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Kearny Financial Corp. Reports Fiscal 2021 Third Quarter Results

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FAIRFIELD, N.J., April 29, 2021 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), reported net income for the quarter ended March 31, 2021 of $16.4 million, or $0.20 per diluted share, compared to $16.9 million, or $0.20 per diluted share, for the quarter ended December 31, 2020.

Craig L. Montanaro, President and Chief Executive Officer, commented, “This quarter’s performance was highlighted by double-digit margin expansion largely resulting from a 22 basis point decrease in the cost of our interest-bearing liabilities. The success we have had in shifting our funding mix, controlling operating expenses and building valuable long-term lending and deposit relationships serves us well today and into the future.”

With regard to the current credit environment, Mr. Montanaro further noted, “Despite an increase of $4.2 million in reserves on individually evaluated loans, largely attributable to two non-performing commercial real estate loans, asset quality remains solid. Our fortress-like balance sheet, comprised of significant levels of excess capital and a robust allowance for credit losses, positions us to withstand the ongoing economic impact of the pandemic while allowing us to take advantage of strategic capital deployment opportunities as they may arise.”

Balance Sheet

  • Deposits increased by $61.8 million to $5.37 billion at March 31, 2021 from $5.31 billion at December 31, 2020, reflecting growth of $227.8 million, or 6.8%, in core non-maturity deposits.

  • Loans receivable decreased by $30.4 million to $4.80 billion at March 31, 2021 from $4.83 billion at December 31, 2020. Included in the net decrease for the period was a reduction of $18.3 million in Paycheck Protection Program (“PPP”) loan balances.

  • Investment securities increased to $1.81 billion, or 24.5% of total assets, at March 31, 2021 from $1.73 billion at December 31, 2020, while borrowings remained relatively flat, increasing to $865.8 million, or 11.8% of total assets, from $865.7 million, or 11.8% of total assets, for those same comparative periods.

Earnings

Net Interest Income and Net Interest Margin

  • Net interest income increased by $3.1 million to $47.6 million for the quarter ended March 31, 2021 from $44.6 million for the quarter ended December 31, 2020. This increase was the result of a $3.2 million reduction in interest expense that was partially offset by an $80,000 decline in interest income. Included in net interest income was purchase accounting accretion of $4.8 million and $3.7 million, for the quarters ended March 31, 2021 and December 31, 2020, respectively.

  • Net interest margin increased by 19 basis points to 2.83% for the quarter ended March 31, 2021 from 2.64% for the quarter ended December 31, 2020. For those same comparative periods, yield on interest-earning assets increased by one basis point to 3.46% while the cost of interest-bearing liabilities decreased by 22 basis points to 0.75%.

Non-Interest Income

  • Fees and service charges totaled $1.3 million for the quarter ended March 31, 2021 compared to $1.9 million for the quarter ended December 31, 2020. This decrease was largely attributable to a decrease of $488,000 in loan pre-payment penalty income to $871,000 for the quarter ended March 31, 2021.

  • Gain on sale of loans totaled $943,000 for the quarter ended March 31, 2021 compared to $2.4 million for the quarter ended December 31, 2020. This decrease was largely attributable to the strategic decision to retain a greater percentage of originated loans within the portfolio, compared to the prior quarter.

  • Gain on sale and call of securities was $18,000 for the quarter ended March 31, 2021 compared to $813,000 for the quarter ended December 31, 2020. This decrease was largely attributable to a gain recorded in the prior comparative period in connection with a previously disclosed wholesale restructuring transaction.

  • Included in other non-interest income was a non-recurring gain of $837,000 attributable to the sale of two properties which previously served as Kearny Bank retail branch locations and were sold in connection with branch consolidation activities.

Non-Interest Expense

  • Non-interest expense decreased by $694,000 to $29.8 million for the quarter ended March 31, 2021 compared to $30.5 million for the quarter ended December 31, 2020. The decrease was largely attributable to $796,000 in debt extinguishment expense recognized in the prior comparative period with no such expense recognized in the current period.

  • Included in other non-interest expense for the quarter ended March 31, 2021 was an asset impairment charge of $375,000 related to the consolidation and closure of one additional branch location.

  • The efficiency and non-interest expense ratios were 56.15% and 1.62%, respectively, for the quarter ended March 31, 2021 as compared to 59.01% and 1.65%, respectively, for the quarter ended December 31, 2020.

Income Taxes

  • Income tax expense totaled $5.7 million for the quarter ended March 31, 2021 compared to $5.6 million for the quarter ended December 31, 2020, resulting in effective tax rates of 25.9% and 24.9%, respectively.

Performance Highlights

  • Return on average assets was 0.89% for the quarter ended March 31, 2021 as compared to 0.92% for the quarter ended December 31, 2020.

  • Return on average equity was 6.07% for the quarters ended March 31, 2021 and December 31, 2020. Return on average tangible equity was 7.57% for the quarter ended March 31, 2021 as compared to 7.52% for the quarter ended December 31, 2020.

Asset Quality

  • The balance of non-performing assets remained relatively stable at $71.6 million, or 0.97% of total assets, at March 31, 2021 compared $71.7 million, or 0.98% of total assets, at December 31, 2020.

  • Based on Section 4013 of the CARES Act, the Consolidated Appropriations Act, 2021 and related guidance promulgated by federal banking regulators, qualifying loan modifications, including short-term payment deferrals, are not considered to be troubled debt restructurings. As of March 31, 2021, the Company had active payment deferrals on 32 loans totaling $52.9 million, representing 1.10% of total loans.

