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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

~~18,348,994~~ 17,715,339 shares of the Registrant’s common stock, par value $0.01 per share, were ~~issued and~~ outstanding as of November ~~9, 2018.~~

	September 30,			June 30,			September 30,			June 30,
	2018			2018			2019			2019
ASSETS
Cash and due from banks	$	66,039		$	60,684		$	36,544		$	58,756
Federal funds sold		2,284			1,461			1,253			1,273
Total cash and cash equivalents		68,323			62,145			37,797			60,029
Held to maturity debt securities, at amortized cost (fair value of $328,962 and $343,188, respectively)		340,208			353,183
Investment securities:
Held to maturity debt securities, at amortized cost (fair value of $315,901, and $346,243, respectively)								314,165			345,545
Available for sale debt securities, at fair value		101,540			105,472			64,842			72,228
Total investment securities		441,748			458,655			379,007			417,773
Loans receivable, net of allowance for loan losses of $4,959 and $4,904, respectively		905,093			902,336
Loans receivable, net of allowance for loan losses of $5,993 and $5,664, respectively								1,163,254			1,093,121
Accrued interest receivable		4,747			4,358			5,494			4,797
Federal Home Loan Bank stock		2,049			2,050
FHLB stock								6,254			6,255
Premises and equipment, net		11,546			11,598			23,946			11,802
Deferred tax asset, net		2,495			2,622			2,291			2,478
Foreclosed real estate		754			460			856			1,158
Bank-owned life insurance		23,887			23,747			24,428			24,291
Goodwill		6,106			6,106			6,106			6,106
Other intangible assets		405			433			298			323
Other assets		7,342			5,677			8,877			9,446
Total assets	$	1,474,495		$	1,480,187		$	1,658,608		$	1,637,579
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits	$	1,022,096		$	1,025,574		$	1,092,338		$	1,084,442
Non-interest bearing deposits		131,025			131,883			141,567			141,379
Total deposits		1,153,121			1,157,457			1,233,905			1,225,821
Mortgage escrow funds		4,981			8,803			7,553			9,355
Advances from Federal Home Loan Bank		18,810			18,841
Advances from FHLB								111,185			111,216
Other liabilities		7,706			7,527			24,443			9,880
Total liabilities		1,184,618			1,192,628			1,377,086			1,356,272
Commitments and contingencies (Notes 1 and 2)		-			-
Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2018 and June 30, 2018)		-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,165,110 shares issued and outstanding as of September 30, 2018 and June 30, 2018)		182			182
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, 2019 and June 30, 2019)								-			-
Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295 shares issued as of September 30, 2019 and June 30, 2019, respectively, and 17,624,239 and 17,804,039 shares outstanding as of September 30, 2019 and June 30, 2019, respectively)								187			187
Additional paid in capital		179,294			179,045			183,198			182,129
Retained earnings		130,189			128,365			136,670			134,500
Unearned compensation - ESOP		(12,839	)		(13,083	)		(11,870	)		(12,114	)
Accumulated other comprehensive loss, net of income taxes		(6,949	)		(6,950	)		(4,834	)		(5,090	)
Treasury stock, at cost (1,088,056 and 908,256 shares as of September 30, 2019 and June 30, 2019, respectively)								(21,829	)		(18,305	)
Total shareholders' equity		289,877			287,559			281,522			281,307
Total liabilities and shareholders' equity	$	1,474,495		$	1,480,187		$	1,658,608		$	1,637,579

	Three Months Ended September 30,				Three Months Ended September 30,
	2018		2017		2019		2018
Interest and dividend income
Loans receivable	$	9,898	$	8,818	$	13,036	$	9,898
Investment securities		2,366		2,245		2,692		2,366
Federal funds and other		345		234		298		345
Total interest and dividend income		12,609		11,297		16,026		12,609
Interest expense
Deposits		2,056		1,267
Deposits and escrow interest						3,301		2,056
FHLB advances		89		154		727		89
Total interest expense		2,145		1,421		4,028		2,145
Net interest income		10,464		9,876		11,998		10,464
Provision for loan losses		58		135		335		58
Net interest income after provision for loan losses		10,406		9,741		11,663		10,406
Noninterest income
Fees and service charges		418		381		402		418
Bank-owned life insurance		140		149		137		140
Gain on sale of securities, net		-		173
Swap income						170		71
Other		83		11		56		12
Total noninterest income		641		714		765		641
Noninterest expense
Salaries and employee benefits		5,140		4,860		5,764		5,140
Occupancy and equipment		1,241		1,282		1,315		1,241
Communicating and data processing		472		491
Communication and data processing						531		472
Professional fees		369		413		404		369
Postage, printing, stationary and supplies		138		132		140		138
FDIC assessment		93		78		-		93
Advertising		87		165		100		87
Amortization of intangible assets		28		32		24		28
Other operating expenses		440		441		509		440
Total noninterest expense		8,008		7,894		8,787		8,008
Net income before income tax expense		3,039		2,561		3,641		3,039
Income tax expense		710		805		812		710
Net income	$	2,329	$	1,756	$	2,829	$	2,329
Earnings per common share:
Basic	$	0.14	$	0.10	$	0.18	$	0.14
Diluted	$	0.14	$	0.10	$	0.18	$	0.14

Weighted average common shares outstanding - basic and diluted		16,869,100		16,756,447
Weighted average common shares outstanding:
Basic						15,979,762		16,869,100
Diluted						16,082,276		16,869,100

Accumulated

Additional

Unallocated

Other

Number of

Common

Paid-In

Retained

Common Stock

Comprehensive

Total

Shares

Stock

Capital

Earnings

of ESOP

Loss

Equity

Balance at July 1, 2018

18,165,110

$
182

$
179,045

$
128,365

$
(13,083
)

$
(6,950
)

$
287,559

Net income

-

-

-

2,329

-

-

2,329

Other comprehensive income

-

-

-

-

-

1

1

Common stock dividends declared ($0.03 per share)

-

-

-

(505
)

-

-

(505
)
ESOP shares committed to be released (24,419 shares)

-

-

249

-

244

-

493

Balance at September 30, 2018

18,165,110

$
182

$
179,294

$
130,189

$
(12,839
)

$
(6,949
)

$
289,877

Balance at July 1, 2017

18,165,110

$
182

$
177,993

$
121,148

$
(14,262
)

$
(5,215
)

$
279,846

Net income

-

-

-

1,756

-

-

1,756

Other comprehensive loss

-

-

-

-

-

(107
)

(107
)
Issuance of common stock⁽¹⁾

-

-

(17
)

-

-

-

(17
)
ESOP shares committed to be released (34,953 shares)

-

-

258

-

349

-

607

Balance at September 30, 2017

18,165,110

$
182

$
178,234

$
122,904

$
(13,913
)

$
(5,322
)

$
282,085

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

	Three Months Ended September 30,
	2019			2018
Net income	$	2,829		$	2,329

Other comprehensive income (loss):
Unrealized gains (losses) on available for sale debt securities:
Net change in unrealized gains/losses before reclassification adjustment		181			(153	)
Reclassification adjustment for gains realized in net income		-			-
Net change in unrealized gains/losses		181			(153	)
Tax effect		(38	)		32
Net of tax		143			(121	)

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		133			145
Tax effect		(29	)		(30	)
Net of tax		104			115

Supplemental retirement plans:
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost		11			9
Tax effect		(2	)		(2	)
Net of tax		9			7

Total other comprehensive income		256			1

Comprehensive income	$	3,085		$	2,330

Consolidated Statements of ~~Cash Flows~~Changes in Shareholders’ Equity (unaudited)

Three Months Ended September 30,

2018

2017

OPERATING ACTIVITIES

Net income

$
2,329

$
1,756

Adjustments to reconcile net income to net cash provided by
operating activities:

Provision for loan loss

58

135

Depreciation and amortization

299

387

Amortization of net premiums on securities and net deferred loan
origination costs

482

383

Net increase in accrued interest receivable

(389
)

(485
)
Net gains on sales of securities

-

(173
)
ESOP Compensation

493

607

Earnings from cash surrender value of BOLI

(140
)

(149
)
Net accretion of purchase account adjustments

(96
)

(126
)
Other adjustments, principally net changes in other assets and liabilities

(1,205
)

(282
)
Net cash provided by operating activities

1,831

2,053

INVESTING ACTIVITIES

Purchases of investment securities:

Held to maturity

(1,169
)

(7,023
)
Available for sale

-

(12,663
)
Sales of investment securities available for sale

-

6,100

Maturities and calls of investment securities:

Held to maturity

13,984

21,222

Available for sale

3,710

11,528

Disbursement for loan originations net of principal repayments

(3,266
)

(4,358
)
Purchase of loans

-

(26,082
)
Net redemption of FHLB stock

1

510

Purchase of bank premises and equipment

(219
)

(299
)
Net cash provided by (used in) investing activities

13,041

(11,065
)
FINANCING ACTIVITIES

Net decrease in deposits

(4,336
)

(6,747
)
Net decrease in short-term FHLB advances

-

(6,818
)
Repayment of long-term FHLB advances

(31
)

(30
)
Net decrease in mortgage escrow funds

(3,822
)

(3,129
)
Common stock dividends paid

(505
)

-

Issuance of common stock

-

(17
)
Net cash used in financing activities

(8,694
)

(16,741
)
Net increase (decrease) in cash and cash equivalents

6,178

(25,753
)
Cash and cash equivalents:

Cash and cash equivalents at beginning of period

62,145

60,486

Cash and cash equivalents at end of period

$
68,323

$
34,733

																	Accumulated
						Additional					Unallocated			Treasury			Other
	Number of			Common		Paid-In		Retained			Common Stock			Stock,			Comprehensive			Total
	Shares			Stock		Capital		Earnings			of ESOP			at cost			Loss			Equity
Balance at July 1, 2019		17,804,039		$	187	$	182,129	$	134,500		$	(12,114	)	$	(18,305	)	$	(5,090	)	$	281,307
Net income		-			-		-		2,829			-			-			-			2,829
Other comprehensive income		-			-		-		-			-			-			256			256
Common stock dividends declared ($0.04 per share)		-			-		-		(659	)		-			-			-			(659	)
Repurchase of common stock		(179,800	)		-		-		-			-			(3,524	)		-			(3,524	)
Stock-based compensation		-			-		830		-			-			-			-			830
ESOP shares committed to be released (24,419 shares)		-			-		239		-			244			-			-			483
Balance at September 30, 2019		17,624,239		$	187	$	183,198	$	136,670		$	(11,870	)	$	(21,829	)	$	(4,834	)	$	281,522

Balance at July 1, 2018		18,165,110		$	182	$	179,045	$	128,365		$	(13,083	)	$	-		$	(6,950	)	$	287,559
Net income		-			-		-		2,329			-			-			-			2,329
Other comprehensive loss		-			-		-		-			-			-			1			1
Common stock dividends declared ($0.03 per share)		-			-		-		(505	)		-			-			-			(505	)
ESOP shares committed to be released (24,419 shares)		-			-		249		-			244			-			-			493
Balance at September 30, 2018		18,165,110		$	182	$	179,294	$	130,189		$	(12,839	)	$	-		$	(6,949	)	$	289,877

	Three Months Ended September 30,
	2019			2018
OPERATING ACTIVITIES
Net income	$	2,829		$	2,329
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan loss		335			58
Depreciation and amortization		311			299
Amortization of net premiums on securities and net deferred loan origination costs		494			482
Net increase in accrued interest receivable		(697	)		(389	)
Net gain on sales of foreclosed real estate		(47	)		-
Stock-based compensation		830			-
ESOP compensation		483			493
Earnings from cash surrender value of BOLI		(137	)		(140	)
Net accretion of purchase account adjustments		(198	)		(96	)
Other adjustments, principally net changes in other assets and liabilities		1,064			(1,205	)
Net cash provided by operating activities		5,267			1,831
INVESTING ACTIVITIES
Purchases of investment securities:
Held to maturity		-			(1,169	)
Maturities and calls of investment securities:
Held to maturity		33,185			13,984
Available for sale		7,492			3,710
Loan principal disbursement, net		(26,762	)		(3,266	)
Purchase of loans		(44,065	)		-
Net redemption of FHLB stock		1			1
Purchase of bank premises and equipment, net of sales		(127	)		(219	)
Proceeds from sales of foreclosed real estate		709			-
Net cash (used in) provided by investing activities		(29,567	)		13,041
FINANCING ACTIVITIES
Net increase (decrease) in deposits		8,084			(4,336	)
Repayment of long-term FHLB advances		(31	)		(31	)
Net decrease in mortgage escrow funds		(1,802	)		(3,822	)
Common stock dividends paid		(659	)		(505	)
Repurchase of common stock		(3,524	)		-
Net cash provided by (used in) financing activities		2,068			(8,694	)
Net (decrease) increase in cash and cash equivalents		(22,232	)		6,178
Cash and cash equivalents at beginning of period		60,029			62,145
Cash and cash equivalents at end of period	$	37,797		$	68,323

Supplemental information:
Cash paid for:
Interest	$	3,883		$	2,122
Income taxes (net of refunds)		821			830
Loans transferred to foreclosed real estate and other assets		360			294
Establishment of right to use lease asset (ASU 2016-13)		12,687			-

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, ~~2018,~~2019, 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. The Company is subject to~~amended and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York. The Bank is a state-chartered ~~stock savings~~commercial bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the NYSDFS.

