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OFFON

PCSB FINANCIAL CORPORATION

(PCSB)
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PCSB FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

09/10/2021 | 04:26pm EDT

General


This section is intended to help investors understand the consolidated financial
performance of PCSB Financial through a discussion of the factors affecting our
financial condition at June 30, 2021 and 2020 and our results of operations for
the years ended June 30, 2021 and 2020. This section should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements contained in this annual report.

Overview


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

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

Expenses. The noninterest expenses we incur in operating our business consist of salaries and employee benefits, occupancy and equipment, data processing, federal deposit insurance and other general and administrative expenses.

Salaries and employee benefits consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans, stock-based compensation and other employee benefits.


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

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

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

Critical Accounting Policies


A summary of our accounting policies is described in Note 1 to Notes to
Consolidated Financial Statements. Critical accounting estimates are necessary
in the application of certain accounting policies and procedures and are
particularly susceptible to significant change. Critical accounting policies are
defined as those involving significant judgments and assumptions by management
that could have a material impact on the carrying value of certain assets or on
income under different assumptions or conditions. Management believes that the
most critical accounting policies, which involve the most complex or subjective
decisions or assessments, are as follows:

Allowance for Loan Losses. The allowance for loan losses is a valuation
allowance for probable incurred loan losses. The allowance for loan losses is
increased by provisions for loan losses charged to income. Losses are charged to
the allowance for loan losses when all or a portion of a loan is deemed to be
uncollectible. Recoveries of

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loans previously charged off are credited to the allowance when realized. See
Note 4 to Notes to Consolidated Financial Statements for a complete discussion
of the allowance for loan losses.

Loan Portfolio

General. Loans are our primary interest-earning asset. At June 30, 2021, net loans represented 65.6% of our total assets. The following tables set forth certain information about our loan portfolio.

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



                                                                                           At June 30,
                                      2021                            2020                         2019                        2018                       2017
                             Amount           Percent         Amount        Percent        Amount        Percent       Amount       Percent       Amount       Percent
                                                                                     (Dollars in thousands)
Mortgage loans:
Residential               $    224,305           18.13 %    $   255,382        20.14 %   $   265,167        24.17 %   $ 250,578        27.67 %   $ 217,778        26.77 %
Commercial                     826,624           66.79          807,106        63.65         651,396        59.38       495,265        54.70       437,651        53.80
Construction                    10,151            0.82           11,053    
    0.87          13,231         1.21        17,352         1.92        22,404         2.75
Total                        1,061,080           85.74        1,073,541    
   84.66         929,794        84.76       763,195        84.29       677,833        83.32
Commercial loans               150,658           12.17          164,257        12.95         133,614        12.18       104,135        11.50        93,631        11.50
Home equity lines of
credit                          25,439            2.06           29,838         2.35          33,204         3.03        37,395         4.13        41,927         5.15
Consumer and overdrafts            345            0.03              481         0.04             365         0.03           745         0.08           233         0.03
Total loans receivable       1,237,522          100.00 %      1,268,117       100.00 %     1,096,977       100.00 %     905,470       100.00 %     813,624       100.00 %
Plus: net deferred
loans origination
(fees) costs                      (190 )                          1,469                        1,808                      1,770                      1,174
Less: allowance for
loan losses                     (7,881 )                         (8,639 )                     (5,664 )                   (4,904 )                   (5,150 )
Loans receivable, net     $  1,229,451                      $ 1,260,947                  $ 1,093,121                  $ 902,336                  $ 809,648



Loan Maturity. The following table sets forth certain information at June 30,
2021 regarding the dollar amount of loan maturities for the periods indicated.
The table does not include scheduled amortization or any estimate of prepayments
that significantly shorten the average loan life and may cause actual repayment
experience to differ from that shown below.



                                                                                                                  Home equity
                                   Residential         Commercial                                 Commercial        Lines of        Consumer and
                                 Mortgage Loans      Mortgage Loans      Construction Loans         Loans            Credit          Overdrafts        Total Loans
                                                                                           (in thousands)
Amounts due in:
 One year or less                $            57     $       10,278     $             10,151     $     40,256     $          -     $           135     

$ 60,877

 More than one year through
two years                                    298              8,371                        -           25,142                -                 121      

33,932

 More than two years through
three years                                  464             18,656                        -            7,426                4                  71      

26,621

 More than three years through
five years                                 1,292            107,937                        -           44,263                9                  18      

153,519

 More than five years through
ten years                                 18,127            291,151                        -           28,123              802                   -      

338,203

 More than ten years through
fifteen years                             28,050            276,771                        -            3,786            5,893                   -          314,500
 More than fifteen years                 176,017            113,460                        -            1,662           18,731                   -          309,870
   Total                         $       224,305     $      826,624     $             10,151     $    150,658     $     25,439     $           345     $  1,237,522



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The following table sets forth the dollar amount of all loans at June 30, 2021 that are due after June 30, 2022 and have either fixed interest rates or floating or adjustable interest rates.


                                                                   Floating or
                                                                    Adjustable
                                   Fixed Rates         %              Rates             %            Total
                                                            (Dollars in thousands)

Residential mortgage loans $ 192,642 85.91 % $ 31,606 14.09 % $ 224,248 Commercial mortgage loans

               198,770        24.35             617,576       75.65          816,346
Commercial loans                         87,222        79.00              23,180       21.00          110,402
Home equity lines of credit                  82         0.32              25,357       99.68           25,439
Consumer and overdrafts                     210       100.00                   -           -              210
   Total                          $     478,926        40.70 %    $      697,719       59.30 %    $ 1,176,645




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

We occasionally purchase whole loans and loan participation interests from other
financial institutions, which consist of interests in commercial mortgage loans,
multi-family mortgage loans and residential mortgage loans, primarily in our
market area. At June 30, 2021, we had $174.7 million in purchased whole loan and
participation interests.



