KRNY
$13.43
Kearny Financial
$.07
.52%
Earnings Details
Quarter March 2019
Monday, April 29, 2019 4:30:00 PM
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Summary

Kearny Financial (KRNY) Recent Earnings

Kearny Financial (KRNY) reported Quarter March 2019 earnings of $0.13 per share on revenue of $63.3 million.. Revenue grew 50.5% on a year-over-year basis.

Kearny Financial Corp owns and operates Kearny Federal Savings Bank, which is engaged in the business of attracting deposits from the general public. It is a unitary savings and loan holding company.

Results
Reported Earnings
$0.13
Earnings Whisper
-
Consensus Estimate
Reported Revenue
$63.3 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Kearny Financial Corp. Reports Third Quarter 2019 Operating Results and Retail Branch Consolidation

FAIRFIELD, N.J., April 29, 2019 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended March 31, 2019 of $11.4 million, or $0.13 per basic and diluted share, as compared to net income of $10.8 million, or $0.12 per basic and diluted share, for the quarter ended December 31, 2018.

The Company concurrently announced the consolidation of seven of the Bank’s retail branches located in northern and central New Jersey as a part of its ongoing strategy to improve operating efficiency and enhance long-term shareholder value.  The Company considered several factors in identifying the locations to be consolidated including historical branch profitability, market demographic trajectory, geographic proximity to the consolidating branch and the expected impact on the Bank’s clients and communities served.  Completion of these consolidations is expected to occur during the quarter ended September 30, 2019, subject to regulatory approval.  The Company anticipates these consolidations to result in annualized pre-tax cost savings of at least $3.0 million, after recognition of associated one-time charges.

Craig L. Montanaro, President and Chief Executive Officer, commented, “We are very pleased to report another quarter of solid earnings performance, particularly in the face of the continuing challenges presented by the flat yield curve.  Our decision to consolidate certain branch locations, while representing meaningful cost savings, also reflects the recognition that the preferences of our clients are rapidly evolving towards a more omni-channel banking model.  As a result, our strategy remains focused on driving digital channel adoption and enhancing our suite of digital banking solutions to provide our clients with a frictionless experience through whichever channel is most convenient and appealing to them.”

Balance Sheet Highlights

  • Loans, excluding loans held for sale and the allowance for loan losses, decreased by $93.6 million to $4.66 billion, or 70.0% of total assets, at March 31, 2019 from $4.75 billion, or 70.9% of total assets, at December 31, 2018.  The decrease in loans was largely attributable to an elevated level of pre-payment activity in the commercial mortgage loan portfolio which outpaced loan origination volume during the period.

  • Deposits decreased by $35.9 million to $4.14 billion at March 31, 2019, from $4.17 billion at December 31, 2018.  The net decrease was attributable to a decline of $47.3 million in wholesale deposits that was partially offset by an increase of $11.4 million in retail deposits reflecting the Company’s ongoing efforts to reallocate its funding mix from wholesale to retail deposits.

  • Investment securities increased by $54.2 million to $1.32 billion at March 31, 2019 from $1.26 billion at December 31, 2018 as a portion of the cash flows from the loan portfolio were deployed into U.S. agency commercial mortgage-backed securities with similar yields to the loans that pre-paid during the period.

  • Borrowings increased by $15.7 million to $1.33 billion at March 31, 2019, from $1.31 billion at December 31, 2018.  The net increase in borrowings reflected a $20.2 million increase in depositor sweep account balances that was partially offset by the repayment of a $5.0 million long-term Federal Home Loan Bank (“FHLB”) advance that matured during the period. 

Earnings Highlights

  • Interest income decreased by $365,000 to $59.7 million for the quarter ended March 31, 2019 from $60.0 million for the quarter ended December 31, 2018 while interest expense increased by $346,000 to $21.0 million from $20.7 million between the same comparative periods.  Consequently, net interest income decreased by $711,000 to $38.6 million for the quarter ended March 31, 2019, from $39.3 million for the quarter ended December 31, 2018.

  • The Company’s interest rate spread decreased three basis points to 2.28% for the quarter ended March 31, 2019 from 2.31% for the quarter ended December 31, 2018.  The decrease in the interest rate spread primarily reflected a three basis point increase in the average cost of interest-bearing liabilities to 1.63% for the quarter ended March 31, 2019 from 1.60% for the quarter ended December 31, 2018 while the average yield on interest-earning assets remained stable at 3.91% for those same comparative periods.  The factors that contributed to the change in interest rate spread also contributed to a three basis point decrease in the Company’s net interest margin to 2.53% from 2.56%, for the same comparative periods.

The Company’s non-interest income continued to supplement and diversify its sources of revenue.

  • Fees and service charges increased by $416,000, or 33.1%, to $1.7 million for the quarter ended March 31, 2019 compared to $1.3 million for the quarter ended December 31, 2018.  This increase was largely driven by pre-payment fee income on commercial real estate loans related to the elevated level of pre-payment activity noted above.
  • Aggregate loan sale gains increased by $50,000, or 49.5%, to $151,000 for the quarter ended March 31, 2019 as compared to $101,000 for the quarter ended December 31, 2018 largely reflecting an increase in the volume of loans sold.

The Company continued to evaluate and implement tactics and strategies designed to improve operating efficiency and make more effective use of its supporting infrastructure while maintaining its effective income tax rate.

