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Kearny Financial Corp. Reports First Quarter 2018 Operating Results

FAIRFIELD, N.J., Oct. 30, 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 September 30, 2017 of $5.2 million, or $0.07 per basic and diluted share. The results represent an increase in net income of $828,000 compared to net income of $4.4 million, or $0.05 per basic and diluted share, for the quarter ended June 30, 2017.

Overview

The Company continued to execute strategies during the first quarter of fiscal 2018 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 $15.1 million to $3.26 billion, or 67.8% of total assets, at September 30, 2017 from $3.25 billion, or 67.4% of total assets, at June 30, 2017. The growth in the loan portfolio largely reflected the Company’s continued strategic focus on commercial mortgage loans, which increased by $16.2 million to $2.51 billion at September 30, 2017 from $2.50 billion at June 30, 2017.

    For those same comparative periods, the balance of commercial business loans increased by $7.2 million to $81.7 million from $74.5 million while the outstanding balance of the funded portion of construction loans increased by $4.5 million to $8.3 million from $3.8 million. In both cases, the noted growth reflects the Company’s strategic efforts to further grow and diversify its loan portfolio into these additional categories of loans.

  • Nonperforming loans decreased by $761,000 to $18.1 million, or 0.56% of total loans, at September 30, 2017 from $18.9 million, or 0.58% of total loans, at June 30, 2017.

  • The allowance for loan losses increased to $29.4 million at September 30, 2017 from $29.3 million at June 30, 2017, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of total loans, of 0.90% at the close of each period.

  • The “nonperforming loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of nonperforming loans, increased to 162.6% at September 30, 2017 from 155.2% at June 30, 2017.

  • The Company’s securities portfolio increased by $12.4 million to $1.11 billion, or 23.3% of total assets, at September 30, 2017 from $1.11 billion, or 23.0% of total assets, at June 30, 2017. The net increase in the securities portfolio partly reflected the purchase of uncapped, floating-rate securities and tax-advantaged municipal securities while also reflecting a net increase in the fair value of the available for sale portfolio during the period. The noted increases were partially offset by normal principal repayments arising from amortization, calls and maturities of securities.

  • The balance of cash and cash equivalents decreased by $39.4 million to $38.8 million at September 30, 2017 from $78.2 million at June 30, 2017. The decrease in cash and equivalents largely reflected the continuing effort to reallocate interest-earning cash and equivalents into comparatively higher-yielding assets during the period. Such reallocation contributed to a $38.4 million decrease in the average balance of other interest-earning assets to $79.9 million for the quarter ended September 30, 2017 from $118.3 million for the quarter ended June 30, 2017. 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 $23.1 million to $2.95 billion at September 30, 2017, from $2.93 billion at June 30, 2017. The growth in deposits during the first quarter included an $11.9 million increase in non-interest-bearing deposits coupled with an $11.3 million increase in interest-bearing deposits. The growth in deposits largely reflected the continuing effects of product, pricing and marketing strategies enacted during fiscal 2017.

  • Total borrowings increased by $2.3 million to $808.6 million at September 30, 2017, from $806.2 million at June 30, 2017. The increase in borrowings largely reflected a $2.3 million increase in depositor sweep account balances representing normal day-to-day fluctuations in such balances.

  • The Company’s stockholders’ equity decreased by $42.9 million to $1.01 billion at September 30, 2017 from $1.06 billion at June 30, 2017. The decrease largely reflected the return of capital to stockholders through share repurchases and cash dividends during the period. The decrease in stockholders’ equity was partially offset by net income earned during 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 September 30, 2017, the Company’s total consolidated equity to assets ratio was 21.09% while the Bank’s total consolidated equity to assets ratio was 17.66%. The Company’s and Bank’s capital ratios at September 30, 2017 were well in excess of the levels required by federal banking regulators to be classified as “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 flattening yield curve:

  • The Company’s net interest income increased $80,000 to $26.8 million for the quarter ended September 30, 2017 from $26.7 million for the quarter ended June 30, 2017.

  • The Company’s net interest margin and net interest rate spread remained stable at 2.40% and 2.13%, respectively, for the quarters ended September 30, 2017 and June 30, 2017.

The level 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 $471,000, reflecting an annualized charge off rate of 0.06% on the average balance of total loans for the quarter ended September 30, 2017. By comparison, for the quarter ended June 30, 2017, the Company recognized recoveries of charge offs from prior periods that exceeded the level of charge offs recognized during that period. The net recoveries of $483,000 recognized during the quarter ended June 30, 2017 reflected an annualized charge off (recovery) rate of (0.06)% on the average balance of total loans for the quarter ended June 30, 2017.