Asset Quality

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

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

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

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

                                                             At June 30, 2021                                                                    At June 30, 2020
                                         30-89 Days                              90 Days or More                             30-89 Days                              90 Days or More
                                                     Carrying                                                                            Carrying
                               Number of Loans        Amount         Number

of Loans Carrying Amount Number of Loans Amount

Number of Loans Carrying Amount

                                                                                                    (Dollars in thousands)
Residential mortgage loans                    2     $       324                     4       $             948                     3     $       505                     4       $             806
Commercial mortgage loans                     2             453                     1                     411                     -               -                     -                       -
Construction                                  -               -                     -                       -                     -               -                     -                       -
Commercial loans                              3             145                     -                       -                     1              76                     -                       -
Home equity lines of credit                   1              19                     3                     381                     1              44                     3                     338
Consumer and overdrafts                       -               -                     -                       -                     -               -                     -                       -
   Total                                      8     $       941            
        8       $           1,740                     5     $       625                     7       $           1,144



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



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

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



                                                             At June 30,
                                       2021         2020         2019         2018         2017
                                                        (Dollars in thousands)
Non-accrual loans:
Residential mortgage loans           $  1,391     $  1,457     $  1,331     $  1,911     $  4,357
Commercial mortgage loans               3,582            -          568          794          497
Construction loans                          -            -            -        2,260        3,661
Commercial loans                            -            -          150          788        2,959
Home equity lines of credit               381          338          677          349          598
Total                                   5,354        1,795        2,726        6,102       12,072
Accruing loans past due 90 days or
more:
Commercial mortgage loans                 411            -            -            -            -
Consumer and overdrafts                     -            -            1            -            -
Total                                     411            -            1            -            -
Total non-performing loans              5,765        1,795        2,727        6,102       12,072
Foreclosed real estate                      -            -        1,158          460          977
Total non-performing assets          $  5,765     $  1,795     $  3,885     $  6,562     $ 13,049

Total non-performing loans to
total loans                              0.47 %       0.14 %       0.25 %       0.67 %       1.48 %
Total non-performing assets to
total assets                             0.31 %       0.10 %       0.24 %       0.44 %       0.91 %


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Interest income that would have been recorded for the year ended June 30, 2021
had non-accruing loans been current according to their original terms, amounted
to $218,000.

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

Other potential problem loans are those loans that are currently performing, but
where known information about possible credit problems of the borrowers causes
us to have concerns as to the ability of such borrowers to comply with
contractual loan repayment terms. These loans include non-impaired classified
loans or pass-rated loans currently on a COVID-19 related loan payment deferral.
At June 30, 2021, other potential problem loans totaled $30.8 million.

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

                                                                             At June 30,
                                                                  2021                         2020
                                                                           (in thousands)
Special mention                                             $          6,301             $          4,562
Substandard (1)                                                       21,602                        7,338
Doubtful                                                                   -                            -
Loss                                                                       -                            -
Total                                                       $         27,903             $         11,900

(1) The increase in substandard assets is primarily due to the downgrade of certain loans associated with the extension of COVID-19-related payment deferrals.





COVID-19 Related Loan Payment Deferrals. The COVID-19 pandemic has created
extensive disruptions to the local economy and our customers. In accordance with
emergency regulations promulgated by New York State Department of Financial
Services, financial institutions are required to provide payment accommodations,
which may include payment deferrals, to any consumer or small business who can
demonstrate financial hardship caused by COVID-19. Throughout the pandemic and
as of June 30, 2021, the Company has granted loan payment deferrals for 113
residential mortgage loans and home equity lines of credit totaling $32.0
million, as well as deferrals for 217 commercial mortgage, commercial loan and
construction loans totaling $188.1 million. The table below summarizes the
deferrals granted to-date and their status as of June 30, 2021 (dollar amounts
in thousands):



                                                           Remain on deferral as of 6/30/21                   Scheduled to resume payments on or before 6/30/2021
                                                                                                                                             % of Total    % of Loans
                                                                                        % of Total                                             Amount      30 Days or
                  Number of      Recorded                              Recorded       Amount Granted       Number of         Recorded          Granted      More Past
                    loans       Investment       Number of loans      Investment         Deferral            loans          Investment        Deferral         Due
Consumer                113    $      32,042               7         $       3,147                9.8 %          106      $       28,895            90.2 %         0.8 %
Commercial              217          188,141               12               24,160               12.8            205             163,981            87.2           0.8
Total                   330    $     220,183               19        $      27,307               12.4 %          311      $      192,876            87.6 %         0.3 %










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




                                                                                                                     Weighted
                                                     Recorded          % secured by                                   average
                                   Number of      Investment (2)       real estate         Loan-to-Value % (4)        term of
                                     loans             (3)              collateral                                   remaining
                                                                                                                     deferral
Industry Sector:                                                                                                    (in months)
Consumer (1)                              7       $        3,147                100.0 %                    57.5 %           0.3
Commercial:
Retail (3)                                3               11,591                100.0                      48.7             4.8
Hotels and accommodation services         2                7,648                100.0                      55.6             0.6
Food service                              2                3,018                100.0                      59.8             6.1
All other commercial                      5                1,903                 89.2                      70.0             2.2
Total commercial                          12              24,160                 99.2                      57.8             3.9
Total                                     19      $       27,307                 99.2 %                    57.7 %           3.5

(1) Includes first and second lien residential mortgages of $2.9 million and $294,000, respectively.