Basis of Presentation: The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Holding Company, the Bank and the Bank's ~~three~~two subsidiaries – PCSB Funding Corp.~~, PCSB Commercial Bank~~ and UpCounty Realty Corp. (formerly PCSB Realty Ltd.). PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets. ~~PCSB Commercial Bank is a state-chartered commercial bank authorized to accept the deposits of local governments in New York State.~~ UpCounty Realty Corp. is a corporation that holds certain properties foreclosed upon by the Bank. All intercompany transactions and balances have been eliminated in consolidation. ~~Financial information for the periods before the Company’s initial public offering (“IPO”) on April 20, 2017 are those of the Bank and its subsidiaries.~~

The unaudited consolidated financial statements contained herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the consolidated financial statements contained herein. The ~~annualized~~ results of operations for the current period presented are not necessarily indicative of the results of operations that may be expected for the entire current fiscal year. Certain information and note disclosures normally included in ~~the~~ financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, ~~2018,~~2019, included in the Company's ~~annual report~~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.

Use of Estimates: To prepare financial statements in conformity with ~~accounting principles generally accepted in the United States of America,~~GAAP management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers,” and was later amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and 2016-20. These updates provide a comprehensive framework for addressing revenue

recognition issues that can be applied to all contracts with customers. The amendments also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized.

While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of the Company’s revenue comes from financial instruments such as debt securities and loans that are outside the scope of the guidance. The Company’s material revenue streams that are in the scope of ASU 2014-09 are fees on deposit accounts (including interchange fees) and foreclosed real estate gains and losses. All other revenue streams are immaterial or are in the scope of other GAAP requirements which take precedence and therefore are not in the scope of ASU 2014-09. Based on the Company’s analysis, ASU 2014-09 will not materially change the recognition of revenue on service fees on deposit accounts as the contracts are day to day and recognized as the service is provided. Gains and losses on the sale of foreclosed real estate are generally accounted for under ASC 610. However, ASU 2014-09 also added a new Subtopic 610-20 which addresses the recognition of gains and losses on the transfer of nonfinancial and in-substance nonfinancial assets. Gain and loss recognition is not expected to change except for foreclosed real estate and other nonfinancial asset sales that are financed by the Company. In the case of financed sales, the Company will need to evaluate each contract to determine whether each contract criteria are met, including whether it is probable that it will collect substantially all consideration to which it is entitled. The Company will also need to evaluate whether the financing terms offered to the buyer of the nonfinancial asset are market terms when determining the transaction price.

The Company has evaluated the impact of ASU 2014-09 and the amendments upon adoption as of July 1, 2018. In evaluating this standard, management has determined that the majority of revenue earned by the Company is from revenue streams not included in the scope of this standard and for in scope revenue streams management determined that, based on the modified retrospective method, a cumulative-effect adjustment to opening retained earnings as a result of adopting this standard is not needed. Additional disclosures required under ASU 2014-09 are contained in Note 12.

In January 2016, the FASB issued ASU 2016-01, an amendment to “Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 would: (1) require equity securities to be reclassified out of available for sale and measured at fair value with changes in fair value recognized through net income but would allow equity securities that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment, (2) simplify the impairment assessment of such equity securities and would require enhanced disclosure about these investments, (3) require separate presentation of financial assets and liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value for financial assets measured at amortized cost on the balance sheet, and (4) require the use of an exit price notion when measuring the fair value of financial instruments. The adoption of ASU 2016-01, and subsequent amendments, on July 1, 2018 did not have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07 “Compensation – Retirement Benefits”. The ASU requires companies that offer employee defined pension plans, other postretirement benefit plans, or other types of benefit plans accounted for under Topic 715 to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The adoption of ASU 2017-07 resulted in non-service cost credits of $83,000 and $47,000 to be included in other operating expense for the three months ended September 30, 2018 and 2017, respectively.

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases longer than 12 months previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU ~~would~~ also ~~require~~requires entities to disclose key information about leasing arrangements. ~~The~~

~~amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2019, including interim periods within that fiscal year. Early adoption is permitted.~~ The Company currently leases eleven branches and two administrative offices. The Company adopted this standard and the related amendments (collectively "ASC 842") on July 1, 2019 and utilized the modified

retrospective approach provided by ASU ~~2016-02 will result~~2018-11, "Leases (Topic 842): Targeted Improvements," that allowed for a cumulative effect adjustment in the ~~establishment~~period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). We also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. The Company recorded a right to use asset totaling $11.9 million and ~~corresponding~~ lease ~~obligation, the materiality of which has yet to be determined by management, however the ASU is not expected to have a material impact~~liability totaling $12.0 million on the balance sheet for Company’s ~~consolidated results of operations or disclosures.~~

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 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. The amendments in this update will be effective for the Company for the fiscal year beginningoutstanding lease obligations on July 1, ~~2020, including interim periods~~2019. The right to use asset is disclosed within ~~that fiscal year. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years.~~ ~~The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies~~premises and equipment and the ~~additional data requirements necessary to implement the Update and~~lease liability is ~~evaluating the need for 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~~disclosed within other liabilities on the ~~Company’s consolidated financial position, results of operations and disclosures.~~balance sheet.

In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 simplifies the test for goodwill impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The ~~amendments in this update will be effective for the Company for the fiscal year beginning~~adoption of ASU 2017-04 on July 1, 2019 including interim periods within that fiscal year. Early adoption is permitted for interim or annual goodwill impairment testing performed on testing dates after January 1, 2017. Management expects ASU 2017-04 willdid not have a ~~significant~~material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The adoption of ASU 2017-08 on July 1, 2019 did not have a material impact on the Company’s consolidated financial statements.

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, ~~2020,~~2023, including interim periods within that fiscal year. ~~Early adoption~~The Company is ~~permitted beginning after December 15, 2018, including interim periods within those fiscal years.~~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 ~~2017-08~~2016-13 will ~~not~~ have ~~a material impact~~ on the Company’s consolidated financial position, results of operations orand disclosures.

The Company completed its initial public offering (“IPO”) on April 20, 2017, in connection with the Bank’s mutual-to-stock conversion, resulting in gross proceeds of $178.3 million, through the sale of 17,826,408 shares, including 1,453,209 shares sold to the PCSB Bank Employee Stock Ownership Plan (ESOP), at the offering price of $10.00 per share. In addition, the Company also contributed 338,702 shares of its common stock and $1.6 million in cash to the PCSB Community Foundation. Expenses related to the offering were $3.7 million, which resulted in net proceeds of $174.6 million prior to the contribution to PCSB Community Foundation. The Company lent $14.5 million to the ESOP and contributed $87.3 million to the Bank, with the remainder of the net proceeds of the offering prior to the contribution to PCSB Community Foundation being retained at the holding company.

~~In association with the adoption of ASU 2016-01, available-for-sale and held-to-maturity debt securities are referred to as 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, ~~2018~~2019 and June 30, ~~2018~~2019 were as follows:

	September 30, 2018									September 30, 2019
	Amortized		Gross Unrealized/Unrecognized					Fair		Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
			(in thousands)									(in thousands)
Available for sale:
U.S. Government and agency obligations	$	62,381	$	-	$	(1,024	)	$	61,357	$	31,017	$	5	$	(60	)	$	30,962
Corporate and other debt securities		8,392		-		(183	)		8,209		8,335		57		-			8,392
Mortgage-backed securities – residential		32,862		88		(976	)		31,974		25,572		42		(126	)		25,488
Total available for sale	$	103,635	$	88	$	(2,183	)	$	101,540	$	64,924	$	104	$	(186	)	$	64,842
Held to maturity:
U.S. Government and agency obligations	$	117,048	$	-	$	(2,434	)	$	114,614	$	79,550	$	198	$	(132	)	$	79,616
Corporate and other debt securities		4,000		-		(149	)		3,851		34,032		371		(597	)		33,806
Mortgage-backed securities – residential		136,905		27		(5,577	)		131,355		127,859		1,225		(251	)		128,833
Mortgage-backed securities – collateralized mortgage obligations		51,052		-		(2,071	)		48,981		50,382		562		(92	)		50,852
Mortgage-backed securities – commercial		31,203		-		(1,042	)		30,161		22,342		472		(20	)		22,794
Total held to maturity	$	340,208	$	27	$	(11,273	)	$	328,962	$	314,165	$	2,828	$	(1,092	)	$	315,901

	June 30, 2018									June 30, 2019
	Amortized		Gross Unrealized/Unrecognized					Fair		Amortized		Gross Unrealized/Unrecognized					Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
			(in thousands)									(in thousands)
Available for sale:
U.S. Government and agency obligations	$	64,389	$	-	$	(959	)	$	63,430	$	37,027	$	5	$	(121	)	$	36,911
Corporate and other debt securities		8,406		-		(171	)		8,235		8,349		20		(9	)		8,360
Mortgage-backed securities – residential		34,619		81		(893	)		33,807		27,115		23		(181	)		26,957
Total available for sale	$	107,414	$	81	$	(2,023	)	$	105,472	$	72,491	$	48	$	(311	)	$	72,228
Held to maturity:
U.S. Government and agency obligations	$	122,048	$	-	$	(2,274	)	$	119,774	$	96,545	$	192	$	(246	)	$	96,491
Corporate and other debt securities		4,000		-		(126	)		3,874		34,033		133		(413	)		33,753
Mortgage-backed securities – residential		140,478		32		(4,846	)		135,664		133,602		818		(372	)		134,048
Mortgage-backed securities – collateralized mortgage obligations		53,547		-		(1,815	)		51,732		52,940		311		(147	)		53,104
Mortgage-backed securities – commercial		33,110		11		(977	)		32,144		28,425		451		(29	)		28,847
Total held to maturity	$	353,183	$	43	$	(10,038	)	$	343,188	$	345,545	$	1,905	$	(1,207	)	$	346,243

No securities were sold d~~uring~~during the three months ended September 30, 2018. During the three months ended September 30, 2017, $6.6 million of securities were sold resulting in $173,000 of net realized gains. Included was the disposal of $681,000 of securities classified as held to maturity, resulting in net realized gains of $34,000. These securities were comprised of seasoned mortgage-backed securities where the Company collected a substantial portion (at least 85%) of the principal outstanding at acquisition due to prepayments2019 or ~~scheduled payments payable in equal installments, comprising both principal and interest, over the terms.~~2018.

