registered bank holding companies. These regulatory policies and requirements could affect our ability to pay dividends. See “Regulation and Supervision-Holding Company Regulation.” and “–Federal Bank Regulation–Capital Requirements.”

Pursuant to our articles of incorporation, we are authorized to issue preferred stock.  If we issue preferred stock, the holders thereof may have a priority over the holders of our shares of common stock with respect to the payment of dividends. Initially, dividends we can declare and pay will depend upon the net proceeds retained from the stock offering and the earnings received from the investment of those proceeds.  In the future, dividends will depend in large part upon receipt of dividends from PCSB Bank, because we expect to have limited sources of income other than dividends from PCSB Bank, net income earned on the net proceeds of the offering and interest payments received in connection with the loan to the employee stock ownership plan. We have no preferred stock outstanding and currently have no plans to issue preferred stock in the future.


New York banking law and FDIC regulations impose limitations on capital distributions by savings institutions. See “Supervision and Regulation-New York Banking Laws and Supervision-Dividends.”

Any payment of dividends by PCSB Bank to us that would be deemed to be drawn out of PCSB Bank’s bad debt reserves, if any, would require a payment of taxes at the then-current tax rate by PCSB Bank on the amount of earnings deemed to be removed from the reserves for such distribution.  PCSB Bank does not intend to make any distribution to us that would create such a federal tax liability.1,330.

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

The Company completed its initial public offering on April 20, 2017 through the sale of shares of its common stock, par value $0.01 per share, pursuant to a Registration Statement on Form S-1, as amended (Commission File No. 333-215052), as declared effective on February 10, 2017.  The offering terminated on April 20, 2017 upon the sale of 17,826,408 the shares of common stock at a price of $10.00 per share.  The gross offering proceeds were $178.3 million and the net offering proceeds (after offering expenses) were $174.6 million.  Consistent with the disclosure in the Company’s definitive prospectus dated February 10, 2017, $87.3 million of the net offering proceeds was contributed as capital to PCSB Bank, $14.5 million was used to fund a loan to the PCSB Bank Employee Stock Ownership Plan, and the remainder was retained by the Company as working capital.  Sandler O’Neill & Partners, L.P. served as marketing agent for the offering.None.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

None.The following information is presented for the PCSB Financial Corporation 2018 Equity Incentive Plan as of June 30, 2020:

 

Plan Category

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

 

 

Weighted-average exercise price of outstanding options, warrants and rights (b)

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

Equity compensation plans approved by shareholders

 

 

1,339,293

 

 

$

19.04

 

 

 

656,637

 

Equity compensation plans not approved by shareholders

 

n/a

 

 

n/a

 

 

n/a

 

Total

 

 

1,339,293

 

 

$

19.04

 

 

 

656,637

 

Issuer Purchases of Equity Securities

 

None.On June 20, 2019, the Board of Directors authorized the repurchase of up to 890,021 shares, or 5.0% of the Company’s common stock. As of February 19, 2020, the repurchase was completed, with the Company repurchasing $17.8 million or 890,021 shares at an average price of $19.99 per share of its common stock. On August 20, 2020, a repurchase program was authorized by the Board of Directors to repurchase up to 844,907 shares, or 5% of the Company’s common stock. Subsequent to June 30, 2020, and through September 9, 2020, the Company repurchased 96,900 shares of common stock, at an average cost of $13.07 per share.

The following table sets forth certain information with respect to stock repurchases during the quarter ended June 30, 2020:

Period

Total Shares of Common Stock Repurchased

Average Price Paid Per Common Share

Total Cost

(Dollars in thousands, except per share data)

April 1, 2020 through April 30, 2020

-

$

-

$

-

May 1, 2020 through May 31, 2020

-

-

-

June 1, 2020 through June 30, 2020

-

-

-

Total

-

$

-

$

-


Item 6. Selected Financial Data

The summary information presented below at or for each of the periodsfiscal years presented is derived in part from and should be read in conjunction with the consolidated financial statements of the Company presented in Item 8.

 

 

 

At June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(Dollars in thousands)

 

Selected Financial Condition Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,426,458

 

 

$

1,262,071

 

 

$

1,200,750

 

 

$

976,630

 

 

$

969,433

 

Cash and cash equivalents

 

 

60,486

 

 

 

41,578

 

 

 

77,761

 

 

 

105,250

 

 

 

147,166

 

Securities held-to-maturity

 

 

383,551

 

 

 

270,679

 

 

 

269,913

 

 

 

267,146

 

 

 

260,629

 

Securities available-for-sale

 

 

111,889

 

 

 

112,351

 

 

 

84,943

 

 

 

72,109

 

 

 

88,015

 

Loans receivable, net

 

 

809,648

 

 

 

782,336

 

 

 

727,134

 

 

 

507,161

 

 

 

449,577

 

Goodwill and other intangibles

 

 

6,665

 

 

 

6,808

 

 

 

6,703

 

 

 

Total liabilities

 

 

1,146,612

 

 

 

1,152,122

 

 

 

1,090,479

 

 

 

864,991

 

 

 

860,058

 

Deposits

 

 

1,088,461

 

 

 

1,112,695

 

 

 

1,060,505

 

 

 

856,518

 

 

 

851,540

 

Federal Home Loan Bank advances

 

 

42,598

 

 

 

20,081

 

 

 

14,000

 

 

 

Total shareholders’ equity (total equity before

   June 30, 2017)

 

 

279,846

 

 

 

109,949

 

 

 

110,271

 

 

 

111,639

 

 

 

109,375

 

 

At June 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

��

 

2016

 

 

(in thousands)

 

Selected Financial Condition Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

$

1,791,929

 

 

$

1,637,579

 

 

$

1,480,187

 

 

$

1,426,458

 

 

$

1,262,071

 

Cash and cash equivalents

 

136,302

 

 

 

60,029

 

 

 

62,145

 

 

 

60,486

 

 

 

41,578

 

Securities held to maturity

 

275,772

 

 

 

345,545

 

 

 

353,183

 

 

 

383,551

 

 

 

270,679

 

Securities available for sale

 

37,426

 

 

 

72,228

 

 

 

105,504

 

 

 

111,889

 

 

 

112,351

 

Loans receivable, net

 

1,260,947

 

 

 

1,093,121

 

 

 

902,336

 

 

 

809,648

 

 

 

782,336

 

Goodwill and other intangible assets

 

6,335

 

 

 

6,429

 

 

 

6,539

 

 

 

6,665

 

 

 

6,808

 

Total Liabilities

 

1,518,216

 

 

 

1,356,272

 

 

 

1,192,628

 

 

 

1,146,612

 

 

 

1,152,122

 

Deposits

 

1,373,255

 

 

 

1,225,821

 

 

 

1,157,457

 

 

 

1,088,461

 

 

 

1,112,695

 

FHLB advances

 

106,089

 

 

 

111,216

 

 

 

18,841

 

 

 

42,598

 

 

 

20,081

 

Total shareholders' equity (total equity before June 30, 2017)

 

273,713

 

 

 

281,307

 

 

 

287,559

 

 

 

279,846

 

 

 

109,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended June 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

(Dollars in thousands, except per share data)

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

$

61,910

 

 

$

53,447

 

 

$

47,960

 

 

$

40,958

 

 

$

39,044

 

Interest expense

 

15,231

 

 

 

10,743

 

 

 

6,323

 

 

 

5,293

 

 

 

4,812

 

Net interest income

 

46,679

 

 

 

42,704

 

 

 

41,637

 

 

 

35,665

 

 

 

34,232

 

Provision for loan losses

 

3,064

 

 

 

808

 

 

 

414

 

 

 

823

 

 

 

1,859

 

Net interest income after provision

 

43,615

 

 

 

41,896

 

 

 

41,223

 

 

 

34,842

 

 

 

32,373

 

Non-interest income (1)

 

3,069

 

 

 

3,102

 

 

 

2,519

 

 

 

4,084

 

 

 

1,951

 

Non-interest expense (2)(3)

 

34,634

 

 

 

33,994

 

 

 

32,116

 

 

 

34,431

 

 

 

30,265

 

Income before income tax expense

 

12,050

 

 

 

11,004

 

 

 

11,626

 

 

 

4,495

 

 

 

4,059

 

Income tax expense (4)

 

2,691

 

 

 

2,686

 

 

 

5,022

 

 

 

1,266

 

 

 

1,133

 

Net income

$

9,359

 

 

$

8,318

 

 

$

6,604

 

 

$

3,229

 

 

$

2,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.60

 

 

$

0.50

 

 

$

0.39

 

 

N/A

 

 

N/A

 

Diluted

$

0.60

 

 

$

0.50

 

 

$

0.39

 

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

For the Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(Dollars in thousands)

 

Selected Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

$

40,958

 

 

$

39,044

 

 

$

28,827

 

 

$

25,864

 

 

$

26,273

 

Interest expense

 

 

5,293

 

 

 

4,812

 

 

 

3,884

 

 

 

3,634

 

 

 

4,306

 

Net interest income

 

 

35,665

 

 

 

34,232

 

 

 

24,943

 

 

 

22,230

 

 

 

21,967

 

Provision for loan losses

 

 

823

 

 

 

1,859

 

 

 

1,326

 

 

 

903

 

 

 

741

 

Net interest income after provision for loan losses

 

 

34,842

 

 

 

32,373

 

 

 

23,617

 

 

 

21,327

 

 

 

21,226

 

Non-interest income (1)

 

 

4,084

 

 

 

1,951

 

 

 

1,567

 

 

 

1,650

 

 

 

1,298

 

Non-interest expense (2)(3)

 

 

34,431

 

 

 

30,265

 

 

 

23,974

 

 

 

20,651

 

 

 

20,306

 

Income before income tax expense

 

 

4,495

 

 

 

4,059

 

 

 

1,210

 

 

 

2,326

 

 

 

2,218

 

Income tax expense

 

 

1,266

 

 

 

1,133

 

 

 

702

 

 

 

699

 

 

 

732

 

Net income

 

$

3,229

 

 

$

2,926

 

 

$

508

 

 

$

1,627

 

 

$

1,486

 

(1)

Non-interest income for the year ended June 30, 2017 includes a $1.6 million settlement on an acquired loan.

(2)

Non-interest expense for the yearsyear ended June 30, 2016 and 2015 includeincludes merger expenses of $790,000 and $1.1 million, respectively.$790,000.

(3)

Non-interest expense for the year ended June 30, 2017 includes a $5.0 million contribution expense related to the Company’s contribution and establishment of the PCSB Community Foundation, as well as a $919,000 curtailment gain on the Bank’s defined benefit pension plan.

(4)

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 year ended June 30, 2018, primarily reflecting a write-down of our deferred tax asset resulting from a decrease in the federal corporate income tax rate from 34% to 21%.


 

At or For the Year Ended June 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Selected Financial Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (1)

 

0.56

%

 

 

0.55

%

 

 

0.46

%

 

 

0.25

%

 

 

0.24

%

Return on average equity (2)

 

3.36

 

 

 

2.92

 

 

 

2.33

 

 

 

2.14

 

 

 

2.59

 

Noninterest income to average assets

 

0.18

 

 

 

0.21

 

 

 

0.18

 

 

 

0.31

 

 

 

0.16

 

Noninterest expense to average assets

 

2.06

 

 

 

2.26

 

 

 

2.24

 

 

 

2.64

 

 

 

2.48

 

Interest rate spread

 

2.60

 

 

 

2.70

 

 

 

2.86

 

 

 

2.79

 

 

 

2.84

 

Net interest margin (3)

 

2.89

 

 

 

2.95

 

 

 

3.03

 

 

 

2.88

 

 

 

2.92

 

Efficiency ratio (4)

 

69.62

 

 

 

74.21

 

 

 

72.73

 

 

 

86.62

 

 

 

83.64

 

Dividend payout ratio (5)

 

27.47

 

 

 

26.24

 

 

 

7.63

 

 

n/a

 

 

n/a

 

Average interest-earning assets to average interest-bearing liabilities

 

130.68

 

 

 

134.34

 

 

 

135.94

 

 

 

122.32

 

 

 

120.01

 

Loans to deposits

 

91.82

 

 

 

89.17

 

 

 

77.96

 

 

 

74.38

 

 

 

70.31

 

Equity to assets (6)

 

16.54

 

 

 

19.00

 

 

 

19.80

 

 

 

11.59

 

 

 

9.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per common share

$

16.20

 

 

$

15.80

 

 

$

15.83

 

 

 

15.41

 

 

n/a

 

Tangible book value per common share (4)

$

15.82

 

 

$

15.44

 

 

$

15.47

 

 

 

15.04

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios (PCSB Bank only):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to adjusted total assets)

 

12.51

%

 

 

13.81

%

 

 

13.61

%

 

 

13.70

%

 

 

8.92

%

Tier 1 capital (to risk-weighted assets)

 

16.98

 

 

 

17.96

 

 

 

21.11

 

 

 

21.70

 

 

 

13.47

 

Total capital (to risk-weighted assets)

 

16.98

 

 

 

17.96

 

 

 

21.11

 

 

 

21.70

 

 

 

13.96

 

Common equity Tier 1 capital (to risk-weighted assets)

 

17.65

 

 

 

18.45

 

 

 

21.62

 

 

 

22.30

 

 

 

13.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses as a percent of total gross loans

 

0.68

 

 

 

0.52

 

 

 

0.54

 

 

 

0.63

 

 

 

0.51

 

Allowance for loan losses as a percent of non-performing loans

 

481.28

 

 

 

207.70

 

 

 

81.71

 

 

 

42.66

 

 

 

32.17

 

Net charge-offs (recoveries) to average outstanding loans during the period

 

0.01

 

 

 

0.01

 

 

 

0.08

 

 

 

(0.04

)

 

 

0.23

 

Non-performing loans as a percent of total loans

 

0.14

 

 

 

0.25

 

 

 

0.66

 

 

 

1.48

 

 

 

1.60

 

Non-performing assets as a percent of total assets

 

0.10

 

 

 

0.24

 

 

 

0.44

 

 

 

0.92

 

 

 

1.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of offices

 

15

 

 

 

15

 

 

 

15

 

 

 

15

 

 

 

15

 

Number of full-time equivalent employees

 

169

 

 

 

172

 

 

 

170

 

 

 

171

 

 

 

169

 

 

 

 

At or For the Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Selected Financial Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (1)

 

 

0.25

%

 

 

0.24

%

 

 

0.05

%

 

 

0.17

%

 

 

0.15

%

Return on average equity (2)

 

 

2.14

 

 

 

2.59

 

 

 

0.45

 

 

 

1.47

 

 

 

1.39

 

Non-interest income to average assets

 

 

0.31

 

 

 

0.16

 

 

 

0.15

 

 

 

0.17

 

 

 

0.14

 

Non-interest expense to average assets

 

 

2.64

 

 

 

2.48

 

 

 

2.34

 

 

 

2.14

 

 

 

2.11

 

Net interest margin (3)

 

 

2.88

 

 

 

2.92

 

 

 

2.50

 

 

 

2.30

 

 

 

2.29

 

Efficiency ratio (4)(8)

 

 

86.62

 

 

 

83.64

 

 

 

90.43

 

 

 

86.46

 

 

 

87.28

 

Average interest-earning assets to average

   interest-bearing liabilities

 

 

122.32

 

 

 

120.01

 

 

 

122.55

 

 

 

125.00

 

 

 

125.35

 

Loans to deposits

 

 

74.38

 

 

 

70.31

 

 

 

68.56

 

 

 

59.21

 

 

 

52.80

 

Equity to assets (5)

 

 

11.59

 

 

 

9.27

 

 

 

11.03

 

 

 

11.47

 

 

 

11.11

 

Tangible equity to tangible assets (6)

 

 

11.13

 

 

 

8.77

 

 

 

10.93

 

 

 

11.47

 

 

 

11.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

15.41

 

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

Tangible book value per share (8)

 

$

15.04

 

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to adjusted total assets)

 

 

19.95

%

 

 

8.92

%

 

 

8.88

%

 

 

11.73

%

 

 

11.64

%

Tier I capital (to risk-weighted assets)

 

 

31.63

 

 

 

13.47

 

 

 

15.47

 

 

 

22.49

 

 

 

23.68

 

Total capital (to risk-weighted assets)

 

 

31.63

 

 

 

13.96

 

 

 

16.03

 

 

 

23.29

 

 

 

24.52

 

Common equity Tier 1 capital (to risk-weighted

   assets)

 

 

32.21

 

 

 

13.47

 

 

 

15.47

 

 

 

22.49

 

 

 

23.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses as a percent of total

   loans

 

 

0.63

 

 

 

0.51

 

 

 

0.54

 

(7)

 

0.80

 

 

 

0.88

 

Allowance for loan losses as a percent of non-

   performing loans

 

 

42.66

 

 

 

32.17

 

 

 

18.69

 

 

 

22.70

 

 

 

17.91

 

Net charge-offs to average outstanding loans

   during the period

 

 

(0.04

)

 

 

0.23

 

 

 

0.27

 

 

 

0.17

 

 

 

0.37

 

Non-performing loans as a percent of total loans

 

 

1.48

 

 

 

1.60

 

 

 

2.87

 

 

 

3.51

 

 

 

4.92

 

Non-performing assets as a percent of total assets

 

 

0.92

 

 

 

1.07

 

 

 

1.78

 

 

 

1.85

 

 

 

2.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of full-service offices

15

 

15

 

15

 

 

 

10

 

9

 

Number of full-time equivalent employees

171

 

169

 

174

 

 

 

138

 

133

 

 

(1)

Represents net income divided by average total assets.

(2)

Represents net income divided by average equity.

(3)

Represents net interest income as a percent of average interest-earning assets.

(4)

Represents non-interest expense divided by the sumSee “Non-GAAP Financial Measures” for a reconciliation of net interest income and non-interest income.this measure.

(5)

Dividends declared per share divided by net income per share.

(6)

Represents average equity divided by average total assets.

(6)

Average tangible equity to average tangible assets is a non-GAAP financial measure and represents average tangible equity calculated as a percentage of average tangible assets for the period presented.  We believe that a disclosure of tangible equity to tangible assets may be helpful for those investors who seek to evaluate our equity without giving effect to goodwill and other intangible assets.  The following table presents a reconciliation of average tangible equity to average tangible assets for the periods presented:


Non-GAAP Financial Measures

Using non-GAAP financial measures can help investors in providing a more meaningful picture of the company’s performance and value. It can also provide additional insight into a company’s business beyond that found in the Financial Statements.

We identify “efficiency ratio” and “tangible book value per common share” as non-GAAP financial measures. In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, in the most directly comparable measure calculated and presented in accordance with GAAP.  Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measure that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this annual report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

Efficiency ratio is a non-GAAP measure and is defined as noninterest expense, divided by operating revenue, which is equal to net interest income plus non-interest income. In our judgment, it allows investors and analysts to better understand our ability to turn resources into revenue. The lower the ratio, the better. An increase in the efficiency ratio indicates either increasing costs or decreasing revenues.

Tangible book value per common 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.

 

For the Year Ended June 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

Computation of Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

$

34,634

 

 

$

33,994

 

 

$

32,116

 

 

$

34,431

 

 

$

30,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

$

46,679

 

 

$

42,704

 

 

$

41,637

 

 

$

35,665

 

 

$

34,232

 

Noninterest income

 

3,069

 

 

 

3,102

 

 

 

2,519

 

 

 

4,084

 

 

 

1,951

 

Total revenue

$

49,748

 

 

$

45,806

 

 

$

44,156

 

 

$

39,749

 

 

$

36,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Efficiency ratio

 

69.62

%

 

 

74.21

%

 

 

72.73

%

 

 

86.62

%

 

 

83.64

%

 

 

 

For the Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(Dollars in thousands)

 

Average equity

 

$

151,026

 

 

$

112,955

 

 

$

112,760

 

 

$

110,671

 

 

$

106,812

 

Less: Average goodwill and other intangibles

 

 

6,741

 

 

 

6,663

 

 

 

1,158

 

 

 

 

 

 

 

Average tangible equity

 

$

144,285

 

 

$

106,292

 

 

$

111,602

 

 

$

110,671

 

 

$

106,812

 

Average assets

 

$

1,302,584

 

 

$

1,218,073

 

 

$

1,022,363

 

 

$

964,700

 

 

$

961,024

 

Less: Goodwill and other intangibles

 

 

6,741

 

 

 

6,663

 

 

 

1,158

 

 

 

 

 

 

 

Average tangible assets

 

$

1,295,843

 

 

$

1,211,410

 

 

$

1,021,205

 

 

$

964,700

 

 

$

961,024

 

Tangible equity to tangible assets

 

 

11.13

%

 

 

8.77

%

 

 

10.93

%

 

 

11.47

%

 

 

11.11

%

(7)

Loans acquired in the CMS Bancorp, Inc./CMS Bank acquisition were recorded at their estimated fair value at the acquisition date and did not include a carry-over of the related pre-acquisition allowance for loan losses.


(8)

Represent non-GAAP financial measures, which we believe may be helpful for investors in evaluating our equity and profitability

 

For the Year Ended June 30,

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

(Amounts in thousands, except share and per share data)

 

Computation of Tangible Book Value per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholders' equity

$

273,713

 

 

$

281,307

 

 

$

287,559

 

 

$

279,846

 

 

$

109,949

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common shareholders' equity

 

273,713

 

 

 

281,307

 

 

 

287,559

 

 

 

279,846

 

 

 

109,949

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

(6,106

)

 

 

(6,106

)

 

 

(6,106

)

 

 

(6,106

)

 

 

(6,106

)

Other intangible assets

 

(229

)

 

 

(323

)

 

 

(433

)

 

 

(559

)

 

 

(702

)

Tangible common shareholders' equity

$

267,378

 

 

$

274,878

 

 

$

281,020

 

 

$

273,181

 

 

$

103,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

16,898,137

 

 

 

17,804,039

 

 

 

18,165,110

 

 

 

18,165,110

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share (GAAP)

$

16.20

 

 

$

15.80

 

 

$

15.83

 

 

$

15.41

 

 

n/a

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of intangible assets

 

(0.38

)

 

 

(0.36

)

 

 

(0.36

)

 

 

(0.37

)

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tangible book value per common share (Non-GAAP)

$

15.82

 

 

$

15.44

 

 

$

15.47

 

 

$

15.04

 

 

n/a

 

 


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This section is intended to help investors understand the consolidated financial performance of PCSB Financial through a discussion of the factors affecting our financial condition at June 30, 20172020 and 20162019 and our results of operations for the years ended June 30, 20172020 and 2016.2019. This section should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this annual report.

Overview

Income. Our primary source of income is net interest and dividend income. Net interest and dividend income is the difference between interest and dividend income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Other sources of income include earnings from customer service fees (mostly from service charges on deposit accounts), bank-owned life insurance and gains on the sale of securities.

Provision for Loan Losses. The allowance for loan losses is maintained at a level representing management’s best estimate of probable incurred losses in the loan portfolio, based upon management’s evaluation of the portfolio’s collectability. The allowance is established through the provision for loan losses, which is charged against income. Charge-offs are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance. Allocation of the allowance may be made for specific loans or pools of loans, but the entire allowance is available for the entire loan portfolio.

Expenses. The noninterest expenses we incur in operating our business consist of salaries and employee benefits, occupancy and equipment, data processing, federal deposit insurance and other general and administrative expenses. Our noninterest expenses are likely to increase as a result of operating as a public company. These additional expenses will consist primarily of legal and accounting fees, expenses of stockholder communications and meetings and stock exchange listing fees.

Salaries and employee benefits consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits. We anticipate that we will alsohave started to recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans, subject to shareholder approval. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock or stock options at specific points in the future.which was previously approved by shareholders.

Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, rental expenses, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using a straight-line method based on the estimated useful lives of the related assets or the expected lease terms, if shorter. Data processing expenses are the fees we pay to third parties for the use of their software and for processing customer information, deposits and loans.

Federal deposit insurance premiums are payments we make to the FDIC for insurance of our deposit accounts.

Other expenses include expenses for professional services, advertising, office supplies, postage, telephone, insurance and other miscellaneous operating expenses.


Business Strategy

Based on an extensive review of the current opportunities in our principal market area as well as our resources and capabilities, the Board has adopted the following business strategy:

Focus on commercial lending.  We believe that commercial lending offers an opportunity to enhance our profitability while managing credit, interest rate and operational risk. We intend to continue to expand our originations and, to a lesser extent, purchases of commercial real estate and commercial business loans in our primary market area. We anticipate that a majority of our commercial real estate loan originations will range in size from $500,000 to $10.0 million while a majority of our commercial business loan originations will range in size from $100,000 to $5.0 million.

Expand banking activities in Southern Westchester County. Southern Westchester County is one of the more populous and economically vibrant areas of New York State. We intend to use our four offices in Southern Westchester County to expand both our commercial and retail activities in this market area. At the same time, we will remain committed to our other market areas and maintain a strong level of banking activities in these areas.

Increase core deposits, including demand deposits.  Deposits are our primary source of funds for lending and investment.  We intend to focus on core deposits (which we define as all deposits except for certificates of deposit), particularly non-interest bearing demand deposits, because they are the lowest cost funds and are less sensitive to withdrawal when interest rates fluctuate.  Core deposits represented 72.9% of our total deposits at June 30, 2017.  Going forward, we will seek to increase our core deposits through enhancing our commercial activities and deepening our relationships with our retail customers.

Manage credit risk to maintain a low level of non-performing assets.  We believe that strong asset quality is a key to long-term financial success.  Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring.  Our non-performing loans to total loans ratio was 1.48% at June 30, 2017.

Balance Sheet Growth. As a result of our efforts to build our management and infrastructure, and given our attractive market area, we believe we are well-positioned to increase the size of our balance sheet without a proportional increase in overhead expense or operating risk. Accordingly, we intend to increase, on a managed basis, our assets and liabilities, particularly loans and deposits.

Critical Accounting Policies

A summary of our accounting policies is described in Note 21 to Notes to Consolidated Financial Statements.  Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Loan Losses. The allowance for loan losses is established asa valuation allowance for probable incurred loan losses. The allowance for loan losses are estimated to have occurred through a provisionis increased by provisions for loan losses charged to earnings.  Loan lossesincome. Losses are charged againstto the allowance for loan losses when management believes the collectabilityall or a portion of a loan balance is confirmed.  Subsequent recoveries, if any,deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance.allowance when realized.  See Note 54 to Notes to Consolidated Financial Statements for a complete discussion of the allowance for loan losses.

Income Taxes.  We recognize income taxes under the asset and liability method.  Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled.  See Note 14 to Notes to Consolidated Financial Statements for a complete discussion of income taxes.


Goodwill.  Goodwill resulting from business combination transactions is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  We recognized goodwill in connection with our acquisition of CMS Bancorp, Inc and CMS Bank.  See Notes 7 and 12 to Notes to Consolidated Financial Statements for a complete discussion of our accounting for goodwill and the goodwill created in connection with the acquisition of CMS Bancorp, Inc. and CMS Bank.

Loan Portfolio

General. Loans are our primary interest-earning asset. At June 30, 2017,2020, net loans represented 56.8%70.4% of our total assets. The following tables set forth certain information about our loan portfolio.

Loan Portfolio Analysis. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.  

 

 

At June 30,

 

 

At June 30,

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Mortgage Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

217,778

 

 

 

26.77

%

 

$

226,073

 

 

 

28.79

%

 

$

240,448

 

 

 

32.93

%

 

$

161,740

 

 

 

31.74

%

 

$

117,924

 

 

 

26.07

%

 

$

255,382

 

 

 

20.14

%

 

$

265,167

 

 

 

24.17

%

 

$

250,578

 

 

 

27.67

%

 

$

217,778

 

 

 

26.77

%

 

$

226,073

 

 

 

28.79

%

Commercial

 

 

437,651

 

 

 

53.80

 

 

 

385,827

 

 

 

49.14

 

 

 

324,574

 

 

 

44.46

 

 

 

188,741

 

 

 

37.03

 

 

 

163,807

 

 

 

36.20

 

 

 

807,106

 

 

 

63.65

 

 

 

651,396

 

 

 

59.38

 

 

 

495,265

 

 

 

54.70

 

 

 

437,651

 

 

 

53.80

 

 

 

385,827

 

 

 

49.14

 

Construction

 

 

22,404

 

 

 

2.75

 

 

 

25,050

 

 

 

3.19

 

 

 

11,886

 

 

 

1.63

 

 

 

19,517

 

 

 

3.83

 

 

 

20,292

 

 

 

4.49

 

 

 

11,053

 

 

 

0.87

 

 

 

13,231

 

 

 

1.21

 

 

 

17,352

 

 

 

1.92

 

 

 

22,404

 

 

 

2.75

 

 

 

25,050

 

 

 

3.19

 

Total

 

 

677,833

 

 

 

83.32

 

 

 

636,950

 

 

 

81.12

 

 

 

576,908

 

 

 

79.02

 

 

 

369,998

 

 

 

72.60

 

 

 

302,023

 

 

 

66.76

 

 

 

1,073,541

 

 

 

84.66

 

 

 

929,794

 

 

 

84.76

 

 

 

763,195

 

 

 

84.29

 

 

 

677,833

 

 

 

83.32

 

 

 

636,950

 

 

 

81.12

 

Commercial business

 

 

80,099

 

 

 

9.84

 

 

 

90,600

 

 

 

11.54

 

 

 

99,699

 

 

 

13.66

 

 

 

96,349

 

 

 

18.91

 

 

 

103,931

 

 

 

22.97

 

Commercial loans

 

 

164,257

 

 

 

12.95

 

 

 

133,614

 

 

 

12.18

 

 

 

104,135

 

 

 

11.50

 

 

 

93,631

 

 

 

11.50

 

 

 

106,738

 

 

 

13.60

 

Home equity lines of credit

 

 

41,927

 

 

 

5.15

 

 

 

41,180

 

 

 

5.24

 

 

 

40,605

 

 

 

5.56

 

 

 

33,952

 

 

 

6.66

 

 

 

38,089

 

 

 

8.42

 

 

 

29,838

 

 

 

2.35

 

 

 

33,204

 

 

 

3.03

 

 

 

37,395

 

 

 

4.13

 

 

 

41,927

 

 

 

5.15

 

 

 

41,180

 

 

 

5.24

 

Other loans

 

 

13,765

 

 

 

1.69

 

 

 

16,476

 

 

 

2.10

 

 

 

12,858

 

 

 

1.76

 

 

 

9,307

 

 

 

1.83

 

 

 

8,349

 

 

 

1.85

 

Consumer and overdrafts

 

 

481

 

 

 

0.04

 

 

 

365

 

 

 

0.03

 

 

 

745

 

 

 

0.08

 

 

 

233

 

 

 

0.03

 

 

 

338

 

 

 

0.04

 

Total loans receivable

 

 

813,624

 

 

 

100.00

%

 

 

785,206

 

 

 

100.00

%

 

 

730,070

 

 

 

100.00

%

 

 

509,606

 

 

 

100.00

%

 

 

452,392

 

 

 

100.00

%

 

 

1,268,117

 

 

 

100.00

%

 

 

1,096,977

 

 

 

100.00

%

 

 

905,470

 

 

 

100.00

%

 

 

813,624

 

 

 

100.00

%

 

 

785,206

 

 

 

100.00

%

Plus: net deferred loan

origination costs and fees

 

 

1,174

 

 

 

 

 

 

 

1,172

 

 

 

 

 

 

 

985

 

 

 

 

 

 

 

1,612

 

 

 

 

 

 

 

1,170

 

 

 

 

 

Plus: net deferred loans origination costs and fees

 

 

1,469

 

 

 

 

 

 

 

1,808

 

 

 

 

 

 

 

1,770

 

 

 

 

 

 

 

1,174

 

 

 

 

 

 

 

1,172

 

 

 

 

 

Less: allowance for loan losses

 

 

(5,150

)

 

 

 

 

 

 

(4,042

)

 

 

 

 

 

 

(3,921

)

 

 

 

 

 

 

(4,057

)

 

 

 

 

 

 

(3,985

)

 

 

 

 

 

 

(8,639

)

 

 

 

 

 

 

(5,664

)

 

 

 

 

 

 

(4,904

)

 

 

 

 

 

 

(5,150

)

 

 

 

 

 

 

(4,042

)

 

 

 

 

Loans receivable, net

 

$

809,648

 

 

 

 

 

 

$

782,336

 

 

 

 

 

 

$

727,134

 

 

 

 

 

 

$

507,161

 

 

 

 

 

 

$

449,577

 

 

 

 

 

 

$

1,260,947

 

 

 

 

 

 

$

1,093,121

 

 

 

 

 

 

$

902,336

 

 

 

 

 

 

$

809,648

 

 

 

 

 

 

$

782,336

 

 

 

 

 

 

 

 


Loan Maturity. The following tables set forth certain information at June 30, 20172020 regarding the dollar amount of loan principal repayments becoming due duringmaturities for the periods indicated. The tables do not include scheduled amortization or any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below.  

 

At June 30, 2017

 

 

At June 30, 2020

 

 

Residential

Mortgage

Loans

 

 

Commercial

Real Estate

Loans

 

 

Construction

Loans

 

 

Commercial

Business

Loans

 

 

Home Equity

Lines of

Credit

 

 

Other

Loans

 

 

Total

Loans

 

 

Residential Mortgage Loans

 

 

Commercial Mortgage Loans

 

 

Construction Loans

 

 

Commercial

Loans

 

 

Home equity Lines of Credit

 

 

Consumer and Overdrafts

 

 

Total Loans

 

 

(Dollars in thousands)

 

 

(in thousands)

 

Amounts due in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One year or less

 

$

1,436

 

 

$

8,075

 

 

$

16,546

 

 

$

41,078

 

 

$

7

 

 

$

264

 

 

$

67,406

 

 

$

42

 

 

$

14,808

 

 

$

10,144

 

 

$

49,208

 

 

$

-

 

 

$

267

 

 

$

74,457

 

More than one year through two years

 

 

1,014

 

 

 

8,797

 

 

 

5,857

 

 

 

13,682

 

 

 

 

 

 

646

 

 

 

29,996

 

 

 

179

 

 

 

8,326

 

 

 

909

 

 

 

46,596

 

 

 

-

 

 

 

20

 

 

 

56,030

 

More than two years through three years

 

 

263

 

 

 

6,665

 

 

 

1

 

 

 

2,842

 

 

 

 

 

 

974

 

 

 

10,745

 

 

 

551

 

 

 

13,593

 

 

 

-

 

 

 

9,808

 

 

 

-

 

 

 

95

 

 

 

24,047

 

More than three years through five years

 

 

1,578

 

 

 

21,661

 

 

 

 

 

 

5,781

 

 

 

16

 

 

 

3,434

 

 

 

32,470

 

 

 

1,803

 

 

 

49,221

 

 

 

-

 

 

 

21,289

 

 

 

42

 

 

 

99

 

 

 

72,454

 

More than five years through ten years

 

 

12,186

 

 

 

146,456

 

 

 

 

 

 

9,793

 

 

 

709

 

 

 

8,330

 

 

 

177,474

 

 

 

17,916

 

 

 

368,417

 

 

 

-

 

 

 

28,913

 

 

 

1,312

 

 

 

-

 

 

 

416,558

 

More than ten years through fifteen years

 

 

33,641

 

 

 

68,283

 

 

 

 

 

 

3,137

 

 

 

3,481

 

 

 

 

 

 

108,542

 

 

 

31,139

 

 

 

215,971

 

 

 

-

 

 

 

6,178

 

 

 

6,529

 

 

 

-

 

 

 

259,817

 

More than fifteen years

 

 

167,660

 

 

 

177,714

 

 

 

 

 

 

3,786

 

 

 

37,714

 

 

 

117

 

 

 

386,991

 

 

 

203,752

 

 

 

136,770

 

 

 

-

 

 

 

2,265

 

 

 

21,955

 

 

 

-

 

 

 

364,754

 

Total

 

$

217,778

 

 

$

437,651

 

 

$

22,404

 

 

$

80,099

 

 

$

41,927

 

 

$

13,765

 

 

$

813,624

 

 

$

255,382

 

 

$

807,106

 

 

$

11,053

 

 

$

164,257

 

 

$

29,838

 

 

$

481

 

 

$

1,268,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The following table sets forth the dollar amount of all loans at June 30, 20172020 that are due after June 30, 20182021 and have either fixed interest rates or floating or adjustable interest rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

Rates

 

 

%

 

 

Floating or

Adjustable

Rates

 

 

%

 

 

Total

 

 

Fixed Rates

 

 

%

 

 

Floating or Adjustable Rates

 

 

%

 

 

Total

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

$

188,741

 

 

 

87.24

%

 

$

27,601

 

 

 

12.76

%

 

$

216,342

 

 

$

219,055

 

 

 

85.79

%

 

$

36,285

 

 

 

14.21

%

 

$

255,340

 

Commercial mortgage loans

 

 

108,383

 

 

 

25.23

 

 

 

321,193

 

 

 

74.77

 

 

 

429,576

 

 

 

205,677

 

 

 

25.96

 

 

 

586,621

 

 

 

74.04

 

 

 

792,298

 

Construction loans

 

 

5,411

 

 

 

92.37

 

 

 

447

 

 

 

7.63

 

 

 

5,858

 

 

 

-

 

 

 

-

 

 

 

909

 

 

 

100.00

 

 

 

909

 

Commercial business loans

 

 

35,125

 

 

 

90.01

 

 

 

3,897

 

 

 

9.99

 

 

 

39,022

 

Commercial loans

 

 

92,238

 

 

 

80.17

 

 

 

22,811

 

 

 

19.83

 

 

 

115,049

 

Home equity lines of credit

 

 

421

 

 

 

1.00

 

 

 

41,499

 

 

 

99.00

 

 

 

41,920

 

 

 

187

 

 

 

0.63

 

 

 

29,651

 

 

 

99.37

 

 

 

29,838

 

Other loans

 

 

12,687

 

 

 

93.97

 

 

 

814

 

 

 

6.03

 

 

 

13,501

 

Consumer and overdrafts

 

 

214

 

 

 

100.00

 

 

 

-

 

 

 

-

 

 

 

214

 

Total

 

$

350,768

 

 

 

47.01

%

 

$

395,451

 

 

 

52.99

%

 

$

746,219

 

 

$

517,371

 

 

 

43.34

%

 

$

676,277

 

 

 

56.66

%

 

$

1,193,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Originations, Purchases and Sales. Loan originations come from a variety of sources. The primary sources of loan originations are current customers, business development by our relationship managers, walk-in traffic, referrals from customers, and other professionals. We generally originate loans for our portfolio rather than for sale in the secondary market.