  • The Company’s provision for loan losses decreased by $558,000 to $630,000 for the quarter ended September 30, 2017 compared to $1.2 million for the quarter ended June 30, 2017. The decrease in the provision was largely attributable to the comparatively lower level of growth during the quarter ended September 30, 2017 in the performing portion of the loan portfolio that is collectively evaluated for impairment using historical and environmental loss factors. The effects of the lower level of growth in the portfolio was partially offset by the increase in net charge offs between the two comparative periods, as discussed above. The decrease in the provision also reflected less noteworthy updates to historical and environmental loss factors during the period.

The strategies executed by the Company during the quarter ended September 30, 2017 also served to strengthen and diversify its sources of non-interest income, as highlighted below:

  • Gains on sale of residential mortgage loans totaled $213,000 for the quarter ended September 30, 2017 compared to $139,000 for the quarter ended June 30, 2017. The increase in sale gains reflected an increase in the volume of loans originated and sold partially offset by a modest decrease in the average net gain recognized per loan sold between comparative periods. In addition to bolstering non-interest income, the Company’s mortgage banking activities are expected to continue serving as a strategy to manage exposure to interest rate risk.

  • Gains on sale of SBA loans originated totaled $118,000 for the quarter ended September 30, 2017 compared to $392,000 for the quarter ended June 30, 2017. The decrease in sale gains reflected a decrease in the balance of SBA loans originated and sold partially offset by a modest increase in the average net gain recognized per loan sold between comparative periods.

In addition to the items noted above, fees and service charges increased by $422,000 to $1.3 million for the quarter ended September 30, 2017 from $839,000 for the quarter ended June 30, 2017. The increase was largely attributable to an increase in commercial mortgage loan prepayment charges recognized between comparative periods.

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.

  • The Company’s ratio of non-interest expense to average assets totaled 1.77% for the quarter ended September 30, 2017 compared to 1.83% for the prior quarter ended June 30, 2017. For those same comparative periods, the Company’s operating efficiency ratio decreased to 71.2% from 74.1%, respectively.

Collectively, the factors noted above contributed to the increase in net income for the quarter ended September 30, 2017 compared to the prior quarter ended June 30, 2017. These increases in operating earnings had a favorable impact on the Company’s earnings-based performance ratios as highlighted below:

  • The Company’s return on average assets for the quarter ended September 30, 2017 totaled 0.43% compared to 0.37% for the prior quarter ended June 30, 2017.

  • The Company’s return on average equity for the quarter ended September 30, 2017 totaled 2.01% compared to 1.64% for the prior quarter ended June 30, 2017.

The Company continued to execute key capital management strategies during the first quarter of fiscal 2018 to further support shareholder value:

  • The Company maintained its regular quarterly cash dividend payable to stockholders of $0.03 per share declared and paid during the quarters ended September 30, 2017 and June 30, 2017. Additionally, the Company declared a special cash dividend of $0.12 during the quarter ended September 30, 2017. When combined with the regular cash dividends of $0.10 declared and paid during the prior fiscal year, the special dividend of $0.12 effectively increased the Company’s dividend payout ratio to approximately 100% based on its basic and diluted earnings per share of $0.22 reported for the fiscal year ended June 30, 2017. The Company continuously evaluates its dividend policies and practices in relation to its capital management and shareholder value objectives.

  • In May 2017, the Company announced its second share repurchase program through which it authorized the repurchase of 8,559,084 shares, or 10%, of the Company’s outstanding shares. During the quarter ended September 30, 2017, the Company repurchased a total of 2,803,000 of its shares at an average cost of $14.44 per share. Through September 30, 2017, the Company repurchased a total of 4,043,000 shares, or 47.2% of the number of shares authorized under the current program, at a total cost of $58.2 million and at an average cost of $14.40 per share.

