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Section 1: 11-K (PCSB FINANCIAL CORPORATION FORM 11-K DECEMBER 31, 2019)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 11-K

FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2019

OR

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

For the transition period from _______________ to _______________

Commission File Number 001-38065

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

PCSB Bank 401(k) Savings Plan

B: Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

PCSB Financial Corporation
2651 Strang Boulevard, Suite 100
Yorktown Heights, New York 10598







PCSB BANK 401(k) SAVINGS PLAN
 
CONTENTS
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1
   
FINANCIAL STATEMENTS
 
   
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
3
   
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
4
   
NOTES TO FINANCIAL STATEMENTS
5
   
SUPPLEMENTAL SCHEDULE
 
   
SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
11
   
EXHIBITS
   
SIGNATURE PAGE
12
 
CONSENT
 
13




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Plan Participants and Plan Administrator of PCSB Bank 401(k) Savings Plan
Yorktown Heights, New York


Opinion on the Financial Statements

We have audited the accompanying statements of net assets available for benefits of PCSB Bank 401(k) Savings Plan (the "Plan") as of December 31, 2019 and 2018, the related statement of changes in net assets available for benefits for the year ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2019 and 2018, and the changes in net assets available for benefits for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting.  Accordingly, we express no such opinion.

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

1

Supplemental Information

The supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2019 has been subjected to audit procedures performed in conjunction with the audit of PCSB Bank 401(k) Savings Plan’s financial statements.  The supplemental schedule is the responsibility of the Plan’s management.  Our audit procedures included determining whether the information presented in the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule.  In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  In our opinion, the supplemental schedule is fairly stated in all material respects in relation to the financial statements as a whole.





/s/ Crowe LLP


We have served as the Plan's auditor since 2011.

New York, New York
June 29, 2020

2

PCSB BANK 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2019 and 2018


 
December 31,
 
 
2019
   
2018
 
ASSETS
             
Investments, at fair value
$
20,164,137
   
$
19,331,810
 
Cash
 
2,761
     
3,231
 
   
20,166,898
     
19,335,041
 
Receivables:
             
Notes receivable from participants
 
543,096
     
549,282
 
Total receivables
 
543,096
     
549,282
 
               
Total assets
 
20,709,994
     
19,884,323
 
               
Due to broker
 
6,839
     
6,403
 
               
Net assets available for benefits
$
20,703,155
   
$
19,877,920
 

See accompanying notes to financial statements.


3

PCSB BANK 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2019


Investment income:
     
Interest and dividends
$
420,207
 
Net appreciation in fair value of investments
 
2,330,028
 
Total investment income
 
2,750,235
 
       
Interest income on notes receivable from participants
 
27,564
 
       
Participant contributions
 
685,505
 
Participant rollover contributions
 
61,243
 
Total contributions
 
746,748
 
Benefits paid to participants
 
(2,665,393
)
Administrative expenses
 
(33,919
)
Net increase
 
825,235
 
       
Net assets available for benefits:
     
Beginning of year
 
19,877,920
 
End of year
$
20,703,155
 



See accompanying notes to financial statements.
4

PCSB BANK 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018

NOTE 1 - DESCRIPTION OF THE PLAN

The following description of the PCSB Bank 401(k) Savings Plan (the “Plan”) provides only general information. Participants should refer to the Plan Document for a more complete description of the Plan’s provisions.

General: The Plan is a participant-directed 401(k) plan covering all full-time salaried employees of the plan sponsor, PCSB Bank (the "Bank”, “Employer” or “Sponsor”), who have completed one month of service and have attained age 21. Effective September 1, 2019, the Plan includes an automatic salary deferral feature for newly hired employees, where 3% of the employee’s pre-tax compensation is contributed to the Plan in a default investment. Employees may, at their sole discretion, amend or eliminate the amount of contribution or amend the investment(s) in which the contribution is made. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). PCSB Bank is the wholly-owned subsidiary of PCSB Financial Corporation (the “Company”), a publicly-traded company.

Contributions: Each year, participants may elect to contribute from 1% to 25% of their pretax compensation, as defined, up to limits prescribed by the Internal Revenue Service. The Bank may also make additional contributions at its discretion. There were no discretionary contributions made in 2019.

