Kearny Financial Corp. Reports Fiscal 2022 First Quarter Results and 10% Increase in Cash Dividend

Wednesday, 27. October 2021 22:15

FAIRFIELD, N.J., Oct. 27, 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 September 30, 2021 of $19.7 million, or $0.26 per diluted share, compared to $18.5 million, or $0.24 per diluted share, for the quarter ended June 30, 2021.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.11 per share, payable on November 24, 2021 to stockholders of record as of November 10, 2021. This dividend represents an increase of $0.01, or 10%, from the prior quarter’s dividend of $0.10 per share.

Craig L. Montanaro, President and Chief Executive Officer, commented, “We are very pleased with our first quarter results which reflected record earnings, continued net interest margin expansion and sustained growth in non-interest-bearing deposits, which increased 6.3% from June 30, 2021. Additionally, we continued to right-size our retail branch footprint with the announcement of three additional branch consolidations, bringing our total to 15 over the past two and a half years.” Mr. Montanaro continued, “Despite strong origination volume, loan balances for the quarter were negatively impacted by record levels of commercial loan repayment activity. However, we remain optimistic as our commercial loan pipeline stands at a historically high level heading into the second quarter of the fiscal year.”

Regarding the Company's capital management strategies Mr. Montanaro noted, “As we move further into fiscal 2022, capital management remains a strategic priority. Our recent authorization of a new 10% share repurchase plan, coupled with the increase in our quarterly cash dividend, demonstrates our commitment to returning excess capital to our shareholders while retaining sufficient capital to allow us to take advantage of strategic capital deployment opportunities as they may arise.”

Balance Sheet

  • Deposits decreased $90.2 million to $5.40 billion at September 30, 2021, from $5.49 billion at June 30, 2021, reflecting the controlled run-off of time deposits which was partially offset by growth in core non-maturity deposits. For the quarter ended September 30, 2021, non-interest-bearing deposits increased $37.6 million, or 6.3%.

  • Loans receivable decreased $62.1 million to $4.79 billion at September 30, 2021, from $4.85 billion at June 30, 2021, due primarily to record levels of repayment activity in the commercial real estate and multifamily mortgage portfolios that more than offset the strong loan origination volume for the quarter.

  • Investment securities decreased $26.3 million to $1.69 billion at September 30, 2021, from $1.72 billion at June 30, 2021, representing 23.5% of total assets at each of those comparative periods.

  • Borrowings increased $35.1 million to $721.0 million, or 10.0% of total assets, at September 30, 2021, from $685.9 million, or 9.4% of total assets, at June 30, 2021.

Earnings

Performance Highlights

  • Return on average assets improved to 1.09% for the quarter ended September 30, 2021. Excluding the impact of non-recurring items, including branch consolidation charges, impairment charges and net effect of sale and call of securities, return on average assets would have been 1.15%. (1)

  • Return on average equity improved to 7.66% for the quarter ended September 30, 2021 while return on average tangible equity improved to 9.67%. Excluding the impact of non-recurring items, as noted above, return on average tangible equity would have been 10.26%. (1)

Net Interest Income and Net Interest Margin

  • Effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented in this earnings release reflect this reclassification. Except where noted in the footnotes to the tables provided in this earnings release, there were no other changes resulting from this reclassification.

  • Net interest margin expanded seven basis points to 2.99% for the quarter ended September 30, 2021, from 2.92% for the quarter ended June 30, 2021, and was largely due to a reduction in the cost of interest-bearing liabilities, which declined six basis points to 0.55%.

  • Net interest income increased $525,000 to $49.6 million for the quarter ended September 30, 2021, from $49.1 million for the quarter ended June 30, 2021. Included in net interest income for the quarters ended September 30, 2021 and June 30, 2021, respectively, was purchase accounting accretion of $2.9 million and $3.1 million, and loan prepayment penalty income of $1.7 million and $902,000.

Non-Interest Income

  • Fees and service charges increased $184,000 to $607,000 for the quarter ended September 30, 2021 from $423,000 for the quarter ended June 30, 2021, and was largely attributable to fluctuations in various loan-related fee categories.

