PCSB Financial Corp (Form: 10-Q, Received: 11/05/2021 16:32:44)

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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 September 30, 2021

☐	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)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

PCSB

The NASDAQ Stock Market, LLC

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 ☒

15,522,239 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of November 2, 2021.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
Signatures		41

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

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

	September 30,			June 30,
	2021			2021
ASSETS
Cash and due from banks	$	145,875		$	152,070
Federal funds sold		2,137			7,235
Total cash and cash equivalents		148,012			159,305
Investment securities:
Held to maturity debt securities, at amortized cost (fair value of $381,521 and $342,137, respectively)		378,510			337,584
Available for sale debt securities, at fair value		45,015			57,387
Total investment securities		423,525			394,971
Loans receivable, net of allowance for loan losses of $8,159 and $7,881, respectively		1,210,674			1,229,451
Accrued interest receivable		6,550			6,398
FHLB stock		4,506			4,507
Premises and equipment, net		20,536			21,099
Deferred tax asset, net		2,540			2,552
Bank-owned life insurance		35,760			35,568
Goodwill		6,106			6,106
Other intangible assets		135			151
Other assets		14,835			14,827
Total assets	$	1,873,179		$	1,874,935
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits	$	1,288,167		$	1,272,610
Non-interest bearing deposits		216,470			219,072
Total deposits		1,504,637			1,491,682
Mortgage escrow funds		6,828			10,536
Advances from FHLB		65,924			65,957
Other liabilities		21,062			32,200
Total liabilities		1,598,451			1,600,375
Commitments and contingencies		-			-
Shareholders' equity:
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2021 and June 30, 2021)		-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,703,577 shares issued as of both September 30, 2021 and June 30, 2021, and 15,574,310 and 15,770,645 shares outstanding as of September 30, 2021 and June 30, 2021, respectively)		187			187
Additional paid in capital		190,793			189,926
Retained earnings		153,725			150,987
Unearned compensation - ESOP		(9,932	)		(10,176	)
Accumulated other comprehensive loss, net of income taxes		(3,204	)		(3,099	)
Treasury stock, at cost (3,129,267 and 2,932,932 shares as of September 30, 2021 and June 30, 2021, respectively)		(56,841	)		(53,265	)
Total shareholders' equity		274,728			274,560
Total liabilities and shareholders' equity	$	1,873,179		$	1,874,935

See accompanying notes to the consolidated financial statements (unaudited)

PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

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

	Three Months Ended September 30,
	2021		2020
Interest and dividend income
Loans receivable	$	12,107	$	12,547
Investment securities		2,011		1,856
Federal funds and other		109		125
Total interest and dividend income		14,227		14,528
Interest expense
Deposits and escrow interest		1,354		2,432
FHLB advances		338		519
Total interest expense		1,692		2,951
Net interest income		12,535		11,577
Provision for loan losses		13		109
Net interest income after provision for loan losses		12,522		11,468
Noninterest income
Fees and service charges		401		322
Bank-owned life insurance		192		132
Swap income		-		129
Other		20		11
Total noninterest income		613		594
Noninterest expense
Salaries and employee benefits		5,773		5,607
Occupancy and equipment		1,353		1,318
Communication and data processing		527		576
Professional fees		393		400
Postage, printing, stationery and supplies		143		139
FDIC assessment		125		113
Advertising		100		100
Amortization of intangible assets		16		20
Other operating expenses		194		351
Total noninterest expense		8,624		8,624
Net income before income tax expense		4,511		3,438
Income tax expense		897		710
Net income	$	3,614	$	2,728
Earnings per common share:
Basic	$	0.25	$	0.18
Diluted	$	0.25	$	0.18
Weighted average common shares outstanding:
Basic		14,337,543		15,302,838
Diluted		14,405,816		15,302,949

See accompanying notes to the consolidated financial statements (unaudited)

PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(amounts in thousands)

	Three Months Ended September 30,
	2021			2020
Net income	$	3,614		$	2,728

Other comprehensive income:
Unrealized (losses) gains on available for sale debt securities:
Net change in unrealized gains/losses before reclassification adjustment		(187	)		(16	)
Reclassification adjustment for gains realized in net income		-			-
Net change in unrealized gains/losses		(187	)		(16	)
Tax effect		40			3
Net of tax		(147	)		(13	)

Defined benefit pension plan:
Net gain (loss) arising during the period		-			-
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost		38			240
Net change in unrealized gains/losses		38			240
Tax effect		(9	)		(51	)
Net of tax		29			189

Supplemental retirement plans:
Net gain (loss) arising during the period		-			-
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost		16			14
Net change in unrealized gains/losses		16			14
Tax effect		(3	)		(3	)
Net of tax		13			11

Total other comprehensive (loss) income		(105	)		187

Comprehensive income	$	3,509		$	2,915

See accompanying notes to the consolidated financial statements (unaudited)

PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

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

																		Accumulated
	Number of					Additional						Unallocated			Treasury			Other			Total
	Common			Common		Paid-In			Retained			Common Stock			Stock,			Comprehensive			Shareholders'
	Shares			Stock		Capital			Earnings			of ESOP			at cost			Loss			Equity
Balance at July 1, 2021		15,770,645		$	187	$	189,926		$	150,987		$	(10,176	)	$	(53,265	)	$	(3,099	)	$	274,560
Net income		-			-		-			3,614			-			-			-			3,614
Other comprehensive income		-			-		-			-			-			-			(105	)		(105	)
Common stock dividends declared ($0.06 per share)		-			-		-			(876	)		-			-			-			(876	)
Repurchase of common stock		(204,261	)		-		-			-			-			(3,720	)		-			(3,720	)
Restricted stock awards granted		8,000			-		(145	)		-			-			145			-			-
Shares withheld related to income tax withholding		(74	)		-		-			-			-			(1	)		-			(1	)
Stock-based compensation		-			-		810			-			-			-			-			810
ESOP shares committed to be released (24,419 shares)		-			-		202			-			244			-			-			446
Balance at September 30, 2021		15,574,310		$	187	$	190,793		$	153,725		$	(9,932	)	$	(56,841	)	$	(3,204	)	$	274,728


																		Accumulated
	Number of					Additional						Unallocated			Treasury			Other			Total
	Common			Common		Paid-In			Retained			Common Stock			Stock,			Comprehensive			Shareholders'
	Shares			Stock		Capital			Earnings			of ESOP			at cost			Loss			Equity
Balance at July 1, 2020		16,898,137		$	187	$	186,200		$	141,288		$	(11,145	)	$	(36,414	)	$	(6,403	)	$	273,713
Net income		-			-		-			2,728			-			-			-			2,728
Other comprehensive income		-			-		-			-			-			-			187			187
Common stock dividends declared ($0.04 per share)		-			-		-			(630	)		-			-			-			(630	)
Repurchase of common stock		(266,900	)		-		-			-			-			(3,449	)		-			(3,449	)
Restricted stock awards granted		3,000			-		(60	)		-			-			60			-			-
Stock-based compensation		-			-		829			-			-			-			-			829
ESOP shares committed to be released (24,419 shares)		-			-		57			-			244			-			-			301
Balance at September 30, 2020		16,634,237		$	187	$	187,026		$	143,386		$	(10,901	)	$	(39,803	)	$	(6,216	)	$	273,679

See accompanying notes to the consolidated financial statements (unaudited)

PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(amounts in thousands)

	Three Months Ended September 30,
	2021			2020
OPERATING ACTIVITIES
Net income	$	3,614		$	2,728
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan loss		13			109
Depreciation and amortization		738			748
Amortization of net premiums on securities and net deferred loan origination costs		20			206
Net (increase) decrease in accrued interest receivable		(152	)		151
Stock-based compensation		810			829
ESOP compensation		446			301
Earnings from cash surrender value of BOLI		(192	)		(132	)
Net accretion of purchase accounting adjustments		(35	)		(75	)
Other adjustments, principally net changes in other assets and liabilities		(1,080	)		(2,986	)
Net cash provided by operating activities		4,182			1,879
INVESTING ACTIVITIES
Purchases of investment securities:
Held to maturity		(75,504	)		(27,894	)
Maturities, calls and amortization of investment securities:
Held to maturity		24,415			17,289
Available for sale		12,134			6,202
Loan principal repayments, net		19,021			33,088
Net redemption of FHLB stock		1			1
Purchase of bank premises and equipment, net of sales		(159	)		(70	)
Net cash (used in) provided by investing activities		(20,092	)		28,616
FINANCING ACTIVITIES
Net increase in deposits		12,955			3,757
Repayment of long-term FHLB advances		(33	)		(33	)
Net decrease in mortgage escrow funds		(3,708	)		(3,703	)
Common stock dividends paid		(876	)		(630	)
Repurchase of shares from employees for income tax withholding purpose		(1	)		-
Repurchase of common stock		(3,720	)		(3,449	)
Net cash provided by (used in) financing activities		4,617			(4,058	)
Net (decrease) increase in cash and cash equivalents		(11,293	)		26,437
Cash and cash equivalents at beginning of period		159,305			136,302
Cash and cash equivalents at end of period	$	148,012		$	162,739

Supplemental information:
Cash paid for:
Interest	$	1,694		$	2,908
Income taxes		917			2,625

See accompanying notes to the consolidated financial statements (unaudited)

PCSB Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

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 September 30, 2021, 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.