The following table presents the fair value and carrying amount of debt securities at September 30, ~~2018,~~2019, by contractual maturity. 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				Held to maturity				Available for sale
	Carrying		Fair		Amortized		Fair		Carrying		Fair		Amortized		Fair
	Amount		Value		Cost		Value		Amount		Value		Cost		Value
	(in thousands)
September 30, 2018:
1 year or less	$	26,503	$	26,327	$	16,399	$	16,298	$	34,551	$	34,483	$	23,018	$	22,988
1 to 5 years		90,545		88,287		52,374		51,290		49,999		50,089		16,334		16,366
5 to 10 years		-		-		2,000		1,978		25,032		24,675		-		-
Mortgage-backed securities and other		223,160		214,348		32,862		31,974		204,583		206,654		25,572		25,488
Total	$	340,208	$	328,962	$	103,635	$	101,540	$	314,165	$	315,901	$	64,924	$	64,842

~~Securities pledged~~Pledged securities had carrying amounts of ~~$136.4~~$198.4 million and ~~$140.5~~$166.4 million at September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, 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, ~~2018~~2019 and June 30, ~~2018~~2019:

	September 30, 2018															September 30, 2019
	Less than 12 months					12 months or greater					Total					Less than 12 months					12 months or greater					Total
			Unrealized/					Unrealized/					Unrealized/					Unrealized/					Unrealized/					Unrealized/
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
	Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss
	(in thousands)															(in thousands)
Available for sale:
U.S. Government and agency obligations	$	19,649	$	(249	)	$	41,708	$	(775	)	$	61,357	$	(1,024	)	$	2,995	$	(3	)	$	23,971	$	(57	)	$	26,966	$	(60	)
Corporate and other debt securities		5,258		(126	)		2,951		(57	)		8,209		(183	)		-		-			-		-			-		-
Mortgage-backed securities – residential		1,395		(36	)		25,582		(940	)		26,977		(976	)		2,258		(2	)		15,399		(124	)		17,657		(126	)
Total available for sale	$	26,302	$	(411	)	$	70,241	$	(1,772	)	$	96,543	$	(2,183	)	$	5,253	$	(5	)	$	39,370	$	(181	)	$	44,623	$	(186	)
Held to maturity:
U.S. Government and agency obligations	$	23,027	$	(463	)	$	91,586	$	(1,971	)		114,613	$	(2,434	)	$	6,994	$	(6	)	$	42,426	$	(126	)	$	49,420	$	(132	)
Corporate and other debt securities		3,851		(149	)		-		-			3,851		(149	)		19,403		(597	)		-		-			19,403		(597	)
Mortgage-backed securities – residential		79,296		(3,018	)		51,392		(2,559	)		130,688		(5,577	)		23,546		(76	)		15,716		(175	)		39,262		(251	)
Mortgage-backed securities – collateralized mortgage obligations		16,699		(515	)		32,282		(1,556	)		48,981		(2,071	)		5,643		(15	)		9,027		(77	)		14,670		(92	)
Mortgage-backed securities – commercial		16,934		(496	)		11,492		(546	)		28,426		(1,042	)		-		-			3,451		(20	)		3,451		(20	)
Total held to maturity	$	139,807	$	(4,641	)	$	186,752	$	(6,632	)	$	326,559	$	(11,273	)	$	55,586	$	(694	)	$	70,620	$	(398	)	$	126,206	$	(1,092	)

	June 30, 2018															June 30, 2019
	Less than 12 months					12 months or greater					Total					Less than 12 months					12 months or greater					Total
			Unrealized/					Unrealized/					Unrealized/					Unrealized/					Unrealized/					Unrealized/
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
	Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss
	(in thousands)															(in thousands)
Available for sale
U.S. Government and agency obligations	$	41,762	$	(569	)	$	21,668	$	(390	)	$	63,430	$	(959	)	$	-	$	-		$	32,919	$	(121	)	$	32,919	$	(121	)
Corporate and other debt securities		6,258		(148	)		1,977.00		(23.00	)		8,235		(171	)		-		-			3,269		(9	)		3,269		(9	)
Mortgage-backed securities – residential		13,397		(379	)		14,718		(514	)		28,115		(893	)		-		-			24,000		(181	)		24,000		(181	)
Total available for sale	$	61,417	$	(1,096	)	$	38,363	$	(927	)	$	99,780	$	(2,023	)	$	-	$	-		$	60,188	$	(311	)	$	60,188	$	(311	)
Held to maturity
U.S. Government and agency obligations	$	46,163	$	(871	)	$	71,611	$	(1,403	)	$	117,774	$	(2,274	)	$	-	$	-		$	59,306	$	(246	)	$	59,306	$	(246	)
Corporate and other debt securities		3,874		(126	)		-		-			3,874		(126	)		17,087		(413	)		-		-			17,087		(413	)
Mortgage-backed securities – residential		102,496		(3,338	)		32,490		(1,508	)		134,986		(4,846	)		1,666		(26	)		54,648		(346	)		56,314		(372	)
Mortgage-backed securities – collateralized mortgage obligations		31,124		(884	)		20,608		(931	)		51,732		(1,815	)		-		-			29,372		(147	)		29,372		(147	)
Mortgage-backed securities – commercial		21,762		(582	)		8,629		(395.00	)		30,391		(977	)		-		-			6,972		(29	)		6,972		(29	)
Total held to maturity	$	205,419	$	(5,801	)	$	133,338	$	(4,237	)	$	338,757	$	(10,038	)	$	18,753	$	(439	)	$	150,298	$	(768	)	$	169,051	$	(1,207	)

As of September 30, ~~2018,~~2019, the Company’s ~~security~~securities portfolio consisted of ~~$441.7~~$379.0 million in securities, of which ~~250~~105 securities with a fair value of ~~$423.1~~$170.8 million were in an unrealized loss position. The majority of unrealized losses are related to the Company’s U.S. Government and agency obligations and mortgage-backed securities.

As of June 30, ~~2018,~~2019, the Company’s ~~security~~securities portfolio consisted of ~~$458.7~~$417.8 million in securities, of which ~~254~~135 securities with a fair value of ~~$438.5~~$229.2 million were in an unrealized loss position. The majority of unrealized losses are related to the Company’s U.S. Government and agency obligations and mortgage-backed securities.

There were no securities as of September 30, 2019 or June 30, 2019 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, 2018 and June 30, 2018.~~security. 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, ~~2018~~2019 or June 30, ~~2018.~~2019.

	September 30,			June 30,			September 30,			June 30,
	2018			2018			2019			2019
Mortgage loans:
Residential	$	249,894		$	250,578		$	264,251		$	265,167
Commercial		495,944			495,265			726,315			651,396
Construction		16,890			17,352			18,830			13,231
Net deferred loan origination costs		859			1,041			1,202			1,031
Total mortgage loans		763,587			764,236			1,010,598			930,825
Commercial and consumer loans:
Commercial loans		110,196			104,135			125,926			133,614
Home equity lines of credit		35,191			37,395			31,503			33,204
Consumer and overdrafts		344			745			437			365
Net deferred loan origination costs		734			729			783			777
Total commercial and consumer loans		146,465			143,004			158,649			167,960
Total loans receivable		910,052			907,240			1,169,247			1,098,785
Allowance for loan losses		(4,959	)		(4,904	)		(5,993	)		(5,664	)
Loans receivable, net	$	905,093		$	902,336		$	1,163,254		$	1,093,121

In 2015, the Company completed a merger with CMS Bancorp and its wholly owned subsidiary, CMS Bank. References to acquired loans in this note pertain only to those loans acquired as part of the merger.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Three Months Ended September 30, 2018												Three Months Ended September 30, 2019
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance		Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	386	$	(29	)	$	-		$	2	$	359	$	363	$	(23	)	$	-		$	3	$	343
Commercial		3,073		57			-			-		3,130		3,853		461			-			-		4,314
Construction		505		(12	)		-			-		493		159		63			-			-		222
Commercial loans		780		45			-			-		825		1,130		(89	)		-			-		1,041
Home equity lines of credit		80		(11	)		-			-		69		65		(9	)		-			5		61
Consumer and overdrafts		7		8			(7	)		2		10		11		15			(18	)		4		12
Acquired:
Residential		73		-			-			-		73		83		(83	)		-			-		-
Total	$	4,904	$	58		$	(7	)	$	4	$	4,959	$	5,664	$	335		$	(18	)	$	12	$	5,993

	Three Months Ended September 30, 2017												Three Months Ended September 30, 2018
	Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance		Beginning Allowance		Provision (credit)			Charge-offs			Recoveries		Ending Allowance
Originated:
Residential	$	360	$	64		$	(17	)	$	-	$	407	$	386	$	(29	)	$	-		$	2	$	359
Commercial		2,589		120			-			-		2,709		3,073		57			-			-		3,130
Construction		1,150		10			-			-		1,160		505		(12	)		-			-		493
Commercial loans		949		(60	)		-			-		889		780		45			-			-		825
Home equity lines of credit		76		1			-			-		77		80		(11	)		-			-		69
Consumer and overdrafts		-		-			-			-		-		7		8			(7	)		2		10
Acquired:
Residential		26		-			-			-		26		73		-			-			-		73
Total	$	5,150	$	135		$	(17	)	$	-	$	5,268	$	4,904	$	58		$	(7	)	$	4	$	4,959

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, ~~2018~~2019 and June 30, ~~2018~~2019 (in thousands):

	September 30, 2018																September 30, 2019
	Loans								Allowance for Loan Losses								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		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	$	2,224	$	246,375	$	1,295	$	249,894	$	123	$	236	$	73	$	432	$	2,469	$	261,025	$	757	$	264,251	$	124	$	219	$	-	$	343
Commercial		1,425		493,044		1,475		495,944		-		3,130		-		3,130		1,408		724,021		886		726,315		-		4,314		-		4,314
Construction		2,260		14,630		-		16,890		276		217		-		493		-		18,830		-		18,830		-		222		-		222
Commercial loans		2,432		107,764		-		110,196		3		822		-		825		2,001		123,925		-		125,926		39		1,002		-		1,041
Home equity lines of credit		312		34,714		165		35,191		4		65		-		69		689		30,660		154		31,503		4		57		-		61
Consumer and overdrafts		-		344		-		344		-		10		-		10		-		437		-		437		-		12		-		12
Total	$	8,653	$	896,871	$	2,935	$	908,459	$	406	$	4,480	$	73	$	4,959	$	6,567	$	1,158,898	$	1,797	$	1,167,262	$	167	$	5,826	$	-	$	5,993

																	June 30, 2019
																	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																	$	1,774	$	262,124	$	1,269	$	265,167	$	130	$	233	$	83	$	446
Commercial																		1,418		649,088		890		651,396		-		3,853		-		3,853
Construction																		-		13,231		-		13,231		-		159		-		159
Commercial loans																		2,016		131,598		-		133,614		39		1,091		-		1,130
Home equity lines of credit																		689		32,359		156		33,204		4		61		-		65
Consumer and overdrafts																		-		365		-		365		-		11		-		11
Total																	$	5,897	$	1,088,765	$	2,315	$	1,096,977	$	173	$	5,408	$	83	$	5,664

June 30, 2018

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

$
2,360

$
246,913

$
1,305

$
250,578

$
154

$
232

$
73

$
459

Commercial

1,683

492,105

1,477

495,265

-

3,073

-

3,073

Construction

2,260

15,092

-

17,352

276

229

-

505

Commercial loans

2,451

101,684

-

104,135

9

771

-

780

Home equity lines of credit

360

36,867

168

37,395

12

68

-

80

Consumer and overdrafts

-

745

-

745

-

7

-

7

Total

$
9,114

$
893,406

$
2,950

$
905,470

$
451

$
4,380

$
73

$
4,904

The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by ~~class of loans~~portfolio segment as of September 30, ~~2018~~2019 and June 30, ~~2018~~2019 (in thousands):


	September 30, 2018						September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance recorded:
Residential	$	1,829	$	1,775	$	-	$	1,756	$	1,732	$	-
Commercial		1,500		1,425		-		1,461		1,408		-
Commercial loans		2,531		2,369		-		5,071		1,821		-
Home equity lines of credit		369		301		-		676		678		-
With a related allowance recorded:
With an allowance recorded:
Residential		386		449		123		719		737		124
Construction		3,257		2,260		276
Commercial loans		63		63		3		180		180		39
Home equity lines of credit		11		11		4		11		11		4
Total	$	9,946	$	8,653	$	406	$	9,874	$	6,567	$	167

	June 30, 2018						June 30, 2019
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance recorded:
Residential	$	1,659	$	1,576	$	-	$	1,061	$	1,028	$	-
Commercial		1,765		1,683		-		1,471		1,418		-
Commercial loans		2,254		2,098		-		2,007		1,836		-
Home equity lines of credit		341		341		-		750		678		-
With a related allowance recorded:
With an allowance recorded:
Residential		742		784		154		723		746		130
Construction		3,257		2,260		276
Commercial loans		353		353		9		180		180		39
Home equity lines of credit		84		19		12		11		11		4
Total	$	10,455	$	9,114	$	451	$	6,203	$	5,897	$	173

