☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Former name, former address and former fiscal year, if changed since last report)

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 12 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☒ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for completing with any or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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

~~18,165,110~~15,334,323 shares of the Registrant’s common stock, par value $0.01 per share, were ~~issued and~~ outstanding as of ~~February 9, 2018.~~November 4, 2022.

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 ~~December 31, 2017,~~September 30, 2022, the significant assets of the Holding Company were the capital stock of the Bank, ~~investments retained by~~cash deposited in the ~~Holding Company,~~Bank, 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~~amended, and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

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 savings~~commercial 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.~~NYSDFS.

Basis of Presentation: The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Holding Company, the Bank and the Bank's ~~three~~two subsidiaries – PCSB Funding Corp.~~, PCSB Commercial Bank~~ and UpCounty 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.~~ UpCounty Realty 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 is that of the Bank only.~~

The unaudited consolidated financial statements contained herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the consolidated financial statements contained herein. The ~~annualized~~ results of operations for the current period presented are not necessarily indicative of the results of operations that may be expected for the entire current fiscal year. Certain information and note disclosures normally included in ~~the~~ financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, ~~2017,~~2022, included in the Company's ~~annual report~~Annual Report on Form ~~10-K.~~10-K for the fiscal year ended June 30, 2022.

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

Risks and Uncertainties:

In preparing these consolidated financial statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon changing conditions, including economic conditions and future events, such as continued interest rate volatility, prolonged periods of inflation, continued trade and supply chain disruptions, economic recession and increased unemployment. Such conditions 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 receivable, or deferred tax assets. Additionally, it is reasonably possible that the Company’s allowance for loan loss estimate as of September 30, 2022 could change in the near term and could result in a material change to the Company’s provision for loan losses, earnings and capital.

Use of Estimates: To prepare financial statements in conformity with ~~accounting principles generally accepted in the United States of America,~~GAAP 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.

Note 2.2. Recent Accounting Pronouncements

The pronouncements discussed below are not intended to be an all-inclusive list, but rather only those pronouncements that the Company has determined could potentially have a material impact on ~~our~~its consolidated financial position and results of operations or on its disclosures.

There were no accounting standards adopted in the current period.

Future Application of Accounting Pronouncements Previously Issued

In ~~May 2014,~~June 2016, 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. 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. 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. ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The impact on disclosures is currently being evaluated by management.

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 or 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 or results of operations. The impact on disclosures is currently being evaluated by management.

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 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 require entities to disclose key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company currently leases eleven branches and two administrative offices. ASU 2016-02 will result in the establishment of a right to use asset and corresponding lease obligation, the materiality of which has yet to be determined by management, however the ASU is not expected to have a material impact on the Company’s consolidated results of operations or disclosures.

~~In June 2016, the FASB~~ issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 which 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 2016-13~~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 ~~interim and annual reporting periods~~the 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 ~~those~~that 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. On March 31, 2022 the FASB issued ASU 2022-02 "Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." The ASU eliminates the current accounting guidance on troubled debt restructurings ("TDRs") for creditors, enhances disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty and amends the guidance on vintage disclosures with respect to current period gross charge-offs. For entities that have not yet adopted ASU 2016-13, the amendments in ASU 2022-02 are effective upon the adoption of ASU 2016-13. Management is currently evaluating the impact that ASU 2016-13 and ASU 2022-02 will have on the Company’s consolidated financial position, results of operations and disclosures.

~~In January 2017, the~~The FASB issued ASU ~~2017-04 “Intangibles – Goodwill~~2020-04 “Reference Rate Reform” and ~~Other (Topic 350).”~~ ASU ~~2017-04~~ s~~implifies~~2021-01 “Reference Rate Reform Scope” which collectively address accounting considerations related to the ~~test~~expected discontinuation of LIBOR as a reference rate for ~~goodwill impairment, which eliminates the second step~~financial contracts. These Updates provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform (codified in ~~the goodwill impairment test which requires~~ASC 848). They include optional expedients related to contract modifications that allow an entity to ~~determine~~account for modifications (if certain criteria are met) as if the ~~implied fair value~~modifications were only minor (assets within the scope of ASC 310, Receivables), were not substantial (assets within the scope of ASC 470, Debt) and/or did not result in remeasurements or reclassifications (assets within the scope of ASC 842, Leases, and other Topics) of the ~~reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if~~existing contract. They also include optional expedients and exceptions for contract modifications and hedge accounting that apply to derivative instruments impacted by the ~~carrying value~~market-wide discounting transition. The Updates also allow for a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The guidance in these ASUs are effective as of March 12, 2020 through December 31, 2022. The Company has not yet elected to apply the ~~net assets assigned~~practical expedients contained in these Updates and does not expect significant impact 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. ASU 2017-14 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted for interim or annual goodwill impairment testing performed on testing dates after January 1, 2017. Management expects ASU 2017-04 will not have a significant impact on its consolidated financial ~~statements.~~statements upon adoption.

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 $3.7 million, which resulted in net proceeds of $174.6 million prior to the contribution to PCSB Community Foundation. The Company lent $14.5 million to the ESOP and contributed $87.3 million to the Bank, with the remainder of the net proceeds of the offering prior to the contribution to PCSB Community Foundation being retained at the holding company.

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

~~Note~~ 4. Investment Securities

The amortized cost, gross unrealized/unrecognized gains and losses and fair value of available for sale and held to maturity debt securities at ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 were as ~~follows:~~follows (in thousands):

December 31, 2017

Amortized

Gross Unrealized/Unrecognized

Fair

Cost

Gains

Losses

Value

(in thousands)

Available for sale:

U.S. Government and agency obligations

$
55,569

$
-

$
(545
)

$
55,024

Corporate and other debt securities

8,433

6

(77
)

8,362

Mortgage-backed securities – residential

39,692

134

(530
)

39,296

Equity securities

32

-

-

32

Total available for sale

$
103,726

$
140

$
(1,152
)

$
102,714

Held to maturity:

U.S. Government and agency obligations

$
136,060

$
-

$
(1,377
)

$
134,683

Corporate and other debt securities

4,000

-

(129
)

3,871

Mortgage-backed securities – residential

140,411

141

(1,771
)

138,781

Mortgage-backed securities – collateralized
mortgage obligations

55,829

4

(892
)

54,941

Mortgage-backed securities – commercial

31,346

166

(331
)

31,181

Total held to maturity

$
367,646

$
311

$
(4,500
)

$
363,457


	September 30, 2022
	Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value
Available for sale debt securities
U.S. Government and agency obligations	$	10,945	$	-	$	(1,502	)	$	9,443
Corporate		5,000		-		(235	)		4,765
State and municipal		7,040		-		(2,706	)		4,334
Mortgage-backed securities – residential		13,695		2		(2,074	)		11,623
Mortgage-backed securities – commercial		2,398		-		(132	)		2,266
Total available for sale debt securities	$	39,078	$	2	$	(6,649	)	$	32,431
Held to maturity debt securities
U.S. Government and agency obligations	$	59,995	$	-	$	(5,088	)	$	54,907
Corporate		52,068		-		(3,558	)		48,510
State and municipal		88,490		64		(27,580	)		60,974
Mortgage-backed securities – residential		97,886		-		(13,727	)		84,159
Mortgage-backed securities – collateralized mortgage obligations		22,916		-		(3,047	)		19,869
Mortgage-backed securities – commercial		84,895		-		(14,171	)		70,724
Total held to maturity debt securities	$	406,250	$	64	$	(67,171	)	$	339,143


	June 30, 2022
	Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value
Available for sale debt securities
U.S. Government and agency obligations	$	10,942	$	-	$	(1,014	)	$	9,928
Corporate		5,000		4		(150	)		4,854
State and municipal		7,040		-		(2,244	)		4,796
Mortgage-backed securities – residential		14,351		5		(1,644	)		12,712
Mortgage-backed securities – commercial		2,416		-		(85	)		2,331
Total available for sale debt securities	$	39,749	$	9	$	(5,137	)	$	34,621
Held to maturity debt securities
U.S. Government and agency obligations	$	59,995	$	6	$	(3,046	)	$	56,955
Corporate		52,076		111		(2,796	)		49,391
State and municipal		87,111		-		(22,307	)		64,804
Mortgage-backed securities – residential		101,525		4		(9,746	)		91,783
Mortgage-backed securities – collateralized mortgage obligations		24,198		-		(2,124	)		22,074
Mortgage-backed securities – commercial		87,544		-		(10,943	)		76,601
Total held to maturity debt securities	$	412,449	$	121	$	(50,962	)	$	361,608

June 30, 2017

Amortized

Gross Unrealized/Unrecognized

Fair

Cost

Gains

Losses

Value

(in thousands)

Available for sale:

U.S. Government and agency obligations

$
63,630

$
31

$
(216
)

$
63,445

Corporate and other debt securities

8,460

58

(36
)

8,482

Mortgage-backed securities – residential

39,710

363

(143
)

39,930

Equity securities

32

-

-

32

Total available for sale

$
111,832

$
452

$
(395
)

$
111,889

Held to maturity:

U.S. Government and agency obligations

$
155,559

$
23

$
(574
)

$
155,008

Corporate and other debt securities

999

-

-

999

Mortgage-backed securities – residential

143,452

828

(497
)

143,783

Mortgage-backed securities – collateralized
mortgage obligations

59,476

146

(235
)

59,387

Mortgage-backed securities – commercial

24,065

412

(66
)

24,411

Total held to maturity

$
383,551

$
1,409

$
(1,372
)

$
383,588

~~During~~No securities were sold during the ~~six~~three months ended December 31, 2017, the Company sold securities with a carrying amount of $6.6 million, resulting in $173,000 of net realized gains. Included was the disposal of $681,000 of securities classified as held to maturity, resulting in net realized gains of $34,000. These 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 prepaymentsSeptember 30, 2022 or scheduled payments payable in equal installments, comprising both principal and interest, over the terms. There was no sales of or realized gains or losses on investment securities for the three or six months ended December 31, 2016.2021.

The following table presents the fair value and carrying amount of debt securities at ~~December 31, 2017,~~September 30, 2022, by contractual ~~maturity.~~maturity (in thousands). 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

Carrying

Fair

Amortized

Fair

Amount

Value

Cost

Value

(in thousands)

December 31, 2017:

1 year or less

$
37,492

$
37,402

$
11,018

$
10,981

1 to 5 years

98,568

97,280

50,984

50,444

5 to 10 years

-

-

2,000

1,961

Mortgage-backed securities and other

231,586

228,775

39,692

39,296

Total

$
367,646

$
363,457

$
103,694

$
102,682


	Held to maturity				Available for sale
	Carrying		Fair		Amortized		Fair
	Amount		Value		Cost		Value
1 year or less	$	5,280	$	5,265	$	-	$	-
1 to 5 years		66,230		60,805		12,944		11,440
5 to 10 years		45,100		41,303		3,001		2,768
over 10 years		80,102		53,753		7,040		4,334
Mortgage-backed securities and other		209,538		178,017		16,093		13,889
Total	$	406,250	$	339,143	$	39,078	$	32,431

Securities pledged had carrying amounts of ~~$78.2~~$211.4 million and ~~$95.5~~$202.9 million at ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017,~~2022, 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 ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 (in thousands):

December 31, 2017

Less than 12 months

12 months or greater

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

$
34,231

$
(267
)

$
20,793

$
(278
)

$
55,024

$
(545
)
Corporate and other debt securities

6,336

(77
)

-

-

6,336

(77
)
Mortgage-backed securities – residential

20,847

(300
)

10,604

(230
)

31,451

(530
)
Total available for sale

$
61,414

$
(644
)

$
31,397

$
(508
)

$
92,811

$
(1,152
)
Held to maturity:

U.S. Government and agency obligations

$
60,450

$
(587
)

$
67,232

$
(790
)

$
127,682

$
(1,377
)
Corporate and other debt securities

3,871

(129
)

-

-

3,871

(129
)
Mortgage-backed securities – residential

95,903

(993
)

27,052

(778
)

122,955

(1,771
)
Mortgage-backed securities – collateralized
mortgage obligations

41,965

(561
)

11,973

(331
)

53,938

(892
)
Mortgage-backed securities – commercial

11,089

(126
)

8,887

(205
)

19,976

(331
)
Total held to maturity

$
213,278

$
(2,396
)

$
115,144

$
(2,104
)

$
328,422

$
(4,500
)

	June 30, 2017
	Less than 12 months					12 months or greater					Total					September 30, 2022
			Unrealized/					Unrealized/					Unrealized/			Less than 12 months					12 months or greater					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized					Unrealized/					Unrealized/					Unrealized/
	Value		Loss			Value		Loss			Value		Loss			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
	(in thousands)															Value		Loss			Value		Loss			Value		Loss
Available for sale
U.S. Government and agency obligations	$	41,900	$	(200	)	$	3,993	$	(16	)	$	45,893	$	(216	)	$	-	$	-		$	9,443	$	(1,502	)	$	9,443	$	(1,502	)
Corporate and other debt securities		1,964		(36	)		-		-			1,964		(36	)
Corporate																	4,765		(235	)		-		-			4,765		(235	)
State and municipal																	2,563		(1,460	)		1,771		(1,246	)		4,334		(2,706	)
Mortgage-backed securities – residential		18,861		(111	)		3,200		(32	)		22,061		(143	)		3,624		(104	)		7,822		(1,970	)		11,446		(2,074	)
Mortgage-backed securities – commercial																	2,266		(132	)		-		-			2,266		(132	)
Total available for sale	$	62,725	$	(347	)	$	7,193	$	(48	)	$	69,918	$	(395	)	$	13,218	$	(1,931	)	$	19,036	$	(4,718	)	$	32,254	$	(6,649	)
Held to maturity
U.S. Government and agency obligations	$	113,511	$	(531	)	$	5,981	$	(43	)	$	119,492	$	(574	)	$	31,488	$	(2,012	)	$	23,419	$	(3,076	)	$	54,907	$	(5,088	)
Corporate and other debt securities		999		-			-		-			999		-
Corporate																	48,510		(3,558	)		-		-			48,510		(3,558	)
State and municipal																	26,953		(9,722	)		32,457		(17,858	)		59,410		(27,580	)
Mortgage-backed securities – residential		39,754		(467	)		1,626		(30	)		41,380		(497	)		62,389		(8,570	)		21,770		(5,157	)		84,159		(13,727	)
Mortgage-backed securities – collateralized mortgage obligations		26,622		(141	)		4,444		(94	)		31,066		(235	)		10,344		(717	)		9,525		(2,330	)		19,869		(3,047	)
Mortgage-backed securities – commercial		9,092		(66	)		-		-			9,092		(66	)		27,763		(3,546	)		42,961		(10,625	)		70,724		(14,171	)
Total held to maturity	$	189,978	$	(1,205	)	$	12,051	$	(167	)	$	202,029	$	(1,372	)	$	207,447	$	(28,125	)	$	130,132	$	(39,046	)	$	337,579	$	(67,171	)


	June 30, 2022
	Less than 12 months					12 months or greater					Total
			Unrealized/					Unrealized/					Unrealized/
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
	Value		Loss			Value		Loss			Value		Loss
Available for sale
U.S. Government and agency obligations	$	2,774	$	(226	)	$	7,154	$	(788	)	$	9,928	$	(1,014	)
Corporate		2,850		(150	)		-		-			2,850		(150	)
State and municipal		2,860		(1,162	)		1,936		(1,082	)		4,796		(2,244	)
Mortgage-backed securities – residential		3,616		(81	)		8,394		(1,563	)		12,010		(1,644	)
Mortgage-backed securities – commercial		2,331		(85	)		-		-			2,331		(85	)
Total available for sale	$	14,431	$	(1,704	)	$	17,484	$	(3,433	)	$	31,915	$	(5,137	)

Held to maturity
U.S. Government and agency obligations	$	39,883	$	(2,616	)	$	5,066	$	(430	)	$	44,949	$	(3,046	)
Corporate		39,758		(2,796	)		-		-			39,758		(2,796	)
State and municipal		61,847		(20,696	)		2,957		(1,611	)		64,804		(22,307	)
Mortgage-backed securities – residential		87,364		(9,063	)		3,994		(683	)		91,358		(9,746	)
Mortgage-backed securities – collateralized mortgage obligations		13,611		(642	)		8,390		(1,482	)		22,001		(2,124	)
Mortgage-backed securities – commercial		50,434		(5,515	)		26,166		(5,428	)		76,600		(10,943	)
Total held to maturity	$	292,897	$	(41,328	)	$	46,573	$	(9,634	)	$	339,470	$	(50,962	)

As of ~~December 31, 2017,~~September 30, 2022, the Company’s ~~security~~securities portfolio consisted of ~~$470.4~~$438.7 million in securities, of which ~~227~~314 securities with a fair value of ~~$421.2~~$369.8 million were in an ~~unrealized~~unrealized/unrecognized loss position. Non-U.S. government and agency obligations are internally pass rated and are subject to quarterly credit monitoring.