(2) Includes loans classified as special mention and substandard of $3.2 million and $14.2 million, respectively.

(3) Includes $3.6 million of nonaccrual loans. All loans are considered current.

  (4)  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 June 30, 2021 (dollar amounts in
thousands):



                          Consumer       Commercial       Total
Principal only           $        -     $     16,047     $ 16,047
Interest only                   294            1,513        1,807
Principal and interest        2,853            6,600        9,453
Total                    $    3,147     $     24,160     $ 27,307




Of those loans still on deferral as of June 30, 2021, $12.5 million are
scheduled to resume payments prior to September 30, 2021, with the remainder
scheduled to resume payments prior to January 31, 2022. As our borrowers'
financial condition and individual circumstances are assessed in the future,
additional payment deferrals may be granted.

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

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



                                                         Year Ended June 30,
                                       2021         2020         2019         2018         2017
                                                        (Dollars in thousands)
Allowance for loan losses at
beginning of period                  $  8,639     $  5,664     $  4,904     $  5,150     $  4,042
(Benefit) provision for loan
losses                                   (673 )      3,064          808          414          823
Charge-offs:
Residential mortgage loans                  -           31            -          136          275
Commercial mortgage loans                   -            -          129            -            -
Construction loans                          -            -            -          997          108
Commercial loans                          258          181            -           54          743
Home equity lines of credit                 -            -            -           60            -
Consumer and overdrafts                    27           51           34           23            3
Total charge-offs                    $    285     $    263     $    163     $  1,270     $  1,129
Recoveries:
Residential mortgage loans                 17            9           10            1           70
Commercial mortgage loans                   -          125            -          370           19
Construction loans                          -            -           96            -            -
Commercial loans                          172           20            2          220        1,321
Home equity lines of credit                 8           12            -           19            -
Consumer and overdrafts                     3            8            7            -            4
Total recoveries                          200          174          115          610        1,414
Net charge-offs (recoveries)               85           89           48          660         (285 )
Allowance for loan losses at end
of period                            $  7,881     $  8,639     $  5,664     $  4,904     $  5,150
Allowance for loan losses to
non-performing loans at end of
period                                 136.73 %     481.28 %     207.70 %      80.37 %      42.66 %
Allowance for loan losses to total
loans outstanding at end of period       0.64 %       0.69 %       0.52 %       0.54 %       0.63 %
Net charge-offs (recoveries) to
average loans outstanding during
period                                   0.00 %       0.01 %       0.01 %   

0.08 % (0.04 )%



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

                                                                         At June 30,
                                                   2021                                               2020
                                                                Percent of                                         Percent of
                                            Percent of           Loans in                      Percent of           Loans in
                                           Allowance to        Category to                    Allowance to        Category to
                              Amount      Total Allowance      Total Loans       Amount      Total Allowance      Total Loans
                                                                   (Dollars in thousands)
Residential mortgage loans    $   337                4.28 %            18.13 %   $   373                4.32 %            20.14 %
Commercial mortgage loans       6,435               81.65              66.79       6,913               80.02              63.65
Construction loans                102                1.29               0.82         165                1.91               0.87
Commercial loans                  948               12.03              12.17       1,124               13.01              12.95
Home equity lines of credit        54                0.69               2.06          60                0.69               2.35
Consumer and overdrafts             5                0.06               0.03           4                0.05               0.04
Total                         $ 7,881              100.00 %           100.00 %   $ 8,639              100.00 %           100.00 %




                                       47
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                                                                                                  At June 30,
                                                   2019                                               2018                                               2017
                                                                Percent of                                         Percent of                                         Percent of
                                            Percent of           Loans in                      Percent of           Loans in                      Percent of           Loans in
                                           Allowance to        Category to                    Allowance to        Category to                    Allowance to        Category to
                              Amount      Total Allowance      Total Loans       Amount      Total Allowance      Total Loans       Amount      Total Allowance      Total Loans
                                                                                             (Dollars in thousands)
Residential mortgage loans    $   446                7.87 %            24.17 %   $   459                9.36 %            27.67 %   $   386                7.50 %            26.77 %
Commercial mortgage loans       3,853               68.03              59.38       3,073               62.66              54.70       2,589               50.26              53.80
Construction loans                159                2.81               1.21         505               10.30               1.92       1,150               22.33               2.75
Commercial loans                1,130               19.95              12.18         780               15.91              11.50         949               18.43              11.50
Home equity lines of credit        65                1.15               3.03          80                1.63               4.13          76                1.48               5.15
Consumer and overdrafts            11                0.19               0.03           7                0.14               0.08           -                   -               0.03
Total                         $ 5,664              100.00 %           100.00 %   $ 4,904              100.00 %           100.00 %   $ 5,150              100.00 %           100.00 %




See Note 4 to Notes to Consolidated Financial Statements for a complete
discussion of the allowance for loan losses. Although we believe that we use the
best information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and our results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations. Furthermore, while we
believe we have established our allowance for loan losses in conformity with
generally accepted accounting principles in the United States of America, there
can be no assurance that regulators, in reviewing our loan portfolio, will not
require us to increase our allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that increases will not be necessary should the quality of any
loans deteriorate as a result of the factors discussed above. Any material
increase in the allowance for loan losses may adversely affect our financial
condition and results of operations.

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Securities Portfolio


The following table sets forth the amortized cost and estimated fair value of
our held to maturity and available for sale securities portfolios at the dates
indicated.