  • Non-interest expense decreased by $499,000 to $26.8 million for the quarter ended March 31, 2019 compared to $27.3 million for the quarter ended December 31, 2018.  The decrease was largely attributable to various non-recurring expenses that were recognized during the quarter ended December 31, 2018 in conjunction with the October 2018 conversion of Clifton Savings Bank’s core processing system.  The decrease in non-interest expense also reflected a net decrease of $349,000 in salaries and employee benefit expense from $15.7 million for the quarter ended December 31, 2018 to $15.4 million for the quarter ended March 31, 2019 largely attributable to decreases in wages, overtime and employee bonus compensation, partially offset by an increase in employer payroll tax expense.  These decreases were partially offset by an increase in facilities occupancy expense which was primarily attributable to seasonal fluctuations in such expenses.

  • The Company’s ratio of non-interest expense to average assets totaled 1.60% for the quarter ended March 31, 2019 compared to 1.62% for the prior quarter ended December 31, 2018.  For those same comparative periods, the Company’s efficiency ratios were 63.3% and 63.9%, respectively. 

  • Income tax expense totaled $4.3 million for the quarter ended March 31, 2019 compared to $3.6 million for the quarter ended December 31, 2018 resulting in effective tax rates of 27.4% and 25.3%, respectively.

Collectively, these factors resulted in an increase of $649,000 in net income for the quarter ended March 31, 2019 compared to the prior quarter ended December 31, 2018.

  • The Company’s return on average assets for the quarter ended March 31, 2019 increased to 0.68% from 0.64% for the quarter ended December 31, 2018.

  • The Company’s return on average equity increased to 3.89% for the quarter ended March 31, 2019 from 3.55% for the quarter ended December 31, 2018 while the Company’s return on average tangible equity increased to 4.78% from 4.33% for the comparative periods.

Asset Quality Highlights

  • Asset quality remained strong throughout the quarter ended March 31, 2019.  The outstanding balance of nonperforming loans totaled $21.3 million, or 0.46% of total loans, at March 31, 2019 as compared to $20.8 million, or 0.44% of total loans, at December 31, 2018.

  • The allowance for loan losses decreased to $33.1 million at March 31, 2019 from $33.5 million at December 31, 2018, resulting in a total loan coverage ratio, representing the balance of the allowance for loan losses as a percentage of total loans, excluding loans held for sale, of 0.70% for both comparative periods.  The total loan coverage ratio for both periods reflects the impact of purchase accounting which generally precludes acquired loan balances from being considered in the balance of the allowance for loan losses at the time of their acquisition.
  • The Company recognized net charge offs totaling approximately $242,000 for the quarter ended March 31, 2019, reflecting an annualized net charge off rate of 0.02% on the average balance of total loans for the period. By comparison, the Company’s net charge offs totaled approximately $176,000 for the quarter ended December 31, 2018, reflecting an annualized net charge off rate of 0.01%.

  • The Company recorded a loan loss provision reversal of $179,000 for the quarter ended March 31, 2019 as compared to a provision for loan loss expense of $971,000 for the quarter ended December 31, 2018.  The decrease in provision for loan loss was largely attributable to the net decrease during the quarter ended March 31, 2019 in the performing portion of the loan portfolio that was collectively evaluated for impairment.

Capital Highlights

  • The Company increased its regular quarterly cash dividend by $0.01 per share, to $0.06 per share during the quarter ended March 31, 2019, from $0.05 per share during the quarter ended December 31, 2018.  The Company continually evaluates its dividend policies and practices in relation to its overall capital management and shareholder value objectives.

  • In March 2019, the Company completed the repurchase of its shares of common stock under its third share repurchase program announced in April 2018 through which it authorized the repurchase of 10,238,557 shares, or 10%, of the Company’s outstanding shares.  The shares associated with this third program were repurchased at a total cost of $138.8 million and at an average cost of $13.55 per share.  Concurrently, the Company announced its fourth share repurchase program through which it authorized the repurchase of 9,218,324 shares, or 10%, of the Company’s outstanding shares as of that date.
  • During the quarter ended March 31, 2019, the Company repurchased 2,445,689 shares of its common stock at a total cost of $32.4 million and an average cost of $13.24 per share.  The shares of common stock repurchased during the period included 1,757,572 shares attributed to the completion of the Company’s third share repurchase program, as noted above.  Such shares were repurchased at a total cost of $23.3 million and an average cost of $13.24 per share.  The additional 688,117 shares repurchased during the period represented 7.5% of the total shares to be repurchased under the Company’s fourth share repurchase program, also noted above.  Such shares were repurchased at a total cost of $9.1 million and at an average cost of $13.24 per share.

  • The Company’s and Bank’s regulatory capital ratios at March 31, 2019 were in excess of the levels required by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines. 

The exhibits that follow this narrative begin with the presentation of the Linked-Quarter Comparative Financial Analysis that supports the discussion above by presenting the Company’s financial condition and operating results for the quarter ended March 31, 2019 compared to those for the prior linked-quarter ended December 31, 2018.  This analysis is followed by a tabular Five-Quarter Financial Trend Analysis that presents similar financial information, together with other financial highlights and performance metrics, over a consecutive five quarter look-back period that is intended to reflect the Company’s financial performance and strategic achievements over this extended period of time.  The exhibits conclude with the presentation of the Reconciliation of GAAP to Non-GAAP financial data included in this news release.

Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time.  The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Linked-Quarter Comparative Financial Analysis 
             
Summary Balance SheetAt    Variance 
(Dollars and Shares in Thousands,March 31, December 31, Variance or Change 
Except Per Share Data, Unaudited)2019 2018 or Change Pct. 
Assets            
Cash and cash equivalents$54,160 $51,483 $2,677  5.2%
Securities available for sale 726,920  666,602  60,318  9.0%
Securities held to maturity 592,199  598,318  (6,119) -1.0%
Loans held-for-sale 997  1,001  (4) -0.4%
Loans receivable, including yield adjustments 4,659,804  4,753,392  (93,588) -2.0%
Less allowance for loan losses (33,105) (33,526) 421  -1.3%
Net loans receivable 4,626,699  4,719,866  (93,167) -2.0%
Premises and equipment 58,274  58,414  (140) -0.2%
Federal Home Loan Bank stock 64,288  64,514  (226) -0.4%
Accrued interest receivable 20,326  19,435  891  4.6%
Goodwill 210,895  210,895  -  0.0%
Core deposit intangible 5,470  5,743  (273) -4.8%
Bank owned life insurance 254,569  253,009  1,560  0.6%
Deferred income taxes, net 24,182  24,692  (510) -2.1%
Other real estate owned 209  508  (299) -58.9%
Other assets 19,563  27,960  (8,397) -30.0%
Total assets$6,658,751 $6,702,440 $(43,689) -0.7%
             
Liabilities            
Deposits$4,137,573 $4,173,434 $(35,861) -0.9%
Borrowings 1,326,216  1,310,547  15,669  1.2%
Advance payments by borrowers for taxes 17,208  17,201  7  0.0%
Other liabilities 19,643  17,997  1,646  9.1%
Total liabilities 5,500,640  5,519,179  (18,539) -0.3%
             
Stockholders' Equity            
Common stock 915  938  (23) -2.5%
Paid-in capital 817,675  848,145  (30,470) -3.6%
Retained earnings 363,072  356,993  6,079  1.7%
Unearned ESOP shares (31,130) (31,617) 487  -1.5%
Accumulated other comprehensive income, net 7,579  8,802  (1,223) -13.9%
Total stockholders' equity 1,158,111  1,183,261  (25,150) -2.1%
Total liabilities and stockholders' equity$6,658,751 $6,702,440 $(43,689) -0.7%
             
Consolidated capital ratios            
Equity to assets 17.39% 17.65% -0.26%   
Tangible equity to tangible assets 14.62% 14.90% -0.28%   
             
Share data            
Outstanding shares 91,495  93,772  (2,277) -2.4%
Equity per share$12.66 $12.62 $0.04  0.3%
Tangible equity per share (1)$10.29 $10.31 $(0.02) -0.2%


(1) Tangible equity 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,March 31, December 31, Variance or Change 
Except Per Share Data, Unaudited)2019 2018 or Change Pct. 
Interest income            
Loans$48,116 $49,015 $(899) -1.8%
Taxable investment securities 9,511  9,051  460  5.1%
Tax-exempt investment securities 710  713  (3) -0.4%
Other interest-earning assets 1,320  1,243  77  6.2%
Total Interest Income 59,657  60,022  (365) -0.6%
             
Interest expense            
Deposits 14,114  12,727  1,387  10.9%
Borrowings 6,905  7,946  (1,041) -13.1%
Total interest expense 21,019  20,673  346  1.7%
Net interest income 38,638  39,349  (711) -1.8%
(Reversal of) provision for loan losses (179) 971  (1,150) -118.4%
Net interest income after provision for
  loan losses
 38,817  38,378  439  1.1%
             
Non-interest income            
Fees and service charges 1,674  1,258  416  33.1%
Loss on sale and call of securities (182) -  (182)N/A 
Gain on sale of loans 151  101  50  49.5%
(Loss) gain on sale and write down of other real estate owned (6) 36  (42) -116.7%
Income from bank owned life insurance 1,560  1,599  (39) -2.4%
Electronic banking fees and charges 253  277  (24) -8.7%
Miscellaneous 226  38  188  494.7%
Total non-interest income 3,676  3,309  367  11.1%
             
Non-interest expense            
Salaries and employee benefits 15,350  15,699  (349) -2.2%
Net occupancy expense of premises 2,979  2,761  218  7.9%
Equipment and systems 3,053  3,377  (324) -9.6%
Advertising and marketing 739  787  (48) -6.1%
Federal deposit insurance premium 455  421  34  8.1%
Directors' compensation 770  746  24  3.2%
Miscellaneous 3,425  3,479  (54) -1.6%
Total non-interest expense 26,771  27,270  (499) -1.8%
Income before income taxes 15,722  14,417  1,305  9.1%
Income taxes 4,305  3,649  656  18.0%
Net income$11,417 $10,768 $649  6.0%
             
Net income per common share (EPS)            
Basic$0.13 $0.12 $0.01    
Diluted$0.13 $0.12 $0.01    
             
Dividends declared            
Cash dividends declared per common share$0.06 $0.05 $0.01    
Cash dividends declared$5,338 $4,082 $1,256    
Dividend payout ratio 46.8% 37.9% 8.8%   
             
Weighted average number of common
 shares outstanding
            
Basic 89,488  92,434  (2,946)   
Diluted 89,532  92,480  (2,948)   
             


