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Kearny Financial Corp. Reports Third Quarter 2017 Operating Results

FAIRFIELD, N.J., April 27, 2017 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ:KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended March 31, 2017 of $4.1 million, or $0.05 per basic and diluted share. The results represent a decrease in net income of $1.4 million compared to net income of $5.5 million, or $0.06 per basic and diluted share, for the quarter ended December 31, 2016.

The decrease in net income between linked periods largely reflected the impact of the first “full-quarter” cost of the Company’s 2016 Equity Incentive Plan approved by shareholders in October 2016. Based on the original value of the grants at the time they were issued on December 1, 2016, coupled with the five year vesting period, the “pre-tax” and “after-tax” expense associated with the noted grants total approximately $1.6 million and $1.1 million per quarter, respectively.

Overview

The Company continued to execute strategies during the third quarter of fiscal 2017 intended to grow and diversify its balance sheet while increasing earnings and prudently managing capital to promote long-term growth in shareholder value. These strategies resulted in several incremental balance sheet growth and diversification achievements that are included among the following noteworthy highlights for the quarter:

  • The Company’s aggregate loan portfolio, excluding loans held for sale and the allowance for loan losses, increased by $148.7 million, or 5.0%, to $3.12 billion, or 65.1% of total assets, at March 31, 2017 from $2.97 billion, or 64.9% of total assets, at December 31, 2016. This growth largely reflected the Company’s continued strategic focus on commercial loans, which increased by $147.4 million, or 6.4% during the period.

  • Nonperforming loans decreased to $21.0 million, or 0.67% of total loans, at March 31, 2017 from $21.6 million, or 0.72% of total loans, at December 31, 2016.

  • The allowance for loan losses increased to $27.6 million at March 31, 2017 from $26.1 million at December 31, 2016, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of total loans, that was unchanged at 0.88% between comparative periods.

  • The “nonperforming loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of nonperforming loans, increased to 131.4% at March 31, 2017 from 120.8% at December 31, 2016.

  • The Company’s securities portfolio decreased by $72.2 million, or 6.1%, to $1.12 billion, or 23.3% of total assets, at March 31, 2017 from $1.19 billion, or 25.9% of total assets, at December 31, 2016. The decrease largely reflected the sale of highly-seasoned, fixed-rate mortgage-backed securities to fund a portion of the loan growth during the period coupled with normal principal repayments arising from amortization, calls and maturities of securities. A portion of these cash flows were reinvested into uncapped, floating-rate securities for interest rate risk management purposes while a lesser portion was reinvested into tax-favored municipal securities. The net decrease in the securities portfolio was also partially offset by a net increase in the fair value of the available for sale portfolio during the period.

  • The balance of cash and cash equivalents increased by $133.6 million to $170.6 million at March 31, 2017 from $37.0 million at December 31, 2016. The increase in cash and equivalents largely reflected a temporary increase in the balance of short-term liquid assets arising from additional borrowings drawn at the close of the period to fund future loan growth, as described in greater detail below.

    The Company continued its efforts to reallocate interest-earning cash and equivalents into comparatively higher-yielding assets in the loan portfolio throughout the quarter ended March 31, 2017. Despite the noted increase in the quarter-end balance of cash and equivalents, the average balance of other interest- earning assets decreased by $9.7 million to $61.3 million for the quarter ended March 31, 2017 from $71.1 million for the quarter ended December 31, 2016. Other interest-earning assets generally include the balance of interest-earning cash deposits held in other banks coupled with the balance of the Bank’s mandatory investment in the capital stock of the Federal Home Loan Bank of New York.

  • The Company’s total deposits increased by $107.2 million to $2.85 billion at March 31, 2017, from $2.75 billion at December 31, 2016. The growth in deposits during the third quarter included a $91.7 million increase in interest-bearing deposits coupled with an increase in non-interest-bearing deposits of $15.6 million. The increase in deposits largely reflected the combined effects of new product, pricing and marketing strategies enacted during the period.

  • Total borrowings increased by $123.4 million to $825.3 million at March 31, 2017, from $701.8 million at December 31, 2016. The increase in borrowings reflected an increase of $110.0 million in FHLB advances coupled with a $13.4 million increase in depositor sweep account balances. The increase in FHLB advances largely reflected an additional $200.0 million of advances drawn during the quarter ended March 31, 2017 to fund loan growth. The Company utilized interest-rate derivatives to extend the effective duration of these short-term advances to largely offset that of the loans funded for interest rate risk management purposes. A portion of these new advances was used to repay $90.0 million of overnight advances that were outstanding at the close of the prior quarter ended December 31, 2016. Such advances had been previously drawn to temporarily fund loan growth through that date.

  • The Company’s total assets increased by $210.9 million to $4.80 billion at March 31, 2017 from $4.59 billion at December 31, 2016.