                                                                           At June 30,
                                              2021                            2020                            2019
                                   Amortized                       Amortized                       Amortized
                                      Cost         Fair Value         Cost         Fair Value         Cost         Fair Value
                                                                         (in thousands)
Securities held to maturity:
U.S. Government and agency
obligations                        $   33,994     $     34,112     $   42,001     $     42,450     $   96,545     $     96,491
Corporate                              43,605           44,879         43,634           42,317         30,033           29,694
State and municipal                    57,625           57,817          9,156            9,295          4,000            4,059
Mortgage-backed securities -
residential                            96,181           98,787        117,160          121,434        133,602          134,048
Mortgage-backed securities -
collateralized mortgage
obligations                            33,300           33,348         45,047           46,503         52,940           53,104
Mortgage-backed securities -
commercial                             72,879           73,194         18,774           19,498         28,425           28,847
Total                              $  337,584     $    342,137     $  275,772     $    281,497     $  345,545     $    346,243
Securities available for sale:
U.S. Government and agency
obligations                        $   21,931     $     21,816     $   11,002     $     11,049     $   37,027     $     36,911
Corporate                               8,013            8,189          5,038            5,120          8,349            8,360
State and municipal                     7,041            7,115              -                -              -                -
Mortgage-backed securities -
residential                            17,738           17,654         20,844           21,257         27,115           26,957
Mortgage-backed securities -
commercial                              2,490            2,613              -                -              -                -
Total                              $   57,213     $     57,387     $   36,884     $     37,426     $   72,491     $     72,228


At June 30, 2021, we had no investments in a single issuer, other than securities issued by the U.S. government and government agencies, which had an aggregate book value in excess of 10% of our shareholders' equity.

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Securities Portfolio Maturities and Yields. The following table sets forth the
stated maturities and weighted average yields of investment securities at June
30, 2021. The table does not include any estimate of principal payments or
prepayments that significantly shorten the average life of mortgage-backed
securities. Certain mortgage-backed securities, corporate and other debt
securities have adjustable interest rates and will reprice annually within the
various maturity ranges. These repricing schedules are not reflected in the
following table. Weighted average yield calculations on investment securities
available for sale do not give effect to changes in fair value that are
reflected as a component of equity. At June 30, 2021, we did not have any
investments in any private-label collateralized mortgage obligations.




                                             One Year or Less               

More than One Year to Five Years More than Five Years to Ten Years

              More than Ten Years                                   Total
                                                           Weighted         Amortized              Weighted         Amortized              Weighted                                  Weighted          Amortized                         Weighted
                                     Amortized Cost      Average Yield         Cost             Average Yield          Cost             Average Yield         Amortized Cost       Average Yield          Cost         Fair Value      Average Yield
                                                                                                                                 (Dollars in thousands)
Securities held to maturity:
U.S. Government and agency
obligations                         $          1,999              2.91 %   $     26,995                   1.15 %   $      5,000                   1.10   %   $              -                  -   %   $   33,994     $     34,112              1.25 %
Corporate                                          -                 -           10,000                   1.53           33,605                   4.10                      -                  -           43,605           44,879              3.51
State and municipal                               36              0.50              665                   0.76               90                   1.18                 56,834               2.07           57,625           57,817              2.05
Mortgage-backed securities -
residential                                       24              2.25              926                   1.54           17,548                   2.12                 77,683               2.20           96,181           98,787              2.18
Mortgage-backed securities -
collateralized mortgage
obligations                                        -                 -                -                      -            4,675                   1.75                 28,625               1.57           33,300           33,348              1.59
Mortgage-backed securities -
commercial                                     4,818              2.45            7,523                   2.88           10,959                   1.80                 49,579               1.84           72,879           73,194              1.98
Total                               $          6,877              2.57 %   $     46,109                   1.52 %   $     71,877                   2.90 %     $        212,721               2.00 %     $  337,584     $    342,137              2.14 %
Securities available for sale:
U.S. Government and agency
obligations                         $          1,000              1.35 %   $     13,000                   1.06 %   $      7,931                   1.06   %   $              -                  -   %   $   21,931     $     21,816              1.08 %
Corporate                                      3,013              2.23            2,000                   1.27            3,000                   4.38                      -                  -            8,013            8,189              2.80
State and municipal                                -                 -                -                      -                -                                         7,041               2.16            7,041            7,115              2.16
Mortgage-backed securities -
residential                                        -                 -                -                      -                -                      -                 17,738               1.27           17,738           17,654              1.27
Mortgage-backed securities -
commercial                                                           -            2,490                   2.22                -                                             -                  -            2,490            2,613              2.22
Total                               $          4,013              2.01 %   $     17,490                   1.25 %   $     10,931                   1.97   %   $         24,779               1.52 %     $   57,213     $     57,387              1.56 %







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Other-than-temporary Impairment. Each reporting period, we evaluate all
securities with a decline in fair value below the amortized cost of the
investment to determine whether or not the impairment is deemed to be
other-than-temporary. Other-than-temporary impairment ("OTTI") is required to be
recognized if (1) we intend to sell the security; (2) it is more likely than not
that we will be required to sell the security before recovery of its amortized
cost basis; or (3) for debt securities, the present value of expected cash flows
is not sufficient to recover the entire amortized cost basis. For impaired debt
securities that we intend to sell, or more likely than not will be required to
sell, the full amount of the depreciation is recognized as OTTI, resulting in a
realized loss that is a charged to earnings through a reduction in our
noninterest income. For all other impaired debt securities, credit-related OTTI
is recognized through earnings and non-credit related OTTI is recognized in
other comprehensive income/loss, net of applicable taxes. We did not recognize
any OTTI during the years ended June 30, 2021 or 2020.