The ~~table~~tables below ~~presents~~present the average recorded investment and interest income recognized on loans individually evaluated for impairment, by ~~class of loans,~~portfolio segment, for the three ~~and nine~~ months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Three months ended				Three months ended				Three months ended				Three months ended
	September 30, 2018				September 30, 2017				September 30, 2019				September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential	$	1,845	$	28	$	3,894	$	42	$	1,735	$	6	$	1,845	$	28
Commercial		1,621		39		2,445		27		1,411		12		1,621		39
Construction		-		-		303		17
Commercial loans		2,377		143		4,680		83		1,825		50		2,377		143
Home equity lines of credit		326		6		635		-		680		-		326		6
With a related allowance recorded:
With an allowance recorded:
Residential		450		11		620		4		738		3		450		11
Construction		2,260		-		3,257		-		-		-		2,260		-
Commercial loans		64		2		1,459		18		180		1		64		2
Home equity lines of credit		11		-		11		-		11		-		11		-
Total	$	8,954	$	229	$	17,304	$	191	$	6,580	$	72	$	8,954	$	229

The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by ~~class of loans~~portfolio segment, as of September 30, ~~2018~~2019 and June 30, ~~2018~~2019 (in thousands):

					Loans Past Due Over 90 Days								Loans Past Due Over 90 Days
	Nonaccrual				and Still Accruing				Nonaccrual				and Still Accruing
	September 30,		June 30,		September 30,		June 30,		September 30,		June 30,		September 30,		June 30,
	2018		2018		2018		2018		2019		2019		2019		2019
Originated:
Residential	$	488	$	604	$	-	$	-	$	1,241	$	536	$	-	$	-
Commercial		-		262		-		-
Construction		2,260		2,260		-		-
Commercial loans		783		788		-		-		150		150		-		-
Home equity lines of credit		78		45		-		-		381		383		-		-
Consumer and overdrafts		1		-		10				-		-		-		1
Acquired:
Residential		1,288		1,308		-		-		789		795		-		-
Commercial		543		532		-		-		568		568		-		-
Home equity lines of credit		300		303		-		-		296		294		-		-
Total	$	5,741	$	6,102	$	10	$	-	$	3,425	$	2,726	$	-	$	1

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 ~~past due over 90 days~~ that are accounted for as purchased credit impaired loans totaling ~~$1.1 million~~$418,000 and $501,000 as of ~~both~~ September 30, ~~2018~~2019 and June 30, ~~2018.~~2019, respectively. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

The following tables present the aging of the recorded investment in past due loans by ~~class of loans~~portfolio segment as of September 30, ~~2018~~2019 and June 30, ~~2018~~2019 (in thousands):

	September 30, 2018												September 30, 2019
	30-59		60-89		90 Days or								30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past						Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current		Total		Due		Due		Due		Due		Current		Total
Originated:
Residential	$	66	$	-	$	488	$	554	$	196,034	$	196,588	$	-	$	397	$	796	$	1,193	$	218,646	$	219,839
Commercial		-		-		-		-		424,071		424,071		-		-		-		-		678,403		678,403
Construction		-		-		2,260		2,260		14,630		16,890		-		-		-		-		18,830		18,830
Commercial loans		158		-		500		658		109,289		109,947		-		-		150		150		125,596		125,746
Home equity lines of credit		-		-		-		-		30,748		30,748		-		-		313		313		27,455		27,768
Consumer and overdrafts		-		1		11		12		332		344		-		-		-		-		422		422
Total originated		224		1		3,259		3,484		775,104		778,588		-		397		1,259		1,656		1,069,352		1,071,008
Acquired:
Residential		-		-		1,485		1,485		51,821		53,306		-		217		213		430		43,982		44,412
Commercial		-		-		1,122		1,122		70,751		71,873		-		-		568		568		47,344		47,912
Commercial loans		-		-		-		-		249		249		-		-		-		-		180		180
Home equity lines of credit		-		-		319		319		4,124		4,443		21		-		363		384		3,351		3,735
Consumer and overdrafts														-		-		-		-		15		15
Total acquired		-		-		2,926		2,926		126,945		129,871		21		217		1,144		1,382		94,872		96,254
Total	$	224	$	1	$	6,185	$	6,410	$	902,049	$	908,459	$	21	$	614	$	2,403	$	3,038	$	1,164,224	$	1,167,262

	June 30, 2018												June 30, 2019
	30-59		60-89		90 Days or								30-59		60-89		90 Days or
	Days Past		Days Past		More Past		Total Past						Days Past		Days Past		More Past		Total Past
	Due		Due		Due		Due		Current		Total		Due		Due		Due		Due		Current		Total
Originated:
Residential	$	-	$	394	$	210	$	604	$	194,986	$	195,590	$	-	$	-	$	86	$	86	$	217,970	$	218,056
Commercial		-		-		262		262		420,320		420,582		-		-		-		-		600,675		600,675
Construction		-		-		2,260		2,260		15,092		17,352		-		-		-		-		13,231		13,231
Commercial loans		-		-		500		500		102,767		103,267		-		150		-		150		133,286		133,436
Home equity lines of credit		-		-		45		45		32,311		32,356		344		-		312		656		28,767		29,423
Consumer and overdrafts		-		-		-		-		733		733		-		-		1		1		348		349
Total originated		-		394		3,277		3,671		766,209		769,880		344		150		399		893		994,277		995,170
Acquired:
Residential		-		232		1,806		2,038		52,950		54,988		220		116		709		1,045		46,066		47,111
Commercial		-		-		1,112		1,112		73,571		74,683		-		-		568		568		50,153		50,721
Commercial loans		-		-		-		-		868		868		-		-		-		-		178		178
Home equity lines of credit		30		-		296		326		4,713		5,039		-		67		296		363		3,418		3,781
Consumer and overdrafts		-		-		-		-		12		12		-		-		-		-		16		16
Total acquired		30		232		3,214		3,476		132,114		135,590		220		183		1,573		1,976		99,831		101,807
Total	$	30	$	626	$	6,491	$	7,147	$	898,323	$	905,470	$	564	$	333	$	1,972	$	2,869	$	1,094,108	$	1,096,977

The terms of certain loans were modified as troubled debt restructurings. 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.

As of both September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, the Company had ~~13 and 12~~14 loans classified as troubled debt restructurings totaling $4.1 million, including $3.1 million and ~~$3.8~~$3.2 million, ~~respectively.~~respectively, of loans still accruing. The Company has allocated ~~$131,000~~$129,000 and ~~$139,000,~~$135,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, ~~2018~~2019 and June 30, ~~2018 and~~2019. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

The Company did not modify any loans in troubled debt restructurings during the three months ended September 30, 2019. The Company modified two loans with a total carrying amount of $428,000, one residential mortgage and one home equity line of credit, in troubled debt restructurings during the three months ended September 30, 2018.

The Company ~~did not modify any loans as~~had one troubled debt restructuring, ~~during~~a residential mortgage with a carrying amount of $370,000, default in the three months ended September 30, ~~2017.~~

2019 that was modified in the twelve months prior to default. This default resulted in no charge-off nor an increase to the allowance for loan losses. The Company had no troubled debt restructurings for which there was a payment default in the three months ended September 30, 2018, that were modified in the twelve months prior to default. There was one troubled debt restructuring with a total carrying amount of $2.4 million for which there was a payment default in the three months ended September 30, 2017 and resulted in no increase to the allowance for loan losses.

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.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company utilized the same grading process for acquired loans as it does for originated loans. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by ~~class of loans~~portfolio segment is as follows (in thousands):

	September 30, 2018										September 30, 2019
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Total
Originated:
Residential	$	195,207	$	736	$	645	$	-	$	196,588	$	218,193	$	396	$	1,250	$	219,839
Commercial		423,921		-		150		-		424,071		674,956		337		3,110		678,403
Construction		14,630		-		2,260		-		16,890		18,830		-		-		18,830
Commercial loans		105,137		158		4,652		-		109,947		118,113		4,070		3,563		125,746
Home equity lines of credit		30,503		167		78		-		30,748		27,344		72		352		27,768
Consumer and overdrafts		344		-		-		-		344		422		-		-		422
Total originated		769,742		1,061		7,785		-		778,588		1,057,858		4,875		8,275		1,071,008
Acquired:
Residential		50,210		247		2,849		-		53,306		43,056		206		1,150		44,412
Commercial		69,019		836		2,018		-		71,873		42,962		3,496		1,454		47,912
Commercial loans		241		8		-		-		249		180		-		-		180
Home equity lines of credit		4,048		-		395		-		4,443		3,285		67		383		3,735
Consumer and overdrafts												15		-		-		15
Total acquired		123,518		1,091		5,262		-		129,871		89,498		3,769		2,987		96,254
Total	$	893,260	$	2,152	$	13,047	$	-	$	908,459	$	1,147,356	$	8,644	$	11,262	$	1,167,262

	June 30, 2018										June 30, 2019
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Total
Originated:
Residential	$	194,341	$	571	$	678	$	-	$	195,590	$	216,438	$	1,071	$	547	$	218,056
Commercial		418,370		-		2,212		-		420,582		600,216		339		120		600,675
Construction		15,092		-		2,260		-		17,352		13,231		-		-		13,231
Commercial loans		98,205		167		4,895		-		103,267		123,361		6,423		3,652		133,436
Home equity lines of credit		32,167		144		45		-		32,356		28,996		67		360		29,423
Consumer and overdrafts		733		-				-		733		349		-		-		349
Total originated		758,908		882		10,090		-		769,880		982,591		7,900		4,679		995,170
Acquired:
Residential		51,858		249		2,881		-		54,988		44,959		211		1,941		47,111
Commercial		71,832		842		2,009		-		74,683		45,726		3,537		1,458		50,721
Commercial loans		857		11		-		-		868		178		-		-		178
Home equity lines of credit		4,641		-		398		-		5,039		3,331		68		382		3,781
Consumer and overdrafts		12		-		-		-		12		16		-		-		16
Total acquired		129,200		1,102		5,288		-		135,590		94,210		3,816		3,781		101,807
Total	$	888,108	$	1,984	$	15,378	$	-	$	905,470	$	1,076,801	$	11,716	$	8,460	$	1,096,977

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, ~~2018~~2019 and June 30, ~~2018~~2019 is as follows (in thousands):

	September 30,		June 30,		September 30,		June 30,
	2018		2018		2019		2019
Residential	$	1,222	$	1,232	$	757	$	1,186
Commercial		1,475		1,477		886		890
Home equity lines of credit		-		-		154		156
Consumer and installment loans		165		168
Carrying amount, net of allowance of $73 and $73, respectively	$	2,862	$	2,877
Carrying amount, net of allowance of $0 and $83, respectively					$	1,797	$	2,232

The allowance for loan losses on purchased credit impaired loans ~~was unchanged~~decreased $83,000 during the three months ended September 30, ~~2018 and 2017.~~2019.

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

	Three Months Ended September 30,						Three Months Ended September 30,
	2018			2017			2019			2018
Beginning balance	$	245		$	403		$	192		$	245
New loans acquired		-			-			-			-
Accretion income		(13	)		(28	)		(10	)		(13	)
Reclassification from non-accretable difference		-			-			-			-
Disposals		-			-			-			-
Ending balance	$	232		$	375		$	182		$	232

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

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total			Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2018	$	(1,536	)	$	(5,150	)	$	(264	)	$	(6,950	)
Balance at July 1, 2019													$	(209	)	$	(4,631	)	$	(250	)	$	(5,090	)
Other comprehensive income before reclassifications		(153	)		-			-			(153	)		181			-			-			181
Amounts reclassified from accumulated other comprehensive income		-			145			9			154			-			133			11			144
Less tax effect		32			(30	)		(2	)		-			(38	)		(29	)		(2	)		(69	)
Net other comprehensive income		(121	)		115			7			1			143			104			9			256
Balance at September 30, 2019													$	(66	)	$	(4,527	)	$	(241	)	$	(4,834	)

													Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2018													$	(1,536	)	$	(5,150	)	$	(264	)	$	(6,950	)
Other comprehensive loss before reclassifications														(153	)		-			-			(153	)
Amounts reclassified from accumulated other comprehensive income														-			145			9			154
Less tax effect														32			(30	)		(2	)		-
Net other comprehensive (loss) income														(121	)		115			7			1
Balance at September 30, 2018	$	(1,657	)	$	(5,035	)	$	(257	)	$	(6,949	)	$	(1,657	)	$	(5,035	)	$	(257	)	$	(6,949	)

	Net unrealized gain (loss) on available for sale securities			Unrealized loss on pension benefits			Unrealized loss on SERP benefits			Total
Balance at July 1, 2017	$	37		$	(5,002	)	$	(250	)	$	(5,215	)
Other comprehensive income before reclassifications		(213	)		-			-			(213	)
Amounts reclassified from accumulated other comprehensive income		(139	)		181			8			50
Less tax effect		120			(62	)		(2	)		56
Net other comprehensive income		(232	)		119			6			(107	)
Balance at September 30, 2017	$	(195	)	$	(4,883	)	$	(244	)	$	(5,322	)

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

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, ~~2018~~2019 and ~~2017~~2018 (in thousands):

	Three Months Ended					Three Months Ended					Three Months Ended					Three Months Ended
	September 30, 2018					September 30, 2017					September 30, 2019					September 30, 2018
	Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans		Defined Benefit Plan			Supplemental Retirement Plans
Service cost	$	-		$	148	$	-		$	113	$	-		$	79	$	-		$	148
Interest cost		250			26		242			25		180			31		250			26
Expected return on plan assets		(513	)		-		(503	)		-		(479	)		-		(513	)		-
Amortization of prior net loss		145			9		-			-		133			11		145			9
Amortization of prior service cost		-			-		181			8
Settlement charges												-			-		-			-
Net periodic (benefit) cost	$	(118	)	$	183	$	(80	)	$	146	$	(166	)	$	121	$	(118	)	$	183

The Company made no contributions to the defined benefit plan during the three months ended September 30, ~~2018 and expects to make no contributions to the plan for the year ending June 30,~~ 2019.

