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Kearny Financial Corp. Reports Fiscal 2021 Second Quarter Results

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FAIRFIELD, N.J., Jan. 28, 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 December 31, 2020 of $16.9 million, or $0.20 per diluted share, compared to $11.4 million, or $0.13 per diluted share, for the quarter ended September 30, 2020.

As previously reported, net income for the quarter ended September 30, 2020 was impacted by various non-recurring items which were recognized in conjunction with the Company’s acquisition of MSB Financial Corp. (“MSB”) and its subsidiary Millington Bank. Excluding the effects of these non-recurring items, net of tax, net income for the quarter ended September 30, 2020 would have been $15.0 million or $0.17 per diluted share.

Craig L. Montanaro, President and Chief Executive Officer, commented, “I am pleased to report another quarter of very strong core earnings resulting from a combination of cost of funds reductions, expense control efforts and operating efficiencies gained from the MSB acquisition. Despite the operational challenges presented by the pandemic, our business generation efforts continue unabated and we have had outstanding success retaining and growing core deposits, in particular within the markets previously served by Millington Bank.”

With regard to the Company’s share repurchase program, Mr. Montanaro further noted, “Our robust capital position allowed us to resume our share repurchase program on October 19, 2020 and, since that time, we have been opportunistic buyers of our stock. During the quarter we repurchased approximately 4.5 million shares at an average price of $10.14 per share, or 98.2% of tangible book value at December 31, 2020. In this environment we continue to believe that repurchases represent an excellent strategy to build long-term shareholder value.”

Balance Sheet

  • Deposits increased by $272.7 million to $5.31 billion at December 31, 2020 from $5.04 billion at September 30, 2020, reflecting quarterly growth of $272.6 million, or 8.9%, in core non-maturity deposits.

  • Loans receivable decreased by $126.1 million to $4.83 billion at December 31, 2020 from $4.95 billion at September 30, 2020. The net decrease for the period included the sale of $43.6 million of Paycheck Protection Program (“PPP”) loans, which resulted in a gain on sale of $352,000.

  • Investment securities increased to $1.73 billion, or 23.5% of total assets, at December 31, 2020 from $1.54 billion at September 30, 2020, while borrowings decreased to $865.7 million, or 11.8% of total assets, from $1.08 billion, for those same comparative periods.

  • During the quarter ended December 31, 2020 the Company sold $24.4 million of investment securities with a weighted average yield of 1.98%, the proceeds of which were utilized to extinguish $27.0 million of Federal Home Loan Bank (“FHLB”) advances with a weighted average cost of 2.85%. Associated gains on sale of investment securities totaled $800,000 while debt extinguishment expense totaled $796,000.

Earnings

Net Interest Income, Spread and Margin

  • Net interest income increased by $391,000 to $44.6 million for the quarter ended December 31, 2020 from $44.2 million for the quarter ended September 30, 2020. This increase was the result of a $2.9 million reduction in interest expense that was partially offset by a $2.5 million reduction in interest income. Included in net interest income was purchase accounting accretion of $3.7 million and $4.2 million, for the quarters ended December 31, 2020 and September 30, 2020, respectively.

  • Net interest margin for the quarter ended December 31, 2020 declined two basis points to 2.64% from 2.66% for the quarter ended September 30, 2020. For those same comparative periods, yield on interest-earning assets decreased by 22 basis points to 3.45% while the cost of interest-bearing liabilities decreased by 23 basis points to 0.97%.

Non-Interest Income

  • Fees and service charges totaled $1.9 million for the quarter ended December 31, 2020 compared to $1.1 million for the quarter ended September 30, 2020. The increase was largely attributable to an increase of $712,000 in loan pre-payment penalty income to $1.4 million.

  • Loan sale gains totaled $2.4 million for the quarter ended December 31, 2020 as compared to $1.9 million for the quarter ended September 30, 2020. The increase for the quarter was largely attributable to the sale of $43.6 million of PPP loans which resulted in a gain on sale of $352,000, as noted earlier.

  • Gain (loss) on sale and call of securities reflected a gain of $813,000 for the quarter ended December 31, 2020 compared to a loss of $377,000 for the quarter ended September 30, 2020.

Non-Interest Expense

  • Non-interest expense decreased by $3.1 million to $30.5 million for the quarter ended December 31, 2020 compared to $33.6 million for the quarter ended September 30, 2020. This decrease was largely attributable to $4.3 million in merger-related expenses recognized in the prior comparative period with no such expenses recognized in the current period. The decrease was partially offset by $796,000 of non-recurring debt extinguishment expenses, as noted earlier, and an asset impairment charge of $347,000 related to a branch closure. The remaining change in non-interest expense included increases in equipment and systems expense, advertising and marketing expense, FDIC insurance premiums and miscellaneous expense.

  • The efficiency and non-interest expense ratios were 59.01% and 1.65%, respectively, for the quarter ended December 31, 2020 as compared to 64.69% and 1.85%, respectively, for the quarter ended September 30, 2020. Adjusting for the impact of non-recurring items, the efficiency and non-interest expense ratios would have been 57.70% and 1.59% respectively, for the quarter ended December 31, 2020 as compared to 59.83% and 1.61%, respectively, for the quarter ended September 30, 2020.