Rollovers: The Plan permits rollover contributions by an employee of the Bank, whether or not a participant. Rollover contributions are contributions to the Plan of funds received by an employee from another qualified plan or transferred directly to the Plan from another qualified plan. Rollover contributions are credited to a rollover contribution account in the name of the employee, are invested as directed by the employee and are credited with any investment earnings or losses thereon.

Forfeitures: At December 31, 2019 and 2018, forfeited nonvested accounts were $0 and $62, respectively. Forfeitures are used by the Bank to offset any fees.

Payment of Benefits: Upon normal or early retirement, death, disability or severance from service, if elected, participants' benefits are paid in a lump sum payment or distributed in installments from the participants' vested account balance. Additionally, a participant who is no longer employed by the Bank for reasons other than retirement or disability and whose vested balance is $1,000 or less will have their vested balance paid in the form of a single cash payment as soon as administratively possible after termination, while those participants whose vested balance is greater than $1,000 have the option of leaving their balance in the Plan.

Participant Accounts: Each participant’s account is credited with the participant’s contributions and an allocation of (a) the Bank’s contributions, and (b) Plan earnings, and is charged with his or her withdrawals, an allocation of administrative expenses and Plan losses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. Each participant directs the investment of his or her account to any of the investment options available under the Plan.

5

PCSB BANK 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018

Vesting: A participant has, at all times, a vested and nonforfeitable right to the entire balance in his or her employee contribution and rollover accounts. Each participant attains a vested and nonforfeitable right in the Bank's matching, including the 5% of compensation on behalf of each eligible employee whose employment with the Bank commences on or after October 1, 2012, and discretionary contributions according to the following schedule:

Years of Service
Vested Percentage
Less than 2 years
0%
2 years
20%
3 years
40%
4 years
60%
5 years
80%
6 years or more
100%

Notes Receivable from Participants: Participants may borrow from their vested account balances. The minimum loan amount is $1,000 and the maximum amount is equal to the lesser of: (i) $50,000, or (ii) 50% of the vested account balance. All loans are made for a fixed term of not more than 5 years except for the purchase of a primary residence which may have a term not exceeding 15 years. Loans are collateralized by the balance in the participant's vested account and bear interest at the prime rate rounded to the nearest 0.25% plus 1%. The prime rate for this purpose is the rate published in the Wall Street Journal on the first business day of the month in which the loan is made. Interest rates charged on participant loans issued were between 5.75% and 6.50% for the year ending December 31, 2019 and between 5.50% and 6.25% for the year ending December 31, 2018.

Administrative and Investment Management Expenses: Loan origination fees associated with notes receivable from participants and the Plan’s record keeping and trustee fees are paid by the Plan and are reflected in the financial statements as administrative expenses of the Plan. Investment management fees are charged to the Plan as a reduction of investment return and included in the investment income (loss) reported by the Plan. All other expenses of the Plan are paid by the Bank.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting: The financial statements of the Plan are prepared on the accrual basis of accounting.

Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures, and actual results may differ from these estimates.

Risks and Uncertainties: The Plan holds investments in mutual funds, collective trust funds and the Sponsor’s stock whose values are exposed to various risks such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with such investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the statements of net assets available for benefits.

Notes Receivable from Participants: Notes receivable from participants are reported at their unpaid principal balance plus any accrued but unpaid interest, with no allowance for credit losses, as repayments of principal and interest are received through payroll deductions and the notes are collateralized by the participants’ account balances.

Benefit Payments: Benefit payments are recorded when paid.

6

PCSB BANK 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018


Investment Valuation and Income Recognition: The Plan’s investments are reported at fair value as further described in Note 3. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.


NOTE 3 - FAIR VALUE MEASUREMENTS

Fair value is the price that would be received by the Plan for an asset or liability in an orderly transaction between market participants on the measurement date in the Plan’s principal or most advantageous market for the asset or liability. Fair value measurements are determined by maximizing the use of observable inputs and minimizing the use of unobservable inputs. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurements) and gives the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Plan 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 the Plan’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

In some cases, a valuation technique used to measure fair value may include inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The following descriptions of the valuation methods and assumptions used by the Plan to estimate the fair values of investments apply to investments held directly by the Plan.