We occasionally purchase whole loans and loan participation interests from other financial institutions, which consist of interests in commercial real estatemortgage loans, multi-family mortgage loans and residential mortgages, primarily in our market area. At June 30, 2017,2020, we had $104.0$215.3 million in purchased whole loan and participation interests.


Asset Quality

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. Management of asset quality is accomplished by internal controls, monitoring and reporting of key risk indicators, and both internal and independent third-party loan reviews. The primary objective of our loan review process is to measure borrower performance and assess risk for the purpose of identifying loan weakness in order to minimize loan loss exposure. From the time of loan origination through final repayment, the borrowers on individual commercial real estate, construction and land development and commercial business loans are assigned a risk rating, including a collateral rating, based on pre-determined criteria and levels of risk. The borrower and collateral risk rating isratings are generally monitored annually, for most loans,or more frequently should we become aware of a material adverse change in the borrower’s condition, and may change during the life of the loan as appropriate.

Internal and independent third-party loan reviews vary by loan type, as well as the nature and complexity of the loan. Depending on the size and complexity of the loan, some loans may warrant detailed individual review, while other loans may have less risk based upon size or be of a homogeneous nature reducing the need for detailed individual analysis. Assets with these characteristics, such as consumer loans and loans secured by residential real estate, may be reviewed on the basis of risk indicators such as delinquency or credit rating. In cases of significant concern, a total re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan.  Some loans may be re-evaluated in terms of their fair market value or net realizable value in order to determine the likelihood of potential loss exposure and, consequently, the adequacy of specific and general loan loss reserves.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower by letter and phone at regular intervals. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Management informs the boardLoan Committee of directorsthe Board of Directors monthly of the amount of loans delinquent more than 30 days.days and the Board of Directors monthly of the amount of loans delinquent 90 days or more.


Delinquent Loans. The following tables set forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.   

 

 

At June 30, 2020

 

 

30-89 Days

 

 

90 Days or More

 

 

Number of Loans

 

 

Carrying Amount

 

 

Number of Loans

 

 

Carrying Amount

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

 

3

 

 

$

505

 

 

 

4

 

 

$

806

 

Commercial mortgage loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Construction

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

1

 

 

 

76

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

1

 

 

 

44

 

 

 

3

 

 

 

338

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

 

5

 

 

$

625

 

 

 

7

 

 

$

1,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2017

 

 

At June 30, 2019

 

 

30-89 Days

 

 

90 Days or More

 

 

30-89 Days

 

 

90 Days or More

 

 

Number

of Loans

 

 

Principal

Balance

 

 

Number

of Loans

 

 

Principal

Balance

 

 

Number of Loans

 

 

Carrying Amount

 

 

Number of Loans

 

 

Carrying Amount

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

 

5

 

 

$

1,101

 

 

 

10

 

 

$

3,634

 

 

 

2

 

 

$

336

 

 

 

3

 

 

$

795

 

Commercial mortgage loans

 

 

 

 

 

 

 

 

2

 

 

 

993

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

568

 

Construction loans

 

 

 

 

 

 

 

 

2

 

 

 

3,661

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial business loans

 

 

 

 

 

 

 

 

2

 

 

 

544

 

Commercial loans

 

 

1

 

 

 

150

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

1

 

 

 

200

 

 

 

4

 

 

 

477

 

 

 

2

 

 

 

411

 

 

 

3

 

 

 

608

 

Other loans

 

 

 

 

 

 

 

 

 

 

 

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

Total

 

 

6

 

 

$

1,301

 

 

 

20

 

 

$

9,309

 

 

 

5

 

 

$

897

 

 

 

8

 

 

$

1,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2016

 

 

 

30-89 Days

 

 

90 Days or More

 

 

 

Number

of Loans

 

 

Principal

Balance

 

 

Number

of Loans

 

 

Principal

Balance

 

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

 

4

 

 

$

1,735

 

 

 

12

 

 

$

3,305

 

Commercial mortgage loans

 

 

 

 

 

 

 

 

2

 

 

 

820

 

Construction loans

 

 

 

 

 

 

 

 

2

 

 

 

144

 

Commercial business loans

 

 

1

 

 

 

760

 

 

 

7

 

 

 

1,715

 

Home equity lines of credit

 

 

1

 

 

 

296

 

 

 

3

 

 

 

310

 

Other loans

 

 

1

 

 

 

5

 

 

 

10

 

 

 

589

 

Total

 

 

7

 

 

$

2,796

 

 

 

36

 

 

$

6,883

 

 

 

 

At June 30, 2015

 

 

 

30-89 Days

 

 

90 Days or More

 

 

 

Number

of Loans

 

 

Principal

Balance

 

 

Number

of Loans

 

 

Principal

Balance

 

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

 

3

 

 

$

553

 

 

 

14

 

 

$

5,539

 

Commercial mortgage loans

 

 

1

 

 

 

498

 

 

 

6

 

 

 

1,195

 

Construction loans

 

 

 

 

 

 

 

 

5

 

 

 

2,020

 

Commercial business loans

 

 

1

 

 

 

1,474

 

 

 

11

 

 

 

2,355

 

Home equity lines of credit

 

 

 

 

 

 

 

 

4

 

 

 

424

 

Other loans

 

 

8

 

 

 

259

 

 

 

10

 

 

 

118

 

Total

 

 

13

 

 

$

2,784

 

 

 

50

 

 

$

11,651

 

 


Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including troubled debt restructurings on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Troubled debt restructurings includeNon-accrual loans exclude acquired loans that are accounted for which either a portion of interest or principal has been forgiven, oras purchased credit impaired loans modified at interest rates materially less than current market rates.because the loans are in pools that are considered performing. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection.  For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income.

The following table sets forth information regarding our non-performing assets at the dates indicated.  

  

 

At June 30,

 

 

At June 30,

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Non-accrual loans and troubled debt

restructurings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

4,357

 

 

$

5,881

 

 

$

4,389

 

 

$

3,659

 

 

$

3,745

 

 

$

1,457

 

 

$

1,331

 

 

$

1,911

 

 

$

4,357

 

 

$

5,881

 

Commercial mortgage loans

 

 

497

 

 

 

300

 

 

 

6,308

 

 

 

2,562

 

 

 

7,385

 

 

 

-

 

 

 

568

 

 

 

794

 

 

 

497

 

 

 

300

 

Construction loans

 

 

3,661

 

 

 

144

 

 

 

2,020

 

 

 

5,951

 

 

 

2,748

 

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

3,661

 

 

 

144

 

Commercial business loans

 

 

2,959

 

 

 

5,048

 

 

 

7,011

 

 

 

5,361

 

 

 

5,809

 

Commercial loans

 

 

-

 

 

 

150

 

 

 

788

 

 

 

2,959

 

 

 

5,048

 

Home equity lines of credit

 

 

598

 

 

 

602

 

 

 

424

 

 

 

132

 

 

 

204

 

 

 

338

 

 

 

677

 

 

 

349

 

 

 

598

 

 

 

602

 

Other loans

 

 

 

 

 

584

 

 

 

310

 

 

 

 

 

 

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

584

 

Total

 

 

12,072

 

 

 

12,559

 

 

 

20,462

 

 

 

17,665

 

 

 

19,891

 

 

 

1,795

 

 

 

2,726

 

 

 

6,102

 

 

 

12,072

 

 

 

12,559

 

Accruing loans past due 90 days or more:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Construction loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,067

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Commercial business loans

 

 

 

 

 

 

 

 

514

 

 

 

204

 

 

 

175

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other loans

 

 

 

 

 

4

 

 

 

4

 

 

 

 

 

 

 

Consumer and overdrafts

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

4

 

Total

 

 

 

 

 

4

 

 

 

518

 

 

 

204

 

 

 

2,355

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

4

 

Total nonperforming loans

 

 

12,072

 

 

 

12,563

 

 

 

20,980

 

 

 

17,869

 

 

 

22,246

 

Real estate owned

 

 

977

 

 

 

905

 

 

 

368

 

 

 

211

 

 

 

571

 

Total non-performing loans

 

 

1,795

 

 

 

2,727

 

 

 

6,102

 

 

 

12,072

 

 

 

12,563

 

Foreclosed real estate

 

 

-

 

 

 

1,158

 

 

 

460

 

 

 

977

 

 

 

905

 

Total non-performing assets

 

$

13,049

 

 

$

13,468

 

 

$

21,348

 

 

$

18,080

 

 

$

22,817

 

 

$

1,795

 

 

$

3,885

 

 

$

6,562

 

 

$

13,049

 

 

$

13,468

 

Troubled debt restructurings (accruing):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

$

457

 

 

$

378

 

 

$

2,319

 

 

$

423

 

 

$

 

Commercial mortgage loans

 

 

1,914

 

 

 

8,977

 

 

 

1,388

 

 

 

1,394

 

 

 

1,403

 

Construction loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,207

 

Commercial business loans

 

 

3,210

 

 

 

3,909

 

 

 

7,901

 

 

 

7,113

 

 

 

8,144

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

 

 

 

 

 

 

 

Other loans

 

 

 

 

 

 

 

 

72

 

 

 

2,040

 

 

 

 

Total troubled debt restructurings (accruing)

 

$

5,592

 

 

$

13,275

 

 

$

11,680

 

 

$

10,970

 

 

$

12,754

 

Total non-performing assets and troubled

debt restructurings (accruing)

 

$

18,641

 

 

$

26,743

 

 

$

33,028

 

 

$

29,050

 

 

$

35,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-performing loans to total loans

 

 

1.48

%

 

 

1.60

%

 

 

2.87

%

 

 

3.51

%

 

 

4.92

%

 

 

0.14

%

 

 

0.25

%

 

 

0.67

%

 

 

1.48

%

 

 

1.60

%

Total non-performing loans to total assets

 

 

0.85

%

 

 

1.00

%

 

 

1.75

%

 

 

1.83

%

 

 

2.29

%

Total non-performing assets and troubled debt

restructurings (accruing) to total assets

 

 

1.31

%

 

 

2.12

%

 

 

2.75

%

 

 

2.97

%

 

 

3.67

%

Total non-performing assets to total assets

 

 

0.10

%

 

 

0.24

%

 

 

0.44

%

 

 

0.91

%

 

 

1.07

%

 


Interest income that would have been recorded for the year ended June 30, 20172020 had non-accruing loans been current according to their original terms, amounted to $273,000.$71,000.  

Potential Problem Loans. Certain loans are identified during our loan review process that are currently performing according to their contractual terms and we expect to receive payment in full of principal and interest, but it is deemed probable that we will be unable to collect all the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. This may result from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower.

Other potential problem loans are those loans that are currently performing, but where known information about possible credit problems of the borrowers causes us to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms. These loans are not classified as impaired. At June 30, 2017,2020, other potential problem loans totaled $6.5$10.0 million.


Additionally, as detailed in Note 4 to the consolidated financial statements, in association with the COVID-19 pandemic, including the New York State Department of Financial Services emergency regulations on providing consumer and small business payment accommodations, the Company has granted loan payment deferrals, generally for a 90-day period, for 320 loans totaling $216.2 million as of June 30, 2020. A vast majority of these loans were performing according to their contractual terms prior to modification, and thus are not reported as nonperforming as of June 30, 2020, however the potential impact of the COVID-19 pandemic causes us to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms following the deferral period provided by the modification.

Classified Assets. The following table sets forth information regarding our classified assets, as defined under applicable regulatory standards, at the dates indicated.

 

 

At June 30,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Special mention

 

$

4,562

 

 

$

11,716

 

Substandard

 

 

7,338

 

 

 

8,460

 

Doubtful

 

 

-

 

 

 

-

 

Loss

 

 

-

 

 

 

-

 

Total

 

$

11,900

 

 

$

20,176

 

 

 

 

 

 

 

 

 

 

COVID-19 Related Loan Payment Deferrals. The COVID-19 pandemic has created extensive disruptions to the local economy and our customers. In accordance with emergency regulations promulgated by New York State Department of Financial Services, financial institutions are required to provide payment accommodations, which may include payment deferrals, to any consumer and small businesses who can demonstrate financial hardship caused by COVID-19. Throughout the pandemic and as of August 31, 2020, the Company has granted loan payment deferrals for 109 residential mortgage loans and home equity line of credit totaling $31.3 million, as well as deferrals for 211 commercial mortgage, commercial loan and construction loans totaling $181.2 million. The table below summarizes the deferrals granted and their status as of August 31, 2020 (dollar amounts in thousands):

 

 

 

At June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

(Dollars in thousands)

 

Special mention

 

$

192

 

 

$

5,368

 

 

$

8,550

 

Substandard

 

 

25,146

 

 

 

35,265

 

 

 

41,866

 

Doubtful

 

 

 

 

 

349

 

 

 

 

Loss

 

 

 

 

 

 

 

 

 

Total

 

$

25,338

 

 

$

40,982

 

 

$

50,416

 

 

 

 

 

 

 

 

 

 

Remain on deferral as of 8/31/20

 

 

Scheduled to resume payments on or before 8/31/2020

 

 

 

Number of loans

 

Recorded Investment

 

 

Number of loans

 

Recorded Investment

 

% of Total Amount Granted Deferral

 

 

Number of loans

 

Recorded Investment

 

% of Total Amount Granted Deferral

 

% of Loans 30 Days or More Past Due

 

Consumer

 

 

109

 

$

31,315

 

 

 

21

 

$

7,926

 

 

25.3

%

 

 

88

 

$

23,389

 

 

74.7

%

-

%

Commercial

 

 

211

 

 

181,238

 

 

 

13

 

 

19,256

 

 

10.6

 

 

 

198

 

 

161,982

 

 

89.4

 

0.3

 

Total

 

 

320

 

$

212,553

 

 

 

34

 

$

27,182

 

 

12.8

%

 

 

286

 

$

185,371

 

 

87.2

%

 

0.3

%

Of those loans still on deferral as of August 31, 2020, $9.2 million are currently scheduled to resume payments prior to September 30, 2020, with the remainder scheduled to resume payments prior to December 31, 2020. As our borrowers’ financial condition and individual circumstances are assessed in the coming weeks and months, additional payment deferrals may be granted.

 

Allowance for Loan Losses. The allowance for loan losses is maintained at levels considered adequate by management to provide for probable incurred loan losses inherent in the loan portfolio at the consolidated balance sheet reporting dates. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and non-accrual loans, national and local business conditions, loss experience and an overall evaluation of the quality of the underlying collateral.


The following table sets forth activity in our allowance for loan losses for the years indicated.  

 

 

Year Ended June 30,

 

 

Year Ended June 30,

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Allowance for loan losses at beginning of period

 

$

4,042

 

 

$

3,921

 

 

$

4,057

 

 

$

3,985

 

 

$

4,945

 

 

$

5,664

 

 

$

4,904

 

 

$

5,150

 

 

$

4,042

 

 

$

3,921

 

Provision for loan losses

 

 

823

 

 

 

1,859

 

 

 

1,326

 

 

 

903

 

 

 

741

 

 

 

3,064

 

 

 

808

 

 

 

414

 

 

 

823

 

 

 

1,859

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

275

 

 

 

400

 

 

 

175

 

 

 

105

 

 

 

217

 

 

 

31

 

 

 

-

 

 

 

136

 

 

 

275

 

 

 

400

 

Commercial mortgage loans

 

 

 

 

 

10

 

 

 

361

 

 

 

 

 

 

122

 

 

 

-

 

 

 

129

 

 

 

-

 

 

 

-

 

 

 

10

 

Construction loans

 

 

108

 

 

 

 

 

 

327

 

 

 

 

 

 

446

 

 

 

-

 

 

 

-

 

 

 

997

 

 

 

108

 

 

 

-

 

Commercial business loans

 

 

327

 

 

 

1,668

 

 

 

1,181

 

 

 

743

 

 

 

857

 

Commercial loans

 

 

181

 

 

 

-

 

 

 

54

 

 

 

743

 

 

 

1,677

 

Home equity lines of credit

 

 

 

 

 

24

 

 

 

43

 

 

 

 

 

 

76

 

 

 

-

 

 

 

-

 

 

 

60

 

 

 

-

 

 

 

24

 

Other loans

 

 

419

 

 

 

31

 

 

 

104

 

 

 

28

 

 

 

4

 

Consumer and overdrafts

 

 

51

 

 

 

34

 

 

 

23

 

 

 

3

 

 

 

22

 

Total charge-offs

 

 

1,129

 

 

 

2,133

 

 

 

2,191

 

 

 

876

 

 

 

1,722

 

 

$

263

 

 

$

163

 

 

$

1,270

 

 

$

1,129

 

 

$

2,133

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

70

 

 

 

 

 

 

5

 

 

 

16

 

 

 

 

 

 

9

 

 

 

10

 

 

 

1

 

 

 

70

 

 

 

-

 

Commercial mortgage loans

 

 

19

 

 

 

178

 

 

 

8

 

 

 

10

 

 

 

5

 

 

 

125

 

 

 

-

 

 

 

370

 

 

 

19

 

 

 

178

 

Construction loans

 

 

 

 

 

192

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

96

 

 

 

-

 

 

 

-

 

 

 

192

 

Commercial business loans

 

 

1,321

 

 

 

 

 

 

710

 

 

 

3

 

 

 

6

 

Commercial loans

 

 

20

 

 

 

2

 

 

 

220

 

 

 

1,321

 

 

 

25

 

Home equity lines of credit

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

12

 

 

 

-

 

 

 

19

 

 

 

-

 

 

 

-

 

Other loans

 

 

4

 

 

 

25

 

 

 

 

 

 

16

 

 

 

10

 

Consumer and overdrafts

 

 

8

 

 

 

7

 

 

 

-

 

 

 

4

 

 

 

-

 

Total recoveries

 

 

1,414

 

 

 

395

 

 

 

729

 

 

 

45

 

 

 

21

 

 

 

174

 

 

 

115

 

 

 

610

 

 

 

1,414

 

 

 

395

 

Net charge-offs (recoveries)

 

 

(285

)

 

 

1,738

 

 

 

1,462

 

 

 

831

 

 

 

1,701

 

 

 

89

 

 

 

48

 

 

 

660

 

 

 

(285

)

 

 

1,738

 

Allowance for loan losses at end of period

 

$

5,150

 

 

$

4,042

 

 

$

3,921

 

 

$

4,057

 

 

$

3,985

 

 

$

8,639

 

 

$

5,664

 

 

$

4,904

 

 

$

5,150

 

 

$

4,042

 

Allowance for loan losses to non-performing

loans at end of period

 

 

42.66

%

 

 

32.17

%

 

 

18.69

%

 

 

22.70

%

 

 

17.91

%

 

 

481.28

%

 

 

207.70

%

 

 

80.37

%

 

 

42.66

%

 

 

32.17

%

Allowance for loan losses to total loans

outstanding at end of period

 

 

0.63

%

(1)

 

0.51

%

(1)

 

0.54

%

(1)

 

0.80

%

 

 

0.88

%

 

 

0.69

%

 

 

0.52

%

 

 

0.54

%

 

 

0.63

%

 

 

0.51

%

Net charge-offs (recoveries) to average loans

outstanding during period

 

 

(0.04

)%

 

 

0.23

%

 

 

0.27

%

 

 

0.17

%

 

 

0.37

%

 

 

0.01

%

 

 

0.01

%

 

 

0.08

%

 

 

(0.04

)%

 

 

0.23

%

(1)

Loans acquired in the CMS Bancorp, Inc./CMS Bank acquisition were recorded at their estimated fair value at the acquisition date and did not include a carry-over of the related pre-acquisition allowance for loan losses.


Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

 

 

At June 30,

 

 

 

 

2020

 

 

2019

 

 

 

 

Amount

 

 

Percent of Allowance to Total Allowance

 

 

Percent of Loans in Category to Total Loans

 

 

Amount

 

 

Percent of Allowance to Total Allowance

 

 

Percent of Loans in Category to Total Loans

 

 

 

 

(Dollars in thousands)

 

 

Residential mortgage loans

 

$

373

 

 

 

4.32

%

 

 

20.14

%

 

$

446

 

 

 

7.87

%

 

 

24.17

%

 

Commercial mortgage loans

 

 

6,913

 

 

 

80.02

 

 

 

63.65

 

 

 

3,853

 

 

 

68.03

 

 

 

59.38

 

 

Construction loans

 

 

165

 

 

 

1.91

 

 

 

0.87

 

 

 

159

 

 

 

2.81

 

 

 

1.21

 

 

Commercial loans

 

 

1,124

 

 

 

13.01

 

 

 

12.95

 

 

 

1,130

 

 

 

19.95

 

 

 

12.18

 

 

Home equity lines of credit

 

 

60

 

 

 

0.69

 

 

 

2.35

 

 

 

65

 

 

 

1.15

 

 

 

3.03

 

 

Consumer and overdrafts

 

 

4

 

 

 

0.05

 

 

 

0.04

 

 

 

11

 

 

 

0.19

 

 

 

0.03

 

 

Total

 

$

8,639

 

 

 

100.00

%

 

 

100.00

%

 

$

5,664

 

 

 

100.00

%

 

 

100.00

%

 


 

 

At June 30,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

Amount

 

 

Percent of Allowance to Total Allowance

 

 

Percent of Loans in Category to Total Loans

 

 

Amount

 

 

Percent of Allowance to Total Allowance

 

 

Percent of Loans in Category to Total Loans

 

 

Amount

 

 

Percent of Allowance to Total Allowance

 

 

Percent of Loans in Category to Total Loans

 

 

 

 

(Dollars in thousands)

 

 

Residential mortgage loans

 

$

459

 

 

 

9.36

%

 

 

27.67

%

 

$

386

 

 

 

7.50

%

 

 

26.77

%

 

$

237

 

 

 

5.86

%

 

 

28.79

%

 

Commercial mortgage loans

 

 

3,073

 

 

 

62.66

 

 

 

54.70

 

 

 

2,589

 

 

 

50.26

 

 

 

53.80

 

 

 

2,149

 

 

 

53.17

 

 

 

49.14

 

 

Construction loans

 

 

505

 

 

 

10.30

 

 

 

1.92

 

 

 

1,150

 

 

 

22.33

 

 

 

2.75

 

 

 

269

 

 

 

6.66

 

 

 

3.19

 

 

Commercial loans

 

 

780

 

 

 

15.91

 

 

 

11.50

 

 

 

949

 

 

 

18.43

 

 

 

11.50

 

 

 

1,313

 

 

 

32.48

 

 

 

13.60

 

 

Home equity lines of credit

 

 

80

 

 

 

1.63

 

 

 

4.13

 

 

 

76

 

 

 

1.48

 

 

 

5.15

 

 

 

73

 

 

 

1.81

 

 

 

5.24

 

 

Consumer and overdrafts

 

 

7

 

 

 

0.14

 

 

 

0.08

 

 

 

-

 

 

 

-

 

 

 

0.03

 

 

 

1

 

 

 

0.02

 

 

 

0.04

 

 

Total

 

$

4,904

 

 

 

100.00

%

 

 

100.00

%

 

$

5,150

 

 

 

100.00

%

 

 

100.00

%

 

$

4,042

 

 

 

100.00

%

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company has taken actions to identify, assess and address its COVID-19-related credit exposure. Many factors are unknown, including the length of the resulting economic shutdown and phased re-opening imposed by New York State and other neighboring states, the impacts of the government fiscal and monetary relief measures, including payment deferral programs, as well as the long-term impacts COVID-19 may have on our consumer and commercial borrowers. The following table provides the Company’s commercial and construction exposures to those industries the Company believes to be the most directly and significantly impacted by the pandemic:

 

 

 

At June 30,

 

 

 

2017

 

 

2016

 

 

 

Amount

 

 

Percent of

Allowance

to Total

Allowance

 

 

Percent of

Loans in

Category

to Total

Loans

 

 

Amount

 

 

Percent of

Allowance

to Total

Allowance

 

 

Percent of

Loans in

Category

to Total

Loans

 

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

$

386

 

 

 

7.50

%

 

 

26.77

%

 

$

237

 

 

 

5.86

%

 

 

28.79

%

Commercial mortgage loans

 

 

2,589

 

 

 

50.26

 

 

 

53.80

 

 

 

2,149

 

 

 

53.17

 

 

 

49.14

 

Construction loans

 

 

1,150

 

 

 

22.33

 

 

 

2.75

 

 

 

269

 

 

 

6.66

 

 

 

3.19

 

Commercial business loans

 

 

805

 

 

 

15.63

 

 

 

9.84

 

 

 

1,001

 

 

 

24.76

 

 

 

11.54

 

Home equity lines of credit

 

 

76

 

 

 

1.48

 

 

 

5.15

 

 

 

73

 

 

 

1.81

 

 

 

5.24

 

Other loans

 

 

144

 

 

 

2.80

 

 

 

1.69

 

 

 

313

 

 

 

7.74

 

 

 

2.10

 

Total

 

$

5,150

 

 

 

100.00

%

 

 

100.00

%

 

$

4,042

 

 

 

100.00

%

 

 

100.00

%

Industry Sector:

Total Balance Outstanding as of

June 30, 2020 (1)

(amounts in thousands)

 

% of Total Loans Receivable

 

% Secured by Real Estate Collateral

 

% Receiving Payment Assistance (4)

 

Loan-to-Value % (5)

 

Retail (2)

$

140,086

 

 

11.1

%

 

98.1

%

 

31.9

%

 

51.8

%

Mixed-use with retail component

 

105,054

 

 

8.3

 

 

100.0

 

 

21.4

 

 

52.9

 

Hotels and accommodation services (3)

 

39,455

 

 

3.1

 

 

100.0

 

 

44.4

 

 

56.4

 

Food service (incl. restaurants)

 

26,596

 

 

2.1

 

 

96.2

 

 

49.1

 

 

56.2

 

Arts, entertainment and recreation

 

10,296

 

 

0.8

 

 

97.1

 

 

29.1

 

 

57.4

 

Total

$

321,487

 

 

25.5

%

 

98.8

%

 

31.3

%

 

53.3

%

 

 

 

At June 30,

 

 

 

2015

 

 

2014

 

 

2013

 

 

 

Amount

 

 

Percent of

Allowance

to Total

Allowance

 

 

Percent of

Loans in

Category

to Total

Loans

 

 

Amount

 

 

Percent of

Allowance to Total

Allowance

 

 

Percent of

Loans in

Category

to Total

Loans

 

 

Amount

 

 

Percent of

Allowance

to Total

Allowance

 

 

Percent of

Loans in

Category

to Total

Loans

 

 

 

(Dollars in thousands)

 

Residential mortgage loans

 

$

193

 

 

 

4.92

%

 

 

32.93

%

 

$

219

 

 

 

5.40

%

 

 

31.74

%

 

$

196

 

 

 

4.92

%

 

 

26.07

%

Commercial mortgage loans

 

 

1,766

 

 

 

45.04

 

 

 

44.46

 

 

 

1,622

 

 

 

39.98

 

 

 

37.03

 

 

 

1,409

 

 

 

35.36

 

 

 

36.20

 

Construction loans

 

 

100

 

 

 

2.55

 

 

 

1.63

 

 

 

828

 

 

 

20.41

 

 

 

3.83

 

 

 

601

 

 

 

15.08

 

 

 

4.49

 

Commercial business loans

 

 

1,682

 

 

 

42.90

 

 

 

13.66

 

 

 

1,080

 

 

 

26.62

 

 

 

18.91

 

 

 

1,512

 

 

 

37.94

 

 

 

22.97

 

Home equity lines of credit

 

 

69

 

 

 

1.76

 

 

 

5.56

 

 

 

186

 

 

 

4.58

 

 

 

6.66

 

 

 

161

 

 

 

4.04

 

 

 

8.42

 

Other loans

 

 

111

 

 

 

2.83

 

 

 

1.76

 

 

 

122

 

 

 

3.01

 

 

 

1.83

 

 

 

106

 

 

 

2.66

 

 

 

1.85

 

Total

 

$

3,921

 

 

 

100.00

%

 

 

100.00

%

 

$

4,057

 

 

 

100.00

%

 

 

100.00

%

 

$

3,985

 

 

 

100.00

%

 

 

100.00

%

(1)

Excludes PPP loan exposures.

(2)

Includes $77.0 million of loans supported by properties with credit-rated or anchored tenants.

(3)

Includes one construction relationship with an outstanding balance of $3.7 million. Includes $7.4 million in loans that have paid off in full subsequent to June 30, 2020.

(4)

Assistance is in association with COVID-19 payment modification/deferral programs; 99.7% of loans receiving assistance presented in the table above are secured by real estate, with a weighted average loan-to-value ratio of 59.9% as of June 30, 2020.

(5)

Generally based on collateral values upon origination.

As of June 30, 2020, the Company has no exposure to leveraged lending, shared national credits, energy exploration or credit cards.

 

See Note 54 to Notes to Consolidated Financial Statements for a complete discussion of the allowance for loan losses. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the


existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.


Securities Portfolio

The following table sets forth the amortized cost and estimated fair value of our available-for-sale securities portfolio at the dates indicated.

 

 

 

At June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

Amortized

Cost

 

 

Fair Value

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

155,559

 

 

$

155,008

 

 

$

145,896

 

 

$

146,202

 

 

$

169,027

 

 

$

169,067

 

Corporate and other debt securities

 

 

999

 

 

 

999

 

 

 

 

 

 

 

 

 

226

 

 

 

227

 

Mortgage-backed securities – residential

 

 

143,452

 

 

 

143,783

 

 

 

72,842

 

 

 

74,139

 

 

 

59,675

 

 

 

59,818

 

Mortgage-backed securities –

   collateralized mortgage obligations

 

 

59,476

 

 

 

59,387

 

 

 

30,268

 

 

 

30,580

 

 

 

21,150

 

 

 

21,098

 

Mortgage-backed securities –commercial

 

 

24,065

 

 

 

24,411

 

 

 

21,673

 

 

 

22,396

 

 

 

19,835

 

 

 

19,967

 

Total

 

$

383,551

 

 

$

383,588

 

 

$

270,679

 

 

$

273,317

 

 

$

269,913

 

 

$

270,177

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

63,630

 

 

$

63,445

 

 

$

65,953

 

 

$

66,132

 

 

$

47,036

 

 

$

46,917

 

Corporate and other debt securities

 

 

8,460

 

 

 

8,482

 

 

 

8,514

 

 

 

8,646

 

 

 

4,530

 

 

 

4,409

 

Mortgage-backed securities – residential

 

 

39,710

 

 

 

39,930

 

 

 

37,043

 

 

 

37,524

 

 

 

32,791

 

 

 

33,568

 

Equity securities

 

 

32

 

 

 

32

 

 

 

49

 

 

 

49

 

 

 

49

 

 

 

49

 

Total

 

$

111,832

 

 

$

111,889

 

 

$

111,559

 

 

$

112,351

 

 

$

84,406

 

 

$

84,943

 

 

 

At June 30,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

42,001

 

 

$

42,450

 

 

$

96,545

 

 

$

96,491

 

 

$

122,048

 

 

$

119,774

 

Corporate and other debt securities

 

 

52,790

 

 

 

51,612

 

 

 

34,033

 

 

 

33,753

 

 

 

4,000

 

 

 

3,874

 

Mortgage-backed securities – residential

 

 

117,160

 

 

 

121,434

 

 

 

133,602

 

 

 

134,048

 

 

 

140,478

 

 

 

135,664

 

Mortgage-backed securities – collateralized mortgage obligations

 

 

45,047

 

 

 

46,503

 

 

 

52,940

 

 

 

53,104

 

 

 

53,547

 

 

 

51,732

 

Mortgage-backed securities – commercial

 

 

18,774

 

 

 

19,498

 

 

 

28,425

 

 

 

28,847

 

 

 

33,110

 

 

 

32,144

 

Total

 

$

275,772

 

 

$

281,497

 

 

$

345,545

 

 

$

346,243

 

 

$

353,183

 

 

$

343,188

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

11,002

 

 

$

11,049

 

 

$

37,027

 

 

$

36,911

 

 

$

64,389

 

 

$

63,430

 

Corporate and other debt securities

 

 

5,038

 

 

 

5,120

 

 

 

8,349

 

 

 

8,360

 

 

 

8,406

 

 

 

8,235

 

Mortgage-backed securities – residential

 

 

20,844

 

 

 

21,257

 

 

 

27,115

 

 

 

26,957

 

 

 

34,619

 

 

 

33,807

 

Total

 

$

36,884

 

 

$

37,426

 

 

$

72,491

 

 

$

72,228

 

 

$

107,414

 

 

$

105,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2017,2020, we had no investments in a single issuer, other than securities issued by the U.S. government and government agencies, which had an aggregate book value in excess of 10% of our shareholders’ equity.

 

 


Securities Portfolio Maturities and Yields. The following table sets forth the stated maturities and weighted average yields of investment securities at June 30, 2017.2020. The tables do not include any estimate of principal payments or prepayments that significantly shorten the average life of mortgage-backed securities. Certain mortgage-backed securities, corporate and other debt securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the following table. Weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity. At June 30, 2017,2020, we did not have any investments in any private-label collateralized mortgage obligations.

 

 

One Year or Less

 

 

More than One Year to

Five Years

 

 

More than Five Years to

Ten Years

 

 

More than Ten Years

 

 

Total

 

 

 

 

 

Amortized

 

 

Weighted

Average

 

 

Amortized

 

 

Weighted

Average

 

 

Amortized

 

 

Weighted

Average

 

 

Amortized

 

 

Weighted

Average

 

 

Amortized

 

 

 

 

 

 

Weighted

Average

 

 

One Year or Less

 

 

More than One Year to Five Years

 

 

More than Five Years to Ten Years

 

 

 

More than Ten Years

 

 

 

Total

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Fair Value

 

 

Yield

 

 

Amortized Cost

 

 

Weighted Average Yield

 

 

Amortized Cost

 

 

Weighted Average Yield

 

 

Amortized Cost

 

 

Weighted Average Yield

 

 

Amortized Cost

 

 

Weighted Average Yield

 

 

Amortized Cost

 

 

Fair Value

 

 

Weighted Average Yield

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

49,487

 

 

 

0.98

%

 

$

106,072

 

 

 

1.55

%

 

$

 

 

 

%

 

$

 

 

 

%

 

$

155,559

 

 

$

155,008

 

 

 

1.37

%

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

15,001

 

 

 

1.57

%

 

$

27,000

 

 

 

1.08

%

 

$

-

 

 

 

-

%

 

 

$

-

 

 

 

-

%

 

 

$

42,001

 

 

$

42,450

 

 

 

1.25

%

Corporate and other debt securities

 

 

999

 

 

 

0.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

999

 

 

 

999

 

 

 

0.89

 

 

 

-

 

 

 

-

 

 

 

5,000

 

 

 

4.25

 

 

 

38,633

 

 

 

4.79

 

 

 

9,157

 

 

 

2.47

 

 

 

52,790

 

 

 

51,612

 

 

 

4.34

 

Mortgage-backed securities – residential

 

 

35

 

 

 

4.80

 

 

 

7,070

 

 

 

2.40

 

 

 

29,737

 

 

 

2.05

 

 

 

106,610

 

 

 

2.44

 

 

 

143,452

 

 

 

143,783

 

 

 

2.36

 

 

 

-

 

 

 

-

 

 

 

11,518

 

 

 

2.32

 

 

 

23,520

 

 

 

2.08

 

 

 

82,122

 

 

 

2.32

 

 

 

117,160

 

 

 

121,434

 

 

 

2.27

 

Mortgage-backed securities – collateralized

mortgage obligations

 

 

 

 

 

 

 

 

1,975

 

 

 

1.67

 

 

 

9,704

 

 

 

2.29

 

 

 

47,797

 

 

 

2.18

 

 

 

59,476

 

 

 

59,387

 

 

 

2.18

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,988

 

 

 

1.93

 

 

 

39,059

 

 

 

2.30

 

 

 

45,047

 

 

 

46,503

 

 

 

2.25

 

Mortgage-backed securities – commercial

 

 

 

 

 

 

 

 

7,856

 

 

 

1.99

 

 

 

14,281

 

 

 

2.50

 

 

 

1,928

 

 

 

3.31

 

 

 

24,065

 

 

 

24,411

 

 

 

2.40

 

 

 

1,741

 

 

 

2.18

 

 

 

15,085

 

 

 

2.44

 

 

 

1,948

 

 

 

3.30

 

 

 

-

 

 

 

-

 

 

 

18,774

 

 

 

19,498

 

 

 

2.51

 

Total

 

$

50,521

 

 

 

0.98

%

 

$

122,973

 

 

 

1.63

%

 

$

53,722

 

 

 

2.21

%

 

$

156,335

 

 

 

2.37

%

 

$

383,551

 

 

$

383,588

 

 

 

1.93

%

 

$

16,742

 

 

 

1.63

%

 

$

58,603

 

 

 

1.94

%

 

$

70,089

 

 

 

3.59

%

 

$

130,338

 

 

 

3.33

%

 

$

275,772

 

 

$

281,497

 

 

 

2.53

%

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

16,005

 

 

 

0.85

%

 

$

47,625

 

 

 

1.47

%

 

$

 

 

 

%

 

$

 

 

 

%

 

$

63,630

 

 

$

63,445

 

 

 

1.31

%

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

10,002

 

 

 

1.59

%

 

$

1,000

 

 

 

1.35

%

 

$

-

 

 

 

-

%

 

 

$

-

 

 

 

-

%

 

 

$

11,002

 

 

$

11,049

 

 

 

1.57

%

Corporate and other debt securities

 

 

 

 

 

 

 

 

6,460

 

 

 

2.34

 

 

 

2,000

 

 

 

3.00

 

 

 

 

 

 

 

 

 

8,460

 

 

 

8,482

 

 

 

2.49

 

 

 

-

 

 

 

-

 

 

 

5,038

 

 

 

2.15

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,038

 

 

 

5,120

 

 

 

2.15

 

Mortgage-backed securities – residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,761

 

 

 

2.19

 

 

 

36,949

 

 

 

1.83

 

 

 

39,710

 

 

 

39,930

 

 

 

1.85

 

 

 

-

 

 

 

-

 

 

 

2,560

 

 

 

2.21

 

 

 

-

 

 

 

-

 

 

 

18,284

 

 

 

1.07

 

 

 

20,844

 

 

 

21,257

 

 

 

1.21

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

32

 

 

 

32

 

 

 

0.00

 

Total

 

$

16,005

 

 

 

0.85

%

 

$

54,085

 

 

 

1.57

%

 

$

4,761

 

 

 

2.53

%

 

$

36,981

 

 

 

1.82

%

 

$

111,832

 

 

$

111,889

 

 

 

1.59

%

 

$

10,002

 

 

 

1.59

%

 

$

8,598

 

 

 

2.08

%

 

$

-

 

 

 

-

%

 

 

$

18,284

 

 

 

1.07

%

 

$

36,884

 

 

$

37,426

 

 

 

1.45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Other-than-temporary Impairment. Each reporting period, we evaluate all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary. Other-than-temporary impairment (“OTTI”) is required to be recognized if (1) we intend to sell the security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other than temporary, the declines in fair value are reflected in earnings as realized losses.  For impaired debt securities that we intend to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI, resulting in a realized loss that is a charged to earnings through a reduction in our noninterest income. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income/loss, net of applicable taxes. We did not recognize any OTTI during the years ended June 30, 2017, 2016 and 2015.2020 or 2019.