  • The Company’s stockholders’ equity decreased by $20.6 million to $1.09 billion at March 31, 2017 from $1.11 billion at December 31, 2016. The decrease partly reflected the return of capital to shareholders through share repurchases and cash dividends during the quarter ended March 31, 2017. These decreases were partially offset by net income earned for the period coupled with a net increase in accumulated other comprehensive income reflecting increases in the fair value of the Company’s derivatives and available for sale securities portfolios.

    At March 31, 2017, the Company’s total consolidated equity to assets ratio was 22.81% while the Bank’s total consolidated equity to assets ratio was 17.36%. The Company’s and Bank’s capital ratios at March 31, 2017 were well in excess of the levels required by federal banking regulators to be classified “well-capitalized” under regulatory guidelines.

As highlighted below, the noted balance sheet growth, reinvestment and reallocation achievements helped to offset the adverse effects on net interest income that resulted from the downward pressure on net interest margin arising from low market interest rates and a generally flat yield curve:

  • The Company’s net interest income increased $591,000 to $26.2 million for the quarter ended March 31, 2017 from $25.6 million for the quarter ended December 31, 2016.

  • The Company’s net interest margin increased three basis points to 2.48% for the quarter ended March 31, 2017 from 2.45% for the quarter ended December 31, 2016 while the net interest rate spread also increased by three basis points to 2.21% from 2.18% for those same comparative periods, respectively.

The levels of the Company’s charge offs and provision for loan losses continued to reflect strong asset quality metrics:

  • The Company recognized net charge offs totaling approximately $254,000, reflecting an annualized charge off rate of 0.03% on the average balance of total loans for the quarter ended March 31, 2017. By comparison, the Company’s net charge offs totaled approximately $198,000 for the quarter ended December 31, 2016, reflecting an annualized charge off rate of 0.03%.

  • The Company’s provision for loan losses totaled $1.8 million for the quarter ended March 31, 2017 compared to $1.3 million for the quarter ended December 31, 2016. The increase in the provision partly reflected the comparatively greater level of growth during the quarter ended March 31, 2017 in the performing portion of the loan portfolio which is collectively evaluated for impairment using historical and environmental loss factors. The increase in the provision also reflected updates to historical loss factors during the quarter ended March 31, 2017 to reflect the increase in net charge off activity for the period while also reflecting less noteworthy updates to environmental loss factors during the period.

The strategies executed by the Company during the third quarter of fiscal 2017 also served to strengthen and diversify its sources of non-interest income, as highlighted below:

  • Gains on sale of residential mortgage loans totaled $166,000 for the quarter ended March 31, 2017 compared to $297,000 for the quarter ended December 31, 2016, which largely reflected a seasonal decrease in the volume of loans originated and sold between comparative periods. The Company expects to increase the volume of residential mortgage loans originated and sold during the fourth quarter ending June 30, 2017 compared to the quarter ended March 31, 2017. In addition to bolstering non-interest income, the Company’s mortgage banking strategy is expected to help manage its exposure to interest rate risk.

  • Gains on sale of SBA loans originated totaled $80,000 for the quarter ended March 31, 2017 compared to $162,000 for the quarter ended December 31, 2016, reflecting a decrease in the balance of SBA loans originated and sold between comparative periods. Based on the number and balance of originated loans in the underwriting process at March 31, 2017, the Company expects to increase the volume of SBA loans sold during the quarter ending June 30, 2017 compared to the quarter ended March 31, 2017.

The Company continues to evaluate and implement tactics and strategies designed to improve operating practices, policies and procedures while making more efficient and effective use of its supporting infrastructure, including human resources, facilities and information technology systems. These tactics have enabled the Company to defray a portion of the compensation costs associated with the Company’s 2016 Equity Incentive Plan, as discussed above:

  • The Company’s ratio of non-interest expense to average assets totaled 1.84% for the quarter ended March 31, 2017 compared to 1.71% for the prior quarter ended December 31, 2016. For those same comparative periods, the Company’s operating efficiency ratio increased to 73.9% from 66.7%, respectively. The Company estimates that the recurring expenses associated with its 2016 Equity Incentive Plan increased its ratio of non-interest expense to average assets by 0.14% for the quarter ended March 31, 2017 while adding 5.46% to its efficiency ratio for the same period.

  • The Company increased its number of full time equivalent (“FTE”) employees by 12 during the latest quarter to 446 at March 31, 2017 from 434 at December 31, 2016. The increase in FTE count predominantly reflected increases in lending-related positions supporting the Company’s growing mortgage banking business line as well as increases in commercial mortgage lending and commercial business lending resources.

Collectively, the factors noted above contributed to a decrease in recurring operating earnings for the quarter ended March 31, 2017 compared to the prior quarter ended December 31, 2016 as highlighted below:

  • The Company’s return on average assets for the quarter ended March 31, 2017 totaled 0.36% compared to 0.48% for the prior quarter ended December 31, 2016.

  • The Company’s return on average equity for the quarter ended March 31, 2017 totaled 1.47% compared to 1.96% for the prior quarter ended December 31, 2016.