Mutual Funds: The fair values of mutual fund investments are based upon the closing net asset value per share of the mutual fund on the day of the valuation as reflected on a national securities exchange (Level 1 inputs).

Collective Trusts: The fair values of participation units held in collective trusts are based on the net asset values per unit as reported by the fund managers. The collective trusts provide for daily redemptions by the Plan at reported net asset values per share, with no advance notice requirement. The MetLife Stable Value Fund (held as of December 31, 2019) has no withdrawal restrictions for participant-initiated or plan sponsor withdrawals. The Wells Fargo Stable Value Fund J (held as of December 31, 2018 and subsequently liquidated) has no withdrawal restrictions for participant-initiated withdrawals but does require a 12-month advance notice for plan sponsor initiated withdrawals.

Company Stock:  The fair value of Company stock is based on the closing price of the investment on the Nasdaq Global Market exchange (Level 1 inputs). The Company’s shares of common stock are traded on the NASDAQ Capital Market under the symbol “PCSB”. This investment was added to the Plan in 2018 to replace the Company Stock Unitized Fund.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

7

PCSB BANK 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018


Investments measured at fair value on a recurring basis are summarized below:


           
Fair Value Measurements Using
 
           
Quoted Prices
   
Significant
         
           
In Active
   
Other
   
Significant
 
           
Markets for
   
Observable
   
Unobservable
 
   
Carrying
   
Identical Assets
   
Inputs
   
Inputs
 
   
Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
December 31, 2019
                               
Mutual funds
 
$
12,143,576
   
$
12,143,576
   
$
   
$
 
Collective trusts(1)
   
1,199,126
     
     
     
 
Company stock
   
6,821,435
     
6,821,435
     
     
 
Total
 
$
20,164,137
   
$
18,965,011
   
$
   
$
 
                                 
December 31, 2018
                               
Mutual funds
 
$
8,671,189
   
$
8,671,189
   
$
   
$
 
Collective trusts(1)
   
3,500,018
     
     
     
 
Company stock
   
7,160,603
     
7,160,603
     
     
 
Total
 
$
19,331,810
   
$
15,831,792
   
$
   
$
 

(1)
Investments measured at fair value using net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy.  The fair value amounts presented in this table for such investments are intended to permit reconciliation of the fair value hierarchy to the investments at fair value line item presented in the statement of net assets available for benefits.


NOTE 4 – PARTY-IN-INTEREST TRANSACTIONS

Parties-in-interest are defined under DOL regulations as any fiduciary of the Plan, any party rendering service to the Plan, the Employer, and certain others. As of December 31, 2019, certain Plan investments were shares of MetLife Stable Value Fund Series 25053 that is a collective investment fund. Reliance Trust Company, who is custodian for the Plan, is also the trustee and custodian for the fund. Pentegra Retirement Services, Inc., the record keeper of the Plan, provides investment sub-advisory services for the fund. Transactions in the fund qualify as party-in-interest transactions. Notes receivable from participants are also considered party-in-interest transactions. Fees for accounting and other administrative services are paid for by the Bank. Direct and indirect fees paid for by the Plan are considered party-in-interest transactions.  As of December 31, 2019, the Plan held 336,861 shares of Company stock with a value of $6.8 million and received approximately $51,000 in dividends from the Company stock during the year.  Transactions within the Company stock are considered related party transactions.


NOTE 5 - PLAN TERMINATION

Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, Participants will become 100% vested in their non-vested Bank matching and discretionary contributions.


NOTE 6 - TAX STATUS

The Internal Revenue Service issued an opinion letter dated March 31, 2014 indicating that the prototype adopted by the Plan, as then designed, was in compliance with applicable requirements of the Internal Revenue Code (“IRC”).  The Plan has subsequently been amended. However, the plan administrator

8

PCSB BANK 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2019 and 2018

believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.

U.S. GAAP requires plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2019 and 2018, there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2016.