Income Taxes

  • Income tax expense totaled $5.6 million for the quarter ended December 31, 2020 compared to $2.9 million for the quarter ended September 30, 2020, resulting in effective tax rates of 24.9% and 20.2%, respectively.

  • The comparatively lower effective income tax rate for the prior period reflected the effects of various non-recurring items recorded in the prior comparative quarter, in conjunction with the Company’s acquisition of MSB.

Performance Ratios

  • Return on average assets was 0.92% for the quarter ended December 31, 2020 as compared to 0.63% for the quarter ended September 30, 2020. Adjusting for the impact of non-recurring items, adjusted return on average assets would have been 0.90% and 0.83% for those same comparative periods.

  • Return on average equity was 6.07% for the quarter ended December 31, 2020 as compared to 4.10% for the quarter ended September 30, 2020 while return on average tangible equity was 7.52% as compared to 5.08% for those same comparative periods, respectively. Adjusting for the impact on non-recurring items, adjusted return on average equity would have been 5.96% for the quarter ended December 31, 2020, as compared to 5.40% for the quarter ended September 30, 2020 while the adjusted return on average tangible equity would have been 7.39% and 6.70% for those same comparative periods, respectively.

Asset Quality

  • Non-performing assets totaled $71.7 million, or 0.98% of total assets, at December 31, 2020 compared to $45.3 million, or 0.62% of total assets, at September 30, 2020. This increase was largely attributable to two commercial mortgage loans and two multi-family mortgage loans, secured by various properties located in New York City, which were placed on non-accrual status during the quarter. All four loans are well secured and currently require no specific impairment reserve.

  • Net charge offs totaled $108,000 for the quarter ended December 31, 2020 compared to $67,000 for the quarter ended September 30, 2020, reflecting annualized net charge off rates of 0.01% for both comparative periods.

  • 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 December 31, 2020, the Company had active payment deferrals on 37 loans totaling $33.2 million, representing 0.68% of total loans.

  • The Company recorded a credit loss provision reversal of $1.4 million for the quarter ended December 31, 2020 compared to a credit loss provision of $4.1 million for the quarter ended September 30, 2020. The comparatively higher level of provision for the prior period primarily reflected the impact of $5.1 million of provision expense that was attributable to the acquired MSB loans.

  • The Allowance for Credit Losses (“ACL”) decreased to $63.4 million at December 31, 2020 from $64.9 million at September 30, 2020, with such balances reflecting an ACL to total loans ratio of 1.30% as of those dates.

Liquidity & Capital

  • At December 31, 2020, liquid assets included $129.7 million of short-term cash and equivalents supplemented by $1.70 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 $1.75 billion and $292.0 million, without pledging additional collateral, from the FHLB of New York and Federal Reserve Bank, respectively.

  • On October 19, 2020, the Company announced the resumption of its previously approved stock repurchase plan, which, at the time of the announcement, had 761,030 shares of common stock remaining to be repurchased. In addition, the Company announced the authorization of a new repurchase plan totaling 4,475,523 shares, or 5% of the Company’s then outstanding common stock. For the quarter ended December 31, 2020, the Company repurchased a total of 4,508,689 shares at a cost of $45.7 million, or $10.14 per share, equal to 98.2% of tangible book value at December 31, 2020.

  • On January 22, 2021, the Company announced the completion of its previously disclosed stock repurchase plans and the authorization of a new repurchase plan totaling 4,210,520 shares, or 5% of the Company’s outstanding common stock.

  • For the quarter ended December 31, 2020, book value per share increased by $0.30 to $12.86 while tangible book value per share increased by $0.18 to $10.33.

  • At December 31, 2020, the Company’s ratio of tangible equity to tangible assets equaled 12.32%. At December 31, 2020, 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,

December 31,

September 30,

Variance

or Change

Except Per Share Data, Unaudited)

2020

2020

or Change

Pct.

Assets

Cash and cash equivalents

$

129,694

$

145,818

$

(16,124

)

-11.1

%

Securities available for sale

1,695,893

1,508,542

187,351

12.4

%

Securities held to maturity

29,549

31,576

(2,027

)

-6.4

%

Loans held-for-sale

12,601

20,170

(7,569

)

-37.5

%

Loans receivable

4,828,634

4,954,750

(126,116

)

-2.5

%

Less allowance for credit losses on loans

(63,386

)

(64,860

)

1,474

-2.3

%

Net loans receivable

4,765,248

4,889,890

(124,642

)

-2.5

%

Premises and equipment

61,181

61,808

(627

)

-1.0

%

Federal Home Loan Bank stock

45,578

55,118

(9,540

)

-17.3

%

Accrued interest receivable

19,826

20,368

(542

)

-2.7

%

Goodwill

210,895

210,895

-

0.0

%

Core deposit intangible

4,151

4,420

(269

)

-6.1

%

Bank owned life insurance

280,235

278,639

1,596

0.6

%

Deferred income taxes, net

30,846

33,319

(2,473

)

-7.4

%

Other real estate owned

178

178

-

0.0

%

Other assets

49,278

49,468

(190

)

-0.4

%

Total assets

$

7,335,153

$

7,310,209

$

24,944

0.3

%

Liabilities

Deposits

$

5,312,613

$

5,039,912

$

272,701

5.4

%

Borrowings

865,651

1,077,540

(211,889

)

-19.7

%

Advance payments by borrowers for taxes

16,100

17,008

(908

)

