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Kearny Financial Corp. Reports Fiscal 2021 Second Quarter Results
Source: Nasdaq GlobeNewswire / 28 Jan 2021 16:15:02 America/New_York
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 losses45,918 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 outstandingBasic 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 $ 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) 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