FAIRFIELD, N.J., Oct. 30, 2018 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended September 30, 2018 of $11.1 million, or $0.12 per basic and diluted share. The results represent an increase of $3.4 million compared to net income of $7.7 million, or $0.08 per basic and diluted share, for the quarter ended June 30, 2018.
Craig L. Montanaro, President and Chief Executive Officer, commented, “We are pleased with how we have continued to build on our positive momentum from fiscal 2018 by executing on a number of strategic priorities during the quarter including the strong growth within our commercial mortgage loan portfolio and the ongoing integration of the Clifton Bancorp, Inc. (“CSBK”) acquisition which, subsequent to quarter end, culminated in the full system integration of CSBK’s banking products and services.”
Balance Sheet Highlights
- The Company’s aggregate loan portfolio, excluding loans held for sale and the allowance for loan losses, increased by $159.2 million to $4.66 billion, or 70.0% of total assets, at September 30, 2018 from $4.50 billion, or 68.4% of total assets, at June 30, 2018. Commercial mortgage loans represented $152.6 million of this increase, totaling 69.0% of total loans at September 30, 2018.
- The balance of cash and cash equivalents decreased by $84.4 million to $44.5 million at September 30, 2018 from $128.9 million at June 30, 2018. The decrease for the quarter ended September 30, 2018 reflected the reinvestment of excess cash balances into the loan portfolio. The Company generally seeks to limit the balance of cash and cash equivalents held to the levels needed to meet its day-to-day funding obligations and overall liquidity risk management objectives.
- The Company’s total deposits decreased by $118.8 million to $3.95 billion at September 30, 2018, from $4.07 billion at June 30, 2018. The net decline in deposits primarily reflected a $210.8 million decrease in wholesale deposits attributable to the scheduled maturity and termination of the Company’s participation in Promontory Interfinancial Network’s (“Promontory”) Insured Network Deposits (“IND”) program. Partially offsetting this decrease was an increase of $92.0 million in other deposits comprising increases of $35.7 million and $56.3 million in retail and other wholesale deposits, respectively.
- Total borrowings increased by $220.8 million to $1.42 billion at September 30, 2018, from $1.20 billion at June 30, 2018. The increase in borrowings for the quarter ended September 30, 2018 reflected an additional $200.0 million 90-day Federal Home Loan Bank (“FHLB”) term advance that was drawn to replace the maturing Promontory IND funding noted above coupled with an increase of $60.0 million in overnight borrowings drawn for liquidity management purposes. The Company had entered into a forward-starting interest rate swap contract in July 2016 to extend the effective duration of the new 90-day FHLB advance thereby effectively fixing its cost for a longer period of time. These increases were partially offset by decreases of $35.0 million in long-term FHLB advances resulting from the scheduled maturity of such advances coupled with a $4.9 million decrease in depositor sweep account balances representing normal day-to-day fluctuations in such balances.
The noted balance sheet growth, reinvestment and reallocation achievements muted the adverse effects of the continuing increases in market interest rates and the flattening yield curve on the Company’s net interest margin:
- The Company’s net interest income totaled $40.2 million for the quarter ended September 30, 2018 as compared to $40.6 million for the quarter ended June 30, 2018.
- The Company’s net interest margin decreased four basis points to 2.68% for the quarter ended September 30, 2018 from 2.72% for the quarter ended June 30, 2018 while the net interest rate spread decreased by four basis points to 2.44% from 2.48% for those same comparative periods, respectively.
The Company’s mortgage banking, SBA lending and commercial mortgage lending strategies continued to supplement and diversify its sources of non-interest income:
- Aggregate loan sale gains totaled $132,000 for the quarter ended September 30, 2018 compared to $127,000 for the quarter ended June 30, 2018. The modest increase in gains on sale reflected an increase in the average net gain recognized per loan sold that was partially offset by a decrease in the volume of such loans between comparative periods.