-5.3

%

Other liabilities

48,448

51,689

(3,241

)

-6.3

%

Total liabilities

6,242,812

6,186,149

56,663

0.9

%

Stockholders' Equity

Common stock

849

895

(46

)

-5.1

%

Paid-in capital

724,389

769,269

(44,880

)

-5.8

%

Retained earnings

388,376

378,134

10,242

2.7

%

Unearned ESOP shares

(27,726

)

(28,212

)

486

-1.7

%

Accumulated other comprehensive income

6,453

3,974

2,479

62.4

%

Total stockholders' equity

1,092,341

1,124,060

(31,719

)

-2.8

%

Total liabilities and stockholders' equity

$

7,335,153

$

7,310,209

$

24,944

0.3

%

Consolidated capital ratios

Equity to assets

14.89

%

15.38

%

-0.49

%

Tangible equity to tangible assets

12.32

%

12.81

%

-0.49

%

Share data

Outstanding shares

84,938

89,510

(4,572

)

-5.1

%

Book value per share

$

12.86

$

12.56

$

0.30

2.4

%

Tangible book value per share (1)

$

10.33

$

10.15

$

0.18

1.8

%

___________________
(1) 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,

December 31,

September 30,

Variance

or Change

Except Per Share Data, Unaudited)

2020

2020

or Change

Pct.

Interest income

Loans

$

49,466

$

52,180

$

(2,714

)

-5.2

%

Taxable investment securities

7,707

7,336

371

5.1

%

Tax-exempt investment securities

433

454

(21

)

-4.6

%

Other interest-earning assets

787

914

(127

)

-13.9

%

Total Interest Income

58,393

60,884

(2,491

)

-4.1

%

Interest expense

Deposits

8,647

11,062

(2,415

)

-21.8

%

Borrowings

5,193

5,660

(467

)

-8.3

%

Total interest expense

13,840

16,722

(2,882

)

-17.2

%

Net interest income

44,553

44,162

391

0.9

%

(Reversal of) provision for credit losses

(1,365

)

4,059

(5,424

)

-133.6

%

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

45,918

40,103

5,815

14.5

%

Non-interest income

Fees and service charges

1,896

1,076

820

76.2

%

Gain (loss) on sale and call of securities

813

(377

)

1,190

315.6

%

Gain on sale of loans

2,378

1,890

488

25.8

%

Income from bank owned life insurance

1,596

1,596

-

0.0

%

Electronic banking fees and charges

404

405

(1

)

-0.2

%

Bargain purchase gain

-

3,053

(3,053

)

-100.0

%

Other income

67

90

(23

)

-25.6

%

Total non-interest income

7,154

7,733

(579

)

-7.5

%

Non-interest expense

Salaries and employee benefits

17,081

16,977

104

0.6

%

Net occupancy expense of premises

3,120

3,122

(2

)

-0.1

%

Equipment and systems

3,902

3,570

332

9.3

%

Advertising and marketing

513

500

13

2.6

%

Federal deposit insurance premium

490

472

18

3.8

%

Directors' compensation

748

748

-

0.0

%

Merger-related expenses

-

4,349

(4,349

)

-100.0

%

Debt extinguishment expenses

796

-

796

0.0

%

Other expense

3,860

3,835

25

0.7

%

Total non-interest expense

30,510

33,573

(3,063

)

-9.1

%

Income before income taxes

22,562

14,263

8,299

58.2

%

Income taxes

5,614

2,884

2,730

94.7

%

Net income

$

16,948

$

11,379

$

5,569

48.9

%

Net income per common share (EPS)

Basic

$

0.20

$

0.13

$

0.07

Diluted

$

0.20

$

0.13

$

0.07

Dividends declared

Cash dividends declared per common share

$

0.08

$

0.08

$

-

Cash dividends declared

$

6,706

$

6,917

$

(211

)

Dividend payout ratio

39.6

%

60.8

%

-21.2

%

Weighted average number of common
shares outstanding

Basic

85,120

86,008

(888

)

Diluted

85,123

86,009

(886

)


For the three months ended

Variance

Average Balance Sheet Data

December 31,

September 30,

Variance

or Change

(Dollars in Thousands, Unaudited)

2020

2020

or Change

Pct.

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,871,268

$

4,958,293

$

(87,025

)

-1.8

%

Taxable investment securities

1,544,095

1,350,511

193,584

14.3

%

Tax-exempt investment securities

79,044

82,603

(3,559

)

-4.3

%

Other interest-earning assets

266,114

247,543

18,571

7.5

%

Total interest-earning assets

6,760,521

6,638,950

121,571

1.8

%

Non-interest-earning assets

632,084

624,252

7,832

1.3

%

Total assets

$

7,392,605

$

7,263,202

$

129,403

1.8

%

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

1,683,222

$

1,464,238

$

218,984

15.0

%

Savings

1,058,675

1,006,075

52,600

5.2

%

Certificates of deposit

1,899,406

1,988,689

(89,283

)

-4.5

%

Total interest-bearing deposits

4,641,303

4,459,002

182,301

4.1

%

Borrowings:

Federal Home Loan Bank advances

1,057,958

1,130,836

(72,878

)

-6.4

%

Other borrowings

-

3,568

(3,568

)

-100.0

%

Total borrowings

1,057,958

1,134,404

(76,446

)