        
 For the three months ended    Variance 
Average Balance Sheet DataMarch 31, December 31, Variance or Change 
(Dollars in Thousands, Unaudited)2019 2018 or Change Pct. 
Assets            
Interest-earning assets:            
Loans receivable, including loans held for sale$4,709,052 $4,758,587 $(49,535) -1.0%
Taxable investment securities 1,161,492  1,158,720  2,772  0.2%
Tax-exempt investment securities 134,309  135,453  (1,144) -0.8%
Other interest-earning assets 107,554  87,916  19,638  22.3%
Total interest-earning assets 6,112,407  6,140,676  (28,269) -0.5%
Non-interest-earning assets 574,921  587,921  (13,000) -2.2%
Total assets$6,687,328 $6,728,597 $(41,269) -0.6%
             
Liabilities and Stockholders' Equity            
Interest-bearing liabilities:            
Deposits:            
Interest-bearing demand$790,567 $792,989 $(2,422) -0.3%
Savings and club 773,308  743,676  29,632  4.0%
Certificates of deposit 2,288,836  2,214,932  73,904  3.3%
Total interest-bearing deposits 3,852,711  3,751,597  101,114  2.7%
Borrowings:            
Federal Home Loan Bank advances 1,292,168  1,293,470  (1,302) -0.1%
Other borrowings 26,037  119,281  (93,244) -78.2%
Total borrowings 1,318,205  1,412,751  (94,546) -6.7%
Total interest-bearing liabilities 5,170,916  5,164,348  6,568  0.1%
Non-interest-bearing liabilities:            
Non-interest-bearing deposits 307,645  315,165  (7,520) -2.4%
Other non-interest-bearing liabilities 35,930  37,374  (1,444) -3.9%
Total non-interest-bearing liabilities 343,575  352,539  (8,964) -2.5%
Total liabilities 5,514,491  5,516,887  (2,396) 0.0%
Stockholders' equity 1,172,837  1,211,710  (38,873) -3.2%
Total liabilities and stockholders' equity$6,687,328 $6,728,597 $(41,269) -0.6%
             
Average interest-earning assets to average
 interest-bearing liabilities
 118.21% 118.91% -0.70% -0.6%
             


      
 For the three months ended    
 March 31, December 31, Variance 
Performance Ratio Highlights2019 2018 or Change 
Average yield on interest-earning assets:         
Loans receivable, including loans held for sale 4.09% 4.12% -0.03%
Taxable investment securities 3.28% 3.12% 0.16%
Tax-exempt investment securities (1) 2.12% 2.11% 0.01%
Other interest-earning assets 4.91% 5.66% -0.75%
Total interest-earning assets 3.91% 3.91% 0.00%
          
Average cost of interest-bearing liabilities:         
Deposits:         
Interest-bearing demand 1.06% 0.97% 0.09%
Savings and club 0.60% 0.49% 0.11%
Certificates of deposit 1.90% 1.79% 0.11%
Total interest-bearing deposits 1.47% 1.36% 0.11%
Borrowings:         
Federal Home Loan Bank advances 2.13% 2.27% -0.14%
Other borrowings 0.35% 1.99% -1.64%
Total borrowings 2.10% 2.25% -0.15%
Total interest-bearing liabilities 1.63% 1.60% 0.03%
          
Interest rate spread (2) 2.28% 2.31% -0.03%
Net interest margin (3) 2.53% 2.56% -0.03%
          
Non-interest income to average assets
 (annualized)
 0.22% 0.20% 0.02%
Non-interest expense to average assets
 (annualized)
 1.60% 1.62% -0.02%
          
Efficiency ratio (4) 63.27% 63.93% -0.66%
          
Return on average assets (annualized) 0.68% 0.64% 0.04%
Return on average equity (annualized) 3.89% 3.55% 0.34%
Return on average tangible equity (annualized) (5) 4.78% 4.33% 0.45%


(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,March 31, December 31, September 30, June 30, March 31, 
Except Per Share Data, Unaudited)2019 2018 2018 2018 2018 
Assets               
Cash and cash equivalents$54,160 $51,483 $44,486 $128,864 $38,283 
Securities available for sale 726,920  666,602  706,240  725,085  684,771 
Securities held to maturity 592,199  598,318  602,838  589,730  459,380 
Loans held-for-sale 997  1,001  1,503  863  2,377 
Loans receivable, including yield adjustments 4,659,804  4,753,392  4,660,507  4,501,348  3,351,369 
Less allowance for loan losses (33,105) (33,526) (32,731) (30,865) (30,248)
Net loans receivable 4,626,699  4,719,866  4,627,776  4,470,483  3,321,121 
Premises and equipment 58,274  58,414  57,635  56,240  42,856 
Federal Home Loan Bank stock 64,288  64,514  66,428  59,004  39,112 
Accrued interest receivable 20,326  19,435  19,455  18,510  13,926 
Goodwill 210,895  210,895  210,895  210,895  108,591 
Core deposit intangible 5,470  5,743  6,018  6,295  206 
Bank owned life insurance 254,569  253,009  251,410  249,816  184,981 
Deferred income taxes, net 24,182  24,692  22,136  23,754  3,898 
Other real estate owned 209  508  674  725  1,094 
Other assets 19,563  27,960  38,717  39,610  33,104 
Total assets$6,658,751 $6,702,440 $6,656,211 $6,579,874 $4,933,700 
                
Liabilities               
Deposits 4,137,573 $4,173,434 $3,954,821 $4,073,604 $3,067,102 
Borrowings 1,326,216  1,310,547  1,419,424  1,198,646  852,009 
Advance payments by borrowers for taxes 17,208  17,201  10,687  18,088  8,969 
Other liabilities 19,643  17,997  35,198  20,788  14,419 
Total liabilities 5,500,640  5,519,179  5,420,130  5,311,126  3,942,499 
                
