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Section 1: 10-Q (10-Q 12312018)

pcsb-10q_20181231.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended December 31, 2018

OR

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

For the transition period from _____ to _____

Commission File Number: 001-38065

 

PCSB Financial Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

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)

Registrant’s telephone number, including area code: (914) 248-7272

N/A

(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 every Interactive Data File required to be submitted 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 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.

 

Large accelerated filer

 

 

  

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

  

Small reporting company

 

 

 

 

 

 

 

 

 

  

  

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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  

17,804,039 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of February 6, 2019.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Statements of Changes in Shareholders’ Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

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

35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 3.

Defaults Upon Senior Securities

47

Item 4.

Mine Safety Disclosures

47

Item 5.

Other Information

47

Item 6.

Exhibits

48

Signatures

49

 

 

 

1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

(amounts in thousands, except share data)

 

 

 

December 31,

 

 

June 30,

 

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

141,569

 

 

$

60,684

 

Federal funds sold

 

 

1,550

 

 

 

1,461

 

Total cash and cash equivalents

 

 

143,119

 

 

 

62,145

 

Held to maturity debt securities, at amortized cost (fair value of

   $351,701 and $343,188, respectively)

 

 

359,777

 

 

 

353,183

 

Available for sale debt securities, at fair value

 

 

92,686

 

 

 

105,472

 

Total investment securities

 

 

452,463

 

 

 

458,655

 

Loans receivable, net of allowance for loan losses of $4,943 and

   $4,904, respectively

 

 

904,377

 

 

 

902,336

 

Accrued interest receivable

 

 

4,457

 

 

 

4,358

 

Federal Home Loan Bank stock

 

 

2,385

 

 

 

2,050

 

Premises and equipment, net

 

 

11,429

 

 

 

11,598

 

Deferred tax asset, net

 

 

2,436

 

 

 

2,622

 

Foreclosed real estate

 

 

572

 

 

 

460

 

Bank-owned life insurance

 

 

24,026

 

 

 

23,747

 

Goodwill

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

376

 

 

 

433

 

Other assets

 

 

5,569

 

 

 

5,677

 

Total assets

 

$

1,557,315

 

 

$

1,480,187

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,063,211

 

 

$

1,025,574

 

Non-interest bearing deposits

 

 

162,113

 

 

 

131,883

 

Total deposits

 

 

1,225,324

 

 

 

1,157,457

 

Mortgage escrow funds

 

 

9,085

 

 

 

8,803

 

Advances from Federal Home Loan Bank

 

 

26,279

 

 

 

18,841

 

Other liabilities

 

 

7,845

 

 

 

7,527

 

Total liabilities

 

 

1,268,533

 

 

 

1,192,628

 

Commitments and contingencies

 

 

-

 

 

 

-

 

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

   issued or outstanding as of December 31, 2018 and June 30, 2018)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295 and 18,165,110 shares issued, and 18,490,225 and 18,165,110 shares outstanding as of December 31, 2018 and June 30, 2018)

 

 

187

 

 

 

182

 

Additional paid in capital

 

 

180,003

 

 

 

179,045

 

Retained earnings

 

 

131,993

 

 

 

128,365

 

Unearned compensation - ESOP

 

 

(12,594

)

 

 

(13,083

)

Accumulated other comprehensive loss, net of income taxes

 

 

(6,471

)

 

 

(6,950

)

Treasury stock, at cost (222,070 shares as of December 31, 2018 and no

shares as of June 30, 2018)

 

 

(4,336

)

 

 

-

 

Total shareholders' equity

 

 

288,782

 

 

 

287,559

 

Total liabilities and shareholders' equity

 

$

1,557,315

 

 

$

1,480,187

 

 

See accompanying notes to the consolidated financial statements (unaudited)

2


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

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

 

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

10,321

 

 

$

9,171

 

 

$

20,219

 

 

$

17,989

 

Investment securities

 

 

2,428

 

 

 

2,269

 

 

 

4,794

 

 

 

4,514

 

Federal funds and other

 

 

491

 

 

 

217

 

 

 

836

 

 

 

451

 

Total interest and dividend income

 

 

13,240

 

 

 

11,657

 

 

 

25,849

 

 

 

22,954

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,375

 

 

 

1,307

 

 

 

4,431

 

 

 

2,574

 

FHLB advances

 

 

121

 

 

 

164

 

 

 

210

 

 

 

318

 