-6.7

%

Total interest-bearing liabilities

5,699,261

5,593,406

105,855

1.9

%

Non-interest-bearing liabilities:

Non-interest-bearing deposits

502,479

479,141

23,338

4.9

%

Other non-interest-bearing liabilities

73,683

79,620

(5,937

)

-7.5

%

Total non-interest-bearing liabilities

576,162

558,761

17,401

3.1

%

Total liabilities

6,275,423

6,152,167

123,256

2.0

%

Stockholders' equity

1,117,182

1,111,035

6,147

0.6

%

Total liabilities and stockholders' equity

$

7,392,605

$

7,263,202

$

129,403

1.8

%

Average interest-earning assets to average

interest-bearing liabilities

118.62

%

118.69

%

-0.07

%

-0.1

%


For the three months ended

December 31,

September 30,

Variance

Performance Ratio Highlights

2020

2020

or Change

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.06

%

4.21

%

-0.15

%

Taxable investment securities

2.00

%

2.17

%

-0.17

%

Tax-exempt investment securities (1)

2.19

%

2.20

%

-0.01

%

Other interest-earning assets

1.18

%

1.48

%

-0.30

%

Total interest-earning assets

3.45

%

3.67

%

-0.22

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

0.47

%

0.60

%

-0.13

%

Savings

0.33

%

0.57

%

-0.24

%

Certificates of deposit

1.22

%

1.50

%

-0.28

%

Total interest-bearing deposits

0.75

%

0.99

%

-0.24

%

Borrowings:

Federal Home Loan Bank advances

1.96

%

2.00

%

-0.04

%

Other borrowings

0.00

%

0.04

%

-0.04

%

Total borrowings

1.96

%

2.00

%

-0.04

%

Total interest-bearing liabilities

0.97

%

1.20

%

-0.23

%

Interest rate spread (2)

2.48

%

2.47

%

0.01

%

Net interest margin (3)

2.64

%

2.66

%

-0.02

%

Non-interest income to average assets

(annualized)

0.39

%

0.43

%

-0.04

%

Non-interest expense to average assets

(annualized)

1.65

%

1.85

%

-0.20

%

Efficiency ratio (4)

59.01

%

64.69

%

-5.68

%

Return on average assets (annualized)

0.92

%

0.63

%

0.29

%

Return on average equity (annualized)

6.07

%

4.10

%

1.97

%

Return on average tangible equity (annualized) (5)

7.52

%

5.08

%

2.44

%

___________________
(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,

December 31,

September 30,

June 30,

March 31,

December 31,

Except Per Share Data, Unaudited)

2020

2020

2020

2020

2019

Assets

Cash and cash equivalents

$

129,694

$

145,818

$

180,967

$

59,452

$

41,796

Securities available for sale

1,695,893

1,508,542

1,385,703

1,476,344

1,402,206

Securities held to maturity

29,549

31,576

32,556

34,618

36,073

Loans held-for-sale

12,601

20,170

20,789

11,245

5,952

Loans receivable

4,828,634

4,954,750

4,498,397

4,562,512

4,492,697

Less allowance for credit losses on loans

(63,386

)

(64,860

)

(37,327

)

(37,191

)

(30,937

)

Net loans receivable

4,765,248

4,889,890

4,461,070

4,525,321

4,461,760

Premises and equipment

61,181

61,808

57,389

58,985

56,542

Federal Home Loan Bank stock

45,578

55,118

58,654

59,324

62,838

Accrued interest receivable

19,826

20,368

17,373

19,036

18,261

Goodwill

210,895

210,895

210,895

210,895

210,895

Core deposit intangible

4,151

4,420

3,995

4,242

4,545

Bank owned life insurance

280,235

278,639

262,380

260,843

259,312

Deferred income taxes, net

30,846

33,319

25,480

27,150

20,438

Other real estate owned

178

178

178

178

178

Other assets

49,278

49,468

40,746

26,200

29,605

Total assets

$

7,335,153

$

7,310,209

$

6,758,175

$

6,773,833

$

6,610,401

Liabilities

Deposits

$

5,312,613

$

5,039,912

$

4,430,282

$

4,253,254

$

4,188,822

Borrowings

865,651

1,077,540

1,173,165

1,384,025

1,275,049

Advance payments by borrowers for taxes

16,100

17,008

16,569

16,492

16,585

Other liabilities

48,448

51,689

53,982

50,390

35,375

Total liabilities

6,242,812

6,186,149

5,673,998

5,704,161

5,515,831

Stockholders' Equity

Common stock

849

895

837

837

851

Paid-in capital

724,389

769,269

722,871

721,474

737,539

Retained earnings

388,376

378,134

387,911

380,671

377,896

Unearned ESOP shares

(27,726

)

(28,212

)

(28,699

)

(29,185

)

(29,671

)

Accumulated other comprehensive income (loss)

6,453

3,974

1,257

(4,125

)

7,955

Total stockholders' equity

1,092,341

1,124,060

1,084,177

1,069,672

1,094,570

Total liabilities and stockholders' equity

$

7,335,153

$

7,310,209

$

6,758,175

$

6,773,833

$

6,610,401

Consolidated capital ratios

Equity to assets

14.89

%

15.38

%

16.04

%

15.79

%

16.56

%

Tangible equity to tangible assets

12.32

%

12.81

%

13.29

%

13.03

%

13.75

%

Share data

Outstanding shares

84,938

89,510

83,663

83,664

85,150

Book value per share

$

12.86

$

12.56

$

12.96

$

12.79

$

12.85

Tangible book value per share (1)