- Fees and service charges remained stable, totaling $1.2 million for the quarters ended September 30, 2018 and June 30, 2018.
The Company continues to evaluate and implement tactics and strategies designed to improve operating practices, policies and procedures while making more efficient and effective use of its supporting infrastructure, including human resources, facilities and information technology systems.
- The Company’s ratio of non-interest expense to average assets totaled 1.61% for the quarter ended September 30, 2018 compared to 1.90% for the prior quarter ended June 30, 2018. For those same comparative periods, the Company’s operating efficiency ratio decreased to 61.0% from 71.1%, respectively. The decrease in the Company’s non-interest expense ratio and efficiency ratio largely reflected the Company’s recognition of $5.1 million of non-recurring, merger-related charges during the quarter ended June 30, 2018.
Finally, the State of New Jersey enacted changes to its income tax laws that become effective on July 1, 2018. Such changes included provisions that imposed a surtax on Corporation Business Tax taxpayers whose allocated New Jersey net income exceeds $1.0 million. The surtax was imposed at an initial rate of 2.5% which became effective for the Company for its current tax year which began on July 1, 2018 and will continue through its next tax year beginning July 1, 2019. The surtax will decrease to 1.5% for the Company’s tax year beginning July 1, 2020 and will continue at that reduced rate through its tax year beginning July 1, 2021. The surtax will be discontinued for the Company’s tax year beginning on July 1, 2022.
Collectively, the factors noted above resulted in an increase in net income for the quarter ended September 30, 2018 compared to the prior quarter ended June 30, 2018. The increase in net income had a favorable impact on the Company’s earnings-based performance ratios as highlighted below:
- The Company’s return on average assets for the quarter ended September 30, 2018 totaled 0.68% compared to 0.47% for the prior quarter ended June 30, 2018.
- The Company’s return on average equity for the quarter ended September 30, 2018 totaled 3.55% compared to 2.39% for the prior quarter ended June 30, 2018.
Asset Quality Highlights
- Asset quality remained strong throughout the quarter ended September 30, 2018. The outstanding balance of nonperforming loans totaled $20.5 million, or 0.44% of total loans, at September 30, 2018 as compared to $16.9 million, or 0.37% of total loans, at June 30, 2018. The allowance for loan losses increased to $32.7 million at September 30, 2018 from $30.9 million at June 30, 2018, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of total loans, of 0.69% and 0.68%, respectively.
- The Company recognized net charge offs totaling approximately $234,000 for the quarter ended September 30, 2018, reflecting an annualized net charge off rate of 0.02% on the average balance of total loans for the period. By comparison, the Company’s net charge offs totaled approximately $101,000 for the quarter ended June 30, 2018, reflecting an annualized net charge off rate of 0.01%.
- The Company’s provision for loan losses increased by $1.4 million to $2.1 million for the quarter ended September 30, 2018 compared to $717,000 for the quarter ended June 30, 2018. The increase in provision expense was largely attributable to the effects of comparatively greater growth during the quarter ended September 30, 2018 in the performing portion of the loan portfolio that is collectively evaluated for impairment.
- The Company maintained its regular quarterly cash dividend payable to stockholders of $0.04 per share declared and paid during the quarter September 30, 2018. Additionally, the Company declared a special cash dividend of $0.16 during the quarter ended September 30, 2018. The Company continues to evaluate its dividend policies and practices in relation to its capital management and shareholder value objectives.
- During the quarter ended September 30, 2018, the Company repurchased 1,957,600 shares of its capital stock at a total cost of $26.9 million and at an average cost of $13.75 per share. Such shares were repurchased in conjunction with the Company’s third share repurchase program announced in May 2018, through which it authorized the repurchase of 10,238,557 shares, or 10% its outstanding shares. Through September 30, 2018, the Company repurchased a total of 4,653,060 shares, or 45.4% of the shares authorized for repurchase under this third program, at a total cost of $65.3 million and at an average cost of $14.03 per share.