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 two subsidiaries – PCSB Funding Corp. and UpCounty Realty Corp. (formerly PCSB Realty Ltd.). PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets. 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.

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 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 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 year ended June 30, 2021, included in the Company's Annual Report on Form 10-K.

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

Loans Held For Sale: Loans held for sale are those loans which management has the intent to sell in the foreseeable future, and are carried at the lower of aggregate cost or market value. Net unrealized losses, if any, are recognized by a valuation allowance through a charge to noninterest income. Realized gains and losses on the sale of loans are recognized on the trade date and are determined by the difference between the sale proceeds and the carrying value of the loans.

Loans may be sold with servicing rights released or retained. At the time of the sale, management records a servicing asset for the value of any retained servicing rights, which represents the present value of the differential between the contractual servicing fee and adequate compensation, defined as the fee a sub-servicer would require to assume the role of servicer, after considering the estimated effects of prepayments.

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets

before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Assets Held For Sale: Assets held for sale are those assets which management has the intent to sell in the foreseeable future, and are carried at the lower of aggregate cost or fair value, less estimated costs to sell, in the period in which the held for sale criteria are met and every subsequent period until the asset is sold. The carrying amount of the asset is adjusted for subsequent increases or decreases in its fair value, less estimated cost to sell, except that any subsequent increase cannot exceed the cumulative loss previously recognized. Such assets are not depreciated or amortized while they are classified as held for sale. Realized gains and losses on the sale of the asset is recognized when the asset is sold and is determined by the difference between the sale proceeds and the carrying value of the asset. Assets classified as held for sale totaled $1.5 million as of both September 30, 2021 and June 30, 2021 and are included in other assets on the consolidated balance sheet.

Risks and Uncertainties:

The COVID-19 pandemic has created extensive disruptions to the global and U.S. economies and to the lives of individuals throughout the world. Governments, businesses, and the public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including vaccination mandates, quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief. While the scope, duration, and full effects of COVID-19 continue to evolve and are not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

Many of the emergency actions taken to mitigate the effects of the pandemic have since been reduced or eliminated, resulting in an improved local and national economic environment, however the ultimate financial impact of the pandemic on our business is still unknown at this time. The pandemic may continue to adversely impact consumers and several industries within our geographic footprint and impair the ability of the Company’s customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of operations. Material adverse impacts may include, but are not limited to, the valuation impairments of the Company’s intangible assets, investments, loans, or deferred tax assets. Additionally, it is reasonably possible that the Company’s allowance for loan loss estimate as of September 30, 2021 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 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. 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 financial position, results of operations or disclosures.

There were no accounting standards adopted in the current period.

Future Application of Accounting Pronouncements Previously Issued

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for current expected credit losses. In October 2019, the FASB unanimously voted to delay the implementation of the standard for three years for certain companies, including small reporting companies (as defined by the SEC), non-SEC public companies and private companies. The Company currently qualifies as a small reporting company and is subject to the delayed implementation. Therefore, the amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2023, including interim periods within that fiscal year. The Company is actively working through the provisions of the Update. Management has established a steering committee which is

identifying the methodologies and the additional data requirements necessary to implement the Update and has engaged a third-party software service provider to assist in the Company's implementation. Management is currently evaluating the impact that ASU 2016-13 will have on the Company’s consolidated financial position, results of operations and disclosures.

Note 3. 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 September 30, 2021 and June 30, 2021 were as follows (in thousands):

	September 30, 2021
	Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value
Available for sale:
U.S. Government and agency obligations	$	10,933	$	-	$	(72	)	$	10,861
Corporate		8,008		188		-			8,196
State and municipal		7,041		57		(162	)		6,936
Mortgage-backed securities – residential		16,575		111		(242	)		16,444
Mortgage-backed securities – commercial		2,471		107		-			2,578
Total available for sale	$	45,028	$	463	$	(476	)	$	45,015
Held to maturity:
U.S. Government and agency obligations	$	35,994	$	150	$	(82	)	$	36,062
Corporate		49,098		1,454		(75	)		50,477
State and municipal		84,707		320		(1,172	)		83,855
Mortgage-backed securities – residential		100,800		2,698		(247	)		103,251
Mortgage-backed securities – collateralized mortgage obligations		29,230		287		(287	)		29,230
Mortgage-backed securities – commercial		78,681		755		(790	)		78,646
Total held to maturity	$	378,510	$	5,664	$	(2,653	)	$	381,521

	June 30, 2021
	Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value
Available for sale:
U.S. Government and agency obligations	$	21,931	$	6	$	(121	)	$	21,816
Corporate		8,013		176		-			8,189
State and municipal		7,041		104		(30	)		7,115
Mortgage-backed securities – residential		17,738		148		(232	)		17,654
Mortgage-backed securities – commercial		2,490		123		-			2,613
Total available for sale	$	57,213	$	557	$	(383	)	$	57,387
Held to maturity:
U.S. Government and agency obligations	$	33,994	$	202	$	(84	)	$	34,112
Corporate		43,605		1,312		(38	)		44,879
State and municipal		57,625		440		(248	)		57,817
Mortgage-backed securities – residential		96,181		2,713		(107	)		98,787
Mortgage-backed securities – collateralized mortgage obligations		33,300		376		(328	)		33,348
Mortgage-backed securities – commercial		72,879		937		(622	)		73,194
Total held to maturity	$	337,584	$	5,980	$	(1,427	)	$	342,137

No securities were sold during the three months ended September 30, 2021 or 2020.

The following table presents the fair value and carrying amount of debt securities at September 30, 2021, by contractual 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
1 year or less	$	2,040	$	2,052	$	3,008	$	3,026
1 to 5 years		44,664		44,809		5,000		5,016
5 to 10 years		37,109		38,392		10,933		11,015
over 10 years		82,087		81,040		7,041		6,936
Mortgage-backed securities and other		212,610		215,228		19,046		19,022
Total	$	378,510	$	381,521	$	45,028	$	45,015

Securities pledged had carrying amounts of $162.5 million and $180.1 million at September 30, 2021 and June 30, 2021, 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 September 30, 2021 and June 30, 2021 (in thousands):

	September 30, 2021
	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	$	10,861	$	(72	)	$	-	$	-		$	10,861	$	(72	)
State and municipal		2,858		(162	)		-		-			2,858		(162	)
Mortgage-backed securities – residential		9,232		(232	)		1,309		(10	)		10,541		(242	)
Total available for sale	$	22,951	$	(466	)	$	1,309	$	(10	)	$	24,260	$	(476	)
Held to maturity:
U.S. Government and agency obligations	$	26,411	$	(82	)	$	-	$	-		$	26,411	$	(82	)
Corporate		2,475		(25	)		4,950		(50	)		7,425		(75	)
State and municipal		56,561		(1,172	)		-		-			56,561		(1,172	)
Mortgage-backed securities – residential		35,528		(247	)		-		-			35,528		(247	)
Mortgage-backed securities – collateralized mortgage obligations		15,110		(287	)		-		-			15,110		(287	)
Mortgage-backed securities – commercial		56,202		(761	)		1,323		(29	)		57,525		(790	)
Total held to maturity	$	192,287	$	(2,574	)	$	6,273	$	(79	)	$	198,560	$	(2,653	)

	June 30, 2021
	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	$	14,811	$	(121	)	$	-	$	-		$	14,811	$	(121	)
State and municipal		2,990		(30	)		-		-			2,990		(30	)
Mortgage-backed securities – residential		9,615		(222	)		1,339		(10	)		10,954		(232	)
Total available for sale	$	27,416	$	(373	)	$	1,339	$	(10	)	$	28,755	$	(383	)
Held to maturity
U.S. Government and agency obligations	$	19,409	$	(84	)	$	-	$	-		$	19,409	$	(84	)
Corporate		2,488		(13	)		4,975		(25	)		7,463		(38	)
State and municipal		19,980		(248	)		-		-			19,980		(248	)
Mortgage-backed securities – residential		30,335		(107	)		-		-			30,335		(107	)
Mortgage-backed securities – collateralized mortgage obligations		15,133		(328	)		-		-			15,133		(328	)
Mortgage-backed securities – commercial		47,580		(622	)		-		-			47,580		(622	)
Total held to maturity	$	134,925	$	(1,402	)	$	4,975	$	(25	)	$	139,900	$	(1,427	)

As of September 30, 2021, the Company’s securities portfolio consisted of $423.5 million in securities, of which 115 securities with a fair value of $222.8 million were in an unrealized/unrecognized loss position. Non-U.S. government and agency obligations are internally pass rated and are subject to quarterly credit monitoring.

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 September 30, 2021 or June 30, 2021. Management believes the unrealized losses are primarily a result of changes in 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 September 30, 2021 or June 30, 2021.