Stockholders' Equity               
Common stock 915  938  978  996  788 
Paid-in capital 817,675  848,145  897,551  922,711  653,045 
Retained earnings 363,072  356,993  350,838  359,096  355,270 
Unearned ESOP shares (31,130) (31,617) (32,104) (32,590) (33,076)
Accumulated other comprehensive income, net 7,579  8,802  18,818  18,535  15,174 
Total stockholders' equity 1,158,111  1,183,261  1,236,081  1,268,748  991,201 
Total liabilities and stockholders' equity$6,658,751 $6,702,440 $6,656,211 $6,579,874 $4,933,700 
                
Consolidated capital ratios               
Equity to assets 17.39% 17.65% 18.57% 19.28% 20.09%
Tangible equity to tangible assets 14.62% 14.90% 15.83% 16.53% 18.29%
                
Share data               
Outstanding shares 91,495  93,772  97,754  99,626  78,765 
Equity per share$12.66 $12.62 $12.64 $12.74 $12.58 
Tangible equity per share (1)$10.29 $10.31 $10.43 $10.56 $11.20 


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


   
 At 
Supplemental Balance Sheet HighlightsMarch 31, December 31, September 30, June 30, March 31, 
(Dollars in Thousands, Unaudited)2019 2018 2018 2018 2018 
Cash and cash equivalents               
Cash and due from depository institutions$15,943 $24,361 $21,973 $26,199 $18,229 
Interest-bearing deposits in other banks 38,217  27,122  22,513  102,665  20,054 
Total cash and cash equivalents$54,160 $51,483 $44,486 $128,864 $38,283 
                
Securities available for sale               
Debt securities:               
U.S. agency securities$3,737 $3,942 $4,070 $4,411 $4,667 
Municipal and state obligations 26,731  26,205  25,907  26,088  26,733 
Asset-backed securities 180,145  180,828  182,390  182,620  182,066 
Collateralized loan obligations 207,906  184,439  215,569  226,066  178,342 
Corporate bonds 121,597  144,692  147,811  147,594  142,202 
Trust preferred securities 3,775  3,726  3,794  3,783  8,485 
Debt securities available for sale 543,891  543,832  579,541  590,562  542,495 
                
Mortgage-backed securities:               
Collateralized mortgage obligations 21,660  23,019  23,097  24,292  25,601 
Residential pass-through securities 70,513  91,918  95,795  102,359  108,736 
Commercial pass-through securities 90,856  7,833  7,807  7,872  7,939 
Mortgage-backed securities 183,029  122,770  126,699  134,523  142,276 
Total securities available for sale$726,920 $666,602 $706,240 $725,085 $684,771 
                
Securities held to maturity               
Debt securities:               
Municipal and state obligations$107,375 $107,826 $109,061 $109,483 $98,011 
Subordinated debt 63,107  56,255  46,275  46,294  30,000 
Debt securities held to maturity 170,482  164,081  155,336  155,777  128,011 
                
Mortgage-backed securities:               
Collateralized mortgage obligations 49,368  51,540  54,130  56,886  34,309 
Residential pass-through securities 174,338  182,335  190,812  200,622  151,605 
Commercial pass-through securities 198,011  200,362  202,560  176,445  145,455 
Mortgage-backed securities 421,717  434,237  447,502  433,953  331,369 
Total securities held to maturity$592,199 $598,318 $602,838 $589,730 $459,380 
                
Total securities$1,319,119 $1,264,920 $1,309,078 $1,314,815 $1,144,151 
                


   
 At 
Supplemental Balance Sheet HighlightsMarch 31, December 31, September 30, June 30, March 31, 
(Dollars in Thousands, Unaudited)2019 2018 2018 2018 2018 
Loan portfolio composition:               
Residential first mortgage loans$1,325,105 $1,334,284 $1,303,249 $1,297,453 $563,807 
Home equity loans and lines of credit 97,788  96,001  93,473  90,761  79,522 
Residential mortgage loans 1,422,893  1,430,285  1,396,722  1,388,214  643,329 
Multifamily mortgage loans 1,956,571  1,974,409  1,898,831  1,758,584  1,471,573 
Nonresidential and mixed use mortgage loans 1,249,215  1,302,583  1,315,279  1,302,961  1,113,385 
Commercial mortgage loans 3,205,786  3,276,992  3,214,110  3,061,545  2,584,958 
Commercial business loans 66,476  70,059  78,317  85,825  88,216 
Construction loans 14,377  28,405  26,581  23,271  22,963 
Account loans 3,360  3,310  3,133  3,283  3,038 
Other consumer loans 2,624  3,524  4,427  5,777  7,186 
Consumer loans 5,984  6,834  7,560  9,060  10,224 
Total loans, excluding yield adjustments 4,715,516  4,812,575  4,723,290  4,567,915  3,349,690 
Unamortized yield adjustments (55,712) (59,183) (62,783) (66,567) 1,679 
Loans receivable, including yield adjustments 4,659,804  4,753,392  4,660,507  4,501,348  3,351,369 
Less allowance for loan losses (33,105) (33,526) (32,731) (30,865) (30,248)
Net loans receivable$4,626,699 $4,719,866 $4,627,776 $4,470,483 $3,321,121 
                