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The ~~plan~~ESOP is a tax-qualified retirement plan for the benefit of Company employees. On April 20, 2017, the 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 Company to purchase the common stock is payable annually over 15 years at a rate per annum equal to the Prime Rate, reset annually on January 1st ~~(4.5% at September 30, 2018)~~(5.50% for 2019). 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, ~~2018~~2019 was ~~$13.6~~$12.6 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.

	September 30, 2018		June 30, 2018		September 30, 2019		June 30, 2019
Allocated to participants		169,342		144,923		258,852		234,059
Unearned		1,283,867		1,308,286		1,186,991		1,211,410
Total ESOP shares		1,453,209		1,453,209		1,445,843		1,445,469

Fair value of unearned shares	$	26,114	$	25,996	$	23,728	$	24,531

Total compensation expense recognized in connection with the ESOP for the three months ended September 30, 2019 and 2018 was $483,000 and ~~2017 was~~ $493,000, ~~and $607,000,~~ respectively.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Investment Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs), or a broker's opinion of value (Level 3 inputs).

Impaired Loans: The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Appraisals are generally obtained annually and may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management performs a review of all appraisals, including any such adjustments. The fair value of uncollateralized or non-collateral-dependent loans are generally based on discounted cash flows which utilize management’s assumption of discount rates and expected future cash flows, resulting in a Level 3 classification.

Foreclosed Real Estate: Assets acquired through or instead of loan foreclosure are initially recorded at fair value, less estimated costs to sell, when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value, less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

~~Real estate owned~~Foreclosed properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department, as well as a third-party specialist, where deemed appropriate, reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Once appraisals are considered appropriate, management discounts the appraised value for estimated selling costs, such as legal, broker, and property maintenance and insurance costs. The most recent analysis performed indicated discount rates ranging between 10% 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, 2018

Measured on a recurring basis:

Available for sale securities:

U.S. Government and agency obligations

$
-

$
61,357

$
-

$
61,357

Corporate and other debt securities

-

8,209

-

8,209

Mortgage-backed securities – residential

-

31,974

-

31,974

Derivatives – interest rate contracts

-

105

-

105

Total assets at fair value

$
-

$
101,645

$
-

$
101,645

Derivatives – interest rate contracts

$
-

$
105

$
-

$
105

Total liabilities at fair value

$
-

$
105

$
-

$
105

Measured on a non-recurring basis:

Impaired loans:

Residential mortgages

$
-

$
-

$
322

$
322

Construction

-

-

1,984

1,984

Commercial loans

-

-

561

561

Home equity lines of credit

-

-

7

7

Foreclosed real estate

23

-

731

754

Total assets at fair value

$
23

$
-

$
3,605

$
3,628

	Fair Value Measurements								Fair Value Measurements
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
June 30, 2018
September 30, 2019
Measured on a recurring basis:
Available for sale securities:
U.S. Government and agency obligations	$	-	$	63,430	$	-	$	63,430	$	-	$	30,962	$	-	$	30,962
Corporate and other debt securities		-		8,235		-		8,235		-		8,392		-		8,392
Mortgage-backed securities – residential		-		33,807		-		33,807		-		25,488		-		25,488
Derivatives – interest rate contracts										-		3,222		-		3,222
Total assets at fair value	$	-	$	105,472	$	-	$	105,472	$	-	$	68,064	$	-	$	68,064

Derivatives – interest rate contracts									$	-	$	3,222	$	-	$	3,222
Total liabilities at fair value									$	-	$	3,222	$	-	$	3,222

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages	$	-	$	-	$	688	$	688	$	-	$	-	$	614	$	614
Construction		-		-		1,984		1,984
Commercial loans		-		-		845		845		-		-		141		141
Home equity lines of credit		-		-		7		7		-		-		7		7
Foreclosed real estate		-		-		460		460		-		-		856		856
Total assets at fair value	$	-	$	-	$	3,984	$	3,984	$	-	$	-	$	1,618	$	1,618

									Fair Value Measurements
									Level 1		Level 2		Level 3		Total
June 30, 2019
Measured on a recurring basis:
Available for sale securities:
U.S. Government and agency obligations									$	-	$	36,911	$	-	$	36,911
Corporate and other debt securities										-		8,360		-		8,360
Mortgage-backed securities – residential										-		26,957		-		26,957
Derivatives – interest rate contracts										-		1,339		-		1,339
Total assets at fair value									$	-	$	73,567	$	-	$	73,567

Derivatives – interest rate contracts									$	-	$	1,339	$	-	$	1,339
Total liabilities at fair value									$	-	$	1,339	$	-	$	1,339

Measured on a non-recurring basis:
Impaired loans:
Residential mortgages									$	-	$	-	$	616	$	616
Commercial loans										-		-		141		141
Home equity lines of credit										-		-		7		7
Foreclosed real estate										-		-		653		653
Total assets at fair value									$	-	$	-	$	1,417	$	1,417

There were no transfers between levels within the fair value hierarchy during the three months ended September 30, ~~2018 or 2017.~~2019 and 2018.

Impaired loans in the preceding table had a carrying amount of ~~$3.3 million,~~$928,000, and a remaining valuation allowance of ~~$412,000~~$167,000 at September 30, ~~2018,~~2019, as compared to ~~$3.9 million~~$937,000 and ~~$451,000,~~$173,000, respectively, as of June 30, ~~2018.~~2019. Impaired loans measured at fair value incurred no net charge-offs and resulted in ~~an additional~~a credit for loan losses of $6,000 during the three months ended September 30, 2019. Impaired loans measured at fair value as of September 30, 2018 incurred no net charge-offs and resulted in a credit for loan losses of $5,000 during the three months ended September 30, 2018. Impaired loans measured at fair value as of September 30, 2017 incurred $17,000 of net charge-offs and resulted in an additional provision for loan losses of $48,000 during the three months ended September 30, 2017.

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, ~~2018~~2019 and June 30, ~~2018~~2019 (dollars in thousands):

Valuation

Unobservable

Range or

Valuation

Unobservable

Range or

Fair Value

Technique(s)

Input(s)

Rate Used

Fair Value

Technique(s)

Input(s)

Rate Used

September 30, 2018:

September 30, 2019

Impaired loans - residential mortgages

322

Discounted cash flow

Discount rate

5.4% to 6.3%

614

Discounted cash flow

Discount rate

5.4% to 6.3%

Impaired loans - construction

1,984

Sales contract

Discount to sales contract

9.8%

Impaired loans - commercial loans

561

Discounted cash flow

Discount rate

7.0% to 7.5%

141

Discounted cash flow

Discount rate

6.0% to 7.0%

Sales contract

Discount to sales contract

9.8%

Impaired loans - home equity lines of credit

Discounted cash flow

Discount rate

6.3%

Discounted cash flow

Discount rate

6.3%

Foreclosed real estate

731

Sales comparison

Adjustments for

differences in

sales comparables

-45.0% to -0.4%

856

Sales comparison

Adjustments for

differences in sales

comparables

-8.0% to 5.9%

June 30, 2018:

June 30, 2019

Impaired loans - residential mortgages

688

Sales comparison

Adjustments for

differences in sales

comparables

-5.1% to 20.9%

616

Discounted cash flow

Discount rate

5.4% to 6.3%

Discounted cash flow

Discount rate

5.4% to 6.3%

Impaired loans - construction

1,984

Sales contract

Discount to sales contract

9.8%

Impaired loans - commercial loans

845

Discounted cash flow

Discount rate

5.3% to 7.5%

141

Discounted cash flow

Discount rate

6.0% to 7.0%

Sales contract

Discount to sales contract

9.8%

Impaired loans - home equity lines of credit

Sales comparison

Adjustments for

differences in sales

comparables

-5.1% to 20.9%

Discounted cash flow

Discount rate

6.2%

Discounted cash flow

Discount rate

6.3%

Foreclosed real estate

460

Sales comparison

Adjustments for

differences in

sales comparables

-8.1% to -0.4%

653

Sales comparison

Adjustments for

differences in sales

comparables

-8.0% to 45.0%

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

	Carrying		Fair Value Measurements								Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total
September 30, 2018:
September 30, 2019
Financial assets:
Cash and cash equivalents	$	68,323	$	68,323	$	-	$	-	$	68,323	$	37,797	$	37,797	$	-	$	-	$	37,797
Investment securities held to maturity		340,208		-		328,962		-		328,962		314,165		-		315,901		-		315,901
Investment securities available for sale		101,540		-		101,540		-		101,540		64,842		-		64,842		-		64,842
Loans receivable, net		905,093		-		-		885,274		885,274		1,163,254		-		-		1,162,995		1,162,995
Accrued interest receivable		4,747		-		1,562		3,104		4,666		5,494		-		1,545		3,949		5,494
Federal Home Loan Bank stock		2,049	N/A		N/A		N/A		N/A
FHLB stock												6,254	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts		105		-		105		-		105		3,222		-		3,222		-		3,222
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		756,928		756,928		-		-		756,928		767,531		767,531		-		-		767,531
Time deposits		396,193		-		398,420		-		398,420		466,374		-		472,330		-		472,330
Mortgage escrow funds		4,981		4,981		-		-		4,981		7,553		7,553		-		-		7,553
Accrued interest payable												354		2		352		-		354
FHLB advances		18,810		-		20,190		-		20,190		111,185		-		112,043		-		112,043
Derivative liabilities - interest rate contracts		105		-		105		-		105		3,222		-		3,222		-		3,222

June 30, 2018:
June 30, 2019
Financial assets:
Cash and cash equivalents	$	62,145	$	62,145	$	-	$	-	$	62,145	$	60,029	$	60,029	$	-	$	-	$	60,029
Investment securities held to maturity		353,183		-		343,188		-		343,188		345,545		-		346,243		-		346,243
Investment securities available for sale		105,472		-		105,472		-		105,472		72,228		-		72,228		-		72,228
Loans receivable, net		902,336		-		-		882,319		882,319		1,093,121		-		-		1,092,878		1,092,878
Accrued interest receivable		4,358		-		1,402		2,956		4,358		4,797		-		1,330		3,467		4,797
Federal Home Loan Bank stock		2,050	N/A		N/A		N/A		N/A
FHLB stock												6,255	N/A		N/A		N/A		N/A
Derivative assets - interest rate contracts												1,339		-		1,339		-		1,339
Financial liabilities:
Demand, NOW, money market deposits and savings accounts		765,084		765,084		-		-		765,084		770,426		770,426		-		-		770,426
Time deposits		392,373		-		394,205		-		394,205		455,395		-		460,554		-		460,554
Mortgage escrow funds		8,803		8,803		-		-		8,803		9,355		9,355		-		-		9,355
Accrued interest payable												209		16		193				209
FHLB advances		18,841		-		20,574		-		20,574		111,216		-		111,818		-		111,818
Derivative liabilities - interest rate contracts												1,339		-		1,339		-		1,339

~~In connection with the adoption~~The methods of ~~ASU 2016-01 on July 1, 2018, we refined our methodology to estimate~~determining the fair value of assets and liabilities presented in the table above are consistent with our ~~loan portfolio using an exit price notion resulting~~methodologies disclosed in ~~prior periods no longer being comparable. The exit price notion requires determination of~~ the ~~price at which willing market participants would transact at~~Company's Consolidated Financial Statements included in the ~~measurement date under current market conditions depending~~Annual Report on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment. The prior period estimate of loans receivable, net was determined using an entrance price methodology based only on the discounted value of contracted cash flows based on prevailing interest rates.Form 10-K.