Deposits


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



                                                            At June 30,
                                                 2021                         2020
                                         Amount        Percent        Amount        Percent
                                                      (Dollars in thousands)
Non interest-bearing demand accounts   $   219,072        14.69 %   $   191,898        13.97 %
NOW Accounts                               177,223        11.88         151,797        11.05
Money market accounts                      332,843        22.31         239,942        17.47
Savings accounts                           387,529        25.99         343,352        25.01
Time deposits
Less than $100,000                         156,946        10.52         176,732        12.87
Greater than or equal to $100,000          218,069        14.62         269,534        19.63
Total                                  $ 1,491,682       100.00 %   $ 1,373,255       100.00 %



    At June 30, 2021 and 2020, we had municipal deposits of $74.4 million and
$44.1 million, respectively. Additionally, as of June 30, 2021 and 2020,
deposits included $30.0 million and $67.5 million, respectively, of brokered
time deposits with remaining maturities of between 12 and 32 months.

The following table indicates the amount of jumbo time deposits by time
remaining until maturity at June 30, 2021. Jumbo time deposits require minimum
deposits of $100,000.



Maturity Period                   Dollar Amount
                                 (in thousands)
Three months or less             $        39,920
Over three through six months             39,958
Over six through twelve months            46,175
Over twelve months                        92,016
Total                            $       218,069





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The following table sets forth time deposit accounts classified by rate and
maturity at June 30, 2021.



                                               Amount Due
                                                                                                         Percent of
                                     More Than One     More Than Two                                     Total Time
                      Less Than       Year to Two        Years to         More Than                       Deposit
                      One Year           Years          Three Years     
Three Years       Total          Accounts
                                                          (Dollars in thousands)
0.00 - 1.00%         $   178,840     $      22,277     $       2,839     $    16,042     $ 219,998              58.67 %
1.01 - 2.00%              37,412            22,597            21,830           6,128        87,967              23.46
2.01 - 3.00%              10,606             7,332            47,036           1,865        66,839              17.81
3.01 - 4.00%                   -               105               106               -           211               0.06
Total                $   226,858     $      52,311     $      71,811     $    24,035     $ 375,015             100.00 %



Borrowings

We primarily utilize advances from the FHLBNY to supplement our supply of
investable funds. At June 30, 2021 we had the ability to borrow up to $264.3
million from the FHLBNY, of which $66.0 million was outstanding as of June 30,
2021. Additionally, as of June 30, 2021, we had an available line of credit with
the FRBNY's discount window program of $96.4 million as well as $25.0 million of
fed funds lines of credit, neither of which had outstanding balances as of June
30, 2021. The following table sets forth information concerning our FHLBNY
borrowings at the dates and for the periods indicated.

                                                                Year Ended June 30,
                                                                2021             2020
                                                               (Dollars in thousands)

Maximum balance outstanding at any month-end during period: $ 106,078

   $  156,206
Average balance outstanding during period:                        102,919   

111,008

Weighted average interest rate during period:                        1.97 %         2.21 %
Balance outstanding at end of period:                       $      65,957     $  106,089
Weighted average interest rate at end of period:                     2.03 %         1.95 %



Average Balance Sheets and Related Yields and Rates


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



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                                                                                            Year ended June 30,
                                                                      2021                                                          2020
                                                Average              Interest/             Average               Average              Interest/         Average
                                                Balance              Dividends              Rate                 Balance              Dividends          Rate
                                                                                          (Dollars in thousands)

Assets:

Loans receivable (1)                       $       1,245,818       $       49,470                3.97 %     $       1,198,449       $       52,107          4.35 %
Investment securities (1)                            327,879                7,340                2.29                 346,569                8,870      

2.57

Other interest-earning assets                        169,855                  454                0.27                  69,371                  933      

1.34

Total interest-earning assets                      1,743,552               57,264                3.30               1,614,389               61,910          3.84
Non-interest-earning assets                           72,522                                                           69,268
Total assets                               $       1,816,074                                                $       1,683,657

Liabilities and equity:
NOW accounts                               $         160,652                  296                0.18       $         127,091                  270          0.21
Money market accounts                                273,007                  819                0.30                 177,052                1,647          0.93
Savings accounts and mortgage escrow
funds                                                369,681                  611                0.17                 350,897                  866          0.25
Time deposits                                        421,168                6,165                1.46                 469,336                9,992          2.13
Total interest-bearing deposits                    1,224,508                7,891                0.64               1,124,376               12,775          1.14
FHLB advances                                        102,919                2,031                1.97                 111,008                2,456          2.21
Total interest-bearing liabilities                 1,327,427                9,922                0.75               1,235,384               15,231      

1.23

Non-interest-bearing deposits                        189,667                                                          148,262
Other non-interest-bearing liabilities                25,707                                                           21,563
Total liabilities                                  1,542,801                                                        1,405,209
Total shareholders' equity                           273,273                                                          278,448
Total liabilities and shareholders'
equity                                     $       1,816,074                                                $       1,683,657

Net interest income                                                $       47,342                                                   $       46,679
Interest rate spread -tax equivalent
(2)                                                                                              2.55                                                   

2.61

Net interest margin - tax equivalent
(3)                                                                                              2.73                                                   

2.89

Average interest-earning assets to
interest-bearing liabilities                          131.35 %                                                         130.68 %

(1) Tax exempt yield is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 21% for all periods presented. See
reconciliation of non-GAAP measures at the end of this release.
(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 tax equivalent net interest income divided by average interest-earning assets. See reconciliation of non-GAAP measures at the
end of this release.