  • Net charge offs totaled $750,000 for the quarter ended March 31, 2021 compared to $109,000 for the quarter ended December 31, 2020, reflecting annualized net charge off rates of 0.06% and 0.01% for the those same comparative periods. Net charge offs for the quarter were largely attributable to one Small Business Administration 7a loan totaling $675,000.

  • Provision for credit losses totaled $1.1 million for the quarter ended March 31, 2021 compared to a provision for credit losses reversal of $1.4 million for the quarter ended December 31, 2020. The comparatively higher level of provision primarily reflected an increase in reserves on individually evaluated loans of $4.2 million, partially offset by a release of reserves within the one- to four-family residential segments, reflecting the improving credit risk outlook for that asset class.

  • The increase in reserves on individually evaluated loans, noted above, was largely attributable to two non-performing commercial real estate loans, with principal balances totaling $9.8 million, secured by properties located in New York City.

  • The Allowance for Credit Losses (“ACL”) increased to $63.8 million at March 31, 2021 from $63.4 million at December 31, 2020, with such balances reflecting an ACL to total loans ratio of 1.32% and 1.30%, respectively, as of those dates.

Liquidity & Capital

  • At March 31, 2021, liquid assets included $109.0 million of short-term cash and equivalents supplemented by $1.78 billion of investment securities classified as available for sale. The Company had the capacity to borrow additional funds totaling $615.0 million via unsecured lines of credit and $1.81 billion and $257.0 million, without pledging additional collateral, from the FHLB of New York and Federal Reserve Bank, respectively.

  • During the quarter ended March 31, 2021, the Company repurchased 3,026,564 shares of common stock at a cost of $34.9 million, or $11.52 per share.

  • For the quarter ended March 31, 2021, book value per share increased by $0.12 to $12.98 while tangible book value per share increased by $0.03 to $10.36.

  • At March 31, 2021, the Company’s ratio of tangible equity to tangible assets equaled 11.89%. At March 31, 2021, the regulatory capital ratios, of both the Company and the Bank were in excess of the levels required by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines.

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.

In addition, the COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened or remain open. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen or remain open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; due to a decline in our stock price or other factors, goodwill may become impaired and be required to be written down; and our cyber security risks are increased as the result of an increase in the number of employees working remotely.

Category: Earnings

Linked-Quarter Comparative Financial Analysis

Summary Balance Sheet

At

Variance

(Dollars and Shares in Thousands,

March 31,

December 31,

Variance

or Change

Except Per Share Data, Unaudited)

2021

2020

or Change

Pct.

Assets

Cash and cash equivalents

$

108,991

$

129,694

$

(20,703

)

-16.0

%

Securities available for sale

1,778,970

1,695,893

83,077

4.9

%

Securities held to maturity

27,168

29,549

(2,381

)

-8.1

%

Loans held-for-sale

5,172

12,601

(7,429

)

-59.0

%

Loans receivable

4,798,239

4,828,634

(30,395

)

-0.6

%

Less allowance for credit losses on loans

(63,762

)

(63,386

)

(376

)

0.6

%

Net loans receivable

4,734,477

4,765,248

(30,771

)

-0.6

%

Premises and equipment

60,360

61,181

(821

)

-1.3

%

Federal Home Loan Bank stock

45,578

45,578

-

0.0

%

Accrued interest receivable

20,562

19,826

736

3.7

%

Goodwill

210,895

210,895

-

0.0

%

Core deposit intangible

3,888

4,151

(263

)

-6.3

%

Bank owned life insurance

281,765

280,235

1,530

0.5

%

Deferred income taxes, net

32,230

30,846

1,384

4.5

%

Other real estate owned

178

178

-

0.0

%

Other assets

47,760

49,278

(1,518

)

-3.1

%

Total assets

$

7,357,994

$

7,335,153

$

22,841

0.3

%

Liabilities

Deposits

$

5,374,452

$

5,312,613

$

61,839

1.2

%

Borrowings

865,763

865,651

112

0.0

%

Advance payments by borrowers for taxes

15,300

16,100

(800

)

-5.0

%

Other liabilities

38,667

48,448

(9,781

)

-20.2

%

Total liabilities

6,294,182

6,242,812

51,370

0.8

%

Stockholders' Equity

Common stock

820

849

(29

)

-3.4

%

Paid-in capital

691,280

724,389

(33,109

)

-4.6

%

Retained earnings

397,594

388,376

9,218

2.4

%

Unearned ESOP shares

(27,239

)

(27,726

)

487

-1.8

%

Accumulated other comprehensive income

1,357

6,453

(5,096

)

-79.0

%

Total stockholders' equity

1,063,812

1,092,341

(28,529

)

-2.6

%

Total liabilities and stockholders' equity

$

7,357,994

$

7,335,153

$

22,841

0.3

%

Consolidated capital ratios

Equity to assets

14.46

%

14.89

%

-0.43

%

Tangible equity to tangible assets (1)

11.89

%

12.32

%

-0.44

%

Share data

Outstanding shares

81,943

84,938

(2,995

)

-3.5

%

Book value per share

$

12.98

$

12.86

$

0.12

0.9

%

Tangible book value per share (2)

$

10.36

$

10.33

$

0.03

0.3

%

_______________________
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets. Tangible assets equals total assets reduced by goodwill and core deposit intangible assets.
(2) Tangible book value equals total stockholders' equity reduced by goodwill and core deposit intangible assets.