  • Gain on sale of loans increased $643,000 to $1.0 million for the quarter ended September 30, 2021 from $363,000 for the quarter ended June 30, 2021. This increase largely reflected greater volume and an improved average sales price of residential mortgage loans sold during the period.

  • Included in other income for the prior quarter ended June 30, 2021 were non-recurring gains of $205,000 attributable to the sale of properties sold in connection with branch consolidation activities, as previously disclosed. No such gains were recorded during the quarter ended September 30, 2021.

Non-Interest Expense

  • Non-interest expense decreased $183,000 to $31.8 million for the quarter ended September 30, 2021, from $32.0 million for the quarter ended June 30, 2021. Salaries and benefits expense increased $840,000, or 4.7%, from June 30, 2021 due largely to annual merit increases and increases in benefit plan expense. Net occupancy expense increased $1.5 million, or 51.7%, primarily due to non-recurring expense of $1.3 million and $250,000, respectively, related to the consolidation of three retail branch locations and facility repairs made in connection with damage incurred during Tropical Storm Ida.

  • Other expense decreased $2.7 million to $3.1 million for the quarter ended September 30, 2021, from $5.8 million for the quarter ended June 30, 2021 and was largely comprised of declines of $1.6 million and $566,000, respectively, in asset impairment charges and provisions for credit losses on off-balance sheet credit exposures. Also contributing to the decrease were less noteworthy reductions in loan expense, legal fees and consulting fees. For the quarter ended September 30, 2021, asset impairment charges recorded in other expense, related to the previously noted branch consolidations, totaled $420,000, while provisions for credit losses on off-balance sheet credit exposures reflected a provision reversal of $124,000.

  • The efficiency and non-interest expense ratios were 59.57% and 1.76%, respectively, for the quarter ended September 30, 2021. Excluding the impact of non-recurring items, as noted above, the efficiency and non-interest expense ratios for the quarter ended September 30, 2021 would have been 56.36% and 1.66%, respectively. (1)

Income Taxes

  • Income tax expense increased $239,000 to $7.3 million for the quarter ended September 30, 2021 compared to $7.0 million for the quarter ended June 30, 2021, resulting in effective tax rates of 26.9% and 27.6%, respectively.

Asset Quality

  • The balance of non-performing loans decreased $6.8 million to $72.9 million, or 1.02% of total assets, at September 30, 2021, from $79.8 million, or 1.10% of total assets, at June 30, 2021. At September 30, 2021, the Company had active COVID-19 payment deferrals on 13 residential mortgage and home equity loans totaling $5.6 million, representing 0.12% of total loans.

  • Net charge offs totaled $980,000, or 0.08% of average loans, on an annualized basis, for the quarter ended September 30, 2021 compared to $656,000, or 0.05%, for the quarter ended June 30, 2021. Of the charge-offs recorded during the quarter ended September 30, 2021, $935,000, or 95.5%, had previously been individually reserved for within the allowance for credit losses ("ACL").

  • For the quarter ended September 30, 2021, the Company recorded a provision for credit loss reversal of $5.4 million, compared to a provision for credit loss reversal of $4.9 million for the quarter ended June 30, 2021. The reversal for the quarter ended September 30, 2021 primarily reflected a reduction in the expected life of various segments of the loan portfolio along with continued improvement in the Company's credit risk outlook.

  • The ACL decreased to $51.8 million, or 1.08% of total loans, at September 30, 2021, from $58.2 million, or 1.19% of total loans at June 30, 2021.

Capital

  • For the quarter ended September 30, 2021, book value per share increased by $0.17 to $13.38 while tangible book value per share increased by $0.06 to $10.55.

  • During the quarter ended September 30, 2021, the Company repurchased 3,157,788 shares of common stock at a cost of $39.0 million, or $12.35 per share.

  • On September 20, 2021, the Company announced the completion of its seventh stock repurchase plan which authorized the repurchase of 4,064,649 shares. Such shares were repurchased at a cost of $50.5 million, or an average price of $12.43 per share. On September 22, 2021, the Company announced the authorization of an eighth stock repurchase plan to repurchase up to 7,602,021 shares, or approximately 10% of the Company's outstanding shares as of that date. Through September 30, 2021, the Company repurchased a total of 213,139 shares, or 2.8% of the shares authorized for repurchase under the current repurchase program, at a total cost of $2.6 million and at an average cost of $12.41 per share.