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Rate/Volume Analysis

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



                                                        Year ended June 30, 2021 Compared to 2020
                                                     Increase (Decrease) Due to
                                                       Rate               Volume               Net
                                                                      (in thousands)
Interest income:
Loans receivable - tax equivalent                 $       (4,202 )     $      1,565       $       (2,637 )
Investment securities - tax equivalent                    (1,562 )               32               (1,530 )
Other interest-earning assets                             (1,132 )              653                 (479 )
Total interest-earning assets                             (6,896 )            2,250               (4,646 )

Interest expense:
NOW accounts                                                 (38 )               64                   26
Money market accounts                                     (1,452 )              624                 (828 )
Savings and escrow accounts                                 (279 )               24                 (255 )
Time deposits                                             (2,882 )             (945 )             (3,827 )
FHLB advances                                               (254 )             (171 )               (425 )
Total interest-bearing liabilities                        (4,905 )             (404 )             (5,309 )

(Decrease) increase in net interest income $ (1,991 ) $

2,654 $ 663

Comparison of Financial Condition at June 30, 2021 and June 30, 2020




Total Assets. Total assets increased $83.0 million, or 4.6%, to $1.87 billion at
June 30, 2021 from $1.79 billion at June 30, 2020. The increase is primarily the
result of increases of $81.8 million in total investment securities, $23.0
million in cash and cash equivalents and $10.5 million in bank-owned life
insurance, partially offset by a $31.5 million decrease in net loans receivable.

Cash and Cash Equivalents. Cash and cash equivalents increased $23.0 million, or
16.9%, to $159.3 million at June 30, 2021 from $136.3 million at June 30, 2020.
The increase is primarily due to a $118.4 increase in deposits and a $31.5
million decrease in net loans receivable, partially offset by an $81.8 million
increase in investment securities and a $40.1 million decrease in FHLB advances.

Securities Held to Maturity. Total securities held to maturity increased $61.8
million, or 22.4%, to $337.6 million at June 30, 2021 from $275.8 million at
June 30, 2020. This increase was primarily due to increases of $48.4 million in
municipal securities and $21.4 million in mortgage-backed securities, partially
offset by an $8.0 million decrease in U.S. government and agency obligations.



Securities Available for Sale. Total securities available for sale increased
$20.0 million, or 53.3%, to $57.4 million at June 30, 2021 from $37.4 million at
June 30, 2020. This increase was primarily due to increases of $10.9 million in
U.S. government and agency obligations, $7.0 million in municipal securities and
$3.0 million in corporate bonds, partially offset by a decrease of $616,000 in
mortgage-backed securities and a $368,000 decrease in net unrealized gains.



Net Loans Receivable. Net loans receivable decreased $31.5 million, or 2.5%, to
$1.23 billion at June 30, 2021 from $1.26 billion at June 30, 2020. The decrease
in loans receivable was the result of decreases of $31.1 million in residential
mortgages, $13.6 million in commercial loans, $4.4 million in home equity lines
of credit and

                                       54
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$1.9 million in all other loans, partially offset by an increase of $19.5
million in commercial mortgage loans. The decrease in commercial loans includes
a decrease of $12.6 million in PPP loans, driven by $23.8 million in PPP loan
originations being more than offset by paydowns and forgiveness of $36.4
million.



Deposits. Total deposits increased $118.4 million, or 8.6%, to $1.49 billion at
June 30, 2021 as compared to $1.37 billion at June 30, 2020. This increase
primarily reflects increases of $92.9 million in money market accounts, $44.2
million in savings, $27.2 million in demand deposits and $25.4 million in NOW
accounts, partially offset by a $71.3 million decrease in time deposits, which
includes a decrease of $37.5 million in brokered time deposits. The Company
continued to experience significant deposit inflows, likely the result of
numerous economic trends associated with COVID-19, including reduced consumer
and commercial spending, and various forms of government stimulus.



Federal Home Loan Bank Advances. FHLB advances decreased $40.1 million, or
37.8%, to $66.0 million at June 30, 2021 as compared to $106.1 million at June
30, 2020. This decrease is due to maturities and principal paydowns of $40.1
million.



Total Shareholder's Equity. Total shareholders' equity increased $847,000, or
0.3%, to $274.6 million at June 30, 2021 from $273.7 million at June 30,
2020. This increase was primarily due to net income of $12.4 million, $4.8
million of stock-based compensation and reduction in unearned ESOP shares for
plan shares earned during the year and $3.3 million of other comprehensive
income, partially offset by the repurchase of $16.9 million (1,121,774 shares)
of common stock and $2.7 million of cash dividends declared and paid. A
repurchase program authorized on August 20, 2020 by the Board of Directors to
repurchase up to 844,907 shares was completed in January 2021 at an average cost
of $14.24 per share. On February 3, 2021, a repurchase plan was authorized to
repurchase up to 801,856 shares, or 5% of the Company's outstanding common
stock. As of June 30, 2021, the company repurchased 195,571 shares of common
stock at an average cost of $18.31 per share. At June 30, 2021, the Company's
book value per share (GAAP) and tangible book value per share (Non-GAAP) were
$17.41 and $17.01, respectively, compared to $16.20 and $15.82, respectively, at
June 30, 2020. At June 30, 2021, the Bank was considered "well capitalized"
under applicable regulatory guidelines.





Comparison of Operating Results for the Year Ended June 30, 2021 and June 30, 2020




General. Net income increased $3.0 million, or 32.7%, to $12.4 million for the
year ended June 30, 2021 compared to $9.4 million for the year ended June 30,
2020. The increase was primarily due to a $3.7 million decrease in provision for
loan losses and a $663,000 increase in net interest income, partially offset by
a $643,000 increase in income tax expense, a $572,000 decrease in non-interest
income and a $120,000 increase in non-interest expense.