NOTE 7 – SUBSEQUENT EVENTS

The COVID-19 pandemic has created extensive disruptions to the global and U.S. economies and to the lives of individuals throughout the world. While the scope, duration, and full effects of COVID-19 continue to evolve and are not fully known, the pandemic and the efforts to contain it have disrupted global economic activity. Increased economic and market uncertainty have adversely affected the functioning of financial markets, impacted market interest rates, and resulted in significant volatility to the value of investment securities.  The extent of the impact of the COVID-19 pandemic on the Plan’s investments and the amounts reported in the 2019 statement of net assets cannot be predicted at this time.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law. The CARES Act contains several provisions that temporarily impact 401(k) plans, such as the waiver of required minimum distributions, a new hardship withdrawal option, increased loan limits, and a loan payment pause option. The Company will incorporate these provisions into the Plan within the timeframe specified in the Act.

9


















SUPPLEMENTAL SCHEDULE

10

PCSB BANK 401(k) SAVINGS PLAN
SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2019

 Plan Sponsor:
   PCSB Bank            
 Employer Identification Number: 
   14-0984880            
  Plan Number:
   002            
                     
       
(c)
           
       
Description of Investment
           
   
(b)
 
Including Maturity Date
           
   
Identity of Issue, Borrower,
 
Rate of Interest, Collateral,
 
(d)
 
(e)
 
(a)
 
Lessor, or Similar Party
 
Par or Maturity Value
 
Cost
 
Current Value
 
                     
Collective Trusts:
           
*
 
 Reliance
 
MetLife Stable Value Fund Series 25053
 
#
 
$
1,199,126
 
                 
1,199,126
 
                     
Mutual Funds:
           
   
 American Beacon
 
Large Cap Value Fund Institutional
 
#
   
1,537,956
 
   
 Vanguard
 
500 Index Admiral
 
#
   
1,019,097
 
   
 Dimensional Fund Advisors
 
DFA U.S. Small Cap Portfolio
 
#
   
1,581,934
 
   
 American Funds
 
Europacific Growth Fund R6
 
#
   
399,232
 
   
 Vanguard
 
Vanguard Total Bond Market Admiral
 
#
   
1,235,412
 
   
 Vanguard
 
Vanguard Target Retirement 2015 Fund
 
#
   
1,190,453
 
   
 Vanguard
 
Vanguard Target Retirement 2025 Fund
 
#
   
154,519
 
   
 Vanguard
 
Vanguard Target Retirement 2035 Fund
 
#
   
48,372
 
   
 Vanguard
 
Vanguard Target Retirement 2020 Fund
 
#
   
305,215
 
   
 Vanguard
 
Vanguard Target Retirement 2055 Fund
 
#
   
6,060
 
   
 Vanguard
 
Vanguard Target Retirement Income Fund
 
#
   
818,543
 
   
 Vanguard
 
Vanguard Mid Cap Index Admiral
 
#
   
848,904
 
   
 T. Rowe Price
 
T. Rowe Price Blue Chip Growth
 
#
   
2,993,669
 
   
 Federated
 
Government Obligations Institutional
 
#
   
4,210
 
                 
12,143,576
 
                     
Company Stock:
           
*
 
 PCSB Financial Corporation
 
Common Stock
 
#
   
6,821,435
 
                     
Notes Receivable from Participants:
           
*
 
 Participant loans
 
Interest rates from 4.25% to 6.50%, maturity dates from January 24, 2020 to April 1, 2044
 
#
   
543,096
 
                     
               
$
20,707,233
 




* Denotes party-in-interest.
# Investment is participant directed, therefore historical cost is not required.
11



SIGNATURES


The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.


   
PCSB BANK 401(k) SAVINGS PLAN
     
     
     
     
Date: June 29, 2020
By:  
 /s/ Ruth Leser
   
Ruth Leser
   
Senior Vice President/Director of Human Resources


12

EXHIBIT INDEX

Exhibit Number
Description
23.1




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Section 2: EX-23.1 (CONSENT OF CROWE LLP)

EXHIBIT 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



We consent to the incorporation by reference in Registration Statement No. 333-217399 on Form S-8 of PCSB Financial Corporation of our report dated June 29, 2020 appearing in this Annual Report on Form 11-K of PCSB Bank 401(k) Savings Plan for the year ended December 31, 2019.





/s/ Crowe LLP
Crowe LLP

New York, New York
June 29, 2020
13
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