- The Company’s and Bank’s regulatory capital ratios at September 30, 2018 were well in excess of the levels required by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines.
The exhibits that follow this narrative begin with the presentation of the Linked-Quarter Comparative Financial Analysis that supports the discussion above by presenting the Company’s financial condition and operating results for the quarter ended September 30, 2018 compared to those for the prior linked-quarter ended June 30, 2018. This analysis is followed by a tabular Five-Quarter Financial Trend Analysis that presents similar financial information, together with other financial highlights and performance metrics, over a consecutive five quarter look-back period that is intended to reflect the Company’s financial performance and strategic achievements over this extended period of time. The exhibits conclude with the presentation of the Reconciliation of GAAP to Non-GAAP financial data included in this news release.
Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.
|Linked-Quarter Comparative Financial Analysis|
|Summary Balance Sheet ||At|
|(Dollars and Shares in Thousands, |
Except Per Share Data, Unaudited)
|September 30, |
|June 30, |
|Cash and cash equivalents||$||44,486||$||128,864||$||(84,378||)||-65.5||%|
|Securities available for sale||706,240||725,085||(18,845||)||-2.6||%|
|Securities held to maturity||602,838||589,730||13,108||2.2||%|
|Loans receivable, including yield adjustments||4,660,507||4,501,348||159,159||3.5||%|
|Less allowance for loan losses||(32,731||)||(30,865||)||(1,866||)||6.0||%|
|Net loans receivable||4,627,776||4,470,483||157,293||3.5||%|
|Premises and equipment||57,635||56,240||1,395||2.5||%|
|Federal Home Loan Bank stock||66,428||59,004||7,424||12.6||%|
|Accrued interest receivable||19,455||18,510||945||5.1||%|
|Core deposit intangible||6,018||6,295||(277||)||-4.4||%|
|Bank owned life insurance||251,410||249,816||1,594||0.6||%|
|Deferred income taxes, net||22,136||23,754||(1,618||)||-6.8||%|
|Other real estate owned||674||725||(51||)||-7.0||%|
|Advance payments by borrowers for taxes||10,687||18,088||(7,401||)||-40.9||%|
|Unearned ESOP shares||(32,104||)||(32,590||)||486||-1.5||%|
|Accumulated other comprehensive income, net||18,818||18,535||283||1.5||%|
|Total stockholders' equity||1,236,081||1,268,748||(32,667||)||-2.6||%|
|Total liabilities and stockholders' equity||$||6,656,211||$||6,579,874||$||76,337||1.2||%|
|Consolidated capital ratios|
|Equity to assets||18.57||%||19.28||%||-0.71||%|
|Tangible equity to tangible assets||15.83||%||16.53||%||-0.70||%|
|Equity per share||$||12.64||$||12.74||$||(0.10||)||-0.7||%|
|Tangible equity per share (1)||$||10.43||$||10.56||$||(0.13||)||-1.2||%|
|(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.|
|Summary Income Statement ||For the three months ended|
|(Dollars and Shares in Thousands, |
Except Per Share Data, Unaudited)
|September 30, |
|June 30, |
|Taxable investment securities||8,879||8,670||209||2.4||%|
|Tax-exempt investment securities||716||702||14||2.0||%|
|Other interest-earning assets||1,174||1,275||(101||)||-7.9||%|
|Total Interest Income||58,206||57,262||944||1.6||%|
|Total interest expense||18,026||16,671||1,355||8.1||%|
|Net interest income||40,180||40,591||(411||)||-1.0||%|
|Provision for loan losses||2,100||717||1,383||192.9||%|
|Net interest income after provision for |
|Fees and service charges||1,173||1,205||(32||)||-2.7||%|