Summary Income Statement

For the three months ended

Variance

(Dollars and Shares in Thousands,

March 31,

December 31,

Variance

or Change

Except Per Share Data, Unaudited)

2021

2020

or Change

Pct.

Interest income

Loans

$

49,307

$

49,466

$

(159

)

-0.3

%

Taxable investment securities

7,891

7,707

184

2.4

%

Tax-exempt investment securities

410

433

(23

)

-5.3

%

Other interest-earning assets

705

787

(82

)

-10.4

%

Total Interest Income

58,313

58,393

(80

)

-0.1

%

Interest expense

Deposits

6,670

8,647

(1,977

)

-22.9

%

Borrowings

4,012

5,193

(1,181

)

-22.7

%

Total interest expense

10,682

13,840

(3,158

)

-22.8

%

Net interest income

47,631

44,553

3,078

6.9

%

Provision for (reversal of) credit losses

1,126

(1,365

)

2,491

182.5

%

Net interest income after provision for (reversal of)
credit losses

46,505

45,918

587

1.3

%

Non-interest income

Fees and service charges

1,325

1,896

(571

)

-30.1

%

Gain on sale and call of securities

18

813

(795

)

-97.8

%

Gain on sale of loans

943

2,378

(1,435

)

-60.3

%

Income from bank owned life insurance

1,530

1,596

(66

)

-4.1

%

Electronic banking fees and charges

456

404

52

12.9

%

Other income

1,194

67

1,127

1682.1

%

Total non-interest income

5,466

7,154

(1,688

)

-23.6

%

Non-interest expense

Salaries and employee benefits

16,965

17,081

(116

)

-0.7

%

Net occupancy expense of premises

3,433

3,120

313

10.0

%

Equipment and systems

3,823

3,902

(79

)

-2.0

%

Advertising and marketing

567

513

54

10.5

%

Federal deposit insurance premium

488

490

(2

)

-0.4

%

Directors' compensation

748

748

-

0.0

%

Debt extinguishment expenses

-

796

(796

)

-100.0

%

Other expense

3,792

3,860

(68

)

-1.8

%

Total non-interest expense

29,816

30,510

(694

)

-2.3

%

Income before income taxes

22,155

22,562

(407

)

-1.8

%

Income taxes

5,732

5,614

118

2.1

%

Net income

$

16,423

$

16,948

$

(525

)

-3.1

%

Net income per common share (EPS)

Basic

$

0.20

$

0.20

$

0.00

Diluted

$

0.20

$

0.20

$

0.00

Dividends declared

Cash dividends declared per common share

$

0.09

$

0.08

$

0.01

Cash dividends declared

$

7,205

$

6,706

$

499

Dividend payout ratio

43.9

%

39.6

%

4.3

%

Weighted average number of common
shares outstanding

Basic

80,673

85,120

(4,447

)

Diluted

80,690

85,123

(4,433

)


For the three months ended

Variance

Average Balance Sheet Data

March 31,

December 31,

Variance

or Change

(Dollars in Thousands, Unaudited)

2021

2020

or Change

Pct.

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,816,592

$

4,871,268

$

(54,676

)

-1.1

%

Taxable investment securities

1,674,223

1,544,095

130,128

8.4

%

Tax-exempt investment securities

73,573

79,044

(5,471

)

-6.9

%

Other interest-earning assets

169,291

266,114

(96,823

)

-36.4

%

Total interest-earning assets

6,733,679

6,760,521

(26,842

)

-0.4

%

Non-interest-earning assets

617,440

632,084

(14,644

)

-2.3

%

Total assets

$

7,351,119

$

7,392,605

$

(41,486

)

-0.6

%

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

1,831,617

$

1,683,222

$

148,395

8.8

%

Savings

1,084,981

1,058,675

26,306

2.5

%

Certificates of deposit

1,904,234

1,899,406

4,828

0.3

%

Total interest-bearing deposits

4,820,832

4,641,303

179,529

3.9

%

Borrowings:

Federal Home Loan Bank advances

865,690

1,057,958

(192,268

)

-18.2

%

Total interest-bearing liabilities

5,686,522

5,699,261

(12,739

)

-0.2

%

Non-interest-bearing liabilities:

Non-interest-bearing deposits

525,018

502,479

22,539

4.5

%

Other non-interest-bearing liabilities

57,018

73,683

(16,665

)

-22.6

%

Total non-interest-bearing liabilities

582,036

576,162

5,874

1.0

%

Total liabilities

6,268,558

6,275,423

(6,865

)

-0.1

%

Stockholders' equity

1,082,561

1,117,182

(34,621

)

-3.1

%

Total liabilities and stockholders' equity

$

7,351,119

$

7,392,605

$

(41,486

)

-0.6

%

Average interest-earning assets to average
interest-bearing liabilities

118.41

%

118.62

%

-0.21

%

-0.2

%


For the three months ended

March 31,

December 31,

Variance

Performance Ratio Highlights

2021

2020

or Change

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.09

%

4.06

%

0.03

%

Taxable investment securities

1.89

%

2.00

%

-0.11

%

Tax-exempt investment securities (1)