Net Interest Income. Net interest income increased $663,000, or 1.4%, to $47.3
million for the year ended June 30, 2021 compared to $46.7 million for the year
ended June 30, 2020. The increase primarily reflects a $129.2 million, or 8.0%,
increase in average interest-earning assets, partially offset by a 16 basis
point decrease in net interest margin to 2.73% for the year ended June 30, 2021
compared to 2.89% for the year ended June 30, 2020. The increase in average
interest-earning assets reflects a $100.5 million increase in average other
interest-earning assets and a $47.4 million increase in average of loans
receivable, partially offset by an $18.7 million decrease in average investment
securities. Despite continued asset growth and a decrease in funding costs,
margin compression has resulted from significant decreases in market interest
rates and a less profitable asset mix due to an increase in cash and cash
equivalents.



Interest and Dividend Income. Interest and dividend income decreased $4.6
million, or 7.5%, to $57.3 million for the year ended June 30, 2021 compared to
$61.9 million for the year ended June 30, 2020. The decrease primarily reflects
a 54 basis point decrease in the yield on total interest-earning assets,
partially offset by a $129.2 million increase in total average interest-earning
assets.



Interest income on loans receivable decreased $2.6 million, or 5.1%, primarily
due to a 38 basis point decrease in the average tax equivalent yield on loans
receivable to 3.97% for the year ended June 30, 2021 from 4.35% for the same

                                       55

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period last year, partially offset by a $47.4 million increase in the average
balance of loans receivable to $1.25 billion for the year ended June 30, 2021
from $1.20 billion for the same period last year. Decreases in market interest
rates driven most significantly by the Fed Funds rate cuts in March 2020, as
well as the origination of lower yielding PPP loans, have resulted in a
decreased yield.



Interest income on investment securities decreased $1.5 million, or 17.2%,
primarily due to a 28 basis point decrease in the average yield on investment
securities on a tax equivalent basis to 2.29% for the year ended June 30, 2021
from 2.57% for the same period last year, and an $18.7 million decrease in the
average balance of investment securities to $327.9 million for the year ended
June 30, 2021 from $346.6 million for the same period last year. The decrease in
yield is a result of lower market interest rates. The decrease in the average
balance of investment securities is the result of the Company utilizing
securities portfolio cash flows to fund loan growth.



Interest income on other interest-earning assets, primarily consisting of cash
balances at correspondent banks including the Federal Reserve, decreased
$479,000, or 51.3%, primarily due to a 107 basis point decrease in the average
yield on other interest-earning assets to 0.27% for the year ended June 30,
2021, from 1.34% for the same period last year, partially offset by a $100.5
million increase in the average balance of other interest-earning assets to
$169.9 million for the year ended June 30, 2021 compared to $69.4 million for
the year ended June 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 $5.3 million, or 34.9%, to $9.9
million for the year ended June 30, 2021 compared to $15.2 million for the year
ended June 30, 2020. The decrease primarily reflects a 48 basis point decrease
in the average cost of interest-bearing liabilities to 0.75% for the year ended
June 30, 2021 from 1.23% for the year ended June 30, 2020, partially offset by a
$92.0 million increase in the average balance of interest-bearing liabilities to
$1.33 billion for the year ended June 30, 2021 from $1.24 billion for the same
period last year.



Interest expense on interest-bearing deposits decreased $4.9 million, or 38.2%,
primarily due to a 50 basis point decrease in the average cost of
interest-bearing deposits to 0.64% for the year ended June 30, 2021 from 1.14%
for the same period last year, partially offset by a $100.1 million increase in
the average balance to $1.22 billion for the year ended June 30, 2021 from $1.12
billion for the year ended June 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 67 and 63 basis points,
respectively, when compared to last year. During the year ending June 30, 2022,
the Company has $216.9 million of non-brokered time deposits maturing at a
weighted average rate of 0.52% as well as $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 $425,000, primarily due to a 24
basis point decrease in the average cost to 1.97% for the year ended June 30,
2021 from 2.21% for the year ended June 30, 2020 and an $8.1 million decrease in
the average balance to $102.9 million for the year ended June 30, 2021 from
$111.0 million for the year ended June 30, 2020. The decrease in the cost of
FHLB funds is due to the maturity of higher-costing advances.



Provision for Loan Losses. The benefit for loan losses was $673,000 for the year
ended June 30, 2021, compared to a provision for loan losses of $3.1 million for
the year ended June 30, 2020. Included in the current year was a benefit for
loan losses associated with the release of qualitative reserves established in
the prior year in response to the COVID-19 pandemic. As of June 30, 2021,
substantially all of these qualitative reserves had been released. Loans
classified as substandard or doubtful totaled $21.6 million, an increase of
$14.3 million from June 30, 2020, driven primarily by the downgrade of certain
exposures associated with COVID-19-related payment deferrals. Non-performing
loans (excluding PPP loans) as a percent of total loans receivable was 0.48% as
of June 30, 2021, an increase from 0.15% as of June 30, 2020. The increase in
non-performing loans for the current year relates to one non-owner-occupied
commercial mortgage loan with an outstanding principal balance of $3.6 million
at June 30, 2021. The loan has been granted a principal and interest payment
deferral through January 2022 and has a loan-to-value ratio of 53.9% based on
the collateral value at origination. Charge-offs, net of recoveries, were
$85,000 and $89,000 for the years ended June 30, 2021 and 2020, respectively.