  • At September 30, 2021, the Company’s tangible equity to tangible assets ratio equaled 11.48% and 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.

(1) Please reference the Reconciliation of GAAP to Non-GAAP tables for a reconciliation of the non-GAAP financial measures.

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 has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including whether the coronavirus can continue to be controlled and abated and if the economy is able to 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 remain open, 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 
  
Kearny Financial Corp. 
Consolidated Balance Sheets 
         
(Dollars and Shares in Thousands,September 30, June 30,  Variance Variance 
Except Per Share Data)2021 2021 or Change or Change Pct. 
 (Unaudited) (Audited)     
Assets        
Cash and cash equivalents$54,070 $67,855 $(13,785) -20.3%
Securities available for sale 1,651,156  1,676,864  (25,708) -1.5%
Securities held to maturity 37,497  38,138  (641) -1.7%
Loans held-for-sale 12,884  16,492  (3,608) -21.9%
Loans receivable 4,789,339  4,851,394  (62,055) -1.3%
Less: allowance for credit losses on loans (51,785) (58,165) 6,380  -11.0%
Net loans receivable 4,737,554  4,793,229  (55,675) -1.2%
Premises and equipment 55,236  56,338  (1,102) -2.0%
Federal Home Loan Bank stock 36,615  36,615  -  0.0%
Accrued interest receivable 19,541  19,362  179  0.9%
Goodwill 210,895  210,895  -  0.0%
Core deposit intangible 3,524  3,705  (181) -4.9%
Bank owned life insurance 284,871  283,310  1,561  0.6%
Deferred income taxes, net 27,771  29,323  (1,552) -5.3%
Other real estate owned 178  178  -  0.0%
Other assets 51,896  51,431  465  0.9%
Total assets$7,183,688 $7,283,735 $(100,047) -1.4%
         
Liabilities        
Deposits:        
Non-interest-bearing 631,344 $593,718 $37,626  6.3%
Interest-bearing 4,763,795  4,891,588  (127,793) -2.6%
Total deposits 5,395,139  5,485,306  (90,167) -1.6%
Borrowings 720,990  685,876  35,114  5.1%
Advance payments by borrowers for taxes 16,222  15,752  470  3.0%
Other liabilities 36,914  53,857  (16,943) -31.5%
Total liabilities 6,169,265  6,240,791  (71,526) -1.1%
         
Stockholders' Equity        
Common stock 758  790  (32) -4.1%
Paid-in capital 616,894  654,396  (37,502) -5.7%
Retained earnings 420,701  408,367  12,334  3.0%
Unearned ESOP shares (26,266) (26,753) 487  -1.8%
Accumulated other comprehensive income 2,336  6,144  (3,808) -62.0%
Total stockholders' equity 1,014,423  1,042,944  (28,521) -2.7%
Total liabilities and stockholders' equity$7,183,688 $7,283,735 $(100,047) -1.4%
         
Consolidated capital ratios        
Equity to assets 14.12% 14.32% -0.20%  
Tangible equity to tangible assets (1) 11.48% 11.72% -0.24%  
         
Share data        
Outstanding shares 75,800  78,965  (3,165) -4.0%
Book value per share$13.38 $13.21 $0.17  1.3%
Tangible book value per share (2)$10.55 $10.49 $0.06  0.6%


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


  
Kearny Financial Corp. 
Consolidated Statements of Income 
(Unaudited) 
         
 Three Months Ended     
(Dollars and Shares in Thousands,September 30, June 30,  Variance Variance 
Except Per Share Data)2021 2021 or Change or Change Pct. 
Interest income        
Loans (1)$48,230 $48,464 $(234) -0.5%
Taxable investment securities 8,212  8,304  (92) -1.1%
Tax-exempt investment securities 333  355  (22) -6.2%
Other interest-earning assets 431  549  (118) -21.5%
Total Interest Income 57,206  57,672  (466) -0.8%
         
Interest expense        
Deposits 4,065  5,156  (1,091) -21.2%
Borrowings 3,551  3,451  100  2.9%
Total interest expense 7,616  8,607  (991) -11.5%
Net interest income 49,590  49,065  525  1.1%
Reversal of provision for credit losses (5,400) (4,941) (459) 9.3%
Net interest income after reversal of provision
for credit losses
 54,990  54,006  984  1.8%
         