$

10.33

$

10.15

$

10.39

$

10.21

$

10.32

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


At

Supplemental Balance Sheet Highlights

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2020

2019

Cash and cash equivalents

Cash and due from depository institutions

$

23,968

$

18,628

$

20,391

$

20,200

$

17,843

Interest-bearing deposits in other banks

105,726

127,190

160,576

39,252

23,953

Total cash and cash equivalents

$

129,694

$

145,818

$

180,967

$

59,452

$

41,796

Securities available for sale

Debt securities:

U.S. agency securities

$

-

$

-

$

-

$

-

$

606

Municipal and state obligations

47,763

50,877

54,054

58,151

88,057

Asset-backed securities

255,407

258,801

172,447

169,102

177,676

Collateralized loan obligations

196,685

196,398

193,788

189,565

198,324

Corporate bonds

167,168

122,276

143,639

163,715

192,074

Trust preferred securities

2,866

2,773

2,627

2,852

3,795

Debt securities

669,889

631,125

566,555

583,385

660,532

Mortgage-backed securities:

Collateralized mortgage obligations

20,510

25,770

30,903

34,671

57,839

Residential pass-through securities

705,991

625,715

561,954

607,113

360,900

Commercial pass-through securities

299,503

225,932

226,291

251,175

322,935

Mortgage-backed securities

1,026,004

877,417

819,148

892,959

741,674

Total securities available for sale

$

1,695,893

$

1,508,542

$

1,385,703

$

1,476,344

$

1,402,206

Securities held to maturity

Debt securities:

Municipal and state obligations

$

29,549

$

31,576

$

32,556

$

34,618

$

36,073

Total securities held to maturity

$

29,549

$

31,576

$

32,556

$

34,618

$

36,073

Total securities

$

1,725,442

$

1,540,118

$

1,418,259

$

1,510,962

$

1,438,279


At

Supplemental Balance Sheet Highlights

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2020

2019

Loan portfolio composition:

Commercial loans:

Multi-family

$

2,076,483

$

2,110,300

$

2,059,568

$

1,879,907

$

1,856,591

Nonresidential

1,123,695

1,124,330

960,853

1,202,652

1,172,213

Commercial business

202,010

255,888

138,788

73,922

67,887

Construction

90,398

79,178

20,961

17,880

16,221

Total commercial loans

3,492,586

3,569,696

3,180,170

3,174,361

3,112,912

One- to four-family residential mortgage loans

1,305,351

1,353,197

1,273,022

1,338,099

1,331,301

Consumer loans:

Home equity loans and lines of credit

65,298

71,540

82,920

87,909

89,916

Other consumer loans

4,123

4,136

3,991

4,604

4,908

Total consumer loans

69,421

75,676

86,911

92,513

94,824

Total loans, excluding yield adjustments

4,867,358

4,998,569

4,540,103

4,604,973

4,539,037

Unaccreted yield adjustments

(38,724

)

(43,819

)

(41,706

)

(42,461

)

(46,340

)

Loans receivable, net of yield adjustments

4,828,634

4,954,750

4,498,397

4,562,512

4,492,697

Less allowance for credit losses on loans

(63,386

)

(64,860

)

(37,327

)

(37,191

)

(30,937

)

Net loans receivable

$

4,765,248

$

4,889,890

$

4,461,070

$

4,525,321

$

4,461,760

Loan portfolio allocation:

Commercial loans:

Multi-family

42.7

%

42.2

%

45.3

%

40.8

%

40.9

%

Nonresidential

23.1

%

22.5

%

21.2

%

26.1

%

25.8

%

Commercial business

4.2

%

5.1

%

3.1

%

1.6

%

1.5

%

Construction

1.8

%

1.6

%

0.4

%

0.4

%

0.4

%

Total commercial loans

71.8

%

71.4

%

70.0

%

68.9

%

68.6

%

One- to four-family residential mortgage loans

26.8

%

27.1

%

28.1

%

29.1

%

29.3

%

Consumer loans:

Home equity loans and lines of credit

1.3

%

1.4

%

1.8

%

1.9

%

2.0

%

Other consumer loans

0.1

%

0.1

%

0.1

%

0.1

%

0.1

%

Total consumer loans

1.4

%

1.5

%

1.9

%

2.0

%

2.1

%

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

$

-

$

238

$

$

12

$

19

Nonaccrual loans

71,472

44,837

36,691

35,384

21,935

Total nonperforming loans

71,472

45,075

36,696

35,396

21,954

Other real estate owned

178

178

178

178

178

Total nonperforming assets

$

71,650

$

45,253

$

36,874

$

35,574

$

22,132

Nonperforming loans (% total loans)

1.48

%

0.91

%

0.82

%

0.78

%

0.49

%

Nonperforming assets (% total assets)

0.98

%

0.62

%

0.55

%

0.53

%

0.33

%

Allowance for credit losses on loans (ACL):

ACL to total loans

1.30

%

1.30

%

0.82

%

0.81

%

0.68

%

ACL to nonperforming loans

88.69

%

143.89

%

101.72

%

105.07

%

140.92

%

Net charge offs

$

109

$

67

$

38

$

16

$

30

Average net charge off rate (annualized)