2.23

%

2.19

%

0.04

%

Other interest-earning assets

1.67

%

1.18

%

0.49

%

Total interest-earning assets

3.46

%

3.45

%

0.01

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

0.34

%

0.47

%

-0.13

%

Savings

0.21

%

0.33

%

-0.12

%

Certificates of deposit

0.96

%

1.22

%

-0.26

%

Total interest-bearing deposits

0.55

%

0.75

%

-0.20

%

Borrowings:

Federal Home Loan Bank advances

1.85

%

1.96

%

-0.11

%

Total interest-bearing liabilities

0.75

%

0.97

%

-0.22

%

Interest rate spread (2)

2.71

%

2.48

%

0.23

%

Net interest margin (3)

2.83

%

2.64

%

0.19

%

Non-interest income to average assets
(annualized)

0.30

%

0.39

%

-0.09

%

Non-interest expense to average assets
(annualized)

1.62

%

1.65

%

-0.03

%

Efficiency ratio (4)

56.15

%

59.01

%

-2.86

%

Return on average assets (annualized)

0.89

%

0.92

%

-0.03

%

Return on average equity (annualized)

6.07

%

6.07

%

0.00

%

Return on average tangible equity (annualized) (5)

7.57

%

7.52

%

0.05

%

_______________________
(1) The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(2) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(3) Net interest income divided by average interest-earning assets.
(4) Non-interest expense divided by the sum of net interest income and non-interest income.
(5) Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.

Five-Quarter Financial Trend Analysis

Summary Balance Sheet

At

(Dollars and Shares in Thousands,

March 31,

December 31,

September 30,

June 30,

March 31,

Except Per Share Data, Unaudited)

2021

2020

2020

2020

2020

Assets

Cash and cash equivalents

$

108,991

$

129,694

$

145,818

$

180,967

$

59,452

Securities available for sale

1,778,970

1,695,893

1,508,542

1,385,703

1,476,344

Securities held to maturity

27,168

29,549

31,576

32,556

34,618

Loans held-for-sale

5,172

12,601

20,170

20,789

11,245

Loans receivable

4,798,239

4,828,634

4,954,750

4,498,397

4,562,512

Less allowance for credit losses on loans

(63,762

)

(63,386

)

(64,860

)

(37,327

)

(37,191

)

Net loans receivable

4,734,477

4,765,248

4,889,890

4,461,070

4,525,321

Premises and equipment

60,360

61,181

61,808

57,389

58,985

Federal Home Loan Bank stock

45,578

45,578

55,118

58,654

59,324

Accrued interest receivable

20,562

19,826

20,368

17,373

19,036

Goodwill

210,895

210,895

210,895

210,895

210,895

Core deposit intangible

3,888

4,151

4,420

3,995

4,242

Bank owned life insurance

281,765

280,235

278,639

262,380

260,843

Deferred income taxes, net

32,230

30,846

33,319

25,480

27,150

Other real estate owned

178

178

178

178

178

Other assets

47,760

49,278

49,468

40,746

26,200

Total assets

$

7,357,994

$

7,335,153

$

7,310,209

$

6,758,175

$

6,773,833

Liabilities

Deposits

$

5,374,452

$

5,312,613

$

5,039,912

$

4,430,282

$

4,253,254

Borrowings

865,763

865,651

1,077,540

1,173,165

1,384,025

Advance payments by borrowers for taxes

15,300

16,100

17,008

16,569

16,492

Other liabilities

38,667

48,448

51,689

53,982

50,390

Total liabilities

6,294,182

6,242,812

6,186,149

5,673,998

5,704,161

Stockholders' Equity

Common stock

820

849

895

837

837

Paid-in capital

691,280

724,389

769,269

722,871

721,474

Retained earnings

397,594

388,376

378,134

387,911

380,671

Unearned ESOP shares

(27,239

)

(27,726

)

(28,212

)

(28,699

)

(29,185

)

Accumulated other comprehensive income (loss)

1,357

6,453

3,974

1,257

(4,125

)

Total stockholders' equity

1,063,812

1,092,341

1,124,060

1,084,177

1,069,672

Total liabilities and stockholders' equity

$

7,357,994

$

7,335,153

$

7,310,209

$

6,758,175

$

6,773,833

Consolidated capital ratios

Equity to assets

14.46

%

14.89

%

15.38

%

16.04

%

15.79

%

Tangible equity to tangible assets (1)

11.89

%

12.32

%

12.81

%

13.29

%

13.03

%

Share data

Outstanding shares

81,943

84,938

89,510

83,663

83,664

Book value per share

$

12.98

$

12.86

$

12.56

$

12.96

$

12.79

Tangible book value per share (2)

$

10.36

$

10.33

$

10.15

$

10.39

$

10.21

_______________________
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets. Tangible assets equals total assets reduced by goodwill and core deposit intangible assets.
(2) Tangible book value equals total stockholders' equity reduced by goodwill and core deposit intangible assets.