                                       56
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Noninterest Income. Noninterest income decreased $572,000, or 18.6%, to $2.5
million for the year ended June 30, 2021 compared to same period last year. The
decrease was caused primarily by decreases of $617,000 in swap income and
$82,000 in other noninterest income, partially offset by increases of $75,000 in
net gains on sale of securities, $31,000 in fees and service charges and $21,000
in bank-owned life insurance. The increase in fees and service charges compared
to the prior year was the result of our waiver in the prior year of certain
overdraft fees, ATM usage fees, wire and CD early withdrawal fees in response to
COVID-19.



Noninterest Expense. Noninterest expense increased $120,000, or 0.3%, to $34.8
million for the year ended June 30, 2021 compared to $34.6 million for the year
ended June 30, 2020. The increase was caused primarily by increases of $376,000
in FDIC insurance premiums, $190,000 in occupancy and equipment costs and
$20,000 in all other non-interest expense, partially offset by decreases of
$417,000 in salaries and benefits expense and $49,000 in professional fees. The
decrease in salaries and benefits was primarily due to a $238,000 decrease in
ESOP expense driven by a lower average stock price in comparison to the same
period last year and a $179,000 decrease in salaries and short-term incentives.
The Bank applied small bank assessment credits of $314,000 which partially
offset its FDIC assessment for the prior period. All available credits were
applied as of June 30, 2020.



Income Tax Expense. Income tax expense increased $643,000, or 23.9%, for the
year ended June 30, 2021 in comparison to the year ended June 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 21.2% for the year ended
June 30, 2021 as compared to 22.3% for the year ended June 30, 2020, with the
decrease largely driven by an increase in tax-exempt interest income on
municipal investments.



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.

                                       57
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The following table presents the estimated changes in our NPV that would result
from changes in market interest rates at June 30, 2021 and 2020. All estimated
changes presented in the table are within the policy limits approved by our
Board of Directors.



                                                                            NPV as Percent of Portfolio
                                            NPV                                   Value of Assets
                                  (dollars in thousands)
Basis Point Change in      Dollar         Dollar         Percent             NPV                  Change
Interest Rates             Amount         Change         Change             Ratio                (in bps)
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

June 30, 2020:
200                      $  285,720     $  (20,631 )          (6.7 ) %           16.42 %                 (40 )
100                         304,004         (2,347 )           0.8               17.03                    21
-                           306,351              -               -               16.82                     -
(50)                        312,596          6,245             2.0               16.99                    17
(100)                       323,494         17,143             5.6               17.44                    62




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

Liquidity and Capital Resources


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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets
are dependent on our operating, financing, lending and investing activities
during any given period. At June 30, 2021, cash and cash equivalents totaled
$159.3 million, an increase from $136.3 million as of June 30, 2020. Unpledged
securities classified as available for sale, which provide an additional source
of liquidity, totaled $28.9 million at June 30, 2021, an increase from $13.9
million as of June 30, 2020.

We had the ability to borrow up to $264.3 million from the FHLBNY, at June 30,
2021, of which $66.0 million was outstanding as of June 30, 2021. Additionally,
as of June 30, 2021, we had an available line of credit with the FRBNY's
discount window program of $96.4 million and $25.0 million of fed funds lines of
credit, neither of which had outstanding balances as of June 30, 2021.

                                       58

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We have no material commitments or demands that are likely to affect our
liquidity other than as set forth below. If loan demand was to increase faster
than expected, or any unforeseen demand or commitment was to occur, we could
access our borrowing capacity with the FHLBNY or the FRBNY.

We had $58.4 million of loan commitments outstanding as of June 30, 2021, and
$134.8 million of approved, but unadvanced, funds to borrowers. We also had $3.2
million in outstanding letters of credit at June 30, 2021.

Time deposits due within one year of June 30, 2021 totaled $226.9 million, a
decrease of $43.6 million from $270.5 million as of June 30, 2020. If these
deposits do not remain with us, we will be required to seek other sources of
funds, including other time deposits and FHLBNY 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 June 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.

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



                                                           Year ended June 30,
                                                          2021              2020
                                                              (in thousands)
Investing activities:
Loan purchases                                        $          -      $    (44,065 )
Loan principal repayments (disbursement), net               32,928          (127,125 )
Proceeds from maturities and calls of securities
held to maturity                                           105,684          

126,237

Proceeds from maturities and calls of securities
available for sale                                          17,496          

33,017

Proceeds from sales of securities available for
sale                                                         3,339          

4,245

Purchases of securities held to maturity                  (158,420 )         (55,183 )
Purchases of securities available for sale                 (41,307 )          (1,954 )
Financing activities:
Net increase in deposits                                   118,427          

147,434

(Decrease) increase in FHLB advances                       (30,132 )          44,873
Repurchase of common stock                                 (16,608 )         (17,789 )


The Company is a separate legal entity from the Bank and must provide for its
own liquidity to pay any dividends to its stockholders and for other corporate
purposes. The Company's primary source of liquidity is dividend payments it may
receive from the Bank. The Bank's ability to pay dividends to the Company is
governed by applicable law and regulations. At June 30, 2021, the Company (on an
unconsolidated, stand-alone basis) had liquid assets of $26.6 million.

Capital Resources. PCSB Bank is subject to various regulatory capital
requirements administered by the NYSDFS and the FDIC. At June 30, 2021, PCSB
Bank exceeded all applicable regulatory capital requirements, and the Bank was
considered "well capitalized" under applicable regulatory guidelines. See Note
15 of Notes to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements


We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to originate loans, unused lines of
credit and standby letters of credit, which involve elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. Our exposure to credit loss is represented by the contractual
amount of the instruments. We use the same credit policies in making commitments
as we do for on-balance sheet instruments. See Note 9 of Notes to the
Consolidated Financial Statements.

                                       59

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk


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


                                       60

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