0.01

%

0.01

%

0.00

%

0.00

%

0.00

%


At

Supplemental Balance Sheet Highlights

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2020

2019

Funding by type:

Deposits:

Non-interest-bearing deposits

$

518,828

$

487,710

$

419,138

$

321,824

$

312,098

Interest-bearing demand

1,752,699

1,561,135

1,264,151

1,134,420

1,060,434

Savings

1,075,122

1,025,245

906,597

848,950

829,321

Certificates of deposit

1,965,964

1,965,822

1,840,396

1,948,060

1,986,969

Interest-bearing deposits

4,793,785

4,552,202

4,011,144

3,931,430

3,876,724

Total deposits

5,312,613

5,039,912

4,430,282

4,253,254

4,188,822

Borrowings:

Federal Home Loan Bank advances

865,651

1,077,540

1,167,429

1,177,319

1,253,958

Overnight borrowings

-

-

-

200,000

15,000

Depositor sweep accounts

-

-

5,736

6,706

6,091

Total borrowings

865,651

1,077,540

1,173,165

1,384,025

1,275,049

Total funding

$

6,178,264

$

6,117,452

$

5,603,447

$

5,637,279

$

5,463,871

Loans as a % of deposits

89.9

%

97.4

%

101.2

%

106.7

%

106.7

%

Deposits as a % of total funding

86.0

%

82.4

%

79.1

%

75.4

%

76.7

%

Borrowings as a % of total funding

14.0

%

17.6

%

20.9

%

24.6

%

23.3

%

Funding by source:

Retail funding:

Non-interest-bearing deposits

$

518,828

$

487,710

$

419,138

$

321,824

$

312,098

Interest-bearing demand

1,752,699

1,561,135

1,264,151

1,134,420

1,060,434

Savings

1,075,122

1,025,245

906,597

848,950

829,321

Certificates of deposit

1,658,277

1,775,189

1,773,257

1,833,081

1,876,280

Total retail deposits

5,004,926

4,849,279

4,363,143

4,138,275

4,078,133

Depositor sweep accounts

-

-

5,736

6,706

6,091

Total retail funding

5,004,926

4,849,279

4,368,879

4,144,981

4,084,224

Wholesale funding:

Certificates of deposit (listing service)

$

43,112

$

57,251

$

35,760

$

33,608

$

42,119

Certificates of deposit (brokered)

264,575

133,382

31,379

81,371

68,570

Total wholesale deposits

307,687

190,633

67,139

114,979

110,689

FHLB advances

865,651

1,077,540

1,167,429

1,177,319

1,253,958

Overnight borrowings

-

-

-

200,000

15,000

Total wholesale funding

1,173,338

1,268,173

1,234,568

1,492,298

1,379,647

Total funding

$

6,178,264

$

6,117,452

$

5,603,447

$

5,637,279

$

5,463,871

Retail funding as a % of total funding

81.0

%

79.3

%

78.0

%

73.5

%

74.7

%

Wholesale funding as a % of total funding

19.0

%

20.7

%

22.0

%

26.5

%

25.3

%


Summary Income Statement

For the three months ended

(Dollars and Shares in Thousands,

December 31,

September 30,

June 30,

March 31,

December 31,

Except Per Share Data, Unaudited)

2020

2020

2020

2020

2019

Interest income

Loans

$

49,466

$

52,180

$

46,192

$

46,603

$

45,608

Taxable investment securities

7,707

7,336

9,769

10,526

9,698

Tax-exempt investment securities

433

454

487

547

666

Other interest-earning assets

787

914

903

1,100

1,210

Total interest income

58,393

60,884

57,351

58,776

57,182

Interest expense

Deposits

8,647

11,062

12,439

14,768

15,590

Borrowings

5,193

5,660

4,462

6,398

6,985

Total interest expense

13,840

16,722

16,901

21,166

22,575

Net interest income

44,553

44,162

40,450

37,610

34,607

(Reversal of) provision for credit losses

(1,365

)

4,059

174

6,270

(1,465

)

Net interest income after (reversal of)

provision for credit losses

45,918

40,103

40,276

31,340

36,072

Non-interest income

Fees and service charges

1,896

1,076

1,696

1,338

2,145

Gain (loss) on sale and call of securities

813

(377

)

19

2,234

11

Gain on sale of loans

2,378

1,890

1,348

565

668

Loss on sale and write down of other real estate

owned

-

-

-

-

(28

)

Income from bank owned life insurance

1,596

1,596

1,537

1,532

1,576

Electronic banking fees and charges

404

405

325

309

293

Bargain purchase gain

-

3,053

-

-

-

Other income

67

90

77

223

(111

)

Total non-interest income

7,154

7,733

5,002

6,201

4,554

Non-interest expense

Salaries and employee benefits

17,081

16,977

15,527

15,537

15,174

Net occupancy expense of premises

3,120

3,122

2,688

2,685

3,082

Equipment and systems

3,902

3,570

2,948

2,672

3,046

Advertising and marketing

513

500

751

612

890

Federal deposit insurance premium

490

472

286

-

-

Directors' compensation

748

748

769

771

769

Merger-related expenses

-

4,349

447

285

219

Debt extinguishment expenses

796

-

-

2,156

-

Other expense

3,860

3,835

3,475

3,344

3,247

Total non-interest expense

30,510

33,573

26,891

28,062

26,427

Income before income taxes

22,562

14,263

18,387

9,479

14,199

Income taxes

5,614

2,884

4,698

225

3,547

Net income

$

16,948

$

11,379

$

13,689

$

9,254

$

10,652

Net income per common share (EPS)