The following is a summary of the ~~Company’s and~~ Bank’s actual capital amounts and ratios as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, compared to the required ratios for minimum capital adequacy and for classification as well capitalized (dollars in thousands): . As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress in 2018, the Company is no longer subject to consolidated capital requirements, as the Company’s total consolidated assets do not exceed $3 billion.

											To Be Well Capitalized															To Be Well Capitalized
											Under Prompt										For Capital					Under Prompt
						For Capital Adequacy					Corrective Action										Adequacy					Corrective Action
	Bank Actual					Purposes					Provisions					Bank Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2018:
September 30, 2019
PCSB Bank
Leverage (Tier 1)	$	203,094		13.8	%	$	58,870		4.0	%	$	73,587		5.0	%	$	212,970		12.9	%	$	66,066		4.0	%	$	82,583		5.0	%
Risk-based:
Common Tier 1		203,094		21.2			43,178		4.5			62,369		6.5			212,970		17.2			55,863		4.5			80,691		6.5
Tier 1		203,094		21.2			57,571		6.0			76,762		8.0			212,970		17.2			74,484		6.0			99,312		8.0
Total		208,053		21.7			76,762		8.0			95,952		10.0			218,963		17.6			99,312		8.0			124,140		10.0
PCSB Financial Corporation
Leverage (Tier 1)	$	290,287		19.7	%	$	58,991		4.0	%	N/A		N/A
Risk-based:
Common Tier 1		290,287		30.2			43,219		4.5		N/A		N/A
Tier 1		290,287		30.2			57,625		6.0		N/A		N/A
Total		295,246		30.7			76,834		8.0		N/A		N/A

June 30, 2018:
June 30, 2019
PCSB Bank
Leverage (Tier 1)	$	200,488		13.6	%	$	58,924		4.0	%	$	73,655		5.0	%	$	209,885		13.8	%	$	60,774		4.0	%	$	75,968		5.0	%
Risk-based:
Common Tier 1		200,488		21.1			42,745		4.5			61,743		6.5			209,885		18.0			52,579		4.5			75,948		6.5
Tier 1		200,488		21.1			56,994		6.0			75,991		8.0			209,885		18.0			70,105		6.0			93,474		8.0
Total		205,392		21.6			75,991		8.0			94,989		10.0			215,549		18.4			93,474		8.0			116,842		10.0
PCSB Financial Corporation
Leverage (Tier 1)	$	287,991		19.5	%	$	58,948		4.0	%	N/A		N/A
Risk-based:
Common Tier 1		287,991		30.3			42,783		4.5		N/A		N/A
Tier 1		287,991		30.3			57,044		6.0		N/A		N/A
Total		292,895		30.8			76,058		8.0		N/A		N/A

In addition to the ratios above, the Basel III Capital Rules have established that community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Management believes that as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, the Bank ~~and Company~~ met all capital adequacy requirements to which ~~they were~~it was subject, including the capital conservation buffer of ~~1.875%~~2.5%, as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively. 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.

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

Diluted EPS is calculated in a similar matter, except that the denominator includes the number of additional common shares ~~are not deemed~~that would have been outstanding ~~for~~if potentially dilutive common shares were issued using the treasury stock method. Dilutive financial instruments include stock options and unvested restricted stock.

The following table provides factors used in the earnings per share ~~calculations.~~computation for the three months ended September 30, 2019 and 2018.

Stock options for 1,339,293 shares of common stock were not considered in computing diluted earnings per common share for the three months ended September 30, 2019 because they were antidilutive. There were no potentially dilutive common stock equivalents outstanding during the three months ended September 30, ~~2018 and 2017, respectively.~~ 2018.

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. 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 ~~Company had no interest rate swaps at June 30, 2018. The~~ following table presents summary information about the interest rate swaps as of September 30, ~~2018:~~2019 and June 30, 2019.

	September 30,			September 30,			June 30,
(dollars in thousands)	2018
				2019			2019
				(dollars in thousands)
Notional amounts	$	12,000		$	96,288		$	68,535
Weighted average pay rates		4.32	%		3.65	%		3.89	%
Weighted average receive rates		4.32	%		3.65	%		3.89	%
Weighted average maturity	10.00 years			9.68 years			9.84 years
Fair value of combined interest rate swaps		-		$	-		$	-

~~The Company adopted ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, on July 1, 2018. Under ASC 2014-09, an entity is required to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

In accordance with ASU 2014-09, 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:

The Company’s ~~in-scope~~ revenue streams that are ~~subject to~~within the scope of the accounting standard are: (1) fees and service charges on deposit accounts (including interchange fees), which, are included on the Consolidated Statements of Operations as “Fees and service charges” and (2) gains on the sale of foreclosed real estate. For the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, fees and services charges totaled ~~$418,000~~$402,000 and ~~$381,000,~~$418,000, respectively, of which and $372,000 and $392,000, ~~and $291,000,~~ respectively, ~~are in-scope~~were revenue ~~streams.~~

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. ~~Fees~~For the September 30, 2019 and 2018, fees and service charges on deposit accounts were $255,000 and $287,000, ~~and $196,000, respectively, for the three months ended September 30, 2018 and 2017.~~respectively.

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. ~~Interchange income was $105,000 and $95,000, respectively, for~~For the three months ended September 30, 2019 and 2018, interchange income was $117,000 and ~~2017.~~$105,000, respectively.

Gain/Losses 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. ~~The~~For the three months ended September 30, 2019, the Company recorded ~~no gains~~$47,000 gain on sale of foreclosed real estate, compared to no gain on sale of foreclosed real estate recorded in the prior year.

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 $830,000 for the three months ended September 30, ~~2018~~2019. No compensation cost was incurred for the three months ended September 30, 2018.

RSAs 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 547,185 shares were issued as of September 30, 2019.

The following table presents a summary of RSA activity during the period ended September 30, 2019.

As of September 30, 2019, there was $8.5 million of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 4.1 years.

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.

As of September 30, 2019, there was $5.1 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 4.1 years.

Total shares available for grant under the Plan are 1,816,511, of which 1,339,293 shares were issued as of September 30, 2019. The following table presents a summary of activity related to stock options granted under the Plan, and changes during the period then ended:

Effective July 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). As of September 30, 2019, the Company leases real estate for eleven branch offices and two administrative offices, including its corporate headquarters, under various operating lease agreements. The Company’s leases have maturities which range from 2020 to 2041, some of which include lessee options to extend the lease term. The weighted average remaining life of the lease term for these leases was 10.1 years as of September 30, 2019.

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 2.37% in determining the lease liability as of September 30, 2019.

The Company made a policy election to exclude the recognition requirements of ASU 2016-02 to short-term leases, those leases with original terms of 12 months or ~~2017.~~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, 2019. 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, 2019.

Total operating lease costs were $473,000 for the three months ended September 30, 2019. The right-of-use asset, included in premises and equipment, net, was $12.3 million as of September 30, 2019 and the corresponding lease liability, included in other liabilities was $12.6 million as of September 30, 2019.

Future minimum lease payments for the fiscal years ending June 30^th and a reconciliation of undiscounted lease cash flows and the lease liability recognized in the consolidated balance sheet as of September 30, 2019 is shown below:

~~On October 24, 2018,~~Subsequent to September 30, 2019, and through November 6, 2019, the ~~Company’s shareholders approved the PCSB Financial Corporation 2018 Equity Incentive Plan (the “Plan”), which permits the grant~~Company repurchased 91,100 shares of common stock, ~~options and time-based restricted stock and/or restricted stock units. The total number~~at an average cost 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. Concurrent with the approval of the Plan, on October 24, 2018, 413,039 stock options and 183,884 restricted stock awards were granted to non-employee directors.$19.97 per share.

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

Management’s discussion and analysis of financial condition at September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, and results of operations for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 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, ~~2018.~~2019.

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:

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:

Additional factors that may affect our results are discussed in the annual report on Form 10-K for the fiscal year ended June 30, ~~2018,~~2019, 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~~Company assumes no obligation to update any forward looking statements except as may be required by applicable law or regulation.

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~~For additional information regarding 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 established as probable incurred losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are creditedrefer to the ~~allowance.~~

section captioned “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the June 30, 2019 Form 10-K. There have been no significant changes in our application of critical accounting policies for the three months ended September 30, 2019.

Comparison of Financial Condition at September 30, ~~2018~~2019 and June 30, ~~2018~~2019

Total Assets. Total assets ~~decreased $5.7~~increased $21.0 million, or ~~0.4%~~1.3%, to ~~$1.47~~$1.66 billion at September 30, ~~2018~~2019 from ~~$1.48~~$1.64 billion at June 30, ~~2018.~~2019. The ~~decrease~~increase is primarily the result of ~~a decrease~~increases of ~~$16.9~~$70.1 million in ~~total investment securities,~~net loans receivable and $12.1 million in premises and equipment, partially offset by ~~increases~~decreases of ~~$6.2~~$31.4 million in held to maturity securities, $22.2 million in cash and cash equivalents, ~~$2.8~~and $7.4 million in ~~net loans receivable and $2.2 million in all other assets.~~securities available for sale.

Cash and Cash Equivalents. Cash and cash equivalents ~~increased $6.2~~decreased $22.2 million, or ~~9.9%~~37.0%, to ~~$68.3~~$37.8 million at September 30, ~~2018~~2019 from ~~$62.1~~$60.0 million at June 30, ~~2018.~~2019. The ~~increase was~~decrease is due primarily ~~attributable~~ to ~~a $16.9 million decrease in total investment securities,~~utilization of cash and cash equivalents to partially ~~offset by a $4.3 million decrease in deposits, a $3.8 million decrease in mortgage escrow funds, and $2.8~~fund the $70.1 million increase in ~~net~~ loans receivable.

Securities ~~Held-to-Maturity.~~Held to Maturity. Total securities held to maturity decreased ~~$13.0~~$31.3 million, or ~~3.7%~~9.1%, to ~~$340.2~~$314.2 million at September 30, ~~2018~~2019 from ~~$353.2~~$345.5 million at June 30, ~~2018.~~2019. This decrease was caused primarily ~~caused~~ by ~~$8.0 million in amortization of mortgage-backed securities, net of purchases, and $5.0~~$17.0 million of ~~net maturities of U.S. government~~calls and ~~agency obligations.~~

~~Securities Available for Sale.~~ ~~Total securities available for sale decreased $4.0 million, or 3.7%, to $101.5 million at September 30, 2018 from $105.5 million at June 30, 2018. This decline was primarily due to $2.0 million of net~~ maturities of U.S. government and agency obligations ~~$1.8~~and $14.3 million of amortization of mortgage-backed securities.

Securities Available for Sale. Total securities available for sale decreased $7.4 million, or 10.2%, to $64.8 million at September 30, 2019 from $72.2 million at June 30, 2019. This decline was due primarily to $6.0 million in maturities of U.S. government and agency obligations, and $1.5 million of amortization of mortgage backed securities, ~~net of purchases, and~~partially offset by a ~~$153,000~~$181,000 increase in net unrealized ~~losses primarily attributable to an increase in market interest rates.~~gains.

Net Loans Receivable. Net loans receivable increased ~~$2.8~~$70.1 million, or ~~0.3%~~6.4%, to ~~$905.1 million~~$1.16 billion at September 30, ~~2018~~2019 from ~~$902.3 million~~$1.09 billion at June 30, ~~2018.~~ 2019. The increase in loans receivable was the result of ~~$33.2~~$64.9 million of originations and $44.1 million of loan purchases, partially offset by ~~$30.4~~$38.9 million of net amortization and ~~prepayments on the remaining portfolio, including two~~repayments. The increase is due primarily to increases of $74.9 million in commercial mortgage loans ~~totaling $10.2 million.~~and $5.6 million in construction loans, partially offset by decreases of $7.7 million in commercial loans and $1.7 million in home equity credit lines.

Premises and Equipment. Premises and equipment, net, increased $12.1 million, to $23.9 million at September 30, 2019 from $11.8 million at June 30, 2019. This increase is primarily the result of recording an $11.9 million lease asset (a related lease liability of $12.0 million was also recorded as part of other liabilities) associated with the adoption of ASU 2016-02.