The earnings for the quarter ended March 31, 2017 augmented the Company’s stockholders’ equity, which continues to reflect the capital resulting from the second-step conversion and stock offering that was completed in fiscal 2015. As such, the Company continued to execute two key capital management strategies during the third quarter of fiscal 2017 to further support shareholder value:

  • The Company increased its regular quarterly cash dividend payable to stockholders by $0.01 to $0.03 per share during the quarter ended March 31, 2017. The Company continues to evaluate its dividend policies and practices in relation to its capital management and shareholder value objectives.

  • The Company continued to repurchase shares of its capital stock under the share repurchase program announced in May 2016 through which it authorized a repurchase of 9,352,809 shares, or 10%, of the Company’s outstanding shares. For the quarter ended March 31, 2017, the Company repurchased a total of 1,982,883 of its shares at an average cost of $15.04 per share compared to 1,286,533 shares repurchased during the prior quarter ended December 31, 2016 at an average cost of $14.55 per share. Through March 31, 2017, the Company has repurchased 7,721,888 shares, or 82.6% of the number authorized under the current program, at a total cost of $106.6 million and at an average cost of $13.81 per share.

The exhibits that follow this narrative begin with the presentation of a tabular 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, 2017 compared to those for the prior quarter ended December 31, 2016. 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.

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 Kearny Financial Corp. 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 Sheet
(Dollars in Thousands,
Except Per Share Data, Unaudited)
AtVariance
or Change

Variance
or Change
Pct.
March 31,December 31,
2017 2016
Assets
Cash and cash equivalents $ 170,591 $ 37,032 $ 133,559 360.7
Securities available for sale 614,948 671,281 (56,333) (8.4)
Securities held to maturity 501,987 517,819 (15,832) (3.1)
Loans held-for-sale 744 6,686 (5,942) (88.9)
Loans receivable, including yield adjustments 3,122,628 2,973,931 148,697 5.0
Less allowance for loan losses (27,614) (26,060) (1,554) 6.0
Net loans receivable 3,095,014 2,947,871 147,143 5.0
Premises and equipment 38,904 38,341 563 1.5
Federal Home Loan Bank stock 39,474 34,525 4,949 14.3
Accrued interest receivable 12,320 11,809 511 4.3
Goodwill 108,591 108,591 - -
Bank owned life insurance 179,935 178,656 1,279 0.7
Deferred income taxes, net 14,318 16,098 (1,780) (11.1)
Other assets 19,416 16,599 2,817 17.0
Total assets $ 4,796,242 $ 4,585,308 $ 210,934 4.6
Liabilities
Deposits $ 2,853,263 $ 2,746,017 $ 107,246 3.9
Borrowings 825,260 701,849 123,411 17.6
Advance payments by borrowers for taxes 8,059 7,618 441 5.8
Other liabilities 15,650 15,172 478 3.2
Total liabilities 3,702,232 3,470,656 231,576 6.7
Stockholders' Equity
Common stock 873 892 (19) (2.1)
Paid-in capital 768,373 795,773 (27,400) (3.4)
Retained earnings 359,083 357,540 1,543 0.4
Unearned ESOP shares (35,022) (35,508) 486 (1.4)
Accumulated other comprehensive income (loss), net 703 (4,045) 4,748 (117.4)
Total stockholders' equity 1,094,010 1,114,652 (20,642) (1.9)
Total liabilities and stockholders' equity $ 4,796,242 $ 4,585,308 $ 210,934 4.6
Consolidated capital ratios
Equity to assets 22.81% 24.31% -1.50%
Tangible equity to tangible assets 21.02% 22.47% -1.45%
Share data
Outstanding shares (period end) 87,256 89,176 (1,920) (2.2)
Equity per share $ 12.54 $ 12.50 $ 0.04 0.3
Tangible equity per share (1) $ 11.29 $ 11.28 $ 0.01 0.1
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.
Summary Income Statement
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
For the three months endedVariance
or Change