Basic

$

0.20

$

0.13

$

0.17

$

0.11

$

0.13

Diluted

$

0.20

$

0.13

$

0.17

$

0.11

$

0.13

Dividends declared (1)

Cash dividends declared per common share

$

0.08

$

0.08

$

0.08

$

0.08

$

0.07

Cash dividends declared

$

6,706

$

6,917

$

6,449

$

6,479

$

5,760

Dividend payout ratio

39.6

%

60.8

%

47.1

%

70.0

%

54.1

%

Weighted average number of common

shares outstanding

Basic

85,120

86,008

80,678

81,339

82,831

Diluted

85,123

86,009

80,680

81,358

82,876


For the three months ended

Average Balance Sheet Data

December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2020

2019

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,871,268

$

4,958,293

$

4,567,229

$

4,503,996

$

4,547,126

Taxable investment securities

1,544,095

1,350,511

1,369,014

1,406,973

1,244,475

Tax-exempt investment securities

79,044

82,603

89,263

101,771

125,187

Other interest-earning assets

266,114

247,543

141,964

104,241

117,811

Total interest-earning assets

6,760,521

6,638,950

6,167,470

6,116,981

6,034,599

Non-interest-earning assets

632,084

624,252

605,876

598,335

590,746

Total assets

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

1,683,222

$

1,464,238

$

1,189,044

$

1,112,080

$

982,163

Savings

1,058,675

1,006,075

876,580

838,501

813,626

Certificates of deposit

1,899,406

1,988,689

1,879,039

2,004,785

2,063,066

Total interest-bearing deposits

4,641,303

4,459,002

3,944,663

3,955,366

3,858,855

Borrowings:

Federal Home Loan Bank advances

1,057,958

1,130,836

1,202,522

1,208,627

1,255,597

Other borrowings

-

3,568

96,770

87,072

34,733

Total borrowings

1,057,958

1,134,404

1,299,292

1,295,699

1,290,330

Total interest-bearing liabilities

5,699,261

5,593,406

5,243,955

5,251,065

5,149,185

Non-interest-bearing liabilities:

Non-interest-bearing deposits

502,479

479,141

380,067

317,530

320,161

Other non-interest-bearing liabilities

73,683

79,620

72,007

55,456

53,479

Total non-interest-bearing liabilities

576,162

558,761

452,074

372,986

373,640

Total liabilities

6,275,423

6,152,167

5,696,029

5,624,051

5,522,825

Stockholders' equity

1,117,182

1,111,035

1,077,317

1,091,265

1,102,520

Total liabilities and stockholders' equity

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

Average interest-earning assets to average

interest-bearing liabilities

118.62

%

118.69

%

117.61

%

116.49

%

117.20

%


For the three months ended

December 31,

September 30,

June 30,

March 31,

December 31,

Performance Ratio Highlights

2020

2020

2020

2020

2019

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.06

%

4.21

%

4.05

%

4.14

%

4.01

%

Taxable investment securities

2.00

%

2.17

%

2.85

%

2.99

%

3.12

%

Tax-exempt investment securities (1)

2.19

%

2.20

%

2.18

%

2.15

%

2.13

%

Other interest-earning assets

1.18

%

1.48

%

2.54

%

4.22

%

4.11

%

Total interest-earning assets

3.45

%

3.67

%

3.72

%

3.84

%

3.79

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

0.47

%

0.60

%

0.72

%

1.17

%

1.29

%

Savings

0.33

%

0.57

%

0.81

%

0.85

%

0.81

%

Certificates of deposit

1.22

%

1.50

%

1.82

%

1.94

%

2.09

%

Total interest-bearing deposits

0.75

%

0.99

%

1.26

%

1.49

%

1.62

%

Borrowings:

Federal Home Loan Bank advances

1.96

%

2.00

%

1.47

%

2.03

%

2.19

%

Other borrowings

0.00

%

0.04

%

0.13

%

1.17

%

1.36

%

Total borrowings

1.96

%

2.00

%

1.37

%

1.98

%

2.17

%

Total interest-bearing liabilities

0.97

%

1.20

%

1.29

%

1.61

%

1.75

%

Interest rate spread (2)

2.48

%

2.47

%

2.43

%

2.23

%

2.04

%

Net interest margin (3)

2.64

%

2.66

%

2.62

%

2.46

%

2.29

%

Non-interest income to average assets

(annualized)

0.39

%

0.43

%

0.30

%

0.37

%

0.27

%

Non-interest expense to average assets

(annualized)

1.65

%

1.85

%

1.59

%

1.67

%

1.60

%

Efficiency ratio (4)

59.01

%

64.69

%

59.16

%

64.05

%

67.48

%

Return on average assets (annualized)

0.92

%

0.63

%

0.81

%

0.55

%

0.64

%

Return on average equity (annualized)

6.07

%

4.10

%

5.08

%

3.39

%

3.86

%

Return on average tangible equity (annualized) (5)