Note 4. Loans Receivable

Loans receivable are summarized as follows (in thousands):

	September 30,			June 30,
	2021			2021
Mortgage loans:
Residential	$	221,735		$	224,305
Commercial		838,021			826,624
Construction		11,639			10,151
Net deferred loan origination costs		97			196
Total mortgage loans		1,071,492			1,061,276
Commercial and consumer loans:
Commercial loans		122,031			150,658
Home equity lines of credit		24,936			25,439
Consumer and overdrafts		394			345
Net deferred loan origination costs		(20	)		(386	)
Total commercial and consumer loans		147,341			176,056
Total loans receivable		1,218,833			1,237,332
Allowance for loan losses		(8,159	)		(7,881	)
Loans receivable, net	$	1,210,674		$	1,229,451

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2021 and 2020 (in thousands):

	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 September 30, 2020
	Beginning Allowance		Provision (benefit)			Charge-offs			Recoveries		Ending Allowance
Residential mortgages	$	373	$	(33	)	$	-		$	2	$	342
Commercial mortgages		6,913		53			-			-		6,966
Construction		165		8			-			-		173
Commercial loans		1,124		71			(105	)		31		1,121
Home equity lines of credit		60		1			-			2		63
Consumer and overdrafts		4		9			(8	)		2		7
Total	$	8,639	$	109		$	(113	)	$	37	$	8,672

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 September 30, 2021 and June 30, 2021 (in thousands):

	September 30, 2021
	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	$	2,351	$	218,666	$	719	$	221,736	$	111	$	215	$	-	$	326
Commercial mortgages		3,582		833,556		883		838,021		-		6,569		-		6,569
Construction		-		11,639		-		11,639		-		127		-		127
Commercial loans		256		121,775		-		122,031		-		1,072		-		1,072
Home equity lines of credit		372		24,445		119		24,936		8		45		-		53
Consumer and overdrafts		-		394		-		394		-		12		-		12
Total	$	6,561	$	1,210,475	$	1,721	$	1,218,757	$	119	$	8,040	$	-	$	8,159


	June 30, 2021
	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	$	2,356	$	221,229	$	720	$	224,305	$	113	$	224	$	-	$	337
Commercial mortgages		3,582		822,154		888		826,624		-		6,435		-		6,435
Construction		-		10,151		-		10,151		-		102		-		102
Commercial loans		1,707		148,951		-		150,658		-		948		-		948
Home equity lines of credit		414		24,902		123		25,439		8		46		-		54
Consumer and overdrafts		-		345		-		345		-		5		-		5
Total	$	8,059	$	1,227,732	$	1,731	$	1,237,522	$	121	$	7,760	$	-	$	7,881

The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by portfolio segment as of September 30, 2021 and June 30, 2021 (in thousands):

	September 30, 2021						June 30, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance recorded:
Residential mortgages	$	2,035	$	1,928	$	-	$	2,044	$	1,931	$	-
Commercial mortgages		3,582		3,582				3,582		3,582		-
Commercial loans		268		256		-		1,878		1,707		-
Home equity lines of credit		314		339		-		358		381		-
With an allowance recorded:
Residential mortgages		360		423		111		363		425		113
Home equity lines of credit		33		33		8		33		33		8
Total	$	6,592	$	6,561	$	119	$	8,258	$	8,059	$	121

The tables below present the average recorded investment and interest income recognized on loans individually evaluated for impairment, by portfolio segment, for the three months ended September 30, 2021 and 2020 (in thousands):

	Three months ended				Three months ended
	September 30, 2021				September 30, 2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential mortgages	$	1,936	$	7	$	2,015	$	8
Commercial mortgages		3,582		-		-		-
Commercial loans		980		191		1,809		49
Home equity lines of credit		350		2		339		-
With an allowance recorded:
Residential mortgages		424		3		434		3
Commercial loans		-		-		15		-
Home equity lines of credit		33		-		16		-
Total	$	7,305	$	203	$	4,628	$	60

The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by portfolio segment, as of September 30, 2021 and June 30, 2021 (in thousands):

					Loans Past Due Over 90 Days
	Nonaccrual				and Still Accruing
	September 30,		June 30,		September 30,		June 30,
	2021		2021		2021		2021
Residential mortgages	$	1,390	$	1,391	$	-	$	-
Commercial mortgages		3,582		3,582		421		411
Home equity lines of credit		339		381		-		-
Total	$	5,311	$	5,354	$	421	$	411

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes acquired loans that are accounted for as purchased credit impaired loans totaling $362,000 and $368,000 as of September 30, 2021 and June 30, 2021, 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 portfolio segment as of September 30, 2021 and June 30, 2021 (in thousands):

	September 30, 2021
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current ⁽¹⁾		Total
Residential mortgages	$	-	$	-	$	1,090	$	1,090	$	220,645	$	221,735
Commercial mortgages		-		-		421		421		837,600		838,021
Construction		-		-		-		-		11,639		11,639
Commercial loans		169		21		-		190		121,841		122,031
Home equity lines of credit		-		19		339		358		24,578		24,936
Consumer and overdrafts		-		12		-		12		382		394
Total	$	169	$	52	$	1,850	$	2,071	$	1,216,685	$	1,218,756

	June 30, 2021
	30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current ⁽¹⁾		Total
Residential mortgages	$	198	$	126	$	948	$	1,272	$	223,033	$	224,305
Commercial mortgages		453		-		411		864		825,760		826,624
Construction		-		-		-		-		10,151		10,151
Commercial loans		69		76		-		145		150,513		150,658
Home equity lines of credit		-		19		381		400		25,039		25,439
Consumer and overdrafts		-		-		-		-		345		345
Total	$	720	$	221	$	1,740	$	2,681	$	1,234,841	$	1,237,522

⁽¹⁾	As of September 30, 2021 and June 30, 2021, loans on a COVID-19-related payment deferral are considered current.

Troubled Debt Restructurings

The terms of certain loans have been modified as troubled debt restructurings (“TDR”). 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 September 30, 2021 and June 30, 2021, the Company had 8 and 12 loans, classified as TDRs totaling $1.6 million and $3.1 million, including $1.2 million and $2.7 million, respectively, of loans still accruing interest. The Company has allocated $119,000 and $121,000, respectively, of specific reserves to customers whose loan terms have been modified in TDRs as of both September 30, 2021 and June 30, 2021. As of September 30, 2021, the Company has committed to lend an additional $3,000 to customers with outstanding loans that are classified as TDRs.

The Company did not modify any loans during the three months ended September 30, 2021 or 2020 that were classified as TDRs.

There were no defaults of troubled debt restructurings occurring in the three months ended September 30, 2021 or September 30, 2020 that were modified in the twelve months prior to 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. 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, 2021, the Company granted or extended loan payment deferrals for 5 commercial 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 troubled debt restructurings. The Company had 11 and 19 loans totaling $18.5 million and $27.3 million on loan payment deferral as of September 30, 2021 and June 30, 2021, respectively.

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 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 portfolio segment is as follows (in thousands):

	September 30, 2021
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	217,832	$	1,986	$	1,917	$	221,735
Commercial mortgages		821,074		1,605		15,342		838,021
Construction		10,526		1,113		-		11,639
Commercial loans		117,677		485		3,869		122,031
Home equity lines of credit		23,947		556		433		24,936
Consumer and overdrafts		394		-		-		394
Total	$	1,191,450	$	5,745	$	21,561	$	1,218,756

	June 30, 2021
	Pass		Special Mention		Substandard		Total
Residential mortgages	$	219,901	$	2,480	$	1,924	$	224,305
Commercial mortgages		809,660		1,615		15,349		826,624
Construction		9,038		1,113		-		10,151
Commercial loans		146,275		491		3,892		150,658
Home equity lines of credit		24,400		602		437		25,439
Consumer and overdrafts		345		-		-		345
Total	$	1,209,619	$	6,301	$	21,602	$	1,237,522

As of September 30, 2021, of the $18.5 million in loans in a COVID-19 related payment deferral, $8.2 million were pass-rated, with $1.7 million and $8.6 million rated special mention and substandard, respectively. As of June 30, 2021, of the $27.3 million in loans on deferral, $9.9 million were pass-rated, with $3.2 million and $14.2 million rated special mention and substandard, respectively.

Purchased Credit Impaired Loans

The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of September 30, 2021 and June 30, 2021 is as follows (in thousands):

	September 30,		June 30,
	2021		2021
Residential mortgages	$	719	$	720
Commercial mortgages		883		888
Home equity lines of credit		119		123
Carrying amount, net of allowance of $0	$	1,721	$	1,731

There was no provision for loan losses on purchased credit impaired loans during the three months ended September 30, 2021 or 2020.