~~As of June 30, 2017, the Company’s security portfolio consisted of $495.4 million in securities, of which 156 securities with a fair value of $271.9 million were~~ ~~in an unrealized loss~~ ~~position.~~

There were no 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 ~~December 31, 2017 and~~September 30, 2022 or June 30, ~~2017.~~2022. Management believes the unrealized losses are primarily a result of changes in market interest rates. The Company has determined that it does not intend to sell, or it is not more likely than not that it will 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 ~~December 31, 2017 and~~September 30, 2022 or June 30, ~~2017.~~2022.

Note 5.4. Loans Receivable

Loans receivable are summarized as follows (in thousands):


	December 31,			June 30,			September 30,			June 30,
	2017			2017			2022			2022
Mortgage loans:
Residential	$	213,716		$	217,778		$	214,586		$	214,167
Commercial		481,169			437,651			953,539			942,130
Construction		16,379			22,404			25,307			20,896
Net deferred loan origination costs		210			397
Total mortgages		711,474			678,230
Net deferred loan origination fees								(145	)		(100	)
Total mortgage loans								1,193,287			1,177,093
Commercial and consumer loans:
Commercial loans		31,276			33,297			141,902			136,304
Other loans secured		46,056			46,802
Home equity lines of credit		40,158			41,927			22,955			23,688
Consumer and installment loans		12,860			13,765
Consumer and overdrafts								508			594
Net deferred loan origination costs		767			777			593			620
Total commercial and consumer loans		131,117			136,568			165,958			161,206
Total loans receivable		842,591			814,798			1,359,245			1,338,299
Allowance for loan losses		(4,471	)		(5,150	)		(9,048	)		(8,927	)
Loans receivable, net	$	838,120		$	809,648		$	1,350,197		$	1,329,372

In 2015, the Company 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 three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2022 and ~~2016~~2021 (in thousands):


	Three Months Ended September 30, 2022
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	323	$	(3	)	$	-		$	2	$	322
Commercial mortgages		7,351		5			-			-		7,356
Construction		209		25			-			-		234
Commercial loans		982		32			(15	)		74		1,073
Home equity lines of credit		51		(9	)		-			1		43
Consumer and overdrafts		11		32			(24	)		1		20
Total	$	8,927	$	82		$	(39	)	$	78	$	9,048

	Three Months Ended September 30, 2021
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	337	$	(13	)	$	-		$	2	$	326
Commercial mortgages		6,435		134			-			-		6,569
Construction		102		25			-			-		127
Commercial loans		948		(143	)		(100	)		367		1,072
Home equity lines of credit		54		(3	)		-			2		53
Consumer and overdrafts		5		13			(7	)		1		12
Total	$	7,881	$	13		$	(107	)	$	372	$	8,159

Three Months Ended December 31, 2017

Beginning
Allowance

Provision
(credit)

Charge-offs

Recoveries

Ending
Allowance

Originated:

Residential

$
407

$
(5
)

$
-

$
-

$
402

Commercial

2,709

(23
)

-

-

2,686

Construction

1,160

237

(997
)

-

400

Commercial loans

345

(23
)

-

-

322

Other loans secured

404

(15
)

-

-

389

Home equity lines of credit

77

(3
)

-

-

74

Consumer and installment loans

140

(7
)

-

-

133

Acquired:

Residential

26

39

-

-

65

Total

$
5,268

$
200

$
(997
)

$
-

$
4,471

Three Months Ended December 31, 2016

Beginning
Allowance

Provision
(credit)

Charge-offs

Recoveries

Ending
Allowance

Originated:

Residential

$
238

$
-

$
-

$
-

$
238

Commercial

2,121

909

-

1

3,031

Construction

302

34

-

-

336

Commercial loans

559

(458
)

-

400

501

Other loans secured

361

(22
)

-

-

339

Home equity lines of credit

70

-

-

-

70

Consumer and installment loans

414

97

(398
)

-

113

Acquired:

Commercial loans

-

2

(2
)

-

-

Total

$
4,065

$
562

$
(400
)

$
401

$
4,628

Six Months Ended December 31, 2017

Beginning
Allowance

Provision
(credit)

Charge-offs

Recoveries

Ending
Allowance

Originated:

Residential

$
360

$
59

$
(17
)

$
-

$
402

Commercial

2,589

97

-

-

2,686

Construction

1,150

247

(997
)

-

400

Commercial loans

440

(118
)

-

-

322

Other loans secured

365

24

-

-

389

Home equity lines of credit

76

(2
)

-

-

74

Consumer and installment loans

144

(11
)

-

-

133

Acquired:

Residential

26

39

-

-

65

Total

$
5,150

$
335

$
(1,014
)

$
-

$
4,471

Six Months Ended December 31, 2016

Beginning
Allowance

Provision
(credit)

Charge-offs

Recoveries

Ending
Allowance

Originated:

Residential

$
237

$
(69
)

$
-

$
70

$
238

Commercial

2,149

863

-

19

3,031

Construction

269

67

-

-

336

Commercial loans

604

(676
)

-

573

501

Other loans secured

397

168

(324
)

98

339

Home equity lines of credit

73

(3
)

-

-

70

Consumer and installment loans

313

198

(398
)

-

113

Acquired:

-

Residential

-

38

(38
)

-

-

Commercial loans

-

2

(2
)

-

-

Total

$
4,042

$
588

$
(762
)

$
760

$
4,628

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 ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 (in thousands):

December 31, 2017

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

Residential

$
3,499

$
208,900

$
1,317

$
213,716

$
190

$
212

$
65

$
467

Commercial

2,438

477,238

1,493

481,169

-

2,686

-

2,686

Construction

2,260

14,119

-

16,379

276

124

-

400

Commercial loans

351

30,925

-

31,276

75

247

-

322

Other loans secured

4,165

41,891

-

46,056

2

387

-

389

Home equity lines of credit

480

39,505

173

40,158

5

69

-

74

Consumer and installment loans

-

12,840

20

12,860

-

133

-

133

Total

$
13,193

$
825,418

$
3,003

$
841,614

$
548

$
3,858

$
65

$
4,471

	June 30, 2017
	Loans								Allowance for Loan Losses								September 30, 2022
	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		Loans								Allowance for Loan Losses
Residential	$	4,471	$	211,983	$	1,324	$	217,778	$	131	$	229	$	26	$	386
Commercial		2,411		433,416		1,824		437,651		-		2,589		-		2,589
																	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 mortgages																	$	1,664	$	212,704	$	218	$	214,586	$	109	$	213	$	-	$	322
Commercial mortgages																		3,504		949,185		850		953,539		-		7,356		-		7,356
Construction		3,661		18,743		-		22,404		997		153		-		1,150		2,792		22,515		-		25,307		-		234		-		234
Commercial loans		356		32,941		-		33,297		7		433		-		440		781		141,121		-		141,902		-		1,073		-		1,073
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		400		22,469		86		22,955		2		41		-		43
Consumer and installment loans		-		13,723		42		13,765		-		144		-		144
Consumer and overdrafts																		-		508		-		508		-		20		-		20
Total	$	17,322	$	792,935	$	3,367	$	813,624	$	1,142	$	3,982	$	26	$	5,150	$	9,141	$	1,348,502	$	1,154	$	1,358,797	$	111	$	8,937	$	-	$	9,048


																	June 30, 2022
																	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
Residential mortgages																	$	1,613	$	212,333	$	221	$	214,167	$	110	$	213	$	-	$	323
Commercial mortgages																		4,778		936,493		859		942,130		-		7,351		-		7,351
Construction																		2,792		18,104		-		20,896		-		209		-		209
Commercial loans																		783		135,521		-		136,304		-		982		-		982
Home equity lines of credit																		452		23,147		89		23,688		9		42		-		51
Consumer and overdrafts																		-		594		-		594		-		11		-		11
Total																	$	10,418	$	1,326,192	$	1,169	$	1,337,779	$	119	$	8,808	$	-	$	8,927

The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by ~~class of loans~~portfolio segment as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 (in thousands):



	December 31, 2017						September 30, 2022						June 30, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance recorded:
Residential	$	2,940	$	2,721	$	-
Commercial		2,948		2,438		-
Other loans secured		7,558		3,088		-
Home equity lines of credit		473		469		-
With a related allowance recorded:
Residential		747		778		190
Residential mortgages							$	1,382	$	1,313	$	-	$	1,262	$	1,197	$	-
Commercial mortgages								3,582		3,504		-		4,789		4,778		-
Construction		3,257		2,260		276		2,792		2,792		-		2,792		2,792		-
Commercial loans		351		351		75		793		781		-		795		783		-
Other loans secured		1,077		1,077		2
Home equity lines of credit								383		376		-		379		399		-
With an allowance recorded:
Residential mortgages								351		351		109		353		416		110
Home equity lines of credit		11		11		5		31		24		2		60		53		9
Total	$	19,362	$	13,193	$	548	$	9,314	$	9,141	$	111	$	10,430	$	10,418	$	119

June 30, 2017

Unpaid
Principal
Balance

Recorded Investment

Allowance for Loan Losses

With no related allowance recorded:

Residential

$
4,216

$
4,014

$
-

Commercial

2,935

2,411

-

Construction

404

404

-

Commercial loans

276

277

-

Other loans secured

9,157

4,702

-

Home equity lines of credit

599

599

-

With a related allowance recorded:

Residential

395

457

131

Construction

3,257

3,257

997

Commercial loans

79

79

7

Other loans secured

1,111

1,111

2

Home equity lines of credit

11

11

5

Total

$
22,440

$
17,322

$
1,142

The ~~table~~tables below ~~presents~~present the average recorded investment and interest income recognized on loans individually evaluated for impairment, by ~~class of loans,~~portfolio segment, for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2022 and ~~2016~~2021 (in thousands):

	Three months ended				Three months ended
	December 31, 2017				December 31, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential	$	3,027	$	124	$	3,725	$	3
Commercial		2,454		27		2,303		31
Commercial loans		-		-		91		1
Other loans secured		3,488		77		5,489		66
Home equity lines of credit		571		20		551		-
With a related allowance recorded:
Residential		778		3		-		-
Commercial		-		-		3,132		25
Construction		3,008		-		131		-
Commercial loans		352		-		-		-
Other loans secured		1,087		13		-		-
Home equity lines of credit		11		-		-		-
Total	$	14,776	$	264	$	15,422	$	126

	Six Months Ended				Six Months Ended
	December 31, 2017				December 31, 2016					September 30, 2022				September 30, 2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential	$	3,431	$	166	$	3,753	$	6
Commercial		2,447		54		2,311		63
Residential mortgages										$	1,318	$	9	$	1,936	$	7
Commercial mortgages											3,543		-		3,582		-
Construction		173		17		-		-			2,792		-		-		-
Commercial loans		-		-		92		2			782		4		980		191
Other loans secured		4,002		160		5,513		134
Home equity lines of credit		593		20		551		(2	)		378		-		350		2
With a related allowance recorded:
Residential		686		7		-		-
Commercial		-		-		3,141		52
Construction		3,115		-		131		-
Commercial loans		353		4		-		-
Other loans secured		1,095		27		-		-
With an allowance recorded:
Residential mortgages											352		3		424		3
Home equity lines of credit		11		-		-		-			27		-		33		-
Total	$	15,906	$	455	$	15,492	$	255		$	9,192	$	16	$	7,305	$	203

The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by ~~class of loans~~portfolio segment, as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 (in thousands):

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes ~~nonaccrual~~ acquired loans that are accounted for as purchased credit impaired loans totaling ~~$1.8 million~~$133,000 and ~~$2.7 million~~$137,000 as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017,~~2022, 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~~portfolio segment as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 (in thousands):

December 31, 2017

30-59

60-89

90 Days or

Days Past

Days Past

More Past

Total Past

Due

Due

Due

Due

Current

Total

Originated:

Residential

$
-

$
-

$
1,632

$
1,632

$
153,476

$
155,108

Commercial

-

-

258

258

404,223

404,481

Construction

-

-

2,260

2,260

14,119

16,379

Commercial loans

-

-

275

275

30,412

30,687

Other loans secured

-

-

544

544

45,344

45,888

Home equity lines of credit

-

-

100

100

34,306

34,406

Consumer and installment loans

10

-

-

10

12,661

12,671

Total originated

10

-

5,069

5,079

694,541

699,620

Acquired:

Residential

-

-

1,778

1,778

56,830

58,608

Commercial

-

-

1,087

1,087

75,601

76,688

Commercial loans

-

-

-

-

589

589

Other loans secured

-

-

-

-

��

168

168

Home equity lines of credit

46

-

296

342

5,410

5,752

Consumer and installment loans

-

-

-

-

189

189

Total acquired

46

-

3,161

3,207

138,787

141,994

Total

$
56

$
-

$
8,230

$
8,286

$
833,328

$
841,614


	September 30, 2022
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current		Total
Residential mortgages	$	-	$	104	$	427	$	531	$	214,055	$	214,586
Commercial mortgages		-		-		-		-		953,539		953,539
Construction		-		-		2,792		2,792		22,515		25,307
Commercial loans		-		51		533		584		141,318		141,902
Home equity lines of credit		-		-		296		296		22,659		22,955
Consumer and overdrafts		-		-		-		-		508		508
Total	$	-	$	155	$	4,048	$	4,203	$	1,354,594	$	1,358,797


	June 30, 2022
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current		Total
Residential mortgages	$	-	$	-	$	367	$	367	$	213,800	$	214,167
Commercial mortgages		-		-		1,197		1,197		940,933		942,130
Construction		-		-		1,113		1,113		19,783		20,896
Commercial loans		-		16		400		416		135,888		136,304
Home equity lines of credit		-		-		399		399		23,289		23,688
Consumer and overdrafts		-		-		39		39		555		594
Total	$	-	$	16	$	3,515	$	3,531	$	1,334,248	$	1,337,779

June 30, 2017

30-59

60-89

90 Days or

Days Past

Days Past

More Past

Total Past

Due

Due

Due

Due

Current

Total

Originated:

Residential

$
94

$
275

$
1,973

$
2,342

$
153,390

$
155,732

Commercial

-

-

-

-

355,247

355,247

Construction

-

-

3,661

3,661

18,743

22,404

Commercial loans

-

-

-

-

31,613

31,613

Other loans secured

-

-

544

544

43,612

44,156

Home equity lines of credit

-

199

103

302

35,246

35,548

Consumer and installment loans

-

-

-

-

13,435

13,435

Total originated

94

474

6,281

6,849

651,286

658,135

Acquired:

Residential

237

463

1,472

2,172

59,874

62,046

Commercial

-

-

1,054

1,054

81,350

82,404

Commercial loans

-

-

-

-

1,684

1,684

Other loans secured

-

-

-

-

2,646

2,646

Home equity lines of credit

-

-

296

296

6,083

6,379

Consumer and installment loans

-

-

-

-

330

330

Total acquired

237

463

2,822

3,522

151,967

155,489

Total

$
331

$
937

$
9,103

$
10,371

$
803,253

$
813,624

Troubled Debt Restructurings

The terms of certain loans ~~were~~have been modified as troubled debt ~~restructurings.~~restructurings (“TDRs”). 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. All TDRs are considered impaired loans.