Variance
or Change
Pct.
March 31,December 31,
2017 2016
Interest income
Loans $ 28,235 $ 27,407 $ 828 3.0
Mortgage-backed securities 3,222 3,779 (557) (14.7)
Debt securities: -
Taxable 2,488 2,146 342 15.9
Tax-exempt 582 562 20 3.6
Other interest-earning assets 481 421 60 14.3
Total Interest Income 35,008 34,315 693 2.0
Interest expense
Deposits 5,420 5,410 10 0.2
Borrowings 3,381 3,289 92 2.8
Total interest expense 8,801 8,699 102 1.2
Net interest income 26,207 25,616 591 2.3
Provision for loan losses 1,809 1,255 554 44.1
Net interest income after provision for
loan losses
24,398 24,361 37 0.2
Non-interest income
Fees and service charges 498 1,289 (791) (61.4)
(Loss) gain on sale and call of securities (22) 21 (43) (204.8)
Gain on sale of loans 245 459 (214) (46.6)
(Loss) gain on sale of real estate owned (106) 12 (118) (983.3)
Income from bank owned life insurance 1,279 1,321 (42) (3.2)
Electronic banking fees and charges 240 270 (30) (11.1)
Miscellaneous 119 74 45 60.8
Total non-interest income 2,253 3,446 (1,193) (34.6)
Non-interest expense
Salaries and employee benefits 12,430 11,592 838 7.2
Net occupancy expense of premises 2,088 1,976 112 5.7
Equipment and systems 2,068 2,030 38 1.9
Advertising and marketing 753 387 366 94.6
Federal deposit insurance premium 338 339 (1) (0.3)
Directors' compensation 689 379 310 81.8
Miscellaneous 2,668 2,670 (2) (0.1)
Total non-interest expense 21,034 19,373 1,661 8.6
Income before income taxes 5,617 8,434 (2,817) (33.4)
Income taxes 1,549 2,970 (1,421) (47.8)
Net income $ 4,068 $ 5,464 $ (1,396) (25.5)
Net income per common share (EPS)
Basic $ 0.05 $ 0.06 $ (0.01)
Diluted $ 0.05 $ 0.06 $ (0.01)
Dividends declared
Cash dividends declared per common share $ 0.03 $ 0.02 $ 0.01
Cash dividends declared $ 2,525 $ 1,687 $ 838
Dividend payout ratio 62.1% 30.9% 31.19%
Weighted average number of common
shares outstanding
Basic 84,542 85,174 (632)
Diluted 84,624 85,258 (634)
Average Balance Sheet Data
(Dollars in Thousands, Unaudited)
For the three months endedVariance
or Change

Variance
or Change
Pct.
March 31,December 31,
2017 2016
Assets
Interest-earning assets:
Loans receivable, including loans held for sale $ 3,029,151 $ 2,899,794 $ 129,357 4.5
Mortgage-backed securities 582,591 673,569 (90,978) (13.5)
Debt securities: -
Tax-exempt 116,479 112,221 4,258 3.8
Taxable 441,124 419,966 21,158 5.0
Total debt securities 557,603 532,187 25,416 4.8
Other interest-earning assets 61,336 71,072 (9,736) (13.7)
Total interest-earning assets 4,230,681 4,176,622 54,059 1.3
Non-interest-earning assets 352,419 351,458 961 0.3
Total assets $ 4,583,100 $ 4,528,080 $ 55,020 1.2
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 756,520 $ 761,765 $ (5,245) (0.7)
Savings and club 520,572 518,225 2,347 0.5
Certificates of deposit 1,242,757 1,224,592 18,165 1.5
Total interest-bearing deposits 2,519,849 2,504,582 15,267 0.6
Borrowings:
Federal Home Loan Bank Advances 643,504 594,238 49,266 8.3
Other borrowings 44,940 35,273 9,667 27.4
Total borrowings 688,444 629,511 58,933 9.4
Total interest-bearing liabilities 3,208,293 3,134,093 74,200 2.4
Non-interest-bearing liabilities:
Non-interest-bearing deposits 246,449 245,928 521 0.2
Other non-interest-bearing liabilities 25,028 31,781 (6,753) (21.2)
Total non-interest-bearing liabilities 271,477 277,709 (6,232) (2.2)
Total liabilities 3,479,770 3,411,802 67,968 2.0
Stockholders' equity 1,103,330 1,116,278 (12,948) (1.2)
Total liabilities and stockholders' equity $ 4,583,100 $ 4,528,080 $ 55,020 1.2
Average interest-earning assets to average
interest-bearing liabilities
131.87% 133.26% -1.39% -1.0
Performance Ratio Highlights