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

	Three Months Ended September 30,
	2021			2020
Beginning balance	$	130		$	156
New loans acquired		-			-
Accretion income		(10	)		(5	)
Reclassification from non-accretable difference		-			-
Disposals		-			-
Ending balance	$	120		$	151

Note 5. Accumulated Other Comprehensive (Loss) Income

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

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2021	$	137		$	(3,055	)	$	(181	)	$	(3,099	)
Other comprehensive loss before reclassifications		(187	)		-			-			(187	)
Amounts reclassified from accumulated other comprehensive income		-			38			16			54
Less 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	)

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2020	$	428		$	(6,605	)	$	(226	)	$	(6,403	)
Other comprehensive loss before reclassifications		(16	)		-			-			(16	)
Amounts reclassified from accumulated other comprehensive income		-			240			14			254
Less tax effect		3			(51	)		(3	)		(51	)
Net other comprehensive (loss) income		(13	)		189			11			187
Balance at September 30, 2020	$	415		$	(6,416	)	$	(215	)	$	(6,216	)

Note 6. Post-Retirement Benefits

Employee Pension Plan

The Company maintains a non-contributory defined benefit pension plan that covers employees meeting specific requirements as to age and length of service. The Company’s contributions to this qualified plan are determined on the basis of (i) the maximum amount that can be deducted for federal income tax purposes, and (ii) the amount determined by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). Contributions are intended to provide for benefits attributed to service to date but also those expected to be earned in the future. On February 15, 2017, the Board of Directors approved the freezing of the defined benefit pension plan effective May 1, 2017.

Supplemental Executive Retirement Plans

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 months ended September 30, 2021 and 2020 (in thousands):

	Three Months Ended					Three Months Ended
	September 30, 2021					September 30, 2020
	Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans
Service cost	$	-		$	131	$	-		$	90
Interest cost		149			17		136			24
Expected return on plan assets		(510	)		-		(456	)		-
Amortization of prior net loss		38			16		240			14
Settlement charges		-			-		-			-
Net periodic (benefit) cost	$	(323	)	$	164	$	(80	)	$	128

The Company made no contributions to the defined benefit plan during the three months ended September 30, 2021.

Employee Stock Ownership Plan

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. On April 20, 2017, the Holding Company granted a loan to the ESOP for the purchase of 1,453,209 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the 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 (3.25% for 2021). 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 September 30, 2021 was $10.7 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 (dollars in thousands):

	September 30, 2021		June 30, 2021
Allocated to participants		443,528		417,902
Unearned		993,229		1,017,648
Total ESOP shares		1,436,757		1,435,550

Fair value of unearned shares	$	18,315	$	18,491

Total compensation expense recognized in connection with the ESOP for the three months ended September 30, 2021 and 2020 was $446,000 and $301,000, respectively.

Note 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.

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% and 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 each derivative. 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
September 30, 2021
Measured on a recurring basis:
Available for sale securities:
U.S. Government and agency obligations	$	-	$	10,861	$	-	$	10,861
Corporate		-		5,065		3,131		8,196
State and municipal		-		6,936		-		6,936
Mortgage-backed securities – residential		-		16,444		-		16,444
Mortgage-backed securities – commercial		-		2,578		-		2,578
Derivatives – interest rate contracts		-		4,088		-		4,088
Total assets at fair value	$	-	$	45,972	$	3,131	$	49,103

Derivatives – interest rate contracts	$	-	$	4,088	$	-	$	4,088
Total liabilities at fair value	$	-	$	4,088	$	-	$	4,088

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages	$	-	$	-	$	313	$	313
Home equity lines of credit		-		-		25		25
Total assets at fair value	$	-	$	-	$	338	$	338

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
June 30, 2021
Measured on a recurring basis:
Available for sale securities:
U.S. Government and agency obligations	$	-	$	21,816	$	-	$	21,816
Corporate		-		5,058		3,131		8,189
State and municipal		-		7,115		-		7,115
Mortgage-backed securities – residential		-		17,654		-		17,654
Mortgage-backed securities – commercial		-		2,613		-		2,613
Derivatives – interest rate contracts		-		4,232		-		4,232
Total assets at fair value	$	-	$	58,488	$	3,131	$	61,619

Derivatives – interest rate contracts	$	-	$	4,232	$	-	$	4,232
Total liabilities at fair value	$	-	$	4,232	$	-	$	4,232

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages	$	-	$	-	$	312	$	312
Home equity lines of credit		-		-		25		25
Total assets at fair value	$	-	$	-	$	337	$	337

There were no transfers between levels within the fair value hierarchy during the three months ended September 30, 2021 and 2020.

Impaired loans in the preceding table had a carrying amount of $457,000 and a remaining valuation allowance of $119,000, at September 30, 2021, as compared to $458,000 and $121,000, respectively, as of June 30, 2021. Impaired loans measured at fair value incurred no net charge-offs and resulted in a credit for loan losses of $2,000 during the three months ended September 30, 2021. Impaired loans measured at fair value as of September 30, 2020 incurred net recoveries of $4,000 and resulted in a credit for loan losses of $3,000 during the three months ended September 30, 2020.

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 September 30, 2021 and June 30, 2021 (dollars in thousands):

			Valuation	Unobservable	Range or
	Fair Value		Technique(s)	Input(s)	Rate Used
September 30, 2021
Impaired loans - residential mortgages	$	313	Discounted cash flow	Discount rate	5.4% to 6.3%
Impaired loans - home equity lines of credit		25	Discounted cash flow	Discount rate	5.4% to 6.3%

June 30, 2021
Impaired loans - residential mortgages	$	312	Discounted cash flow	Discount rate	5.4% to 6.3%
Impaired loans - home equity lines of credit		25	Discounted cash flow	Discount rate	5.4% to 6.3%

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

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
September 30, 2021
Financial assets:
Cash and cash equivalents	$	148,012	$	148,012	$	-	$	-	$	148,012
Investment securities held to maturity		378,510		-		350,165		31,356		381,521
Investment securities available for sale		45,015		-		41,884		3,131		45,015
Loans receivable, net		1,210,674		-		-		1,215,268		1,215,268
Accrued interest receivable		6,550		-		1,696		4,854		6,550
FHLB stock		4,506	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts		4,088		-		4,088		-		4,088
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		1,142,968		1,142,968		-		-		1,142,968
Time deposits		361,669		-		366,948		-		366,948
Mortgage escrow funds		6,828		6,828		-		-		6,828
Accrued interest payable		144		1		143		-		144
FHLB advances		65,924		-		68,788		-		68,788
Derivative liabilities - interest rate contracts		4,088		-		4,088		-		4,088

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
June 30, 2021
Financial assets:
Cash and cash equivalents	$	159,305	$	159,305	$	-	$	-	$	159,305
Investment securities held to maturity		337,584		-		305,671		36,466		342,137
Investment securities available for sale		57,387		-		54,256		3,131		57,387
Loans receivable, net		1,229,451		-		-		1,234,116		1,234,116
Accrued interest receivable		6,398		-		1,341		5,057		6,398
FHLB stock		4,507	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts		4,232		-		4,232		-		4,232
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		1,116,667		1,116,667		-		-		1,116,667
Time deposits		375,015		-		380,948		-		380,948
Mortgage escrow funds		10,536		10,536		-		-		10,536
Accrued interest payable		146		1		145		-		146
FHLB advances		65,957		-		67,334		-		67,334
Derivative liabilities - interest rate contracts		4,232		-		4,232		-		4,232

The methods of determining the fair value of assets and liabilities presented in the table above are consistent with our methodologies disclosed in the Company's Consolidated Financial Statements included in the Annual Report on Form 10-K.

Note 8. Regulatory Matters

The following is a summary of the Bank’s actual capital amounts and ratios as of September 30, 2021 and June 30, 2021, compared to the required ratios for minimum capital adequacy and for classification as well capitalized (dollars in thousands).

											To Be Well Capitalized
						For Capital					Under Prompt
						Adequacy					Corrective Action
	Bank Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Leverage (Tier 1)	$	237,874		12.7	%	$	74,824		4.0	%	$	93,530		5.0	%
Risk-based:
Common Tier 1		237,874		17.8			59,987		4.5			86,648		6.5
Tier 1		237,874		17.8			79,982		6.0			106,643		8.0
Total		246,033		18.5			106,643		8.0			133,304		10.0

June 30, 2021
Leverage (Tier 1)	$	233,944		12.5	%	$	74,988		4.0	%	$	93,735		5.0	%
Risk-based:
Common Tier 1		233,944		17.9			58,713		4.5			84,807		6.5
Tier 1		233,944		17.9			78,283		6.0			104,378		8.0
Total		241,825		18.5			104,378		8.0			130,472		10.0

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% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers.

Management believes that as of September 30, 2021 and June 30, 2021, the Bank met all capital adequacy requirements to which it was subject, including the capital conservation buffer of 2.5%. 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 9. Earnings Per Share (“EPS”)

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

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

	Three Months Ended September 30,
	2021			2020
	(dollars in thousands, except per share data)
Net income applicable to common stock	$	3,614		$	2,728

Average number of common shares outstanding		15,342,975			16,404,886
Less: Average unallocated ESOP shares		(1,005,432	)		(1,102,048	)
Average number of common shares outstanding used to calculate basic earnings per common share		14,337,543			15,302,838

Effect of equity-based awards		68,273			111
Average number of common shares outstanding used to calculate diluted earnings per common share		14,405,816			15,302,949

Earnings per common share:
Basic	$	0.25		$	0.18
Diluted	$	0.25		$	0.18

Stock options for 1,325,935 and 1,345,293 shares of common stock were not considered in computing diluted earnings per common share for the three months ended September 30, 2021 and 2020, 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, 2021 and June 30, 2021 (dollars in thousands).