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 September 30, 2017 compared to those for the prior quarter ended June 30, 2017. 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 and Shares in Thousands,
Except Per Share Data, Unaudited)
AtVariance
or Change
Variance
or Change
Pct.
September 30,June 30,
2017 2017
Assets
Cash and cash equivalents$ 38,823 $ 78,237 $ (39,414) (50.4)
Securities available for sale 636,600 613,760 22,840 3.7
Securities held to maturity 482,926 493,321 (10,395) (2.1)
Loans held-for-sale 3,808 4,692 (884) (18.8)
Loans receivable, including yield adjustments 3,260,328 3,245,261 15,067 0.5
Less allowance for loan losses (29,445) (29,286) (159) 0.5
Net loans receivable 3,230,883 3,215,975 14,908 0.5
Premises and equipment 40,132 39,585 547 1.4
Federal Home Loan Bank stock 39,115 39,958 (843) (2.1)
Accrued interest receivable 13,268 12,493 775 6.2
Goodwill 108,591 108,591 - -
Bank owned life insurance 182,489 181,223 1,266 0.7
Deferred income taxes, net 13,230 15,454 (2,224) (14.4)
Other assets 18,285 14,838 3,447 23.2
Total assets $ 4,808,150 $ 4,818,127 $ (9,977) (0.2)
Liabilities
Deposits$ 2,953,268 $ 2,930,127 $ 23,141 0.8
Borrowings 808,554 806,228 2,326 0.3
Advance payments by borrowers for taxes 9,787 8,711 1,076 12.4
Other liabilities 22,308 15,880 6,428 40.5
Total liabilities 3,793,917 3,760,946 32,971 0.9
Stockholders' Equity
Common stock 815 844 (29) (3.4)
Paid-in capital 690,204 728,790 (38,586) (5.3)
Retained earnings 354,123 361,039 (6,916) (1.9)
Unearned ESOP shares (34,049) (34,536) 487 (1.4)
Accumulated other comprehensive income, net 3,140 1,044 2,096 200.8
Total stockholders' equity 1,014,233 1,057,181 (42,948) (4.1)
Total liabilities and stockholders' equity$ 4,808,150 $ 4,818,127 $ (9,977) (0.2)
Consolidated capital ratios
Equity to assets 21.09% 21.94% -0.85%
Tangible equity to tangible assets 19.27% 20.14% -0.87%
Share data
Outstanding shares (period end) 81,548 84,351 (2,803) (3.3)
Equity per share$ 12.44 $ 12.53 $ (0.09) (0.7)
Tangible equity per share (1)$ 11.10 $ 11.24 $ (0.14) (1.2)
(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.
September 30,June 30,
2017 2017
Interest income
Loans$ 30,473 $ 29,842 $ 631 2.1
Mortgage-backed securities 2,896 3,063 (167) (5.5)
Debt securities:
Taxable 2,960 2,868 92 3.2
Tax-exempt 621 605 16 2.6
Other interest-earning assets 642 586 56 9.6
Total Interest Income 37,592 36,964 628 1.7
Interest expense
Deposits 6,219 5,909 310 5.2
Borrowings 4,563 4,325 238 5.5
Total interest expense 10,782 10,234 548 5.4
Net interest income 26,810 26,730 80 0.3
Provision for loan losses 630 1,188 (558) (47.0)
Net interest income after provision for
loan losses
26,180 25,542 638 2.5
Non-interest income
Fees and service charges 1,261 839 422 50.3
Gain on sale of loans 331 531 (200) (37.7)
(Loss) gain on sale of real estate owned (109) 3 (112) (3,733.3)
Income from bank owned life insurance 1,267 1,288 (21) (1.6)
Electronic banking fees and charges 278 287 (9) (3.1)
Miscellaneous 66 72 (6) (8.3)
Total non-interest income 3,094 3,020 74 2.5
Non-interest expense
Salaries and employee benefits 12,867 12,887 (20) (0.2)
Net occupancy expense of premises 1,981 2,013 (32) (1.6)
Equipment and systems 2,190 2,204 (14) (0.6)
Advertising and marketing 710 937 (227) (24.2)
Federal deposit insurance premium 360 352 8 2.3
Directors' compensation 689 689 - -
Miscellaneous 2,489 2,969 (480) (16.2)
Total non-interest expense 21,286 22,051 (765) (3.5)
Income before income taxes 7,988 6,511 1,477 22.7
Income taxes 2,756 2,107 649 30.8
Net income$ 5,232 $ 4,404 $ 828 18.8
Net income per common share (EPS)
Basic$ 0.07 $ 0.05 $ 0.02
Diluted$ 0.07 $ 0.05 $ 0.02
Dividends declared (1)