|Gain on sale and call of securities||-||9||(9||)||-100.0||%|
|Gain on sale of loans||132||127||5||3.9||%|
|(Loss) gain on sale of real estate owned||(50||)||60||(110||)||-183.3||%|
|Income from bank owned life insurance||1,594||1,604||(10||)||-0.6||%|
|Electronic banking fees and charges||250||278||(28||)||-10.1||%|
|Total non-interest income||3,182||3,358||(176||)||-5.2||%|
|Salaries and employee benefits||15,642||15,353||289||1.9||%|
|Net occupancy expense of premises||2,736||2,716||20||0.7||%|
|Equipment and systems||2,926||2,776||150||5.4||%|
|Advertising and marketing||577||757||(180||)||-23.8||%|
|Federal deposit insurance premium||465||463||2||0.4||%|
|Total non-interest expense||26,457||31,257||(4,800||)||-15.4||%|
|Income before income taxes||14,805||11,975||2,830||23.6||%|
|Net income per common share (EPS)|
|Dividends declared (1)|
|Cash dividends declared per common share||$||0.20||$||0.04||$||0.16|
|Cash dividends declared||$||19,404||$||3,892||$||15,512|
|Dividend payout ratio||174.1||%||50.4||%||123.7||%|
|Weighted average number of common |
|(1) Dividends declared during the quarter ended September 30, 2018 include a $0.16 special dividend representing a supplemental |
distribution of net income to stockholders from the fiscal year ended June 30, 2018.
|Average Balance Sheet Data ||For the three months ended|
|(Dollars in Thousands, Unaudited) || September 30, |
| June 30, |
|Loans receivable, including loans held for sale||$||4,562,375||$||4,507,336||$||55,039||1.2||%|
|Taxable investment securities||1,180,655||1,192,066||(11,411||)||-1.0||%|
|Tax-exempt investment securities||136,056||134,683||1,373||1.0||%|
|Other interest-earning assets||112,629||142,591||(29,962||)||-21.0||%|
|Total interest-earning assets||5,991,715||5,976,676||15,039||0.3||%|
|Liabilities and Stockholders' Equity|
|Savings and club||747,743||724,430||23,313||3.2||%|
|Certificates of deposit||2,046,997||1,983,372||63,625||3.2||%|
|Total interest-bearing deposits||3,582,888||3,712,247||(129,359||)||-3.5||%|
|Federal Home Loan Bank Advances||1,350,113||1,179,147||170,966||14.5||%|
|Total interest-bearing liabilities||4,973,982||4,926,030||47,952||1.0||%|
|Other non-interest-bearing liabilities||43,533||39,340||4,193||10.7||%|
|Total non-interest-bearing liabilities||357,647||345,103||12,544||3.6||%|
|Total liabilities and stockholders' equity||$||6,587,721||$||6,563,652||$||24,069||0.4||%|
|Average interest-earning assets to average |
|Performance Ratio Highlights||For the three months ended|
|September 30, 2018||June 30, 2018||Variance |
|Average yield on interest-earning assets:|
|Loans receivable, including loans held for sale||4.16||%||4.14||%||0.02||%|
|Taxable investment securities||3.01||%||2.91||%||0.10||%|
|Tax-exempt investment securities (1)||2.10||%||2.09||%||0.01||%|
|Other interest-earning assets||4.17||%||3.58||%||0.59||%|
|Total interest-earning assets||3.89||%||3.83||%||0.06||%|
|Average cost of interest-bearing liabilities:|
|Savings and club||0.41||%||0.29||%||0.12||%|
|Certificates of deposit||1.58||%||1.41||%||0.17||%|
|Total interest-bearing deposits||1.18||%||1.05||%||0.13||%|
|Federal Home Loan Bank Advances||2.19||%||2.34||%||-0.15||%|
|Total interest-bearing liabilities||1.45||%||1.35||%||0.10||%|
|Interest rate spread (2)||2.44||%||2.48||%||-0.04||%|
|Net interest margin (3)||2.68||%||2.72||%||-0.04||%|
|Non-interest income to average assets |