	September 30,			June 30,
	2021			2021
Notional amounts	$	181,815		$	182,700
Weighted average pay rates		2.54	%		2.55	%
Weighted average receive rates		2.54	%		2.55	%
Weighted average maturity	8.21 years			8.46 years
Fair value of combined interest rate swaps	$	-		$	-

Note 11. Revenue From Contracts With Customers

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

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 indicated (in thousands).

	Three Months Ended September 30,
	2021		2020
Noninterest income:
Service charges on deposits	$	183	$	162
Interchange fees		156		131
Other fees and service charges ⁽¹⁾		62		29
Fees and service charges		401		322

Bank-owned life insurance⁽¹⁾		192		132
Swap income ⁽¹⁾		-		129
Other noninterest income ⁽¹⁾		20		11
Total noninterest income	$	613	$	594

⁽¹⁾Not within the scope of ASC 606.

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

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

Gain 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 shares that may be granted under the Plan is 2,543,115, of which 1,816,511 shares may be granted as stock options and 726,604 shares may be granted as restricted stock and restricted stock units. Total compensation cost that has been charged against income for the Plan was $810,000 and $829,000 for the three months ended September 30, 2021 and September 30, 2020, 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 5-year period, with 20% vesting each year on the anniversary of the award. All awards were made at the fair value of common stock on the grant date. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock was determined to be the closing price of the stock on the NASDAQ exchange. Total shares available for grant under the Plan are 726,604, of which 549,467 shares were granted as of September 30, 2021.

The following table presents a summary of RSA activity during the period ended September 30, 2021.

	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested granted shares outstanding at July 1, 2021		322,580		$	18.95
Shares granted		8,000			17.66
Shares vested		(600	)		12.34
Shares forfeited		-			-
Unvested granted shares at September 30, 2021		329,980		$	18.93

As of September 30, 2021, there was $4.5 million of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.4 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 has a sufficient number of treasury shares to satisfy the current level of exercisable share options.

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

The fair value of options granted during the three months ended September 30, 2021, was determined using the following weighted-average assumptions as of grant date.

Risk-free interest rate		1.00	%
Expected term (in years)		6.25
Expected stock price volatility		35.91	%
Dividend yield		1.36	%
Weighted average fair value of options granted	$	5.50

Total options available for grant under the Plan are 1,816,511, of which 1,320,963 options were granted as of September 30, 2021. 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, 2021		1,308,963	$	19.00		7.4	$	35
Options granted		12,000		17.66
Options expired		-		-
Options forfeited		-		-
Options exercised		-		-
Options outstanding at September 30, 2021		1,320,963	$	18.98		7.1	$	119

Exercisable at September 30, 2021		522,385	$	19.01		7.1	$	37

As of September 30, 2021, there was $2.7 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 2.4 years.

Note 13. Leases

As of September 30, 2021, 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 2022 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 9.58 years as of September 30, 2021.

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 2.39% in determining the lease liability as of September 30, 2021.

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 statement on a straight-line basis over the lease term. The Company had no short-term lease cost for the three months ended September 30, 2021 or 2020. Certain leases may include one or more options to renew. The exercise of lease renewal options is typically at the Company’s discretion and are included in the operating lease liability if it is reasonably certain that the renewal option will be exercised. Certain real estate leases may contain lease and non-lease components, such as common area maintenance charges, real estate taxes, and insurance, which are generally accounted for separately and are not included in the measurement of the lease liability since they are generally able to be segregated. The Company does not sublease any of its leased properties. There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the three months ended September 30, 2021 or 2020.

Total operating lease cost was $504,000 for both, the three months ended September 30, 2021 and 2020. The right-of-use asset, included in premises and equipment, net, was $9.2 million and the corresponding lease liability, included in other liabilities was $9.5 million as of September 30, 2021.

Future minimum lease payments for the fiscal years ending June 30 and a reconciliation of undiscounted lease cash flows and the lease liability recognized in the consolidated balance sheet as of September 30, 2021 is shown below:

(dollars in thousands)
2022	$	1,523
2023		1,940
2024		1,569
2025		1,276
2026		748
Thereafter		3,802
Total future minimum lease payments (undiscounted)		10,858
Discounting effect on cash flows		(1,384	)
Lease liability (discounted)	$	9,474

Note 14. Subsequent Events

Subsequent to September 30, 2021, and through November 2, 2021, the Company repurchased 52,071 shares of common stock, at an average cost of $18.44.

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

General

Management’s discussion and analysis of financial condition at September 30, 2021 and June 30, 2021, and results of operations for the three months ended September 30, 2021 and 2020 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, 2021.

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 regulatory fees and capital 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;

•

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 annual report on Form 10-K for the fiscal year ended June 30, 2021, under the heading “Risk Factors.”

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

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. 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, 2021 Form 10-K. There have been no significant changes in our application of critical accounting policies for the three months ended September 30, 2021.

Loan Payment Deferrals

The COVID-19 pandemic has created extensive disruptions to the local economy and our customers. Through September 30, 2021, the Company has granted loan payment deferrals on 330 consumer and commercial loans whose borrowers have demonstrated financial hardship caused by COVID-19 with loan balances totaling $220.2 million. As of September 30, 2021, 11 loans totaling $18.5 million were still on deferral. Of those loans still on deferral as of September 30, 2021, $3.5 million are scheduled to resume payments prior to December 31, 2021, with the remainder scheduled to resume payments prior to January 31, 2022, however as we continue to assess our borrowers’ financial condition and individual circumstances in the coming weeks and months, additional payment deferrals may be granted.

The table below provides additional detail for those loans on deferral as of September 30, 2021 (dollar amounts in thousands):

Industry Sector:	Number of loans		Recorded Investment⁽¹⁾ ⁽²⁾		% secured by real estate collateral			Loan-to-Value %⁽³⁾			Weighted average term of remaining deferral (in months)
Retail		3	$	11,590		100.0	%		59.8	%		3.1
Hotels and accommodation services		1		2,013		100.0			54.8			0.1
Food service		2		3,018		100.0			48.7			1.7
All other commercial		5		1,903		89.2			70.0			2.7
Total		11	$	18,524		98.9	%		58.3	%		2.5

⁽¹⁾Includes loans classified as special mention and substandard of $1.7 million and $8.6 million, respectively.
⁽²⁾Includes $3.6 million of nonaccrual loans. All loans are considered current.
⁽³⁾Generally based on collateral values upon origination.

The table below provides additional detail regarding the type of deferral granted for those loans on deferral as of September 30, 2021 (dollar amounts in thousands):

	Total
Principal only	$	10,412
Interest only		1,513
Principal and interest		6,599
Total	$	18,524

Comparison of Financial Condition at September 30, 2021 and June 30, 2021

Total Assets. Total assets decreased $1.8 million, or 0.1%, to $1.87 billion at September 30, 2021 from June 30, 2021. The decrease is primarily the result of decreases of $18.8 million in net loans receivable and $11.3 million in cash and cash equivalents, partially offset by a $28.6 million increase in total investment securities.

Cash and Cash Equivalents. Cash and cash equivalents decreased $11.3 million, or 7.1%, to $148.0 million at September 30, 2021 from $159.3 million at June 30, 2021. The decrease is primarily due to a $28.5 million increase in total investment securities, an $11.1 million decrease in other liabilities and a $3.7 million decrease in mortgage escrow funds, partially offset by an $18.8 million decrease in loans receivable and a $13.0 million increase in deposits.

Securities Held to Maturity. Total securities held to maturity increased $40.9 million, or 12.1%, to $378.5 million at September 30, 2021 from $337.6 million at June 30, 2021. This increase was primarily due to increases of $27.1 million in municipal securities, $6.3 million in mortgage-backed securities, $5.5 million in corporate bonds and $2.0 million in U.S. government and agency obligations.

Securities Available for Sale. Total securities available for sale decreased $12.4 million, or 21.6%, to $45.0 million at September 30, 2021 from $57.4 million at June 30, 2021. This decrease was primarily due to decreases of $11.0 million in U.S. government and agency obligations, $1.2 million in mortgage-backed securities and a $187,000 decrease in net unrealized gains.

Net Loans Receivable. Net loans receivable decreased $18.8 million, or 1.5%, to $1.21 billion at September 30, 2021 from $1.23 billion at June 30, 2021. The decrease in loans receivable was the result of decreases of $28.6 million in commercial loans, $2.6 million in residential mortgage loans, partially offset by increases of $11.4 million in commercial mortgage loans and $1.5 million in construction loans. The decrease in commercial loans includes a decrease of $17.3 million in PPP loans, driven by paydowns and forgiveness.

Deposits. Total deposits increased $13.0 million, or 0.9%, to $1.50 billion at September 30, 2021 as compared to $1.49 billion at June 30, 2021. This increase primarily reflects increases of $30.2 million in money market accounts, and $4.3 million in NOW accounts, partially offset by decreases of $13.3 million in time deposits, $5.6 million in savings and $2.6 million in demand deposits.

Federal Home Loan Bank Advances. FHLB advances decreased $33,000 to $65.9 million at September 30, 2021 as compared to June 30, 2021. This decrease is due to repayments of long-term amortizing advances.