Cash dividends declared per common share$ 0.15 $ 0.03 $ 0.12
Cash dividends declared$ 12,148 $ 2,448 $ 9,700
Dividend payout ratio 232.2% 55.6% 176.60%
Weighted average number of common
shares outstanding
Basic 79,649 82,372 (2,723)
Diluted 79,708 82,429 (2,721)
(1) Dividends declared during the quarter ended September 30, 2017 include a $0.12 special dividend representing a supplemental
distribution of net income to stockholders from the prior fiscal year ended June 30, 2017.
Average Balance Sheet Data
(Dollars in Thousands, Unaudited)
For the three months endedVariance
or Change
Variance
or Change
Pct.
September 30,June 30,
2017 2017
Assets
Interest-earning assets:
Loans receivable, including loans held for sale$ 3,257,465 $ 3,200,968 $ 56,497 1.8
Mortgage-backed securities 511,931 532,621 (20,690) (3.9)
Debt securities: -
Tax-exempt 122,685 119,957 2,728 2.3
Taxable 489,252 476,499 12,753 2.7
Total debt securities 611,937 596,456 15,481 2.6
Other interest-earning assets 79,920 118,349 (38,429) (32.5)
Total interest-earning assets 4,461,253 4,448,394 12,859 0.3
Non-interest-earning assets 361,259 358,791 2,468 0.7
Total assets $ 4,822,512 $ 4,807,185 $ 15,327 0.3
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$ 858,291 $ 813,148 $ 45,143 5.6
Savings and club 522,715 523,798 (1,083) (0.2)
Certificates of deposit 1,285,882 1,289,504 (3,622) (0.3)
Total interest-bearing deposits 2,666,888 2,626,450 40,438 1.5
Borrowings:
Federal Home Loan Bank Advances 778,104 775,703 2,401 0.3
Other borrowings 32,041 40,064 (8,023) (20.0)
Total borrowings 810,145 815,767 (5,622) (0.7)
Total interest-bearing liabilities 3,477,033 3,442,217 34,816 1.0
Non-interest-bearing liabilities:
Non-interest-bearing deposits 274,858 262,499 12,359 4.7
Other non-interest-bearing liabilities 29,754 25,112 4,642 18.5
Total non-interest-bearing liabilities 304,612 287,611 17,001 5.9
Total liabilities 3,781,645 3,729,828 51,817 1.4
Stockholders' equity 1,040,867 1,077,357 (36,490) (3.4)
Total liabilities and stockholders' equity$ 4,822,512 $ 4,807,185 $ 15,327 0.3
Average interest-earning assets to average
interest-bearing liabilities
128.31% 129.23% -0.92% -0.7
Performance Ratio HighlightsFor the three months endedVariance
or Change
Variance
or Change
Pct.
September 30,June 30,
2017 2017
Average yield on interest-earning assets:
Loans receivable, including loans held for sale 3.74% 3.73% 0.01%
Mortgage-backed securities 2.26% 2.30% -0.04%
Debt securities:
Tax-exempt 2.03% 2.02% 0.01%
Taxable 2.42% 2.41% 0.01%
Total debt securities 2.34% 2.33% 0.01%
Other interest-earning assets 3.21% 1.98% 1.23%
Total interest-earning assets 3.37% 3.32% 0.05%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand 0.76% 0.71% 0.05%
Savings and club 0.12% 0.12% 0.00%
Certificates of deposit 1.38% 1.34% 0.04%
Total interest-bearing deposits 0.93% 0.90% 0.03%
Borrowings:
Federal Home Loan Bank Advances 2.33% 2.21% 0.12%
Other borrowings 0.27% 0.27% 0.00%
Total borrowings 2.25% 2.12% 0.13%
Total interest-bearing liabilities 1.24% 1.19% 0.05%
Interest rate spread (1) 2.13% 2.13% 0.00%
Net interest margin (2) 2.40% 2.40% 0.00%
Non-interest income to average assets
(annualized)
0.26% 0.25% 0.01%
Non-interest expense to average assets
(annualized)
1.77% 1.83% -0.06%
Efficiency ratio (3) 71.18% 74.12% -2.94%
Return on average assets (annualized) 0.43% 0.37% 0.06%
Return on average equity (annualized) 2.01% 1.64% 0.37%
(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 and Shares in Thousands,
Except Per Share Data, Unaudited)
At
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Assets
Cash and cash equivalents$ 38,823 $ 78,237 $ 170,591 $ 37,032 $ 72,593
Securities available for sale 636,600 613,760 614,948 671,281 689,151