Loan portfolio allocation:               
Residential first mortgage loans 28.1% 27.7% 27.6% 28.4% 16.8%
Home equity loans and lines of credit 2.1% 2.0% 2.0% 2.0% 2.4%
Residential mortgage loans 30.2% 29.7% 29.6% 30.4% 19.2%
Multifamily mortgage loans 41.5% 41.0% 40.2% 38.5% 43.9%
Nonresidential and mixed use mortgage loans 26.5% 27.1% 27.8% 28.5% 33.2%
Commercial mortgage loans 68.0% 68.1% 68.0% 67.0% 77.1%
Commercial business loans 1.3% 1.4% 1.6% 1.9% 2.6%
Construction loans 0.3% 0.6% 0.6% 0.5% 0.7%
Account loans 0.1% 0.1% 0.1% 0.1% 0.1%
Other consumer loans 0.1% 0.1% 0.1% 0.1% 0.3%
Consumer loans 0.2% 0.2% 0.2% 0.2% 0.4%
Total loans, excluding yield adjustments 100.0% 100.0% 100.0% 100.0% 100.0%
                
Asset quality:               
Nonperforming assets:               
Accruing loans > 90 days past due$23 $32 $19 $60 $45 
Nonaccrual loans 21,297  20,743  20,473  16,799  14,190 
Total nonperforming loans 21,320  20,775  20,492  16,859  14,235 
Other real estate owned 209  508  674  725  1,094 
Total nonperforming assets$21,529 $21,283 $21,166 $17,584 $15,329 
                
Nonperforming loans (% total loans) 0.46% 0.44% 0.44% 0.37% 0.42%
Nonperforming assets (% total assets) 0.32% 0.32% 0.32% 0.27% 0.31%
                
Allowance for loan losses (ALLL):               
ALLL to total loans 0.70% 0.70% 0.69% 0.68% 0.90%
ALLL to nonperforming loans 155.28% 161.38% 159.73% 183.08% 212.49%
Net charge offs$242 $176 $234 $101 $241 
Average net charge off rate (annualized) 0.02% 0.01% 0.02% 0.01% 0.03%
                


   
 At 
Supplemental Balance Sheet HighlightsMarch 31, December 31, September 30, June 30, March 31, 
(Dollars in Thousands, Unaudited)2019 2018 2018 2018 2018 
Funding by type:               
Deposits               
Non-interest-bearing deposits$303,713 $305,392 $308,631 $311,938 $270,217 
Interest-bearing demand 800,023  807,389  786,069  1,000,989  871,425 
Savings and club 777,678  760,499  743,289  744,039  515,805 
Certificates of deposit 2,256,159  2,300,154  2,116,832  2,016,638  1,409,655 
Interest-bearing deposits 3,833,860  3,868,042  3,646,190  3,761,666  2,796,885 
Total deposits 4,137,573  4,173,434  3,954,821  4,073,604  3,067,102 
                
Borrowings:               
Federal Home Loan Bank advances 1,289,285  1,293,845  1,335,844  1,170,144  775,625 
Overnight borrowings -  -  60,000  -  42,000 
Depositor sweep accounts 36,931  16,702  23,580  28,502  34,384 
Total borrowings 1,326,216  1,310,547  1,419,424  1,198,646  852,009 
                
Total funding$5,463,789 $5,483,981 $5,374,245 $5,272,250 $3,919,111 
                
Loans as a % of deposits 111.8% 113.1% 117.1% 109.8% 108.4%
Deposits as a % of total funding 75.7% 76.1% 73.6% 77.3% 78.3%
Borrowings as a % of total funding 24.3% 23.9% 26.4% 22.7% 21.7%
                
Funding by source:               
Retail funding               
Non-interest-bearing deposits$303,713 $305,392 $308,631 $311,938 $270,217 
Interest-bearing demand 800,023  807,389  786,069  790,164  656,114 
Savings and club 777,678  760,499  743,289  744,039  515,805 
Certificates of deposit 1,925,630  1,922,287  1,871,903  1,828,039  1,247,900 
Total retail deposits 3,807,044  3,795,567  3,709,892  3,674,180  2,690,036 
Depositor sweep accounts 36,931  16,702  23,580  28,502  34,384 
Total retail funding 3,843,975  3,812,269  3,733,472  3,702,682  2,724,420 
                
Wholesale funding:               
Interest-bearing demand$- $- $- $210,825 $215,311 
Certificates of deposit (listing service) 78,704  108,067  104,990  104,256  104,934 
Certificates of deposit (brokered) 251,825  269,800  139,939  84,343  56,821 
Total wholesale deposits 330,529  377,867  244,929  399,424  377,066 
FHLB advances 1,289,285  1,293,845  1,335,844  1,170,144  775,625 
Overnight borrowings -  -  60,000  -  42,000 
Total wholesale funding 1,619,814  1,671,712  1,640,773  1,569,568  1,194,691 
                
Total funding$5,463,789 $5,483,981 $5,374,245 $5,272,250 $3,919,111 
                
Retail funding as a % of total funding 70.4% 69.5% 69.5% 70.2% 69.5%
Wholesale funding as a % of total funding 29.6% 30.5% 30.5% 29.8% 30.5%
                


   
Summary Income StatementFor the three months ended 
(Dollars and Shares in Thousands,March 31, December 31, September 30, June 30, March 31, 
Except Per Share Data, Unaudited)2019 2018 2018 2018 2018 
Interest income               
Loans$48,116 $49,015 $47,437 $46,615 $30,728 
Taxable investment securities 9,511  9,051  8,879  8,670  6,450 
Tax-exempt investment securities 710  713  716  702  652 
Other interest-earning assets 1,320  1,243  1,174  1,275  715 
Total interest income 59,657  60,022  58,206  57,262  38,545 
                