At

Supplemental Balance Sheet Highlights

March 31,

December 31,

September 30,

June 30,

March 31,

(Dollars in Thousands, Unaudited)

2021

2020

2020

2020

2020

Cash and cash equivalents

Cash and due from depository institutions

$

20,502

$

23,968

$

18,628

$

20,391

$

20,200

Interest-bearing deposits in other banks

88,489

105,726

127,190

160,576

39,252

Total cash and cash equivalents

$

108,991

$

129,694

$

145,818

$

180,967

$

59,452

Securities available for sale

Debt securities:

Municipal and state obligations

$

43,060

$

47,763

$

50,877

$

54,054

$

58,151

Asset-backed securities

250,741

255,407

258,801

172,447

169,102

Collateralized loan obligations

169,776

196,685

196,398

193,788

189,565

Corporate bonds

173,462

167,168

122,276

143,639

163,715

Trust preferred securities

2,881

2,866

2,773

2,627

2,852

Debt securities

639,920

669,889

631,125

566,555

583,385

Mortgage-backed securities:

Collateralized mortgage obligations

16,800

20,510

25,770

30,903

34,671

Residential pass-through securities

806,655

705,991

625,715

561,954

607,113

Commercial pass-through securities

315,595

299,503

225,932

226,291

251,175

Mortgage-backed securities

1,139,050

1,026,004

877,417

819,148

892,959

Total securities available for sale

$

1,778,970

$

1,695,893

$

1,508,542

$

1,385,703

$

1,476,344

Securities held to maturity

Debt securities:

Municipal and state obligations

$

27,168

$

29,549

$

31,576

$

32,556

$

34,618

Total securities held to maturity

$

27,168

$

29,549

$

31,576

$

32,556

$

34,618

Total securities

$

1,806,138

$

1,725,442

$

1,540,118

$

1,418,259

$

1,510,962


At

Supplemental Balance Sheet Highlights

March 31,

December 31,

September 30,

June 30,

March 31,

(Dollars in Thousands, Unaudited)

2021

2020

2020

2020

2020

Loan portfolio composition:

Commercial loans:

Multi-family

$

2,055,396

$

2,076,483

$

2,110,300

$

2,059,568

$

1,879,907

Nonresidential

1,110,765

1,123,695

1,124,330

960,853

1,202,652

Commercial business

183,181

202,010

255,888

138,788

73,922

Construction

95,533

90,398

79,178

20,961

17,880

Total commercial loans

3,444,875

3,492,586

3,569,696

3,180,170

3,174,361

One- to four-family residential mortgage loans

1,323,485

1,305,351

1,353,197

1,273,022

1,338,099

Consumer loans:

Home equity loans and lines of credit

59,721

65,298

71,540

82,920

87,909

Other consumer loans

3,445

4,123

4,136

3,991

4,604

Total consumer loans

63,166

69,421

75,676

86,911

92,513

Total loans, excluding yield adjustments

4,831,526

4,867,358

4,998,569

4,540,103

4,604,973

Unaccreted yield adjustments

(33,287

)

(38,724

)

(43,819

)

(41,706

)

(42,461

)

Loans receivable, net of yield adjustments

4,798,239

4,828,634

4,954,750

4,498,397

4,562,512

Less allowance for credit losses on loans

(63,762

)

(63,386

)

(64,860

)

(37,327

)

(37,191

)

Net loans receivable

$

4,734,477

$

4,765,248

$

4,889,890

$

4,461,070

$

4,525,321

Loan portfolio allocation:

Commercial loans:

Multi-family

42.5

%

42.7

%

42.2

%

45.3

%

40.8

%

Nonresidential

23.0

%

23.1

%

22.5

%

21.2

%

26.1

%

Commercial business

3.8

%

4.2

%

5.1

%

3.1

%

1.6

%

Construction

2.0

%

1.8

%

1.6

%

0.4

%

0.4

%

Total commercial loans

71.3

%

71.8

%

71.4

%

70.0

%

68.9

%

One- to four-family residential mortgage loans

27.4

%

26.8

%

27.1

%

28.1

%

29.1

%

Consumer loans:

Home equity loans and lines of credit

1.2

%

1.3

%

1.4

%

1.8

%

1.9

%

Other consumer loans

0.1

%

0.1

%

0.1

%

0.1

%

0.1

%

Total consumer loans

1.3

%

1.4

%

1.5

%

1.9

%

2.0

%

Total loans, excluding yield adjustments

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Asset quality:

Nonperforming assets:

Accruing loans - 90 days and over past due

$

2

$

-

$

238

$

5

$

12

Nonaccrual loans

71,416

71,472

44,837

36,691

35,384

Total nonperforming loans

71,418

71,472

45,075

36,696

35,396

Other real estate owned

178

178

178

178

178

Total nonperforming assets

$

71,596

$

71,650

$

45,253

$

36,874

$

35,574

Nonperforming loans (% total loans)

1.49

%

1.48

%

0.91

%

0.82

%

0.78

%

Nonperforming assets (% total assets)

0.97

%

0.98

%

0.62

%

0.55

%

0.53

%

Allowance for credit losses on loans (ACL):

ACL to total loans

1.32

%

1.30

%

1.30

%

0.82

%

0.81

%

ACL to nonperforming loans

89.28

%

88.69

%

143.89

%

101.72

%

105.07

%

Net charge offs

$

750

$

109

$

67

$

38

$

16

Average net charge off rate (annualized)

0.06

%

0.01

%

0.01

%

0.00

%

0.00

%


At

Supplemental Balance Sheet Highlights

March 31,

December 31,

September 30,

June 30,

March 31,

(Dollars in Thousands, Unaudited)

2021

2020

2020

2020

2020

Funding by type:

Deposits:

Non-interest-bearing deposits

$

545,746

$

518,828

$

487,710

$

419,138

$

321,824

Interest-bearing demand

1,923,184

1,752,699

1,561,135

1,264,151

1,134,420

Savings

1,105,481

1,075,122

1,025,245

906,597

848,950

Certificates of deposit

1,800,041

1,965,964

1,965,822

1,840,396

1,948,060

Interest-bearing deposits

4,828,706

4,793,785

4,552,202

4,011,144

3,931,430

Total deposits

5,374,452

5,312,613

5,039,912

4,430,282

4,253,254

Borrowings:

Federal Home Loan Bank advances

865,763

865,651

1,077,540

1,167,429

1,177,319

Overnight borrowings

-

-

-

-

200,000

Depositor sweep accounts

-

-

-

5,736

6,706

Total borrowings

865,763

865,651

1,077,540

1,173,165

1,384,025

Total funding

$

6,240,215

$

6,178,264

$

6,117,452

$

5,603,447

$

5,637,279

Loans as a % of deposits

88.2

%

89.9

%

97.4

%

101.2

%

106.7

%

Deposits as a % of total funding

86.1

%

86.0

%

82.4

%

79.1

%

75.4

%

Borrowings as a % of total funding

13.9

%

14.0

%

17.6

%

20.9

%

24.6

%

Funding by source:

Retail funding:

Non-interest-bearing deposits

$

545,746

$

518,828

$

487,710

$

419,138

$

321,824

Interest-bearing demand

1,923,184

1,752,699

1,561,135

1,264,151

1,134,420

Savings

1,105,481

1,075,122

1,025,245

906,597

848,950

Certificates of deposit

1,508,494

1,658,277

1,775,189

1,773,257

1,833,081

Total retail deposits

5,082,905

5,004,926

4,849,279

4,363,143

4,138,275

Depositor sweep accounts

-

-

-

5,736

6,706

Total retail funding

5,082,905

5,004,926

4,849,279

4,368,879

4,144,981

Wholesale funding:

Certificates of deposit (listing service)

$

32,952

$

43,112

$

57,251

$

35,760

$

33,608

Certificates of deposit (brokered)

258,595

264,575

133,382

31,379

81,371

Total wholesale deposits

291,547

307,687

190,633

67,139

114,979

FHLB advances

865,763

865,651

1,077,540

1,167,429

1,177,319

Overnight borrowings

-

-

-

-

200,000

Total wholesale funding

1,157,310

1,173,338

1,268,173

1,234,568

1,492,298

Total funding

$

6,240,215

$

6,178,264

$

6,117,452

$

5,603,447

$

5,637,279

Retail funding as a % of total funding

81.5

%

81.0

%

79.3

%

78.0

%

73.5

%

Wholesale funding as a % of total funding

18.5

%

19.0

%

20.7

%

22.0

%

26.5

%


Summary Income Statement

For the three months ended

(Dollars and Shares in Thousands,

March 31,

December 31,

September 30,

June 30,

March 31,

Except Per Share Data, Unaudited)

2021

2020

2020

2020

2020

Interest income

Loans

$

49,307

$

49,466

$

52,180

$

46,192

$

46,603

Taxable investment securities

7,891

7,707

7,336

9,769

10,526

Tax-exempt investment securities

410

433

454

487

547

Other interest-earning assets

705

787

914

903

1,100

Total interest income

58,313

58,393

60,884

57,351

58,776

Interest expense

Deposits

6,670

8,647

11,062

12,439

14,768

Borrowings

4,012

5,193

5,660

4,462

6,398

Total interest expense

10,682

13,840

16,722

16,901

21,166

Net interest income

47,631

44,553

44,162

40,450

37,610

Provision for (reversal of) credit losses

1,126

(1,365

)

4,059

174

6,270

Net interest income after provision for
(reversal of) credit losses

46,505

45,918

40,103

40,276

31,340

Non-interest income

Fees and service charges

1,325

1,896

1,076

1,696

1,338

Gain (loss) on sale and call of securities

18

813

(377

)

19

2,234

Gain on sale of loans

943

2,378

1,890

1,348

565

Income from bank owned life insurance

1,530

1,596

1,596

1,537

1,532

Electronic banking fees and charges

456

404

405

325

309

Bargain purchase gain

-

-

3,053

-

-

Other income

1,194

67

90

77

223

Total non-interest income

5,466

7,154

7,733

5,002

6,201

Non-interest expense

Salaries and employee benefits

16,965

17,081

16,977

15,527

15,537

Net occupancy expense of premises

3,433

3,120

3,122

2,688

2,685

Equipment and systems

3,823

3,902

3,570

2,948

2,672

Advertising and marketing

567

513

500

751

612

Federal deposit insurance premium

488

490

472

286

-

Directors' compensation

748

748

748

769

771

Merger-related expenses

-

-

4,349

447

285

Debt extinguishment expenses

-

796

-

-

2,156

Other expense

3,792

3,860

3,835

3,475

3,344

Total non-interest expense

29,816

30,510

33,573

26,891

28,062

Income before income taxes

22,155

22,562

14,263

18,387

9,479

Income taxes

5,732

5,614

2,884

4,698

225

Net income

$

16,423

$

16,948

$

11,379

$

13,689

$

9,254

Net income per common share (EPS)

Basic

$

0.20

$

0.20

$

0.13

$

0.17

$

0.11

Diluted

$

0.20

$

0.20

$

0.13

$

0.17

$

0.11

Dividends declared

Cash dividends declared per common share

$

0.09

$

0.08

$

0.08

$

0.08

$

0.08

Cash dividends declared

$

7,205

$

6,706

$

6,917

$

6,449

$

6,479

Dividend payout ratio

43.9

%

39.6

%

60.8

%

47.1

%

70.0

%

Weighted average number of common
shares outstanding

Basic

80,673

85,120

86,008

80,678

81,339

Diluted

80,690

85,123

86,009

80,680

81,358


For the three months ended

Average Balance Sheet Data

March 31,

December 31,

September 30,

June 30,

March 31,

(Dollars in Thousands, Unaudited)

