Kearny Financial Corp. KRNY

NAS: KRNY | ISIN: US48716P1084   18:14
6,425 USD (+1,66%)
(+1,66%)   18:14

Kearny Financial Corp. Reports Fiscal 2021 Second Quarter Results

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 SheetAt Variance
(Dollars and Shares in Thousands,December 31,September 30,Varianceor Change
Except Per Share Data, Unaudited)20202020or ChangePct.
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%

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


Summary Income StatementFor the three months ended Variance
(Dollars and Shares in Thousands,December 31,September 30,Varianceor Change
Except Per Share Data, Unaudited)20202020or ChangePct.
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 DataDecember 31,September 30,Varianceor Change
(Dollars in Thousands, Unaudited)20202020or ChangePct.
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 Highlights20202020
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 SheetAt
(Dollars and Shares in Thousands,December 31,September 30,June 30,March 31,
December 31,
Except Per Share Data, Unaudited)20202020202020202019
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)20202020202020202019
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)20202020
202020202019
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 $5 $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)20202020202020202019
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 StatementFor the three months ended
(Dollars and Shares in Thousands, December 31, September 30,June 30, March 31, December 31,
Except Per Share Data, Unaudited)20202020202020202019
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)20202020202020202019
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 Highlights20202020202020202019
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-GAAPFor the three months ended
(Dollars in Thousands, December 31, September 30,June 30, March 31, December 31,
Except Per Share Data, Unaudited)20202020202020202019
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-GAAPFor the three months ended
(Dollars in Thousands, December 31, September 30,June 30, March 31, December 31,
Except Per Share Data, Unaudited)20202020202020202019
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


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