Non-interest income        
Fees and service charges (1) 607  423  184  43.5%
Gain on sale and call of securities 1  313  (312) -99.7%
Gain on sale of loans 1,006  363  643  177.1%
Income from bank owned life insurance 1,561  1,545  16  1.0%
Electronic banking fees and charges 407  452  (45) -10.0%
Other income 218  400  (182) -45.5%
Total non-interest income 3,800  3,496  304  8.7%
         
Non-interest expense        
Salaries and employee benefits 18,617  17,777  840  4.7%
Net occupancy expense of premises 4,547  2,998  1,549  51.7%
Equipment and systems 3,825  3,575  250  7.0%
Advertising and marketing 392  581  (189) -32.5%
Federal deposit insurance premium 492  490  2  0.4%
Directors' compensation 803  749  54  7.2%
Other expense 3,127  5,816  (2,689) -46.2%
Total non-interest expense 31,803  31,986  (183) -0.6%
Income before income taxes 26,987  25,516  1,471  5.8%
Income taxes 7,272  7,033  239  3.4%
Net income$19,715 $18,483 $1,232  6.7%
         
Net income per common share (EPS)        
Basic$0.26 $0.24 $0.02   
Diluted$0.26 $0.24 $0.02   
         
Dividends declared        
Cash dividends declared per common share$0.10 $0.10 $-   
Cash dividends declared$7,381 $7,710 $(329)  
Dividend payout ratio 37.4% 41.7% -4.3%  
         
Weighted average number of common
shares outstanding
        
Basic 74,537  77,658  (3,121)  
Diluted 74,556  77,680  (3,124)  


________________
(1)Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Amounts shown for June 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the period ended June 30, 2021 was $902,000.


  
Kearny Financial Corp. 
Average Balance Sheet Data 
(Unaudited) 
         
 Three Months Ended     
 September 30, June 30,  Variance Variance 
(Dollars in Thousands)2021 2021 or Change or Change Pct. 
Assets        
Interest-earning assets:        
Loans receivable, including loans held for sale$4,835,676 $4,817,980 $17,696  0.4%
Taxable investment securities 1,649,953  1,720,838  (70,885) -4.1%
Tax-exempt investment securities 59,115  63,047  (3,932) -6.2%
Other interest-earning assets 85,749  117,212  (31,463) -26.8%
Total interest-earning assets 6,630,493  6,719,077  (88,584) -1.3%
Non-interest-earning assets 616,735  609,762  6,973  1.1%
Total assets$7,247,228 $7,328,839 $(81,611) -1.1%
         
Liabilities and Stockholders' Equity        
Interest-bearing liabilities:        
Deposits:        
Interest-bearing demand$1,954,271 $1,930,193 $24,078  1.2%
Savings 1,102,865  1,118,402  (15,537) -1.4%
Certificates of deposit 1,798,473  1,934,650  (136,177) -7.0%
Total interest-bearing deposits 4,855,609  4,983,245  (127,636) -2.6%
Borrowings:        
Federal Home Loan Bank advances 665,915  665,802  113  0.0%
Other borrowings 28,532  6,670  21,862  327.8%
Total borrowings 694,447  672,472  21,975  3.3%
Total interest-bearing liabilities 5,550,056  5,655,717  (105,661) -1.9%
Non-interest-bearing liabilities:        
Non-interest-bearing deposits 610,271  566,632  43,639  7.7%
Other non-interest-bearing liabilities 56,893  52,292  4,601  8.8%
Total non-interest-bearing liabilities 667,164  618,924  48,240  7.8%
Total liabilities 6,217,220  6,274,641  (57,421) -0.9%
Stockholders' equity 1,030,008  1,054,198  (24,190) -2.3%
Total liabilities and stockholders' equity$7,247,228 $7,328,839 $(81,611) -1.1%
         
Average interest-earning assets to average
interest-bearing liabilities
 119.47% 118.80% 0.67% 0.6%
             


Kearny Financial Corp. 
Performance Ratio Highlights 
(Unaudited) 
       