Total Shareholder’s Equity. Total shareholders’ equity increased $168,000 to $274.7 million at September 30, 2021 from $274.6 million at June 30, 2021. This increase was primarily due to net income of $3.6 million and $1.3 million of stock-based compensation and reduction in unearned ESOP shares for plan shares earned during the period, partially offset by the repurchase of $3.7 million (204,335 shares) of common stock and $876,000 of cash dividends declared and paid. On February 3, 2021, a repurchase plan was authorized to repurchase up to 801,856 shares, or 5% of the Company’s then outstanding common stock. As of September 30, 2021, the Company repurchased 462,028 shares of common stock at an average cost of $17.97 per share. At September 30, 2021, the Bank was considered “well capitalized” under applicable regulatory guidelines.

Comparison of Operating Results for the Three months ended September 30, 2021 and September 30, 2020

General. Net income increased $886,000, or 32.5%, to $3.6 million for the three months ended September 30, 2021 compared to $2.7 million for the three months ended September 30, 2020. The increase was primarily due to a $958,000 increase in net interest income, a $96,000 decrease in provision for loan losses and a $19,000 increase in noninterest income, partially offset by a $187,000 increase in income tax expense.

Net Interest Income. Net interest income increased $958,000, or 8.3%, to $12.5 million for the three months ended September 30, 2021 compared to $11.6 million for the three months ended September 30, 2020. The increase primarily reflects a $62.8 million, or 3.6%, increase in average interest-earning assets and a 13 basis point increase in the tax equivalent net interest margin to 2.82% for the three months ended September 30, 2021 compared to 2.69% for the three months ended September 30, 2020. The increase in average interest-earning assets reflects an $89.3 million increase in average investment securities and a $2.6 million increase in other interest-earning assets, partially offset by a $29.1 million decrease in average of loans receivable.

Interest and Dividend Income. Interest and dividend income decreased $301,000, or 2.1%, to $14.2 million for the three months ended September 30, 2021 compared to $14.5 million for the three months ended September 30, 2020. The decrease primarily reflects a 17 basis point decrease in the yield on total interest-earning assets, partially offset by a $62.8 million increase in total average interest-earning assets. The decline in asset yields (excluding the effect of PPP income), which resulted from lower market interest rates, has slowed in recent quarters due to a more stable yield curve and a more favorable earning asset composition.

Interest income on loans receivable decreased $440,000, or 3.5%, primarily due to a 5 basis point decrease in the average tax equivalent yield on loans receivable to 3.96% for the three months ended September 30, 2021 from 4.01% for the same period last year and a $29.1 million, or 2.3%, decrease in the average balance of loans receivable to $1.22 billion for the three months ended September 30, 2021 from $1.25 billion for the same period last year. Decreases in market interest rates have resulted in a decreased yield on loans receivable. The Company recognized PPP loan interest income and origination fee income (net of costs) of $381,000 in the current quarter, compared to $217,000 in the prior year quarter. Unearned origination fees (net of costs) on PPP loans totaled $698,000 as of September 30, 2021 and will be recognized in income over the remaining lives of the loans and the timing of such recognition is largely dependent on the timing of forgiveness.

Interest income on investment securities increased $155,000, or 8.4%, primarily due to an $89.3 million increase in the average balance of investment securities to $404.6 million for the three months ended September 30, 2021 from $315.3 million for the same period last year, partially offset by a 31 basis point decrease in the average yield on investment securities on a tax equivalent basis to 2.07% for the three months ended September 30, 2021 from 2.38% for the same period last year. The increase in the average balance of investment securities is the result of the Company utilizing excess liquidity to fund securities portfolio growth. The decrease in yield is a result of lower market interest rates.

Interest income on other interest-earning assets, primarily consisting of cash balances at correspondent banks including the Federal Reserve, decreased $16,000, or 12.8%, primarily due to a 4 basis point decrease in the average yield on other interest-earning assets to 0.27% for the three months ended September 30, 2021, from 0.31% for the same period last year, partially offset by a $2.7 million increase in the average balance of other interest-earning assets to $160.7 million for the three months ended September 30, 2021 compared to $158.0 million for the three

months ended September 30, 2020. The decrease in yield on other interest-earning assets was primarily due to is a decrease in market interest rates, specifically Fed Funds.

Interest Expense. Interest expense decreased $1.3 million, or 42.7%, to $1.7 million for the three months ended September 30, 2021 compared to $3.0 million for the three months ended September 30, 2020. The decrease primarily reflects a 40 basis point decrease in the average cost of interest-bearing liabilities to 0.49% for the three months ended September 30, 2021 from 0.89% for the three months ended September 30, 2020, partially offset by a $54.6 million increase in the average balance of interest-bearing liabilities to $1.36 billion for the three months ended September 30, 2021 from $1.31 billion for the same period last year.

Interest expense on interest-bearing deposits decreased $1.1 million, or 44.3%, primarily due to a 39 basis point decrease in the average cost of interest-bearing deposits to 0.41% for the three months ended September 30, 2021 from 0.80% for the same period last year, partially offset by a $94.7 million increase in the average balance to $1.30 billion for the three months ended September 30, 2021 from $1.20 billion for the three months ended September 30, 2020. The decrease in the average rate paid on interest-bearing deposits was primarily caused by a decrease in market interest rates affecting most significantly the average rates paid on time deposits and money market accounts, which decreased 64 and 17 basis points, respectively, when compared to last year. During the remainder of the current fiscal year, the Company has $27.5 million of wholesale funding maturing, comprised of FHLB advances and brokered time deposits, with a weighted average cost of 2.43%.

Interest expense on FHLB advances decreased $181,000, or 34.9%, primarily due to a $40.2 million decrease in the average balance to $65.9 million for the three months ended September 30, 2021 from $106.1 million for the three months ended September 30, 2020, partially offset by a 9 basis point increase in the average cost to 2.03% for the three months ended September 30, 2021 from 1.94% for the three months ended September 30, 2020. The decrease in the cost of FHLB funds is due to the maturity of higher-costing advances.

Provision for Loan Losses. The provision for loan losses was $13,000 for the three months ended September 30, 2021, compared to $109,000 for the three months ended September 30, 2020. The decrease is primarily due to a decrease in the loan portfolio. Recoveries, net of charge-offs, were $265,000 for the three months ended September 30, 2021 compared to charge-offs, net of recoveries, of $76,000 for the three months ended September 30, 2020, respectively. Non-performing loans as a percent of total loans receivable (excluding PPP loans) were 0.48% as of September 30, 2021, unchanged compared to June 30, 2021. Loans on a COVID-19 related payment deferral totaled $18.5 million, or 1.52% of gross loans, as of September 30, 2021, compared to $27.3 million, or 2.21% of gross loans, as of June 30, 2021.

Noninterest Income. Noninterest income increased $19,000, or 3.2%, to $613,000 for the three months ended September 30, 2021 compared to same period last year. The increase was caused primarily by increases of $79,000 in fees and service charges, $60,000 in bank-owned life insurance income and $9,000 in all other noninterest income, partially offset by a $129,000 decrease in swap income. The increase in fees and service charges compared to the same period last year was partially the result of the waiver in the prior year of certain overdraft fees, ATM usage fees, wire and CD early withdrawal fees in response to COVID-19, as well an increase in debit card and interchange income. For the three months ended September 30, 2021, noninterest income includes net gains on the sale of loans of $6,000, compared to none for the same period last year.

Noninterest Expense. Noninterest expense of $8.6 million for the three months ended September 30, 2021 was unchanged compared to the three months ended September 30, 2020.

Income Tax Expense. Income tax expense increased $187,000, or 26.3%, for the three months ended September 30, 2021 in comparison to the three months ended September 30, 2020. The increase was caused by higher pre-tax income, partially offset by a lower effective tax rate. The effective income tax rate was 19.9% for the three months ended September 30, 2021 as compared to 20.7% for the three months ended September 30, 2020, with the decrease largely driven by an increase in tax-exempt interest income on municipal investments.

Average Balance Sheet and Interest Rates.

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average 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. Loan fees are included in interest income on loans and are not material (dollars in thousands).

	Three Months Ended September 30,
	2021								2020
	Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate
Assets:
Loans receivable ⁽¹⁾	$	1,223,532		$	12,107		3.96	%	$	1,252,595		$	12,547		4.01	%
Investment securities⁽¹⁾		404,565			2,011		2.07			315,292			1,856		2.38
Other interest-earning assets		160,659			109		0.27			158,038			125		0.31
Total interest-earning assets		1,788,756			14,227		3.20			1,725,925			14,528		3.37
Non-interest-earning assets		76,375								71,926
Total assets	$	1,865,131							$	1,797,851

Liabilities and equity:
NOW accounts	$	182,531			70		0.15		$	149,466			89		0.24
Money market accounts		350,575			186		0.21			250,297			238		0.38
Savings accounts and escrow		397,292			113		0.11			360,091			202		0.22
Time deposits		367,641			985		1.06			443,487			1,903		1.70
Total interest-bearing deposits		1,298,039			1,354		0.41			1,203,341			2,432		0.80
FHLB advances		65,935			338		2.03			106,067			519		1.94
Total interest-bearing liabilities		1,363,974			1,692		0.49			1,309,408			2,951		0.89
Non-interest-bearing deposits		207,806								184,085
Other non-interest-bearing liabilities		19,943								28,958
Total liabilities		1,591,723								1,522,451
Total shareholders' equity		273,408								275,400
Total liabilities and shareholders' equity	$	1,865,131							$	1,797,851

Net interest income				$	12,535							$	11,577
Interest rate spread - tax equivalent ⁽²⁾							2.71								2.48
Net interest margin - tax equivalent ⁽³⁾							2.82								2.69
Average interest-earning assets to interest-bearing liabilities		131.14	%							131.81	%

⁽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.