For the three months endedVariance
or Change

Variance
or Change
Pct.
March 31,December 31,
2017 2016
Average yield on interest-earning assets:
Loans receivable, including loans held for sale 3.73% 3.78% -0.05%
Mortgage-backed securities 2.21% 2.24% -0.03%
Debt securities:
Tax-exempt 2.00% 2.00% 0.00%
Taxable 2.26% 2.04% 0.22%
Total debt securities 2.20% 2.04% 0.16%
Other interest-earning assets 3.13% 2.37% 0.76%
Total interest-earning assets 3.31% 3.29% 0.02%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand 0.65% 0.62% 0.03%
Savings and club 0.12% 0.12% 0.00%
Certificates of deposit 1.30% 1.33% -0.03%
Total interest-bearing deposits 0.86% 0.86% 0.00%
Borrowings:
Federal Home Loan Bank Advances 2.08% 2.20% -0.12%
Other borrowings 0.35% 0.29% 0.06%
Total borrowings 1.96% 2.09% -0.13%
Total interest-bearing liabilities 1.10% 1.11% -0.01%
Interest rate spread (1) 2.21% 2.18% 0.03%
Net interest margin (2) 2.48% 2.45% 0.03%
Non-interest income to average assets
(annualized)
0.20% 0.30% -0.10%
Non-interest expense to average assets
(annualized)
1.84% 1.71% 0.13%
Efficiency ratio (3) 73.91% 66.66% 7.25%
Return on average assets (annualized) 0.36% 0.48% -0.12%
Return on average equity (annualized) 1.47% 1.96% -0.49%
(1) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
(3) Non-interest expense divided by the sum of net interest income and non-interest income.
Five-Quarter Financial Trend Analysis
Summary Balance Sheet
(Dollars in Thousands,
Except Per Share Data, Unaudited)
At
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Assets
Cash and cash equivalents $ 170,591 $ 37,032 $ 72,593 $ 199,200 $ 114,956
Securities available for sale 614,948 671,281 689,151 673,537 685,787
Securities held to maturity 501,987 517,819 538,319 577,286 592,430
Loans held-for-sale 744 6,686 4,489 3,316 -
Loans receivable, including yield adjustments 3,122,628 2,973,931 2,845,605 2,673,987 2,720,069
Less allowance for loan losses (27,614) (26,060) (25,003) (24,229) (23,010)
Net loans receivable 3,095,014 2,947,871 2,820,602 2,649,758 2,697,059
Premises and equipment 38,904 38,341 38,125 38,385 38,598
Federal Home Loan Bank stock 39,474 34,525 31,601 30,612 29,670
Accrued interest receivable 12,320 11,809 11,666 11,212 11,626
Goodwill 108,591 108,591 108,591 108,591 108,591
Bank owned life insurance 179,935 178,656 177,334 176,016 174,642
Deferred income taxes, net 14,318 16,098 22,914 25,973 27,340
Other assets 19,416 16,599 7,896 6,173 5,310
Total assets $ 4,796,242 $ 4,585,308 $ 4,523,281 $ 4,500,059 $ 4,486,009
Liabilities
Deposits $ 2,853,263 $ 2,746,017 $ 2,733,960 $ 2,694,833 $ 2,660,773
Borrowings 825,260 701,849 633,389 614,423 618,320
Advance payments by borrowers for taxes 8,059 7,618 7,597 7,906 8,141
Other liabilities 15,650 15,172 28,801 35,268 34,029
Total liabilities 3,702,232 3,470,656 3,403,747 3,352,430 3,321,263
Stockholders' Equity
Common stock 873 892 891 918 935
Paid-in capital 768,373 795,773 813,648 849,173 871,156
Retained earnings 359,083 357,540 353,763 350,806 347,717
Unearned ESOP shares (35,022) (35,508) (35,995) (36,481) (36,968)
Accumulated other comprehensive income (loss), net 703 (4,045) (12,773) (16,787) (18,094)
Total stockholders' equity 1,094,010 1,114,652 1,119,534 1,147,629 1,164,746
Total liabilities and stockholders' equity $ 4,796,242 $ 4,585,308 $ 4,523,281 $ 4,500,059 $ 4,486,009
Consolidated capital ratios
Equity to assets 22.81% 24.31% 24.75% 25.50% 25.96%
Tangible equity to tangible assets 21.02% 22.47% 22.89% 23.65% 24.12%
Share data
Outstanding shares (period end) 87,256 89,176 89,076 91,822 93,528
Equity per share $ 12.54 $ 12.50 $ 12.57 $ 12.50 $ 12.45
Tangible equity per share (1) $ 11.29 $ 11.28 $ 11.34 $ 11.31 $ 11.29
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Cash and cash equivalents
Cash and due from depository institutions $ 17,429 $ 17,541 $ 18,829 $ 21,328 $ 20,372
Interest-bearing deposits in other banks 153,162 19,491 53,764 177,872 94,584
Total cash and cash equivalents $ 170,591 $ 37,032 $ 72,593 $ 199,200 $ 114,956
Securities available for sale
Debt securities:
U.S. agency securities $ 5,622 $ 5,809 $ 6,172 $ 6,440 $ 6,724
Municipal and state obligations 27,259 27,090 28,259 28,398 28,066
Asset-backed securities 150,805 121,445 84,065 82,625 84,396
Collateralized loan obligations 104,811 98,447 128,047 127,374 124,941
Corporate bonds 141,134 138,564 137,976 137,404 136,678
Trust preferred securities 8,248 8,101 7,968 7,669 7,263
Debt securities available for sale 437,879 399,456 392,487 389,910 388,068
Mortgage-backed securities:
Collateralized mortgage obligations 31,941 52,333 57,170 60,577 63,744
Residential pass-through securities 136,926 211,258 231,052 214,526 225,469
Commercial pass-through securities 8,202 8,234 8,442 8,524 8,506
Mortgage-backed securities 177,069 271,825 296,664 283,627 297,719
Total securities available for sale $ 614,948 $ 671,281 $ 689,151 $ 673,537 $ 685,787