Securities held to maturity 482,926 493,321 501,987 517,819 538,319
Loans held-for-sale 3,808 4,692 744 6,686 4,489
Loans receivable, including yield adjustments 3,260,328 3,245,261 3,122,628 2,973,931 2,845,605
Less allowance for loan losses (29,445) (29,286) (27,614) (26,060) (25,003)
Net loans receivable 3,230,883 3,215,975 3,095,014 2,947,871 2,820,602
Premises and equipment 40,132 39,585 38,904 38,341 38,125
Federal Home Loan Bank stock 39,115 39,958 39,474 34,525 31,601
Accrued interest receivable 13,268 12,493 12,320 11,809 11,666
Goodwill 108,591 108,591 108,591 108,591 108,591
Bank owned life insurance 182,489 181,223 179,935 178,656 177,334
Deferred income taxes, net 13,230 15,454 14,318 16,098 22,914
Other assets 18,285 14,838 19,416 16,599 7,896
Total assets $ 4,808,150 $ 4,818,127 $ 4,796,242 $ 4,585,308 $ 4,523,281
Liabilities
Deposits$ 2,953,268 $ 2,930,127 $ 2,853,263 $ 2,746,017 $ 2,733,960
Borrowings 808,554 806,228 825,260 701,849 633,389
Advance payments by borrowers for taxes 9,787 8,711 8,059 7,618 7,597
Other liabilities 22,308 15,880 15,650 15,172 28,801
Total liabilities 3,793,917 3,760,946 3,702,232 3,470,656 3,403,747
Stockholders' Equity
Common stock 815 844 873 892 891
Paid-in capital 690,204 728,790 768,373 795,773 813,648
Retained earnings 354,123 361,039 359,083 357,540 353,763
Unearned ESOP shares (34,049) (34,536) (35,022) (35,508) (35,995)
Accumulated other comprehensive income (loss), net 3,140 1,044 703 (4,045) (12,773)
Total stockholders' equity 1,014,233 1,057,181 1,094,010 1,114,652 1,119,534
Total liabilities and stockholders' equity$ 4,808,150 $ 4,818,127 $ 4,796,242 $ 4,585,308 $ 4,523,281
Consolidated capital ratios
Equity to assets 21.09% 21.94% 22.81% 24.31% 24.75%
Tangible equity to tangible assets 19.27% 20.14% 21.02% 22.47% 22.89%
Share data
Outstanding shares (period end) 81,548 84,351 87,256 89,176 89,076
Equity per share$ 12.44 $ 12.53 $ 12.54 $ 12.50 $ 12.57
Tangible equity per share (1)$ 11.10 $ 11.24 $ 11.29 $ 11.28 $ 11.34
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Cash and cash equivalents
Cash and due from depository institutions $ 17,972 $ 18,889 $ 17,429 $ 17,541 $ 18,829
Interest-bearing deposits in other banks 20,851 59,348 153,162 19,491 53,764
Total cash and cash equivalents$ 38,823 $ 78,237 $ 170,591 $ 37,032 $ 72,593
Securities available for sale
Debt securities:
U.S. agency securities$ 5,063 $ 5,316 $ 5,622 $ 5,809 $ 6,172
Municipal and state obligations 27,725 27,740 27,259 27,090 28,259
Asset-backed securities 163,615 162,429 150,805 121,445 84,065
Collateralized loan obligations 128,383 98,154 104,811 98,447 128,047
Corporate bonds 142,489 142,318 141,134 138,564 137,976
Trust preferred securities 8,544 8,540 8,248 8,101 7,968
Debt securities available for sale 475,819 444,497 437,879 399,456 392,487
Mortgage-backed securities:
Collateralized mortgage obligations 28,790 30,536 31,941 52,333 57,170
Residential pass-through securities 123,868 130,550 136,926 211,258 231,052
Commercial pass-through securities 8,123 8,177 8,202 8,234 8,442
Mortgage-backed securities 160,781 169,263 177,069 271,825 296,664
Total securities available for sale$ 636,600 $ 613,760 $ 614,948 $ 671,281 $ 689,151
Securities held to maturity
Debt securities:
U.S. agency securities$ 35,000 $ 35,000 $ 35,000 $ 34,999 $ 59,995
Municipal and state obligations 95,954 94,713 91,038 87,682 82,087
Subordinated debt 15,000 15,000 15,000 15,000 -
Debt securities held to maturity 145,954 144,713 141,038 137,681 142,082
Mortgage-backed securities:
Collateralized mortgage obligations 16,600 17,854 19,193 20,543 21,699
Residential pass-through securities 169,257 178,813 186,248 200,402 211,930