2021

2020

2020

2020

2020

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,816,592

$

4,871,268

$

4,958,293

$

4,567,229

$

4,503,996

Taxable investment securities

1,674,223

1,544,095

1,350,511

1,369,014

1,406,973

Tax-exempt investment securities

73,573

79,044

82,603

89,263

101,771

Other interest-earning assets

169,291

266,114

247,543

141,964

104,241

Total interest-earning assets

6,733,679

6,760,521

6,638,950

6,167,470

6,116,981

Non-interest-earning assets

617,440

632,084

624,252

605,876

598,335

Total assets

$

7,351,119

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

1,831,617

$

1,683,222

$

1,464,238

$

1,189,044

$

1,112,080

Savings

1,084,981

1,058,675

1,006,075

876,580

838,501

Certificates of deposit

1,904,234

1,899,406

1,988,689

1,879,039

2,004,785

Total interest-bearing deposits

4,820,832

4,641,303

4,459,002

3,944,663

3,955,366

Borrowings:

Federal Home Loan Bank advances

865,690

1,057,958

1,130,836

1,202,522

1,208,627

Other borrowings

-

-

3,568

96,770

87,072

Total borrowings

865,690

1,057,958

1,134,404

1,299,292

1,295,699

Total interest-bearing liabilities

5,686,522

5,699,261

5,593,406

5,243,955

5,251,065

Non-interest-bearing liabilities:

Non-interest-bearing deposits

525,018

502,479

479,141

380,067

317,530

Other non-interest-bearing liabilities

57,018

73,683

79,620

72,007

55,456

Total non-interest-bearing liabilities

582,036

576,162

558,761

452,074

372,986

Total liabilities

6,268,558

6,275,423

6,152,167

5,696,029

5,624,051

Stockholders' equity

1,082,561

1,117,182

1,111,035

1,077,317

1,091,265

Total liabilities and stockholders' equity

$

7,351,119

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

Average interest-earning assets to average
interest-bearing liabilities

118.41

%

118.62

%

118.69

%

117.61

%

116.49

%


For the three months ended

March 31,

December 31,

September 30,

June 30,

March 31,

Performance Ratio Highlights

2021

2020

2020

2020

2020

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.09

%

4.06

%

4.21

%

4.05

%

4.14

%

Taxable investment securities

1.89

%

2.00

%

2.17

%

2.85

%

2.99

%

Tax-exempt investment securities (1)

2.23

%

2.19

%

2.20

%

2.18

%

2.15

%

Other interest-earning assets

1.67

%

1.18

%

1.48

%

2.54

%

4.22

%

Total interest-earning assets

3.46

%

3.45

%

3.67

%

3.72

%

3.84

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

0.34

%

0.47

%

0.60

%

0.72

%

1.17

%

Savings

0.21

%

0.33

%

0.57

%

0.81

%

0.85

%

Certificates of deposit

0.96

%

1.22

%

1.50

%

1.82

%

1.94

%

Total interest-bearing deposits

0.55

%

0.75

%

0.99

%

1.26

%

1.49

%

Borrowings:

Federal Home Loan Bank advances

1.85

%

1.96

%

2.00

%

1.47

%

2.03

%

Other borrowings

0.00

%

0.00

%

0.04

%

0.13

%

1.17

%

Total borrowings

1.85

%

1.96

%

2.00

%

1.37

%

1.98

%

Total interest-bearing liabilities

0.75

%

0.97

%

1.20

%

1.29

%

1.61

%

Interest rate spread (2)

2.71

%

2.48

%

2.47

%

2.43

%

2.23

%

Net interest margin (3)

2.83

%

2.64

%

2.66

%

2.62

%

2.46

%

Non-interest income to average assets
(annualized)

0.30

%

0.39

%

0.43

%

0.30

%

0.37

%

Non-interest expense to average assets
(annualized)

1.62

%

1.65

%

1.85

%

1.59

%

1.67

%

Efficiency ratio (4)

56.15

%

59.01

%

64.69

%

59.16

%

64.05

%

Return on average assets (annualized)

0.89

%

0.92

%

0.63

%

0.81

%

0.55

%

Return on average equity (annualized)

6.07

%

6.07

%

4.10

%

5.08

%

3.39

%

Return on average tangible equity (annualized) (5)

7.57

%

7.52

%

5.08

%

6.35

%

4.23

%

_______________________
(1) The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(2) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(3) Net interest income divided by average interest-earning assets.
(4) Non-interest expense divided by the sum of net interest income and non-interest income.
(5) Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide additional information which allow readers to evaluate the ongoing performance of the Company. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included below. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.