Deposits

Deposits have traditionally been our primary source of funds for our lending and investment activities. The substantial majority of our deposits are from depositors who reside in our primary market area. Deposits are attracted through the offering of a broad selection of deposit instruments for both individuals and businesses. The following table sets forth the distribution of total deposits by account type at the dates indicated.

 

 

At June 30,

 

 

At June 30,

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

Amount

 

 

Percent

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Non-interest bearing demand accounts

 

$

136,361

 

 

 

12.53

%

 

$

122,740

 

 

 

11.03

%

 

$

129,520

 

 

 

12.21

%

NOW accounts

 

 

115,527

 

 

 

10.61

 

 

 

111,455

 

 

 

10.02

 

 

 

82,890

 

 

 

7.82

 

Non interest-bearing demand accounts

 

$

191,898

 

 

 

13.97

%

 

$

141,379

 

 

 

11.53

%

NOW Accounts

 

 

151,797

 

 

 

11.05

 

 

 

123,069

 

 

 

10.04

 

Money market accounts

 

 

29,097

 

 

 

2.67

 

 

 

31,194

 

 

 

2.80

 

 

 

33,109

 

 

 

3.12

 

 

 

239,942

 

 

 

17.47

 

 

 

148,134

 

 

 

12.08

 

Savings accounts

 

 

512,697

 

 

 

47.11

 

 

 

516,249

 

 

 

46.40

 

 

 

500,470

 

 

 

47.19

 

 

 

343,352

 

 

 

25.01

 

 

 

357,844

 

 

 

29.20

 

Certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than $100,000

 

 

161,961

 

 

 

12.20

 

 

 

181,827

 

 

 

16.34

 

 

 

185,974

 

 

 

17.54

 

 

 

176,732

 

 

 

12.87

 

 

 

183,607

 

 

 

14.98

 

Greater than or equal to $100,000

 

 

132,818

 

 

 

14.88

 

 

 

149,230

 

 

 

13.41

 

 

 

128,542

 

 

 

12.12

 

 

 

269,534

 

 

 

19.63

 

 

 

271,788

 

 

 

22.17

 

Total

 

$

1,088,461

 

 

 

100.00

%

 

$

1,112,695

 

 

 

100.00

%

 

$

1,060,505

 

 

 

100.00

%

 

$

1,373,255

 

 

 

100.00

%

 

$

1,225,821

 

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

At June 30, 20172020 and 2016,2019, we had municipal deposits of $38.4$44.1 million and $49.4$40.1 million, respectively. MunicipalAdditionally, as of June 30, 2020 and 2019, deposits are held by our commercial bank subsidiary, PCSB Commercial Bank.included $67.5 million and $77.5 million, respectively, of brokered time deposits with remaining maturities of between 6 and 44 months.

The following table indicates the amount of jumbo certificates of deposittime deposits by time remaining until maturity at June 30, 2017.2020.  Jumbo certificates of deposittime deposits require minimum deposits of $100,000.

 

Maturity Period

 

Dollar Amount

 

 

Dollar Amount

 

 

(In thousands)

 

 

(in thousands)

 

At June 30, 2017:

 

 

 

 

Three months or less

 

$

11,426

 

 

$

34,876

 

Over three through six months

 

 

7,423

 

 

 

48,182

 

Over six through twelve months

 

 

16,235

 

 

 

78,950

 

Over twelve months

 

 

97,734

 

 

 

107,526

 

Total

 

$

132,818

 

 

$

269,534

 

 

 

 

 

 


The following tables set forth time deposit accounts classified by rate and maturity at June 30, 2017.2020.

 

 

 

Amount Due

 

 

 

 

 

 

 

 

 

 

 

Less Than

One Year

 

 

More Than

One Year to

Two Years

 

 

More Than

Two Years

to Three

Years

 

 

More Than

Three Years

 

 

Total

 

 

Percent of

Total Time

Deposit

Accounts

 

 

 

(Dollars in thousands)

 

0.00 - 1.00%

 

$

83,311

 

 

$

18,624

 

 

$

6,114

 

 

$

175

 

 

$

108,224

 

 

 

36.71

%

1.01 – 2.00%

 

 

23,786

 

 

 

41,583

 

 

 

25,029

 

 

 

93,854

 

 

 

184,252

 

 

 

62.51

 

2.01 – 3.00%

 

 

 

 

 

2,124

 

 

 

 

 

 

179

 

 

 

2,303

 

 

 

0.78

 

3.01% and above

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

107,097

 

 

$

62,331

 

 

$

31,143

 

 

$

94,208

 

 

$

294,779

 

 

 

100.00

%

 

 

Amount Due

 

 

 

 

 

 

 

 

 

 

 

Less Than One Year

 

 

More Than One Year to Two Years

 

 

More Than Two Years to Three Years

 

 

More Than Three Years

 

 

Total

 

 

Percent of Total Time Deposit Accounts

 

 

 

(Dollars in thousands)

 

0.00 - 1.00%

 

$

60,851

 

 

$

16,306

 

 

$

862

 

 

$

2,035

 

 

$

80,054

 

 

 

17.94

%

1.01 - 2.00%

 

 

109,789

 

 

 

36,874

 

 

 

23,180

 

 

 

28,330

 

 

 

198,173

 

 

 

44.41

 

2.01 - 3.00%

 

 

99,794

 

 

 

10,591

 

 

 

8,116

 

 

 

49,334

 

 

 

167,835

 

 

 

37.60

 

3.01 - 4.00%

 

 

-

 

 

 

-

 

 

 

102

 

 

 

102

 

 

 

204

 

 

 

0.05

 

Total

 

$

270,434

 

 

$

63,771

 

 

$

32,260

 

 

$

79,801

 

 

$

446,266

 

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

We primarily utilize advances from the Federal Home Loan BankFHLB of New York to supplement our supply of investable funds. At June 30, 2017,2020 we had $393.3the ability to borrow up to $218.4 million of available borrowing capacity withfrom the Federal Home Loan BankFHLB of New York, and had $42.6of which $106.1 million in advances outstanding. Atwas outstanding as of June 30, 2017,2020. Additionally, as of June 30, 2020, we also had an available line of credit with the Federal Reserve BankFRB of New York’s discount window program of $85.9$108.7 million noneas well as $25.0 million of fed funds lines of credit, neither of which washad outstanding at that date.balances as of June 30, 2020. The following table sets forth information concerning our FHLB borrowings at the dates and for the periods indicated.

 

 

 

Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

(Dollars in thousands)

 

Maximum balance outstanding at any month-end

   during period:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

$

42,598

 

 

$

34,000

 

 

$

54,050

 

Average balance outstanding during period:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

15,911

 

 

 

23,974

 

 

 

14,902

 

Weighted average interest rate during period:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

1.32

%

 

 

0.83

%

 

 

0.49

%

Balance outstanding at end of period:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

$

42,598

 

 

$

20,081

 

 

$

14,000

 

Weighted average interest rate at end of period:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

1.55

%

 

 

1.16

%

 

 

0.52

%

 

Year Ended June 30,

 

 

2020

 

 

2019

 

 

(Dollars in thousands)

 

Maximum balance outstanding at any month-end during period:

$

156,206

 

 

$

111,216

 

Average balance outstanding during period:

 

111,008

 

 

 

24,117

 

Weighted average interest rate during period:

 

2.21

%

 

 

2.34

%

Balance outstanding at end of period:

$

106,089

 

 

$

111,216

 

Weighted average interest rate at end of period:

 

1.95

%

 

 

2.36

%

 

Average Balance Sheets and Related Yields and Rates

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material.

 

 


 

Year Ended June 30,

 

 

Year ended June 30,

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

 

Average

Balance

 

 

Interest and

Dividends

 

 

Yield/

Cost

 

 

Average

Balance

 

 

Interest and

Dividends

 

 

Yield/

Cost

 

 

Average

Balance

 

 

Interest and

Dividends

 

 

Yield/

Cost

 

 

Average

Balance

 

 

Interest/ Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/ Dividends

 

 

Average

Rate

 

 

(Dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

773,590

 

 

$

33,664

 

 

 

4.35

%

 

$

743,995

 

 

$

32,832

 

 

 

4.41

%

 

$

550,281

 

 

$

23,245

 

 

 

4.23

%

Securities

 

 

389,910

 

 

 

6,661

 

 

 

1.71

 

 

 

365,593

 

 

 

5,897

 

 

 

1.61

 

 

 

376,716

 

 

 

5,360

 

 

 

1.42

 

Loans receivable

 

$

1,198,449

 

 

$

52,107

 

 

 

4.35

%

 

$

924,182

 

 

$

41,619

 

 

 

4.50

%

Investment securities

 

 

346,569

 

 

 

8,870

 

 

 

2.56

 

 

 

444,024

 

 

 

10,022

 

 

 

2.26

 

Other interest-earning assets

 

 

74,149

 

 

 

633

 

 

 

0.85

 

 

 

62,034

 

 

 

315

 

 

 

0.51

 

 

 

70,319

 

 

 

222

 

 

 

0.32

 

 

 

69,371

 

 

 

933

 

 

 

1.34

 

 

 

77,303

 

 

 

1,806

 

 

 

2.34

 

Total interest-earning assets

 

 

1,237,649

 

 

 

40,958

 

 

 

3.31

 

 

 

1,171,622

 

 

 

39,044

 

 

 

3.33

 

 

 

997,316

 

 

 

28,827

 

 

 

2.89

 

 

 

1,614,389

 

 

 

61,910

 

 

 

3.83

 

 

 

1,445,509

 

 

 

53,447

 

 

 

3.70

 

Non-interest-earning assets

 

 

64,935

 

 

 

 

 

 

 

 

 

 

 

46,451

 

 

 

 

 

 

 

 

 

 

 

25,047

 

 

 

 

 

 

 

 

 

 

 

69,268

 

 

 

 

 

 

 

 

 

 

 

57,039

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,302,584

 

 

 

 

 

 

 

 

 

 

$

1,218,073

 

 

 

 

 

 

 

 

 

 

$

1,022,363

 

 

 

 

 

 

 

 

 

 

$

1,683,657

 

 

 

 

 

 

 

 

 

 

$

1,502,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

125,818

 

 

$

195

 

 

 

0.16

 

 

$

92,165

 

 

$

146

 

 

 

0.16

 

 

$

72,549

 

 

$

106

 

 

 

0.15

 

 

$

127,091

 

 

 

270

 

 

 

0.21

 

 

$

118,286

 

 

 

210

 

 

 

0.18

 

Money market accounts

 

 

31,260

 

 

 

83

 

 

 

0.26

 

 

 

32,770

 

 

 

89

 

 

 

0.27

 

 

 

16,272

 

 

 

39

 

 

 

0.24

 

 

 

177,052

 

 

 

1,647

 

 

 

0.93

 

 

 

107,680

 

 

 

1,216

 

 

 

1.13

 

Savings accounts

 

 

525,486

 

 

 

1,289

 

 

 

0.25

 

 

 

512,321

 

 

 

1,487

 

 

 

0.29

 

 

 

465,951

 

 

 

1,442

 

 

 

0.31

 

Certificates of deposit

 

 

313,334

 

 

 

3,516

 

 

 

1.12

 

 

 

315,028

 

 

 

2,891

 

 

 

0.92

 

 

 

244,159

 

 

 

2,225

 

 

 

0.91

 

Savings accounts and escrow

 

 

350,897

 

 

 

866

 

 

 

0.25

 

 

 

411,251

 

 

 

1,019

 

 

 

0.25

 

Time deposits

 

 

469,336

 

 

 

9,992

 

 

 

2.13

 

 

 

414,676

 

 

 

7,732

 

 

 

1.86

 

Total interest-bearing deposits

 

 

995,898

 

 

 

5,083

 

 

 

0.52

 

 

 

952,284

 

 

 

4,613

 

 

 

0.49

 

 

 

798,931

 

 

 

3,812

 

 

 

0.48

 

 

 

1,124,376

 

 

 

12,775

 

 

 

1.14

 

 

 

1,051,893

 

 

 

10,177

 

 

 

0.97

 

Federal Home Loan Bank advances

 

 

15,911

 

 

 

210

 

 

 

1.32

 

 

 

23,974

 

 

 

199

 

 

 

0.83

 

 

 

14,902

 

 

 

72

 

 

 

0.49

 

FHLB advances

 

 

111,008

 

 

 

2,456

 

 

 

2.21

 

 

 

24,117

 

 

 

566

 

 

 

2.34

 

Total interest-bearing liabilities

 

 

1,011,809

 

 

 

5,293

 

 

 

0.52

 

 

 

976,258

 

 

 

4,812

 

 

 

0.49

 

 

 

813,833

 

 

 

3,884

 

 

 

0.48

 

 

 

1,235,384

 

 

 

15,231

 

 

 

1.23

 

 

 

1,076,010

 

 

 

10,743

 

 

 

1.00

 

Non-interest-bearing deposits

 

 

126,666

 

 

 

 

 

 

 

 

 

 

 

118,871

 

 

 

 

 

 

 

 

 

 

 

88,103

 

 

 

 

 

 

 

 

 

 

 

148,262

 

 

 

 

 

 

 

 

 

 

 

133,143

 

 

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

13,083

 

 

 

 

 

 

 

 

 

 

 

9,989

 

 

 

 

 

 

 

 

 

 

 

7,667

 

 

 

 

 

 

 

 

 

 

 

21,563

 

 

 

 

 

 

 

 

 

 

 

8,108

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,151,558

 

 

 

 

 

 

 

 

 

 

 

1,105,118

 

 

 

 

 

 

 

 

 

 

 

909,603

 

 

 

 

 

 

 

 

 

 

 

1,405,209

 

 

 

 

 

 

 

 

 

 

 

1,217,261

 

 

 

 

 

 

 

 

 

Total equity

 

 

151,026

 

 

 

 

 

 

 

 

 

 

 

112,955

 

 

 

 

 

 

 

 

 

 

 

112,760

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,302,584

 

 

 

 

 

 

 

 

 

 

$

1,218,073

 

 

 

 

 

 

 

 

 

 

$

1,022,363

 

 

 

 

 

 

 

 

 

Total shareholders' equity

 

 

278,448

 

 

 

 

 

 

 

 

 

 

 

285,287

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

1,683,657

 

 

 

 

 

 

 

 

 

 

$

1,502,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

35,665

 

 

 

 

 

 

 

 

 

 

$

34,232

 

 

 

 

 

 

 

 

 

 

$

24,943

 

 

 

 

 

 

 

 

 

 

$

46,679

 

 

 

 

 

 

 

 

 

 

$

42,704

 

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

 

 

 

2.79

 

 

 

 

 

 

 

 

 

 

 

2.84

 

 

 

 

 

 

 

 

 

 

 

2.41

 

 

 

 

 

 

 

 

 

 

 

2.60

 

 

 

 

 

 

 

 

 

 

 

2.70

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.88

 

 

 

 

 

 

 

 

 

 

 

2.92

 

 

 

 

 

 

 

 

 

 

 

2.50

 

 

 

 

 

 

 

 

 

 

 

2.89

 

 

 

 

 

 

 

 

 

 

 

2.95

 

Average interest-earning assets to average

interest-bearing liabilities

 

 

122.32

%

 

 

 

 

 

 

 

 

 

 

120.01

%

 

 

 

 

 

 

 

 

 

 

122.55

%

 

 

 

 

 

 

 

 

Average interest-earning assets to interest-bearing liabilities

 

 

130.68

%

 

 

 

 

 

 

 

 

 

 

134.34

%

 

 

 

 

 

 

 

 

 

 

 


Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

 

 

Year Ended June 30, 2017

Compared to

Year Ended June 30, 2016

 

 

Year Ended June 30, 2016

Compared to

Year Ended June 30, 2015

 

 

Year ended June 30, 2020 Compared to 2019

 

 

Increase (Decrease)

Due to

 

 

 

 

 

 

Increase (Decrease)

Due to

 

 

 

 

 

 

Increase (Decrease) Due to

 

 

 

 

 

 

Rate

 

 

Volume

 

 

Net

 

 

Rate

 

 

Volume

 

 

Net

 

 

Rate

 

 

Volume

 

 

Net

 

 

(Dollars in thousands)

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

(644

)

 

$

1,476

 

 

$

832

 

 

$

819

 

 

$

8,768

 

 

$

9,587

 

 

$

(1,614

)

 

$

12,102

 

 

$

10,488

 

Securities

 

 

75

 

 

 

689

 

 

 

764

 

 

 

320

 

 

 

217

 

 

 

537

 

Investment securities

 

 

276

 

 

 

(1,428

)

 

 

(1,152

)

Other interest-earning assets

 

 

235

 

 

 

83

 

 

 

318

 

 

 

125

 

 

 

(32

)

 

 

93

 

 

 

(705

)

 

 

(168

)

 

 

(873

)

Total interest-earning assets

 

 

(334

)

 

 

2,248

 

 

 

1,914

 

 

 

1,264

 

 

 

8,953

 

 

 

10,217

 

 

 

(2,043

)

 

 

10,506

 

 

 

8,463

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

2

 

 

 

47

 

 

 

49

 

 

 

10

 

 

 

30

 

 

 

40

 

 

 

43

 

 

 

17

 

 

 

60

 

Money market accounts

 

 

(2

)

 

 

(4

)

 

 

(6

)

 

 

6

 

 

 

44

 

 

 

50

 

 

 

(244

)

 

 

675

 

 

 

431

 

Savings accounts

 

 

(244

)

 

 

46

 

 

 

(198

)

 

 

(41

)

 

 

86

 

 

 

45

 

Certificates of deposit

 

 

641

 

 

 

(16

)

 

 

625

 

 

 

16

 

 

 

650

 

 

 

666

 

Federal Home Loan Bank advances

 

 

92

 

 

 

(81

)

 

 

11

 

 

 

69

 

 

 

58

 

 

 

127

 

Savings and escrow accounts

 

 

44

 

 

 

(197

)

 

 

(153

)

Time deposits

 

 

1,173

 

 

 

1,087

 

 

 

2,260

 

FHLB advances

 

 

(34

)

 

 

1,924

 

 

 

1,890

 

Total interest-bearing liabilities

 

 

489

 

 

 

(8

)

 

 

481

 

 

 

60

 

 

 

868

 

 

 

928

 

 

 

982

 

 

 

3,506

 

 

 

4,488

 

Net increase (decrease) in net interest

income

 

$

(823

)

 

$

2,256

 

 

$

1,433

 

 

$

1,204

 

 

$

8,085

 

 

$

9,289

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in net interest income

 

$

(3,025

)

 

$

7,000

 

 

$

3,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparison of Financial Condition at June 30, 20172020 and June 30, 20162019

Total Assets. Total assets increased $164.4$154.4 million, or 13.0%9.4%, to $1.4$1.79 billion at June 30, 20172020 from $1.3$1.64 billion at June 30, 2016.2019. The increase is primarily the result of increases of $112.9$167.8 million in net loans receivable, $76.3 million in cash and cash equivalents and $9.1 million in premises and equipment, partially offset by decreases of $69.7 million in held to maturity securities $27.3and $34.8 million in net loans and $18.9 million in cash and cash equivalents, partially offset by a decrease of $1.4 million in deferred tax asset. The increase in total assets was the result of net proceeds of $163.5 million resulting from the Company’s initial public offering during the current fiscal year.securities available for sale.

Cash and Cash Equivalents.Equivalents. Cash and cash equivalents increased $18.9$76.3 million, or 45.5%127.1%, to $60.5$136.3 million at June 30, 20172020 from $41.6$60.0 million at June 30, 2016.2019. The increase is primarily due primarily to $163.5 milliona $147.4 increase in net conversion proceedsdeposits and a $22.5$104.6 million increasedecrease in advances,total investment securities, partially offset by a $112.9$167.8 million increase in held to maturity securities, a $27.3 million increase in net loans receivable and a $24.2$5.1 million decrease in deposits.  FHLB advances.

Securities Held-to-Maturity. Held to Maturity. Total securities held to maturity increased $112.9decreased $69.7 million, or 41.7%20.2%, to $383.6$275.8 million at June 30, 20172020 from $270.7$345.5 million at June 30, 2016.  2019. This increasedecrease was caused primarily caused by increases$54.5 million of $102.2 million in mortgage-backed securities, $9.7 million incalls and maturities, net of purchases of U.S. government and agency obligations and $1.0$45.5 million in municipal securities.of amortization of mortgage-backed securities, partially offset by net purchases of corporate and other bonds and mortgage-backed securities of $18.8 million and $11.5 million, respectively.

Securities Available for Sale. Total securities available for sale decreased $462,000,$34.8 million, or 0.4%48.2%, to $111.9$37.4 million at June 30, 20172020 from $112.4$72.2 million at June 30, 2016.2019. This declinedecrease was primarily due to decreases of $2.7$26.0 million in maturities of U.S. government and agency obligations, amortization and $164,000 insales, net of purchases of mortgage-backed securities of $6.3 million and purchases net of sales of corporate and other debt securities,bonds of $3.3 million, partially offset by ana $805,000 increase of $2.4 million in mortgage backed securities.net unrealized gains.


Net Loans.Loans Receivable. Net loans receivable increased $27.3$167.8 million, or 3.5%15.4%, to $809.6$1.26 billion at June 30, 2020 from $1.09 billion at June 30, 2019. The increase in loans receivable was the result of $206.3 million of non-PPP loan originations, $49.6 million of PPP loan originations and $47.9 million of loan purchases, partially offset by $136.0 million of net amortization, repayments and other loan activity. Commercial mortgage loans and commercial loans increased $155.7 million and $30.6 million, respectively, while all other loans had a net decrease of $18.5 million. The increase in commercial loans includes $49.6 million of PPP loans originated in the fourth quarter.

Premises and Equipment. Premises and equipment, net, increased $9.1 million, to $20.9 million at June 30, 20172020 from $782.3$11.8 million at June 30, 2016.  The2019. This increase is primarily due tothe result of an $11.9 million net originationsincrease in lease assets (a net increase in lease liabilities of $51.8$12.0 million was recorded in other liabilities) associated with the adoption of ASU 2016-02 and the acquisition of $1.5 million in commercial mortgageslease assets and $747,000 in home equity credit lines,other premises and equipment during the year, partially offset by net repayments of $10.5$13.6 million in commercial loans, $8.3 million in residential mortgages, $2.7 million in consumeramortization and installment loans, and $2.6 million in construction loans.depreciation.


Deposits. Total deposits decreased $24.2increased $147.4 million, or 2.2%12.0%, to $1.1$1.37 billion at June 30, 2017 from $1.12020 as compared to $1.23 billion at June 30, 2016.2019. This decreaseincrease primarily reflects a $36.4increases of $91.8 million decrease in certificates of depositmoney market accounts, $50.5 million in demand deposits and a $1.5$28.7 million in NOW accounts, partially offset by $14.5 million decrease in savings accounts partially offset by a $13.7and $9.1 million increase in demand accounts.time deposits. A majority of the growth in deposits, $93.7 million or 7.3%, occurred in the fourth quarter, likely the result of numerous economic trends associated with COVID-19, including reduced consumer and commercial spending, various forms of government stimulus and volatile stock market performance.

Federal Home Loan Bank Advances. Federal Home Loan Bank FHLB advances increased $22.5decreased $5.1 million, or 112.1%4.6%, to $42.6$106.1 million at June 30, 2017 from $20.12020 as compared to $111.2 million at June 30, 2016. The increase was2019. This decrease is primarily due to a $22.5$50.0 million increase inof net repayments of short-term advances and $5.1 million of repayments of long-term amortizing advances, partially offset by $50.0 million of additional long-term advances.

Total Shareholders’Shareholder’s Equity.Total shareholders’ equity increased $169.9decreased $7.6 million, or 154.5%2.7%, to $279.8$273.7 million at June 30, 20172020 from $109.9$281.3 million at June 30, 2016. The increase is2019.  This decrease was primarily due to $178.0the repurchase of $18.1 million (905,902 shares) of common stock, $2.6 million of additionalcash dividends declared and paid in capital as a resultand $1.3 million of $163.5 million in net conversion proceeds,other comprehensive loss, partially offset by net income of $3.2$9.4 million, as well as $5.0 million of stock-based compensation and an increasereduction in accumulated other comprehensive income of $2.8 million, offset by $14.3 million in unallocatedunearned ESOP shares. for plan shares earned during the period. During the year-ended June 30, 2020 the Company repurchased 890,021 shares at an average price of $19.99 per share. As of August 20, 2020, a repurchase plan was authorized to repurchase up to 844,907 shares, or 5% of the Company’s outstanding common stock. At June 30, 2020, the Company’s book value per share and tangible book value per share were $16.20 and $15.82, respectively, compared to $15.80 and $15.44, respectively, at June 30, 2019. At June 30, 2020, the Bank was considered “well capitalized” under applicable regulatory guidelines.

Comparison of Operating Results for the YearsYear Ended June 30, 20172020 and June 30, 20162019

General. Net income increased $303,000,$1.1 million, or 10.4%12.5%, to $3.2$9.4 million for the year ended June 30, 20172020 compared to $2.9$8.3 million for the year ended June 30, 2016.2019. The increase was primarily due to a $1.4$4.0 million increase in net interest income, a $2.1partially offset by $2.3 million increase in noninterest income, a $1.0 million decrease in the provision for loan losses partially offset byand a $4.2 million$640,000 increase in noninterest expense and a $133,000 increase in income taxes.expense.

Net Interest Income. Net interest income increased $1.4$4.0 million, or 4.2%9.3%, to $35.7$46.7 million for the year ended June 30, 2017 from $34.22020 compared to $42.7 million for the year ended June 30, 2016.2019. The increase primarily reflects a $1.9$168.9 million increase in interest and dividend income, partially offset by a $481,000 increase in interest expense.

Interest and Dividend Income. Interest and dividend income increased $1.9 million, or 4.9%, to $41.0 million for the year ended June 30, 2017 from $39.0 million for the year ended June 30, 2016. The increase primarily reflects a $66.0 million increase in the average balance on interest-earning assets, partially offset by a 2 basis point decrease in the average yield to 3.31% for the year ended June 30, 2017 from 3.33% for the same period last year.

Interest income on loans increased $832,000, or 2.5%, primarily due to a $29.6 million increase in the average balance to $773.6 million for the year ended June 30, 2017 from $744.0 million for the year ended June 30, 2016, partially offset by a 6 basis point decrease in net interest margin to 2.89% for the year ended June 30, 2020 compared to 2.95% for the year ended June 30, 2019. The increase in average interest-earning assets reflects a $274.3 million increase in average loans receivable, partially offset by a $97.5 million decrease in average investment securities and a $7.9 million decrease in average other interest earning assets. Despite continued asset growth and a higher yielding asset mix, which resulted in a 13 basis point increase in the yield on interest earning assets, the interest rate spread has been impacted by rising funding costs due to higher average short-term interest rates along with competitive pricing, which caused a 23 basis point increase in the average cost of interest-bearing liabilities, resulting in net interest margin compression.


Interest and Dividend Income. Interest and dividend income increased $8.5 million, or 15.8%, to $61.9 million for the year ended June 30, 2020 compared to $53.4 million for the year ended June 30, 2019. The increase primarily reflects a $168.8 million increase in total average interest-earning assets and a 13 basis point increase in the yield on total interest-earning assets.

Interest income on loans receivable increased $10.5 million, or 25.2%, primarily due to a $274.3 million increase in the average balance of loans receivable to $1.20 billion for the year ended June 30, 2020 from $924.2 million for the same period last year, partially offset by a 15 basis point decrease in the average yield on loans to 4.35% for the year ended June 30, 20172020 from 4.41%4.50% for the same period last year.year, as growth in higher yielding loan products, such as commercial mortgages, were more than offset by decreases in market interest rates.

Interest income on investment securities increased $764,000,decreased $1.2 million, or 13.0%11.5%, primarily due to a $24.3$97.5 million increasedecrease in the average balance of investment securities to $389.9$346.6 million for the year ended June 30, 20172020 from $365.6$444.0 million for the same period last year, ended Junepartially offset by a 30 2016 and a 10 basis point increase in the average yield on investment securities to 1.71%2.56% for the year ended June 30, 2020 from 2.26% for the same period last year. The decrease in the average balance of investment securities is the result of the Company utilizing securities portfolio runoff to fund loan growth. The increase in yield is a result of prepayment income earned in the current year period primarily due to an increase in market interest rates.as well as a more profitable asset mix as higher yielding corporate bonds and mortgage-backed securities increased as a percentage of the total portfolio.

Interest income on other interest-earning assets, increased $318,000,primarily consisting of cash balances at correspondent banks including the Federal Reserve, decreased $873,000, or 101.0%48.3%, primarily due to a $12.1 million increase100 basis point decrease in the average balanceyield on other interest-earning assets to 1.34% for the year ended June 30, 20172020, from 2.34% for the same period last year and a 34 basis point increase$7.9 million decrease in the average yieldbalance of other interest-earning assets to 0.85% from 0.51%$69.4 million for the year ended June 30, 2016.2020 compared to $77.3 million for the year ended June 30, 2019. The increasedecrease in the yield on other interest-earning assets was primarily due to an increasea decrease in market interest rates.rates, specifically fed funds.

Interest Expense. Interest expense increased $481,000,$4.5 million, or 10.0%41.8%, to $5.3$15.2 million for the year ended June 30, 2017 from $4.82020 compared to $10.7 million for the year ended June 30, 2016.2019. The increase primarily reflects a $35.6$159.4 million increase in the average balance onof interest-bearing liabilities to $1.24 billion for the year ended June 30, 2020 from $1.08 billion for the same period last year, and a 323 basis point increase in the average cost of interest-bearing liabilities to 0.52%1.23% for the year ended June 30, 20172020 from 0.49%1.00% for the same period last year.

Interest expense on interest-bearing deposits and mortgage escrow funds increased $470,000$2.6 million, or 25.5%, primarily due to a $43.6$72.5 million increase in the average balance to $995.9 million$1.12 billion for the year ended June 30, 20172020 from $952.3 milliona $1.05 billion for the year ended June 30, 20162019 and a 317 basis point increase in the average cost of interest-bearing deposits to 0.52% from 0.49%1.14% for the year ended June 30, 2016.2020 from 0.97% for the same period last year. The increase in the average rate paid on interest-bearing deposits was primarily caused by growthrising funding costs due to short-term interest rates increases experienced in the medium-termprior year along with competitive pricing. The Company has experienced a shift in deposit mix over the past several quarters as customers in generally lower rate savings products moved to generally higher rate money market and long-term certificatestime deposits, however the pace of deposit, which caused a 20 basis point increasethis shift has slowed and reversed in the most recent quarter. In response to the significant decrease in market interest rates in mid-March, deposit rate paid on certificatesreductions were implemented, the effects of depositwhich have begun to be realized in fourth quarter results. At June 30, 2020, the weighted average cost of interest-bearing deposits was 0.85%.


Interest expense on Federal Home Loan BankFHLB advances increased $11,000$1.9 million, primarily due to a 49 basis point$86.9 million increase in the average costbalance to 1.32%$111.0 million for the year ended June 30, 20172020 from 0.83%$24.1 million for the same period last year, partially offset by an $8.1 milliona 13 basis point decrease in the average balancecost to $15.92.21% for the year ended June 30, 2020 from 2.34% for the same period last year.

Provision for Loan Losses. The provision for loan losses was $3.1 million for the year ended June 30, 20172020, compared to $808,000 for the year ended June 30, 2019. The increase is primarily due to loan portfolio growth and a $1.9 million increase in qualitative reserves as the Company continues to assess the economic impacts the COVID-19 pandemic has had on our local economy and loan portfolio. This qualitative reserve is equal to 0.16% of total loans (excluding PPP loans) and resulted in a 28.4% increase to allowance for loan losses. The allowance for loan loss as of June 30, 2020 was 0.68% (or 0.71% excluding PPP loans) of total loans. Loans classified as


substandard or doubtful totaled $7.3 million, a decrease of $1.1 million, or 13.3%, from $24.0June 30, 2019. Non-performing loans as a percent of total loans receivable was 0.14% as of June 30, 2020, a decrease from 0.25% as of June 30, 2019. Charge-offs, net of recoveries, were $89,000 and $48,000 for the year ended June 30, 2020 and 2019, respectively.

Noninterest Income. Noninterest income decreased $33,000, or 1.1%, to $3.1 million for the year ended June 30, 2016.

Provision for Loan Losses. We recorded a provision for loan losses of $823,000 and $1.9 million for the years ended2020 compared to June 30, 2017 and 2016, respectively.2019. The decrease was caused primarily by the Company recognizing $285,000decreases of $366,000 in fees and service charges, $155,000 in gain on sale of bank premises, and $24,000 in net recoveries forgains on sale of securities, partially offset by increases of $477,000 in swap income and $63,000 gain on sale of foreclosed real estate. The reduction in fees and service charge income was primarily due to the year ended June 30, 2017 comparedcombined effects of reduced customer transaction activity as a result of “stay-at-home” orders issued by New York and surrounding states and our waiver of certain overdraft fees, ATM usage fees, wire and CD early withdrawal fees in response to $1.7 millionCOVID-19, as required by emergency regulations promulgated by the New York State Department of Financial Services. The Company began waiving such fees in net charge-offs foraccordance with this guidance on or about March 20, 2020, with approximately $197,000 in fees waived or lost in the year ended June 30, 2016.current year. The Company reinstituted these fees on July 15, 2020, however, we expect to continue to be subject to some level of reduced customer activity and waivers based on customer-specific circumstances. The remaining decrease in fees and service charges was due to a $152,000 decrease in early CD withdrawal fees as the low interest rate environment has reduced the occurrence of early withdrawals.

Non-Interest Income. Non-interest income

Noninterest Expense. Noninterest expense increased $2.1 million,$640,000, or 109.3%1.9%, to $4.1 million for the years ended June 30, 2017 compared to $2.0$34.6 million for the year ended June 30, 2016.The increase was caused primarily by the receipt of $1.6 million in settlement on a loan charged-off by CMS Bank before the 2015 merger.

Non-Interest Expense. Non-interest expense increased $4.2 million, or 13.8%,2020 compared to $34.4$34.0 million for the year ended June 30, 2017 compared to $30.3 million for the year ended June 30, 2016.2019. The increase was caused primarily by a $5.0$1.3 million contribution to PCSB Community Foundation, a $742,000 increase in occupancysalaries and equipmentbenefits expense and a $141,000 increase$5,000 in advertising,all other expenses, partially offset by a $790,000 decreasedecreases of $334,000 in mergerFDIC assessment costs and acquisition related expenses and a $927,000 decrease$354,000 in other operating expenses.post-retirement benefit costs. The increase in occupancy expensesalaries and benefits was primarily due to a non-recurring impairment charge on an operating lease totaling $521,000.  The $927,000 decrease$1.2 million increase in other operating expensesstock-based compensation as the current compensation plan was primarily caused by decreasesimplemented midway through the prior year period. During the current year, the Bank applied small bank assessment credits of $330,000 in$314,000 which mostly offset the Bank’s FDIC assessment $336,000 in professional fees, $134,000 in postage and supplies expense and $60,000 in salaries and employee benefits expense.  The decrease in salaries and employee benefits expense was due to a $919,000 benefit recognized onfor the curtailment of the defined benefit pension plan, partially offset by increases in other salaries and employees benefits.current year.

Income Tax Expense. Income tax expense increased $133,000,$5,000, or 11.7%0.2%, to $1.3 million for the year ended June 30, 2017 from $1.1 million2020 in comparison to the year ended June 30, 2019. The increase was caused primarily by higher pre-tax income, partially offset by a lower effective tax rate. The effective income tax rate was 22.3% for the year ended June 30, 2016. The increase was caused primarily by a $436,000, or 10.7%, increase in pre-tax income. The effective tax rate was 28.2% and 27.9%2020 as compared to 24.4% for the year ended June 30, 2017 and 2016, respectively.  2019.

Comparison of Operating Results for the Years Ended June 30, 2016 and June 30, 2015

General.  Net income increased by $2.4 million, or 476.0%, to $2.9 million for the year ended June 30, 2016 from $508,000 for the year ended June 30, 2015.  The increase was primarily due to a $9.3 million increase in net interest income and a $384,000 increase in noninterest income, partially offset by a $6.3 million increase in noninterest expense, a $533,000 increase in provision for loan losses and a $431,000 increase in income tax expense.  The comparison of operating results between 2016 and 2015 are affected significantly by the fact that the year ended June 30, 2016 contains the full 12 months of operating results from the CMS Bank acquisition, compared to only 2 months for the year ended June 30, 2015.

Net Interest Income.  Net interest income increased $9.3 million, or 37.2%, to $34.2 million for the year ended June 30, 2016 compared to $24.9 million for the year ended June 30, 2015. The increase reflects an $11.9 million increase in average net interest-earning assets to $195.4 million for the year ended June 30, 2016 from $183.5 million for the year ended June 30, 2015 and a 43 basis point increase in the interest rate spread to 2.84% for the year ended June 30, 2016 from 2.41% for the year ended June 30, 2015.

Interest and Dividend Income.  Interest and dividend income increased $10.2 million, or 35.4%, to $39.0 million for the year ended June 30, 2016, compared to $28.8 million for the year ended June 30, 2015. The increase primarily reflects a $174.3 million increase in the average balance on interest-earning assets and a 44 basis point increase in the average yield to 3.33% from 2.89% for the year ended June 30, 2015.