Interest expense               
Deposits 14,114  12,727  10,539  9,755  7,026 
Borrowings 6,905  7,946  7,487  6,916  4,462 
Total interest expense 21,019  20,673  18,026  16,671  11,488 
Net interest income 38,638  39,349  40,180  40,591  27,057 
(Reversal of) provision for loan losses (179) 971  2,100  717  423 
Net interest income after provision for
  loan losses
 38,817  38,378  38,080  39,874  26,634 
                
Non-interest income               
Fees and service charges 1,674  1,258  1,173  1,205  1,537 
(Loss) gain on sale and call of securities (182) -  -  9  (1)
Gain on sale of loans 151  101  132  127  346 
(Loss) gain on sale and write down of other real estate owned (6) 36  (50) 60  7 
Income from bank owned life insurance 1,560  1,599  1,594  1,604  1,227 
Electronic banking fees and charges 253  277  250  278  243 
Miscellaneous 226  38  83  75  189 
Total non-interest income 3,676  3,309  3,182  3,358  3,548 
                
Non-interest expense               
Salaries and employee benefits 15,350  15,699  15,642  15,277  12,814 
Net occupancy expense of premises 2,979  2,761  2,736  2,716  2,359 
Equipment and systems 3,053  3,377  2,926  2,776  2,323 
Advertising and marketing 739  787  577  757  745 
Federal deposit insurance premium 455  421  465  463  350 
Directors' compensation 770  746  758  754  689 
Merger-related expenses -  -  -  5,149  401 
Miscellaneous 3,425  3,479  3,353  3,365  2,862 
Total non-interest expense 26,771  27,270  26,457  31,257  22,543 
Income before income taxes 15,722  14,417  14,805  11,975  7,639 
Income taxes 4,305  3,649  3,659  4,257  2,262 
Net income$11,417 $10,768 $11,146 $7,718 $5,377 
                
Net income per common share (EPS)               
Basic$0.13 $0.12 $0.12 $0.08 $0.07 
Diluted$0.13 $0.12 $0.12 $0.08 $0.07 
                
Dividends declared (1)               
Cash dividends declared per common share$0.06 $0.05 $0.20 $0.04 $0.03 
Cash dividends declared$5,338 $4,082 $19,404 $3,892 $2,262 
Dividend payout ratio 46.8% 37.9% 174.1% 50.4% 42.1%
                
Weighted average number of common
 shares outstanding
               
Basic 89,488  92,434  95,127  98,046  75,492 
Diluted 89,532  92,480  95,181  98,100  75,539 


(1) Dividends declared during the quarter ended September 30, 2018 include a $0.16 special dividend representing a supplemental distribution of net income to stockholders from the fiscal year ended June 30, 2018.


   
 For the three months ended 
Average Balance Sheet DataMarch 31, December 31, September 30, June 30, March 31, 
(Dollars in Thousands, Unaudited)2019 2018 2018 2018 2018 
Assets               
Interest-earning assets:               
Loans receivable, including loans held for sale$4,709,052 $4,758,587 $4,562,375 $4,507,336 $3,293,664 
Taxable investment securities 1,161,492  1,158,720  1,180,655  1,192,066  1,003,600 
Tax-exempt investment securities 134,309  135,453  136,056  134,683  127,605 
Other interest-earning assets 107,554  87,916  112,629  142,591  67,770 
Total interest-earning assets 6,112,407  6,140,676  5,991,715  5,976,676  4,492,639 
Non-interest-earning assets 574,921  587,921  596,006  586,976  369,299 
Total assets$6,687,328 $6,728,597 $6,587,721 $6,563,652 $4,861,938 
                
Liabilities and Stockholders' Equity               
Interest-bearing liabilities:               
Deposits:               
Interest-bearing demand$790,567 $792,989 $788,148 $1,004,445 $870,762 
Savings and club 773,308  743,676  747,743  724,430  513,948 
Certificates of deposit 2,288,836  2,214,932  2,046,997  1,983,372  1,385,151 
Total interest-bearing deposits 3,852,711  3,751,597  3,582,888  3,712,247  2,769,861 
Borrowings:               
Federal Home Loan Bank advances 1,292,168  1,293,470  1,350,113  1,179,147  777,721 
Other borrowings 26,037  119,281  40,981  34,636  33,529 
Total borrowings 1,318,205  1,412,751  1,391,094  1,213,783  811,250 
Total interest-bearing liabilities 5,170,916  5,164,348  4,973,982  4,926,030  3,581,111 
Non-interest-bearing liabilities:               
Non-interest-bearing deposits 307,645  315,165  314,114  305,763  267,152 
Other non-interest-bearing liabilities 35,930  37,374  43,533  39,340  24,953 
Total non-interest-bearing liabilities 343,575  352,539  357,647  345,103  292,105 
Total liabilities 5,514,491  5,516,887  5,331,629  5,271,133  3,873,216 
Stockholders' equity 1,172,837  1,211,710  1,256,092  1,292,519  988,722 
Total liabilities and stockholders' equity$6,687,328 $6,728,597 $6,587,721 $6,563,652 $4,861,938 
                
Average interest-earning assets to average
 interest-bearing liabilities
 118.21% 118.91% 120.46% 121.33% 125.45%
                