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

	Three Months Ended September 30,
	2021		2020
Total interest income	$	14,227	$	14,528
Total interest expense		1,692		2,951
Net interest income (GAAP)		12,535		11,577
Tax equivalent adjustment		89		33
Net interest income - tax equivalent (non-GAAP)	$	12,624	$	11,610

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

	Three Months Ended September 30,
	2021 versus 2020
	Rate			Volume			Net
Interest income:
Loans receivable	$	(251	)	$	(189	)	$	(440	)
Investment securities		(343	)		498			155
Other interest-earning assets		(16	)		-			(16	)
Total interest-earning assets		(610	)		309			(301	)

Interest expense:
NOW accounts		(36	)		17			(19	)
Money market accounts		(127	)		75			(52	)
Savings and escrow accounts		(107	)		18			(89	)
Time deposits		(630	)		(288	)		(918	)
FHLB advances		22			(203	)		(181	)
Total interest-bearing liabilities		(878	)		(381	)		(1,259	)

Net increase in net interest income	$	268		$	690		$	958

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, we have established a management-level Asset/Liability Management Committee, which takes initial responsibility for developing an asset/liability management process and related procedures, establishing and monitoring reporting systems and developing asset/liability strategies. On at least a quarterly basis, the Asset/Liability Management Committee reviews asset/liability management with the Investment Asset/Liability Committee of the Board of Directors. This Committee also reviews any changes in strategies as well as the performance of any specific asset/liability management actions that have been implemented previously. On a quarterly basis, an outside consulting firm provides us with detailed information and analysis as to asset/liability management, including our interest rate risk profile. Ultimate responsibility for effective asset/liability management rests with our 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. We have implemented the following strategies to manage our interest rate risk: originating

loans with adjustable interest rates; utilizing interest rate swaps, promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of 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 September 30, 2021 and June 30, 2021. All estimated changes presented in the table are within the policy limits approved by our Board of Directors (dollars in thousands).

	NPV									NPV as Percent of Portfolio Value of Assets
Basis Point Change in Interest Rates	Dollar Amount		Dollar Change			Percent Change				NPV Ratio			Change (in bps)
September 30, 2021:
200	$	269,318	$	(39,868	)		(12.9	)	%		15.21	%		(132	)
100		290,936		(18,250	)		(5.9	)			15.98			(55	)
-		309,186	-				-				16.53			-
(50)		329,936		20,750			6.7				17.35			82
(100)		356,452		47,266			15.3				18.45			192

June 30, 2021:
200	$	270,679	$	(37,814	)		(12.3	)	%		15.21	%		(122	)
100		291,715		(16,778	)		(5.4	)			15.95			(48	)
-		308,493		-			-				16.43			-
(50)		324,999		16,506			5.4				17.06			63
(100)		346,539		38,046			12.3				17.94			151

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

Liquidity and Capital Resources

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2021, cash and cash equivalents totaled $148.0 million, a decrease from $159.3 million as of June 30, 2021. Unpledged securities classified as available for sale, which provide an additional source of liquidity, totaled $27.9 million at September 30, 2021, a decrease from $28.9 million as of June 30, 2021.

We had the ability to borrow up to $368.1 million from the FHLB of New York, at September 30, 2021 of which $65.9 million was outstanding as of September 30, 2021. Additionally, as of September 30, 2021, we had an available line of credit with the FRB of New York’s discount window program of $100.3 million, and $25.0 million of fed funds lines of credit, neither of which had outstanding balances as of September 30, 2021.

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 sources detailed above.

We had $63.1 million of loan commitments outstanding as of September 30, 2021 and $176.6 million of approved, but unadvanced, funds to borrowers. We also had $3.2 million in outstanding letters of credit at September 30, 2021.

Time deposits due within one year of September 30, 2021 totaled $220.6 million. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and 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 September 30, 2021. 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 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 law and regulations. At September 30, 2021, the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of $22.7 million.

Capital Resources. The Bank is subject to various regulatory capital requirements administered by the NYSDFS and the FDIC. At September 30, 2021, the Bank exceeded all applicable regulatory capital requirements, and the Bank was considered “well capitalized” under applicable regulatory guidelines. See Note 8 to the accompanying unaudited consolidated financial 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."

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 September 30, 2021. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2021, 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

The Company is not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At September 30, 2021, the Company was not involved in any legal proceedings the outcome of which it believes would be material to its consolidated financial condition or results of operations.

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 year ended June 30, 2021, filed with the Securities and Exchange Commission. As of September 30, 2021, except for the additional risk factor described below, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended June 30, 2021.

Any future action by the U.S. Congress to amend federal tax laws and regulations could impact our future profitability and change the value of our net deferred tax asset causing a corresponding charge against earnings.

The net deferred tax asset reported on our balance sheet represents the net amount of income taxes expected to be received upon the reversal of temporary differences between the bases of assets and liabilities as measured by enacted tax laws, and their bases as reported in the financial statements. As of September 30, 2021, our net deferred tax asset was computed using the federal statutory rate of 21%. Additionally, the Company’s effective tax rate was 19.9% for the three months ended September 30, 2021.

The President of the United States and members of Congress have announced plans to pursue tax law changes including raising the federal corporate income tax rate from its current level of 21%. If these plans ultimately result in the enactment of new laws raising the corporate income tax rate, our net deferred tax asset would need to be re-measured. This could result in an increase to the deferred tax asset in the period of the law change and a corresponding credit to earnings but could be offset by an increase to the income tax provision in the year of enactment and future years.

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.

The following table presents information regarding stock repurchases by the Company during the quarter ended September 30, 2021.

	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2021 through July 31, 2021		88,029	$	18.34		88,029		456,060
August 1, 2021 through August 31, 2021		43,341		18.30		43,341		412,719
September 1, 2021 through September 30, 2021		72,891		18.01		72,891		339,828
Total		204,261	$	18.21		204,261

Subsequent to September 30, 2021, and through November 2, 2021, the Company repurchased 52,071 shares of common stock, at an average cost of $18.44 per share.

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⁾

3.2		Bylaws of PCSB Financial Corporation ⁽²⁾

10.1		Amended and Restated PCSB Bank Supplemental Life Insurance Plan

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

101		The following materials for the quarter ended September 30, 2021, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

104		Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101.

(1)	Incorporated by reference to Exhibit 3.1 to the 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).

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: November 5, 2021		/s/ Joseph D. Roberto
		Joseph D. Roberto
		Chairman, President and Chief Executive Officer

Date: November 5, 2021		/s/ Jeffrey M. Helf
		Jeffrey M. Helf
		Senior Vice President and Chief Financial Officer

Exhibit 10.1

AMENDED AND RESTATED PCSB BANK

SUPPLEMENTAL LIFE INSURANCE PLAN

PCSB Bank (the “Bank”) hereby establishes the Amended and Restated PCSB Bank Supplemental Life Insurance Plan (the “Plan”) effective as of September 22, 2021, which amends and restates the Putnam County Savings Bank Supplemental Life Insurance Plan, originally effective December 1, 2012. The purpose of the Plan is to provide benefits with respect to certain life insurance policies (the “Policy” or “Policies”) issued by a duly licensed life insurance company (the “Insurer”) on the lives of certain key employees of the Bank (the “Insureds”). A separate endorsement form (“Endorsement Form”) and benefit schedule (“Benefit Schedule”) shall be provided to each Insured with respect to such Insured’s death benefits under this Plan.

The Bank is the owner of the Policy or Policies set forth on each Endorsement Form and the respective rights and duties of the Bank and Insured in the Policy or Policies are set forth herein, on the Endorsement Form and on the Insured’s Benefit Schedule. This Plan is intended to consist of one or more non-equity endorsement split dollar agreement(s).

1.Policy Title and Ownership; Endorsement.

(a)Policy title and ownership shall reside in the Bank for its use and for the use of the Insured, all in accordance with this Plan. Each Policy shall be treated as “bank owned life insurance” (“BOLI”). The Bank may, to the extent of its interest, exercise the right to borrow or withdraw on the Policy cash values. Where the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the Policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Plan.

(b)The Insured shall be entitled to the lesser of the amount set forth in the Benefit Schedule or the Net Death Proceeds under the Policy or Policies. The “Net Death Proceeds” means the total death proceeds of the Policy or Policies minus the greater of (i) the cash surrender value or (ii) the aggregate premiums paid by the Bank.

(c)An endorsement (either on the form attached hereto or in the form required by the Insurer) must be completed and filed with the Insurer for each Policy in order to implement the rights and obligations set forth in this Plan. The parties agree that the Policy shall be subject to the terms and conditions of this Plan and of the endorsement filed with the Insurer.