Total interest expense

 

 

2,496

 

 

 

1,471

 

 

 

4,641

 

 

 

2,892

 

Net interest income

 

 

10,744

 

 

 

10,186

 

 

 

21,208

 

 

 

20,062

 

Provision for loan losses

 

 

6

 

 

 

200

 

 

 

64

 

 

 

335

 

Net interest income after provision for loan losses

 

 

10,738

 

 

 

9,986

 

 

 

21,144

 

 

 

19,727

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

457

 

 

 

412

 

 

 

875

 

 

 

793

 

Bank-owned life insurance

 

 

139

 

 

 

145

 

 

 

279

 

 

 

294

 

Gain on sale of securities, net

 

 

55

 

 

 

-

 

 

 

55

 

 

 

173

 

Other

 

 

269

 

 

 

135

 

 

 

352

 

 

 

146

 

Total noninterest income

 

 

920

 

 

 

692

 

 

 

1,561

 

 

 

1,406

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

5,444

 

 

 

4,870

 

 

 

10,584

 

 

 

9,730

 

Occupancy and equipment

 

 

1,284

 

 

 

1,296

 

 

 

2,525

 

 

 

2,578

 

Communicating and data processing

 

 

482

 

 

 

479

 

 

 

954

 

 

 

970

 

Professional fees

 

 

417

 

 

 

379

 

 

 

786

 

 

 

792

 

Postage, printing, stationary and supplies

 

 

178

 

 

 

142

 

 

 

316

 

 

 

274

 

FDIC assessment

 

 

124

 

 

 

64

 

 

 

217

 

 

 

142

 

Advertising

 

 

131

 

 

 

179

 

 

 

218

 

 

 

344

 

Amortization of intangible assets

 

 

28

 

 

 

33

 

 

 

56

 

 

 

65

 

Other operating expenses

 

 

492

 

 

 

683

 

 

 

932

 

 

 

1,124

 

Total noninterest expense

 

 

8,580

 

 

 

8,125

 

 

 

16,588

 

 

 

16,019

 

Net income before income tax expense

 

 

3,078

 

 

 

2,553

 

 

 

6,117

 

 

 

5,114

 

Income tax expense

 

 

754

 

 

 

2,551

 

 

 

1,464

 

 

 

3,356

 

Net income

 

$

2,324

 

 

$

2

 

 

$

4,653

 

 

$

1,758

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

Diluted

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

16,852,718

 

 

 

16,791,305

 

 

 

16,860,942

 

 

 

16,773,883

 

Diluted

 

 

16,868,464

 

 

 

16,791,305

 

 

 

16,868,815

 

 

 

16,773,883

 

 

See accompanying notes to the consolidated financial statements (unaudited)

3


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(amounts in thousands)

 

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

2,324

 

 

$

2

 

 

$

4,653

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains/losses before reclassification adjustment

 

 

506

 

 

 

(717

)

 

 

353

 

 

 

(930

)

Reclassification adjustment for gains realized in net income

 

 

(55

)

 

 

-

 

 

 

(55

)

 

 

(139

)

Net change in unrealized gains/losses

 

 

451

 

 

 

(717

)

 

 

298

 

 

 

(1,069

)

Tax effect

 

 

(94

)

 

 

243

 

 

 

(62

)

 

 

363

 

Net of tax

 

 

357

 

 

 

(474

)

 

 

236

 

 

 

(706

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) arising during the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

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

 

 

145

 

 

 

181

 

 

 

290

 

 

 

362

 

Tax effect

 

 

(31

)

 

 

(61

)

 

 

(61

)

 

 

(123

)

Net of tax

 

 

114

 

 

 

120

 

 

 

229

 

 

 

239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

9

 

 

 

8

 

 

 

18

 

 

 

16

 

Tax effect

 

 

(2

)

 

 

(2

)

 

 

(4

)

 

 

(4

)

Net of tax

 

 

7

 

 

 

6

 

 

 

14

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

478

 

 

 

(348

)

 

 

479

 

 

 

(455

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

2,802

 

 

$

(346

)

 

$

5,132

 

 

$

1,303

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

4


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

(amounts in thousands, except share data)

 

 

Number of Shares

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Retained Earnings

 

 

Unallocated Common Stock of ESOP

 

 

Treasury Stock, at cost

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Equity

 

Balance at July 1, 2018

 

18,165,110

 

 

$

182

 

 