Interest on loans increased $9.6 million primarily due to a $193.7 million increase in the average balance to $744.0 million for the year ended June 30, 2016 from $550.3 million for the year ended June 30, 2015 and an 18 basis point increase in the average yield to 4.41% from 4.23% for the same period.


Interest income on securities increased $537,000 primarily due to a 19 basis point increase in the average yield to 1.61% for the year ended June 30, 2016 from 1.42% for the year ended June 30, 2015, partially offset by a $11.1 million decrease in the average balance to $365.6 million from $376.7 million for the same period.

Interest Expense.  Interest expense increased $928,000, or 23.9%, to $4.8 million for the year ended June 30, 2016 from $3.9 million for the year ended June 30, 2015. The increase primarily reflects a $162.4 million increase in the average balance on interest-bearing liabilities and a 1 basis point increase in the average cost to 0.49% from 0.48% for the year ended June 30, 2016.

Interest expense on interest-bearing deposits increased $801,000, or 21.0%, primarily due to a $153.4 million increase in the average balance to $952.3 million for the year ended June 30, 2016 from $798.9 million for the year ended June 30, 2015 and a 1 basis point increase in the average rate paid on interest-bearing deposits to 0.49% from 0.48% for the same period.

Interest expense on Federal Home Loan Bank advances increased $127,000, primarily due to a $9.1 million increase in the average balance to $24.0 million for the year ended June 30, 2016 from $14.9 million for the year ended June 30, 2015 and a 34 basis point increase in the average cost to 0.83% from 0.49% for the same period.

Provision for Loan Losses.  We recorded a provision for loan losses of $1.9 million for the year ended June 30, 2016 compared to $1.3 million for the year ended June 30, 2015. The growth in the provision reflected management’s assessment of the risks inherent in our loan portfolio and was necessary so that the allowance for loan losses could keep pace with the growth in the loan portfolio for the year ended June 30, 2016.

Noninterest Income.  Noninterest income increased $384,000, or 24.5%, to $2.0 million for the year ended June 30, 2016 from $1.6 million for the year ended June 30, 2015.  The increase was caused by a $161,000 increase in the cash value of bank owned life insurance, a $125,000 increase in other noninterest income and a $98,000 increase in fees and service charges. The increase in cash value of bank owned life insurance was due to the $11.3 million additional investment in bank owned life insurance during the year ended June 30, 2016. The increase in other non-interest income and fees and service charges was due to increased income from the higher amount of loan and deposit accounts resulting from the CMS Bancorp acquisition.

Noninterest Expense.  Noninterest expense increased $6.3 million, or 26.2%, to $30.3 million for the year ended June 30, 2016 from $24.0 million for the year ended June 30, 2015.  The increase is due primarily to the year ended June 30, 2016 containing a full year of expenses related to the CMS Bancorp acquisition. The $6.3 million increase is primarily comprised of a $3.3 million increase in salaries and employee benefits, a $1.1 million increase in occupancy and equipment expenses, a $994,000 increase in other operating expenses and a $668,000 increase in professional fees.  

Income Tax Expense.  Income tax expense increased $431,000, or 61.40%, to $1.1 million for the year ended June 30, 2016 from $702,000 for the year ended June 30, 2015. The increase was caused primarily by the $2.8 million increase in pre-tax income, partially offset by a reduction of non-deductible merger expenses in the year ended June 30, 2016 compared to June 30, 2015. The effective tax rate was 27.9% and 58.0% for the years ended June 30, 2016 and 2015, respectively, primarily as a result of the reduction in non-deductible merger expenses.

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, we have established a management-level Asset/Liability Management Committee, which takes initial responsibility for developing an asset/liability management process and related procedures, establishing and monitoring reporting systems and developing asset/liability strategies. On at least a quarterly basis, the Asset/Liability Management Committee reviews asset/liability management with the Investment Asset/Liability Committee that has been established byof the boardBoard of directors.Directors. This Committee also reviews any changes in strategies as well as the performance of any specific asset/liability management actions that


have been implemented previously. On a quarterly basis, an outside consulting firm provides us with detailed information and analysis as to asset/liability management, including our interest rate risk profile. Ultimate responsibility for effective asset/liability management rests with our boardBoard of directors.  Directors.  

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; utilizing interest rate swaps, promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.  


Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capitalequity ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100 and 200 basis points from current market rates and that interest rates decrease 50 and 100 basis points from current market rates. Based on recent decreases in the fed funds rate, as of June 30, 2020 we have removed the 200 basis point decrease scenario in favor of a 50 basis point decrease to evaluate NPV.

The following table presents the estimated changes in our NPV that would result from changes in market interest rates at June 30, 2017.2020 and 2019. All estimated changes presented in the table are within the policy limits approved by our Board of Directors.

 

 

NPV

 

 

NPV as Percent of Portfolio

Value of Assets

 

 

NPV

 

 

NPV as Percent of Portfolio

Value of Assets

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

Basis Point Change in Interest Rates

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

NPV Ratio

 

 

Change

(in bps)

 

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

NPV

Ratio

 

 

Change

(in bps)

 

June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

290,781

 

 

$

(35,848

)

 

 

(11.0

)%

 

 

21.62

 

%

 

(130

)

 

$

285,720

 

 

$

(20,631

)

 

 

(6.7

)

%

 

16.42

%

 

 

(40

)

100

 

 

311,728

 

 

 

(14,901

)

 

 

(4.6

)

 

 

22.49

 

 

 

(42

)

 

 

304,004

 

 

 

(2,347

)

 

 

0.8

 

 

 

17.03

 

 

 

21

 

Flat

 

 

326,629

 

 

 

 

 

 

 

 

 

22.92

 

 

 

 

-

 

 

306,351

 

 

 

-

 

 

 

-

 

 

 

16.82

 

 

 

-

 

(50)

 

 

312,596

 

 

 

6,245

 

 

 

2.0

 

 

 

16.99

 

 

 

17

 

(100)

 

 

331,139

 

 

 

4,510

 

 

 

1.4

 

 

 

22.69

 

 

 

(22

)

 

 

323,494

 

 

 

17,143

 

 

 

5.6

 

 

 

17.44

 

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

286,711

 

 

$

(39,593

)

 

 

(12.1

)

%

 

18.52

%

 

 

(143

)

100

 

 

309,974

 

 

 

(16,330

)

 

 

(5.0

)

 

 

19.45

 

 

 

(50

)

-

 

 

326,304

 

 

 

-

 

 

 

-

 

 

 

19.95

 

 

 

-

 

(100)

 

 

330,749

 

 

 

4,445

 

 

 

1.4

 

 

 

19.79

 

 

 

(16

)

(200)

 

 

329,929

 

 

 

3,625

 

 

 

1.1

 

 

 

19.39

 

 

 

(56

)

 

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.  Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Liquidity and Capital Resources

Liquidity.  Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.


Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2017,2020, cash and cash equivalents totaled $60.5 million.$136.3 million, an increase from $60.0 million as of June 30, 2019. Securities classified as available-for-sale,available for sale, which provide an additional source of liquidity, totaled $111.9$13.9 million at June 30, 2017.  

At2020, a decrease from $72.2 million as of June 30, 2017, we2019.  

We had the ability to borrow up to $393.3$218.4 million from the Federal Home Loan BankFHLB of New York, $42.6 millionat June 30, 2020, of which $106.1 million was outstanding. Atoutstanding as of June 30, 2017,2020. Additionally, as of June 30, 2020, we also had an available line of credit with the Federal Reserve BankFRB of New York’s discount window program of $85.9$108.7 million noneas well as $25.0 million of fed funds lines of credit, neither of which washad outstanding at that date.balances as of June 30, 2020.

We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. If loan demand was to increase faster than expected, or any unforeseen demand or commitment was to occur, we could access our borrowing capacity with the Federal Home Loan BankFHLB of New York or the Federal Reserve Bank of New York.

At June 30, 2017, weWe had $77.6$48.1 million of loan commitments outstanding as of June 30, 2020, and $45.4$141.1 million of approved, but unadvanced, lines of credit.funds to borrowers. We also had $705,000$1.8 million in outstanding letters of credit at June 30, 2017.2020.  

Certificates of depositTime deposits due within one year of June 30, 20172020 totaled $107.1 million.$270.5 million, an increase of $48.7 million from $221.8 million as of June 30, 2019. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposittime deposits and Federal Home Loan BankFHLB of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposittime deposits at June 30, 2017.2020. We believe, however, based on past experience that a significant portion of our certificates of deposittime deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Liquidity is needed for financing and investing activities. The following table sets forth our primary investing and financing activities for the periods presented.

 

 

 

Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Loan purchases

 

$

(30,926

)

 

$

(43,981

)

 

$

(3,638

)

Disbursement for loan originations, net of

   principal repayments

 

 

(1,131

)

 

 

(14,314

)

 

 

(3,221

)

Proceeds from maturities and calls of securities

   held-to-maturity

 

 

72,152

 

 

 

107,656

 

 

 

97,971

 

Proceeds from maturities and calls of securities

   available-for-sale

 

 

32,750

 

 

 

33,058

 

 

 

21,295

 

Proceeds from sales of securities available

   -for- sale

 

 

 

 

 

 

 

 

23,701

 

Purchases of securities held-to-maturity

 

 

(195,566

)

 

 

(112,896

)

 

 

(94,178

)

Purchases of securities available for sale

 

 

(23,314

)

 

 

(56,420

)

 

 

(25,952

)

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

$

(24,109

)

 

$

52,778

 

 

$

(4,274

)

Increase (decrease) in Federal Home Loan

   Bank advances

 

 

22,517

 

 

 

6,081

 

 

 

(22,050

)

Issuance of common stock

 

 

160,072

 

 

 

 

 

 

 

 

 

Year ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Investing activities:

 

 

 

 

 

 

 

 

Loan purchases

 

$

(44,065

)

 

$

(101,011

)

Disbursement for loan originations, net of principal repayments

 

 

(127,125

)

 

 

(91,856

)

Proceeds from maturities and calls of securities held to maturity

 

 

126,237

 

 

 

64,988

 

Proceeds from maturities and calls of securities available for sale

 

 

33,017

 

 

 

20,711

 

Proceeds from sales of securities available for sale

 

 

4,245

 

 

 

14,021

 

Purchases of securities held to maturity

 

 

(55,183

)

 

 

(57,925

)

Purchases of securities available for sale

 

 

(1,954

)

 

 

-

 

Financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

147,434

 

 

 

68,276

 

(Decrease) increase in FHLB advances

 

 

(5,127

)

 

 

92,375

 

Repurchase of common stock

 

 

(17,789

)

 

 

(18,305

)

The Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its stockholders and for other corporate purposes. The Company’s primary source of liquidity is dividend payments it may receive from the Bank. The Bank’s ability to pay dividends to the Company is governed by applicable law and regulations. At June 30, 2017,2020, the Company (on an unconsolidated, stand-alone basis) had liquid assets of $71.3$41.2 million.


Capital Resources.  PCSB Financial and PCSB Bank areis subject to various regulatory capital requirements administered by the Federal Reserve Board, NYSDFS and the FDIC. At June 30, 2017,2020, PCSB Financial and PCSB Bank each exceeded all applicable regulatory capital requirements, and the Bank was considered “well capitalized” under applicable regulatory guidelines. See Note 1615 of Notes to the Consolidated Financial Statements.

Contractual Obligations and


Off-Balance Sheet Arrangements

Contractual Obligations.  In the ordinary course of our operations, we enter into certain contractual obligations.  The following tables present our contractual obligations at June 30, 2017.  

 

 

 

 

 

 

 

Payments Due by Period

 

Contractual Obligations

 

Total

 

 

Less Than

One Year

 

 

One to

Three

Years

 

 

Three to

Five

Years

 

 

More Than

Five Years

 

 

 

(In thousands)

 

Federal Home Loan Bank advances

 

$

42,598

 

 

$

23,757

 

 

$

15,253

 

 

$

266

 

 

$

3,322

 

Operating lease obligations

 

 

16,445

 

 

 

2,359

 

 

 

3,772

 

 

 

2,919

 

 

 

7,395

 

Time deposits

 

 

294,779

 

 

 

107,097

 

 

 

93,474

 

 

 

94,011

 

 

 

197

 

Total

 

$

353,822

 

 

$

133,213

 

 

$

112,499

 

 

$

97,196

 

 

$

10,914

 

Off-Balance Sheet Arrangements.  We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments. See Note 109 of Notes to the Consolidated Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information regarding quantitative and qualitative disclosures about market risk appears under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Management of Market Risk”.



Item 8.  Financial Statements and Supplementary Data



 

Report of Independent Registered Public Accounting Firm

 

Shareholders and Board of Directors

PCSB Financial Corporation and Subsidiaries

Yorktown Heights, New York

 

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PCSB Financial Corporation and Subsidiaries (the “Company”) as of June 30, 20172020 and 2016,2019, and the related consolidated statements of operations, comprehensive income, (loss), changes in shareholders’ equity, and cash flows for each of the three years then ended, and the related notes (collectively referred to as the "financial statements").  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the period ended June 30, 2017. United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these consolidatedthe Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controlscontrol over financial reporting in accordance with the standardsreporting.  As part of the Public Company Accounting Oversight Board (United States). Our audit included considerationour audits we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).reporting. Accordingly, we express no such opinion. An audit includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2017 and 2016, and the results of operations and its cash flows for each of the three years in the period ended June 30, 2017, in conformity with U.C. generally accepted accounting principles.

 

/s/ Crowe Horwath LLP

We have served as the Company's auditor since 2007.

 

New York, New York

September 27, 2017

11, 2020


PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)

 

 

June 30,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

59,115

 

 

$

36,258

 

Federal funds sold

 

 

1,371

 

 

 

5,320

 

Cash and cash equivalents

 

 

60,486

 

 

 

41,578

 

Investment Securities:

 

 

 

 

 

 

 

 

Held to maturity investment securities, at amortized cost

   (fair value of $383,588 and $273,317, respectively)

 

 

383,551

 

 

 

270,679

 

Available for sale securities, at fair value

 

 

111,889

 

 

 

112,351

 

Total securities

 

 

495,440

 

 

 

383,030

 

Loans receivable, net of allowance for loan losses of $5,150 and $4,042,

   respectively

 

 

809,648

 

 

 

782,336

 

Accrued interest receivable

 

 

3,693

 

 

 

3,361

 

Federal Home Loan Bank stock

 

 

3,132

 

 

 

2,047

 

Premises and equipment, net

 

 

12,959

 

 

 

10,774

 

Deferred tax asset, net

 

 

4,770

 

 

 

6,164

 

Foreclosed real estate

 

 

977

 

 

 

905

 

Bank-owned life insurance

 

 

23,179

 

 

 

22,557

 

Goodwill

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

559

 

 

 

702

 

Other assets

 

 

5,509

 

 

 

2,511

 

Total assets

 

$

1,426,458

 

 

$

1,262,071

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

952,109

 

 

$

990,032

 

Non-interest bearing deposits

 

 

136,352

 

 

 

122,663

 

Total deposits

 

 

1,088,461

 

 

 

1,112,695

 

Mortgage escrow funds

 

 

8,084

 

 

 

7,023

 

Advances from Federal Home Loan Bank

 

 

42,598

 

 

 

20,081

 

Other liabilities

 

 

7,469

 

 

 

12,323

 

Total liabilities

 

 

1,146,612

 

 

 

1,152,122

 

Commitment and Contingencies

 

 

 

 

 

 

Preferred Stock ($0.01 par value, 10,000,000 shares authorized, no shares

   issued or outstanding as of June 30, 2017 and June 30, 2016, respectively)

 

 

 

 

 

 

Common Stock ($0.01 par value, 200,000,000 shares authorized, 18,165,110

   shares issued and outstanding as of June 30, 2017, no shares issued or

   outstanding as of June 30, 2016)

 

 

182

 

 

 

 

Additional Paid in Capital

 

 

177,993

 

 

 

 

Retained earnings

 

 

121,148

 

 

 

117,919

 

Unallocated common stock of Employee Stock Ownership Plan ("ESOP")

 

 

(14,262

)

 

 

 

Accumulated other comprehensive loss, net of income taxes

 

 

(5,215

)

 

 

(7,970

)

Total shareholders’ equity

 

 

279,846

 

 

 

109,949

 

Total liabilities and shareholders’ equity

 

$

1,426,458

 

 

$

1,262,071

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(amounts in thousands)

 

 

Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

33,664

 

 

$

32,832

 

 

$

23,245

 

Investment securities

 

 

6,661

 

 

 

5,897

 

 

 

5,360

 

Federal funds and other

 

 

633

 

 

 

315

 

 

 

222

 

Total interest and dividend income

 

 

40,958

 

 

 

39,044

 

 

 

28,827

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,083

 

 

 

4,613

 

 

 

3,812

 

FHLB advances

 

 

210

 

 

 

199

 

 

 

72

 

Total interest expense

 

 

5,293

 

 

 

4,812

 

 

 

3,884

 

Net interest income

 

 

35,665

 

 

 

34,232

 

 

 

24,943

 

Provision for loan losses

 

 

823

 

 

 

1,859

 

 

 

1,326

 

Net interest income after provision for loan losses

 

 

34,842

 

 

 

32,373

 

 

 

23,617

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

1,178

 

 

 

1,053

 

 

 

955

 

Bank-owned life insurance

 

 

622

 

 

 

458

 

 

 

297

 

Settlement on acquired loan

 

 

1,615

 

 

 

 

 

 

 

Other

 

 

669

 

 

 

440

 

 

 

315

 

Total noninterest income

 

 

4,084

 

 

 

1,951

 

 

 

1,567

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

16,901

 

 

 

16,961

 

 

 

13,666

 

Occupancy and equipment

 

 

5,864

 

 

 

5,122

 

 

 

4,018

 

Charitable foundation contribution

 

 

5,000

 

 

 

 

 

 

 

Professional fees

 

 

1,308

 

 

 

1,644

 

 

 

976

 

FDIC assessment

 

 

558

 

 

 

888

 

 

 

709

 

Postage, printing, stationary and supplies

 

 

547

 

 

 

681

 

 

 

460

 

Advertising

 

 

529

 

 

 

388

 

 

 

332

 

Amortization of intangible assets

 

 

143

 

 

 

158

 

 

 

27

 

Merger and acquisition-related expenses

 

 

 

 

 

790

 

 

 

1,147

 

Other operating expenses

 

 

3,581

 

 

 

3,633

 

 

 

2,639

 

Total noninterest expense

 

 

34,431

 

 

 

30,265

 

 

 

23,974

 

Net income before income tax expense

 

 

4,495

 

 

 

4,059

 

 

 

1,210

 

Income tax expense

 

 

1,266

 

 

 

1,133

 

 

 

702

 

Net income

 

$

3,229

 

 

$

2,926

 

 

$

508

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(amounts in thousands)

 

 

Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

Net Income

 

$

3,229

 

 

$

2,926

 

 

$

508

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of available for sale securities

 

 

(486

)

 

 

200

 

 

 

(95

)

Changes in funded status of defined benefit plan and other

   post-retirement benefit plans

 

 

3,241

 

 

 

(3,448

)

 

 

(1,781

)

Other comprehensive income (loss)

 

 

2,755

 

 

 

(3,248

)

 

 

(1,876

)

Total comprehensive income (loss)

 

$

5,984

 

 

$

(322

)

 

$

(1,368

)

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(amounts in thousands, except number of shares)share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Unallocated

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Paid-In

 

 

Common Stock of

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Stock

 

 

Capital

 

 

ESOP

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance at July 1, 2014

 

 

 

 

$

 

 

$

 

 

$

 

 

$

114,485

 

 

$

(2,846

)

 

$

111,639

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

508

 

 

 

 

 

 

 

508

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,876

)

 

 

(1,876

)

Balance at June 30, 2015

 

 

 

 

$

 

 

$

 

 

$

 

 

$

114,993

 

 

$

(4,722

)

 

$

110,271

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,926

 

 

 

 

 

 

 

2,926

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,248

)

 

 

(3,248

)

Balance at June 30, 2016

 

 

 

 

$

 

 

$

 

 

$

 

 

$

117,919

 

 

$

(7,970

)

 

$

109,949

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,229

 

 

 

 

 

 

 

3,229

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,755

 

 

 

2,755

 

Issuance of common stock,

   net of issuance costs

 

 

17,826,408

 

 

 

179

 

 

 

174,425

 

 

 

 

 

 

 

 

 

 

 

 

174,604

 

Issuance of common stock

   to PCSB Foundation

 

 

338,702

 

 

 

3

 

 

 

3,384

 

 

 

 

 

 

 

 

 

 

 

 

3,387

 

Stock purchased by the

   ESOP (1,453,209 shares)

 

 

 

 

 

 

 

 

 

 

 

(14,532

)

 

 

 

 

 

 

 

 

(14,532

)

ESOP shares committed

   to be released (26,975

   shares)

 

 

 

 

 

 

 

 

184

 

 

 

270

 

 

 

 

 

 

 

 

 

454

 

Balance at June 30, 2017

 

 

18,165,110

 

 

$

182

 

 

$

177,993

 

 

$

(14,262

)

 

$

121,148

 

 

$

(5,215

)

 

$

279,846

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(amounts in thousands)

 

 

Year Ended June 30,

 

 

 

2017

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,229

 

 

$

2,926

 

 

$

508

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

823

 

 

 

1,859

 

 

 

1,326

 

Depreciation and amortization

 

 

1,427

 

 

 

1,265

 

 

 

752

 

Amortization of net premiums on securities and net deferred

   loan origination costs

 

 

1,002

 

 

 

943

 

 

 

971

 

Deferred income tax (benefit) expense, net of valuation

   reserves

 

 

(26

)

 

 

1,299

 

 

 

586

 

Net (increase) decrease in accrued interest receivable

 

 

(332

)

 

 

(127

)

 

 

45

 

Net gain on sale of foreclosed real estate

 

 

(99

)

 

 

(9

)

 

 

(1

)

Write-downs on foreclosed real estate

 

 

 

 

 

30

 

 

 

87

 

Stock contribution to PCSB Community Foundation

 

 

3,387

 

 

 

 

 

 

 

ESOP Compensation

 

 

454

 

 

 

 

 

 

 

Earnings from cash surrender value of BOLI

 

 

(622

)

 

 

(458

)

 

 

(297

)

Net accretion of purchase account adjustments

 

 

(820

)

 

 

(1,352

)

 

 

(132

)

Other adjustments, principally net changes in other assets and

   liabilities

 

 

(588

)

 

 

(431

)

 

 

(2,203

)

Net cash provided by operating activities

 

 

7,835

 

 

 

5,945

 

 

 

1,642

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

(195,566

)

 

 

(112,896

)

 

 

(94,178

)

Available for sale

 

 

(23,314

)

 

 

(56,420

)

 

 

(25,952

)

Proceeds from maturities and calls of securities held to

   maturity

 

 

72,152

 

 

 

107,656

 

 

 

97,971

 

Proceeds from maturities, calls and sales of securities available

   for sale

 

 

32,750

 

 

 

33,058

 

 

 

44,996

 

Disbursement for loan originations, net of principal repayments

 

 

(1,131

)

 

 

(14,314

)

 

 

(3,221

)

Purchase of loans

 

 

(30,926

)

 

 

(43,981

)

 

 

(3,638

)

Acquisition, net cash paid

 

 

 

 

 

 

 

 

(20,649

)

Net (purchase) redemption of FHLB stock

 

 

(1,085

)

 

 

(328

)

 

 

1,167

 

Purchase of bank premises and equipment

 

 

(3,469

)

 

 

(3,902

)

 

 

(549

)

Purchase of BOLI

 

 

 

 

 

(11,275

)

 

 

 

Proceeds from sale of foreclosed real estate

 

 

2,121

 

 

 

1,030

 

 

 

183

 

Net cash (used in) investing activities

 

 

(148,468

)

 

 

(101,372

)

 

 

(3,870

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(24,109

)

 

 

52,778

 

 

 

(4,274

)

Net increase (decrease) in short-term FHLB advances

 

 

23,636

 

 

 

(5,019

)

 

 

(31,050

)

Proceeds from long-term FHLB advances

 

 

15,000

 

 

 

20,100

 

 

 

9,000

 

Repayment of long-term FHLB advances

 

 

(16,119

)

 

 

(9,000

)

 

 

 

Net increase in mortgage escrow funds

 

 

1,061

 

 

 

385

 

 

 

1,063

 

Issuance of common stock, net of ESOP stock purchase

 

 

160,072

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

159,541

 

 

 

59,244

 

 

 

(25,261

)

Net increase (decrease) in cash and cash equivalents

 

 

18,908

 

 

 

(36,183

)

 

 

(27,489

)

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

41,578

 

 

 

77,761

 

 

 

105,250

 

Cash and cash equivalents at end of period

 

$

60,486

 

 

$

41,578

 

 

$

77,761

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

135,045

 

 

$

58,756

 

Federal funds sold

 

 

1,257

 

 

 

1,273

 

Total cash and cash equivalents

 

 

136,302

 

 

 

60,029

 

Investment securities:

 

 

 

 

 

 

 

 

Held to maturity debt securities, at amortized cost (fair value of $281,497 and $346,243, respectively)

 

 

275,772

 

 

 

345,545

 

Available for sale debt securities, at fair value

 

 

37,426

 

 

 

72,228

 

Total investment securities

 

 

313,198

 

 

 

417,773

 

Loans receivable, net of allowance for loan losses of $8,639 and $5,664, respectively

 

 

1,260,947

 

 

 

1,093,121

 

Accrued interest receivable

 

 

6,880

 

 

 

4,797

 

FHLB stock

 

 

6,308

 

 

 

6,255

 

Premises and equipment, net

 

 

20,853

 

 

 

11,802

 

Deferred tax asset, net

 

 

3,129

 

 

 

2,478

 

Foreclosed real estate

 

 

-

 

 

 

1,158

 

Bank-owned life insurance

 

 

25,019

 

 

 

24,291

 

Goodwill

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

229

 

 

 

323

 

Other assets

 

 

12,958

 

 

 

9,446

 

Total assets

 

$

1,791,929

 

 

$

1,637,579

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,181,357

 

 

$

1,084,442

 

Non interest-bearing deposits

 

 

191,898

 

 

 

141,379

 

Total deposits

 

 

1,373,255

 

 

 

1,225,821

 

Mortgage escrow funds

 

 

10,123

 

 

 

9,355

 

Advances from FHLB

 

 

106,089

 

 

 

111,216

 

Other liabilities

 

 

28,749

 

 

 

9,880

 

Total liabilities

 

 

1,518,216

 

 

 

1,356,272

 

Commitments and contingencies (Notes 1 and 9)

 

 

-

 

 

 

-

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, 0 shares issued or outstanding as of June 30, 2020 and June 30, 2019)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295 shares issued as of June 30, 2020 and June 30, 2019, respectively, 16,898,137 and 17,804,039 shares outstanding as of June 30, 2020 and June 30, 2019, respectively)

 

 

187

 

 

 

187

 

Additional paid in capital

 

 

186,200

 

 

 

182,129

 

Retained earnings

 

 

141,288

 

 

 

134,500

 

Unearned compensation - ESOP

 

 

(11,145

)

 

 

(12,114

)

Accumulated other comprehensive loss, net of income taxes

 

 

(6,403

)

 

 

(5,090

)

Treasury stock, at cost (1,814,158 and 908,256 shares as of June 30, 2020 and June 30, 2019, respectively)

 

 

(36,414

)

 

 

(18,305

)

Total shareholders' equity

 

 

273,713

 

 

 

281,307

 

Total liabilities and shareholders' equity

 

$

1,791,929

 

 

$

1,637,579

 

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows - (Continued)Operations

(amounts in thousands, except share and per share data)

 

 

Year Ended June 30,

 

 

 

2020

 

 

2019

 

Interest and dividend income

 

 

 

 

 

 

 

 

Loans receivable

 

$

52,107

 

 

$

41,619

 

Investment securities

 

 

8,870

 

 

 

10,022

 

Federal funds and other

 

 

933

 

 

 

1,806

 

Total interest and dividend income

 

 

61,910

 

 

 

53,447

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

Deposits and escrow interest

 

 

12,775

 

 

 

10,177

 

FHLB advances

 

 

2,456

 

 

 

566

 

Total interest expense

 

 

15,231

 

 

 

10,743

 

Net interest income

 

 

46,679

 

 

 

42,704

 

Provision for loan losses

 

 

3,064

 

 

 

808

 

Net interest income after provision for loan losses

 

 

43,615

 

 

 

41,896

 

Noninterest income

 

 

 

 

 

 

 

 

Fees and service charges

 

 

1,397

 

 

 

1,763

 

Swap income

 

 

984

 

 

 

507

 

Bank-owned life insurance

 

 

528

 

 

 

544

 

Gains on sales of securities, net

 

 

38

 

 

 

62

 

Other

 

 

122

 

 

 

226

 

Total noninterest income

 

 

3,069

 

 

 

3,102

 

Noninterest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

22,934

 

 

 

21,611

 

Occupancy and equipment

 

 

5,223

 

 

 

5,185

 

Communications and data processing

 

 

2,061

 

 

 

1,953

 

Professional fees

 

 

1,739

 

 

 

1,551

 

Postage, printing, stationary and supplies

 

 

584

 

 

 

586

 

Advertising

 

 

400

 

 

 

349

 

Amortization of intangible assets

 

 

94

 

 

 

110

 

FDIC assessment

 

 

87

 

 

 

421

 

Loss on other receivable

 

 

-

 

 

 

90

 

Other operating expenses

 

 

1,512

 

 

 

2,138

 

Total noninterest expense

 

 

34,634

 

 

 

33,994

 

Net income before income tax expense

 

 

12,050

 

 

 

11,004

 

Income tax expense

 

 

2,691

 

 

 

2,686

 

Net income

 

$

9,359

 

 

$

8,318

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.60

 

 

$

0.50

 

Diluted

 

$

0.60

 

 

$

0.50

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

15,648,627

 

 

 

16,492,760

 

Diluted

 

 

15,674,169

 

 

 

16,527,117

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(amounts in thousands)

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

5,293

 

 

$

4,814

 

 

$

3,832

 

Income taxes (net of refunds)

 

 

1,100

 

 

 

(351

)

 

 

424

 

Loans transferred to foreclosed real estate and other assets

 

 

2,075

 

 

 

1,575

 

 

 

243

 

Acquisition of noncash assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired

 

 

 

 

 

 

 

 

264,101

 

Liabilities acquired

 

 

 

 

 

 

 

 

249,295

 

 

 

 

Year Ended June 30,

 

 

 

2020

 

 

2019

 

Net Income

 

$

9,359

 

 

$

8,318

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale debt securities:

 

 

 

 

 

 

 

 

Net change in unrealized gains/losses before reclassification adjustment

 

 

826

 

 

 

1,741

 

Reclassification adjustment for gains realized in net income

 

 

(21

)

 

 

(62

)

Net change in unrealized gains/losses

 

 

805

 

 

 

1,679

 

Tax effect

 

 

(168

)

 

 

(352

)

Net of tax

 

 

637

 

 

 

1,327

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

 

 

Net loss arising during the period

 

 

(3,428

)

 

 

(486

)

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

929

 

 

 

1,144

 

Net change in unrealized gains/losses

 

 

(2,499

)

 

 

658

 

Tax effect

 

 

525

 

 

 

(139

)

Net of tax

 

 

(1,974

)

 

 

519

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plans:

 

 

 

 

 

 

 

 

Net loss arising during the period

 

 

(13

)

 

 

(19

)

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

45

 

 

 

36

 

Net change in unrealized gains/losses

 

 

32

 

 

 

17

 

Tax effect

 

 

(8

)

 

 

(3

)

Net of tax

 

 

24

 

 

 

14

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income

 

 

(1,313

)

 

 

1,860

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

8,046

 

 

$

10,178

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements

 

 

 


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Number of

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Common Stock

 

 

Treasury Stock,

 

 

Comprehensive

 

 

Total

 

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

of ESOP

 

 

at cost

 

 

Loss

 

 

Equity

 

Balance at July 1, 2018

 

 

18,165,110

 

 

$

182

 

 

$

179,045

 

 

$

128,365

 

 

$

(13,083

)

 

$

-

 

 

$

(6,950

)

 

$

287,559

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,318

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,318

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,860

 

 

 

1,860

 

Common stock dividends declared ($0.13 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,183

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,183

)

Repurchase of common stock

 

 

(908,256

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,305

)

 

 

-

 

 

 

(18,305

)

Restricted stock awards granted

 

 

547,185

 

 

 

5

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

2,140

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,140

 

ESOP shares committed to be released (96,881 shares)

 

 

-

 

 

 

-

 

 

 

949

 

 

 

-

 

 

 

969

 

 

 

-

 

 

 

-

 

 

 

1,918

 

Balance at June 30, 2019

 

 

17,804,039

 

 

$

187

 

 

$

182,129

 

 

$

134,500

 

 

$

(12,114

)

 

$

(18,305

)

 

$

(5,090

)

 

$

281,307

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,359

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,359

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,313

)

 

 

(1,313

)

Common stock dividends declared ($0.16 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,571

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,571

)

Repurchase of common stock

 

 

(890,021

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,789

)

 

 

-

 

 

 

(17,789

)

Shares withheld related to income tax withholding

 

 

(15,881

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(320

)

 

 

-

 

 

 

(320

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

3,316

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,316

 

ESOP shares committed to be released (96,881 shares)

 

 

-

 

 

 

-

 

 

 

755

 

 

 

-

 

 

 

969

 

 

 

-

 

 

 

-

 

 

 

1,724

 

Balance at June 30, 2020

 

 

16,898,137

 

 

$

187

 

 

$

186,200

 

 

$

141,288

 

 

$

(11,145

)

 

$

(36,414

)

 

$

(6,403

)

 

$

273,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(amounts in thousands)

 

 

 

 

 

 

Year Ended June 30,

 

 

 

2020

 

 

2019

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

9,359

 

 

$

8,318

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

3,064

 

 

 

808

 

Depreciation and amortization

 

 

2,965

 

 

 

1,178

 

Amortization of net premiums on securities and deposits, and net deferred loan origination costs

 

 

1,627

 

 

 

1,277

 

Deferred income tax credit, net of valuation reserves

 

 

(465

)

 

 

(350

)

Net increase in accrued interest receivable

 

 

(2,083

)

 

 

(439

)

Net gains on sales of foreclosed real estate

 

 

(87

)

 

 

(24

)

Net gains on sale of securities

 

 

(38

)

 

 

(62

)

Gains on sale of bank premises

 

 

-

 

 

 

(156

)

Write-downs on foreclosed real estate

 

 

-

 

 

 

21

 

Stock-based compensation

 

 

3,316

 

 

 

2,140

 

ESOP compensation

 

 

1,724

 

 

 

1,918

 

Earnings from cash surrender value of BOLI

 

 

(528

)

 

 

(544

)

Net accretion of purchase accounting adjustments

 

 

(577

)

 

 

(357

)

Other adjustments, principally net changes in other assets and liabilities

 

 

(196

)

 

 

(741

)

Net cash provided by operating activities

 

 

18,081

 

 

 

12,987

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

(55,183

)

 

 

(57,925

)

Available for sale

 

 

(1,954

)

 

 

-

 

Sales of investment securities available for sale

 

 

4,245

 

 

 

14,021

 

Maturities and calls of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

126,237

 

 

 

64,988

 

Available for sale

 

 

33,017

 

 

 

20,711

 

Loan principal disbursement, net

 

 

(127,125

)

 

 

(112,034

)

Purchase of loans

 

 

(44,065

)

 

 

(80,833

)

Net purchase of FHLB stock

 

 

(53

)

 

 

(4,205

)

Purchase of bank premises and equipment, net of sales

 

 

(700

)

 

 

(1,116

)

Purchase of BOLI

 

 

(200

)

 

 

-

 

Proceeds from sales of foreclosed real estate

 

 

1,578

 

 

 

487

 

Net cash used in investing activities

 

 

(64,203

)

 

 

(155,906

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

147,434

 

 

 

68,364

 

Net (decrease) increase in short-term FHLB advances

 

 

(50,000

)

 

 

60,000

 

Proceeds from long-term FHLB advances

 

 

50,000

 

 

 

42,500

 

Repayment of long-term FHLB advances

 

 

(5,127

)

 

 

(10,125

)

Net increase in mortgage escrow funds

 

 

768

 

 

 

552

 

Common stock dividends paid

 

 

(2,571

)

 

 

(2,183

)

Repurchase of shares from employees for income tax withholding purposes

 

 

(320

)

 

 

-

 

Repurchase of common stock

 

 

(17,789

)

 

 

(18,305

)

Net cash provided by financing activities

 

 

122,395

 

 

 

140,803

 

Net increase (decrease) in cash and cash equivalents

 

 

76,273

 

 

 

(2,116

)

Cash and cash equivalents at beginning of period

 

 

60,029

 

 

 

62,145

 

Cash and cash equivalents at end of period

 

$

136,302

 

 

$

60,029

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows - (Continued)

(amounts in thousands)

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

15,196

 

 

$

10,688

 

Income taxes (net of refunds)

 

 

2,134

 

 

 

2,933

 

Loans transferred to foreclosed real estate and other assets

 

 

333

 

 

 

1,182

 

Establishment of right to use asset (ASU 2016-13)

 

 

12,687

 

 

 

 

See accompanying notes to the consolidated financial statements


PCSB Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Basis of Presentation

Nature of Operations: PCSB Financial Corporation (the “Holding Company” and together with its direct and indirect subsidiaries, the “Company”) is a Maryland corporation organized by PCSB Bank (the “Bank”) for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on April 20, 2017. At June 30, 2017,2020, the significant assets of the Holding Company were the capital stock of the Bank, investments retained by the Holding Company, and a loan to the PCSB Bank Employee Stock Ownership Plan (“ESOP”). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended. The Company is subject to regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York.  The Bank is a state-chartered stock savingscommercial bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the New York State Department of Financial Services.

Merger with CMS Bancorp:  On April 28, 2015, CMS Bancorp and CMS Bank merged with and into the Bank.

Basis of Presentation: The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, and include the accounts of the Holding Company, the Bank and the Bank's three2 subsidiaries – PCSB Funding Corp., PCSB Commercial Bank andUpCounty Realty Corp. (formerly PCSB Realty Ltd.) PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets. PCSB Commercial Bank is a state-chartered commercial bank authorized to accept the deposits of local governments in New York State. PCSBUpCounty Realty Ltd.Corp. is a corporation that holds certain properties foreclosed upon by the Bank. All intercompany transactions and balances have been eliminated in consolidation.   Financial information for the periods before the Company’s initial public offering (“IPO”) on April 20, 2017 are those of the Bank.    