As of ~~December 31, 2017~~both September 30, 2022 and June 30, ~~2017,~~2022, the Company had ~~17 and 20~~9 loans, classified as ~~troubled debt restructurings~~TDRs totaling ~~$7.1~~$1.4 million, ~~and $9.9~~including $1.2 million ~~respectively.~~of loans still accruing interest. The Company has allocated ~~$211,000~~$111,000 and ~~$145,000,~~$119,000, respectively, of specific reserves to customers whose loan terms have been modified in ~~troubled debt restructurings~~TDRs as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017, and~~2022. As of September 30, 2022, the Company has ~~not committed~~no commitments to lend additional ~~amounts~~funds to customers with outstanding loans that are classified as ~~troubled debt restructurings.~~TDRs.

The Company did ~~not~~not modify any loans ~~as troubled debt restructuring~~ during the three ~~or six~~ months ended ~~December 31, 2017~~September 30, 2022 or ~~2016.~~2021 that were classified as TDRs.

~~The Company had two troubled debt restructurings with a total carrying amount~~There were no defaults of ~~$1.1 million at December 31, 2017 for which there was a payment default~~TDRs occurring in the ~~six~~three months ended ~~December 31, 2017~~September 30, 2022 or 2021 that were modified in the twelve months prior to default, resulting in a $66,000 increase to the allowance for loan loss. One default, with a carrying amount of $0.8 million, has been cured as of December 31, 2017. There were no such defaults during the three months ended December 31, 2017 or the three or six months ended December 31, 2016.default.

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 TDRs for a limited period of time to account for the effects of COVID-19. On December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law. Section 541 of this legislation, “Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extends Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the termination of the national emergency declared relating to COVID-19. This extension expired as of January 1, 2022. 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.

During the three months ended September 30, 2022, no loan payment deferrals were granted or extended by the Company. During the three months ended September 30, 2021, the Company granted or extended loan payment deferrals for 5 residential mortgage, construction and commercial loans totaling $3.7 million. In accordance with either the CARES Act (as amended) or Interagency Statement, these modifications are not considered TDRs. The Company had no loans on loan payment deferral as of September 30, 2022 nor June 30, 2022.

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~~utilizes 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~~portfolio segment is as follows (in thousands):


	September 30, 2022
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	213,581	$	383	$	622	$	214,586
Commercial mortgages		944,482		1,538		7,519		953,539
Construction		22,515		1,679		1,113		25,307
Commercial loans		141,295		145		462		141,902
Home equity lines of credit		22,587		-		368		22,955
Consumer and overdrafts		508		-		-		508
Total	$	1,344,968	$	3,745	$	10,084	$	1,358,797


	June 30, 2022
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	212,810	$	154	$	1,203	$	214,167
Commercial mortgages		931,178		1,548		9,404		942,130
Construction		18,104		1,679		1,113		20,896
Commercial loans		135,725		156		423		136,304
Home equity lines of credit		23,220		43		425		23,688
Consumer and overdrafts		594		-		-		594
Total	$	1,321,631	$	3,580	$	12,568	$	1,337,779

December 31, 2017

Pass

Special
Mention

Substandard

Doubtful

Total

Originated:

Residential

$
152,995

$
271

$
1,842

$
-

$
155,108

Commercial

401,371

-

3,110

-

404,481

Construction

14,119

-

2,260

-

16,379

Commercial loans

28,024

-

2,663

-

30,687

Other loans secured

40,657

-

5,231

-

45,888

Home equity lines of credit

34,306

55

45

-

34,406

Consumer and installment loans

12,661

10

-

-

12,671

Total originated

684,133

336

15,151

-

699,620

Acquired:

Residential

57,864

109

635

-

58,608

Commercial

74,687

-

2,001

-

76,688

Commercial loans

589

-

-

-

589

Other loans secured

168

-

-

-

168

Home equity lines of credit

5,286

-

466

-

5,752

Consumer and installment loans

189

-

-

-

189

Total acquired

138,783

109

3,102

-

141,994

Total

$
822,916

$
445

$
18,253

$
-

$
841,614

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

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 ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017~~2022 is as follows (in thousands):


	September 30,		June 30,
	2022		2022
Residential mortgages	$	218	$	221
Commercial mortgages		850		859
Home equity lines of credit		86		89
Carrying amount, net of allowance of $0	$	1,154	$	1,169

December 31,

June 30,

2017

2017

Residential

$
1,252

$
1,298

Commercial

1,493

1,824

Home equity lines of credit

173

177

Consumer and installment loans

20

42

Carrying amount, net of allowance of $65 and $26, respectively

$
2,938

$
3,341

~~The allowance~~There was no provision for loan ~~loss~~losses on purchased credit impaired loans ~~increased $39,000~~ during the three ~~and six~~ months ended ~~December 31, 2017.~~September 30, 2022 or 2021.

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


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended September 30,
	2017			2016			2017			2016			2022			2021
Beginning balance	$	375		$	532		$	403		$	578		$	89		$	130
New loans acquired		-			-			-			-
Accretion income		(24	)		(46	)		(52	)		(92	)		(3	)		(10	)
Reclassification from non-accretable difference		-			-			-			-
Disposals		(113	)		-			(113	)		-
Ending balance	$	238		$	486		$	238		$	486		$	86		$	120

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
													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 October 1, 2017	$	(195	)	$	(4,883	)	$	(244	)	$	(5,322	)
Balance at July 1, 2022													$	(4,052	)	$	(4,452	)	$	(125	)	$	(8,629	)
Other comprehensive loss before reclassifications		(717	)		-			-			(717	)		-			-			-			-
Amounts reclassified from accumulated other comprehensive income		-			181			8			189			(1,519	)		141			20			(1,358	)
Tax effect		243			(61	)		(2	)		180			319			(30	)		(4	)		285
Net other comprehensive (loss) income		(474	)		120			6			(348	)		(1,200	)		111			16			(1,073	)
Balance at December 31, 2017	$	(669	)	$	(4,763	)	$	(238	)	$	(5,670	)

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total

Balance at October 1, 2016	$	624		$	(7,683	)	$	(810	)	$	(7,869	)
Other comprehensive loss before reclassifications		(1,262	)		-			-			(1,262	)
Amounts reclassified from accumulated other comprehensive income		-			577			47			624
Tax effect		429			(196	)		(16	)		217
Net other comprehensive (loss) income		(833	)		381			31			(421	)
Balance at December 31, 2016	$	(209	)	$	(7,302	)	$	(779	)	$	(8,290	)

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2017	$	37		$	(5,002	)	$	(250	)	$	(5,215	)
Other comprehensive loss before reclassifications		(930	)		-			-			(930	)
Amounts reclassified from accumulated other comprehensive (loss) income		(139	)		362			16			239
Tax effect		363			(123	)		(4	)		236
Net other comprehensive (loss) income		(706	)		239			12			(455	)
Balance at December 31, 2017	$	(669	)	$	(4,763	)	$	(238	)	$	(5,670	)

	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 loss before reclassifications		(1,109	)		-			-			(1,109	)
Amounts reclassified from accumulated other comprehensive income		-			577			47			624
Tax effect		377			(196	)		(16	)		165
Net other comprehensive (loss) income		(732	)		381			31			(320	)
Balance at December 31, 2016	$	(209	)	$	(7,302	)	$	(779	)	$	(8,290	)

Balance at September 30, 2022													$	(5,252	)	$	(4,341	)	$	(109	)	$	(9,702	)


	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2021	$	137		$	(3,055	)	$	(181	)	$	(3,099	)
Other comprehensive loss before reclassifications		(187	)		-			-			(187	)
Amounts reclassified from accumulated other comprehensive income		-			38			16			54
Tax effect		40			(9	)		(3	)		28
Net other comprehensive (loss) income		(147	)		29			13			(105	)
Balance at September 30, 2021	$	(10	)	$	(3,026	)	$	(168	)	$	(3,204	)

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 for benefits attributed to service to ~~date.~~ date but also those expected to be earned in the future.On February 15, 2017, the Board of Directors approved the freezing of the defined benefit pension plan effective May 1, ~~2017.~~2017.

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

Net periodic benefit cost and other amounts recognized in other comprehensive income for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2022 and ~~2016~~2021 (in thousands):

	Three Months Ended					Three Months Ended
	December 31, 2017					December 31, 2016
	Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans
Service cost	$	-		$	107	$	184		$	81
Interest cost		242			25		253			29
Expected return on plan assets		(503	)		-		(464	)		-
Amortization of prior net loss		-			-		361			23
Amortization of prior service cost		181			8		(72	)		-
Net periodic (benefit) cost	$	(80	)	$	140	$	262		$	133

	Six Months Ended					Six Months Ended					Three Months Ended					Three Months Ended
	December 31, 2017					December 31, 2016					September 30, 2022					September 30, 2021
	Defined Benefit Plan			Supplemental Retirement Plan		Defined Benefit Plan			Supplemental Retirement Plan		Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans
Service cost	$	-		$	220	$	369		$	161	$	-		$	82	$	-		$	131
Interest cost		484			50		507			58		196			26		149			17
Expected return on plan assets		(1,006	)		-		(962	)		-		(410	)		-		(510	)		-
Amortization of prior net loss		-			-		721			47		141			20		38			16
Amortization of prior service cost		362			16		(144	)		-
Net periodic cost	$	(160	)	$	66	$	491		$	266
Settlement charges												-			-		-			-
Net periodic (benefit) cost											$	(73	)	$	128	$	(323	)	$	164

The Company made no contributions to the defined benefit plan during the three ~~and six~~ months ended ~~December 31, 2017 and expects to make no contributions to the plan for the year ending June~~September 30, ~~2018.~~2022.

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~~ESOP is a tax-qualified retirement plan for the benefit of Company employees. ~~The~~On April 20, 2017, the Holding Company granted a loan to the ESOP in the amount of $14.5 million for the purchase of 1,453,209 shares of the Company’s common stock at a price of ~~$10.00~~$10.00 per share. The loan obtained by the ESOP from the Holding 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 December 31, 2017)~~(3.25% for 2022). 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 ~~December 31, 2017~~September 30, 2022 was ~~$13.6~~$9.7 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. Dividends on allocated shares increase participant accounts and are used to purchase additional shares of stock. Participants receive the shares at the end of employment.

Shares held by the ESOP include the ~~following:~~following (Dollars in thousands):

~~The fair value of unallocated shares was $25.8 million at December 31, 2017.~~

Total compensation expense recognized in connection with the ESOP for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2022 and 2021 was ~~$672,000~~$467,000 and ~~$1.3 million, respectively. There was no ESOP compensation expense for the three or six months ended December 31, 2016.~~$446,000, respectively.

Note 8.7. 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 the lower of 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~~Foreclosed 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%~~10% and ~~20%~~20% should be applied to properties with appraisals performed.

Derivatives: The Company’s derivative assets and liabilities consist of transactions undertaken 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
December 31, 2017:
									Level 1		Level 2		Level 3		Total
September 30, 2022
Measured on a recurring basis:
Available for sale securities:
Available for sale debt securities:
U.S. Government and agency obligations	$	-	$	55,024	$	-	$	55,024	$	-	$	9,443	$	-	$	9,443
Corporate and other debt securities		-		8,362		-		8,362
Corporate										-		1,997		2,768		4,765
State and municipal										-		4,334		-		4,334
Mortgage-backed securities – residential		-		39,296		-		39,296		-		11,623		-		11,623
Equity securities		-		32		-		32
Mortgage-backed securities – commercial										-		2,266		-		2,266
Derivatives – interest rate contracts										-		14,774		-		14,774
Total assets at fair value	$	-	$	102,714	$	-	$	102,714	$	-	$	44,437	$	2,768	$	47,205

Derivatives – interest rate contracts									$	-	$	14,774	$	-	$	14,774
Total liabilities at fair value									$	-	$	14,774	$	-	$	14,774

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages	$	-	$	-	$	265	$	265	$	-	$	-	$	242	$	242
Construction		-		-		1,984		1,984
Commercial loans		-		-		206		206
Other loans secured		-		-		500		500
Home equity lines of credit		-		-		72		72		-		-		22		22
Total assets at fair value	$	-	$	-	$	3,027	$	3,027	$	-	$	-	$	264	$	264


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
June 30, 2022
Measured on a recurring basis:
Available for sale debt securities:
U.S. Government and agency obligations	$	-	$	9,928	$	-	$	9,928
Corporate		-		2,004		2,850		4,854
State and municipal		-		4,796		-		4,796
Mortgage-backed securities – residential		-		12,712		-		12,712
Mortgage-backed securities – commercial		-		2,331		-		2,331
Derivatives – interest rate contracts		-		8,223		-		8,223
Total assets at fair value	$	-	$	39,994	$	2,850	$	42,844

Derivatives – interest rate contracts	$	-	$	8,223	$	-	$	8,223
Total liabilities at fair value	$	-	$	8,223	$	-	$	8,223

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages	$	-	$	-	$	306	$	306
Home equity lines of credit		-		-		44		44
Total assets at fair value	$	-	$	-	$	350	$	350

Fair Value Measurements

Level 1

Level 2

Level 3

Total

June 30, 2017

Measured on a recurring basis:

Available for sale securities:

U.S. Government and agency obligations

$
-

$
63,445

$
-

$
63,445

Corporate and other debt securities

-

8,482

-

8,482

Mortgage-backed securities – residential

-

39,930

-

39,930

Equity securities

-

32

-

32

Total assets at fair value

-

$
111,889

$
-

$
111,889

Measured on a non-recurring basis:

Impaired loans:

Residential mortgages

$
-

$
-

$
1,126

$
1,126

Construction

-

-

2,260

2,260

Commercial loans

-

-

72

72

Other loans secured

1,609

1,609

Home equity lines of credit

-

-

5

5

Foreclosed real estate

-

-

977

977

Total assets at fair value

$
-

$
-

$
6,049

$
6,049

There were no transfers between levels within the fair value hierarchy during the three ~~or six~~ months ended ~~December 31, 2017.~~September 30, 2022 or 2021.