 Three Months Ended   
 September 30, June 30,  Variance 
 2021 2021 or Change 
Average yield on interest-earning assets:      
Loans receivable, including loans held for sale (1) 3.99% 4.02% -0.03%
Taxable investment securities 1.99% 1.93% 0.06%
Tax-exempt investment securities (2) 2.25% 2.25% 0.00%
Other interest-earning assets 2.01% 1.87% 0.14%
Total interest-earning assets (1) 3.45% 3.43% 0.02%
       
Average cost of interest-bearing liabilities:      
Deposits:      
Interest-bearing demand 0.23% 0.27% -0.04%
Savings 0.12% 0.15% -0.03%
Certificates of deposit 0.57% 0.71% -0.14%
Total interest-bearing deposits 0.33% 0.41% -0.08%
Borrowings:      
Federal Home Loan Bank advances 2.13% 2.07% 0.06%
Other borrowings 0.10% 0.07% 0.03%
Total borrowings 2.05% 2.05% 0.00%
Total interest-bearing liabilities 0.55% 0.61% -0.06%
       
Interest rate spread (1) (3) 2.90% 2.82% 0.08%
Net interest margin (1) (4) 2.99% 2.92% 0.07%
       
Non-interest income to average assets
(annualized) (1)
 0.21% 0.19% 0.02%
Non-interest expense to average assets
(annualized)
 1.76% 1.75% 0.01%
       
Efficiency ratio (5) 59.57% 60.86% -1.29%
       
Return on average assets (annualized) 1.09% 1.01% 0.08%
Return on average equity (annualized) 7.66% 7.01% 0.65%
Return on average tangible equity (annualized) (6) 9.67% 8.81% 0.86%


________________
(1)Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Amounts shown for June 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the period ended June 30, 2021 was $902,000.
(2)The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(3)Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(4)Net interest income divided by average interest-earning assets.
(5)Non-interest expense divided by the sum of net interest income and non-interest income.
(6)Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.
  


Five-Quarter Financial Trend Analysis 
   
Consolidated Balance SheetsAt 
(Dollars and Shares in Thousands,September 30, June 30, March 31,  December 31, September 30, 
Except Per Share Data)2021 2021 2021 2020 2020 
 (Unaudited) (Audited) (Unaudited) (Unaudited) (Unaudited) 
Assets          
Cash and cash equivalents$54,070 $67,855 $108,991 $129,694 $145,818 
Securities available for sale 1,651,156  1,676,864  1,778,970  1,695,893  1,508,542 
Securities held to maturity 37,497  38,138  27,168  29,549  31,576 
Loans held-for-sale 12,884  16,492  5,172  12,601  20,170 
Loans receivable 4,789,339  4,851,394  4,798,239  4,828,634  4,954,750 
Less: allowance for credit losses on loans (51,785) (58,165) (63,762) (63,386) (64,860)
Net loans receivable 4,737,554  4,793,229  4,734,477  4,765,248  4,889,890 
Premises and equipment 55,236  56,338  60,360  61,181  61,808 
Federal Home Loan Bank stock 36,615  36,615  45,578  45,578  55,118 
Accrued interest receivable 19,541  19,362  20,562  19,826  20,368 
Goodwill 210,895  210,895  210,895  210,895  210,895 
Core deposit intangible 3,524  3,705  3,888  4,151  4,420 
Bank owned life insurance 284,871  283,310  281,765  280,235  278,639 
Deferred income taxes, net 27,771  29,323  32,230  30,846  33,319 
Other real estate owned 178  178  178  178  178 
Other assets 51,896  51,431  47,760  49,278  49,468 
Total assets$7,183,688 $7,283,735 $7,357,994 $7,335,153 $7,310,209 
           
Liabilities          
Deposits:          
Non-interest-bearing$631,344 $593,718 $545,746 $518,828 $487,710 
Interest-bearing 4,763,795  4,891,588  4,828,706  4,793,785  4,552,202 
Total deposits 5,395,139  5,485,306  5,374,452  5,312,613  5,039,912 
Borrowings 720,990  685,876  865,763  865,651  1,077,540 
Advance payments by borrowers for taxes 16,222  15,752  15,300  16,100  17,008 
Other liabilities 36,914  53,857  38,667  48,448  51,689 
Total liabilities 6,169,265  6,240,791  6,294,182  6,242,812  6,186,149 
           