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.  

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions, and federal funds sold.  Net cash flows are reported for customer loan and deposit transactions, investment securities, borrowings and interest bearinginterest-bearing deposits in other financial institutions.

Investment Securities: Certain debtsecurities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. All other debt and equity securities are classified as available for sale. The Company has no0 trading securities.

SecuritiesDebt securities available for sale are reported at fair value. Unrealized gains and losses on debt securities available for sale are excluded from earnings and reported as accumulated other comprehensive income or loss (a separate component of equity), net of related income taxes.

Premiums and discountsDiscounts on debt securities are amortized to interest income on a level-yield basis over the terms of the securities.securities, while premiums are amortized on a level-yield basis to the earlier of the call date or term of the security. Realized gains and losses on sales of debt securities are determined based on the amortized cost of the specific securities sold.  

Management evaluates securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not


that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which


must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans Receivable: The Company originates and purchases mortgage loans generally secured by existing single-family residential and commercial real estate properties and, to a lesser extent, properties under construction and development. The Company also originates commercial business loans and certain types of consumer loans. A substantial portion of the Company’s loan portfolio is secured by real estate properties primarily located in the New York counties of Putnam, Westchester, and Dutchess, and to a lesser extent, New York City and the adjacent New York counties of Orange and Rockland. The ability of the Company’s borrowers to make principal and interest payments is dependent upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company’s concentrated lending area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, unamortized purchase premiums and discounts, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance.  Interest income on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well secured and in process of collection. Loan purchase premiums and discounts are amortized over the contractual term of the loans. When loans are placed on non-accrual status, previously accrued but unpaid interest is reversed from income.  Interest received on non-accrual loans is generally applied directly against the principal balance. Loans are returned to accrual status when all the principal and interest contractually due are brought current and future payments are reasonably assured.

Loan origination fees and certain direct loan origination costs are deferred and amortized to interest income as an adjustment to yield over the contractual term of the loans. Unamortized fees and costs on prepaid loans are recognized in interest income at the time of prepayment.

Purchased Credit Impaired Loans: The Company purchases individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses.

Such purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a lossan allowance is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred loan losses. The allowance for loan losses is increased by provisions for loan losses charged to income. Losses are charged to the allowance for loan losses when all or a portion of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance when realized.  In management’s judgment, the allowance for loan losses is adequate to absorb probable incurred losses in the existing loan portfolio.


Establishing the allowance for loan losses involves significant management judgments utilizing the best information available at the time. Those judgments are subject to further reviewexamination by the Bank’s regulators. Future adjustments to the allowance for loan losses may be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, the identification of additional problem loans, and other factors.


The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.  

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for loans evaluated under the Company’s normal loan review procedures. Loans evaluated on an individual basis for impairment may be measured by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The Company’s impaired loans are generally collateral dependent. If the fair value of an impaired loan is less than its recorded investment, an impairment allowance is recognized and included in the allowance for loan losses.

Troubled debt restructurings are separately identified for impairment disclosures and are initially measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over a thirty-six month period, with heaviest weight placed on the most recent periods. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: lending policies, underwriting, charge-off and collection procedures; national and local economic trends and conditions; trends in nature and volume of the loan portfolio; experience, ability, and depth of lending management and other relevant staff; trends in delinquencies, classified loans and restructurings; quality of the loan review system and Board oversight; value of underlying collateral for collateral dependent loans; existence and effect of concentrations and levels; and effects of external factors, such as competition, legal and regulatory factors. The following portfolio segments have been identified: residential, other loans secured, commercial mortgage, construction, commercial, home equity and consumer and installment loans.overdrafts.

The risk characteristics of each of the identified portfolio segments are as follows:

Residential Loans – residential loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment income or other income and are secured by real property whose value tends to be more easily ascertainable. Repayment of residential loans is subject to adverse employment conditions in the local economy leading to increased default raterates and decreased market values from oversupply in a geographic area. In general, these loans depend on the borrower’s continuing financial stability and, therefore, are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Other Loans Secured – other loans secured by real estate are commercial loans extended for business purposes where a lien is recorded on real estate as collateral in addition to the business assets.  Commercial loans are


generally of higher risk than other types of loans as repayment is dependent on the borrower’s ability through business activities to generate sufficient cash flow to repay the loan.  However, these loans carry less risk than commercial loans as the real estate collateral provides an additional source of repayment of the debt through the sale of the real estate in the event business conditions erode the borrowers’ capability to repay the debt through cash flow.  In addition, the sale of the collateral property would require that any sales proceeds be applied to repay the Company’s loan in order to satisfy the recorded lien.  

Commercial MortgageLoans – commercial andmortgage loans, including multifamily real estate loans, are secured by multifamily and nonresidential real estate and generally have larger balances and involve a greater degree of risk than residential real estate loans. Repayment of commercial and multifamily real estatemortgage loans depend on the global cash flow analysis of the borrower and the net operating income of the property, the borrower’s expertise, credit history and profitability, and the value of the underlying property. Of primary concern in commercial real estate lending is the borrower’s creditworthiness and the cash flow generated from the property securing the loan. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. Commercial and multifamily real estate is also subject to adverse market conditions that cause a decrease in market value or lease rates, obsolescence in location or function and market conditions associated with over supply of units in a specific region.


ConstructionLoans – construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, additional funds may be required to be advanced in excess of the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, the value of the building may be insufficient to assure full repayment if liquidation is required. If foreclosure is required on a building before or at completion due to a default, there can be no assurance that all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs will be recovered.

CommercialLoans – commercial loans are generally of higher risk than other types of loans and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Furthermore, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.

Home Equity Lines of Credit – home equity lines of credit consist of both fixed and variable interest rate products. These are primarily home equity loans to residential mortgage customers within the footprint of theour primary lending territory.market area. These loans generally will not exceed a combined (i.e., first and second mortgage) loan-to-value ratio of 7575% percent at origination.  

Consumer and Installment Loansoverdraft loans – consumer and other loans generally have shorter terms and higher interest rates than one-to-four family mortgage loans. In addition, consumer and other loans expand the products and services we offer to better meet the financial services needs of our customers. Consumer and other loans generally involve greater credit risk than residential mortgage loans because of the difference in the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage to, loss of, or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower’s personal financial stability. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Foreclosed Real Estate:  Assets acquired through or insteadin lieu of loan foreclosure are initially recorded at fair value, less estimated costs to sell, when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.


Federal Home Loan Bank (FHLB) Stock:  The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Premises and Equipment: Premises and equipment are reported at cost less accumulated depreciation and amortization, except for land which is carried at cost. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the related assets. Amortization of leasehold improvements is recognized on a straight-line basis over the term of the lease or the life of the improvement, whichever is shorter. Costs incurred to improve or extend the life of the existing assets are capitalized. Repairs and maintenance, as well as renewals and replacements of a routine nature, are charged to expense as incurred. Right-of-use assets represent our right to use an underlying asset for the lease term. Right-to-use assets are recognized at the lease commencement date based on the estimated present value of future lease payments and amortized over the lease term. Corresponding lease liabilities are recorded in other liabilities at the lease commencement date and represent the present value of future lease payments.

Bank Owned Life Insurance (BOLI): BOLI policies are reflected on the consolidated statements of financial condition at cash surrender value, net of any deferred feesother charges or loans.amounts due that are probable at settlement. Changes in the


net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of operations and are not subject to income taxes.

Goodwill and Other Intangible Assets: Goodwill resulting from business combinations is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. The Company operates as a single reporting unit. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances existsexist that indicate that a goodwill impairment test should be performed. The Company has selected June 30th as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

The Company has selected June 30th as the date to perform the annual impairment test, with an impairment loss recorded if indicated. In assessing impairment, we have the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform a quantitative impairment test. Otherwise, the Company compares the fair value of the reporting unit with its carrying amount, including goodwill. An impairment loss is recorded in current period earnings to the extent the carrying amount of the reporting unit exceeds its fair value.

Other intangible assets, consisting of a core deposit intangible asset arising from a whole bank acquisition, are amortized on an accelerated method over their estimated useful lives of 10 years.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to the likely effectiveness as a hedge. These three types are: (1) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item, are recognized in the current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedge transaction affects earnings. For both types of hedges, changes in fair value of the derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. The documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer


probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

Income Taxes: Income tax expense is the total of current period income tax due or refundable and the change in net deferred tax assets. Deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to “temporary differences” between the financial statement carrying amounts and tax bases of existing assets and liabilities. Deferred tax assets are reduced by a valuation allowance if, based on an analysis of available evidence, management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense.

Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in future years. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in the period that includes the enactment date of the change.

A tax position is recognized as a benefit only if it is “more likely than not��not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no0 tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.  


Earnings Per Share: Basic earnings per share is net income divided by the weighted average number of common share outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of addition potential common shares issuable under dilutive financial instruments, which include stock options and unvested restricted stock. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of the issuance of the financial statements.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee directors based on the fair value of these awards at the grant date. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s policy is to recognize forfeitures as they occur.

Employee Benefit Plans: The Company maintains the PCSB Bank 401(k) Plan (the “401(k) Plan”) for substantially all of its employees, and the Retirement Plan of PCSB Bank (the “Employee Retirement Plan”), a defined benefit pension plan, as well as Supplemental Executive Retirement Plans (the “SERPs”), all of which are tax qualified under the Internal Revenue Code.

Employee 401(k) expense is the amount of matching contributions. Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. SERP expense is the net of interest cost and service cost, which allocates the benefits over years of service.


The Holding Company and Bank maintain the PCSB Bank Employee Stock Ownership Plan (the “ESOP”). Compensation expense related to the ESOP is recorded during the period in which the shares become committed to be released to participants. The compensation expense is measured based upon the average fair market value of the stock during the period, and, to the extent that the fair value of the shares committed to be released differs from the original cost of such shares, the difference is recorded as an adjustment to additional paid-in capital.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Segment Reporting: While management monitors the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one1 reportable operating segment.

Risks and Uncertainties:

The COVID-19 pandemic has created extensive disruptions to the global and U.S. economies and to the lives of individuals throughout the world. The New York City Metropolitan area and environs have some of the highest incidence of COVID-19 in the nation, and the neighboring Tri-State area of New Jersey and Connecticut also has been particularly affected by COVID-19.  Governments, businesses, and the public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures and phased re-opening of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

The ultimate financial impact is unknown at this time. However, if these actions are sustained, it may adversely impact several industries within our geographic footprint and impair the ability of the Company’s customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include, but are not limited to, the valuation impairments of the Company’s intangible assets, investments, loans, or deferred tax assets.


As it relates to the allowance for loan losses, the current year provision for loan losses includes a $1.9 million increase in qualitative reserves as the Company assessed the economic impacts the COVID-19 pandemic has had on our local economy and loan portfolio. The Company has taken actions to identify, assess and address its COVID-19 related credit exposure. Many factors are unknown, including the severity of the impact of the economic shutdown and subsequent phased opening imposed by New York State and other neighboring states, the impacts of the government’s fiscal and monetary relief measures, including payment deferral programs, as well as the long-term impacts COVID-19 may have on our consumer and commercial borrowers.
It is reasonably possible that the Company’s allowance for loan loss estimate as of June 30, 2020 will change in the near term and could result in a material change to the Company’s provision for loan losses, earnings and capital.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current presentation. Reclassifications had no effect on prior periodsperiod net income or equity.

Earnings per share:   Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. There were no dilutive instruments at June 30, 2017 or 2016. Due to the IPO taking place on April 20, 2017, earnings per share for the period from IPO to June 30, 2017 was deemed not meaningful by management.

Note


Note 2. Recent Accounting Pronouncements

The pronouncements discussed below are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have ana material impact on our financial position, results of operations or disclosures.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 provide a comprehensive framework for addressing revenue recognition issues that can be applied to all contracts with customers. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of PCSB Bank’s revenue comes from financial instruments such as debt securities and loans that are outside the scope of the guidance. The amendments in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities, ASU 2014-09, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2016. ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or disclosures.


In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 would require equity securities to be measured at fair value with changes in fair value recognized through net income, but would allow equity securities that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments would simplify the impairment assessment of such equity securities and would require enhanced disclosure about these investments. ASU 2016-01 would also require separate presentation of financial assets and liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet orAdopted in the notes, and would eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities, the amendments in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. ASU 2016-01 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or disclosures.Period

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases longer than 12 months previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU would also requirerequires entities to disclose key information about leasing arrangements. The Company currently leases eleven branches and two administrative offices. The Company adopted this standard and the related amendments (collectively "ASC 842") on July 1, 2019 and utilized the modified retrospective approach provided by ASU 2016-022018-11, "Leases (Topic 842): Targeted Improvements," that allowed for a cumulative effect adjustment in the period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). We also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. The Company recorded a right to use asset totaling $11.9 million and lease liability totaling $12.0 million on the balance sheet for Company’s outstanding lease obligations on July 1, 2019. The right to use asset is effectivedisclosed within premises and equipment and the lease liability is disclosed within other liabilities on the balance sheet.

In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350).”ASU 2017-04simplifies the test for interim and annualgoodwill impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting periods beginning after December 15, 2018. Earlyunit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The adoption is permitted. Management is currently evaluating theof ASU 2017-04 on July 1, 2019 did not have a material impact that ASU 2016-02 will have on the Company’s consolidated financial position, resultsstatements.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of operations and disclosures.ASU 2017-08 on July 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

Future Application of Accounting Pronouncements Previously Issued

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for current expected credit losses. ASU 2016-13In October 2019, the FASB unanimously voted to delay the implementation of the standard for three years for certain companies, including small reporting companies (as defined by the SEC), non-SEC public companies and private companies. The Company currently qualifies as a small reporting company and is subject to the delayed implementation. Therefore, the amendments in this update will be effective for interim and annual reporting periodsthe Company for the fiscal year beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018,on July 1, 2023, including interim periods within thosethat fiscal years.year. The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies and the additional data requirements necessary to implement the Update and has engaged a third-party software service provider to assist in the Company's implementation. Management is currently evaluating the impact that ASU 2016-13 will have on the Company’s consolidated financial position, results of operations and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. Management expects ASU 2017-04 will not have a significant impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2017-08 will not have a material impact on the Company’s consolidated financial position, results of operations or disclosures.

Note 3. Shareholders' Equity

The Company completed its initial public offering (“IPO”) on April 20, 2017, in connection with the Bank’s mutual-to-stock conversion, resulting in gross proceeds of $178.3 million, through the sale of 17,826,408 shares, including 1,453,209 shares sold to the PCSB Bank Employee Stock Ownership Plan (ESOP), at the offering price of $10.00


per share. In addition, the Company also contributed 338,702 shares of its common stock and $1.6 million in cash to the PCSB Community Foundation. Expenses related to the offering were approximately $3.7 million, which resulted in net proceeds of approximately $174.6 million prior to the contribution to PCSB Community Foundation. The Company lent approximately $14.5 million to the ESOP and retained approximately $87.3 million of the net proceeds of the offering prior to the contribution to PCSB Community Foundation. The remainder of the net proceeds was contributed to the Bank.

Prior to the IPO, the Company had no outstanding shares.

Note 43. Investment Securities

The amortized cost, gross unrealized/unrecognized gains and losses and fair value of available for sale and held to maturity securities at June 30, 20172020 and June 30, 20162019 were as follows:

 

 

June 30, 2017

 

 

June 30, 2020

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

63,630

 

 

$

31

 

 

$

(216

)

 

$

63,445

 

 

$

11,002

 

 

$

47

 

 

$

-

 

 

$

11,049

 

Corporate and other debt securities

 

 

8,460

 

 

 

58

 

 

 

(36

)

 

 

8,482

 

 

 

5,038

 

 

 

82

 

 

 

-

 

 

 

5,120

 

Mortgage-backed securities – residential

 

 

39,710

 

 

 

363

 

 

 

(143

)

 

 

39,930

 

 

 

20,844

 

 

 

428

 

 

 

(15

)

 

 

21,257

 

Equity securities

 

 

32

 

 

 

 

 

 

 

 

 

32

 

Total available for sale

 

$

111,832

 

 

$

452

 

 

$

(395

)

 

$

111,889

 

 

$

36,884

 

 

$

557

 

 

$

(15

)

 

$

37,426

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

155,559

 

 

$

23

 

 

$

(574

)

 

$

155,008

 

 

$

42,001

 

 

$

454

 

 

$

(5

)

 

$

42,450

 

Corporate and other debt securities

 

 

999

 

 

 

 

 

 

 

 

 

999

 

 

 

52,790

 

 

 

332

 

 

 

(1,510

)

 

 

51,612

 

Mortgage-backed securities – residential

 

 

143,452

 

 

 

828

 

 

 

(497

)

 

 

143,783

 

 

 

117,160

 

 

 

4,291

 

 

 

(17

)

 

 

121,434

 

Mortgage-backed securities – collateralized

mortgage obligations

 

 

59,476

 

 

 

146

 

 

 

(235

)

 

 

59,387

 

 

 

45,047

 

 

 

1,487

 

 

 

(31

)

 

 

46,503

 

Mortgage-backed securities – commercial

 

 

24,065

 

 

 

412

 

 

 

(66

)

 

 

24,411

 

 

 

18,774

 

 

 

724

 

 

 

-

 

 

 

19,498

 

Total held to maturity

 

$

383,551

 

 

$

1,409

 

 

$

(1,372

)

 

$

383,588

 

 

$

275,772

 

 

$

7,288

 

 

$

(1,563

)

 

$

281,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

 

June 30, 2019

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

65,953

 

 

$

204

 

 

$

(25

)

 

$

66,132

 

 

$

37,027

 

 

$

5

 

 

$

(121

)

 

$

36,911

 

Corporate and other debt securities

 

 

8,514

 

 

 

132

 

 

 

 

 

 

8,646

 

 

 

8,349

 

 

 

20

 

 

 

(9

)

 

 

8,360

 

Mortgage-backed securities – residential

 

 

37,043

 

 

 

542

 

 

 

(61

)

 

 

37,524

 

 

 

27,115

 

 

 

23

 

 

 

(181

)

 

 

26,957

 

Equity securities

 

 

49

 

 

 

 

 

 

 

 

 

49

 

Total available for sale

 

$

111,559

 

 

$

878

 

 

$

(86

)

 

$

112,351

 

 

$

72,491

 

 

$

48

 

 

$

(311

)

 

$

72,228

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

145,896

 

 

$

357

 

 

$

(51

)

 

$

146,202

 

 

$

96,545

 

 

$

192

 

 

$

(246

)

 

$

96,491

 

Corporate and other debt securities

 

 

34,033

 

 

 

133

 

 

 

(413

)

 

 

33,753

 

Mortgage-backed securities – residential

 

 

72,842

 

 

 

1,342

 

 

 

(45

)

 

 

74,139

 

 

 

133,602

 

 

 

818

 

 

 

(372

)

 

 

134,048

 

Mortgage-backed securities – collateralized

mortgage obligations

 

 

30,268

 

 

 

350

 

 

 

(38

)

 

 

30,580

 

 

 

52,940

 

 

 

311

 

 

 

(147

)

 

 

53,104

 

Mortgage-backed securities – commercial

 

 

21,673

 

 

 

723

 

 

 

 

 

 

22,396

 

 

 

28,425

 

 

 

451

 

 

 

(29

)

 

 

28,847

 

Total held to maturity

 

$

270,679

 

 

$

2,772

 

 

$

(134

)

 

$

273,317

 

 

$

345,545

 

 

$

1,905

 

 

$

(1,207

)

 

$

346,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no sales of or realized gains or losses on investment securities for the years ended June 30, 2017 or 2016. The Company sold $23.7 million of investment securities inFor the year ended June 30, 20152020, the Company sold $4.7 million of securities which resulted in $38,000 of gross realized gains, which included the disposal of $426,000 of securities classified as held to maturity, resulting in $17,000 of gross realized gains. For the year ended June 30, 2019, the Company sold securities with a carrying amount of $14.0 million, resulting in $62,000 of gross realized gains, which included the disposal of $1.3 million of securities classified as held to maturity, resulting in $72,000 of gross realized gains. These held to maturity securities were comprised of seasoned mortgage-backed securities where the Company collected a substantial portion (at least 85%) of the principal outstanding at acquisition due to prepayments or scheduled payments payable in equal installments, comparing both principal and realized no gain or loss on sale.interest over terms.


The following table presents the fair value and carrying amount of debt securities at June 30, 2017 and June 30, 2016,2020 by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

Held to maturity

 

 

Available for sale

 

 

Held to maturity

 

 

Available for sale

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

(in thousands)

 

 

(in thousands)

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 year or less

 

$

50,486

 

 

$

50,413

 

 

$

16,005

 

 

$

15,988

 

 

$

15,001

 

 

$

15,099

 

 

$

10,002

 

 

$

10,037

 

1 to 5 years

 

 

106,073

 

 

 

105,594

 

 

 

54,085

 

 

 

53,975

 

 

 

32,000

 

 

 

32,114

 

 

 

6,038

 

 

 

6,132

 

5 to 10 years

 

 

 

 

 

 

 

 

2,000

 

 

 

1,964

 

 

 

38,633

 

 

 

37,554

 

 

 

-

 

 

 

-

 

Mortgage-backed securities

 

 

226,992

 

 

 

227,581

 

 

 

39,710

 

 

 

39,930

 

10 years and over

 

 

5,188

 

 

 

5,136

 

 

 

-

 

 

 

-

 

Mortgage-backed securities and other

 

 

184,950

 

 

 

191,594

 

 

 

20,844

 

 

 

21,257

 

Total

 

$

383,551

 

 

$

383,588

 

 

$

111,800

 

 

$

111,857

 

 

$

275,772

 

 

$

281,497

 

 

$

36,884

 

 

$

37,426

 

 

 

 

Held to maturity

 

 

Available for sale

 

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

 

(in thousands)

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 year or less

 

$

22,005

 

 

$

22,033

 

 

$

19,490

 

 

$

19,495

 

1 to 5 years

 

 

118,946

 

 

 

119,120

 

 

 

46,902

 

 

 

47,149

 

5 to 10 years

 

 

632

 

 

 

637

 

 

 

5,127

 

 

 

5,187

 

Due after 10 years

 

 

4,313

 

 

 

4,412

 

 

 

2,948

 

 

 

2,947

 

Mortgage-backed securities

 

 

124,783

 

 

 

127,115

 

 

 

37,043

 

 

 

37,524

 

Total

 

$

270,679

 

 

$

273,317

 

 

$

111,510

 

 

$

112,302

 

 

Securities pledged had carrying amounts of $95.5$182.2 million and $93.1$166.4 million at June 30, 20172020 and June 30, 2016,2019, respectively, and were pledged principally to secure FHLB advances and public deposits.



The following table provides information regarding investment securities with unrealized/unrecognized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at June 30, 20172020 and 2019:

 

 

June 30, 2020

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

 

(in thousands)

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – residential

 

$

1,450

 

 

$

(15

)

 

$

-

 

 

$

-

 

 

$

1,450

 

 

$

(15

)

Total available for sale

 

$

1,450

 

 

$

(15

)

 

$

-

 

 

$

-

 

 

$

1,450

 

 

$

(15

)

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

11,995

 

 

$

(5

)

 

$

-

 

 

$

-

 

 

$

11,995

 

 

$

(5

)

Corporate and other debt securities

 

 

30,751

 

 

 

(1,055

)

 

 

12,045

 

 

 

(455

)

 

 

42,796

 

 

 

(1,510

)

Mortgage-backed securities – residential

 

 

5,130

 

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

5,130

 

 

 

(17

)

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

2,627

 

 

 

(31

)

 

 

-

 

 

 

-

 

 

 

2,627

 

 

 

(31

)

Total held to maturity

 

$

50,503

 

 

$

(1,108

)

 

$

12,045

 

 

$

(455

)

 

$

62,548

 

 

$

(1,563

)

 

 

June 30, 2019

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

 

(in thousands)

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

-

 

 

$

32,919

 

 

$

(121

)

 

$

32,919

 

 

$

(121

)

Corporate and other debt securities

 

 

-

 

 

 

-

 

 

 

3,269

 

 

 

(9

)

 

 

3,269

 

 

 

(9

)

Mortgage-backed securities – residential

 

 

-

 

 

 

-

 

 

 

24,000

 

 

 

(181

)

 

 

24,000

 

 

 

(181

)

Total available for sale

 

$

-

 

 

$

-

 

 

$

60,188

 

 

$

(311

)

 

$

60,188

 

 

$

(311

)

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

-

 

 

$

59,306

 

 

$

(246

)

 

$

59,306

 

 

$

(246

)

Corporate and other debt securities

 

 

17,087

 

 

 

(413

)

 

 

-

 

 

 

-

 

 

 

17,087

 

 

 

(413

)

Mortgage-backed securities – residential

 

 

1,666

 

 

 

(26

)

 

 

54,648

 

 

 

(346

)

 

 

56,314

 

 

 

(372

)

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

-

 

 

 

-

 

 

 

29,372

 

 

 

(147

)

 

 

29,372

 

 

 

(147

)

Mortgage-backed securities – commercial

 

 

-

 

 

 

-

 

 

 

6,972

 

 

 

(29

)

 

 

6,972

 

 

 

(29

)

Total held to maturity

 

$

18,753

 

 

$

(439

)

 

$

150,298

 

 

$

(768

)

 

$

169,051

 

 

$

(1,207

)

For the year ended June 30, 2016:

 

 

June 30, 2017

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

 

(in thousands)

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

41,900

 

 

$

(200

)

 

$

3,993

 

 

$

(16

)

 

$

45,893

 

 

$

(216

)

Corporate and other debt securities

 

 

1,964

 

 

 

(36

)

 

 

 

 

 

 

 

 

1,964

 

 

 

(36

)

Mortgage-backed securities – residential

 

 

18,861

 

 

 

(111

)

 

 

3,200

 

 

 

(32

)

 

 

22,061

 

 

 

(143

)

Total available for sale

 

$

62,725

 

 

$

(347

)

 

$

7,193

 

 

$

(48

)

 

$

69,918

 

 

$

(395

)

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

113,511

 

 

$

(531

)

 

$

5,981

 

 

$

(43

)

 

$

119,492

 

 

$

(574

)

Corporate and other debt securities

 

 

999

 

 

 

 

 

 

 

 

 

 

 

 

999

 

 

 

 

Mortgage-backed securities – residential

 

 

39,754

 

 

 

(467

)

 

 

1,626

 

 

 

(30

)

 

 

41,380

 

 

 

(497

)

Mortgage-backed securities – collateralized

   mortgage obligations

 

 

26,622

 

 

 

(141

)

 

 

4,444

 

 

 

(94

)

 

 

31,066

 

 

 

(235

)

Mortgage-backed securities – commercial

 

 

9,092

 

 

 

(66

)

 

 

 

 

 

 

 

 

9,092

 

 

 

(66

)

Total held to maturity

 

$

189,978

 

 

$

(1,205

)

 

$

12,051

 

 

$

(167

)

 

$

202,029

 

 

$

(1,372

)


 

 

June 30, 2016

 

 

 

Less than 12 months

 

 

Greater than 12 months

 

 

Total

 

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

 

Unrealized/

 

 

 

 

 

 

Unrealized/

 

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

 

(in thousands)

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

19,462

 

 

$

(22

)

 

$

1,007

 

 

$

(3

)

 

$

20,469

 

 

$

(25

)

Mortgage-backed securities – residential

 

 

11,912

 

 

 

(52

)

 

 

676

 

 

 

(9

)

 

 

12,588

 

 

 

(61

)

Total available for sale

 

$

31,374

 

 

$

(74

)

 

$

1,683

 

 

$

(12

)

 

$

33,057

 

 

$

(86

)

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

22,000

 

 

$

(44

)

 

$

7,993

 

 

$

(7

)

 

$

29,993

 

 

$

(51

)

Mortgage-backed securities – residential

 

 

6,886

 

 

 

(19

)

 

 

4,895

 

 

 

(26

)

 

 

11,781

 

 

 

(45

)

Mortgage-backed securities – collateralized

   mortgage obligation

 

 

4,420

 

 

 

(20

)

 

 

1,333

 

 

 

(18

)

 

 

5,753

 

 

 

(38

)

Total held to maturity

 

$

33,306

 

 

$

(83

)

 

$

14,221

 

 

$

(51

)

 

$

47,527

 

 

$(134)

 

As of June 30, 2017,2020, the Company’s securitysecurities portfolio consisted of $495.4$313.2 million in securities, of which 15622 securities with a fair value of $271.9$64.0 million were in an unrealized loss position. The majority of unrealized losses are related to the Company’s U.S. Governmentcorporate and agency obligationsother debt securities. These securities are internally pass rated and mortgage-backed securities.

As of June 30, 2016, the Company’s security portfolio consisted of $383.0 million in securities, of which 52 securities with a fair value of $80.6 million were in an unrealized loss position. The majority of unrealized losses are relatedsubject to the Company’s U.S. Government and agency obligations and mortgage-backed securities.quarterly credit monitoring.

There were no0 securities for which the Company believes it is not probable that it will collect all amounts due according to the contractual terms of the security as of June 30, 20172020 and June 30, 2016.2019. Management believes the unrealized losses are primarily a result of changing interest rates. The Company has determined that it does not intend to sell, or it is not more likely than not that it will not be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. Therefore, the Company did not consider any securities to be other-than-temporarily impaired as of June 30, 20172020 and June 30, 2016.2019.


Note 5.4. Loans Receivable

Loans receivable are summarized as follows at June 30 (in thousands):

 

June 30,

 

 

2020

 

 

2019

 

Mortgage loans:

 

 

 

 

 

 

 

Residential

$

255,382

 

 

$

265,167

 

Commercial

 

807,106

 

 

 

651,396

 

Construction

 

11,053

 

 

 

13,231

 

Net deferred loan origination costs

 

739

 

 

 

1,031

 

Total mortgages

 

1,074,280

 

 

 

930,825

 

Commercial and consumer loans:

 

 

 

 

 

 

 

Commercial loans (1)

 

164,257

 

 

 

133,614

 

Home equity lines of credit

 

29,838

 

 

 

33,204

 

Consumer and overdrafts

 

481

 

 

 

365

 

Net deferred loan origination costs

 

730

 

 

 

777

 

Total commercial and consumer loans

 

195,306

 

 

 

167,960

 

Total loans receivable

 

1,269,586

 

 

 

1,098,785

 

Allowance for loan losses

 

(8,639

)

 

 

(5,664

)

Loans receivable, net

$

1,260,947

 

 

$

1,093,121

 

 

 

 

 

 

 

 

 

(1) Includes $49.6 million of PPP loans as of June 30, 2020 and NaN in the prior year.

 

 

 

 

 

 

 

2017

 

 

2016

 

Mortgage loans:

��

 

 

 

 

 

 

 

Residential

 

$

217,778

 

 

$

226,073

 

Commercial

 

 

437,651

 

 

 

385,827

 

Construction

 

 

22,404

 

 

 

25,050

 

Net deferred loan origination costs

 

 

397

 

 

 

319

 

Total mortgages

 

 

678,230

 

 

 

637,269

 

Commercial and consumer loans:

 

 

 

 

 

 

 

 

Commercial loans

 

 

33,297

 

 

 

40,607

 

Other loans secured

 

 

46,802

 

 

 

49,993

 

Home equity lines of credit

 

 

41,927

 

 

 

41,180

 

Consumer and installment loans

 

 

13,765

 

 

 

16,476

 

Net deferred loan origination costs

 

 

777

 

 

 

853

 

Total commercial and consumer loans

 

 

136,568

 

 

 

149,109

 

Total loans receivable

 

 

814,798

 

 

 

786,378

 

Allowance for loan losses

 

 

(5,150

)

 

 

(4,042

)

Loans receivable, net

 

$

809,648

 

 

$

782,336

 


In 2015, the Bank completed a merger with CMS Bancorp and its wholly owned subsidiary, CMS Bank. References to acquired loans in this note pertain only to those loans acquired as part of the merger.

 

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended June 30, 2017, 20162020 and 20152019 (in thousands):

 

 

For the year ended June 30, 2017

 

For the year ended June 30, 2020

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Beginning

Allowance

 

 

Provision (Credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

237

 

 

$

290

 

 

$

(237

)

 

$

70

 

 

$

360

 

$

363

 

 

$

1

 

 

$

-

 

 

$

9

 

 

$

373

 

Commercial

 

 

2,149

 

 

 

421

 

 

 

 

 

 

19

 

 

 

2,589

 

 

3,853

 

 

 

2,935

 

 

 

-

 

 

 

125

 

 

 

6,913

 

Construction

 

 

269

 

 

 

989

 

 

 

(108

)

 

 

 

 

 

1,150

 

 

159

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

165

 

Commercial loans

 

 

604

 

 

 

(1,387

)

 

 

 

 

 

1,223

 

 

 

440

 

 

1,130

 

 

 

155

 

 

 

(181

)

 

 

20

 

 

 

1,124

 

Other loans secured

 

 

397

 

 

 

195

 

 

 

(325

)

 

 

98

 

 

 

365

 

Home equity lines of credit

 

 

73

 

 

 

3

 

 

 

 

 

 

 

 

 

76

 

 

65

 

 

 

(17

)

 

 

-

 

 

 

12

 

 

 

60

 

Consumer and installment loans

 

 

313

 

 

 

243

 

 

 

(416

)

 

 

4

 

 

 

144

 

Consumer and overdrafts

 

11

 

 

 

36

 

 

 

(51

)

 

 

8

 

 

 

4

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

 

 

64

 

 

 

(38

)

 

 

 

 

 

26

 

 

83

 

 

 

(52

)

 

 

(31

)

 

 

-

 

 

 

-

 

Commercial loans

 

 

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Consumer and installment loans

 

 

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

Total

 

$

4,042

 

 

$

823

 

 

$

(1,129

)

 

$

1,414

 

 

$

5,150

 

$

5,664

 

 

$

3,064

 

 

$

(263

)

 

$

174

 

 

$

8,639

 

 

 

 

For the year ended June 30, 2016

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

193

 

 

$

444

 

 

$

(400

)

 

$

 

 

$

237

 

Commercial

 

 

1,766

 

 

 

215

 

 

 

(10

)

 

 

178

 

 

 

2,149

 

Construction

 

 

100

 

 

 

(23

)

 

 

 

 

 

192

 

 

 

269

 

Commercial loans

 

 

1,266

 

 

 

1,006

 

 

 

(1,668

)

 

 

 

 

 

604

 

Other loans secured

 

 

416

 

 

 

(19

)

 

 

 

 

 

 

 

 

397

 

Home equity lines of credit

 

 

69

 

 

 

28

 

 

 

(24

)

 

 

 

 

 

73

 

Consumer and installment loans

 

 

111

 

 

 

208

 

 

 

(31

)

 

 

25

 

 

 

313

 

Total

 

$

3,921

 

 

$

1,859

 

 

$

(2,133

)

 

$

395

 

 

$

4,042

 

 

 

For the year ended June 30, 2015

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

219

 

 

$

144

 

 

$

(175

)

 

$

5

 

 

$

193

 

Commercial

 

 

1,622

 

 

 

497

 

 

 

(361

)

 

 

8

 

 

 

1,766

 

Construction

 

 

828

 

 

 

(401

)

 

 

(327

)

 

 

 

 

 

100

 

Commercial loans

 

 

516

 

 

 

1,221

 

 

 

(1,181

)

 

 

710

 

 

 

1,266

 

Other loans secured

 

 

564

 

 

 

(148

)

 

 

 

 

 

 

 

 

416

 

Home equity lines of credit

 

 

186

 

 

 

(80

)

 

 

(43

)

 

 

6

 

 

 

69

 

Consumer and installment loans

 

 

122

 

 

 

93

 

 

 

(104

)

 

 

 

 

 

111

 

Total

 

$

4,057

 

 

$

1,326

 

 

$

(2,191

)

 

$

729

 

 

$

3,921

 

 


 

For the year ended June 30, 2019

 

 

Beginning

Allowance

 

 

Provision (Credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

386

 

 

$

(33

)

 

$

-

 

 

$

10

 

 

$

363

 

Commercial

 

3,073

 

 

 

894

 

 

 

(114

)

 

 

-

 

 

 

3,853

 

Construction

 

505

 

 

 

(442

)

 

 

-

 

 

 

96

 

 

 

159

 

Commercial loans

 

780

 

 

 

348

 

 

 

-

 

 

 

2

 

 

 

1,130

 

Home equity lines of credit

 

80

 

 

 

(15

)

 

 

-

 

 

 

-

 

 

 

65

 

Consumer and overdrafts

 

7

 

 

 

31

 

 

 

(34

)

 

 

7

 

 

 

11

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

73

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

83

 

Commercial

 

-

 

 

 

15

 

 

 

(15

)

 

 

-

 

 

 

-

 

Total

$

4,904

 

 

$

808

 

 

$

(163

)

 

$

115

 

 

$

5,664

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans, excluding net deferred fees and accrued interest, by portfolio segment, and based on impairment method as of June 30, 20172020 and June 30, 20162019 (in thousands):

 

 

June 30, 2017

 

 

June 30, 2020

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Loans

 

 

Allowance for loan losses

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

Residential

 

$

4,471

 

 

$

211,983

 

 

$

1,324

 

 

$

217,778

 

 

$

131

 

 

$

229

 

 

$

26

 

 

$

386

 

 

$

2,448

 

 

$

252,195

 

 

$

739

 

 

$

255,382

 

 

$

118

 

 

$

255

 

 

$

-

 

 

$

373

 

Commercial

 

 

2,411

 

 

 

433,416

 

 

 

1,824

 

 

 

437,651

 

 

 

 

 

 

2,589

 

 

 

 

 

 

2,589

 

 

 

-

 

 

 

806,224

 

 

 

882

 

 

 

807,106

 

 

 

-

 

 

 

6,913

 

 

 

0

 

 

 

6,913

 

Construction

 

 

3,661

 

 

 

18,743

 

 

 

 

 

 

22,404

 

 

 

997

 

 

 

153

 

 

 

 

 

 

1,150

 

 

 

-

 

 

 

11,053

 

 

 

-

 

 

 

11,053

 

 

 

-

 

 

 

165

 

 

 

0

 

 

 

165

 

Commercial loans

 

 