Impaired loans in the preceding table ~~above~~ had a carrying amount of ~~$3.4 million,~~$375,000 and a remaining valuation allowance of ~~$405,000~~$111,000, at ~~December 31, 2017,~~September 30, 2022, as compared to ~~$6.3 million~~$469,000 and ~~$1.1 million,~~$119,000, respectively, as of June 30, ~~2017.~~2022. Impaired loans measured at fair value incurred ~~$997,000 of~~no net charge-offs and resulted in ~~an additional provision~~a benefit for loan losses of ~~$405,000~~$2,000 during the ~~six~~three months ended ~~December 31, 2017.~~September 30, 2022. Impaired loans measured at fair value as of ~~December 31, 2016~~September 30, 2021 incurred ~~$38,000 of~~no net charge-offs and resulted in ~~an additional provision~~a credit for loan losses of ~~$814,000~~$2,000 during the three months ended ~~December 31, 2016.~~September 30, 2021.

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 ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017 (dollars~~2022 (Dollars in thousands):

Valuation

Unobservable

Range or

Fair Value

Technique(s)

Input(s)

Rate Used

December 31, 2017:

Impaired loans - residential mortgages

$
265

Sales comparison

Adjustments for
differences in sales
comparables

4.2% to 21.1%

Impaired loans - construction

1,984

Sales contract

n/a

n/a

Impaired loans - commercial loans

206

Discounted cash flow

Discount rate

6.0%

Impaired loans - other loans secured

500

Sales contract

n/a

n/a

Impaired loans - home equity lines of credit

72

Sales comparison

Adjustments for
differences in sales
comparables

4.2% to 21.1%

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%


			Valuation	Unobservable	Range or
	Fair Value		Technique(s)	Input(s)	Rate Used
September 30, 2022
Impaired loans - residential mortgages	$	242	Discounted cash flow	Discount rate	5.4% to 6.3%
Impaired loans - home equity lines of credit		22	Discounted cash flow	Discount rate	4.8% to 6.3%

June 30, 2022
Impaired loans - residential mortgages	$	306	Discounted cash flow	Discount rate	5.4% to 6.3%
Impaired loans - home equity lines of credit		44	Discounted cash flow	Discount rate	4.8% to 6.3%

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

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total		Carrying		Fair Value Measurements
December 31, 2017:
											Amount		Level 1		Level 2		Level 3		Total
September 30, 2022
Financial assets:
Cash and cash equivalents	$	77,106	$	77,106	$	-	$	-	$	77,106	$	50,753	$	50,753	$	-	$	-	$	50,753
Investment securities held to maturity		367,646		-		363,253		204		363,457
Investment securities available for sale		102,714		-		102,714		-		102,714
Held to maturity debt securities												406,250		-		307,553		31,590		339,143
Available for sale debt securities												32,431		-		29,663		2,768		32,431
Loans receivable, net		838,120		-		-		834,729		834,729		1,350,197		-		-		1,280,789		1,280,789
Accrued interest receivable		4,001		-		1,291		2,710		4,001		7,074		-		1,845		5,229		7,074
Federal Home Loan Bank stock		2,395	N/A		N/A		N/A		N/A
FHLB stock												2,865	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts												14,774		-		14,774		-		14,774
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		802,782		802,782		-		-		802,782		1,269,942		1,269,942		-		-		1,269,942
Time deposits		311,547		-		314,386		-		314,386		323,324		-		324,778		-		324,778
Mortgage escrow funds		8,229		8,229		-		-		8,229		7,302		7,302		-		-		7,302
FHLB advances		30,720		-		30,633		-		30,633
June 30, 2017:
Financial assets:
Cash and cash equivalents	$	60,486	$	60,486	$	-	$	-	$	60,486
Investment securities held to maturity		383,551		-		383,318		270		383,588
Investment securities available for sale		111,889		-		111,889		-		111,889
Loans receivable, net		809,648		-		-		817,814		817,814
Accrued interest receivable		3,693		-		1,243		2,450		3,693
Federal Home Loan Bank stock		3,132	N/A		N/A		N/A		N/A
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		793,681		793,681		-		-		793,681
Time deposits		294,780		-		297,508		-		297,508
Mortgage escrow funds		8,084		8,084		-		-		8,084
FHLB advances		42,598		-		45,504		-		45,504
Advances from FHLB												28,288		-		27,347		-		27,347
Accrued interest payable												53		-		53		-		53
Derivative liabilities - interest rate contracts												14,774		-		14,774		-		14,774


	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
June 30, 2022
Financial assets:
Cash and cash equivalents	$	118,457	$	118,457	$	-	$	-	$	118,457
Held to maturity debt securities		412,449		-		331,262		30,346		361,608
Available for sale debt securities		34,621		-		31,771		2,850		34,621
Loans receivable, net		1,329,372		-		-		1,261,035		1,261,035
Accrued interest receivable		6,396		-		1,751		4,645		6,396
FHLB stock		3,766	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts		8,223		-		8,223		-		8,223
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		1,298,661		1,298,661		-		-		1,298,661
Time deposits		327,589		-		329,885		-		329,885
Mortgage escrow funds		11,173		11,173		-		-		11,173
Advances from FHLB		48,323		-		48,094		-		48,094
Accrued interest payable		94		1		93		-		94
Derivative liabilities - interest rate contracts		8,223		-		8,223		-		8,223

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 estimatedetermining 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~~assets and liabilities presented in the ~~fair value of FHLB stock due to restrictions placed on its transferability.~~

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

~~Deposits: The fair values~~table above are consistent with our methodologies 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 deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on time deposits 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~~Consolidated Financial Statements included in ~~a Level 2 classification.~~the Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

Note 9.8. Regulatory ~~Capital~~Matters

The following is a summary of the ~~Company’s and~~ Bank’s actual capital amounts and ratios as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017,~~2022, compared to the required ratios for minimum capital adequacy and for classification as well capitalized ~~(dollars~~(Dollars in thousands):.

											To Be Well Capitalized
											Under Prompt																To Be Well Capitalized
						For Capital Adequacy					Corrective Action											For Capital					Under Prompt
	Bank Actual					Purposes					Provisions											Adequacy					Corrective Action
	Amount		Ratio			Amount		Ratio			Amount			Ratio			Bank Actual					Purposes					Provisions
December 31, 2017:
PCSB Bank
																	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2022
Leverage (Tier 1)	$	195,169		13.8	%	$	56,400		4.0	%	$	70,500			5.0	%	$	256,469		13.0	%	$	78,658		4.0	%	$	98,323		5.0	%
Risk-based:													��
Common Tier 1		195,169		21.6			40,591		4.5			58,632			6.5			256,469		17.3			66,842		4.5			96,549		6.5
Tier 1		195,169		21.6			54,122		6.0			72,162			8.0			256,469		17.3			89,122		6.0			118,829		8.0
Total		199,640		22.1			72,162		8.0			90,203			10.0			265,517		17.9			118,829		8.0			148,537		10.0
PCSB Financial Corporation
June 30, 2022
Leverage (Tier 1)	$	282,716		19.9	%	$	56,713		4.0	%	N/A			N/A			$	251,144		12.8	%	$	78,490		4.0	%	$	98,112		5.0	%
Risk-based:
Common Tier 1		282,716		31.3			40,632		4.5		N/A			N/A				251,144		17.2			65,630		4.5			94,799		6.5
Tier 1		282,716		31.3			54,176		6.0		N/A			N/A				251,144		17.2			87,507		6.0			116,676		8.0
Total		287,187		31.8			72,234		8.0		N/A			N/A				260,071		17.8			116,676		8.0			145,845		10.0

June 30, 2017:
PCSB Bank
Leverage (Tier 1)	$	190,990		13.7	%	$	55,949		4.0	%	$	69,936			5.0	%
Risk-based:
Common Tier 1		190,990		21.7			39,631		4.5			57,245			6.5
Tier 1		190,990		21.7			52,841		6.0			70,455			8.0
Total		196,140		22.3			70,455		8.0			88,069			10.0
PCSB Financial Corporation
Leverage (Tier 1)	$	278,528		20.0	%	$	55,839		4.0	%	N/A			N/A
Risk-based:
Common Tier 1		278,528		31.6			39,631		4.5		N/A			N/A
Tier 1		278,528		31.6			52,841		6.0		N/A			N/A
Total		283,678		32.2			70,455		8.0		N/A			N/A

In addition to the ratios above, the Basel III Capital Rules have established that community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than ~~2.5%~~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 be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Management believes that as of ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017,~~2022, the Bank ~~and Company~~ met all capital adequacy requirements to which ~~they were~~it was subject, including the capital conservation ~~buffer of 1.250% as of both December 31, 2017 and June 30, 2017.~~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 ~~10.~~9. Earnings Per Share (“EPS”)

Basic ~~earnings per share represents~~EPS is calculated by dividing net income available to common ~~stockholders divided~~shareholders by the ~~weighted-average~~weighted average number of common shares outstanding during the period. ~~Unallocated ESOP~~

Diluted EPS is calculated in a similar matter, except that the denominator includes the number of additional common shares ~~are not deemed~~that would have been outstanding ~~for~~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 ~~calculations. There were no potentially dilutive~~computation for the three months ended September 30, 2022 and 2021:


	2022			2021
	(Dollars in thousands, except per share data)
Net income applicable to common stock	$	4,776		$	3,614

Average number of common shares outstanding		15,122,732			15,342,975
Less: Average unallocated ESOP shares		(908,419	)		(1,005,432	)
Average number of common shares outstanding used to calculate basic earnings per common share		14,214,313			14,337,543

Effect of equity-based awards		87,287			68,273
Average number of common shares outstanding used to calculate diluted earnings per common share		14,301,600			14,405,816

Earnings per common share:
Basic	$	0.34		$	0.25
Diluted	$	0.33		$	0.25

Stock options for 1,314,963 and 1,325,935 shares of common stock ~~equivalents during~~were not considered in computing diluted earnings per common share for the ~~six~~three months ended ~~December 31, 2017. Earnings per share data~~September 30, 2022 and 2021, respectively, because they were antidilutive.

Note 10. 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 such transactions. The Company presents interest rate swap assets and liabilities in other assets and other liabilities, respectively, in the Consolidated Balance Sheets. 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 September 30, 2022 and June 30, 2022 (Dollars in thousands).


	September 30, 2022			June 30, 2022
Notional amounts	$	287,485		$	264,462
Weighted average pay rates		4.31	%		3.57	%
Weighted average receive rates		4.31	%		3.57	%
Weighted average maturity	8.14 years			8.22 years
Fair value of combined interest rate swaps	$	-		$	-

Note 11. Revenue From Contracts With Customers

In accordance with ASC 606, revenue is ~~not applicable~~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:

Identify the contract with a customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to performance obligations in the contract.

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

The following table presents summary information about sources of revenue from contracts with customers for the periods ~~ended December 31, 2016 because~~indicated (in thousands).


	Three months ended September 30,
	2022		2021
Noninterest income:
Service charges on deposits	$	234	$	183
Interchange fees		153		156
Other fees and service charges (1)		66		62
Fees and service charges		453		401

Swap income (1)		141		-
Bank-owned life insurance (1)		191		192
Other noninterest income (1)		8		20
Total noninterest income	$	793	$	613

(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 ~~had not yet been formed and had no shares outstanding at a Company or Bank level.~~

Three months ended
December 31, 2017

Six months ended
December 31, 2017

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

Net income applicable to common stock

$
2

$
1,758

Average number of common shares outstanding

18,165,110

18,165,110

Less: Average unallocated ESOP shares

1,373,805

1,391,227

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

16,791,305

16,773,883

Earnings per Common share:

Basic

$
0.00

$
0.10

Diluted

$
0.00

$
0.10

~~Note~~ ~~11. Income Taxes~~

~~On December 22, 2017, as part~~fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the ~~Tax Cuts~~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 ~~Jobs Act,~~are recognized daily, concurrently with the ~~federal government enacted comprehensive tax reform containing provisions with~~transaction processing services provided to the cardholder.

Gain 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 obligations 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 12. 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 ~~impacts on corporate income taxes,~~shares that may be granted under the ~~most significant~~Plan is 2,543,115, of which ~~provides~~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 $820,000 and $810,000 for the three months ended September 30, 2022 and 2021, respectively.

Restricted Stock Awards (“RSAs”)

RSAs awarded under the Plan provide for the issuance of shares to both employees and non-employee directors. These awards generally vest over a ~~decrease in~~5-year period, with 20% vesting each year on the ~~corporate income tax rate from 34%~~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 ~~21%~~be the closing price of the stock on the NASDAQ exchange. Total shares available for ~~tax years beginning on or after January 1, 2018. The Company is required to re-measure~~grant under the Plan are 726,000, of which 549,467 shares were granted as of September 30, 2022.

The following table presents a summary of RSA activity during the ~~date~~period ended September 30, 2022.


	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested granted shares outstanding at July 1, 2022		223,450		$	18.89
Shares granted		-			-
Shares vested		(2,200	)		16.21
Shares forfeited		-			-
Unvested granted shares at September 30, 2022		221,250		$	18.92

As of September 30, 2022, there was $2.4 million of total unrecognized compensation cost related to non-vested shares granted under the ~~law~~Plan. The cost is ~~enacted, its net deferred tax assets to reflect the income tax rate~~ expected to be ~~effective when deferred tax positions will be realized. As~~recognized over a ~~result,~~weighted-average period of 1.4 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 generally 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 ~~recorded~~has a ~~re-measurement charge through~~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.

Total options available for grant under the Plan are 1,816,511, of which 1,320,963 options were granted as of September 30, 2022. The following table presents a summary of activity related to stock options granted under the Plan, and changes during the period then ended:


	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Years		Aggregate Intrinsic Value
	(Dollars in thousands, except per share data)
Options outstanding at July 1, 2022		1,320,963	$	18.98		6.4	$	411
Options granted		-		-
Options expired		-		-
Options forfeited		-		-
Options exercised		-		-
Options outstanding at September 30, 2022		1,320,963	$	18.98		6.1	$	37

Exercisable at September 30, 2022		786,578	$	19.00		6.1	$	14

As of September 30, 2022, there was $1.4 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 1.4 years.

Note 13. Leases

As of September 30, 2022, the Company leases real estate for eleven branch offices and one administrative office, including its corporate headquarters, under various operating lease agreements. The Company’s leases have maturities which range from 2023 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 9.4 years as of September 30, 2022.

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 2.49% in determining the lease liability as of September 30, 2022.