Commercial pass-through securities 151,115 151,941 155,508 159,193 162,608
Mortgage-backed securities 336,972 348,608 360,949 380,138 396,237
Total securities held to maturity$ 482,926 $ 493,321 $ 501,987 $ 517,819 $ 538,319
Total securities$ 1,119,526 $ 1,107,081 $ 1,116,935 $ 1,189,100 $ 1,227,470
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Loan portfolio composition:
Residential first mortgage loans$ 559,593 $ 567,323 $ 566,665 $ 562,466 $ 584,156
Home equity loans and lines of credit 80,746 82,822 82,412 83,305 85,799
Residential mortgage loans 640,339 650,145 649,077 645,771 669,955
Multifamily mortgage loans 1,427,840 1,412,575 1,371,339 1,295,207 1,142,908
Nonresidential and mixed use mortgage loans 1,085,983 1,085,064 995,782 932,616 916,769
Commercial mortgage loans 2,513,823 2,497,639 2,367,121 2,227,823 2,059,677
Commercial business loans 81,676 74,471 83,754 75,640 87,333
Construction loans 8,320 3,815 1,494 927 2,059
Account loans 2,800 2,863 2,860 2,980 3,012
Other consumer loans 10,988 13,520 15,313 17,501 19,870
Consumer loans 13,788 16,383 18,173 20,481 22,882
Total loans, excluding yield adjs 3,257,946 3,242,453 3,119,619 2,970,642 2,841,906
Unamortized yield adjustments 2,382 2,808 3,009 3,289 3,699
Loans receivable, including yield adjs 3,260,328 3,245,261 3,122,628 2,973,931 2,845,605
Less allowance for loan losses (29,445) (29,286) (27,614) (26,060) (25,003)
Net loans receivable$ 3,230,883 $ 3,215,975 $ 3,095,014 $ 2,947,871 $ 2,820,602
Loan portfolio allocation:
Residential first mortgage loans 17.2% 17.5% 18.2% 18.9% 20.6%
Home equity loans and lines of credit 2.5% 2.6% 2.6% 2.8% 3.0%
Residential mortgage loans 19.7% 20.1% 20.8% 21.7% 23.6%
Multifamily mortgage loans 43.8% 43.6% 44.0% 43.6% 40.2%
Nonresidential and mixed use mortgage loans 33.3% 33.5% 31.9% 31.4% 32.3%
Commercial mortgage loans 77.2% 77.0% 75.9% 75.0% 72.5%
Commercial business loans 2.5% 2.3% 2.7% 2.5% 3.1%
Construction loans 0.3% 0.1% 0.0% 0.0% 0.1%
Account loans 0.1% 0.1% 0.1% 0.1% 0.1%
Other consumer loans 0.3% 0.4% 0.5% 0.6% 0.7%
Consumer loans 0.4% 0.5% 0.6% 0.7% 0.8%
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$ 105 $ 74 $ 65 $ 92 $ 77
Nonaccrual loans 18,006 18,798 20,950 21,473 21,768
Total nonperforming loans 18,111 18,872 21,015 21,565 21,845
Other real estate owned 2,424 1,632 1,668 2,037 1,356
Total nonperforming assets$ 20,535 $ 20,504 $ 22,683 $ 23,602 $ 23,201
Nonperforming loans (% total loans) 0.56% 0.58% 0.67% 0.72% 0.77%
Nonperforming assets (% total assets) 0.43% 0.43% 0.47% 0.51% 0.51%
Allowance for loan losses (ALLL):
ALLL to total loans 0.90% 0.90% 0.88% 0.88% 0.88%
ALLL to nonperforming loans 162.58% 155.18% 131.40% 120.84% 114.46%
Net charge offs (recoveries)$ 471 $ (483)$ 254 $ 198 $ 354
Average net charge off (recovery) rate (annualized) 0.06% -0.06% 0.03% 0.03% 0.05%
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
At
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Funding by type:
Deposits
Non-interest-bearing deposits$ 279,263 $ 267,412 $ 255,939 $ 240,367 $ 251,141
Interest-bearing demand 856,122 847,663 798,203 768,556 750,126
Savings and club 519,040 523,984 524,002 519,257 514,909
Certificates of deposit 1,298,843 1,291,068 1,275,119 1,217,837 1,217,784
Interest-bearing deposits 2,674,005 2,662,715 2,597,324 2,505,650 2,482,819
Total deposits 2,953,268 2,930,127 2,853,263 2,746,017 2,733,960
Borrowings:
Federal Home Loan Bank advances 775,673 775,696 775,719 665,742 600,765
Depositor sweep accounts 32,881 30,532 49,541 36,107 32,624
Total borrowings 808,554 806,228 825,260 701,849 633,389
Total funding$ 3,761,822 $ 3,736,355 $ 3,678,523 $ 3,447,866 $ 3,367,349
Loans as a % of deposits 109.5% 109.9% 108.5% 107.6% 103.3%