356

 

 

 

32,941

 

 

 

 

 

 

33,297

 

 

 

7

 

 

 

433

 

 

 

 

 

 

440

 

 

 

1,921

 

 

 

162,336

 

 

 

-

 

 

 

164,257

 

 

 

1

 

 

 

1,123

 

 

 

0

 

 

 

1,124

 

Other loans secured

 

 

5,813

 

 

 

40,989

 

 

 

 

 

 

46,802

 

 

 

2

 

 

 

363

 

 

 

 

 

 

365

 

Home equity lines of credit

 

 

610

 

 

 

41,140

 

 

 

177

 

 

 

41,927

 

 

 

5

 

 

 

71

 

 

 

 

 

 

76

 

 

 

350

 

 

 

29,349

 

 

 

139

 

 

 

29,838

 

 

 

4

 

 

 

56

 

 

 

0

 

 

 

60

 

Consumer and installment loans

 

 

 

 

 

13,723

 

 

 

42

 

 

 

13,765

 

 

 

 

 

 

144

 

 

 

 

 

 

144

 

 

$

17,322

 

 

$

792,935

 

 

$

3,367

 

 

$

813,624

 

 

$

1,142

 

 

$

3,982

 

 

$

26

 

 

$

5,150

 

Consumer and overdrafts

 

 

-

 

 

 

481

 

 

 

-

 

 

 

481

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

4

 

Total

 

$

4,719

 

 

$

1,261,638

 

 

$

1,760

 

 

$

1,268,117

 

 

$

123

 

 

$

8,516

 

 

$

-

 

 

$

8,639

 

 

 

June 30, 2016

 

 

June 30, 2019

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Loans

 

 

Allowance for loan losses

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

Residential

 

$

5,483

 

 

$

219,310

 

 

$

1,280

 

 

$

226,073

 

 

$

 

 

$

237

 

 

$

 

 

$

237

 

 

$

1,774

 

 

$

262,124

 

 

$

1,269

 

 

$

265,167

 

 

$

130

 

 

$

233

 

 

$

83

 

 

$

446

 

Commercial

 

 

9,277

 

 

 

374,772

 

 

 

1,778

 

 

 

385,827

 

 

 

 

 

 

2,149

 

 

 

 

 

 

2,149

 

 

 

1,418

 

 

 

649,088

 

 

 

890

 

 

 

651,396

 

 

 

-

 

 

 

3,853

 

 

 

0

 

 

 

3,853

 

Construction

 

 

144

 

 

 

24,906

 

 

 

 

 

 

25,050

 

 

 

83

 

 

 

186

 

 

 

 

 

 

269

 

 

 

-

 

 

 

13,231

 

 

 

-

 

 

 

13,231

 

 

 

-

 

 

 

159

 

 

 

0

 

 

 

159

 

Commercial loans

 

 

2,494

 

 

 

38,113

 

 

 

 

 

 

40,607

 

 

 

 

 

 

604

 

 

 

 

 

 

604

 

 

 

2,016

 

 

 

131,598

 

 

 

-

 

 

 

133,614

 

 

 

39

 

 

 

1,091

 

 

 

0

 

 

 

1,130

 

Other loans secured

 

 

6,465

 

 

 

43,528

 

 

 

 

 

 

49,993

 

 

 

2

 

 

 

395

 

 

 

 

 

 

397

 

Home equity lines of credit

 

 

417

 

 

 

40,583

 

 

 

180

 

 

 

41,180

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

 

 

689

 

 

 

32,359

 

 

 

156

 

 

 

33,204

 

 

 

4

 

 

 

61

 

 

 

0

 

 

 

65

 

Consumer and installment loans

 

 

585

 

 

 

15,807

 

 

 

84

 

 

 

16,476

 

 

 

175

 

 

 

138

 

 

 

 

 

 

313

 

 

$

24,865

 

 

$

757,019

 

 

$

3,322

 

 

$

785,206

 

 

$

260

 

 

$

3,782

 

 

$

 

 

$

4,042

 

Consumer and overdrafts

 

 

-

 

 

 

365

 

 

 

-

 

 

 

365

 

 

 

-

 

 

 

11

 

 

 

-

 

 

 

11

 

Total

 

$

5,897

 

 

$

1,088,765

 

 

$

2,315

 

 

$

1,096,977

 

 

$

173

 

 

$

5,408

 

 

$

83

 

 

$

5,664

 

 


The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by class of loans as of and for the years ended June 30, 2017, 20162020 and 20152019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

June 30, 2017

 

June 30, 2020

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

 

 

Average

Recorded Investment

 

 

Interest

Income

Recognized

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for loan losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

4,216

 

 

$

4,014

 

 

$

 

 

$

4,238

 

 

$

42

 

$

2,123

 

 

$

2,013

 

 

$

-

 

Commercial

 

 

2,935

 

 

 

2,411

 

 

 

 

 

 

2,448

 

 

 

137

 

Construction

 

 

404

 

 

 

404

 

 

 

 

 

 

406

 

 

 

12

 

Commercial loans

 

 

276

 

 

 

277

 

 

 

 

 

 

278

 

 

 

15

 

 

2,067

 

 

 

1,897

 

 

 

-

 

Other loans secured

 

 

9,157

 

 

 

4,702

 

 

 

 

 

 

4,787

 

 

 

224

 

Home equity lines of credit

 

 

599

 

 

 

599

 

 

 

 

 

 

599

 

 

 

(2

)

 

326

 

 

 

339

 

 

 

-

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

395

 

 

 

457

 

 

 

131

 

 

 

432

 

 

 

15

 

 

372

 

 

 

435

 

 

 

118

 

Construction

 

 

3,257

 

 

 

3,257

 

 

 

997

 

 

 

3,015

 

 

 

71

 

Commercial loans

 

 

79

 

 

 

79

 

 

 

7

 

 

 

89

 

 

 

4

 

 

24

 

 

 

24

 

 

 

1

 

Other loans secured

 

 

1,111

 

 

 

1,111

 

 

 

2

 

 

 

1,135

 

 

 

57

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

5

 

 

 

11

 

 

 

 

 

11

 

 

 

11

 

 

 

4

 

Total

 

$

22,440

 

 

$

17,322

 

 

$

1,142

 

 

$

17,438

 

 

$

575

 

$

4,923

 

 

$

4,719

 

 

$

123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

June 30, 2016

 

 

June 30, 2016

 

June 30, 2019

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

 

 

Average

Recorded Investment

 

 

Interest

Income

Recognized

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for loan losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

5,683

 

 

$

5,483

 

 

$

 

 

$

5,577

 

 

$

6

 

$

1,061

 

 

$

1,028

 

 

$

-

 

Commercial

 

 

9,947

 

 

 

9,277

 

 

 

 

 

 

9,324

 

 

 

88

 

 

1,471

 

 

 

1,418

 

 

 

-

 

Construction

 

 

12

 

 

 

12

 

 

 

 

 

 

13

 

 

 

 

Commercial loans

 

 

5,250

 

 

 

2,494

 

 

 

 

 

 

3,971

 

 

 

2

 

 

2,007

 

 

 

1,836

 

 

 

-

 

Other loans secured

 

 

7,762

 

 

 

6,408

 

 

 

 

 

 

6,549

 

 

 

69

 

Home equity lines of credit

 

 

445

 

 

 

417

 

 

 

 

 

 

430

 

 

 

 

 

750

 

 

 

678

 

 

 

-

 

Consumer and installment loans

 

 

314

 

 

 

236

 

 

 

 

 

 

235

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

1,324

 

 

 

132

 

 

 

83

 

 

 

132

 

 

 

 

Other loans secured

 

 

57

 

 

 

57

 

 

 

2

 

 

 

62

 

 

 

1

 

Consumer and installment

 

 

353

 

 

 

349

 

 

 

175

 

 

 

360

 

 

 

11

 

Residential

 

723

 

 

 

746

 

 

 

130

 

Commercial loans

 

180

 

 

 

180

 

 

 

39

 

Home equity lines of credit

 

11

 

 

 

11

 

 

 

4

 

Total

 

$

31,147

 

 

$

24,865

 

 

$

260

 

 

$

26,653

 

 

$

177

 

$

6,203

 

 

$

5,897

 

 

$

173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

For the year ended

 

 

For the year ended

 

 

June 30, 2015

 

 

June 30, 2015

 

 

June 30, 2020

 

 

June 30, 2019

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

7,064

 

 

$

7,082

 

 

$

 

 

$

6,216

 

 

$

146

 

 

$

2,149

 

 

$

48

 

 

$

1,377

 

 

$

20

 

Commercial

 

 

9,395

 

 

 

9,121

 

 

 

 

 

 

7,365

 

 

 

242

 

 

 

728

 

 

 

149

 

 

 

1,496

 

 

 

51

 

Commercial loans

 

 

2,163

 

 

 

205

 

 

 

2,064

 

 

 

200

 

Home equity lines of credit

 

 

468

 

 

 

15

 

 

 

577

 

 

 

7

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

375

 

 

 

14

 

 

 

753

 

 

 

14

 

Construction

 

 

1,984

 

 

 

2,020

 

 

 

 

 

 

4,271

 

 

 

 

 

 

-

 

 

 

-

 

 

 

869

 

 

 

-

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

3,266

 

 

 

175

 

 

 

38

 

 

 

2

 

 

 

50

 

 

 

11

 

Other loans secured

 

 

11,528

 

 

 

10,634

 

 

 

 

 

 

11,570

 

 

 

587

 

Home equity lines of credit

 

 

457

 

 

 

438

 

 

 

 

 

 

254

 

 

 

1

 

 

 

85

 

 

 

7

 

 

 

11

 

 

 

-

 

Consumer and installment loans

 

 

5

 

 

 

5

 

 

 

 

 

 

1

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

511

 

 

 

301

 

 

 

34

 

 

 

60

 

 

 

 

Construction

 

 

5,800

 

 

 

4,617

 

 

 

675

 

 

 

1,669

 

 

 

18

 

Other loans secured

 

 

43

 

 

 

43

 

 

 

 

 

 

36

 

 

 

 

Consumer and installment

 

 

478

 

 

 

375

 

 

 

29

 

 

 

131

 

 

 

5

 

Total

 

$

37,265

 

 

$

34,636

 

 

$

738

 

 

$

34,839

 

 

$

1,174

 

 

$

6,006

 

 

$

440

 

 

$

7,197

 

 

$

303

 

 


The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days still on accrual status, by class of loans as of June 30, 20172020 and June 30, 20162019 (in thousands):

 

 

 

 

 

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

 

 

 

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

Nonaccrual

 

 

and Still Accruing

 

 

Nonaccrual

 

 

and Still Accruing

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

2,581

 

 

$

4,717

 

 

$

 

 

$

 

 

$

1,230

 

 

$

536

 

 

$

-

 

 

$

-

 

Commercial

 

 

 

 

 

300

 

 

 

 

 

 

 

Construction

 

 

3,661

 

 

 

144

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

1,615

 

 

 

 

 

 

 

 

 

-

 

 

 

150

 

 

 

-

 

 

 

-

 

Other loans secured

 

 

2,959

 

 

 

3,433

 

 

 

 

 

 

 

Home equity lines of credit

 

 

302

 

 

 

405

 

 

 

 

 

 

 

 

 

42

 

 

 

383

 

 

 

-

 

 

 

-

 

Consumer and installment loans

 

 

 

 

 

584

 

 

 

 

 

 

 

4

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,776

 

 

 

1,164

 

 

 

 

 

 

 

 

 

227

 

 

 

795

 

 

 

-

 

 

 

-

 

Commercial

 

 

497

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

568

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

296

 

 

 

197

 

 

 

 

 

 

 

 

 

296

 

 

 

294

 

 

 

-

 

 

 

-

 

Total

 

$

12,072

 

 

$

12,559

 

 

$

 

 

$

4

 

 

$

1,795

 

 

$

2,726

 

 

$

-

 

 

$

1

 

 

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes acquired loans that are accounted for as purchased credit impaired loans totaling $2.7 million$392,000 and $3.3 million$501,000 as of June 30, 20172020 and June 30, 2016,2019, respectively. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

The following tables present the aging of the recorded investment in past due loans by class of loans as of June 30, 20172020 and June 30, 20162019 (in thousands):

 

 

June 30, 2017

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past Due

 

 

Days Past Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current(1)

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

94

 

 

$

275

 

 

$

1,973

 

 

$

2,342

 

 

$

153,390

 

 

$

155,732

 

 

$

-

 

 

$

10

 

 

$

579

 

 

$

589

 

 

$

216,212

 

 

$

216,801

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

355,247

 

 

 

355,247

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

768,037

 

 

 

768,037

 

Construction

 

 

 

 

 

 

 

 

3,661

 

 

 

3,661

 

 

 

18,743

 

 

 

22,404

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,053

 

 

 

11,053

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,613

 

 

 

31,613

 

 

 

76

 

 

 

-

 

 

 

-

 

 

 

76

 

 

 

163,991

 

 

 

164,067

 

Other loans secured

 

 

 

 

 

 

 

 

544

 

 

 

544

 

 

 

43,612

 

 

 

44,156

 

Home equity lines of credit

 

 

 

 

 

199

 

 

 

103

 

 

 

302

 

 

 

35,246

 

 

 

35,548

 

 

 

44

 

 

 

-

 

 

 

42

 

 

 

86

 

 

 

26,687

 

 

 

26,773

 

Consumer and installment loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,435

 

 

 

13,435

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

469

 

 

 

469

 

Total originated

 

 

94

 

 

 

474

 

 

 

6,281

 

 

 

6,849

 

 

 

651,286

 

 

 

658,135

 

 

 

120

 

 

 

10

 

 

 

621

 

 

 

751

 

 

 

1,186,449

 

 

 

1,187,200

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

237

 

 

 

463

 

 

 

1,472

 

 

 

2,172

 

 

 

59,874

 

 

 

62,046

 

 

 

495

 

 

 

-

 

 

 

227

 

 

 

722

 

 

 

37,859

 

 

 

38,581

 

Commercial

 

 

 

 

 

 

 

 

1,054

 

 

 

1,054

 

 

 

81,350

 

 

 

82,404

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39,069

 

 

 

39,069

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,684

 

 

 

1,684

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

190

 

 

 

190

 

Other loans secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,646

 

 

 

2,646

 

Home equity lines of credit

 

 

 

 

 

 

 

 

296

 

 

 

296

 

 

 

6,083

 

 

 

6,379

 

 

 

-

 

 

 

-

 

 

 

296

 

 

 

296

 

 

 

2,769

 

 

 

3,065

 

Consumer and installment loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330

 

 

 

330

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12

 

 

 

12

 

Total acquired

 

 

237

 

 

 

463

 

 

 

2,822

 

 

 

3,522

 

 

 

151,967

 

 

 

155,489

 

 

 

495

 

 

 

-

 

 

 

523

 

 

 

1,018

 

 

 

79,899

 

 

 

80,917

 

Total

 

$

331

 

 

$

937

 

 

$

9,103

 

 

$

10,371

 

 

$

803,253

 

 

$

813,624

 

 

$

615

 

 

$

10

 

 

$

1,144

 

 

$

1,769

 

 

$

1,266,348

 

 

$

1,268,117

 


 

 

June 30, 2016

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past Due

 

 

Days Past Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

430

 

 

$

573

 

 

$

2,232

 

 

$

3,235

 

 

$

150,010

 

 

$

153,245

 

 

$

-

 

 

$

-

 

 

$

86

 

 

$

86

 

 

$

217,970

 

 

$

218,056

 

Commercial

 

 

 

 

 

 

 

 

300

 

 

 

300

 

 

 

291,044

 

 

 

291,344

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

600,675

 

 

 

600,675

 

Construction

 

 

 

 

 

 

 

 

144

 

 

 

144

 

 

 

24,590

 

 

 

24,734

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,231

 

 

 

13,231

 

Commercial loans

 

 

 

 

 

760

 

 

 

1,615

 

 

 

2,375

 

 

 

35,621

 

 

 

37,996

 

 

 

-

 

 

 

150

 

 

 

-

 

 

 

150

 

 

 

133,286

 

 

 

133,436

 

Other loans secured

 

 

 

 

 

 

 

 

100

 

 

 

100

 

 

 

47,175

 

 

 

47,275

 

Home equity lines of credit

 

 

 

 

 

 

 

 

113

 

 

 

113

 

 

 

34,340

 

 

 

34,453

 

 

 

344

 

 

 

-

 

 

 

312

 

 

 

656

 

 

 

28,767

 

 

 

29,423

 

Consumer and installment loans

 

 

5

 

 

 

 

 

 

589

 

 

 

594

 

 

 

15,280

 

 

 

15,874

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

 

 

348

 

 

 

349

 

Total originated

 

 

435

 

 

 

1,333

 

 

 

5,093

 

 

 

6,861

 

 

 

598,060

 

 

 

604,921

 

 

 

344

 

 

 

150

 

 

 

399

 

 

 

893

 

 

 

994,277

 

 

 

995,170

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

732

 

 

 

 

 

 

1,073

 

 

 

1,805

 

 

 

71,023

 

 

 

72,828

 

 

 

220

 

 

 

116

 

 

 

709

 

 

 

1,045

 

 

 

46,066

 

 

 

47,111

 

Commercial

 

 

 

 

 

 

 

 

520

 

 

 

520

 

 

 

93,963

 

 

 

94,483

 

 

 

-

 

 

 

-

 

 

 

568

 

 

 

568

 

 

 

50,153

 

 

 

50,721

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

316

 

 

 

316

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,611

 

 

 

2,611

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

178

 

 

 

178

 

Other loans secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,718

 

 

 

2,718

 

Home equity lines of credit

 

 

296

 

 

 

 

 

 

197

 

 

 

493

 

 

 

6,234

 

 

 

6,727

 

 

 

-

 

 

 

67

 

 

 

296

 

 

 

363

 

 

 

3,418

 

 

 

3,781

 

Consumer and installment loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

602

 

 

 

602

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

Total acquired

 

 

1,028

 

 

 

0

 

 

 

1,790

 

 

 

2,818

 

 

 

177,467

 

 

 

180,285

 

 

 

220

 

 

 

183

 

 

 

1,573

 

 

 

1,976

 

 

 

99,831

 

 

 

101,807

 

Total

 

$

1,463

 

 

$

1,333

 

 

$

6,883

 

 

$

9,679

 

 

$

775,527

 

 

$

785,206

 

 

$

564

 

 

$

333

 

 

$

1,972

 

 

$

2,869

 

 

$

1,094,108

 

 

$

1,096,977

 

(1).

As of June 30, 2020, loans granted COVID-19-related payment deferrals are considered current.

 

Troubled Debt Restructurings

The terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

As of June 30, 20172020 and June 30, 2016,2019, the Company had 2014 and 2613 loans classified as troubled debt restructurings totaling $9.9$3.3 million and $18.6$4.1 million, respectively.respectively, including $2.9 million and $3.2 million, respectively, of loans still accruing. The Company has allocated $145,000$123,000 and $2,000,$135,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 20172020 and June 30, 2016, respectively,2019, and has not committed to lend an additional amounts$25,000 to customers1 customer with an outstanding loansloan that areis classified as a troubled debt restructurings.restructuring.


The following table presents loans by class modified in troubled debt restructurings that occurred during the years ended June 30, 2017, 20162020 and 2015:

2019 (dollars in thousands):

 

 

Number of Loans

 

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Year ended June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1

 

 

$

165

 

 

$

210

 

Commercial loans

 

 

1

 

 

 

276

 

 

 

276

 

 

 

 

2

 

 

$

441

 

 

$

486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

3

 

 

$

1,697

 

 

$

1,697

 

Commercial

 

 

1

 

 

 

1,178

 

 

 

1,178

 

Other loans secured

 

 

1

 

 

 

64

 

 

 

64

 

Home equity lines of credit

 

 

1

 

 

 

200

 

 

 

200

 

 

 

 

6

 

 

$

3,319

 

 

$

3,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

4

 

 

$

2,080

 

 

$

2,080

 

Commercial

 

 

3

 

 

 

4,103

 

 

 

4,103

 

Construction

 

 

1

 

 

 

1,742

 

 

 

1,742

 

Commercial loans

 

 

3

 

 

 

1,071

 

 

 

1,071

 

Other loans secured

 

 

3

 

 

 

183

 

 

 

183

 

Home equity lines of credit

 

 

1

 

 

 

8

 

 

 

8

 

 

 

 

15

 

 

$

9,187

 

 

$

9,187

 

 

 

Number of loans

 

Pre-Modification Outstanding Recorded Investment

 

 

Post-Modification Outstanding Recorded Investment

 

Year Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

2

 

$

195

 

 

$

172

 

Total

 

2

 

$

195

 

 

$

172

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

3

 

$

1,115

 

 

$

1,110

 

Home equity lines of credit

 

1

 

 

73

 

 

 

73

 

Total

 

4

 

$

1,188

 

 

$

1,183

 


The Company had two1 troubled debt restructuring incur a payment default in the year ended June 30, 2020 that was modified in the twelve months prior to default. This default resulted in 0 charge-offs or additional provision for loan losses. The Company had 0 troubled debt restructurings one residential mortgage and one home equity line of credit, for which there was a payment default in the year ended June 30, 20172019 that were modified in the twelve months prior to default.         There was one such default, on a residential mortgage, in the year ended June 30, 2016 and none for the year ended June 30, 2015.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDR”) for a limited period of time to account for the effects of COVID-19. Additionally, on April 7, 2020, the banking agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement”), to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting rules under ASC 310-40, “Troubled Debt Restructurings by Creditors,” apply to certain COVID-19-related modifications.

In accordance with emergency regulations promulgated by New York State Department of Financial Services, financial institutions are required to provide payment accommodations, which may include payment deferrals, to any consumer and small businesses who can demonstrate financial hardship caused by COVID-19. As of June 30, 2020, the Company has granted loan payment deferrals for 105 residential mortgage loans and home equity lines of credit totaling $30.7 million, as well as deferrals for 215 commercial mortgage, commercial loan and construction loans totaling $185.5 million. In accordance with the CARES Act and Interagency Statement, these modifications were not considered troubled debt restructurings.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company utilized the same grading process for acquired loans as it does for originated loans. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.


Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.


Loans not meeting the criteria above that are analyzed individually as part of the above-described process and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

 

 

June 30, 2017

 

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

153,165

 

 

$

 

 

$

2,567

 

 

$

 

 

$

155,732

 

Commercial

 

 

352,203

 

 

 

134

 

 

 

2,910

 

 

 

 

 

 

355,247

 

Construction

 

 

18,743

 

 

 

 

 

 

3,661

 

 

 

 

 

 

22,404

 

Commercial loans

 

 

28,944

 

 

 

 

 

 

2,669

 

 

 

 

 

 

31,613

 

Other loans secured

 

 

37,267

 

 

 

 

 

 

6,889

 

 

 

 

 

 

44,156

 

Home equity lines of credit

 

 

35,246

 

 

 

58

 

 

 

244

 

 

 

 

 

 

35,548

 

Consumer and installment loans

 

 

13,405

 

 

 

 

 

 

30

 

 

 

 

 

 

13,435

 

Total originated

 

 

638,973

 

 

 

192

 

 

 

18,970

 

 

 

 

 

 

658,135

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

58,665

 

 

 

 

 

 

3,381

 

 

 

 

 

 

62,046

 

Commercial

 

 

80,082

 

 

 

 

 

 

2,322

 

 

 

 

 

 

82,404

 

Commercial loans

 

 

1,684

 

 

 

 

 

 

 

 

 

 

 

 

1,684

 

Other loans secured

 

 

2,646

 

 

 

 

 

 

 

 

 

 

 

 

2,646

 

Home equity lines of credit

 

 

5,906

 

 

 

 

 

 

473

 

 

 

 

 

 

6,379

 

Consumer and installment loans

 

 

330

 

 

 

 

 

 

 

 

 

 

 

 

330

 

Total acquired

 

 

149,313

 

 

 

 

 

 

6,176

 

 

 

 

 

 

155,489

 

Total

 

$

788,286

 

 

$

192

 

 

$

25,146

 

 

$

 

 

$

813,624

 


 

June 30, 2016

 

 

June 30, 2020

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

147,944

 

 

$

181

 

 

$

5,120

 

 

$

 

 

$

153,245

 

 

$

215,072

 

 

$

489

 

 

$

1,240

 

 

$

216,801

 

Commercial

 

 

278,491

 

 

 

2,101

 

 

 

10,752

 

 

 

 

 

 

291,344

 

 

 

764,861

 

 

 

3,176

 

 

 

-

 

 

 

768,037

 

Construction

 

 

24,590

 

 

 

 

 

 

144

 

 

 

 

 

 

24,734

 

 

 

11,053

 

 

 

-

 

 

 

-

 

 

 

11,053

 

Commercial loans

 

 

30,916

 

 

 

2,004

 

 

 

5,076

 

 

 

 

 

 

37,996

 

 

 

159,947

 

 

 

201

 

 

 

3,919

 

 

 

164,067

 

Other loans secured

 

 

38,382

 

 

 

109

 

 

 

8,784

 

 

 

 

 

 

47,275

 

Home equity lines of credit

 

 

34,047

 

 

 

 

 

 

406

 

 

 

 

 

 

34,453

 

 

 

26,265

 

 

 

442

 

 

 

66

 

 

 

26,773

 

Consumer and installment loans

 

 

15,069

 

 

 

24

 

 

 

432

 

 

 

349

 

 

 

15,874

 

Consumer and overdrafts

 

 

469

 

 

 

-

 

 

 

-

 

 

 

469

 

Total originated

 

$

569,439

 

 

$

4,419

 

 

$

30,714

 

 

$

349

 

 

$

604,921

 

 

 

1,177,667

 

 

 

4,308

 

 

 

5,225

 

 

 

1,187,200

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

70,629

 

 

 

 

 

 

2,199

 

 

 

 

 

 

72,828

 

 

 

37,532

 

 

 

198

 

 

 

851

 

 

 

38,581

 

Commercial

 

 

91,380

 

 

 

949

 

 

 

2,154

 

 

 

 

 

 

94,483

 

 

 

38,187

 

 

 

-

 

 

 

882

 

 

 

39,069

 

Construction

 

 

316

 

 

 

 

 

 

 

 

 

 

 

 

316

 

Commercial loans

 

 

2,611

 

 

 

 

 

 

 

 

 

 

 

 

2,611

 

 

 

190

 

 

 

-

 

 

 

-

 

 

 

190

 

Other loans secured

 

 

2,718

 

 

 

 

 

 

 

 

 

 

 

 

2,718

 

Home equity lines of credit

 

 

6,529

 

 

 

 

 

 

198

 

 

 

 

 

 

6,727

 

 

 

2,629

 

 

 

56

 

 

 

380

 

 

 

3,065

 

Consumer and installment loans

 

 

602

 

 

 

 

 

 

 

 

 

 

 

 

602

 

Consumer and overdrafts

 

 

12

 

 

 

-

 

 

 

-

 

 

 

12

 

Total acquired

 

 

174,785

 

 

 

949

 

 

 

4,551

 

 

 

 

 

 

180,285

 

 

 

78,550

 

 

 

254

 

 

 

2,113

 

 

 

80,917

 

Total

 

$

744,224

 

 

$

5,368

 

 

$

35,265

 

 

$

349

 

 

$

785,206

 

 

$

1,256,217

 

 

$

4,562

 

 

$

7,338

 

 

$

1,268,117

 

 

 

 

June 30, 2019

 

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

216,438

 

 

$

1,071

 

 

$

547

 

 

$

218,056

 

Commercial

 

 

600,216

 

 

 

339

 

 

 

120

 

 

 

600,675

 

Construction

 

 

13,231

 

 

 

-

 

 

 

-

 

 

 

13,231

 

Commercial loans

 

 

123,361

 

 

 

6,423

 

 

 

3,652

 

 

 

133,436

 

Home equity lines of credit

 

 

28,996

 

 

 

67

 

 

 

360

 

 

 

29,423

 

Consumer and overdrafts

 

 

349

 

 

 

-

 

 

 

-

 

 

 

349

 

Total originated

 

 

982,591

 

 

 

7,900

 

 

 

4,679

 

 

 

995,170

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

44,959

 

 

 

211

 

 

 

1,941

 

 

 

47,111

 

Commercial

 

 

45,726

 

 

 

3,537

 

 

 

1,458

 

 

 

50,721

 

Commercial loans

 

 

178

 

 

 

-

 

 

 

-

 

 

 

178

 

Home equity lines of credit

 

 

3,331

 

 

 

68

 

 

 

382

 

 

 

3,781

 

Consumer and overdrafts

 

 

16

 

 

 

-

 

 

 

-

 

 

 

16

 

Total acquired

 

 

94,210

 

 

 

3,816

 

 

 

3,781

 

 

 

101,807

 

Total

 

$

1,076,801

 

 

$

11,716

 

 

$

8,460

 

 

$

1,096,977

 

As of June 30, 2020, of the $216.2 million in loans granted COVID-19 related payment deferrals, $211.0 million were pass-rated, with $198,000 and $4.9 million rated special mention and substandard, respectively.


Purchased Credit Impaired Loans

The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of June 30, 2017 and June 30, 2016 is as follows (in thousands):

 

 

June 30,

 

June 30,

 

 

2017

 

 

2016

 

2020

 

 

2019

 

Residential

 

$

1,298

 

 

$

1,280

 

$

739

 

 

$

1,186

 

Commercial

 

 

1,824

 

 

 

1,778

 

 

882

 

 

 

890

 

Home equity lines of credit

 

 

177

 

 

 

180

 

 

139

 

 

 

156

 

Consumer and installment loans

 

 

42

 

 

 

84

 

Carrying amount, net of allowance of $26 and $0,

respectively

 

$

3,341

 

 

$

3,322

 

Carrying amount, net of allowance of $0 and $83, respectively

$

1,760

 

 

$

2,232

 

Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands):

 

 

Year ended June 30,

 

Year ended June 30,

 

 

2017

 

 

2016

 

 

2015

 

2020

 

 

2019

 

Beginning balance

 

$

578

 

 

$

713

 

 

$

 

$

192

 

 

$

245

 

New loans acquired

 

 

 

 

 

 

 

 

750

 

 

-

 

 

 

-

 

Accretion income

 

 

(190

)

 

 

(185

)

 

 

(37

)

 

(36

)

 

 

(53

)

Reclassification from non-accretable difference

 

 

15

 

 

 

132

 

 

 

 

 

-

 

 

 

-

 

Disposals

 

 

 

 

 

(82

)

 

 

 

 

-

 

 

 

-

 

Ending balance

 

$

403

 

 

$

578

 

 

$

713

 

$

156

 

 

$

192

 

 


Note 6.5. Premises and Equipment

Premises and equipment are summarized as follows at June 30 (in thousands):

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Land

 

$

1,997

 

 

$

1,997

 

 

$

1,326

 

 

$

1,997

 

Building and Leasehold improvements

 

 

11,128

 

 

 

9,601

 

 

 

13,086

 

 

 

13,753

 

Furniture, fixtures and equipment

 

 

5,841

 

 

 

4,946

 

 

 

7,361

 

 

 

6,808

 

Construction and improvements in process

 

 

3,015

 

 

 

1,967

 

 

 

34

 

 

 

15

 

 

 

21,981

 

 

 

18,511

 

 

 

21,807

 

 

 

22,573

 

Less: accumulated depreciation and amortization

 

 

(9,022

)

 

 

(7,737

)

 

 

(11,930

)

 

 

(10,771

)

Total premises and equipment, net

 

$

12,959

 

 

$

10,774

 

Total

 

 

9,877

 

 

 

11,802

 

Right to use lease asset

 

 

10,976

 

 

 

-

 

Total Bank premises and equipment, net

 

$

20,853

 

 

$

11,802

 

Right to use lease assets as of June 30, 2020 of $11.0 million included $11.9 million of assets recorded upon the adoption of ASU 2016-02 on July 1, 2020 and $796,000 of lease assets acquired during the current year, partially offset by amortization of $1.7 million for the current year. Prior period amounts include 0 right to use lease assets.

 

Depreciation expense was $1.3 million, $1.1$1.2 million and $725,000$1.1 million for the years ended June 30, 2017, 20162020 and 2015,2019, respectively.

Note 76. Goodwill and Intangible Assets

The change in goodwill during the years ended June 30, 2017, 20162020 and 20152019 are as follows (in thousands):

 

 

 

2017

 

 

2016

 

 

2015

Balance at July 1

 

$

6,106

 

 

$

5,843

 

$

Acquired goodwill – CMS Bancorp

 

 

 

 

 

 

 

5,843

Adjustment to CMS goodwill

 

 

 

 

 

263

 

 

Total at June 30,

 

$

6,106

 

 

$

6,106

 

$

5,843

 

 

2020

 

 

2019

 

Balance at July 1,

 

$

6,106

 

 

$

6,106

 

Impairment

 

 

-

 

 

 

-

 

Total at June 30,

 

$

6,106

 

 

$

6,106

 


Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. The Company tests for goodwill impairment on an annual basis as of June 30th. NoNaN impairment wascharges were required to be recorded on goodwill for 2017, 2016in the year ended June 30, 2020 or 2015.2019.

Acquired Intangible Assets: Acquired intangible assets were as follows at June 30 (in thousands):

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated Amortization

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangible

 

$

887

 

 

$

(328

)

 

$

887

 

 

$

(185

)

 

$

887

 

 

$

(658

)

 

$

887

 

 

$

(564

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate amortization expense was $143,000, $158,000$94,000 and $27,000$110,000 for the years ended June 30, 2017, 20162020 and 2015,2019, respectively.

Estimated amortization expense for each of the next five fiscal years ended June 30 (in thousands):

 

2018

 

$

126

 

2019

 

 

110

 

2020

 

 

94

 

2021

 

 

78

 

2022

 

 

62

 

2021

 

$

78

 

2022

 

 

62

 

2023

 

 

46

 

2024

 

 

30

 

2025

 

 

13

 

 


Note 87. Deposits

Deposit balances are summarized as follows at June 30 2017 and 2016 (in thousands):

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Demand

 

$

136,361

 

 

$

122,740

 

 

$

191,898

 

 

$

141,379

 

NOW Accounts

 

 

115,527

 

 

 

111,455

 

 

 

151,797

 

 

 

123,069

 

Money market accounts

 

 

29,097

 

 

 

31,194

 

 

 

239,942

 

 

 

148,134

 

Savings

 

 

512,697

 

 

 

516,249

 

 

 

343,352

 

 

 

357,844

 

Time deposits

 

 

294,779

 

 

 

331,057

 

 

 

446,266

 

 

 

455,395

 

Total

 

$

1,088,461

 

 

$

1,112,695

 

 

$

1,373,255

 

 

$

1,225,821

 

 

Time deposits that meet or exceed the FDIC insurance limit of $250,000 were $49.2$143.2 million and $53.3$149.0 million at June 30, 20172020 and 2016,2019, respectively.

Scheduled maturities of time deposits were as follows as of June 30 2017 and 2016 and exclude fair value adjustments on acquired time deposits (in thousands):

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Within 1 year

 

$

107,097

 

 

$

169,260

 

 

$

270,435

 

 

$

221,832

 

1 year to 2 years

 

 

62,331

 

 

 

44,762

 

 

 

63,771

 

 

 

112,394

 

2 years to 3 years

 

 

31,143

 

 

 

49,745

 

 

 

32,259

 

 

 

41,211

 

3 years to 4 years

 

 

41,508

 

 

 

26,782

 

 

 

70,452

 

 

 

33,538

 

4 years to 5 years

 

 

52,503

 

 

 

40,490

 

 

 

9,349

 

 

 

46,420

 

Thereafter

 

 

197

 

 

 

18

 

Total

 

$

294,779

 

 

$

331,057

 

 

$

446,266

 

 

$

455,395

 

 


Deposits of local governments held by PCSB Commercial Bank were $38.4$44.1 million and $49.4$40.1 million at June 30, 20172020 and 2016,2019, respectively. Additionally, as of June 30, 2020 and 2019, deposits included $67.5 million and $77.5 million of brokered time deposits with remaining maturities between 6 and 44 months.  

Note 98. FHLB and Other Borrowings

Borrowings consist of advances from the Federal Home Loan Bank of New York.FHLBNY. As of June 30, 2017,2020, FHLB advances consisted of $38.6$102.5 million of short and long termlong-term advances with original maturities ranging from 39 to 3042 months, as well as a $4.0$3.6 million amortizing term loan with a balloon payment of $2.8 million in 2026. The maturity schedule of advances is summarized as follows as of June 30 (in(dollars in thousands):

 

 

 

2017

 

 

2016

 

 

 

Amount Due

 

 

Weighted

Avg. Rate

 

 

Amount Due

 

 

Weighted

Avg. Rate

 

Within 1 year

 

$

23,757

 

 

 

1.27

%

 

$

16,118

 

 

 

0.80

%

1 year to 2 years

 

 

10,125

 

 

 

1.70

 

 

 

121

 

 

 

2.62

 

2 years to 3 years

 

 

5,128

 

 

 

1.81

 

 

 

125

 

 

 

2.62

 

3 years to 4 years

 

 

131

 

 

 

2.62

 

 

 

128

 

 

 

2.62

 

4 years to 5 years

 

 

135

 

 

 

2.62

 

 

 

131

 

 

 

2.62

 

Thereafter

 

 

3,322

 

 

 

2.62

 

 

 

3,458

 

 

 

2.62

 

Total

 

$

42,598

 

 

 

1.55

%

 

$

20,081

 

 

 

1.16

%


 

2020

 

 

2019

 

 

Amount Due

 

Weighted

Avg. Rate

 

 

Amount Due

 

Weighted

Avg. Rate

 

Within 1 year

$

40,131

 

 

1.81

%

 

$

65,128

 

 

2.29

%

1 year to 2 years

 

17,635

 

 

2.11

 

 

 

30,131

 

 

2.10

 

2 years to 3 years

 

40,138

 

 

1.79

 

 

 

7,635

 

 

3.22

 

3 years to 4 years

 

5,142

 

 

3.31

 

 

 

138

 

 

2.62

 

4 years to 5 years

 

146

 

 

2.62

 

 

 

5,142

 

 

3.31

 

Thereafter

 

2,897

 

 

2.62

 

 

 

3,042

 

 

2.62

 

Total

$

106,089

 

 

1.95

%

 

$

111,216

 

 

2.36

%

As a member of the FHLB of New York,FHLBNY, the Bank had access to funds in the form of FHLB advances of approximately $393.3$218.4 million and $291.2 million at June 30, 2017.2020 and 2019, of which $106.1 million and $111.2 million was outstanding as of each respective period. Advances are secured by the Bank’s investment in FHLB stock and by a blanket security agreement. This agreement requires the Bank to maintain as collateral certain qualifying assets (such as U.S. Government agency and MBSs)MBS) with a discounted fair value, as defined, at least equal to 110% of any outstanding advances.