Deposits. Total deposits ~~decreased $4.3~~increased $8.1 million, or ~~0.4%~~0.7%, to ~~$1.15~~$1.23 billion at September 30, ~~2018 from $1.16 billion at~~2019 as compared to June 30, ~~2018.~~2019. This ~~decrease~~increase primarily reflects ~~decreases~~increases of ~~$40.3~~$11.0 million in ~~savings,~~time deposits, $3.5 million in money market accounts, and ~~$859,000~~$1.2 million in NOW accounts and demand deposits, partially offset by ~~increases~~a decrease of ~~$29.4~~$7.6 million in ~~money market accounts, $3.8 million in time deposits and $3.6 million in NOW~~savings accounts. ~~The decrease in total deposits was primarily attributable to expected seasonal outflows related to school and property tax payments.~~

Federal Home Loan Bank Advances. ~~Federal Home Loan Bank~~FHLB advances ~~remained unchanged from the prior quarter~~decreased $31,000, to $111.2 million at ~~$18.8 million as of~~ September 30, ~~2018.~~2019 as compared to June 30, 2019, due primarily to the repayment of long-term amortizing advances.

Total ~~Shareholders’~~Shareholder’s Equity. Total shareholders’ equity increased ~~$2.3 million,~~$215,000, or ~~0.8%~~0.1%, to ~~$289.9~~$281.5 million at September 30, ~~2018~~2019 from ~~$287.6~~$281.3 million at June 30, ~~2018.~~ 2019. This increase was due primarily ~~due~~ to net income of ~~$2.3~~$2.8 million, as well as $1.3 million increase of stock-based compensation and ~~a $493,000~~ reduction in unearned ESOP shares for plan shares earned during the period, partially offset by ~~$505,000~~the repurchase of $3.5 million (179,800 shares) of common stock and $659,000 of cash dividends ~~paid in~~declared and paid. As of September 30, 2019, there were 710,221 shares available to be repurchased under the current ~~quarter. At September 30, 2018, the~~stock repurchase plan. The Company’s book value per share was ~~$15.96, compared to $15.83 at~~$15.97 and $15.80 as of September 30, 2019 and June 30, ~~2018.~~2019, respectively. At September 30, ~~2018,~~2019, the Bank was considered “well capitalized” under applicable regulatory guidelines.

Comparison of Operating Results for the Three Months Ended September 30, ~~2018~~2019 and ~~2017~~2018

General. Net income increased ~~$573,000,~~$500,000, or ~~32.6%~~21.5%, to $2.8 million for the three months ended September 30, 2019 compared to $2.3 million for the three months ended September 30, ~~2018 compared~~2018. The increase was due primarily to ~~$1.8~~a $1.5 million increase in net interest income and a $124,000 increase in noninterest income, partially offset by a $779,000 increase in noninterest expense, a $277,000 increase in the provision for loan losses and a $102,000 increase in income tax expense.

Net Interest Income. Net interest income increased $1.5 million, or 14.7%, to $12.0 million for the three months ended September 30, 2017. The increase was primarily due to a $588,000 increase in net interest income, a $95,000 decrease in income tax expense and a $77,000 decrease in the provision for loan losses, partially offset by a $114,000 increase in non-interest expense and a $73,000 decrease in non-interest income.

~~Net Interest Income.~~ ~~Net interest income increased $588,000, or 6.0%,~~2019 compared to $10.5 million for the three months ended September 30, ~~2018 compared~~2018. The increase primarily reflects a $4.5 million increase in average net interest-earning assets and 9 basis point increase in net interest margin to ~~a $9.9 million~~3.03% for the three months ended September 30, ~~2017. The increase primarily reflects a $55.4 million increase in average interest-earning assets~~ ~~and a 5 basis point increase in the net interest margin~~2019 compared to 2.94% for the three months ended September 30, 2018 ~~compared to 2.89% for the three months ended September 30, 2017~~. The increase in average net interest-earning assets ~~primarily~~ reflects ~~the loan portfolio growth, partially~~a $163.2 million increase in average interest-earning assets, mostly offset by a ~~decrease~~$158.7 million increase in ~~investment securities.~~average interest-bearing liabilities. Despite continued asset growth and a higher yielding asset mix, which resulted in a 50 basis point increase in the yield on interest earning assets, the interest rate spread has been impacted by rising funding costs due to higher short-term interest rates along with competitive pricing, which caused a 51 basis point increase in the average cost of interest-bearing liabilities.

Interest and Dividend Income. Interest and dividend income increased ~~$1.3~~$3.4 million, or ~~11.6%~~27.1%, to $16.0 million for the three months ended September 30, 2019 compared to $12.6 million for the three months ended September 30, ~~2018 compared to a $11.3 million for the three months ended September 30, 2017.~~2018. The increase primarily reflects a ~~$55.4~~$163.2 million increase in total average interest-earning assets and a 2450 basis point increase in the yield on total interest-earning assets. ~~The increase in yield is due to the increase in market interest rates, as well as the shift from generally lower yielding investment securities to generally higher yielding loans.~~

Interest income on loans receivable increased ~~$1.1~~$3.1 million, or ~~12.2%~~31.7%, due primarily ~~due~~ to ~~an $89.8~~a $239.0 million increase in the average balance of loans receivable to ~~$903.0 million~~$1.14 billion for the three months ended September 30, ~~2018~~2019 from ~~$813.2~~$903.0 million for the same period last year and ~~a 5~~an 18 basis point increase in the average yield on loans to ~~4.38%~~4.56% for the three months ended September 30, ~~2018~~2019 from ~~4.33%~~4.38% for the same period last year. The increase in yield is due primarily to growth in higher yielding commercial real estate loans.

Interest income on securities increased ~~$121,000,~~$326,000, or ~~5.4%~~13.8%, due primarily ~~due~~ to a ~~24 basis~~61 basis point increase in the average yield on securities to ~~2.09%~~2.70% for the three months ended September 30, ~~2018~~2019 from ~~1.85%~~2.09% for the same period last year, partially offset by a ~~$32.4~~$54.5 million decrease in the average balance of securities. The increase in yield is a result of increases in market rates, as well as prepayment income of $310,000 earned in the current quarter. Excluding this nonrecurring prepayment income, the yield on investment securities would have been 2.39% in the current quarter, a 30 basis points increase compared to the same period of last year. The decrease in the average balance of investment securities is the result of the company utilizing securities portfolio runoff to fund loan growth.

Interest income on other interest-earning assets, primarily consisting of cash balances at correspondent banks including the Federal Reserve, decreased $47,000 or 13.6%, due primarily to a $21.3 million decrease in the average

balance of other interest-earning assets to $45.9 million for the three months ended September 30, 2019 compared to $67.2 million for the three months ended September 30, 2018, partially offset by a 55 basis point increase in the average yield on other interest-earning assets. The increase in the yield on other interest-earning assets was due primarily ~~due~~ to an increase in short-term market interest rates.

Interest Expense. Interest expense increased ~~$724,000,~~$1.9 million, or ~~51.0%~~87.8%, to $4.0 million for the three months ended September 30, 2019 compared to $2.1 million for the three months ended September 30, ~~2018 compared~~2018. The increase primarily reflects a $158.7 million increase in the average balance of interest-bearing liabilities to ~~$1.4 million~~$1.21 billion for the three months ended September 30, ~~2017. The increase primarily reflects~~2019 from $1.05 billion for the same period last year, and a 2551 basis point increase in the average ~~cost~~yield on interest-bearing liabilities to ~~0.81%~~1.32% for the three months ended September 30, ~~2018~~2019 from ~~0.56%~~0.81% for the same period last ~~year, and $49.2 million increase in the average balance on interest bearing liabilities.~~year.

Interest expense on interest-bearing deposits increased ~~$789,000,~~$1.2 million, or ~~62.3%~~60.6%, due primarily ~~due~~ to a 27 41 basis point increase in the average cost of interest-bearing deposits to ~~0.79%~~1.20% for the three months ended September 30, ~~2018~~2019 from ~~0.52%~~0.79% for the same period last year, and a ~~$71.8~~$55.7 million increase in the average balance to ~~$1.03~~$1.09 billion for the three months ended September 30, ~~2018~~2019 from ~~$961.1 million~~a $1.04 billion for the three months ended September 30, ~~2017.~~2018. The increase in the average rate paid on interest-bearing deposits was primarily caused ~~primarily~~ by rising funding costs due to higher short-term interest rates along with competitive pricing. The Company has experienced a ~~66 basis point increase~~shift in ~~the average~~deposit mix as customers in lower costing saving products moved funds to higher rate

~~paid on~~ time deposits and money market ~~accounts, and a~~ ~~43 basis point increase in the~~accounts. The average interest rate paid on time deposits and money market accounts increased 61 and 34 basis points, respectively, as the Bank offered increased rates on these deposits due to the increase in market interest rates.

Interest expense on ~~Federal Home Loan Bank~~FHLB advances ~~decreased $65,000, or 42.2%,~~increased $638,000, due primarily ~~due~~ to a ~~$22.6~~$103.1 million ~~decrease~~increase in the average balance to ~~$18.8~~$121.9 million for the three months ended September 30, ~~2018~~2019 from ~~$41.4~~$18.8 million for the same period last year, ~~partially offset by~~ and a 4148 basis point increase in the average cost to ~~1.89%~~2.37% for the three months ended September 30, ~~2018~~2019 from ~~1.48%~~1.89% for the same period last year. The increase in the average cost is due primarily ~~due~~ to ~~the maturity of lower cost borrowings.~~an increase in market interest rates.

Provision for Loan Losses. The provision for loan losses ~~decreased~~increased by ~~$77,000~~$277,000 to $335,000 for the three months ended September 30, 2019, compared to $58,000 for the three months ended September 30, 2018, ~~compared~~due primarily to ~~$135,000 for the three months ended September 30, 2017.~~ loan portfolio growth. Charge-offs, net of recoveries, were $6,000 and $3,000 for the three months ended September 30, 2019 and 2018, ~~compared~~respectively. Loans classified as substandard or doubtful increased $2.8 million, or 33.1%, to ~~charge-offs, net~~$11.3 million at September 30, 2019 from $8.5 million at June 30, 2019 and decreased $1.7 million, or 13.7%, from $13.0 million at September 30, 2018. Non-performing loans as a percent of ~~recoveries,~~total loans receivable was 0.29% as of ~~$17,000~~September 30, 2019, an increase from 0.25% as of June 30, 2019 and a decrease from 0.62% as of September 30, 2018.

Noninterest Income. Noninterest income increased $124,000, or 19.3%, to $765,000 for the three months ended September 30, ~~2017.~~

~~Non-Interest Income.~~ ~~Non-interest income~~ ~~decreased $73,000, or 10.2%~~2019 compared to $641,000 for the three months ended September 30, ~~2018 compared~~2018. The increase was caused primarily by increases of $99,000 in swap income and $23,000 in gains on sale of foreclosed real estate.

Noninterest Expense. Noninterest expense increased $779,000, or 9.7%, to ~~a $714,000~~$8.8 million for the three months ended September 30, 2017. The decrease was caused primarily by $173,000 of gains on sale of securities recorded in the prior year period, partially offset by $71,000 of swap fee income and increases in deposit-related fees in the current quarter.

~~Non-Interest Expense.~~ ~~Non-interest expense increased $114,000, or 1.4%,~~2019 compared to $8.0 million for the three months ended September 30, ~~2018 compared to $7.9 million for the three months ended September 30, 2017.~~2018. The increase was caused primarily by a ~~$280,000~~$624,000 increase in salaries and employee benefits and a $248,000 increase in other noninterest expenses, partially offset by ~~decreases of $78,000~~$93,000 decrease in ~~advertising, $44,000 in professional fees, $41,000 in occupancy and equipment, and $3,000 in all other operating expenses.~~FDIC assessment. The increase in salaries and employee benefits was due primarily ~~due~~ to ~~additional staffing,~~$830,000 of stock-based compensation expense recorded in the current quarter compared to no such expense in the prior year period, partially offset by lower ~~retirement and medical benefits~~benefit costs. The decrease in FDIC assessment was due primarily to the Company applying small bank assessment credits of $98,000 which fully offset the Company’s FDIC assessment for the current quarter. The remaining credits available are $239,000.