The Company made a policy election to exclude the recognition requirements of ASC 842 to short-term leases, those leases with original terms of 12 months or less. Short-term lease payments are recognized in the income ~~tax expense of $1.8 million~~statement on a straight-line basis over the lease term. The Company had no short-term lease cost for the three ~~and six~~ months ended ~~December 31, 2017.~~

~~Although management~~September 30, 2022 or 2021. 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 ~~expect~~sublease any of its leased properties. There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the ~~$1.8~~three months ended September 30, 2022 or 2021.

Total operating lease cost was $505,000 for the three months ended September 30, 2022 and 2021, respectively. The right-of-use asset, included in premises and equipment, net, was $8.1 million ~~re-measurement charge~~and the corresponding lease liability, included in other liabilities was $8.4 million as of September 30, 2022.

Future minimum lease payments for the fiscal years ending June 30th and a reconciliation of undiscounted lease cash flows and the lease liability recognized in the consolidated balance sheet as of September 30, 2022 is shown below (in thousands):


2023	$	1,550
2024		1,719
2025		1,426
2026		907
2027		547
Thereafter		3,442
Total future minimum lease payments (undiscounted)		9,591
Discounting effect on cash flows		(1,228	)
Lease liability (discounted)	$	8,363

Note 14. Pending Merger With and Into Brookline Bancorp, Inc.

On May 23, 2022, the Company and Brookline Bancorp, Inc (“Brookline”), the holding company of Brookline Bank and Bank Rhode Island, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to ~~change materially,~~ the ~~charge is provisional~~Merger Agreement, the Company will merge with and into Brookline, with Brookline as the ~~Company continues~~surviving corporation (the “Merger”). Following the Merger, PCSB Bank will operate as a separate bank subsidiary of Brookline. Pursuant to ~~finalize its analysis~~the terms of the ~~Company’s deferred tax inventory, as well as other facts and circumstances that existed as~~Merger Agreement, at the effective time of the ~~law’s enactment date that is needed~~Merger, each stockholder of PCSB will receive, at the holder’s election, either $22.00 in ~~order to complete the accounting requirements under ASC Topic 740~~ ~~Income Taxes;~~ ~~and is~~cash consideration or 1.3284 shares of Brookline common stock for each share of PCSB common stock, subject to ~~revision during the measurement period for up~~allocation procedures to ~~one year from the date~~ensure that 60% of the ~~tax law change.~~outstanding shares of PCSB common stock will be converted to Brookline common stock. On September 21, 2022, the Company's shareholders approved the Merger Agreement. The consummation of the Merger remains subject to customary closing conditions, including the receipt of regulatory approvals. The Merger is currently expected to be completed in the fourth calendar quarter of 2022.

For the three months ended September 30, 2022, the Company recognized $311,000 of merger-related expenses. No merger-related expenses were recognized for the three months ended September 30, 2021.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Management’s discussion and analysis of financial condition at ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017,~~2022, and results of operations for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2022 and ~~2016~~2021 is intended to assist in understanding the consolidated financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and with the audited consolidated financial statements included in the annual report on Form 10-K for the fiscal year ended June 30, ~~2017.~~2022.

Cautionary Note Regarding Forward-Looking Statements

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

•

statements of our goals, intentions and expectations;

•

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

•

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

•

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:

•

extent, duration and severity of the COVID-19 pandemic and government action in response to the pandemic, including their impact on our business and operations, including the impact on lost fee revenue and operating expenses, as well as their effects 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;

•

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

•

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;

•

our ability to access cost-effective funding;

•

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

•

demand for loans and deposits in our market area;

•

our ability to continue to implement our business strategies;

•

competition among depository and other financial institutions;

•

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;

•

adverse changes in the securities or credit markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in ~~tax laws,~~ regulatory fees and capital ~~requirements, including as a result of Basel III;~~

requirements;

•

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

•

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

•

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 consumer spending, borrowing and savings habits;

•

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;

•

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;

•

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.

Additional factors that may affect our results are discussed in the ~~Prospectus~~annual report on Form 10-K for the fiscal year ended June 30, 2022, under the heading “Risk ~~Factors.”~~Factors” and in this quarterly report on Form 10-Q under Part II, Item 1A.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

Critical Accounting Policies and Critical Accounting Estimates

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, estimates 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~~For additional information regarding critical accounting policies, refer to the section captioned “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the June 30, 2022 Form 10-K. There have been no significant changes in our application of critical accounting policies for the three months ended September 30, 2022.

Overview

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 September 30, 2022, the significant assets of the Holding Company were the capital stock of the Bank, cash deposited in the Bank, 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, and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

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 commercial 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 NYSDFS.

The Company's primary market area encompasses all of Putnam and Westchester Counties and parts of Dutchess and Rockland Counties in New York, which ~~involve~~are the ~~most complex~~counties in which our offices are located, and the surrounding areas. It is considered 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 have 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.

Selected Financial Ratios

The summary information presented below as of and for the three months ended September 30, 2022 and 2021 is derived in part from and should be read in conjunction with the consolidated financial statements of the Company presented in Part I (Dollars in thousands, except per share data).


	Three Months Ended
	September 30, 2022			September 30, 2021
Performance Ratios (1):
Return on average assets		0.98	%		0.78	%
Return on average equity		6.90	%		5.29	%
Interest rate spread		3.06	%		2.71	%
Net interest margin		3.19	%		2.82	%
Efficiency ratio		61.07	%		65.59	%

Noninterest income to average assets		0.16	%		0.13	%
Noninterest expense to average assets		1.96	%		1.85	%

Average interest-earning assets to average interest-bearing liabilities		131.62	%		131.14	%
Average equity to average assets		14.17	%		14.66	%
Dividend payout ratio (2)		21.04	%		24.24	%


	As of or for the three months ended
	September 30, 2022			September 30, 2021
Loans to deposits		84.74	%		80.46	%

Share Data:
Shares outstanding		15,334,323			15,574,310
Book value per common share	$	18.33		$	17.64
Tangible book value per common share (3)	$	17.93		$	17.24

Asset Quality Ratios:
Non-performing loans receivable	$	7,989		$	5,732
Non-performing assets	$	7,989		$	5,732
Allowance for loan losses as a percent of total loans receivable (4)		0.67	%		0.68	%
Allowance for loan losses as a percent of non-performing loans receivable		113.26	%		142.34	%
Non-performing loans as a percent of total loans receivable, net (4)		0.59	%		0.48	%
Non-performing assets as a percent of total assets		0.41	%		0.31	%
Net recoveries	$	(39	)	$	(265	)
Net recoveries to average outstanding loans during the period (1)		(0.01	%)		(0.09	%)

Capital Ratios (5):
Tier 1 capital (to adjusted total assets)		13.02	%		12.72	%
Common equity Tier 1 capital (to risk-weighted assets)		17.27	%		17.84	%
Tier 1 capital (to risk-weighted assets)		17.27	%		17.84	%
Total capital (to risk-weighted assets)		17.88	%		18.46	%

(1)

Performance ratios are annualized.

(2)

Dividends declared per share divided by net income per share.

(3)

Tangible book value per share is a non-GAAP measure and equals total shareholders' equity, less goodwill and other intangible assets, divided by shares outstanding. We believe this disclosure may be meaningful to those investors who seek to evaluate our equity without giving effect to goodwill and other intangible assets. Reconciliations of GAAP to non-GAAP measures appear below this table.

(4)

Total loans receivable excludes PPP loans.

(5)

Represents Bank ratios.

Non-GAAP Financial Measures

The following table is a reconciliations of book value per share (GAAP measure) to tangible book value per share (non-GAAP measure) (Dollars in thousands, except share and per share data).


	As of
	September 30, 2022			June 30, 2022
Computation of Tangible Book Value per Common Share
Total shareholders' equity (GAAP)	$	281,137		$	277,162
Adjustments:
Goodwill		(6,106	)		(6,106	)
Other intangible assets		(77	)		(89	)
Tangible common shareholders' equity (Non-GAAP)	$	274,954		$	270,967

Common shares outstanding		15,334,323			15,334,857

Book value per share (GAAP)	$	18.33		$	18.07
Adjustments:
Effects of intangible assets		(0.40	)		(0.40	)

Tangible book value per common share (Non-GAAP)	$	17.93		$	17.67

Financial Condition

Cash and Cash Equivalents. Cash and cash equivalents decreased $67.7 million, or ~~subjective decisions or assessments, are~~57.2%, to $50.8 million at September 30, 2022 from $118.5 million at June 30, 2022. The decrease is primarily due to a $33.0 million decrease in deposits, a $20.8 million increase in net loans receivable, and a $20.0 million decrease in FHLB advances, partially offset by an $8.4 million decrease in total investment securities.

Investment Securities Portfolio. The following table is a summary of the Company's investment securities portfolio, at carrying value, as ~~follows:~~of September 30, 2022 and June 30, 2022 (Dollars in thousands):


	September 30,		June 30,		Increase / (Decrease)
	2022		2022		$			%
Available for sale debt securities
U.S. Government and agency obligations	$	9,443	$	9,928	$	(485	)		-4.9	%
Corporate		4,765		4,854		(89	)		-1.8
State and municipal		4,334		4,796		(462	)		-9.6
Mortgage-backed securities – residential		11,623		12,712		(1,089	)		-8.6
Mortgage-backed securities – commercial		2,266		2,331		(65	)		-2.8
Total available for sale debt securities	$	32,431	$	34,621	$	(2,190	)		-6.3	%
Held to maturity debt securities
U.S. Government and agency obligations	$	59,995	$	59,995	$	-			0.0	%
Corporate		52,068		52,076		(8	)		0.0
State and municipal		88,490		87,111		1,379			1.6
Mortgage-backed securities – residential		97,886		101,525		(3,639	)		-3.6
Mortgage-backed securities – collateralized mortgage obligations		22,916		24,198		(1,282	)		-5.3
Mortgage-backed securities – commercial		84,895		87,544		(2,649	)		-3.0
Total held to maturity debt securities	$	406,250	$	412,449	$	(6,199	)		-1.5	%

The decrease in investment securities was primarily the result of principal payments in mortgage-backed securities.

Loans Receivable Portfolio. The following table is a summary of the Company's loan portfolio, as of September 30, 2022 and June 30, 2022 (Dollars in thousands):


	September 30,			June 30,			Increase / (Decrease)
	2022			2022			$			%
Mortgage loans
Residential	$	214,586		$	214,167		$	419			0.2	%
Commercial		953,539			942,130			11,409			1.2
Construction		25,307			20,896			4,411			21.1
Net deferred loan origination (fees) costs		(145	)		(100	)		(45	)		45.0
Total mortgage loans		1,193,287			1,177,093			16,194			1.4
Commercial and consumer loans:
Commercial loans		141,902			136,304			5,598			4.1
Home equity lines of credit		22,955			23,688			(733	)		-3.1
Consumer and overdrafts		508			594			(86	)		-14.5
Net deferred loan origination costs (fees)		593			620			(27	)		-4.4
Total commercial and consumer loans		165,958			161,206			4,752			2.9
Total loans receivable		1,359,245			1,338,299			20,946			1.6
Allowance for loan losses		(9,048	)		(8,927	)		(121	)		1.4
Loans receivable, net	$	1,350,197		$	1,329,372		$	20,825			1.6	%

Allowance for Loan ~~Losses~~.Losses. The allowance for loan losses is ~~established as~~maintained at a level considered adequate by management to provide for probable incurred loan losses ~~are estimated to have occurred through a provision~~inherent in the loan portfolio at the consolidated balance sheet reporting dates. The allowance for loan losses ~~charged to earnings. Loan losses are charged against~~is based on management’s assessment of various factors affecting the ~~allowance when management believes the uncollectibility of a~~ loan ~~balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.~~

~~Income Taxes~~. ~~We recognize income taxes under the asset~~portfolio, including portfolio composition, delinquent and ~~liability method. Under this method, deferred tax assets~~non-accrual loans, national and ~~liabilities are established for the temporary differences between the accounting basis~~local business conditions, loss experience 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.~~

~~Goodwill.~~ ~~Goodwill resulting from business combination transactions is generally determined as the excess~~an overall evaluation of the ~~fair value~~quality of the consideration transferred, plus the fair value of any non-controlling interests in the acquired, 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.underlying collateral.

~~Comparison of Financial Condition at December 31, 2017 and June 30, 2017~~

~~Total Assets.~~ ~~Total assets~~The allowance for loan losses increased ~~$16.8 million,~~$121,000, or ~~1.2%~~1.4%, to $1.44 billion at December 31, 2017 from $1.43 billion at June 30, 2017. The increase is primarily the result of increases of $28.5 million in net loans and $16.6 million in cash and cash equivalents, partially offset by decreases of $25.1 million in total investment securities, $1.9 million in deferred tax assets, and $977,000 in foreclosed real estate.

~~Cash and Cash Equivalents.~~ ~~Cash and cash equivalents increased $16.6 million, or 27.5%, to $77.1~~$9.0 million at ~~December 31, 2017~~September 30, 2022 from ~~$60.5~~$8.9 million at June 30, 2017. The increase was primarily attributable to a $25.1 million decrease in total investment securities and a $14.2 million increase in liabilities, partially offset by a $28.5 million increase in net loans and a $3.4 million decrease in all other assets.

~~Securities Held-to-Maturity.~~ Total securities held to maturity decreased $15.9 million, or 4.1%, to $367.7 million at December 31, 2017 from $383.6 million at June 30, 2017. This decrease was primarily caused by $19.5 million of net maturities of U.S. government and agency obligations, partially offset by net purchases of $3.0 million of corporate and other debt securities and $593,000 of mortgage-backed securities.

~~Securities Available for Sale.~~ ~~Total securities available for sale decreased $9.2 million, or 8.2%, to $102.7 million at December 31, 2017 from $111.9 million at June 30, 2017. This decline was primarily due to $8.1 million of net~~

maturities of U.S. government and agency obligations, $6.0 million in sales of mortgage backed securities, and a $1.1 million increase in net unrealized losses driven primarily by an increase in market interest rates, partially offset by $6.0 million of net purchases of mortgage backed securities.

~~Net Loans Receivable.~~ ~~Net loans receivable increased $28.5 million, or 3.5%, to $838.1 million at December 31, 2017 from $809.6 million at June 30, 2017.~~2022. The increase is primarily due to ~~an increase~~loan portfolio growth. Non-performing loans as a percent of ~~$43.5 million in commercial mortgage~~total loans ~~partially offset by decreases~~receivable were 0.59% as of ~~$6.0 million in construction loans, $4.1 million in residential mortgage loans, $2.0 million in commercial loans and $1.8 million in home equity credit lines. The Company purchased $46.7 million~~September 30, 2022, a decrease from 0.69% as of ~~commercial mortgage loans during the six months ended December 31, 201~~7.

~~Deposits.~~ ~~Total deposits increased $25.9 million, or 2.4%, to $1.11 billion at December 31, 2017 from $1.09 billion at~~ June 30, ~~2017. This increase primarily reflects~~2022.

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 ~~$16.8 million increase~~broad selection of deposit instruments for both individuals and businesses.