At June 30, 2017,2020, the Bank also had access to funds of approximately $85.9$108.7 million in the form of secured borrowings through the discount window of the Federal Reserve Bank of New York.FRB. Collateral for these borrowings may include qualifying assets, such as one-to-four family residential loans. The Bank had no0 outstanding FRB borrowings as of June 30, 20172020 or 2016.2019.

Additionally, as of June 30, 2020 we had $25.0 million of fed funds lines of credit, NaN of which was outstanding.

Note 109. Commitments and Contingencies

Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to commitments to originate loans, unused lines of credit and standby letters of credit (“credit-related financial instruments”) that involve, to varying degrees, elements of credit risk and interest rate risk in addition to the risks associated with loans recognized in the consolidated statements of condition. Substantially all of these credit-related financial instruments have been entered into with customers in the Company’s primary lending area described in Note 1.

The contract amounts of credit-related financial instruments reflect the extent of the Company’s involvement with those classes of financial instruments. The Company’s exposure to credit loss in the event of non-performance by the counterparty is represented by the contract amount. The Company uses the same credit policies in extending commitments, lines of credit and standby letters of credit as it does for on-balance sheet instruments.

The contract amounts of credit-related financial instruments at June 30, 2017 and 2016, are summarized below (in thousands):

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Unused lines of credit

 

$

141,070

 

 

$

121,555

 

Commitments to originate loans

 

$

77,600

 

 

$

62,773

 

 

 

48,123

 

 

 

67,859

 

Unused lines of credit

 

 

45,439

 

 

 

58,788

 

Standby letter of credit

 

 

705

 

 

 

732

 

 

 

1,820

 

 

 

1,688

 


Lines of credit (including undisbursed construction loans) and commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These agreements generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain lines of credit and commitments are expected to expire without being funded, the contract amounts do not necessarily represent future cash requirements. In extending lines of credit and commitments, the Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

The Company issues financial standby letters of credit that are irrevocable undertakings by the Company to guarantee payment of a specified financial obligation. Most of the Company’s financial standby letters of credit arise in connection with lending relationships and have terms of one year or less. The maximum potential future payments the Company could be required to make equals the contract amount of standby letters of credit shown in the preceding table. The Company’s recognized liability for financial standby letters of credit was insignificant at June 30, 20172020 and 2016.


Operating Lease Commitments:  The Company leases certain branch properties under operating leases. Rent expense was $2.7 million, $2.1 million and $1.9 million for the years ended June 30, 2017, 2016 and 2015, respectively.  Rent commitments, before considering renewal options that generally are present, were as follows as of June 30, 2017 (in thousands):2019.

Within 1 year

 

$

2,359

 

1 year to 2 years

 

 

2,024

 

2 years to 3 years

 

 

1,748

 

3 years to 4 years

 

 

1,484

 

4 years to 5 years

 

 

1,435

 

Thereafter

 

 

7,395

 

Total

 

$

16,445

 

Legal Proceedings: In the normal course of business, the Company is involved in certain legal proceedings. In the opinion of management, the consolidated financial statements of the Company are not expected to be affected materially by the outcome of such legal proceedings.

Note 1110. Accumulated Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) balances, net of tax (in thousands):

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2016

 

$

523

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,970

)

Other comprehensive income (loss) before

   reclassifications

 

 

(735

)

 

 

3,973

 

 

 

(755

)

 

 

2,483

 

Reclassification Adjustment for expense included

   in salaries and employee benefits

 

 

 

 

 

89

 

 

 

93

 

 

 

182

 

Less tax effect

 

 

(249

)

 

 

1,381

 

 

 

(1,222

)

 

 

(90

)

Net other comprehensive income (loss)

 

 

(486

)

 

 

2,681

 

 

 

560

 

 

 

2,755

 

Balance at June 30, 2017

 

$

37

 

 

$

(5,002

)

 

$

(250

)

 

$

(5,215

)

 

 

Net unrealized

gain (loss) on

available for sale securities(1)

 

 

Unrealized loss

on pension

benefits(2)

 

 

Unrealized loss

on SERP

benefits(2)

 

 

Total

 

Balance at July 1, 2019

 

$

(209

)

 

$

(4,631

)

 

$

(250

)

 

$

(5,090

)

Other comprehensive income (loss) before reclassifications

 

 

826

 

 

 

(3,428

)

 

 

(13

)

 

 

(2,615

)

Amounts reclassified from accumulated other comprehensive (loss) income

 

 

(21

)

 

 

929

 

 

 

45

 

 

 

953

 

Tax effect

 

 

(168

)

 

 

525

 

 

 

(8

)

 

 

349

 

Net other comprehensive income (loss)

 

 

637

 

 

 

(1,974

)

 

 

24

 

 

 

(1,313

)

Balance at June 30, 2020

 

$

428

 

 

$

(6,605

)

 

$

(226

)

 

$

(6,403

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities(1)

 

 

Unrealized loss

on pension

benefits(2)

 

 

Unrealized loss

on SERP

benefits(2)

 

 

Total

 

Balance at July 1, 2018

 

$

(1,536

)

 

$

(5,150

)

 

$

(264

)

 

$

(6,950

)

Other comprehensive income (loss) before reclassifications

 

 

1,741

 

 

 

(486

)

 

 

(19

)

 

 

1,236

 

Amounts reclassified from accumulated other comprehensive (loss) income

 

 

(62

)

 

 

1,144

 

 

 

36

 

 

 

1,118

 

Tax effect

 

 

(352

)

 

 

(139

)

 

 

(3

)

 

 

(494

)

Net other comprehensive income

 

 

1,327

 

 

 

519

 

 

 

14

 

 

 

1,860

 

Balance at June 30, 2019

 

$

(209

)

 

$

(4,631

)

 

$

(250

)

 

$

(5,090

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amounts reclassified from accumulated other comprehensive income are recorded in the Statement of Operations as part of "gains on sales of securities"

 

(2) Amounts reclassified from accumulated other comprehensive income are recorded in the Statement of Operations as part of "other operating expenses"

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2015

 

$

323

 

 

$

(4,311

)

 

$

(734

)

 

$

(4,722

)

Other comprehensive income (loss) before

   reclassifications

 

 

255

 

 

 

(5,022

)

 

 

89

 

 

 

(4,678

)

Reclassification Adjustment for expense included

   in salaries and employee benefits

 

 

 

 

 

398

 

 

 

84

 

 

 

482

 

Less tax effect

 

 

55

 

 

 

(1,252

)

 

 

249

 

 

 

(948

)

Net other comprehensive income (loss)

 

 

200

 

 

 

(3,372

)

 

 

(76

)

 

 

(3,248

)

Balance at June 30, 2016

 

$

523

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,970

)


Note 11. Earnings Per Share

Basic EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated in a similar matter, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method. Dilutive financial instruments include stock options and unvested restricted stock.

The following table provides factors used in the earnings per share computation for the years ended June 30th.

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2014

 

$

418

 

 

$

(2,622

)

 

$

(642

)

 

$

(2,846

)

Other comprehensive income (loss) before

   reclassifications

 

 

(159

)

 

 

(3,044

)

 

 

237

 

 

 

(2,966

)

Reclassification Adjustment for expense included

   in salaries and employee benefits

 

 

 

 

 

(225

)

 

 

84

 

 

 

(141

)

Less tax effect

 

 

(64

)

 

 

(1,580

)

 

 

413

 

 

 

(1,231

)

Net other comprehensive income (loss)

 

 

(95

)

 

 

(1,689

)

 

 

(92

)

 

 

(1,876

)

Balance at June 30, 2015

 

$

323

 

 

$

(4,311

)

 

$

(734

)

 

$

(4,722

)

 

 

2020

 

 

2019

 

 

 

(amounts in thousands, except share and per share data)

 

Net income applicable to common stock

 

$

9,359

 

 

$

8,318

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

16,811,359

 

 

 

17,752,473

 

Less: Average unallocated ESOP shares

 

 

(1,162,732

)

 

 

(1,259,713

)

Average number of common shares outstanding used to calculate basic earnings per common share

 

 

15,648,627

 

 

 

16,492,760

 

 

 

 

 

 

 

 

 

 

Effect of equity-based awards

 

 

25,542

 

 

 

34,357

 

Average number of common shares outstanding used to calculate diluted earnings per common share

 

 

15,674,169

 

 

 

16,527,117

 

 

 

 

 

 

 

 

 

 

Earnings per Common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.60

 

 

$

0.50

 

Diluted

 

$

0.60

 

 

$

0.50

 

 

Note 12. Mergers and Acquisitions

On April 28, 2015, the Company acquired all of the outstandingStock options for 1,339,293 shares of CMS Bancorp. The business combination expandedcommon stock were not considered in computing dilutive earnings per common share for the Company's presence in Westchester Countyyears ended June 30, 2020 and enhanced opportunities for business, customer relationships and the communities served by the Company.

On the acquisition date, CMS Bancorp had 1,941,944 outstanding common shares, net of 192,362 shares of treasury stock, and shareholders' equity of $17.8 million. CMS shareholders received $13.25 per share in cash resulting in a consideration value of $23.2 million.

The assets and liabilities in the CMS Bank acquisition2019 because they were recorded at their fair value based on management's best estimate based on information available at the date of acquisition. The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations.”  Accordingly, the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value.antidilutive.  

Consideration paid (in thousands):

 

 

 

 

 

 

 

 

 

Amount

 

Cash consideration paid to CMS shareholders

 

 

 

 

 

 

 

 

 

$

23,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Acquired

 

 

Fair Value

Adjustments

 

 

As Recorded

at Acquisition

 

Cash

 

$

2,533

 

 

$

 

 

 

$

2,533

 

Available for sale investment securities

 

 

41,082

 

 

 

 

 

 

 

41,082

 

Loans

 

 

218,796

 

 

 

(4,018

)

a

 

214,778

 

Premises and equipment

 

 

2,201

 

 

 

841

 

b

 

3,042

 

Other real estate owned

 

 

183

 

 

 

 

 

 

 

183

 

Core deposit intangible

 

 

 

 

 

 

887

 

c

 

887

 

Deferred tax assets, net

 

 

193

 

 

 

1,829

 

d

 

2,022

 

Other assets

 

 

2,079

 

 

 

(177

)

e

 

1,902

 

Deposits

 

 

(207,391

)

 

 

(870

)

f

 

(208,261

)

Federal Home Loan Bank advances

 

 

(36,050

)

 

 

 

 

 

 

(36,050

)

Other Liabilities

 

 

(4,984

)

 

 

(58

)

e

 

(5,042

)

Total Identifiable net assets

 

$

18,642

 

 

$

(1,566

)

 

$

17,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill Created

 

 

 

 

 

 

 

 

 

$

6,106

 

Explanation of fair value adjustments:

a)

The adjustment represents the write down of the book value of loans to their estimated fair value based on current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the portfolio.


b)

The adjustment represents the excess of the premises and equipment fair value over their book values, based on recent appraisals.

c)

The adjustment represents the economic value of the acquired core deposit portfolio. The core deposit intangible will be amortized over a period of 10 years based on the sum-of-of-years-digits method.

d)

The adjustment represents the net deferred tax asset resulting from the fair value adjustments related to acquired assets and liabilities, as well as identifiable intangibles.

e)

The adjustment represents the write down of receivables and accrued liabilities to their net realizable value.

f)

The adjustment represents the write down of the book value of time deposits to their estimated fair value based on current interest rates.

Note 1312. Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  


Investment Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs), or a broker's opinion of value (Level 3 inputs).  

Impaired Loans: The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Appraisals are generally obtained annually and may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management performs a review of all appraisals, including any such adjustments. The fair value of uncollateralized or non-collateral-dependent loans are generally based on discounted cash flows which utilize management’s assumption of discount rates and expected future cash flows, resulting in a Level 3 classification.

Foreclosed Real Estate: Assets acquired through or instead of loan foreclosure are initially recorded at fair value, less estimated costs to sell, when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower cost or fair value, less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and


income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department, as well as a third-party specialist, where deemed appropriate, reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Once appraisals are considered appropriate, management discounts the appraised value for estimated selling costs, such as legal, broker, and property maintenance and insurance costs.  The most recent analysis performed indicated discount rates ranging between 10% and 20% should be applied to properties with appraisals performed.

Derivatives: The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of eachderivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.


Assets and liabilities measured at fair value are summarized below (in thousands):

 

Fair Value Measurements

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Fair Value Measurements

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

 

 

$

63,445

 

 

$

 

 

$

63,445

 

 

$

-

 

 

$

11,049

 

 

$

-

 

 

$

11,049

 

Corporate and other debt securities

 

 

 

 

 

8,482

 

 

 

 

 

 

8,482

 

 

 

-

 

 

 

5,120

 

 

 

-

 

 

 

5,120

 

Mortgage-backed securities – residential

 

 

 

 

 

39,930

 

 

 

 

 

 

39,930

 

 

 

-

 

 

 

21,257

 

 

 

-

 

 

 

21,257

 

Equity securities

 

 

 

 

 

32

 

 

 

 

 

 

32

 

Derivatives - interest rate contracts

 

 

-

 

 

 

8,305

 

 

 

-

 

 

 

8,305

 

Total assets at fair value

 

$

 

 

$

111,889

 

 

$

 

 

$

111,889

 

 

$

-

 

 

$

45,731

 

 

$

-

 

 

$

45,731

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives - interest rate contracts

 

$

-

 

 

$

8,305

 

 

$

-

 

 

$

8,305

 

Total liabilities at fair value

 

$

-

 

 

$

8,305

 

 

$

-

 

 

$

8,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

 

 

$

 

 

$

1,126

 

 

$

1,126

 

 

$

-

 

 

$

-

 

 

$

316

 

 

$

316

 

Construction

 

 

 

 

 

 

 

 

2,260

 

 

 

2,260

 

Commercial

 

 

 

 

 

 

 

 

72

 

 

 

72

 

Other loans secured

 

 

 

 

 

 

 

 

1,609

 

 

 

1,609

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

Home equity lines of credit

 

 

 

 

 

 

 

 

5

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

8

 

Foreclosed real estate

 

 

 

 

 

 

 

 

977

 

 

 

977

 

Total assets at fair value

 

$

 

 

$

 

 

$

6,049

 

 

$

6,049

 

 

$

-

 

 

$

-

 

 

$

424

 

 

$

424

 

 


 

Fair Value Measurements

 

 

Fair Value Measurements

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

 

 

$

66,132

 

 

$

 

 

$

66,132

 

 

$

-

 

 

$

36,911

 

 

$

-

 

 

$

36,911

 

Corporate and other debt securities

 

 

 

 

 

8,646

 

 

 

 

 

 

8,646

 

 

 

-

 

 

 

8,360

 

 

 

-

 

 

 

8,360

 

Mortgage-backed securities – residential

 

 

 

 

 

37,524

 

 

 

 

 

 

37,524

 

 

 

-

 

 

 

26,957

 

 

 

-

 

 

 

26,957

 

Equity securities

 

 

 

 

 

49

 

 

 

 

 

 

49

 

Derivatives - interest rate contracts

 

 

-

 

 

 

1,339

 

 

 

-

 

 

 

1,339

 

Total assets at fair value

 

$

 

 

$

112,351

 

 

$

 

 

$

112,351

 

 

$

-

 

 

$

73,567

 

 

$

-

 

 

$

73,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives - interest rate contracts

 

$

-

 

 

$

1,339

 

 

$

-

 

 

$

1,339

 

Total liabilities at fair value

 

$

-

 

 

$

1,339

 

 

$

-

 

 

$

1,339

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

 

 

$

 

 

$

913

 

 

$

913

 

 

$

-

 

 

$

-

 

 

$

616

 

 

$

616

 

Construction

 

 

 

 

 

 

 

 

49

 

 

 

49

 

Commercial loans

 

 

 

 

 

 

 

 

54

 

 

 

54

 

 

 

-

 

 

 

-

 

 

 

141

 

 

 

141

 

Consumer and installment loans

 

 

 

 

 

 

 

 

175

 

 

 

175

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

7

 

 

 

7

 

Foreclosed real estate

 

 

 

 

 

 

 

 

905

 

 

 

905

 

 

 

-

 

 

 

-

 

 

 

653

 

 

 

653

 

Total assets at fair value

 

$

 

 

$

 

 

$

2,096

 

 

$

2,096

 

 

$

-

 

 

$

-

 

 

$

1,417

 

 

$

1,417

 

 

Impaired loans in the table above had a carrying amount of $6.3 million,$546,000 and a remaining valuation allowance of $1.1 million$123,000 at June 30, 2017,2020, incurred $245,0000 net charge-offs and resulted in a credit for loan losses of net charge-offs$6,000 during the year ended June 30, 2017,2020. Impaired loans in the table above had a carrying amount of $937,000 and a remaining valuation allowance of $173,000 at June 30, 2019, and incurred 0 net charge-offs and resulted in an additional provision for loan losses of $1.4 million. Impaired loans as of June 30, 2016 in the table above had a carrying amount of $1.5 million, a remaining valuation allowance of $259,000 at June 30, 2016, and incurred no net charge-offs$40,000 during the year ended June 30, 2016, which resulted in an additional provision for loan losses of $175,000 for the year.2019.  


The following tables present quantitative information about Level 3 fair value measurements for selected financial instruments measured at fair value on a non-recurring basis at June 30, 20172020 and June 30, 2016 (in2019 (dollars in thousands):

 

 

 

 

 

 

Valuation

 

Unobservable

 

Range or

 

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Rate Used

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

1,126

 

 

Sales comparison

 

Adjustments for differences in sales comparables

 

-5.1% to 7.8%

 

 

 

 

 

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - construction

 

 

2,260

 

 

Cost approach

 

Discount for distressed property

 

 

50.0%

 

Impaired loans - commercial

 

 

72

 

 

Discounted cash flow

 

Adjustments for differences in sales comparables

 

7.0% to 7.5%

 

Impaired loans - other loans secured

 

 

1,609

 

 

Discounted cash flow

 

Discount rate

 

 

6.0%

 

 

 

 

 

 

 

Sales comparison

 

Adjustments for differences in sales comparables

 

 

0.0%

 

Impaired loans - home equity lines of credit

 

 

5

 

 

Discounted cash flow

 

Discount rate

 

 

6.3%

 

Foreclosed real estate

 

 

977

 

 

Sales comparison

 

Adjustments for differences in sales comparables

 

-23.4% 

to 7.2%

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

913

 

 

Sales comparison

 

Adjustments for differences in sales comparables

 

-2.0% 

to 13.3%

 

Impaired loans - construction

 

 

49

 

 

Discounted cash flow

 

Discount rate

 

 

1.0%

 

Impaired loans - other loans secured

 

 

54

 

 

Discounted cash flow

 

Discount rate

 

 

4.5%

 

Impaired loans - consumer and installment

   loans

 

 

175

 

 

Discounted cash flow

 

Discount rate

 

 

4.3%

 

Foreclosed real estate

 

 

905

 

 

Sales comparison

 

Adjustments for differences in sales comparables

 

-14.3% 

to 7.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

Valuation Technique(s)

 

Unobservable Input(s)

 

Range or Rate Used

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

316

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - commercial loans

 

 

100

 

 

Discounted cash flow

 

Discount rate

 

6.8% to 7.5%

 

Impaired loans - home equity lines of credit

 

 

8

 

 

Discounted cash flow

 

Discount rate

 

6.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

616

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - commercial loans

 

 

141

 

 

Discounted cash flow

 

Discount rate

 

6.0% to 7.0%

 

Impaired loans - home equity lines of credit

 

 

7

 

 

Discounted cash flow

 

Discount rate

 

6.3%

 

Foreclosed real estate

 

 

653

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

-8.0% to 45.0%

 

 


The following is a summary of the carrying amounts and estimated fair values of the Company’s financial assets and liabilities (in thousands) (none of which are held for trading purposes) (in thousands):

 

Carrying

 

 

Fair Value Measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Carrying

 

 

Fair Value Measurements

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,486

 

 

$

60,486

 

 

$

 

 

$

 

 

$

60,486

 

 

$

136,302

 

 

$

136,302

 

 

$

-

 

 

$

-

 

 

$

136,302

 

Investment securities held to maturity

 

 

383,551

 

 

 

 

 

 

383,318

 

 

 

270

 

 

 

383,588

 

 

 

275,772

 

 

 

-

 

 

 

276,847

 

 

 

4,650

 

 

 

281,497

 

Investment securities available for sale

 

 

111,889

 

 

 

 

 

 

111,889

 

 

 

 

 

 

111,889

 

 

 

37,426

 

 

 

-

 

 

 

37,426

 

 

 

-

 

 

 

37,426

 

Loans receivable, net

 

 

809,648

 

 

 

 

 

 

 

 

 

817,814

 

 

 

817,814

 

 

 

1,260,947

 

 

 

-

 

 

 

-

 

 

1,240,440

 

 

 

1,240,440

 

Accrued interest receivable

 

 

3,693

 

 

 

 

 

 

1,243

 

 

 

2,450

 

 

 

3,693

 

 

 

6,880

 

 

 

-

 

 

 

997

 

 

 

5,883

 

 

 

6,880

 

Federal Home Loan Bank stock

 

 

3,132

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

FHLB stock

 

 

6,308

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Derivative assets - interest rate contracts

 

 

8,305

 

 

 

-

 

 

 

8,305

 

 

 

-

 

 

 

8,305

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and

savings accounts

 

$

793,681

 

 

$

793,681

 

 

$

 

 

$

 

 

$

793,681

 

 

 

926,989

 

 

 

926,989

 

 

 

-

 

 

 

-

 

 

 

926,989

 

Time certificate deposits

 

 

294,780

 

 

 

 

 

 

297,508

 

 

 

 

 

 

297,508

 

Accrued interest payable

 

 

246

 

 

 

1

 

 

 

245

 

 

 

-

 

 

 

246

 

Time deposits

 

 

446,266

 

 

 

-

 

 

 

456,109

 

 

 

-

 

 

 

456,109

 

Mortgage escrow funds

 

 

8,084

 

 

 

8,084

 

 

 

 

 

 

 

 

 

8,084

 

 

 

10,123

 

 

 

10,123

 

 

 

-

 

 

 

-

 

 

 

10,123

 

FHLB advances

 

 

42,598

 

 

 

 

 

 

45,504

 

 

 

 

 

 

45,504

 

 

 

106,089

 

 

 

-

 

 

 

110,937

 

 

 

-

 

 

 

110,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities - interest rate contracts

 

 

8,305

 

 

 

-

 

 

 

8,305

 

 

 

-

 

 

 

8,305

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,578

 

 

$

41,578

 

 

$

 

 

$

 

 

$

41,578

 

 

$

60,029

 

 

$

60,029

 

 

$

-

 

 

$

-

 

 

$

60,029

 

Investment securities held to maturity

 

 

270,679

 

 

 

 

 

 

273,032

 

 

 

285

 

 

 

273,317

 

 

 

345,545

 

 

 

-

 

 

 

346,243

 

 

 

-

 

 

 

346,243

 

Investment securities available for sale

 

 

112,351

 

 

 

 

 

 

112,351

 

 

 

 

 

 

112,351

 

 

 

72,228

 

 

 

-

 

 

 

72,228

 

 

 

-

 

 

 

72,228

 

Loans receivable, net

 

 

782,336

 

 

 

 

 

 

 

 

 

799,242

 

 

 

799,242

 

 

 

1,093,121

 

 

 

-

 

 

 

-

 

 

 

1,092,878

 

 

 

1,092,878

 

Accrued interest receivable

 

 

3,361

 

 

 

 

 

 

958

 

 

 

2,403

 

 

 

3,361

 

 

 

4,797

 

 

 

-

 

 

 

1,330

 

 

 

3,467

 

 

 

4,797

 

Federal Home Loan Bank stock

 

 

2,047

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

FHLB stock

 

 

6,255

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Derivative assets - interest rate contracts

 

 

1,339

 

 

 

-

 

 

 

1,339

 

 

 

-

 

 

 

1,339

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and

savings accounts

 

$

781,638

 

 

$

781,638

 

 

$

 

 

$

 

 

$

781,638

 

 

 

770,426

 

 

 

770,426

 

 

 

-

 

 

 

-

 

 

 

770,426

 

Time certificate deposits

 

 

331,057

 

 

 

 

 

 

334,290

 

 

 

 

 

 

334,290

 

Accrued interest payable

 

 

209

 

 

 

18

 

 

 

191

 

 

 

-

 

 

 

209

 

Time deposits

 

 

455,395

 

 

 

-

 

 

 

460,554

 

 

 

-

 

 

 

460,554

 

Mortgage escrow funds

 

 

7,023

 

 

 

7,023

 

 

 

 

 

 

 

 

 

7,023

 

 

 

9,355

 

 

 

9,355

 

 

 

-

 

 

 

-

 

 

 

9,355

 

FHLB advances

 

 

20,081

 

 

 

 

 

 

20,171

 

 

 

 

 

 

20,171

 

 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents:  The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Loans Receivable, Net:  For valuation purposes, the loan portfolio was segregated into its significant categories such as one-to-four family residential mortgage loans, other mortgage loans, consumer loans and commercial loans.  These categories were further analyzed, where appropriate, into components based on significant financial characteristics such as type of interest rate (adjustable or fixed).  For adjustable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price. The fair value of loans is considered Level 3.

FHLB Stock:  It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued Interest Receivable: The carrying amount of accrued interest approximates fair value.


Deposits and escrow funds:  The fair values disclosed for demand deposits (e.g., non-interest bearing demand, NOW, money market, savings deposits and escrow accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) and are considered Level 1. Fair values for time certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

FHLB Advances: Fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to the Company's current advances maturities schedule, resulting in a Level 2 classification.

Off Balance Sheet Instruments:  Fair values of the off-balance-sheet loan commitments, unused lines of credit and standby letters of credit described in Note 10 were estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the instruments and the creditworthiness of the potential borrowers.  At June 30, 2017 and 2016, the fair values of these instruments approximated the related carrying amounts (deferred fees), which were not material.

Note 1413. Income Taxes

The components of income tax expense (benefit) are summarized as follows for the years ended June 30 (in thousands):

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

Current tax expense (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

1,344

 

 

$

(6

)

 

$

406

 

 

$

3,089

 

 

$

2,624

 

State

 

 

(52

)

 

 

(476

)

 

 

(290

)

 

 

67

 

 

 

412

 

 

 

1,292

 

 

 

(482

)

 

 

116

 

 

 

3,156

 

 

 

3,036

 

Deferred tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax expense (benefit)

 

 

 

 

 

 

 

 

Federal

 

 

(52

)

 

 

1,216

 

 

 

183

 

 

 

(444

)

 

 

(329

)

State

 

 

(21

)

 

 

250

 

 

 

(53

)

 

 

(48

)

 

 

(91

)

 

 

(73

)

 

 

1,466

 

 

 

130

 

 

 

(492

)

 

 

(420

)

State tax valuation allowances, net of federal

benefit

 

 

47

 

 

 

149

 

 

 

456

 

 

 

27

 

 

 

70

 

Total

 

$

1,266

 

 

$

1,133

 

 

$

702

 

 

$

2,691

 

 

$

2,686

 

 

The Company utilizes a calendar year tax year.Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following (in(dollars in thousands):

 

 

2017

 

 

2016

 

 

2015

 

 

2020

 

 

2019

 

Tax at federal statutory rate of 34%

 

$

1,529

 

 

$

1,380

 

 

$

411

 

Federal statutory rate

 

 

21.00

%

 

 

21.00

%

 

 

 

 

 

 

 

 

Tax at federal statutory rate

 

$

2,530

 

 

$

2,311

 

State Taxes, net of federal benefit

 

 

 

 

 

 

 

 

229

 

 

 

48

 

 

 

310

 

Tax-exempt income

 

 

(47

)

 

 

(49

)

 

 

(56

)

 

 

(56

)

 

 

(66

)

BOLI income

 

 

(211

)

 

 

(156

)

 

 

(101

)

 

 

(111

)

 

 

(114

)

Non-deductible acquisition related costs

 

 

 

 

 

 

 

 

139

 

Other Compensation

 

 

36

 

 

 

32

 

ESOP Compensation

 

 

159

 

 

 

199

 

Other, net

 

 

(5

)

 

 

(42

)

 

 

80

 

 

 

85

 

 

 

14

 

Total

 

$

1,266

 

 

$

1,133

 

 

$

702

 

 

$

2,691

 

 

$

2,686

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

22.34

%

 

 

24.41

%

 


Year-end deferred tax assets and liabilities were due to the following (in thousands):

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Deferred Tax Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

$

1,983

 

 

$

1,568

 

 

$

2,269

 

 

$

1,419

 

Other comprehensive loss (defined benefit plans)

 

 

1,816

 

 

 

1,298

 

Deferred compensation

 

 

1,071

 

 

 

911

 

 

 

951

 

 

 

879

 

Purchase accounting adjustments

 

 

277

 

 

 

542

 

Deferred rent

 

 

380

 

 

 

263

 

Other compensation loss (defined benefit plans)

 

 

2,706

 

 

 

4,375

 

Charitable contribution carryforward

 

 

307

 

 

 

671

 

Stock based compensation

 

 

729

 

 

 

498

 

Depreciation of premises and equipment

 

 

405

 

 

 

417

 

 

 

416

 

 

 

416

 

NOL carryforward

 

 

602

 

 

 

1,066

 

Charitable contribution carryforward

 

 

1,820

 

 

 

139

 

Nonaccrual loan interest

 

 

540

 

 

 

661

 

Other comprehensive loss (securities)

 

 

-

 

 

 

55

 

Lease liabilities

 

 

2,942

 

 

 

-

 

Other

 

 

104

 

 

 

54

 

 

 

16

 

 

 

544

 

Total deferred tax assets

 

 

9,888

 

 

 

9,996

 

 

 

9,446

 

 

 

5,780

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred Tax Liabilities:

 

 

 

 

 

 

 

 

Prepaid pension costs

 

 

3,622

 

 

 

2,393

 

 

 

2,482

 

 

 

2,416

 

Deferred loan costs and fees, net

 

 

457

 

 

 

463

 

 

 

376

 

 

 

466

 

Other comprehensive income (securities)

 

 

19

 

 

 

269

 

 

 

114

 

 

 

-

 

Other

 

 

368

 

 

 

102

 

Right to use lease asset

 

 

2,883

 

 

 

-

 

Total deferred tax liabilities

 

 

4,466

 

 

 

3,227

 

 

 

5,855

 

 

 

2,882

 

Deferred tax asset valuation allowance

 

 

(652

)

 

 

(605

)

 

 

(462

)

 

 

(420

)

Net Deferred Tax Asset

 

$

4,770

 

 

$

6,164

 

Net deferred tax asset

 

$

3,129

 

 

$

2,478

 

 

 

 

 

 

 

 

 

 

At June 30, 2017, after consideration of pre-transaction net operating losses due to the IRC section 382 limitation, the Company had federal net operating loss carryforwards of approximately $615,000, which will begin to expire in 2035.  The Company has an apportioned New York State net operating loss carryforward of approximately $7.1$1.4 million which will begin to expire in 2034. In addition, the Company has approximately $4.7$1.4 million of charitable contribution carryforwards that may be carried forward up to 5 years and will begin to expire in 2019.2022.

In 2014, New York State enacted comprehensive tax reform provisions with significant impact on financial institutions. As a result of this legislation, beginning on January 1, 2015, the Company calculated its tax obligation to New York based upon the largestgreater of a calculated income tax liability, a tax liability based upon average equity capital or a fixed minimum fee. ItAs a result of the Company’s ability to deduct a portion of the dividends paid by its captive REIT subsidiary, PCSB Funding Corp., it is more likely than not the Company will generate New York tax losses in future years and therefore calculate its New York tax liability on the basis of average equity capital or a fixed minimum fee. Consequently, the Company recordedmaintains a valuation allowance against its net New York deferred tax asset, as of June 30, 2015, as it is unlikely this deferred tax asset will impact the Company 'sCompany's New York tax liability in future years.

Management has determined that it is not required to establish a valuation allowance against any other deferred tax assets in accordance with accounting principles generally accepted in the United States of America since it is more likely than not that the deferred tax assets will be fully utilized in future periods. In assessing the need for a valuation allowance, management considers the schedule reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the periods that the temporary differences comprising the deferred tax assets will be deductible.

As a thrift institution,Retained earnings at June 30, 2020 included approximately $2.8 million for which deferred income taxes of approximately $588,000 have not been provided. The retained earnings amount represents the Bank is subjectbase year allocation of income to special provisions in the federal tax laws regarding its allowable tax bad debt deductions for tax purposes only. Base year reserves are subject to recapture if the Bank makes certain non-dividend contributions, repurchases any of its stock, pays dividends in excess of tax earnings and related tax bad debt reserves.  Tax bad debt reserves consist ofprofits, or ceases to maintain a defined base-yearbank charter. Under ASC 740, this amount plus additional amounts (excess reserves) accumulated after the base year.  Deferred tax liabilitiesis treated as a permanent difference and deferred taxes are not recognized with respect to such excess reserves, as well as any portion of the base-year amountunless it appears that is expected to becomeit will be reduced and result in taxable (or recaptured)income in the foreseeable future. The Bank’s base-yearEvents that would result in taxation of these reserves include failure to qualify as a bank for tax bad debt reserves totaled $2.8 million at June 30, 2017 and 2016, respectively.  Associated deferred tax liabilities of $1.0 million have not been recognized at June 30, 2017 and 2016, since the Bank does not expect that the base-year reserves will become taxablepurposes or distributions in the foreseeable future.  Taxation of the base-year reserve would occur only in very limited circumstances.complete or partial liquidation.


The Company is subject to U.S. federal income tax as well as income tax of the statestates of New York.York, New Jersey and Connecticut. The Company’s New York State tax returns are currently undergoing routine audit for tax years 2016 through 2018. The Company’s federal and other state income tax returns are subject to examination for years after December 31, 2013. 2016.  

At June 30, 20172020 and 2016,2019, the Company had no0 unrecognized tax benefits recorded. The Company does not0t expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

Note 1514. Post-Retirement Benefits

Employee Pension Plan:  

The Company maintains a non-contributory defined benefit pension plan that covers employees meeting specific requirements as to age and length of service. The Company’s contributions to this qualified plan are determined on the basis of (i) the maximum amount that can be deducted for federal income tax purposes, and (ii) the amount determined by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (ERISA). Contributions are intended to provide not only for benefits attributed to service to date, but also those expected to be earned in the future.On February 15, 2017, the Board of Directors approved the freezing and termination of the defined benefit pension plan effective May 1, 2017. As a result, during the year ended June 30, 2017 the Company recorded a $919,000 curtailment gain, which is included in earnings as a reduction to salaries and employee benefits expense. On September 20, 2017 the Board of Directors approved to cease the termination of the defined benefit pension plan.

The following is a summary of the plan’s funded status (in thousands) as of June 30 2017 and 2016 (the measurement date for financial reporting purposes) (in thousands):

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning benefit obligation

 

$

28,670

 

 

$

25,021

 

 

$

22,356

 

 

$

24,764

 

Service Cost

 

 

602

 

 

 

626

 

Interest Cost

 

 

1,002

 

 

 

1,086

 

 

 

720

 

 

 

1,000

 

Actuarial (Gain) Loss

 

 

(2,013

)

 

 

2,923

 

Actuarial Loss

 

 

2,290

 

 

 

(327

)

Benefits Paid

 

 

(828

)

 

 

(822

)

 

 

(948

)

 

 

(929

)

Settlements

 

 

(1,301

)

 

 

(164

)

 

 

(1,115

)

 

 

(2,152

)

Curtailment

 

 

(518

)

 

 

 

Ending benefit obligation

 

 

25,614

 

 

 

28,670

 

 

 

23,303

 

 

 

22,356

 

Change in plan assets, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning plan assets

 

 

23,215

 

 

 

24,503

 

 

 

26,133

 

 

 

27,975

 

Actual return

 

 

3,358

 

 

 

(302

)

 

 

777

 

 

 

1,239

 

Employer contributions

 

 

3,000

 

 

 

 

Benefits paid

 

 

(828

)

 

 

(822

)

 

 

(948

)

 

 

(929

)

Settlements

 

 

(1,301

)

 

 

(164

)

 

 

(1,115

)

 

 

(2,152

)

Ending Plan assets

 

 

27,444

 

 

 

23,215

 

 

 

24,847

 

 

 

26,133

 

Funded Status

 

$

1,830

 

 

$

(5,455

)

 

$

1,544

 

 

$

3,777

 

Accumulated Benefit Obligation

 

$

25,614

 

 

$

28,167

 

 

$

23,303

 

 

$

22,356

 

 

 

 

 

 

 

 

 

 

The following is a summary of net period pension cost (benefit), contributions and benefits paid for the years ended June 30 (in thousands):

 

 

2017

 

 

2016

 

Net period pension cost

 

$

(224

)

 

$

483

 

Employer contributions

 

 

3,000

 

 

 

 

Benefits paid

 

 

828

 

 

 

822

 

 

 

2020

 

 

2019

 

Net period pension (benefit) cost

 

$

(266

)

 

$

92

 

Benefits paid

 

 

948

 

 

929

 

 


Pre-tax amounts recognized in accumulated other comprehensive loss atincluded net losses of $3.4 million and $486,000 for the years ended June 30, consist2020 and 2019, respectively. Pre-tax amounts included in accumulated other comprehensive income were $8.3 million and $5.9 million as of (in thousands):June 30, 2020 and 2019.