7.52

%

5.08

%

6.35

%

4.23

%

4.80

%

___________________
(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,

December 31,

September 30,

June 30,

March 31,

December 31,

Except Per Share Data, Unaudited)

2020

2020

2020

2020

2019

Adjusted net income:

Net income (GAAP)

$

16,948

$

11,379

$

13,689

$

9,254

$

10,652

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

183

Branch consolidation expenses

243

-

-

-

274

Net effect of security sales and debt

extinguishment

-

-

-

(55

)

-

Gain (loss) on sale and call of securities

(571

)

-

-

-

-

Debt extinguishment expenses

559

-

-

-

-

Reversal of income tax valuation allowance

(523

)

-

-

(591

)

-

Tax benefit arising from adoption of the

CARES Act provisions

-

-

-

(1,624

)

-

Net income (non-GAAP)

$

16,656

$

15,012

$

14,115

$

7,253

$

11,109

Calculation of pre-tax, pre-provision income:

Net income (GAAP)

$

16,948

$

11,379

$

13,689

$

9,254

$

10,652

Adjustments to net income (GAAP):

Provision for income taxes

5,614

2,884

4,698

225

3,547

(Reversal of) provision for credit losses

(1,365

)

4,059

174

6,270

(1,465

)

Pre-tax, pre-provision income (non-GAAP)

$

21,197

$

18,322

$

18,561

$

15,749

$

12,734

Adjusted earnings per share:

Weighted average common shares - basic

85,120

86,008

80,678

81,339

82,831

Weighted average common shares - diluted

85,123

86,009

80,680

81,358

82,876

Earnings per share - basic (GAAP)

$

0.20

$

0.13

$

0.17

$

0.11

$

0.13

Earnings per share - diluted (GAAP)

$

0.20

$

0.13

$

0.17

$

0.11

$

0.13

Adjusted earnings per share - basic (non-GAAP)

$

0.20

$

0.17

$

0.17

$

0.09

$

0.13

Adjusted earnings per share - diluted (non-GAAP)

$

0.20

$

0.17

$

0.17

$

0.09

$

0.13

Adjusted return on average assets:

Total average assets

$

7,392,605

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

Return on average assets (GAAP)

0.92

%

0.63

%

0.81

%

0.55

%

0.64

%

Adjusted return on average assets (non-GAAP)

0.90

%

0.83

%

0.83

%

0.43

%

0.67

%

Adjusted return on average equity:

Total average equity

$

1,117,182

$

1,111,035

$

1,077,317

$

1,091,265

$

1,102,520

Return on average equity (GAAP)

6.07

%

4.10

%

5.08

%

3.39

%

3.86

%

Adjusted return on average equity (non-GAAP)

5.96

%

5.40

%

5.24

%

2.66

%

4.03

%


Reconciliation of GAAP to Non-GAAP

For the three months ended

(Dollars in Thousands,

December 31,

September 30,

June 30,

March 31,

December 31,

Except Per Share Data, Unaudited)

2020

2020

2020

2020

2019

Adjusted return on average tangible equity:

Total average equity

$

1,117,182

$

1,111,035

$

1,077,317

$

1,091,265

$

1,102,520

Less: average goodwill

(210,895

)

(210,895

)

(210,895

)

(210,895

)

(210,895

)

Less: average other intangible assets

(4,317

)

(4,341

)

(4,124

)

(4,408

)

(4,711

)

$

901,970

$

895,799

$

862,298

$

875,962

$

886,914

Return on average tangible equity (non-GAAP)

7.52

%

5.08

%

6.35

%

4.23

%

4.80

%

Adjusted return on average tangible equity

(non-GAAP)

7.39

%

6.70

%

6.55

%

3.31

%

5.01

%

Adjusted non-interest expense ratio:

Non-interest expense (GAAP)

$

30,510

$

33,573

$

26,891

$

28,062

$

26,427

Non-recurring transactions:

Merger-related expenses

-

(4,349

)

(447

)

(285

)

(219

)

Branch consolidation expenses

(347

)

-

-

-

(153

)

Debt extinguishment expenses

(796

)

-

-

(2,156

)

-

Non-interest expense (non-GAAP)

$

29,367

$

29,224

$

26,444

$

25,621

$

26,055

Non-interest expense ratio (GAAP)

1.65

%

1.85

%

1.59

%

1.67

%

1.60

%

Adjusted non-interest expense ratio (non-GAAP)

1.59

%

1.61

%

1.56

%

1.53

%

1.57

%

Adjusted efficiency ratio:

Non-interest expense (non-GAAP)

$

29,367

$

29,224

$

26,444

$

25,621

$

26,055

Net interest income (GAAP)

$

44,553

$

44,162

$

40,450

$

37,610

$

34,607

Total non-interest income (GAAP)

7,154

7,733

5,002

6,201

4,554

Non-recurring transactions:

Branch consolidation expenses

-

-

-

-

236

Gain (loss) on sale and call of securities

(813

)

-

-

(2,234

)

-

Bargain purchase gain

-

(3,053

)

-

-

-

Total revenue (non-GAAP)

$

50,894

$

48,842

$

45,452

$

41,577

$

39,397

Efficiency ratio (GAAP)

59.01

%

64.69

%

59.16

%

64.05

%

67.48

%

Adjusted efficiency ratio (non-GAAP)

57.70

%

59.83

%

58.18

%

61.62

%

66.13

%

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