The following table is a summary of the Company's deposits, as of September 30, 2022 and June 30, 2022 (Dollars in ~~time deposits and a $17.4 million increase in demand deposits and NOW accounts, partially offset by an $8.3 million decrease in savings and money market accounts.~~thousands):


	September 30,		June 30,		Increase / (Decrease)
	2022		2022		$			%
Demand	$	227,635	$	245,297	$	(17,662	)		-7.2	%
NOW accounts		253,857		243,006		10,851			4.5
Money market accounts		385,470		399,026		(13,556	)		-3.4
Savings		402,980		411,332		(8,352	)		-2.0
Time deposits		323,324		327,589		(4,265	)		-1.3
Total deposits	$	1,593,266	$	1,626,250	$	(32,984	)		-2.0	%

Federal Home Loan Bank Advances. ~~Federal Home Loan Bank~~ FHLB advances decreased ~~$11.9~~$20.0 million, or ~~27.9%~~41.5%, to ~~$30.7~~$28.3 million at ~~December 31, 2017 from $42.6~~September 30, 2022 as compared to $48.3 million at June 30, ~~2017, primarily~~2022. This decrease is due to ~~$11.8 million in~~ maturities ~~of short-term advances.~~and principal paydowns.

Total ~~Shareholder’s~~Shareholders’ Equity. Total shareholders’ equity increased ~~$2.6~~$3.9 million, or ~~0.9%~~1.4%, to ~~$282.4~~$281.1 million at ~~December 31, 2017~~September 30, 2022 from ~~$279.8~~$277.2 million at June 30, ~~2017.~~2022. This increase was primarily due to net income of ~~$1.8~~$4.8 million and a $1.3 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the ~~period.~~period, partially offset by $1.1 million of other comprehensive losses related primarily to unrealized losses on available for sale investment securities driven by higher market interest rates and $1.0 million of cash dividends declared and paid. We would expect that further increases in market interest rates would lead to additional unrealized losses on available for sale investment securities. At ~~December 31, 2017, the Company’s book value per share was $15.55, compared to $15.41 at June~~September 30, ~~2017. At December 31, 2017,~~2022, the Bank was considered “well capitalized” under applicable regulatory guidelines.

~~Comparison~~Results of ~~Operating Results~~Operations for the Three Months Ended ~~December 31, 2017~~September 30, 2022 and ~~2016~~September 30, 2021

~~General.~~Net Income. Net income ~~decreased $1.7~~increased $1.2 million, or ~~99.9%~~32.2%, to ~~$2,000 for the three months ended December 31, 2017 compared to $1.7~~$4.8 million for the three months ended ~~December 31, 2016. The decrease was primarily due~~September 30, 2022 compared to a $1.8 million increase in income tax expense, a $1.6 million decrease in non-interest income, and a $331,000 increase in non-interest expenses, partially offset by $1.7 million increase in net interest income and a $362,000 decrease in the provision for loan losses.

~~Net Interest Income.~~ ~~Net interest income increased $1.7 million, or 19.5%, to $10.2~~$3.6 million for the three months ended ~~December 31, 2017 compared to a $8.5 million for the three months ended December 31, 2016.~~September 30, 2021. The increase primarily reflects a $170.4 million increase in average net interest-earning assets and an 11-basis point increase in the net interest margin to 3.00% for the three months ended December 31, 2017 compared to 2.89% for the three months ended December 31, 2016. The increase in average net interest-earning assets primarily reflects the investment of the net proceeds received in the Company’s initial public offering completed in April 2017.

~~Interest and Dividend Income.~~ Interest and dividend income increased $1.8 million, or 18.3%, to $11.7 million for the three months ended December 31, 2017 compared to a $9.9 million for the three months ended December 31, 2016. The increase primarily reflects a $174.1 million increase in total average interest-earning assets and an 11-basis point increase in the yield on total interest-earning ~~assets.~~

Interest income on loans receivable increased $933,000, or 11.3%, primarily due to a $65.1 million increase in the average balance of loans receivable to $827.6 million for the three months ended December 31, 2017 from $762.5 million for the same period last year, and an 11-basis point increase in the average yield on loans to 4.43% for the three months ended December 31, 2017 from 4.32% for the same period last year.

Interest income on securities increased $739,000, or 48.3%, primarily due to a $110.7 million increase in the average balance of securities and a 23-basis point increase in the average yield on securities to 1.92% for the current-year period from 1.69% for the same period last year. The increase in the yield on securities was due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.

Interest income on other interest-earning assets increased $135,000, or 164.6%, primarily due to a 100-basis point increase in the average yield on other interest-earning assets to 1.58% for the three months ended December 31,

2017 from 0.58% for the same period last year, partially offset by a $1.7 million decrease in the average balance to $54.3 million for the three months ended December 31, 2017 compared to a $56.0 million for the same period last year. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates.

~~Interest Expense.~~ Interest expense increased $148,000, or 11.2%, to $1.5 million for the three months ended December 31, 2017 compared to $1.3 million for the three months ended December 31, 2016. The increase primarily reflects a $3.7 million increase in the average balance on interest bearing liabilities and a 6-basis point increase in the average cost to 0.59% for the three months ended December 31, 2017 from 0.53% for the same period last year.

Interest expense on interest-bearing deposits increased $15,000, or 1.2%, primarily due to a 2-basis point increase in the average cost of deposits to 0.54% for the three months ended December 31, 2017 from 0.52% for the same period last year, partially offset by a $25.3 million decrease in the average balance to $957.8 million for the three months ended December 31, 2017 from $983.1 million for the three months ended December 31, 2016. The increase in the average rate paid on interest-bearing deposits was caused primarily by an 8-basis point increase in the average rate paid on time deposits as the Bank offered special rates and terms to attract customers.

Interest expense on Federal Home Loan Bank advances increased $133,000, or 429.0%, primarily due to a $28.9 million increase in the average balance to $35.3 million for the three months ended December 31, 2017 from $6.4 million for the same period last year, partially offset by an 11-basis point decrease in the average cost to 1.85% for the three months ended December 31, 2017 from 1.96% for the same period last year. The decrease in the average cost is primarily due to a shorter average term on advances in the current year compared to the same period last year.

~~Provision for Loan Losses.~~ ~~The provision for loan losses decreased by $362,000 to $200,000 for the three months ended December 31, 2017, compared to $562,000 for the three months ended December 31, 2016 primarily due to~~ ~~increases in specific reserves on impaired loans in the prior year period~~. Charge-offs, net of recoveries, were $997,000 for the three months ended December 31, 2017 compared to net recoveries of $1,000 for the three months ended December 31, 2016. In the current period, the Company recorded a $997,000 charge-off of a specific reserve recorded in a prior period on a construction loan.

~~Non-Interest Income.~~ Non-interest income decreased $1.6 million, or 69.4% to $692,000 for the three months ended December 31, 2017 compared to a $2.3 million for the three months ended December 31, 2016. The decrease was caused primarily by a one-time settlement on an acquired loan of $1.6 million in the prior year.

~~Non-Interest Expense.~~ Non-interest expense increased $331,000, or 4.2%, to $8.1 million for the three months ended December 31, 2017 compared to $7.8 million for the three months ended December 31, 2016. The increase was caused primarily by increases of $379,000 in salaries and benefits, $343,000 in other operating expenses, $103,000 in professional fees, and $89,000 in advertising expense, partially offset by a $548,000 decrease in occupancy and equipment expense and a $42,000 decrease in FDIC assessment. The increase in salaries and benefits was due primarily to a $301,000 increase in retirement expenses, resulting primarily from ESOP compensation expense not incurred in the prior period, and a $159,000 increase due to increased staffing, partially offset by a $97,000 decrease in benefits expense due primarily to lower health care costs. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment expense was due primarily to a $521,000 lease obligation write-off recorded in the prior year.

~~Income Tax Expense.~~ Income tax expense increased $1.8 million, or 236.5%, to $2.6 million for the three months ended December 31, 2017 from $758,000 for the three months ended December 31, 2016. The increase was caused primarily by the $1.8 million estimated re-measurement charge recorded in the current quarter required in connection with tax law changes contained in the Tax Cuts and Jobs Act, however the Company expects to benefit in the future from the decrease in the federal corporate tax rate from 34% to 21%. The effective income tax rate was 99.9% for the three months ended December 31, 2017 compared to 31.2% for the three months ended December 31, 2016.

~~Comparison of Operating Results for the Six Months Ended December 31, 2017 and 2016~~

~~General.~~ ~~Net income decreased $1.4 million, or 43.8%, to $1.8 million for the six months ended December 31, 2017 compared to $3.1 million for the six months ended December 31, 2016. The decrease~~ was primarily due to ~~a $2.0~~increases of $2.3 million ~~increase in income tax expense, a $1.4 million decrease in non-interest income, and a $1.0 million increase in non-interest expenses, partially offset by a $2.8 million increase~~ in net interest income and ~~a $253,000 decrease~~$180,000 in ~~the~~noninterest income, partially offset by increases of $933,000 in noninterest expense, $338,000 in income tax expense and $69,000 in provision for loan losses.

Net Interest Income. Net interest income increased $2.8 million, or 16.0%, to $20.1 million for the six months ended December 31, 2017 compared to a $17.3 million for the six months ended December 31, 2016. The increase primarily reflects a $167.0 million increase in average net interest-earning assets and a 6-basis point increase in the net interest margin to 2.95% for the six months ended December 31, 2017 compared to 2.89% for the six months ended December 31, 2016. The increase in average net interest-earning assets primarily reflects the investment of the net proceeds received in the Company’s initial public offering completed in April 2017.

~~Interest and Dividend Income.~~ Interest and dividend income increased $3.0 million, or 15.0%, to $23.0 million for the six months ended December 31, 2017 compared to $20.0 million for the six months ended December 31, 2016. The increase primarily reflects a $164.1 million increase in total average interest-earning assets and a 4-basis point increase in the yield on total interest-earning assets.

Interest income on loans receivable increased $1.2 million, or 7.3%, primarily due to a $51.1 million increase in the average balance of loans receivable to $820.4 million for the six months ended December 31, 2017 from $769.3 million for the same period last year, and a 3-basis point increase in the average yield on loans to 4.38% for the six months ended December 31, 2017 from 4.35% for the same period last year.

Interest income on securities increased $1.5 million, or 50.0%, primarily due to a $111.0 million increase in the average balance of securities and a 25-basis point increase in the average yield on securities to 1.88% for the current-year period from 1.63% for the same period last year. The increase in the yield on securities was due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.

Interest income on other interest-earning assets increased $265,000, or 142.5%, primarily due to a $2.0 million increase in the average balance and an 83-basis point increase in the average yield on other interest-earning assets to 1.45% for the six months ended December 31, 2017 from 0.62% for the same period last year. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates.

~~Interest Expense.~~ Interest expense increased $235,000, or 8.8%, to $2.9 million for the six months ended December 31, 2017 compared to $2.7 million for the six months ended December 31, 2016. The increase primarily reflects a 5-basis point increase in the average cost of interest-bearing liabilities to 0.58% for the three months ended December 31, 2017 from 0.53% for the same period last year, partially offset by a $2.9 million decrease in the average balance on interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased $2,000, or 0.1%, primarily due to a $30.3 million decrease in the average balance to $959.5 million for the six months ended December 31, 2017 from a $989.8 million for the six months ended December 31, 2016, partially offset by a 1-basis point increase in the average cost of deposits to 0.53% for the six months ended December 31, 2017 from 0.52% for the same period last year. The decrease in the average balance of interest-bearing deposits primarily reflects lower average savings and time deposit balances. The increase in the average rate paid on interest-bearing deposits was caused primarily by an 8-basis point increase in the average rate paid on time deposits as the Bank offered special rates and terms to attract customers.

Interest expense on Federal Home Loan Bank advances increased $237,000, or 292.6%, primarily due to a $27.4 million increase in the average balance to $38.3 million for the six months ended December 31, 2016 from $10.9 million for the same period last year, and a 17-basis point increase in the average cost to 1.65% for the six months ended December 31, 2017 from 1.48% for the same period last year. The increase in the average cost is primarily due to a longer average term on advances in the current year compared to the same period last year.

~~Provision for Loan Losses.~~ ~~The provision for loan losses decreased by $253,000 to $335,000 for the six months ended December 31, 2017, compared to $588,000 for the six months ended December 31, 2016 primarily due to~~

~~increases in specific reserves on impaired loans in the prior year period. Charge-offs, net of recoveries, were $1.0 million and $70,000 for the six months ended December 31, 2017 and 2016, respectively.~~

~~Non-Interest Income.~~ Non-interest income decreased $1.4 million, or 50.0% to $1.4 million for the six months ended December 31, 2017 compared to $2.8 million for the six months ended December 31, 2016. The decrease was caused primarily by a one-time settlement on an acquired loan of $1.6 million in the prior year partially offset by a $173,000 gain on the sale of securities recognized in the current year.

~~Non-Interest Expense.~~ Non-interest expense increased $1.0 million, or 6.9%, to $16.0 million for the six months ended December 31, 2017 compared to $15.0 million for the six months ended December 31, 2016. The increase was primarily caused by increases of $942,000 in salaries and benefits, $497,000 in other operating expenses, $207,000 in professional fees and $115,000 in advertising expense, partially offset by a $557,000 decrease in occupancy and equipment expense and a $179,000 decrease in FDIC assessment. The increase in salaries and benefits was due primarily to a $591,000 net increase in retirement expenses and a $385,000 increase due to increased staffing. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment expense was caused primarily by a $521,000 lease obligation write-off recorded in the prior year.

~~Income Tax Expense.~~ Income tax expense increased $2.0 million, or 138.9%, to $3.4 million for the six months ended December 31, 2017 from $1.4 million for the six months ended December 31, 2016. The increase was caused primarily by the $1.8 million estimated re-measurement charge recorded in the current quarter required in connection with tax law changes contained in the Tax Cuts and Jobs Act, however the Company expects to benefit in the future from the decrease in the federal corporate tax rate from 34% to 21%. The effective income tax rate was 65.6% for the six months ended December 31, 2017 as compared to 31.0% for the six months ended December 31, 2016.

~~Net Interest Income~~

~~Average Balance Sheet and Interest Rates.~~ The following tables present 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 tax equivalent 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. ~~Amortization of loan~~Loan fees isare included in interest income on ~~loans.~~loans and are not material (Dollars in thousands).