Securities held to maturity
Debt securities:
U.S. agency securities $ 35,000 $ 34,999 $ 59,995 $ 84,992 $ 84,990
Municipal and state obligations 91,038 87,682 82,087 82,179 82,154
Subordinated debt 15,000 15,000 - - -
Debt securities held to maturity 141,038 137,681 142,082 167,171 167,144
Mortgage-backed securities:
Collateralized mortgage obligations 19,193 20,543 21,699 23,081 24,561
Residential pass-through securities 186,248 200,402 211,930 223,632 234,595
Commercial pass-through securities 155,508 159,193 162,608 163,402 166,130
Mortgage-backed securities 360,949 380,138 396,237 410,115 425,286
Total securities held to maturity $ 501,987 $ 517,819 $ 538,319 $ 577,286 $ 592,430
Total securities $ 1,116,935 $ 1,189,100 $ 1,227,470 $ 1,250,823 $ 1,278,217
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Loan portfolio composition:
Residential first mortgage loans $ 566,665 $ 562,466 $ 584,156 $ 605,203 $ 620,867
Home equity loans and lines of credit 82,412 83,305 85,799 89,566 90,610
Residential mortgage loans 649,077 645,771 669,955 694,769 711,477
Multifamily mortgage loans 1,371,339 1,295,207 1,142,908 1,040,293 1,044,180
Nonresidential and mixed use mortgage loans 995,782 932,616 916,769 820,673 837,758
Commercial mortgage loans 2,367,121 2,227,823 2,059,677 1,860,966 1,881,938
Commercial business loans 83,754 75,640 87,333 88,207 95,131
Construction loans 1,494 927 2,059 2,038 3,734
Account loans 2,860 2,980 3,012 3,349 3,313
Other consumer loans 15,313 17,501 19,870 22,052 21,642
Consumer loans 18,173 20,481 22,882 25,401 24,955
Total loans, excluding yield adjs 3,119,619 2,970,642 2,841,906 2,671,381 2,717,235
Unamortized yield adjustments 3,009 3,289 3,699 2,606 2,834
Loans receivable, including yield adjs 3,122,628 2,973,931 2,845,605 2,673,987 2,720,069
Less allowance for loan losses (27,614) (26,060) (25,003) (24,229) (23,010)
Net loans receivable $ 3,095,014 $ 2,947,871 $ 2,820,602 $ 2,649,758 $ 2,697,059
Loan portfolio allocation:
Residential first mortgage loans 18.2% 18.9% 20.6% 22.7% 22.8%
Home equity loans and lines of credit 2.6% 2.8% 3.0% 3.4% 3.3%
Residential mortgage loans 20.8% 21.7% 23.6% 26.0% 26.2%
Multifamily mortgage loans 44.0% 43.6% 40.2% 38.9% 38.4%
Nonresidential and mixed use mortgage loans 31.9% 31.4% 32.3% 30.7% 30.8%
Commercial mortgage loans 75.9% 75.0% 72.5% 69.7% 69.3%
Commercial business loans 2.7% 2.5% 3.1% 3.3% 3.5%
Construction loans 0.0% 0.0% 0.1% 0.1% 0.1%
Account loans 0.1% 0.1% 0.1% 0.1% 0.1%
Other consumer loans 0.5% 0.6% 0.7% 0.8% 0.8%
Consumer loans 0.6% 0.7% 0.8% 1.0% 0.9%
Total loans, excluding yield adjs 100.0% 100.0% 100.0% 100.0% 100.0%
Asset quality:
Nonperforming assets:
Accruing loans > 90 days past due $ 65 $ 92 $ 77 $ 38 $ -
Nonaccrual loans 20,950 21,473 21,768 21,017 28,275
Total Nonperforming loans 21,015 21,565 21,845 21,055 28,275
Other real estate owned 1,668 2,037 1,356 826 1,475
Total Nonperforming assets $ 22,683 $ 23,602 $ 23,201 $ 21,881 $ 29,750
Nonperforming loans (% total loans) 0.67% 0.72% 0.77% 0.79% 1.04%
Nonperforming assets (% total assets) 0.47% 0.51% 0.51% 0.49% 0.66%
Allowance for loan losses (ALLL):
ALLL to total loans 0.88% 0.88% 0.88% 0.91% 0.85%
ALLL to nonperforming loans 131.40% 120.84% 114.46% 115.07% 81.38%
Net charge offs $ 254 $ 198 $ 354 $ 827 $ 93
Average net charge off rate (annualized) 0.03% 0.03% 0.05% 0.12% 0.01%
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Funding by type:
Deposits
Non-interest-bearing deposits $ 255,939 $ 240,367 $ 251,141 $ 238,751 $ 226,700
Interest-bearing demand 798,203 768,556 750,126 732,633 717,603
Savings and club 524,002 519,257 514,909 516,023 520,826
Certificates of deposit 1,275,119 1,217,837 1,217,784 1,207,426 1,195,644
Interest-bearing deposits 2,597,324 2,505,650 2,482,819 2,456,082 2,434,073
Total deposits 2,853,263 2,746,017 2,733,960 2,694,833 2,660,773
Borrowings:
Federal Home Loan Bank advances 775,719 665,742 600,765 578,788 585,317
Depositor sweep accounts 49,541 36,107 32,624 35,635 33,003
Total borrowings 825,260 701,849 633,389 614,423 618,320
Total funding $ 3,678,523 $ 3,447,866 $ 3,367,349 $ 3,309,256 $ 3,279,093
Loans as a % of deposits 108.5% 107.6% 103.3% 98.5% 101.4%
Deposits as a % of total funding 77.6% 79.6% 81.2% 81.4% 81.1%
Borrowings as a % of total funding 22.4% 20.4% 18.8% 18.6% 18.9%
Funding by source:
Retail funding
Non-interest-bearing deposits $ 255,939 $ 240,367 $ 251,141 $ 238,751 $ 226,700
Interest-bearing demand 568,865 544,487 527,511 508,528 493,831
Savings and club 524,002 519,257 514,909 516,023 520,826
Certificates of deposit 1,152,025 1,113,073 1,119,922 1,109,203 1,097,414
Total retail deposits 2,500,831 2,417,184 2,413,483 2,372,505 2,338,771
Depositor sweep accounts 49,541 36,107 32,624 35,635 33,003
Total retail funding 2,550,372 2,453,291 2,446,107 2,408,140 2,371,774
Wholesale funding:
Interest-bearing demand $ 229,338 $ 224,069 $ 222,615 $ 224,105 $ 223,772