Deposits as a % of total funding 78.5% 78.4% 77.6% 79.6% 81.2%
Borrowings as a % of total funding 21.5% 21.6% 22.4% 20.4% 18.8%
Funding by source:
Retail funding
Non-interest-bearing deposits$ 279,263 $ 267,412 $ 255,939 $ 240,367 $ 251,141
Interest-bearing demand 633,778 625,061 568,865 544,487 527,511
Savings and club 519,040 523,984 524,002 519,257 514,909
Certificates of deposit 1,175,407 1,168,010 1,152,025 1,113,073 1,119,922
Total retail deposits 2,607,488 2,584,467 2,500,831 2,417,184 2,413,483
Depositor sweep accounts 32,881 30,532 49,541 36,107 32,624
Total retail funding 2,640,369 2,614,999 2,550,372 2,453,291 2,446,107
Wholesale funding:
Interest-bearing demand$ 222,344 $ 222,602 $ 229,338 $ 224,069 $ 222,615
Certificates of deposit (listing service) 101,791 101,430 101,432 96,516 89,608
Certificates of deposit (brokered) 21,645 21,628 21,662 8,248 8,254
Total wholesale deposits 345,780 345,660 352,432 328,833 320,477
FHLB Advances 775,673 775,696 775,719 665,742 600,765
Total wholesale funding 1,121,453 1,121,356 1,128,151 994,575 921,242
Total funding$ 3,761,822 $ 3,736,355 $ 3,678,523 $ 3,447,866 $ 3,367,349
Retail funding as a % of total funding 70.2% 70.0% 69.3% 71.2% 72.6%
Wholesale funding as a % of total funding 29.8% 30.0% 30.7% 28.8% 27.4%
Summary Income Statement
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
For the three months ended
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Interest income
Loans$ 30,473 $ 29,842 $ 28,235 $ 27,407 $ 25,697
Mortgage-backed securities 2,896 3,063 3,222 3,779 3,937
Debt securities:
Taxable 2,960 2,868 2,488 2,146 2,040
Tax-exempt 621 605 582 562 551
Other interest-earning assets 642 586 481 421 581
Total interest income 37,592 36,964 35,008 34,315 32,806
Interest expense
Deposits 6,219 5,909 5,420 5,410 5,361
Borrowings 4,563 4,325 3,381 3,289 3,424
Total interest expense 10,782 10,234 8,801 8,699 8,785
Net interest income 26,810 26,730 26,207 25,616 24,021
Provision for loan losses 630 1,188 1,809 1,255 1,129
Net interest income after provision for
loan losses
26,180 25,542 24,398 24,361 22,892
Non-interest income
Fees and service charges 1,261 839 498 1,289 663
(Loss) gain on sale and call of securities - - (22) 21 -
Gain on sale of loans 331 531 245 459 300
(Loss) gain on sale of real estate owned (109) 3 (106) 12 (15)
Income from bank owned life insurance 1,267 1,288 1,279 1,321 1,319
Electronic banking fees and charges 278 287 240 270 283
Miscellaneous 66 72 119 74 79
Total non-interest income 3,094 3,020 2,253 3,446 2,629
Non-interest expense
Salaries and employee benefits 12,867 12,887 12,430 11,592 10,909
Net occupancy expense of premises 1,981 2,013 2,088 1,976 1,941
Equipment and systems 2,190 2,204 2,068 2,030 2,048
Advertising and marketing 710 937 753 387 549
Federal deposit insurance premium 360 352 338 339 305
Directors' compensation 689 689 689 379 225
Miscellaneous 2,489 2,969 2,668 2,670 2,683
Total non-interest expense 21,286 22,051 21,034 19,373 18,660
Income before income taxes 7,988 6,511 5,617 8,434 6,861
Income taxes 2,756 2,107 1,549 2,970 2,194
Net income$ 5,232 $ 4,404 $ 4,068 $ 5,464 $ 4,667
Net income per common share (EPS)
Basic$ 0.07 $ 0.05 $ 0.05 $ 0.06 $ 0.05
Diluted$ 0.07 $ 0.05 $ 0.05 $ 0.06 $ 0.05
Dividends declared (1)
Cash dividends declared per common share$ 0.15 $ 0.03 $ 0.03 $ 0.02 $ 0.02
Cash dividends declared$ 12,148 $ 2,448 $ 2,525 $ 1,687 $ 1,710
Dividend payout ratio 232.2% 55.6% 62.1% 30.9% 36.6%
Weighted average number of common
shares outstanding
Basic 79,649 82,372 84,542 85,174 86,246
Diluted 79,708 82,429 84,624 85,258 86,304
(1) Dividends declared during the quarter ended September 30, 2017 include a $0.12 special dividend representing a supplemental