Income Tax Expense. Income tax expense ~~decreased $95,000,~~increased $102,000, or ~~11.8%~~14.4%, to $812,000 for the three months ended September 30, 2019 from $710,000 for the three months ended September 30, ~~2018 from $805,000~~2018. The increase was caused primarily by higher pre-tax income, partially offset by a lower effective tax rate in the current year. The effective income tax rate was 22.3% for the three months ended September 30, ~~2017. The decrease was caused primarily by the Company fully realizing the benefits of the reduction in the Federal corporate income tax rate from 34%~~2019 as compared to ~~21%, which became effective in January 2018. The effective income tax rate was~~ 23.4% for the three months ended September 30, ~~2018 compared to 31.4% for the three months ended September 30, 2017.~~2018.

The following ~~tables present~~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. ~~Amortization of loan~~Loan fees isare included in interest income on ~~loans.~~loans and are not material.

	Three Months Ended September 30,																Three Months Ended September 30,
	2018								2017								2019								2018
	Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate			Average Balance			Interest/ Dividends		Average Rate
	(dollars in thousands)																(dollars in thousands)
Assets:
Loans receivable	$	903,021		$	9,898		4.38	%	$	813,244		$	8,818		4.33	%	$	1,142,025		$	13,036		4.56	%	$	903,021		$	9,898		4.38	%
Securities		453,671			2,366		2.09			486,026			2,245		1.85
Investment securities																		399,190			2,692		2.70			453,671			2,366		2.09
Other interest-earning assets		67,222			345		2.03			69,257			234		1.34			45,914			298		2.58			67,222			345		2.03
Total interest-earning assets		1,423,914			12,609		3.54			1,368,527			11,297		3.30			1,587,129			16,026		4.04			1,423,914			12,609		3.54
Non-interest-earning assets		49,894								58,241								70,266								55,251
Total assets	$	1,473,808							$	1,426,768							$	1,657,395							$	1,479,165

Liabilities and equity:
NOW accounts	$	119,404			53		0.18		$	114,770			49		0.17		$	119,852			57		0.19		$	119,404			53		0.18
Money market accounts		58,704			139		0.94			30,100			21		0.28			149,880			463		1.23			61,679			139		0.89
Savings accounts and escrow		462,542			289		0.25			518,315			325		0.25			362,569			232		0.25			462,542			289		0.25
Time deposits		392,336			1,575		1.59			298,010			872		1.16			459,348			2,549		2.20			392,336			1,575		1.59
Total interest-bearing deposits		1,032,986			2,056		0.79			961,195			1,267		0.52			1,091,649			3,301		1.20			1,035,961			2,056		0.79
Federal Home Loan Bank advances		18,821			89		1.89			41,398			154		1.48
FHLB advances																		121,855			727		2.37			18,821			89		1.89
Total interest-bearing liabilities		1,051,807			2,145		0.81			1,002,593			1,421		0.56			1,213,504			4,028		1.32			1,054,782			2,145		0.81
Non-interest-bearing deposits		125,381								134,368								140,627								127,762
Other non-interest-bearing liabilities		7,281								8,287								21,211								7,282
Total liabilities		1,184,469								1,145,248								1,375,342								1,189,826
Total equity		289,339								281,520								282,053								289,339
Total liabilities and equity	$	1,473,808							$	1,426,768							$	1,657,395							$	1,479,165

Net interest income				$	10,464							$	9,876							$	11,998							$	10,464
Interest rate spread ⁽¹⁾							2.73								2.74								2.72								2.73
Net interest margin ⁽²⁾							2.94								2.89								3.03								2.94
Average interest-earning assets to interest-bearing liabilities		135.38	%							136.50	%							130.79	%							135.00	%

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

	Three Months Ended September 30,									Three Months Ended September 30,
	2018 versus 2017									2019 versus 2018
	Rate			Volume			Net			Rate		Volume			Net
	(in thousands)									(in thousands)
Interest income:
Loans receivable	$	84		$	996		$	1,080		$	399	$	2,739		$	3,138
Securities		248			(127	)		121
Investment securities											422		(96	)		326
Other interest-earning assets		119			(8	)		111			78		(125	)		(47	)
Total interest-earning assets		451			861			1,312			899		2,518			3,417

Interest expense:
NOW accounts		2			2			4			4		-			4
Money market accounts		84			34			118			67		257			324
Savings and escrow accounts		8			(44	)		(36	)		21		(78	)		(57	)
Time deposits		380			323			703			673		301			974
Federal Home Loan Bank advances		35			(100	)		(65	)
FHLB advances											28		610			638
Total interest-bearing liabilities		509			215			724			793		1,090			1,883

Net (decrease) increase in net interest income	$	(58	)	$	646		$	588
Net increase in net interest income										$	106	$	1,428		$	1,534

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

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. ~~The net proceeds from~~We have implemented the ~~offering have increased our capital and provided management with greater flexibility~~following strategies to manage our interest rate ~~risk, including the following strategies:~~risk: originating loans with adjustable interest rates; utilizing interest rate swaps, promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of 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 100 and ~~150~~200 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, ~~2018~~2019 and June 30, ~~2018.~~2019. All estimated changes presented in the table are within the policy limits approved by our Board of Directors.

	NPV									NPV as Percent of Portfolio Value of Assets						NPV									NPV as Percent of Portfolio Value of Assets
	(dollars in thousands)															(dollars in thousands)
Basis Point Change in Interest Rates	Dollar Amount		Dollar Change			Percent Change				NPV Ratio			Change (in bps)			Dollar Amount		Dollar Change			Percent Change				NPV Ratio			Change (in bps)
September 30, 2018:
September 30, 2019:
200	$	301,482	$	(40,505	)		(11.8	)	%		22.03	%		(159	)	$	289,920	$	(38,093	)		(11.6	)	%		18.39	%		(134	)
100		323,592		(18,395	)		(5.4	)			22.97			(65	)		312,528		(15,485	)		(4.7	)			19.27			(46	)
-		341,987	-			-					23.62		-				328,013	-			-					19.73		-
(100)		351,356		9,369			2.7				23.68			6			331,713		3,700			1.1				19.54			(19	)
(150)		354,636		12,649			3.7				23.65			3
(200)																	330,534		2,521			0.8				19.14			(59	)

June 30, 2018:
June 30, 2019:
200	$	282,017	$	(50,676	)		(15.2	)	%		20.75	%		(219	)	$	286,711	$	(39,593	)		(12.1	)	%		18.52	%		(143	)
100		313,606		(19,087	)		(5.7	)			22.25			(69	)		309,974		(16,330	)		(5.0	)			19.45			(50	)
-		332,693	-			-					22.94		-				326,304		-			-				19.95			-
(100)		342,520		9,827			3.0				23.02			8			330,749		4,445			1.4				19.79			(16	)
(150)		348,648		15,955			4.8				23.14			20
(200)																	329,929		3,625			1.1				19.39			(56	)

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

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets ~~depend~~are dependent on our operating, financing, lending and investing activities during any given period. At September 30, ~~2018,~~2019, cash and cash equivalents totaled ~~$68.3~~$37.8 million, ~~an increase~~a decrease from ~~$62.1~~$60.0 million as of June 30, ~~2018.~~2019. Securities classified as available for sale, which provide an additional source of liquidity, totaled ~~$101.6~~$64.8 million at September 30, ~~2018,~~2019, a decrease from ~~$105.5~~$72.2 million as of June 30, ~~2018.~~2019.

We had the ability to borrow up to ~~$301.4~~$264.2 million and ~~$314.9~~$291.2 million from the ~~Federal Home Loan Bank~~FHLB of New York, at September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively, of which ~~$18.8~~$111.2 million was outstanding as of both September 30, ~~2018~~2019 and June 30, ~~2018, respectively.~~2019. We also had an available line of credit with the Federal Reserve Bank of New York’s discount window program of ~~$118.3~~$116.5 million and ~~$122.1~~$118.0 million as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively, none of which was outstanding at either date.

We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. If loan demand was to increase faster than expected, or any unforeseen demand or commitment was to occur, we could access our borrowing capacity with the ~~Federal Home Loan Bank~~FHLB of New York or the Federal Reserve Bank of New York.

We had ~~$92.2~~$113.9 million and ~~$99.7~~$136.8 million of loan commitments outstanding as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively, and ~~$65.2~~$44.4 million and ~~$59.5~~$52.6 million as of September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively, of approved, but unadvanced, funds to borrowers. We also had $1.6 million and ~~$1.4~~$1.7 million in outstanding letters of credit at September 30, ~~2018~~2019 and June 30, ~~2018,~~2019, respectively.

Time deposits due within one year of September 30, ~~2018~~2019 totaled ~~$180.5~~ $248.6 million, ~~a decrease~~ an increase of ~~$2.8~~$26.8 million from ~~$183.3~~$221.8 million as of June 30, ~~2018.~~2019. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and ~~Federal Home Loan Bank~~FHLB of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits at September 30, ~~2018.~~2019. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The Holding Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its ~~stockholders~~shareholders and for other corporate purposes. The Holding Company’s primary source of liquidity is dividend payments it may receive from the Bank. The Bank’s ability to pay dividends to the Holding Company is governed by applicable ~~laws~~law and regulations. At September 30, ~~2018~~,2019, the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of ~~$71.1~~$52.4 million.

Capital Resources. The ~~Company and~~ Bank ~~are~~is subject to various regulatory capital requirements administered by the ~~New York State Department of Financial Services~~NYSDFS and the ~~Federal Deposit Insurance Corporation.~~FDIC. At September 30, ~~2018,~~2019, the Bank exceeded all applicable regulatory capital requirements, and the Bank was considered “well capitalized” under applicable regulatory guidelines. See Note 98 to the accompanying unaudited financial ~~statements~~statements.

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

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, ~~2018.~~2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the ~~Registrant’s~~Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, ~~2018,~~2019, 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. ~~will not have a material impact on the Company’s consolidated financial position, results of operations or disclosures~~

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, ~~2018,~~2019, 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.

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, ~~2018,~~2019, filed with the Securities and Exchange Commission. As of September 30, ~~2018,~~2019, 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, ~~2018.~~2019.

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

The following table presents information regarding stock repurchases by the Company during the quarter ended September 30, 2019.

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.

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Small reporting company	☐☒

		Emerging growth company	☒

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	23
	Consolidated Balance Sheets	23
	Consolidated Statements of Operations	34
	Consolidated Statements of Comprehensive Income	45
	Consolidated Statements of Changes in Shareholders’ Equity	56
	Consolidated Statements of Cash Flows	67
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3841
Item 4.	Controls and Procedures	3841
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3942
Item 1A.	Risk Factors	3942
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3942
Item 3.	Defaults Upon Senior Securities	3942
Item 4.	Mine Safety Disclosures	3942
Item 5.	Other Information	3942
Item 6.	Exhibits	3943
Signatures		4044

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested granted shares outstanding at July 1, 2019		547,185	$	19.02
Shares granted		-		-
Shares vested		-		-
Shares forfeited		-		-
Unvested granted shares at September 30, 2019		547,185	$	19.02

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Years		Aggregate Intrinsic Value
	(dollars in thousands, except share and per share data)
Options outstanding at July 1, 2019		1,339,293	$	19.04
Options granted		-		-
Options expired		-		-
Options exercised		-		-
Options outstanding at September 30, 2019		1,339,293	$	19.04		9.1	$	1,277

Exercisable at September 30, 2019		-	$	-		-	$	-

(dollars in thousands)
2020	$	1,609
2021		1,960
2022		1,937
2023		1,850
2024		1,479
Thereafter		5,661
Total future minimum lease payments (undiscounted)		14,496
Discounting effect on cash flows		(1,904	)
Lease liability (discounted)	$	12,592

	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, 2019 through July 31, 2019		-	$	-		-		890,021
August 1, 2019 through August 31, 2019		135,100		19.52		135,100		754,921
September 1, 2019 through September 30, 2019		44,700		19.84		44,700		710,221
Total		179,800	$	19.60		179,800

Exhibit Number		Description

3.1		Articles of Incorporation of PCSB Financial Corporation ⁽¹⁾

3.2		Bylaws of PCSB Financial Corporation ⁽²⁾

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

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

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

101		The following materials for the quarter ended September 30, ~~2018,~~2019, formatted in 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⁽³⁾

		PCSB FINANCIAL CORPORATION

Date: November ~~9, 2018~~8, 2019		/s/ Joseph D. Roberto
		Joseph D. Roberto
		Chairman, President and Chief Executive Officer

Date: November ~~9, 2018~~8, 2019		/s/ ~~Scott D. Nogles~~Jeffrey M. Helf
		~~Scott D. Nogles~~Jeffrey M. Helf
		~~Executive~~Senior Vice President and Chief Financial Officer