Certificates of deposit (listing service) 101,432 96,516 89,608 89,857 89,857
Certificates of deposit (brokered) 21,662 8,248 8,254 8,366 8,373
Total wholesale deposits 352,432 328,833 320,477 322,328 322,002
FHLB Advances 775,719 665,742 600,765 578,788 585,317
Total wholesale funding 1,128,151 994,575 921,242 901,116 907,319
Total funding $ 3,678,523 $ 3,447,866 $ 3,367,349 $ 3,309,256 $ 3,279,093
Retail funding as a % of total funding 69.3% 71.2% 72.6% 72.8% 72.3%
Wholesale funding as a % of total funding 30.7% 28.8% 27.4% 27.2% 27.7%
Summary Income Statement
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
For the three months ended
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Interest income
Loans $ 28,235 $ 27,407 $ 25,697 $ 25,698 $ 25,585
Mortgage-backed securities 3,222 3,779 3,937 4,032 4,296
Debt securities:
Taxable 2,488 2,146 2,040 1,990 1,988
Tax-exempt 582 562 551 551 551
Other interest-earning assets 481 421 581 496 462
Total Interest Income 35,008 34,315 32,806 32,767 32,882
Interest expense
Deposits 5,420 5,410 5,361 5,140 4,932
Borrowings 3,381 3,289 3,424 3,400 3,486
Total interest expense 8,801 8,699 8,785 8,540 8,418
Net interest income 26,207 25,616 24,021 24,227 24,464
Provision for loan losses 1,809 1,255 1,129 2,046 2,589
Net interest income after provision for
loan losses
24,398 24,361 22,892 22,181 21,875
Non-interest income
Fees and service charges 498 1,289 663 1,340 794
(Loss) gain on sale and call of securities (22) 21 - - -
Gain on sale of loans 245 459 300 132 156
(Loss) gain on sale of real estate owned (106) 12 (15) 24 (48)
Income from bank owned life insurance 1,279 1,321 1,319 1,374 1,390
Electronic banking fees and charges 240 270 283 284 244
Miscellaneous 119 74 79 57 77
Total non-interest income 2,253 3,446 2,629 3,211 2,613
Non-interest expense
Salaries and employee benefits 12,430 11,592 10,909 10,640 10,459
Net occupancy expense of premises 2,088 1,976 1,941 1,813 1,991
Equipment and systems 2,068 2,030 2,048 2,092 2,045
Advertising and marketing 753 387 549 490 539
Federal deposit insurance premium 338 339 305 687 684
Directors' compensation 689 379 225 224 225
Miscellaneous 2,668 2,670 2,683 1,732 2,710
Total non-interest expense 21,034 19,373 18,660 17,678 18,653
Income before income taxes 5,617 8,434 6,861 7,714 5,835
Income taxes 1,549 2,970 2,194 2,833 1,667
Net income $ 4,068 $ 5,464 $ 4,667 $ 4,881 $ 4,168
Net income per common share (EPS)
Basic $ 0.05 $ 0.06 $ 0.05 $ 0.05 $ 0.05
Diluted $ 0.05 $ 0.06 $ 0.05 $ 0.05 $ 0.05
Dividends declared
Cash dividends declared per common share $ 0.03 $ 0.02 $ 0.02 $ 0.02 $ 0.02
Cash dividends declared $ 2,525 $ 1,687 $ 1,710 $ 1,792 $ 1,793
Dividend payout ratio 62.1% 30.9% 36.6% 36.7% 43.0%
Weighted average number of common
shares outstanding
Basic 84,542 85,174 86,246 89,443 89,690
Diluted 84,624 85,258 86,304 89,481 89,724
Average Balance Sheet Data
(Dollars in Thousands, Unaudited)
For the three months ended
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Assets
Interest-earning assets:
Loans receivable, including loans held for sale $ 3,029,151 $ 2,899,794 $ 2,697,096 $ 2,682,755 $ 2,564,753
Mortgage-backed securities 582,591 673,569 695,876 705,962 730,810
Debt securities:
Tax-exempt 116,479 112,221 109,625 109,691 109,798
Taxable 441,124 419,966 442,233 459,731 474,547
Total debt securities 557,603 532,187 551,858 569,422 584,345
Other interest-earning assets 61,336 71,072 204,621 191,129 135,872
Total interest-earning assets 4,230,681 4,176,622 4,149,451 4,149,268 4,015,780
Non-interest-earning assets 352,419 351,458 359,514 352,841 356,578
Total assets $ 4,583,100 $ 4,528,080 $ 4,508,965 $ 4,502,109 $ 4,372,358
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 756,520 $ 761,765 $ 748,516 $ 726,327 $ 725,070
Savings and club 520,572 518,225 515,615 519,055 515,762
Certificates of deposit 1,242,757 1,224,592 1,215,081 1,200,874 1,177,147
Total interest-bearing deposits 2,519,849 2,504,582 2,479,212 2,446,256 2,417,979
Borrowings:
Federal Home Loan Bank Advances 643,504 594,238 577,305 585,085 585,329
Other borrowings 44,940 35,273 33,530 32,183 32,598
Total borrowings 688,444 629,511 610,835 617,268 617,927
Total interest-bearing liabilities 3,208,293 3,134,093 3,090,047 3,063,524 3,035,906
Non-interest-bearing liabilities:
Non-interest-bearing deposits 246,449 245,928 243,964 232,698 217,841
Other non-interest-bearing liabilities 25,028 31,781 47,092 41,577 41,480
Total non-interest-bearing liabilities 271,477 277,709 291,056 274,275 259,321
Total liabilities 3,479,770 3,411,802 3,381,103 3,337,799 3,295,227
Stockholders' equity 1,103,330 1,116,278 1,127,862 1,164,310 1,167,131
Total liabilities and stockholders' equity $ 4,583,100 $ 4,528,080 $ 4,508,965 $ 4,502,109 $ 4,462,358
Average interest-earning assets to average
interest-bearing liabilities
131.87% 133.26% 134.28% 135.44% 135.24%
Performance Ratio Highlights