distribution of net income to stockholders from the prior fiscal year ended June 30, 2017.
Average Balance Sheet Data
(Dollars in Thousands, Unaudited)
For the three months ended
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Assets
Interest-earning assets:
Loans receivable, including loans held for sale$ 3,257,465 $ 3,200,968 $3,029,151 $ 2,899,794 $ 2,697,096
Mortgage-backed securities 511,931 532,621 582,591 673,569 695,876
Debt securities:
Tax-exempt 122,685 119,957 116,479 112,221 109,625
Taxable 489,252 476,499 441,124 419,966 442,233
Total debt securities 611,937 596,456 557,603 532,187 551,858
Other interest-earning assets 79,920 118,349 61,336 71,072 204,621
Total interest-earning assets 4,461,253 4,448,394 4,230,681 4,176,622 4,149,451
Non-interest-earning assets 361,259 358,791 352,419 351,458 359,514
Total assets $ 4,822,512 $ 4,807,185 $ 4,583,100 $ 4,528,080 $ 4,508,965
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$ 858,291 $ 813,148 $ 756,520 $ 761,765 $ 748,516
Savings and club 522,715 523,798 520,572 518,225 515,615
Certificates of deposit 1,285,882 1,289,504 1,242,757 1,224,592 1,215,081
Total interest-bearing deposits 2,666,888 2,626,450 2,519,849 2,504,582 2,479,212
Borrowings:
Federal Home Loan Bank Advances 778,104 775,703 643,504 594,238 577,305
Other borrowings 32,041 40,064 44,940 35,273 33,530
Total borrowings 810,145 815,767 688,444 629,511 610,835
Total interest-bearing liabilities 3,477,033 3,442,217 3,208,293 3,134,093 3,090,047
Non-interest-bearing liabilities:
Non-interest-bearing deposits 274,858 262,499 246,449 245,928 243,964
Other non-interest-bearing liabilities 29,754 25,112 25,028 31,781 47,092
Total non-interest-bearing liabilities 304,612 287,611 271,477 277,709 291,056
Total liabilities 3,781,645 3,729,828 3,479,770 3,411,802 3,381,103
Stockholders' equity 1,040,867 1,077,357 1,103,330 1,116,278 1,127,862
Total liabilities and stockholders' equity$ 4,822,512 $ 4,807,185 $ 4,583,100 $ 4,528,080 $ 4,508,965
Average interest-earning assets to average
interest-bearing liabilities
128.31% 129.23% 131.87% 133.26% 134.28%
Performance Ratio HighlightsFor the three months ended
September 30,June 30,March 31,December 31,September 30,
2017 2017 2017 2016 2016
Average yield on interest-earning assets:
Loans receivable, including loans held for sale 3.74% 3.73% 3.73% 3.78% 3.81%
Mortgage-backed securities 2.26% 2.30% 2.21% 2.24% 2.26%
Debt securities:
Tax-exempt 2.03% 2.02% 2.00% 2.00% 2.01%
Taxable 2.42% 2.41% 2.26% 2.04% 1.85%
Total debt securities 2.34% 2.33% 2.20% 2.04% 1.88%
Other interest-earning assets 3.21% 1.98% 3.13% 2.37% 1.14%
Total interest-earning assets 3.37% 3.32% 3.31% 3.29% 3.16%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand 0.76% 0.71% 0.65% 0.62% 0.63%
Savings and club 0.12% 0.12% 0.12% 0.12% 0.15%
Certificates of deposit 1.38% 1.34% 1.30% 1.33% 1.31%
Total interest-bearing deposits 0.93% 0.90% 0.86% 0.86% 0.87%
Borrowings:
Federal Home Loan Bank Advances 2.33% 2.21% 2.08% 2.20% 2.35%
Other borrowings 0.27% 0.27% 0.35% 0.29% 0.42%
Total borrowings 2.25% 2.12% 1.96% 2.09% 2.24%
Total interest-bearing liabilities 1.24% 1.19% 1.10% 1.11% 1.14%
Interest rate spread (1) 2.13% 2.13% 2.21% 2.18% 2.02%
Net interest margin (2) 2.40% 2.40% 2.48% 2.45% 2.32%
Non-interest income to average assets
(annualized)
0.26% 0.25% 0.20% 0.30% 0.23%
Non-interest expense to average assets
(annualized)
1.77% 1.83% 1.84% 1.71% 1.66%
Efficiency ratio (3) 71.18% 74.12% 73.91% 66.66% 70.02%
Return on average assets (annualized) 0.43% 0.37% 0.36% 0.48% 0.41%
Return on average equity (annualized) 2.01% 1.64% 1.47% 1.96% 1.66%
(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