	Three Months Ended September 30,
	2022								2021
	Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate
Assets:
Loans receivable (1)	$	1,346,194		$	13,849		4.12	%	$	1,223,532		$	12,107		3.96	%
Investment securities (1)		445,231			2,420		2.26			404,565			2,011		2.07
Other interest-earning assets		85,377			487		2.26			160,659			109		0.27
Total interest-earning assets		1,876,802			16,756		3.59			1,788,756			14,227		3.20
Non-interest-earning assets		78,342								76,375
Total assets	$	1,955,144							$	1,865,131

Liabilities and equity:
NOW accounts	$	243,354			250		0.41		$	182,531			70		0.15
Money market accounts		390,619			376		0.38			350,575			186		0.21
Savings accounts and escrow		422,178			186		0.18			397,292			113		0.11
Time deposits		323,219			852		1.05			367,641			985		1.06
Total interest-bearing deposits		1,379,370			1,664		0.48			1,298,039			1,354		0.41
FHLB advances		46,522			235		2.00			65,935			338		2.03
Total interest-bearing liabilities		1,425,892			1,899		0.53			1,363,974			1,692		0.49
Non-interest-bearing deposits		230,076								207,806
Other non-interest-bearing liabilities		22,180								19,943
Total liabilities		1,678,148								1,591,723
Total shareholders' equity		276,996								273,408
Total liabilities and shareholders' equity	$	1,955,144							$	1,865,131

Net interest income				$	14,857							$	12,535
Interest rate spread - tax equivalent (2)							3.06								2.71
Net interest margin - tax equivalent (3)							3.19								2.82
Average interest-earning assets to interest-bearing liabilities		131.62	%							131.14	%

Three months ended December 31,

2017

2016

Average
Balance

Interest/
Dividends

Average
Rate

Average
Balance

Interest/
Dividends

Average
Rate

(dollars in thousands)

Assets:

Loans receivable

$
827,614

$
9,171

4.43
%

$
762,538

$
8,238

4.32
%
Securities

473,641

2,269

1.92

362,954

1,530

1.69

Other interest-earning assets

54,388

217

1.58

56,045

82

0.58

Total interest-earning assets

1,355,643

11,657

3.44

1,181,537

9,850

3.33

Non-interest-earning assets

58,665

58,604

Total assets

$
1,414,308

$
1,240,141

Liabilities and equity:

NOW accounts

$
112,147

48

0.17

$
105,647

44

0.16

Money market accounts

29,014

22

0.30

31,874

21

0.26

Savings accounts and escrow

509,888

309

0.24

527,779

327

0.25

Time deposits

306,756

928

1.20

317,757

900

1.12

Total interest-bearing deposits

957,805

1,307

0.54

983,057

1,292

0.52

Federal Home Loan Bank advances

35,293

164

1.85

6,354

31

1.96

Total interest-bearing liabilities

993,098

1,471

0.59

989,411

1,323

0.53

Non-interest-bearing deposits

130,614

123,135

Other non-interest-bearing liabilities

7,765

15,101

Total liabilities

1,131,477

1,127,647

Total equity

282,831

112,494

Total liabilities and equity

$
1,414,308

$
1,240,141

Net interest income

$
10,186

$
8,527

Interest rate spread ⁽¹⁾

2.85

2.80

Net interest margin ⁽²⁾

3.00

2.89

Average interest-earning assets to interest-bearing liabilities

136.51
%

119.42
%

(1)

Tax exempt yield is shown on a tax equivalent basis for proper comparison using statutory federal income tax rate of 21% for all periods presented. See reconciliation of GAAP to non-GAAP measures in the table below.

(2)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(3)

Net interest margin represents annualized net interest income divided by average interest-earning assets. See reconciliation of GAAP to non-GAAP measures in the table below.

⁽¹⁾	~~Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.~~

⁽²⁾	~~Net interest margin represents annualized net interest income divided by average interest-earning assets.~~

The following table presents information regarding tax equivalent adjustment used in the calculation of certain financial metrics (Dollars in thousands).


	Three Months Ended
	September 30,
	2022		2022
Total interest income	$	16,756	$	14,227
Total interest expense		1,899		1,692
Net interest income (GAAP)		14,857		12,535
Tax equivalent adjustment		116		89
Net interest income - tax equivalent (non-GAAP)	$	14,973	$	12,624

Six months ended December 31,

2017

2016

Average
Balance

Interest/
Dividends

Average
Rate

Average
Balance

Interest/
Dividends

Average
Rate

(dollars in thousands)

Assets:

Loans receivable

$
820,429

$
17,989

4.38
%

$
769,340

$
16,763

4.35
%
Securities

479,833

4,514

1.88

368,855

3,010

1.63

Other interest-earning assets

61,822

451

1.45

59,800

186

0.62

Total interest-earning assets

1,362,084

22,954

3.37

1,197,995

19,959

3.33

Non-interest-earning assets

58,453

56,929

Total assets

$
1,420,537

$
1,254,924

Liabilities and equity:

NOW accounts

$
113,458

97

0.17

$
107,803

88

0.16

Money market accounts

29,557

43

0.29

31,642

42

0.26

Savings accounts and escrow

514,102

633

0.25

528,580

654

0.25

Time deposits

302,382

1,801

1.18

321,775

1,792

1.10

Total interest-bearing deposits

959,499

2,574

0.53

989,800

2,576

0.52

Federal Home Loan Bank advances

38,346

318

1.65

10,914

81

1.48

Total interest-bearing liabilities

997,845

2,892

0.58

1,000,714

2,657

0.53

Non-interest-bearing deposits

132,491

126,951

Other non-interest-bearing liabilities

8,026

15,394

Total liabilities

1,138,362

1,143,059

Total equity

282,175

111,865

Total liabilities and equity

$
1,420,537

$
1,254,924

Net interest income

$
20,062

$
17,302

Interest rate spread ⁽¹⁾

2.79

2.80

Net interest margin ⁽²⁾

2.95

2.89

Average interest-earning assets to interest-bearing liabilities

136.50
%

119.71
%

⁽¹⁾	~~Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.~~

⁽²⁾	~~Net interest margin represents annualized net interest income divided by average interest-earning assets.~~

Rate/Volume Analysis.The following ~~tables set~~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.~~volume (Dollars in thousands).


	Three months ended December 31, 2017 versus 2016									Three Months Ended September 30,
	Rate			Volume			Net			2022 versus 2022
	(in thousands)									Rate			Volume			Net
Interest income:
Loans receivable	$	169		$	764		$	933		$	440		$	1,302		$	1,742
Securities		127			612			739
Investment securities											224			185			409
Other interest-earning assets		136			(1	)		135			452			(74	)		378
Total interest-earning assets		432			1,375			1,807			1,116			1,413			2,529

Interest expense:
NOW accounts		2			2			4			150			30			180
Money market accounts		2			(1	)		1			166			24			190
Savings and escrow accounts		(9	)		(9	)		(18	)		66			7			73
Time deposits		62			(34	)		28			(16	)		(117	)		(133	)
Federal Home Loan Bank advances		(2	)		135			133
FHLB advances											(5	)		(98	)		(103	)
Total interest-bearing liabilities		55			93			148			361			(154	)		207

Net increase in net interest income	$	377		$	1,282		$	1,659		$	755		$	1,567		$	2,322

Six months ended December 31,
2017 versus 2016

Rate

Volume

Net

(in thousands)

Interest income:

Loans receivable

$
50

$
1,176

$
1,226

Securities

277

1,227

1,504

Other interest-earning assets

252

13

265

Total interest-earning assets

579

2,416

2,995

Interest expense:

NOW accounts

4

5

9

Money market accounts

4

(3
)

1

Savings and escrow accounts

(9
)

(12
)

(21
)
Time deposits

120

(111
)

9

Federal Home Loan Bank advances

10

227

237

Total interest-bearing liabilities

129

106

235

Net increase in net interest income

$
450

$
2,310

$
2,760

Provision for Loan Losses. The provision for loan losses increased for the three months ended September 30, 2022, compared to the same period last year. The increase is primarily due to higher loan portfolio growth in the current period. Recoveries net of charge-offs were $39,000 for the three months ended September 30, 2022, compared to recoveries, net of charge-offs of $265,000 for the same period last year.

Noninterest Income. The following table displays noninterest income for the three months ended September 30, 2022 and 2021 (Dollars in thousands).


	Three Months Ended
	September 30,				Net Change
	2022		2021		$			%
Fees and service charges	$	453	$	401	$	52			13.0	%
Bank-owned life insurance		191		192		(1	)		-0.5	%
Swap income		141		-		141			100.0	%
Other		8		20		(12	)		-60.0	%
Total noninterest income	$	793	$	613	$	180			29.4	%

The increase in fees and service charges for the three months ended September 30, 2022 compared to the same period last year was primarily the result of increases in deposit and loan processing fees.

Noninterest Expense. The following table displays noninterest expense for the three months ended September 30, 2022 and 2021 (Dollars in thousands).


	Three Months Ended
	September 30,				Net Change
	2022		2021		$			%
Salaries and employee benefits	$	5,985	$	5,773	$	212			3.7	%
Occupancy and equipment		1,403		1,353		50			3.7	%
Communication and data processing		610		527		83			15.7	%
Professional fees		335		393		(58	)		-14.8	%
Merger-related expenses		311		-		311			100.0	%
Postage, printing, stationery and supplies		174		143		31			21.7	%
Advertising		128		100		28			28.0	%
FDIC assessment		125		125		-			0.0	%
Amortization of intangible assets		12		16		(4	)		-25.0	%
Other operating expenses		474		194		280			144.3	%
Total noninterest expense	$	9,557	$	8,624	$	933			10.8	%

The increase in salaries and employee benefits for the three months ended September 30, 2022 compared to the same period last year is primarily driven by higher salary and benefit costs. Merger-related expenses associated with the pending Brookline Bancorp merger largely include professional services fees. The increase in other operating expenses for the three months ended September 30, 2022 compared to the same period last year is primarily due to higher pension costs in the current period.

Income Tax Expense. The effective income tax rate was 20.5% for the three months ended September 30, 2022 as compared to 19.9% for the same period last year.

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, ~~and investment securities,~~ have longer maturities than our liabilities, consisting primarily of ~~deposits and FHLB advances.~~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 by~~of the Board of Directors. This ~~committee~~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 Board of 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. ~~The net proceeds from~~We have implemented the ~~offering have increased our capital and provided management with greater flexibility~~following strategies to manage our interest rate ~~risk, including the following strategies:~~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 ~~capital~~equity 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.

The following table presents the estimated changes in our NPV that would result from changes in market interest rates at ~~December 31, 2017~~September 30, 2022 and June 30, ~~2017.~~2022 (Dollars in thousands). 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
	(dollars in thousands)															NPV								NPV as Percent of Portfolio Value of Assets
Basis Point Change in Interest Rates	Dollar Amount		Dollar Change			Percent Change				EVE Ratio			Change (in bps)			Dollar Amount		Dollar Change			Percent Change			NPV Ratio			Change (in bps)
December 31, 2017:
September 30, 2022:
200	$	289,504	$	(38,771	)		(11.8	)	%		21.83	%		(148	)	$	256,664	$	(47,850	)		(15.7	%)		15.06	%		(188	)
100		311,392		(16,883	)		(5.1	)			22.77			(54	)		281,394		(23,120	)		(7.6	)		16.07			(87	)
-		328,275	-			-					23.31		-				304,514		-			-			16.94			-
(100)		336,479		8,204			2.5				23.28			(3	)		335,857		31,343			10.3			18.09			115
(200)																	366,247		61,733			20.3			19.10			216

June 30, 2017:
June 30, 2022:
200	$	290,781	$	(35,848	)		(11.0	)	%		21.62	%		(130	)	$	267,563	$	(50,616	)		(19.9	%)		14.94	%		(187	)
100		311,728		(14,901	)		(4.6	)			22.49			(42	)		294,042		(24,137	)		(7.6	)		15.96			(85	)
-		326,629	-			-					22.92		-				318,179	-				-			16.81			-
(100)		331,139		4,510			1.4				22.69			(22	)		349,957		31,778			10.0			17.90			109
(200)																	382,642		64,463			20.3			18.96			215

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes ~~requires~~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~~short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets ~~depend~~are dependent on our operating, financing, lending and investing activities during any given period. At ~~December 31, 2017,~~September 30, 2022, cash and cash equivalents totaled ~~$77.1~~$50.8 million, ~~an increase~~a decrease from ~~$60.5~~$118.5 million as of June 30, ~~2017. Securities~~2022. Unpledged securities classified as available for sale, which provide an additional source of liquidity, totaled ~~$102.7~~ $9.5million at ~~December 31, 2017,~~September 30, 2022, a decrease from ~~$111.9~~$18.5 million as of June 30, ~~2017.~~2022.

We had the ability to borrow up to ~~$332.2 million and $350.7~~$223.0 million from the ~~Federal Home Loan Bank~~FHLB of New York, at ~~December 31, 2017 and June~~September 30, ~~2017, $30.7 million and $42.6 million~~2022 of which $28.3 million was outstanding as of ~~December 31, 2017 and June~~September 30, ~~2017, respectively. We also~~2022. Additionally, as of September 30, 2022, we had an available line of credit with the ~~Federal Reserve Bank~~FRB of New York’s discount window program of ~~$87.0~~$102.8 million, and ~~$85.9~~$25.0 million of fed funds lines of credit, neither of which had outstanding balances as of ~~December 31, 2017 and June~~September 30, ~~2017, respectively, none of which was outstanding at either date.~~2022.

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 Bank of New York or the Federal Reserve Bank of New York.~~sources detailed above.

We had ~~$91.4 million and $77.6~~$14.4 million of loan commitments outstanding as of ~~December 31, 2017~~September 30, 2022 and ~~June 30, 2017, respectively, and $36.6~~$171.2 million ~~and $45.4 million as of December 31, 2017 and June 30, 2017, respectively,~~ of approved, but unadvanced, funds to borrowers. We also had ~~$750,000 and $705,000~~$2.9 million in outstanding letters of credit at ~~December 31, 2017 and June~~September 30, ~~2017, respectively.~~ 2022.

Time deposits due within one year of ~~December 31, 2017~~September 30, 2022 totaled ~~$116.8 million, an increase of $9.7 million from $107.1 million as of June 30, 2017.~~$203.0 million. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and ~~Federal Home Loan Bank~~FHLB 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 time deposits at ~~December 31, 2017.~~September 30, 2022. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The Holding Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its ~~stockholders~~shareholders, to repurchase shares of its common stock and for other corporate purposes. The Holding Company’s primary source of liquidity is dividend payments it may receive from the Bank. The Bank’s ability to pay dividends to the Holding Company is governed by applicable ~~laws~~law and regulations. At ~~December 31, 2017,~~September 30, 2022, the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of ~~$72.8~~$18.0 million.

Capital Resources. The ~~Company and~~ Bank ~~are~~is subject to various regulatory capital requirements administered by the ~~New York State Department of Financial Services~~NYSDFS and the ~~Federal Deposit Insurance Corporation.~~FDIC. At ~~December 31, 2017,~~September 30, 2022, the Bank exceeded all applicable regulatory capital requirements, and the Bank was considered “well capitalized” under applicable regulatory guidelines. See Note 98 to the accompanying unaudited consolidated financial ~~statements~~statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is included in Part I, Item 2 of this report under "Management of Market ~~Risk".~~Risk."

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the 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 ~~December 31, 2017.~~September 30, 2022. Based on that evaluation, the

Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the ~~Registrant’s~~Company’s disclosure controls and procedures were effective.

During the quarter ended ~~December 31, 2017,~~September 30, 2022, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

In addition, the Company has received demand letters from putative stockholders of the Company regarding the pending merger between the Company and Brookline Bancorp, Inc. In addition, on August 25, 2022, a complaint captioned Stephen Bushansky v. PCSB Financial Corporation et al. was filed in the United States District Court, Southern District of New York, naming as defendants the Company and the members of the Company’s board of directors (the “Complaint”). The complaint and the demand letters allege, among other things, that the proxy statement/prospectus contains materially incomplete and misleading information regarding the process that culminated in the merger agreement and the proposed transaction, the valuation analyses performed by the Company’s financial advisor, and potential conflicts of interest in connection with the proposed merger. The relief sought includes enjoining the consummation of the merger unless and until certain additional and allegedly material information is disclosed to the Company’s stockholders, rescinding and setting aside the merger to the extent already implemented, or granting rescissory damages, and awarding the plaintiff the cost of the action, including reasonable attorneys’ and experts’ fees. The Company believes that all allegations in the demand letters and complaint are without merit and intends to defend against them as appropriate.