Reconciliation of GAAP to Non-GAAP

For the three months ended

(Dollars in Thousands,

March 31,

December 31,

September 30,

June 30,

March 31,

Except Per Share Data, Unaudited)

2021

2020

2020

2020

2020

Adjusted net income:

Net income (GAAP)

$

16,423

$

16,948

$

11,379

$

13,689

$

9,254

Non-recurring transactions - net of tax:

Bargain purchase gain

-

-

(3,053

)

-

-

Provision for credit losses on non-PCD loans

-

-

3,563

-

-

Merger-related expenses

-

-

3,123

426

269

Branch consolidation expenses

264

243

-

-

-

Net effect of sales and calls of securities

(13

)

(571

)

-

-

(1,575

)

Debt extinguishment expenses

-

559

-

-

1,520

Reversal of income tax valuation allowance

-

(523

)

-

-

(591

)

Tax benefit arising from adoption of the
CARES Act provisions

-

-

-

-

(1,624

)

Net effect of sales of other assets

(587

)

-

-

-

-

Net income (non-GAAP)

$

16,087

$

16,656

$

15,012

$

14,115

$

7,253

Calculation of pre-tax, pre-provision net
revenue:

Net income (GAAP)

$

16,423

$

16,948

$

11,379

$

13,689

$

9,254

Adjustments to net income (GAAP):

Provision for income taxes

5,732

5,614

2,884

4,698

225

Provision for (reversal of) credit losses

1,126

(1,365

)

4,059

174

6,270

Pre-tax, pre-provision net revenue (non-GAAP)

$

23,281

$

21,197

$

18,322

$

18,561

$

15,749

Adjusted earnings per share:

Weighted average common shares - basic

80,673

85,120

86,008

80,678

81,339

Weighted average common shares - diluted

80,690

85,123

86,009

80,680

81,358

Earnings per share - basic (GAAP)

$

0.20

$

0.20

$

0.13

$

0.17

$

0.11

Earnings per share - diluted (GAAP)

$

0.20

$

0.20

$

0.13

$

0.17

$

0.11

Adjusted earnings per share - basic (non-GAAP)

$

0.20

$

0.20

$

0.17

$

0.17

$

0.09

Adjusted earnings per share - diluted (non-GAAP)

$

0.20

$

0.20

$

0.17

$

0.17

$

0.09

Adjusted return on average assets:

Total average assets

$

7,351,119

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

Return on average assets (GAAP)

0.89

%

0.92

%

0.63

%

0.81

%

0.55

%

Adjusted return on average assets (non-GAAP)

0.88

%

0.90

%

0.83

%

0.83

%

0.43

%

Adjusted return on average equity:

Total average equity

$

1,082,561

$

1,117,182

$

1,111,035

$

1,077,317

$

1,091,265

Return on average equity (GAAP)

6.07

%

6.07

%

4.10

%

5.08

%

3.39

%

Adjusted return on average equity (non-GAAP)

5.94

%

5.96

%

5.40

%

5.24

%

2.66

%


Reconciliation of GAAP to Non-GAAP

For the three months ended

(Dollars in Thousands,

March 31,

December 31,

September 30,

June 30,

March 31,

Except Per Share Data, Unaudited)

2021

2020

2020

2020

2020

Adjusted return on average tangible equity:

Total average equity

$

1,082,561

$

1,117,182

$

1,111,035

$

1,077,317

$

1,091,265

Less: average goodwill

(210,895

)

(210,895

)

(210,895

)

(210,895

)

(210,895

)

Less: average other intangible assets

(4,045

)

(4,317

)

(4,341

)

(4,124

)

(4,408

)

$

867,621

$

901,970

$

895,799

$

862,298

$

875,962

Return on average tangible equity (non-GAAP)

7.57

%

7.52

%

5.08

%

6.35

%

4.23

%

Adjusted return on average tangible equity
(non-GAAP)

7.42

%

7.39

%

6.70

%

6.55

%

3.31

%

Adjusted non-interest expense ratio:

Non-interest expense (GAAP)

$

29,816

$

30,510

$

33,573

$

26,891

$

28,062

Non-recurring transactions:

Merger-related expenses

-

-

(4,349

)

(447

)

(285

)

Branch consolidation expenses

(375

)

(347

)

-

-

-

Debt extinguishment expenses

-

(796

)

-

-

(2,156

)

Non-interest expense (non-GAAP)

$

29,441

$

29,367

$

29,224

$

26,444

$

25,621

Non-interest expense ratio (GAAP)

1.62

%

1.65

%

1.85

%

1.59

%

1.67

%

Adjusted non-interest expense ratio (non-GAAP)

1.60

%

1.59

%

1.61

%

1.56

%

1.53

%

Adjusted efficiency ratio:

Non-interest expense (non-GAAP)

$

29,441

$

29,367

$

29,224

$

26,444

$

25,621

Net interest income (GAAP)

$

47,631

$

44,553

$

44,162

$

40,450

$

37,610

Total non-interest income (GAAP)

5,466

7,154

7,733

5,002

6,201

Non-recurring transactions:

Net effect of sales and calls of securities

(18

)

(813

)

-

-

(2,234

)

Bargain purchase gain

-

-

(3,053

)

-

-

Net effect of sales of other assets

(837

)

-

-

-

-

Total revenue (non-GAAP)

$

52,242

$

50,894

$

48,842

$

45,452

$

41,577

Efficiency ratio (GAAP)

56.15

%

59.01

%

64.69

%

59.16

%

64.05

%

Adjusted efficiency ratio (non-GAAP)

56.36

%

57.70

%

59.83

%

58.18

%

61.62

%

For further information contact:
Craig L. Montanaro, President and Chief Executive Officer, or
Keith Suchodolski, Executive Vice President and Chief Financial Officer
Kearny Financial Corp.
(973) 244-4500