(d)The Bank agrees that, except as otherwise provided herein, it shall not sell, assign, transfer, surrender or cancel the policy, or change the beneficiary designation without the express written consent of the Insured.

(e)Notwithstanding the foregoing, the Bank shall be permitted, to exchange or replace a Policy or Policies on the life of an Insured with a comparable policy of life insurance in an exchange qualifying under Section 1035 of the Internal Revenue Code. In such event, the Insured

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shall agree to provide medical information and cooperate with medical insurance-related testing required by a prospective insurer for implementing the replacement policy or, if necessary, for modifying or updating to a comparable insurer.

2.Beneficiary Designation Rights. The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured’s share of the Policy proceeds payable upon the death of the Insured, subject to any right or interest the Bank may have in such proceeds, as provided in this Plan. The Bank shall not terminate, alter or amend the Insured’s beneficiary designations without the written consent of the Insured, provided that the Insured remains employed by the Bank. The Bank shall be the beneficiary of any proceeds remaining under the Policy after the payment required under this Plan has been made to the Insured’s designated beneficiary.

3.Premium Payment. The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the Policy in force. Notwithstanding the foregoing, the Bank shall have the absolute and sole right to terminate and surrender any or all of the Policies that are subject to this Plan.

4.Taxable Benefit. Annually, the Insured will recognize a taxable benefit equal (a) the current term rate for the Insured’s age, multiplied by (b) the net death benefit payable to the Insured’s beneficiary. The Bank (or its administrator) will timely report to the Insured the amount of such imputed income each year on IRS Form W-2 or its equivalent. The Bank and the Insured intend that this Plan will be subject to taxation under the “economic benefit regime” set forth in Treasury Regulations section 1.61-22(d), such that the Insured shall have taxable income equal to the annual cost of the current life insurance coverage provided under the Policy.

5.Division of Death Proceeds. Upon the death of the Insured, the Bank shall cooperate with the Insured’s designated beneficiary to take whatever action is necessary to collect the death benefit provided under the Policy. Subject to Sections 6 and 9 below, the division of the death proceeds of the Policy shall be as set forth on the Insured’s Benefit Schedule, provided, however, that in no case will the Insured’s death benefits be greater than the Net Death Proceeds. All death benefits provided under this Plan are in addition to any group life insurance coverage maintained by the Bank on its employees.

6.Ownership of the Cash Surrender Value of the Policies.

(a)The Bank shall at all times be entitled to one hundred percent (100%) of the Policy’s cash value, as that term is defined in the Policy contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank. Such cash value shall be determined as of the date of surrender or death, as the case may be.

(b)The Bank may pledge or assign the Policy, subject to the terms and conditions of this Plan, for the sole purposes of securing a loan from the Insurer. The amount of such loan, including accumulated interest thereon, shall not exceed the lesser or (i) the amount of the premiums on the Policy paid by the Bank, or (ii) the cash surrender value of the Policy (as defined in the Policy). Interest charges on such loan shall be paid by the Bank.

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7.Rights of Insured or Assignees. With the Bank’s written consent, the Insured may assign without consideration the Insured’s interests in the Policy and in this Plan to any person, entity or trust. If the Insured transfers all of the Insured’s interest in the Policy, then all of the Insured’s interest in the Policy and in this Plan shall be vested in the Insured’s transferee, who shall be substituted as a party hereunder, and the Insured shall have no further interest in the Policy or in this Plan.

8.Insurer. The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities and persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Plan.

9.Termination.

(a)Termination of Plan. This Plan shall terminate upon the surrender, lapse or other termination of all of the Policies by the Board.

(b)Termination of Coverage. Coverage under the Plan (and all rights of the Insured and his beneficiary(ies)) will terminate if: (i) any regulatory agency requires the Bank to sever its relationship with the Insured, (ii) the Bank is subjected to any regulatory restrictions limiting its ability to pay such compensation to the Insured, (iii) upon the occurrence of the bankruptcy, insolvency, receivership or dissolution of the Bank, (iv) upon termination of the Insured’s employment, or (v) as may otherwise be determined by the Board in good faith.

10.Amendment and Revocation. The Insured and the Board agree that, during the Insured’s lifetime, this Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Insured and the Board or may be amended and revoked at any time without the consent of the Insured if, in the sole discretion of the Board, such amendment or termination is necessary or desirable as a result of changes in the tax laws or accounting rules.

11.ERISA Provisions.

To the extent this Plan is treated as a “welfare benefit plan” within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the following provisions shall apply.

(a)The Board, or in the Board’s discretion, a Committee of the Board composed of its non-employee directors, shall be the “Administrator” and named fiduciary for purposes of ERISA under this Plan. Accordingly, the Board shall have authority to control and manage the operation and administration of this Plan, including the right to interpret any provision of this Plan, and such interpretation shall be binding on all parties.

(b)All premiums paid with respect to the Policy shall be remitted to the Insurer when due in accordance with the Plan.

(c)Benefits under this Plan shall be paid directly by the Insurer, with those benefits in turn being based on the payment of premiums as provided in this Plan.

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(d)For purposes of handling claims with respect to this Plan, the “Claims Reviewer” shall be the Administrator, unless another person or organizational unit is designated by the Board as Claims Reviewer.

12.Claims Procedure.

(a)Any person or entity who has not received benefits under this Executive Split Dollar Agreement that he or she believes should be paid (the claimant) shall make a claim for such benefits as follows:

(1)Initiation of Written Claim. The claimant initiates a claim by submitting to the Administrator a written claim for the benefits.

(2)Timing of Administrator Response. The Administrator shall respond to such claimant within 90 days after receiving the claim. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

(3)Notice of Decision. If the Administrator denies part of or the entire claim, the Administrator shall notify the claimant in writing of such denial. The Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall be set forth with: (i) The specific reasons for the denial; (ii) A reference to the specific provisions of this Agreement on which the denial is based; (iii) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed; (iv) An explanation of the Agreement’s review procedures and the time limits applicable to such procedures; and (v) A statement of the claimant’s right, if any, to bring a civil action under the Employee Retirement Income Security Act of 1974 (ERISA) section 502(a) following an adverse benefit determination on review.

(b)Review Procedure. If the Administrator denies part of or the entire claim, the claimant shall have the opportunity for a full and fair review by the Administrator of the denial, as follows:

(1)Initiation of Written Request. To initiate the review, the claimant, within 60 days after receiving the Administrator’s notice of denial, must file with the Administrator a written request for review.

(2)Additional Submissions of Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

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(3)Considerations on Review. In considering the review, the Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

(4)Timing of Administrator Response. The Administrator shall respond in writing to such claimant within 60 days after receiving the request for review. If the Administrator determines that special circumstances require additional time for processing the claim, the Administrator can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Administrator expects to render its decision.

(5)Notice of Decision. The Administrator shall notify the claimant in writing of its decision on review. The Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall be set forth with: (i) the specific reasons for the denial; (ii) a reference to the specific provisions of the Agreement on which the denial is based; (iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and (iv) a statement of the claimant’s right to bring a civil action under ERISA section 502(a).

(c)In no event may a claimant commence a legal action for benefits the claimant believes are due to the claimant until the claimant has exhausted all of the remedies and procedures set forth in this Section and under ERISA.

14.Miscellaneous.

(a)Binding Agreement. The Insured and the Bank agree that this Plan shall be binding on their heirs, successors, personal representatives and assigns.

(b)Severability. If a provision of this Plan is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms.

(c)Governing Law. This Plan shall be governed by the laws of the State of New York, to the extent not pre-empted by federal law, without regard to conflict of law provisions.

(d)Notices. Any notice, consent or demand required or permitted to be given hereunder shall be in writing and shall be signed by the party giving such notice, consent or demand. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States certified mail, FedEx (or other reputable overnight delivery service) to such party’s last known address as shown on the Bank’s records. The date of the mailing shall be deemed to be the date of the notice.

(f)Binding on Successors. This Plan and the payment of all benefits hereunder shall be binding on any and all successors to the Bank.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Bank, through its duly authorized representative, has executed this Plan on the date set forth below.

PCSB BANK

Date: September 28, 2021 By: /s/ Joseph D. Roberto______________________

Joseph D. Roberto

Chairman, President and Chief Executive Officer (Duly Authorized Representative)

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Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph D. Roberto, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of PCSB Financial Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2021		/s/ Joseph D. Roberto
		Joseph D. Roberto
		Chairman, President and Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey M. Helf, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of PCSB Financial Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2021		/s/ Jeffrey M. Helf
		Jeffrey M. Helf
		Senior Vice President and Chief Financial Officer

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Joseph D. Roberto, Chairman, President and Chief Executive Officer of PCSB Financial Corporation (the “Company”), and Jeffrey M. Helf, Senior Vice President and Chief Financial Officer of the Company, each certify in his capacity as an executive officer of the Company that he has reviewed the quarterly report on Form 10-Q for the quarter ended September 30, 2021 (the “Report”) and that to the best of his knowledge:

The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2021		/s/ Joseph D. Roberto
		Joseph D. Roberto
		Chairman, President and Chief Executive Officer

Date: November 5, 2021		/s/ Jeffrey M. Helf
		Jeffrey M. Helf
		Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.