 

 

 

2017

 

 

2016

 

Net loss

 

$

7,579

 

 

$

12,751

 

Prior service (credit) cost

 

 

 

 

 

(1,110

)

 

 

$

7,579

 

 

$

11,641

 


Net periodic pension cost and other amounts recognized in other comprehensive income for the years ended June 30 (in thousands):

 

 

2017

 

 

2016

 

 

2015

 

Service cost

 

$

602

 

 

$

626

 

 

$

582

 

Interest cost

 

 

1,002

 

 

 

1,086

 

 

 

949

 

Expected return on plan assets

 

 

(1,917

)

 

 

(1,796

)

 

 

(1,710

)

Amortization of prior net loss

 

 

1,200

 

 

 

854

 

 

 

513

 

Amortization of prior service cost

 

 

(192

)

 

 

(287

)

 

 

(287

)

Gain on curtailment

 

 

(919

)

 

 

 

 

 

 

New past service liability

 

 

 

 

 

 

 

 

 

Net periodic (credit) cost

 

$

(224

)

 

$

483

 

 

$

47

 

 

 

2020

 

 

2019

 

Interest Cost

 

$

720

 

 

$

1,000

 

Expected return on plan assets

 

 

(1,915

)

 

 

(2,052

)

Amortization of prior net loss

 

 

529

 

 

 

580

 

Settlement charge

 

 

400

 

 

 

564

 

Net periodic (credit) cost

 

$

(266

)

 

$

92

 

 

The estimated net loss and past service cost for the pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit costs during the year ending June 30, 2018,2021, are $725,000$959,000 and $0, respectively.

Contributions: The Company contributed $3.0 millionmade 0 contributions to the defined benefit plan during the year ended June 30, 20172020 and does not0t expect to make any contributions for the year ending June 30, 2018.2021.

Estimated Future Payments: The following benefit payments are expected for the years ending June 30, (in thousands):

 

2018

 

$

1,187

 

2019

 

 

1,252

 

2020

 

 

1,283

 

2021

 

 

1,338

 

2022

 

 

1,396

 

Following five years

 

 

7,089

 

 

2021

 

 

$

1,131

 

 

2022

 

 

 

1,163

 

 

2023

 

 

 

1,175

 

 

2024

 

 

 

1,056

 

 

2025

 

 

 

1,028

 

Following five years

 

 

 

5,614

 

 

Assumptions: Weighted-average assumptionsDiscount rates of 2.40% and 3.31% were used to determine pension benefit obligations:obligation as of June 30, 2020 and 2019, respectively.

 

 

2017

 

 

2016

 

Discount Rate

 

 

3.87

%

 

 

3.61

%

Rate of compensation increase

 

N/A

 

 

 

3.00

%

 

Weighted-average assumptions used to determine net periodic pension cost are described in the table below. As a result of a pension plan freeze on February 28, 2017, the Company utilized different assumptions to determine periodic pension cost for the remaining portion of the year ended June 30, 2017 subsequent to the freeze than had been used prior to the freeze:

 

 

Year ended June 30,

 

 

3/1/17 to

6/30/17

 

 

7/1/16 to

2/28/17

 

 

Year ended

June 30,

2016

 

 

2020

 

 

 

2019

 

Discount Rate

 

 

4.04

%

 

 

3.61

%

 

 

4.44

%

 

 

3.31

%

 

 

 

4.14

%

Expected return on plan assets

 

 

7.50

%

 

 

7.50

%

 

 

7.50

%

 

 

7.50

%

 

 

 

7.50

%

Rate of compensation increase

 

N/A

 

 

 

3.00

%

 

 

3.00

%

 


Plan Assets

Plan assets are invested in a series of diversified investment funds of RSI Retirement Trust (“the Trust”). The investment funds include equity mutual funds, bond mutual funds, or commingled trust funds, each with its own investment objectives, investment strategies and risks. The Trust has been given discretion by the Company to determine the appropriate strategic asset allocation, as governed by the Trust’s Statement of Investment Objectives and Guidelines. The long-term objective is to be invested 65% in equity securities (equity mutual funds), 34% in debt securities (bond mutual funds) and 1% in cash equivalents. The bond fund portion may be temporarily increased to 50% in order to lessen the volatility of asset values. Asset rebalancing is performed at least annually, with interim adjustments made if the investment mix varies by more than 10% from the target allocation.

The weighted average expected long-term rate of return is estimated based on current trends in the plan assets as well as projected future rates of returns on those assets. The long-term rate of return assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 6% to 8% and 3% to 5%, respectively. The long-term inflation rate was estimated to be 3%2.5%. When these overall return expectations are applied to the plan’s target allocation, the result is an expected rate of return of 7.50%.


The plan is only permitted to invest in assets approved by the RSI Trustee Board. All other investments are prohibited.

The Company’s actual pension plan asset allocation and target allocation and expected long-term rate of return by asset category are as follows:

 

 

 

 

 

 

Percentage of Plan

 

 

 

 

 

 

Percentage of Plan

 

 

Target

 

 

Assets at Year-End

 

 

Target

 

 

Assets at Year-End

 

Asset Category

 

Allocation

 

 

2017

 

 

2016

 

 

Allocation

 

 

2020

 

 

2019

 

Equity mutual funds and common/collective trusts

 

 

65

%

 

 

65

%

 

 

58

%

 

 

65

%

 

 

63

%

 

 

60

%

Fixed income common/collective trusts

 

 

34

 

 

 

34

 

 

 

37

 

 

 

34

%

 

 

36

%

 

 

37

%

Cash equivalents

 

 

1

 

 

 

1

 

 

 

5

 

 

 

1

%

 

 

1

%

 

 

3

%

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

Equity, Debt, Investment Funds and Other Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and the London Interbank Offered Rate (LIBOR) curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.


The fair value of the plan assets at June 30 2017 and 2016,th, by asset category, is as follows (in thousands):

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

In Active

 

 

Other

 

 

Significant

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

In Active

 

 

Other

 

 

Significant

 

 

Carrying

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Carrying

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity mutual funds and

common/collective trusts

 

$

17,704

 

 

$

 

 

$

17,704

 

 

$

 

 

$

15,623

 

 

$

-

 

 

$

15,623

 

 

$

-

 

Fixed income common/collective trusts

 

 

9,451

 

 

 

 

 

 

9,451

 

 

 

 

 

 

8,910

 

 

 

-

 

 

 

8,910

 

 

 

-

 

Cash equivalents

 

 

289

 

 

 

289

 

 

 

 

 

 

 

 

 

313

 

 

 

313

 

 

 

-

 

 

 

-

 

Total

 

$

27,444

 

 

$

289

 

 

$

27,155

 

 

$

 

 

$

24,846

 

 

$

313

 

 

$

24,533

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity mutual funds and

common/collective trusts

 

$

13,500

 

 

$

 

 

$

13,500

 

 

$

 

 

$

15,837

 

 

$

-

 

 

$

15,837

 

 

$

-

 

Fixed income common/collective trusts

 

 

8,684

 

 

 

 

 

 

8,684

 

 

 

 

 

 

9,618

 

 

 

-

 

 

 

9,618

 

 

 

-

 

Cash equivalents

 

 

1,031

 

 

 

1,031

 

 

 

 

 

 

 

 

 

678

 

 

 

678

 

 

 

-

 

 

 

-

 

Total

 

$

23,215

 

 

$

1,031

 

 

$

22,184

 

 

$

 

 

$

26,133

 

 

$

678

 

 

$

25,455

 

 

$

-

 

 

Defined Contribution Retirement Plan:  

The Company maintainedmaintains a defined contribution plan for eligible employees hired after October 1, 2012. All full-time employees who have attained age twenty-one and have a minimum of one year of service received a contribution to their 401(k) account equal to 5% of their salary. PlanOn May 1, 2017, the Company suspended contributions, resulting in 0 expense was $120,000, $162,000 and $60,000 for the years ended June 30, 2017, 20162020 and 2015,2019, respectively.     On February 15, 2017, the Board of Directors approved the termination of this plan effective May 1, 2017. As a result, the Company has no future expense under this plan.

401(k) Plan:  

The Company maintains a defined contribution plan for eligible employees under Section 401(k) of the Internal Revenue Code. All full-time employees who have attained age twenty-one and have a minimum of one year of service may elect to participate in the plan, by making contributions ranging from 2%1% to 10%25% of their compensation.


The Company makesmade 0 matching contributions equal to 75% of the participant’s contributions up to 6% of compensation. Savings plan expense was $418,000, $410,000 and $339,000 forduring the years ended June 30, 2017, 20162020 and 2015, respectively.

Acquired Pension Plan: As part of the CMS acquisition, the Company acquired the pension plan of CMS Bank, which was frozen prior to and in the process of termination as of the acquisition date, a process which was not complete as of the acquisition date. During the year ended June 30, 2016, the CMS pension plan was terminated,2019, resulting in a $629,000 charge to earnings, included on the income statement in merger and acquisition related expenses.0 expense for these years.

Supplemental Retirement Plan

The Company also maintains unfunded and non-qualified supplemental retirement plans to provide pension benefits in addition to those provided under the qualified pension plan.

The accrued benefit cost for the supplemental plans was approximately $3.0$3.9 million and $3.5$3.7 million at June 30, 20172020 and 20162019, respectively, (included in other liabilities in the consolidated statements of financial condition). Included in accumulated other comprehensive income were pre-tax net losses of $379,000$286,000 and $1.2 million$318,000 for the supplemental retirement plans as of June 30, 20172020 and 2016,2019, respectively. The projected benefit obligation and accumulated benefit obligation were $3.0$3.9 million as of the June 30, 2017 measurement date and $3.5$3.7 million as of June 30, 2016 measurement date.2020 and 2019, respectively.


Pension expense for the supplemental plans was $615,000, $539,000$500,000 and $490,000$613,000 for the years ended June 30, 2017, 20162020 and 2015,2019, respectively.

Supplemental retirement plan benefits of $272,000 were paid in each of the years ended June 30, 2017, 20162020 and 2015.2019.

Net periodic pension cost and other amounts recognized in other comprehensive income for the years ended June 30 (in thousands):

 

 

2017

 

 

2016

 

2015

 

2020

 

 

2019

 

Service cost

 

$

398

 

 

$

322

 

$

288

 

$

338

 

 

$

455

 

Interest cost

 

 

124

 

 

 

133

 

 

118

 

 

117

 

 

 

122

 

Amortization of prior net loss

 

 

93

 

 

 

84

 

 

84

 

 

45

 

 

 

36

 

Net periodic cost

 

$

615

 

 

$

539

 

$

490

 

$

500

 

 

$

613

 

 

The estimated net loss for the supplemental plans that will be amortized from accumulated other comprehensive income into net periodic benefit costs during the year ending June 30, 2018,2021, is $34,000.$55,000.

The following benefit payments, which reflect expected future service, are expected for the years ending June 30 (in thousands):

 

2018

 

$

272

 

2019

 

 

272

 

2020

 

 

272

 

2021

 

 

3,021

 

 

$

272

 

2022

 

 

272

 

 

 

272

 

2023

 

 

3,424

 

2024

 

 

136

 

2025

 

 

-

 

Following five years

 

 

2,736

 

 

 

-

 

 

TheAs of June 30, 2020, the assumed discount rates used for the supplemental plans range from 3.70%2.40% to 3.87%3.17%.

Employee Stock Ownership Plan

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Company employees. The Company granted a loan to the ESOP for the purchase of 1,453,209 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 15 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.00% at June 30, 2017)(4.75% for 2020). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at June 30, 20172020 was $14.5$11.6 million. Contributions


are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 96,881 through 2032.

Shares held by the ESOP include the following:

June 30, 2017

Allocated

Committed to be allocated

26,975

Unallocated

1,426,234

     Total

1,453,209

The fair value of unallocated shares was $24.3 millionfollowing at June 30 2017.th (dollars in thousands):

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

Allocated to participants

 

327,206

 

 

 

241,804

 

Unearned

 

1,114,529

 

 

 

1,211,405

 

Total ESOP shares

 

1,441,735

 

 

 

1,453,209

 

 

 

 

 

 

 

 

 

Fair value of unearned shares

$

14,132

 

 

$

24,531

 

Total compensation expense recognized in connection with the ESOP for the year ended June 30, 20172020 and 2019 was $454,000.$1.7 million and $1.9 million, respectively.


Note 1615. Regulatory Matters

The following is a summary of the Company’s and Bank’s actual capital amounts and ratios as of June 30, 20172020 and June 30, 2016,2019, compared to the required ratios for minimum capital adequacy and for classification as well capitalized (dollars in thousands):. As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress in 2018, the Company is no longer subject to consolidated capital requirements, as the Company’s total consolidated assets do not exceed $3 billion.

 

 

 

 

 

 

 

 

 

 

For Capital Adequacy

 

 

To Be Well Capitalized

Under Prompt

Corrective Action

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

 

 

 

 

 

 

 

 

For Capital

 

 

Under Prompt

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adequacy

 

 

Corrective Action

 

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

 

Amount

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

190,990

 

 

 

13.7

%

 

$

55,949

 

 

 

4.0

%

 

$

69,936

 

 

 

5.0

%

 

$

220,310

 

 

 

12.5

%

 

$

70,432

 

 

 

4.0

%

 

$

88,040

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

39,631

 

 

 

4.5

 

 

 

57,245

 

 

 

6.5

 

 

 

220,310

 

 

 

17.0

 

 

 

58,389

 

 

 

4.5

 

 

 

84,339

 

 

 

6.5

 

Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

52,841

 

 

 

6.0

 

 

 

70,455

 

 

 

8.0

 

 

 

220,310

 

 

 

17.0

 

 

 

77,852

 

 

 

6.0

 

 

 

103,802

 

 

 

8.0

 

Total

 

 

196,140

 

 

 

22.3

 

 

 

70,455

 

 

 

8.0

 

 

 

88,069

 

 

 

10.0

 

 

 

228,949

 

 

 

17.6

 

 

 

103,802

 

 

 

8.0

 

 

 

129,753

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

278,528

 

 

 

20.0

%

 

$

55,839

 

 

 

4.0

%

 

N/A

 

 

 

 

 

 

$

209,885

 

 

 

13.8

%

 

$

60,774

 

 

 

4.0

%

 

$

75,968

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

39,631

 

 

 

4.5

 

 

N/A

 

 

 

 

 

 

 

209,885

 

 

 

18.0

 

 

 

52,579

 

 

 

4.5

 

 

 

75,948

 

 

 

6.5

 

Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

52,841

 

 

 

6.0

 

 

N/A

 

 

 

 

 

 

 

209,885

 

 

 

18.0

 

 

 

70,105

 

 

 

6.0

 

 

 

93,474

 

 

 

8.0

 

Total

 

 

283,678

 

 

 

32.2

 

 

 

70,455

 

 

 

8.0

 

 

N/A

 

 

 

 

 

 

 

215,549

 

 

 

18.4

 

 

 

93,474

 

 

 

8.0

 

 

 

116,842

 

 

 

10.0

 

June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

110,888

 

 

 

8.9

%

 

$

49,748

 

 

 

4.0

%

 

$

62,185

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

110,888

 

 

 

13.5

 

 

 

37,036

 

 

 

4.5

 

 

 

53,497

 

 

 

6.5

 

Tier 1

 

 

110,888

 

 

 

13.5

 

 

 

49,382

 

 

 

6.0

 

 

 

65,842

 

 

 

8.0

 

Total

 

 

110,888

 

 

 

14.0

 

 

 

65,842

 

 

 

8.0

 

 

 

82,303

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

Tier 1

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

Total

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

 

N/A

 

 

 

 

 

 

In addition to the ratios above, the Basel III Capital Rules established that community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will bewas phased in over a four-year period (increasing by that amount on each subsequentthrough January 1, until it reaches 2.5% on2019. As of January 1, 2019).2019, the conservation buffer was fully phased in.

Management believes that as of June 30, 20172020 and June 30, 2016,2019, the Bank and Company each met all capital adequacy requirements to which they wereit was subject, including the capital conservation buffer of 1.250% as of June 30, 2017 and 0.625% as of June 30, 2016.buffer. Further, the most recent FDIC notification categorized the


Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification.


Note 17.16. Related Party Disclosures

The Company's authority to extend credit to its directors, executive officers, and stockholders owning 10% or more of the Holding Company's outstanding common stock, as well as to entities controlled by such persons, is additionally governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the FRB enacted thereunder. Among other matters, these provisions require that extensions of credit to insiders: (i) be made on terms substantially the same as, and follow credit underwriting procedures not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and (ii) not exceed certain amount limitations individually and in the aggregate, which limits are based, in part, on the amount of the bank's capital. Regulation O additionally requires that extensions of credit in excess of certain limits be approved in advance by the bank'sBank's board of directors.

New York banking regulations impose certain limits and requirements on various transactions with "insiders," as defined in the New York banking regulations to include certain executive officers, directors and principal stockholders.

As ofAt and for the years ended June 30, 20172020 and 2016,2019, the Company and the Bank had no0 insider loans. Deposits

Note 17. Derivatives and Hedging

Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide service to customers. The Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk exposure resulting from executive officers, directorssuch transactions. These interest rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current period earnings.

The following table presents summary information about the interest rate swaps as of June 30th.

 

 

2020

 

 

2019

 

 

 

(dollars in thousands)

 

Notional amounts

 

$

159,242

 

 

$

68,535

 

Weighted average pay rates

 

 

2.54

%

 

 

3.89

%

Weighted average receive rates

 

 

2.54

%

 

 

3.89

%

Weighted average maturity

 

9.31 years

 

 

9.84 years

 

Fair value of combined interest rate swaps

 

$

-

 

 

$

-

 

Note 18. Revenue From Contracts With Customers

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company applies the following five steps to properly recognize revenue:

1.

Identify the contract with a customer

2.

Identify the performance obligations in the contract

3.

Determine the transaction price

4.

Allocate the transaction price to performance obligations in the contract

5.

Recognize revenue when (or as) the Company satisfies a performance obligation


 

For the Year Ended June 30,

 

 

2020

 

 

2019

 

 

(in thousands)

 

Noninterest income:

 

 

 

 

 

 

 

Service charges on deposits

$

831

 

 

$

1,181

 

Interchange fees

 

430

 

 

 

432

 

Other (1)

 

136

 

 

 

150

 

Fees and service charges

 

1,397

 

 

 

1,763

 

 

 

 

 

 

 

 

 

Swap income (1)

 

984

 

 

 

507

 

Bank-owned life insurance (1)

 

528

 

 

 

544

 

Gains on sales of securities, net (1)

 

38

 

 

 

62

 

 

 

 

 

 

 

 

 

Net gain on sale of foreclosed real estate

 

87

 

 

 

24

 

Net gain on sale of bank premises (1)

 

-

 

 

 

156

 

Other (1)

 

35

 

 

 

46

 

Other noninterest income

 

122

 

 

 

226

 

Total noninterest income

$

3,069

 

 

$

3,102

 

 

 

 

 

 

 

 

 

(1)   Not within the scope of ASC 606

 

 

 

 

 

 

 

Fees and Service Charges on Deposit Accounts. The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfied the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income. The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gain/Losses on Sales of Foreclosed Real Estate. The Company records a gain or loss from the sale of foreclosed real estate when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed real estate to the buyer, the Company assesses whether the buyer is committed to perform their affiliates totaled approximately $2.2obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Note 19. Stock-Based Compensation

On October 24, 2018, the Company’s shareholders approved the PCSB Financial Corporation 2018 Equity Incentive Plan (the “Plan”), which permits the grant of stock options and restricted stock and/or restricted stock units. The total number of shares that may be granted under the Plan is 2,543,115, of which 1,816,511 shares may be granted as stock options and 726,604 shares may be granted as restricted stock and restricted stock units. Total compensation cost that has been charged against income for the Plan was $3.3 million and $2.9$2.1 million for the years ended June 30, 2020 and 2019, respectively.


Restricted Stock Awards (“RSAs”)

RSAs provide for the issuance of shares to both employees and non-employee directors. These awards vest over a 5-year period, with 20% vesting each year on the anniversary of the award. All awards were made at the fair value of common stock on the grant date. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock was determined to be the closing price of the stock on the NASDAQ exchange. Total shares available for grant under the Plan are 726,604, of which 547,185 shares were granted as of June 30, 2020.

The following table presents a summary of RSA activity during the year ended June 30, 2020.

 

Number of

Shares

 

 

Weighted-Average

Grant Date

Fair Value

 

Unvested allocated shares outstanding at July 1, 2019

 

547,185

 

 

$

19.02

 

Shares granted

 

-

 

 

 

-

 

Shares vested

 

(109,448

)

 

 

19.02

 

Shares forfeited

 

-

 

 

 

-

 

Unvested allocated shares at June 30, 2020

 

437,737

 

 

$

19.02

 

 

 

 

 

 

 

 

 

As of June 30, 2020, there was $7.0 million of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.4 years.

Stock Option Awards

Stock options awarded to employees under the Plan are considered incentive stock options (ISOs), up to applicable limits. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant. Those issued to non-employee directors, as well as those exceeding ISO limitations, are considered non-qualified stock options (NQSOs). Options vest over a 5-year period, with 20% vesting each year on the anniversary of the award, however may not vest more rapidly than over a three-year period, and have a contractual term of 10 years. The Company has a policy of using shares held as a treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy the current level of exercisable share options.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatilities of a peer group of publicly-traded financial institutions. The expected term of options granted is based on the simplified “mid-point” approach which utilizes the weighted average vesting period and contractual term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

As of June 30, 2020, there was $4.1 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.4 years.

Total shares available for grant under the Plan are 1,816,511, of which 1,339,293 shares were issued as of June 30, 2020. The following table presents a summary of activity related to stock options granted under the Plan, and changes during the year then ended:


 

Number of

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Years

 

 

Aggregate

Intrinsic

Value

 

 

(dollars in thousands, except share and per share data)

 

Options outstanding at July 1, 2019

 

1,339,293

 

 

$

19.04

 

 

 

 

 

 

$

1,625

 

Options granted

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options expired

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options exercised

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options outstanding at June 30, 2020

 

1,339,293

 

 

$

19.04

 

 

 

8.4

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2020

 

267,859

 

 

$

19.04

 

 

 

8.4

 

 

$

-

 

Note 20. Leases

As of June 30, 2020, the Company leases real estate for 11 branch offices and 1 administrative office, including its corporate headquarters, under various operating lease agreements. The Company’s leases have maturities which range from 2021 to 2041, some of which include lessee options to extend the lease term. The weighted average remaining life of the lease terms for these leases was 10.0 years as of June 30, 2020.

The operating lease asset and lease liability are determined at the commencement date of the lease based on the present value of the lease payments. As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, the rate of interest to borrow on a collateralized basis for a similar term, at the lease commencement date. The Company utilized a weighted average discount rate of 2.42% in determining the lease liability as of June 30, 2020.

The Company made a policy election to exclude the recognition requirements of ASU 2016-02 to short-term leases, those leases with original terms of 12 months or less. Short-term lease payments are recognized in the income statement on a straight-line basis over the lease term. The Company had 0 short-term lease cost for the year ended June 30, 2020. Certain leases may include one or more options to renew. The exercise of lease renewal options is typically at the Company’s discretion and are included in the operating lease liability if it is reasonably certain that the renewal option will be exercised. Certain real estate leases may contain lease and non-lease components, such as common area maintenance charges, real estate taxes, and insurance, which are generally accounted for separately and are not included in the measurement of the lease liability since they are generally able to be segregated. The Company does not sublease any of its leased properties. There were 0 sale and leaseback transactions, leveraged leases or lease transactions with related parties during the year ended June 30, 2020.

For the year ended June 30, 2020, total operating lease costs was $2.0 million, and is included in occupancy and equipment expense. The right-of-use asset, included in premises and equipment, net, was $11.0 million and the corresponding lease liability, included in other liabilities, was $11.2 million as of June 30, 20172020, respectively.

Future minimum lease payments for the fiscal years ending June 30th and 2016, respectively.a reconciliation of undiscounted lease cash flows and the lease liability recognized in the consolidated balance sheet as of June 30, 2020 is shown below:


(dollars in thousands)

 

 

 

2021

$

1,960

 

2022

 

1,937

 

2023

 

1,850

 

2024

 

1,479

 

2025

 

1,186

 

Thereafter

 

4,475

 

Total future minimum lease payments (undiscounted)

 

12,887

 

Discounting effect on cash flows

 

(1,689

)

Lease liability (discounted)

$

11,198

 

 

 

 

 

Note 1821. Parent Company Only Financial Statements

The following are the financial statements of the Company (Parent only) as of and for the yearyears ended June 30, 2017 (dollars in2020 and 2019 (in thousands).  The Company was established as of December 9, 2016, therefore prior period financial information is not available.

 

 

 

June 30,

 

 

 

2017

 

Assets

 

 

 

 

Cash and cash equivalents

 

$

71,273

 

Investment in Bank

 

 

192,308

 

ESOP Loan receivable

 

 

14,532

 

Other Assets

 

 

1,888

 

Total Assets

 

$

280,001

 

Liabilities and stockholders' equity

 

 

 

 

Other Liabilities

 

 

155

 

Stockholders' equity

 

 

279,846

 

Total Liabilities and stockholders’ equity

 

$

280,001

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,170

 

 

$

55,626

 

Investment in Bank

 

 

220,222

 

 

 

211,205

 

ESOP loan receivable

 

 

11,626

 

 

 

12,594

 

Other assets

 

 

829

 

 

 

1,936

 

Total assets

 

$

273,847

 

 

$

281,361

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Other liabilities

 

$

134

 

 

$

54

 

Shareholders' equity

 

 

273,713

 

 

 

281,307

 

Total liabilities and shareholders' equity

 

$

273,847

 

 

$

281,361

 

 

 

 

For the year ended June 30, 2017

 

Interest Income

 

$

125

 

Equity in income of Bank

 

 

1,055

 

Contribution to PCSB Foundation

 

 

5,000

 

Other non-interest expenses

 

 

105

 

Income before income tax (benefit)

 

 

(3,925

)

Income tax (benefit)

 

 

(1,693

)

Net income

 

$

(2,232

)


 

 

For the year ended June 30, 2017

 

Cash Flows from Operating Activities:

 

 

 

 

Net income

 

$

(2,232

)

Adjustments to reconcile net income to net

   cash provided by operating activities:

 

 

 

 

Equity in income of Bank

 

 

(1,055

)

Issuance of stock to PCSB Foundation

 

 

3,387

 

Deferred tax expense

 

 

(1,482

)

Net decrease/(increase) in accrued

   interest receivable

 

 

(113

)

Other adjustments, principally net

   changes in other assets and liabilities

 

 

46

 

Net cash used in operating activities

 

$

(1,449

)

Cash Flows from Investing Activities:

 

 

 

 

Investment in PCSB Bank

 

 

(87,350

)

Increase in ESOP loan

 

 

(14,532

)

Net cash used in investing activities

 

$

(101,882

)

Cash Flows from Financing Activities:

 

 

 

 

Issuance of common stock

 

 

174,604

 

Net cash provided by financing

   activities

 

 

174,604

 

Net increase in cash and cash equivalents

 

 

71,273

 

Cash and cash equivalents at beginning of year

 

 

 

Cash and cash equivalents at end of year

 

$

71,273

 

Note 19. Quarterly Financial Information (unaudited)

 

 

2017

 

 

2016

 

In thousands of dollars,

except per share amounts

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

 

Fourth

 

 

Third

 

 

Second

 

 

First

 

Net interest income

 

$

9,405

 

 

$

8,958

 

 

$

8,527

 

 

$

8,775

 

 

$

8,701

 

 

$

8,676

 

 

$

8,371

 

 

$

8,484

 

Provision for loan

   losses

 

 

 

 

 

235

 

 

 

562

 

 

 

26

 

 

 

1,359

 

 

 

103

 

 

 

356

 

 

 

41

 

Net interest income

   after provision for

   loan losses

 

 

9,405

 

 

 

8,723

 

 

 

7,965

 

 

 

8,749

 

 

 

7,342

 

 

 

8,573

 

 

 

8,015

 

 

 

8,443

 

Non-interest income

 

 

647

 

 

 

626

 

 

 

2,259

 

 

 

552

 

 

 

535

 

 

 

518

 

 

 

470

 

 

 

428

 

Non-interest expense

 

 

12,859

 

 

 

6,580

 

 

 

7,794

 

 

 

7,198

 

 

 

8,214

 

 

 

7,524

 

 

 

7,480

 

 

 

7,047

 

Income before taxes

 

 

(2,807

)

 

 

2,769

 

 

 

2,430

 

 

 

2,103

 

 

 

(337

)

 

 

1,567

 

 

 

1,005

 

 

 

1,824

 

Income tax expense

 

 

(1,017

)

 

 

878

 

 

 

758

 

 

 

647

 

 

 

(181

)

 

 

468

 

 

 

278

 

 

 

568

 

Net Income

 

$

(1,790

)

 

$

1,891

 

 

$

1,672

 

 

$

1,456

 

 

$

(156

)

 

$

1,099

 

 

$

727

 

 

$

1,256

 

 

 

Years Ended June 30,

 

 

 

2020

 

 

2019

 

Interest income

 

$

672

 

 

$

715

 

Equity in income of Bank

 

 

9,362

 

 

 

8,318

 

Other non-interest expenses

 

 

676

 

 

 

715

 

Income before income tax

 

 

9,358

 

 

 

8,318

 

Income tax (benefit) expense

 

 

(1

)

 

 

-

 

Net income

 

$

9,359

 

 

$

8,318

 

 


 

 

Year Ended June 30,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,359

 

 

$

8,318

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Equity in income of Bank

 

 

(9,362

)

 

 

(8,318

)

Deferred tax expense

 

 

418

 

 

 

213

 

Net decrease (increase) in accrued interest receivable

 

 

64

 

 

 

(89

)

Other adjustments, principally net changes in other assets and liabilities

 

 

4,022

 

 

 

1,932

 

Net cash provided by operating activities

 

 

4,501

 

 

 

2,056

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Decrease in ESOP loan

 

 

968

 

 

 

969

 

Net cash provided by investing activities

 

 

968

 

 

 

969

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Common stock dividends declared

 

 

(2,571

)

 

 

(2,183

)

Allocation of ESOP shares

 

 

755

 

 

 

949

 

Repurchase of common stock

 

 

(17,789

)

 

 

(18,305

)

Repurchase of shares from employees for income tax withholding purposes

 

 

(320

)

 

 

-

 

Net cash used in financing activities

 

 

(19,925

)

 

 

(19,539

)

Net decrease in cash and cash equivalents

 

 

(14,456

)

 

 

(16,514

)

Cash and cash equivalents at beginning of year

 

 

55,626

 

 

 

72,140

 

Cash and cash equivalents at end of year

 

$

41,170

 

 

$

55,626

 

Note 22. Subsequent Events

On August 20, 2020, a repurchase program was authorized by the Board of Directors to repurchase up to 844,907 shares, or 5% of the Company’s common stock. Subsequent to June 30, 2020, and through September 9, 2020, the Company repurchased 96,900 shares of common stock, at an average cost of $13.07 per share.


Item 9. Changes in and Disagreements With AccountantsAccountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

 

Evaluation of Disclosure

 

a)

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2017.2020. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

 

b)

Management’s Annual Report on Internal Control over Financial Reporting

This annual report does not include aThe Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under management’s reportsupervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting dueas of June 30, 2020 utilizing the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of June 30, 2020 is effective.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a transition period established by rulesmaterial effect on the Company’s financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the Securities and Exchange Commission for newly public companies.risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

c)

Attestation Report of the Registered Public Accounting Firm

Not applicable becauseThis annual report does not include an attestation report of the Company isCompany’s registered public accounting firm regarding internal control over financial reporting. As an emerging growth company.company, management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

d)

Changes in Internal Control Over Financial Reporting

There were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year ended June 30, 20172020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

None.


PART III

Item 10. Directors, Executive Officers and Corporate Governance

The “Proposal I—Election of Directors” and “Corporate Governance” sections of the Company’s definitive proxy statement for the Company’s 20172020 Annual Meeting of Stockholders (the “2017“2020 Proxy Statement”) is incorporated herein by reference.

Item 11. Executive Compensation

The “Executive Compensation” section of the Company’s 20172020 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The “Stock Ownership” section of the Company’s 20172020 Proxy Statement is incorporated herein by reference.


The “Transactions with Certain Related Persons” section of the Company’s 20172020 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The “Proposal II – Ratification of Appointment of Independent Registered Public Accounting Firm” Section of the Company’s 20172020 Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

 

(a)(1)

Financial Statements

The following are filed as a part of this Form 10-K under Item 8:

 

(A)

Report of Independent Registered Public Accounting Firm

 

(B)

Consolidated Balance Sheets - June 30, 20172020 and 20162019

 

(C)

Consolidated Statements of Income - Years ended June 30, 2017, 20162020 and 20152019

 

(D)

Consolidated Statements of Comprehensive Income – Years ended June 30, 2017, 20162020 and 20152019

 

(E)

Consolidated Statements of Changes in Shareholders’ Equity – Years ended June 30, 2017, 20162020 and 20152019

 

(F)

Consolidated Statements of Cash Flows – Years ended June 30, 2017, 20162020 and 20152019

 

(G)

Notes to Consolidated Financial Statements.

 

(a)(2)

Financial Statement Schedules

None.


(a)(3) Exhibits

 

    3.1

 

Articles of Incorporation of PCSB Financial Corporation (1)

 

 

 

    3.2

 

Bylaws of PCSB Financial Corporation (2)

 

 

 

    4.0

 

Form of Common Stock Certificate of PCSB Financial Corporation (3)

 

 

 

  10.1

 

Employment Agreement between PCSB Bank and Joseph D. Roberto (4)

 

 

 

  10.2

 

Employment Agreement between PCSB Bank and Scott D. Nogles (5)

 

 

 

  10.3

 

Employment Agreement between PCSB Bank and Michael P. Goldrick (6)

 

 

 

  10.4

 

Employment Agreement between PCSB Financial Corporation and Joseph D. Roberto (7)

 

 

 

  10.5

 

Employment Agreement between PCSB Financial Corporation and Scott D. Nogles (8)

 

 

 

  10.6

 

Employment Agreement between PCSB Financial Corporation and Michael P. Goldrick (9)

 

 

 

  10.7

 

Supplemental Executive Retirement Plan for Joseph D. Roberto (4) (10)

 

 

 

  10.8

 

Supplemental Life Insurance Agreement for Joseph D. Roberto (5) (11)

 

 

 

  10.9

 

Supplemental Life Insurance Plan for Senior Executives (6) (12)

 

 

 

  10.10

 

Supplemental Executive Retirement Plan for Senior Executives (13)

 

 

 

  10.11

 

Amended and Restated PCSB Bank Director Fee Deferral Plan (7) (14)

 

 

 

  10.12

 

PCSB Bank Director Supplemental Life Insurance Plan (8) (15)

 

 

 

  10.13

 

PCSB Bank Death Benefit Plan for Michael T. Weber (9) (16)

  10.14

PCSB Bank Incentive Compensation Plan Policy (17)

  10.15

PCSB Financial Corporation Compensation Clawback Policy (18)

  10.16

PCSB Bank Death Benefit Plan for Willard I. Hill, Jr (19)

  10.17

PCSB Financial Corporation 2018 Equity Incentive Plan (20)

 

 

 

  21

 

Subsidiaries of PCSB Financial Corporation (10) (21)

  23

Consent of Crowe LLP

 

 

 

  31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following financial statements for the year ended June 30, 2017,2020, formatted in Inline XBRL, which are furnished, and not filed: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101.

(1)

Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(2)

Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.


(3)

Incorporated by reference to Exhibit 4 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(4)

Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(5)

Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(6)

Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(7)

Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(8)

Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(9)

Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 27, 2017.

(10)

Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(5)(11)

Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(6)(12)

Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(7)(13)

Incorporated by reference to Exhibit 10.1410.10 to the Registration Statement on Form S-110-K (File No. 333-215052)001-38065), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.September 27, 2017.


(14)

Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 13, 2018.

(8)(15)

Incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(9)(16)

Incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

(10)(17)

Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10-Q (File No. 001-38065), filed with the Securities and Exchange Commission on November 9, 2017.

(18)

Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-38065), filed with the Securities and Exchange Commission on November 9, 2017.

(19)

Incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K (File No. 001-38065), filed with the Securities and Exchange Commission on September 13, 2018.

(20)

Incorporated by reference to Appendix A to the Definitive 2018 Annual Meeting Proxy Solicitation Materials (File No. 001-38065), filed with the Securities and Exchange Commission on September 20, 2018.

(21)

Incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 (File No. 333-215052), originally filed with the Securities and Exchange Commission on December 12, 2016, as amended.

Item 16. Form 10-K Summary

Not applicable.



SIGNATURESSIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

PCSB FINANCIAL CORPORATION

 

 

 

 

Date:  September 27, 201711, 2020

 

By:

/s/ Joseph D. Roberto

 

 

 

Joseph D. Roberto

 

 

 

Chairman, President and Chief Executive Officer
(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures

 

Title

 

Date

/s/ Joseph D. Roberto

 

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

 

September 27, 201711, 2020

Joseph D. Roberto

 

 

/s/ Scott D. NoglesJeffrey M. Helf

 

ExecutiveSenior Vice President and Chief Financial Officer

(Principal Accounting and Financial Officer)

 

September 27, 201711, 2020

Scott D. NoglesJeffrey M. Helf

 

 

 

 

 

 

 

/s/ William V. Cuddy, Jr.

 

Director

 

September 27, 201711, 2020

William V. Cuddy, Jr.

 

 

 

 

 

 

 

 

 

/s/ Kevin B. Dwyer

 

Director

 

September 27, 201711, 2020

Kevin B. Dwyer

 

 

 

 

 

 

 

 

 

/s/ Marsha Gordon

Director

September 11, 2020

Marsha Gordon

/s/Willard I. Hill, Jr.

 

Director

 

September 27, 201711, 2020

Willard I. Hill, Jr.

 

 

 

 

 

 

 

 

 

/s/ Jeffrey D. Kellogg

 

Director

 

September 27, 201711, 2020

Jeffrey D. Kellogg

 

 

 

 

 

 

 

 

 

/s/ Robert C. Lusardi

 

Director

 

September 27, 201711, 2020

Robert C. Lusardi

 

 

 

 

 

 

 

 

 

/s/ Matthew G. McCrosson

 

Director

 

September 27, 201711, 2020

Matthew G. McCrosson

 

 

 

 

 

 

 

 

 

/s/ Karl A. Thimm

 

Director

 

September 27, 201711, 2020

Karl A. Thimm

 

 

 

 

 

 

 

 

 

/s/ Michael R.T. Weber

 

Director

 

September 27, 201711, 2020

Michael R.T. Weber

 

 

 

 

 

 

 

 

 

/s/ Richard F. Weiss

 

Director

 

September 27, 201711, 2020

Richard F. Weiss

 

 

 

 

 

 

106114