We ~~are~~do not ~~involved in~~believe that any pending legal proceedings aswould have a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2017, we were not involved in any legal proceedings the outcome of which we believe would be material toadverse effect on our consolidated financial condition, or results of ~~operations.~~operations or cash flows.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017,~~2022, filed with the Securities and Exchange Commission. As of ~~December 31, 2017, except for the additional risk factor described below,~~September 30, 2022, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017.~~2022.

~~We may be adversely affected by recent changes in U.S. tax laws and regulations.~~

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Included in this legislation is a reduction of the corporate income tax rate from 34% to 21%. In addition, other changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes. These recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New York. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities

(a)

Not applicable

(b)

Not applicable

(c)

On February 3, 2021, a repurchase program was authorized by the Board of Directors to repurchase up to 801,856 shares, or 5.0% of the Company’s then outstanding common stock. As of September 30, 2022, the Company repurchased 682,561 shares at an average cost of $18.23 per share.

~~None~~There were no repurchases of PCSB Financial Corporation common stock during the quarter ended September 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number		Description

3.1		Articles of Incorporation of PCSB Financial Corporation (1)⁽¹⁾

3.2		Amended and Restated Bylaws of PCSB Financial Corporation (2)⁽²⁾

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002⁽³⁾

101		The following materials for the quarter ended ~~December 31, 2017,~~September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of ~~Income,~~Operations, (iii) Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements⁽³⁾

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 Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on June 24, 2021.

~~(1)~~

~~Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).~~

~~(2)~~

~~Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).~~

~~(3)~~

~~Furnished, not filed.~~

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements 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: ~~February 9, 2018~~November 4, 2022		/s/ Joseph D. Roberto
		Joseph D. Roberto
		Chairman, President and Chief Executive Officer

Date: ~~February 9, 2018~~November 4, 2022		/s/ ~~Scott D. Nogles~~Jeffrey M. Helf
		~~Scott D. Nogles~~Jeffrey M. Helf
		~~Executive~~Senior Vice President and Chief Financial Officer

4439


Maryland	81-4710738
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2651 Strang Blvd, Suite 100 Yorktown Heights, NY	10598
(Address of principal executive offices)	(Zip Code)


Large accelerated filer	☐		Accelerated filer	☐

Non-accelerated filer	☒	~~(Do not check if a small reporting company)~~	Small reporting company	☐☒

			Emerging growth company	☒☐


	December 31,			June 30,			September 30,			June 30,
	2017			2017			2022			2022
ASSETS
Cash and due from banks	$	75,778		$	59,115		$	48,747		$	116,522
Federal funds sold		1,328			1,371			2,006			1,935
Total cash and cash equivalents		77,106			60,486			50,753			118,457
Investment Securities:
Held to maturity investment securities, at amortized cost (fair value of $363,457 and $383,588, respectively)		367,646			383,551
Available for sale securities, at fair value		102,714			111,889
Held to maturity debt securities, at amortized cost (fair value of $339,143 and $361,608 as of September 30, 2022 and June 30, 2022, respectively)								406,250			412,449
Available for sale debt securities, at fair value								32,431			34,621
Total investment securities		470,360			495,440			438,681			447,070
Loans receivable, net of allowance for loan losses of $4,471 and $5,150, respectively		838,120			809,648
Loans receivable, net of allowance for loan losses of $9,048 and $8,927 as of September 30, 2022 and June 30, 2022, respectively								1,350,197			1,329,372
Accrued interest receivable		4,001			3,693			7,074			6,396
Federal Home Loan Bank stock		2,395			3,132
FHLB stock								2,865			3,766
Premises and equipment, net		12,625			12,959			19,084			19,358
Deferred tax asset, net		2,832			4,770			4,403			4,132
Foreclosed real estate		-			977
Bank-owned life insurance		23,473			23,179			36,513			36,322
Goodwill		6,106			6,106			6,106			6,106
Other intangible assets		495			559			77			89
Other assets		5,755			5,509			24,816			18,064
Total assets	$	1,443,268		$	1,426,458		$	1,940,569		$	1,989,132
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits	$	963,495		$	952,109		$	1,365,631		$	1,380,953
Non-interest bearing deposits		150,834			136,352			227,635			245,297
Total deposits		1,114,329			1,088,461			1,593,266			1,626,250
Mortgage escrow funds		8,229			8,084			7,302			11,173
Advances from Federal Home Loan Bank		30,720			42,598
Advances from FHLB								28,288			48,323
Other liabilities		7,579			7,469			30,576			26,224
Total liabilities		1,160,857			1,146,612			1,659,432			1,711,970
Commitments and contingencies		-			-			-			-
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of December 31, 2017 and June 30, 2017)		-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,165,110 shares issued and outstanding as of December 31, 2017 and June 30, 2017)		182			182
Shareholders' equity:
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2022 and June 30, 2022)								-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,703,577 shares issued as of both September 30, 2022 and June 30, 2022, and 15,334,323 and 15,334,857 shares outstanding as of September 30, 2022 and June 30, 2022, respectively)								187			187
Additional paid in capital		178,556			177,993			194,935			193,893
Retained earnings		122,906			121,148			166,033			162,262
Unallocated common stock of Employee Stock Ownership Plan ("ESOP")		(13,563	)		(14,262	)
Unearned compensation - ESOP								(8,963	)		(9,208	)
Accumulated other comprehensive loss, net of income taxes		(5,670	)		(5,215	)		(9,702	)		(8,629	)
Treasury stock, at cost (3,369,254 and 3,368,720 shares as of September 30, 2022 and June 30, 2022, respectively)								(61,353	)		(61,343	)
Total shareholders' equity		282,411			279,846			281,137			277,162
Total liabilities and shareholders' equity	$	1,443,268		$	1,426,458		$	1,940,569		$	1,989,132

	Six Months Ended December 31,
	2017			2016

OPERATING ACTIVITIES
Net income	$	1,758		$	3,128
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan loss		335			588
Depreciation and amortization		760			705
Amortization of net premiums on securities and net deferred loan origination costs		941			607
Net (increase) decrease in accrued interest receivable		(308	)		65
Net loss (gain) on sale of foreclosed real estate		21			(30	)
Net gains on sales of securities		(173	)		-
ESOP Compensation		1,279			-
Earnings from cash surrender value of BOLI		(294	)		(328	)
Net accretion of purchase account adjustments		(361	)		(438	)
Other adjustments, principally net changes in other assets and liabilities		2,416			(3,106	)
Net cash provided by operating activities		6,374			1,191
INVESTING ACTIVITIES
Purchases of investment securities:
Held to maturity		(27,463	)		(52,229	)
Available for sale		(15,651	)		(9,073	)
Sales of investment securities available for sale		6,100			-
Maturities and calls of investment securities:
Held to maturity		43,060			50,043
Available for sale		17,603			24,816
Principal repayments net of disbursement for loan originations		17,792			19,715
Purchase of loans		(46,657	)		(6,041	)
Net redemption of FHLB stock		737			723
Purchase of bank premises and equipment		(362	)		(1,431	)
Proceeds from sale of foreclosed real estate		956			254
Net cash (used in) provided by investing activities		(3,885	)		26,777
FINANCING ACTIVITIES
Net increase (decrease) in deposits		25,881			(4,874	)
Net decrease in short-term FHLB advances		(11,818	)		-
Repayment of long-term FHLB advances		(60	)		(16,059	)
Net increase (decrease) in mortgage escrow funds		145			(286	)
Issuance of common stock		(17	)		-
Net cash provided by (used in) financing activities		14,131			(21,219	)
Net increase in cash and cash equivalents		16,620			6,749
Cash and cash equivalents:
Cash and cash equivalents at beginning of period		60,486			41,578
Cash and cash equivalents at end of period	$	77,106		$	48,327


	Three Months Ended
	September 30,
	2022			2021
OPERATING ACTIVITIES
Net income	$	4,776		$	3,614
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		82			13
Depreciation and amortization		749			738
Amortization of net premiums on securities and net deferred loan origination costs		237			20
Net increase in accrued interest receivable		(678	)		(152	)
Stock-based compensation		820			810
ESOP compensation		467			446
Earnings from cash surrender value of BOLI		(191	)		(192	)
Net accretion of purchase accounting adjustments		(19	)		(35	)
Other adjustments, principally net changes in other assets and liabilities		(2,224	)		(1,080	)
Net cash provided by operating activities		4,019			4,182
INVESTING ACTIVITIES
Purchases of investment securities held to maturity		(1,500	)		(75,504	)
Maturities, calls and amortization of investment securities:
Held to maturity		7,579			24,415
Available for sale		641			12,134
Loan (originations) repayments, net		(20,975	)		19,021
Net redemption of FHLB stock		901			1
Net purchase of bank premises and equipment		(464	)		(159	)
Net cash used in investing activities		(13,818	)		(20,092	)
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(32,984	)		12,955
Repayment of long-term FHLB advances		(20,035	)		(33	)
Net decrease in mortgage escrow funds		(3,871	)		(3,708	)
Common stock dividends paid		(1,005	)		(876	)
Repurchase of shares from employees for income tax withholding purpose		(10	)		(1	)
Repurchase of common stock		-			(3,720	)
Net cash (used in) provided by financing activities		(57,905	)		4,617
Net decrease in cash and cash equivalents		(67,704	)		(11,293	)
Cash and cash equivalents at beginning of period		118,457			159,305
Cash and cash equivalents at end of period	$	50,753		$	148,012

Supplemental information:
Cash paid for:
Interest	$	1,940		$	1,694
Income taxes		1,160			917


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	23
	Consolidated Balance Sheets	23
	Consolidated Statements of Operations	34
	Consolidated Statements of Comprehensive Income	45
	Consolidated Statements of Changes in Shareholders’ Equity	56
	Consolidated Statements of Cash Flows	67
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3128
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3637
Item 4.	Controls and Procedures	4137
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4237
Item 1A.	Risk Factors	4238
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4238
Item 3.	Defaults Upon Senior Securities	4238
Item 4.	Mine Safety Disclosures	4238
Item 5.	Other Information	4238
Item 6.	Exhibits	4338
Signatures		4439

													Accumulated
					Additional					Unallocated			Other
	Number of		Common		Paid-In			Retained		Common Stock			Comprehensive			Total
	Shares		Stock		Capital			Earnings		of ESOP			Loss			Equity
Balance at July 1, 2017		18,165,110	$	182	$	177,993		$	121,148	$	(14,262	)	$	(5,215	)	$	279,846
Net Income		-		-		-			1,758		-			-			1,758
Other comprehensive loss		-		-		-			-		-			(455	)		(455	)
Issuance of common stock⁽¹⁾		-		-		(17	)		-		-			-			(17	)
ESOP shares committed to be released (69,906 shares)		-		-		580			-		699			-			1,279
Balance at December 31, 2017		18,165,110	$	182	$	178,556		$	122,906	$	(13,563	)	$	(5,670	)	$	282,411

Balance at July 1, 2016		-	$	-	$	-		$	117,919	$	-		$	(7,970	)	$	109,949
Net Income		-		-		-			3,128		-			-			3,128
Other comprehensive loss		-		-		-			-		-			(320	)		(320	)
Balance at December 31, 2016		-	$	-	$	-		$	121,047	$	-		$	(8,290	)	$	112,757


(1) Represents costs incurred in connection with the Company's initial public offering completed in the prior period.

	Three Months Ended December 31, 2017
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	407	$	(5	)	$	-		$	-	$	402
Commercial		2,709		(23	)		-			-		2,686
Construction		1,160		237			(997	)		-		400
Commercial loans		345		(23	)		-			-		322
Other loans secured		404		(15	)		-			-		389
Home equity lines of credit		77		(3	)		-			-		74
Consumer and installment loans		140		(7	)		-			-		133
Acquired:
Residential		26		39			-			-		65
Total	$	5,268	$	200		$	(997	)	$	-	$	4,471

	Three Months Ended December 31, 2016
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	238	$	-		$	-		$	-	$	238
Commercial		2,121		909			-			1		3,031
Construction		302		34			-			-		336
Commercial loans		559		(458	)		-			400		501
Other loans secured		361		(22	)		-			-		339
Home equity lines of credit		70		-			-			-		70
Consumer and installment loans		414		97			(398	)		-		113
Acquired:
Commercial loans		-		2			(2	)		-		-
Total	$	4,065	$	562		$	(400	)	$	401	$	4,628

	Six Months Ended December 31, 2017
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	360	$	59		$	(17	)	$	-	$	402
Commercial		2,589		97			-			-		2,686
Construction		1,150		247			(997	)		-		400
Commercial loans		440		(118	)		-			-		322
Other loans secured		365		24			-			-		389
Home equity lines of credit		76		(2	)		-			-		74
Consumer and installment loans		144		(11	)		-			-		133
Acquired:
Residential		26		39			-			-		65
Total	$	5,150	$	335		$	(1,014	)	$	-	$	4,471

	Six Months Ended December 31, 2016
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	237	$	(69	)	$	-		$	70	$	238
Commercial		2,149		863			-			19		3,031
Construction		269		67			-			-		336
Commercial loans		604		(676	)		-			573		501
Other loans secured		397		168			(324	)		98		339
Home equity lines of credit		73		(3	)		-			-		70
Consumer and installment loans		313		198			(398	)		-		113
Acquired:												-
Residential		-		38			(38	)		-		-
Commercial loans		-		2			(2	)		-		-
Total	$	4,042	$	588		$	(762	)	$	760	$	4,628

					Loans Past Due Over 90 Days
	Nonaccrual				and Still Accruing
	December 31,		June 30,		December 31,		June 30,
	2017		2017		2017		2017
Originated:
Residential	$	1,772	$	2,581	$	-	$	-
Commercial		258		-		-		-
Construction		2,260		3,661		-		-
Commercial loans		275		-		-		-
Other loans secured		1,368		2,959		-		-
Home equity lines of credit		100		302		-		-
Acquired:
Residential		1,281		1,776		-		-
Commercial		508		497		-		-
Home equity lines of credit		369		296		-		-
Total	$	8,191	$	12,072	$	-	$	-

	December 31, 2017		June 30, 2017
Allocated		96,881		-
Committed to be allocated		-		26,975
Unallocated		1,356,328		1,426,234
Total shares		1,453,209		1,453,209


	September 30, 2022		June 30, 2022
Allocated to participants		541,097		518,371
Unearned		896,348		920,767
Total ESOP shares		1,437,445		1,439,138

Fair value of unearned shares	$	16,072	$	17,577

	Three months ended December 31, 2017		Six months ended December 31, 2017
	(amounts in thousands, except share and per share data)

Net income applicable to common stock	$	2	$	1,758

Average number of common shares outstanding		18,165,110		18,165,110
Less: Average unallocated ESOP shares		1,373,805		1,391,227
Average number of common shares outstanding used to calculate basic earnings per common share		16,791,305		16,773,883

Earnings per Common share:
Basic	$	0.00	$	0.10
Diluted	$	0.00	$	0.10