For the three months ended
March 31,December 31,September 30,June 30,March 31,
2017 2016 2016 2016 2016
Average yield on interest-earning assets:
Loans receivable, including loans held for sale 3.73% 3.78% 3.81% 3.83% 3.85%
Mortgage-backed securities 2.21% 2.24% 2.26% 2.28% 2.35%
Debt securities:
Tax-exempt 2.00% 2.00% 2.01% 2.01% 2.01%
Taxable 2.26% 2.04% 1.85% 1.73% 1.68%
Total debt securities 2.20% 2.04% 1.88% 1.79% 1.74%
Other interest-earning assets 3.13% 2.37% 1.14% 1.04% 1.36%
Total interest-earning assets 3.31% 3.29% 3.16% 3.16% 3.20%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand 0.65% 0.62% 0.63% 0.62% 0.60%
Savings and club 0.12% 0.12% 0.15% 0.16% 0.16%
Certificates of deposit 1.30% 1.33% 1.31% 1.27% 1.23%
Total interest-bearing deposits 0.86% 0.86% 0.87% 0.84% 0.82%
Borrowings:
Federal Home Loan Bank Advances 2.08% 2.20% 2.35% 2.30% 2.35%
Other borrowings 0.35% 0.29% 0.42% 0.50% 0.51%
Total borrowings 1.96% 2.09% 2.24% 2.20% 2.26%
Total interest-bearing liabilities 1.10% 1.11% 1.14% 1.12% 1.11%
Interest rate spread (1) 2.21% 2.18% 2.02% 2.04% 2.09%
Net interest margin (2) 2.48% 2.45% 2.32% 2.34% 2.38%
Non-interest income to average assets
(annualized)
0.20% 0.30% 0.23% 0.29% 0.23%
Non-interest expense to average assets
(annualized)
1.84% 1.71% 1.66% 1.57% 1.67%
Efficiency ratio (3) 73.91% 66.66% 70.02% 64.43% 68.89%
Return on average assets (annualized) 0.36% 0.48% 0.41% 0.43% 0.37%
Return on average equity (annualized) 1.47% 1.96% 1.66% 1.68% 1.43%
(1) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
(3) Non-interest expense divided by the sum of net interest income and non-interest income.

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

Source:Kearny Bank