$

179,045

 

 

$

128,365

 

 

$

(13,083

)

 

$

-

 

 

$

(6,950

)

 

$

287,559

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

4,653

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,653

 

Other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

479

 

 

 

479

 

Common stock dividends declared (1)

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,025

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,025

)

Repurchase of common stock

 

(222,070

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,336

)

 

 

-

 

 

 

(4,336

)

Restricted stock awards granted

 

547,185

 

 

 

5

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

482

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

482

 

ESOP shares committed to be released (48,838 shares)

 

-

 

 

 

-

 

 

 

481

 

 

 

-

 

 

 

489

 

 

 

-

 

 

 

-

 

 

 

970

 

Balance at December 31, 2018

 

18,490,225

 

 

$

187

 

 

$

180,003

 

 

$

131,993

 

 

$

(12,594

)

 

$

(4,336

)

 

$

(6,471

)

 

$

288,782

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (2)

 

-

 

 

 

-

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Dividends declared were $0.03 and $0.06 per common share for the three and six months ended December 31, 2018, respectively.

 

(2) Represents costs incurred in association with the Company's initial public offering.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

5


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(amounts in thousands)

 

 

 

Six Months Ended December 31,

 

 

 

2018

 

 

2017

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

4,653

 

 

$

1,758

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

64

 

 

 

335

 

Depreciation and amortization

 

 

591

 

 

 

760

 

Amortization of net premiums on securities and net deferred loan

   origination costs

 

 

744

 

 

 

941

 

Net increase in accrued interest receivable

 

 

(99

)

 

 

(308

)

Net loss (gain) on sale of foreclosed real estate

 

 

(24

)

 

 

21

 

Net gains on sales of securities

 

 

(55

)

 

 

(173

)

Net gains on sales of real estate

 

 

(156

)

 

 

-

 

Write-downs on other real estate owned

 

 

45

 

 

 

-

 

Stock-based compensation

 

 

482

 

 

 

-

 

ESOP Compensation

 

 

970

 

 

 

1,279

 

Earnings from cash surrender value of BOLI

 

 

(279

)

 

 

(294

)

Net accretion of purchase account adjustments

 

 

(188

)

 

 

(361

)

Other adjustments, principally net changes in other assets and liabilities

 

 

793

 

 

 

2,416

 

Net cash provided by operating activities

 

 

7,541

 

 

 

6,374

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

(42,226

)

 

 

(27,463

)

Available for sale

 

 

-

 

 

 

(15,651

)

Sales of investment securities available for sale

 

 

2,069

 

 

 

6,100

 

Maturities and calls of investment securities:

 

 

 

 

 

 

 

 

Held to maturity

 

 

35,346

 

 

 

43,060

 

Available for sale

 

 

10,943

 

 

 

17,603

 

Principal repayments (disbursement), net

 

 

(2,429

)

 

 

17,792

 

Purchase of loans

 

 

-

 

 

 

(46,657

)

Net (purchase) redemption of FHLB stock

 

 

(335

)

 

 

737

 

Purchases net of sales of bank premises and equipment

 

 

(209

)

 

 

(362

)

Proceeds from sale of foreclosed real estate

 

 

48

 

 

 

956

 

Net cash provided by (used in) investing activities

 

 

3,207

 

 

 

(3,885

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

67,867

 

 

 

25,881

 

Net decrease in short-term FHLB advances

 

 

-

 

 

 

(11,818

)

Proceeds from long-term FHLB advances

 

 

12,500

 

 

 

-

 

Repayment of long-term FHLB advances

 

 

(5,062

)

 

 

(60

)

Net increase in mortgage escrow funds

 

 

282

 

 

 

145

 

Common stock dividends paid

 

 

(1,025

)

 

 

-

 

Issuance of common stock

 

 

-

 

 

 

(17

)

Repurchase of common stock

 

 

(4,336

)

 

 

-

 

Net cash used in financing activities

 

 

70,226

 

 

 

14,131

 

Net increase in cash and cash equivalents

 

 

80,974

 

 

 

16,620

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

62,145

 

 

 

60,486

 

Cash and cash equivalents at end of period

 

$

143,119

 

 

$

77,106

 

 

See accompanying notes to the consolidated financial statements (unaudited)

6


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited) - (Continued)

(amounts in thousands)

 

 

 

Six Months Ended December 31,

 

 

 

2018

 

 

2017

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for:

 

&n