   
 For the three months ended 
 March 31, December 31, September 30, June 30, March 31, 
Performance Ratio Highlights2019 2018 2018 2018 2018 
Average yield on interest-earning assets:               
Loans receivable, including loans held for sale 4.09% 4.12% 4.16% 4.14% 3.73%
Taxable investment securities 3.28% 3.12% 3.01% 2.91% 2.57%
Tax-exempt investment securities (1) 2.12% 2.11% 2.10% 2.09% 2.04%
Other interest-earning assets 4.91% 5.66% 4.17% 3.58% 4.22%
Total interest-earning assets 3.91% 3.91% 3.89% 3.83% 3.43%
                
Average cost of interest-bearing liabilities:               
Deposits:               
Interest-bearing demand 1.06% 0.97% 0.86% 0.89% 0.84%
Savings and club 0.60% 0.49% 0.41% 0.29% 0.12%
Certificates of deposit 1.90% 1.79% 1.58% 1.41% 1.46%
Total interest-bearing deposits 1.47% 1.36% 1.18% 1.05% 1.01%
Borrowings:               
Federal Home Loan Bank advances 2.13% 2.27% 2.19% 2.34% 2.27%
Other borrowings 0.35% 1.99% 0.94% 0.34% 0.56%
Total borrowings 2.10% 2.25% 2.15% 2.28% 2.20%
Total interest-bearing liabilities 1.63% 1.60% 1.45% 1.35% 1.28%
                
Interest rate spread (2) 2.28% 2.31% 2.44% 2.48% 2.15%
Net interest margin (3) 2.53% 2.56% 2.68% 2.72% 2.41%
                
Non-interest income to average assets
 (annualized)
 0.22% 0.20% 0.19% 0.20% 0.29%
Non-interest expense to average assets
 (annualized)
 1.60% 1.62% 1.61% 1.90% 1.85%
                
Efficiency ratio (4) 63.27% 63.93% 61.01% 71.12% 73.66%
                
Return on average assets (annualized) 0.68% 0.64% 0.68% 0.47% 0.44%
Return on average equity (annualized) 3.89% 3.55% 3.55% 2.39% 2.18%
Return on average tangible equity (annualized) (5) 4.78% 4.33% 4.29% 2.90% 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.

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,March 31, December 31, September 30, June 30, March 31, 
Except Per Share Data, Unaudited)2019 2018 2018 2018 2018 
Adjusted Net Income               
Net income (GAAP)$11,417 $10,768 $11,146 $7,718 $5,377 
Effect to adjust for:               
Merger-related expenses -  -  -  5,149  401 
Income tax benefit from merger-related
 expenses
 -  -  -  (1,451) (22)
Adjusted net income
 (non-GAAP)
$11,417 $10,768 $11,146 $11,416 $5,756 
                
Adjusted Net Income per Common Share (EPS)               
Net income per common share
 Basic and Diluted (GAAP)
$0.13 $0.12 $0.12 $0.08 $0.07 
Effect to adjust for:               
Merger-related expenses -  -  -  0.05  0.01 
Income tax benefit from merger-related
 expenses
 -  -  -  (0.01) - 
Adjusted net income per common share
 Basic and Diluted (non-GAAP)
$0.13 $0.12 $0.12 $0.12 $0.08 
                
Adjusted Non-Interest Expense               
Non-interest expense (GAAP)$26,771 $27,270 $26,457 $31,257 $22,543 
Effect to adjust for:               
Merger-related expenses -  -  -  (5,149) (401)
Adjusted non-interest expense
 (non-GAAP)
$26,771 $27,270 $26,457 $26,108 $22,142 
                
Adjusted Non-Interest Expense Ratio               
Non-interest expense to average assets (GAAP) 1.60% 1.62% 1.61% 1.90% 1.85%
Effect to adjust for:               
Merger-related expenses 0.00% 0.00% 0.00% -0.31% -0.03%
Adjusted non-interest expense ratio
 (non-GAAP)
 1.60% 1.62% 1.61% 1.59% 1.82%
                
Adjusted Efficiency Ratio               
Non-interest expense / (Net interest income
 + non-interest income) (GAAP)
 63.3% 63.9% 61.0% 71.1% 73.7%
Effect to adjust for:               
Merger-related expenses 0.0% 0.0% 0.0% -11.7% -1.3%
Adjusted efficiency ratio
 (non-GAAP)
 63.3% 63.9% 61.0% 59.4% 72.4%
                


   
  For the three months ended 
Reconciliation of GAAP to Non-GAAPMarch 31, December 31, September 30, June 30, March 31, 
(Unaudited)2019 2018 2018 2018 2018 
Adjusted Return on Average Assets               
Return on average assets (GAAP) 0.68% 0.64% 0.68% 0.47% 0.44%
Effect to adjust for:               
Merger-related expenses 0.00% 0.00% 0.00% 0.31% 0.03%
Income tax benefit from merger-related
 expenses
 0.00% 0.00% 0.00% -0.09% 0.00%
Adjusted return on average assets
 (non-GAAP)
 0.68% 0.64% 0.68% 0.69% 0.47%
                
Adjusted Return on Average Equity               
Return on average equity (GAAP) 3.89% 3.55% 3.55% 2.39% 2.18%
Effect to adjust for:               
Merger-related expenses 0.00% 0.00% 0.00% 1.59% 0.16%
Income tax benefit from merger-related
 expenses
 0.00% 0.00% 0.00% -0.45% -0.01%
Adjusted return on average equity
 (non-GAAP)
 3.89% 3.55% 3.55% 3.53% 2.33%
                
For further information contact:Keith Suchodolski, Executive Vice President and Chief Financial OfficerKearny Financial Corp.(973) 244-4500

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Source: Kearny Bank