Stockholders' Equity          
Common stock 758  790  820  849  895 
Paid-in capital 616,894  654,396  691,280  724,389  769,269 
Retained earnings 420,701  408,367  397,594  388,376  378,134 
Unearned ESOP shares (26,266) (26,753) (27,239) (27,726) (28,212)
Accumulated other comprehensive income 2,336  6,144  1,357  6,453  3,974 
Total stockholders' equity 1,014,423  1,042,944  1,063,812  1,092,341  1,124,060 
Total liabilities and stockholders' equity$7,183,688 $7,283,735 $7,357,994 $7,335,153 $7,310,209 
           
Consolidated capital ratios          
Equity to assets 14.12% 14.32% 14.46% 14.89% 15.38%
Tangible equity to tangible assets (1) 11.48% 11.72% 11.89% 12.32% 12.81%
           
Share data          
Outstanding shares 75,800  78,965  81,943  84,938  89,510 
Book value per share$13.38 $13.21 $12.98 $12.86 $12.56 
Tangible book value per share (2)$10.55 $10.49 $10.36 $10.33 $10.15 


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


 At 
Supplemental Balance Sheet HighlightsSeptember 30, June 30, March 31,  December 31, September 30, 
(Dollars in Thousands, Unaudited)2021 2021 2021 2020 2020 
Loan portfolio composition:          
Commercial loans:          
Multi-family$1,978,681 $2,039,260 $2,055,396 $2,076,483 $2,110,300 
Nonresidential 1,023,391  1,079,444  1,110,765  1,123,695  1,124,330 
Commercial business 169,392  168,951  183,181  202,010  255,888 
Construction 112,226  93,804  95,533  90,398  79,178 
Total commercial loans 3,283,690  3,381,459  3,444,875  3,492,586  3,569,696 
One- to four-family residential mortgage loans 1,483,106  1,447,721  1,323,485  1,305,351  1,353,197 
Consumer loans:          
Home equity loans and lines of credit 44,912  47,871  59,721  65,298  71,540 
Other consumer loans 3,020  3,259  3,445  4,123  4,136 
Total consumer loans 47,932  51,130  63,166  69,421  75,676 
Total loans, excluding yield adjustments 4,814,728  4,880,310  4,831,526  4,867,358  4,998,569 
Unaccreted yield adjustments (25,389) (28,916) (33,287) (38,724) (43,819)
Loans receivable, net of yield adjustments 4,789,339  4,851,394  4,798,239  4,828,634  4,954,750 
Less: allowance for credit losses on loans (51,785) (58,165) (63,762) (63,386) (64,860)
Net loans receivable$4,737,554 $4,793,229 $4,734,477 $4,765,248 $4,889,890 
           
Loan portfolio allocation:          
Commercial loans:          
Multi-family 41.1% 41.8% 42.5% 42.7% 42.2%
Nonresidential 21.3% 22.1% 23.0% 23.1% 22.5%
Commercial business 3.5% 3.5% 3.8% 4.2% 5.1%
Construction 2.3% 1.9% 2.0% 1.8% 1.6%
Total commercial loans 68.2% 69.3% 71.3% 71.8% 71.4%
One- to four-family residential mortgage loans 30.8% 29.7% 27.4% 26.8% 27.1%
Consumer loans:          
Home equity loans and lines of credit 0.9% 0.9% 1.2% 1.3% 1.4%
Other consumer loans 0.1% 0.1% 0.1% 0.1% 0.1%
Total consumer loans 1.0% 1.0% 1.3% 1.4% 1.5%
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$- $- $2 $- $238 
Nonaccrual loans 72,945  79,767  71,416  71,472  44,837 
Total nonperforming loans 72,945  79,767  71,418  71,472  45,075 
Other real estate owned 178  178  178  178  178 
Total nonperforming assets$73,123 $79,945 $71,596 $71,650 $45,253 
           
Nonperforming loans (% total loans) 1.52% 1.64% 1.49% 1.48% 0.91%
Nonperforming assets (% total assets) 1.02% 1.10% 0.97% 0.98% 0.62%
           
Allowance for credit losses on loans (ACL):          
ACL to total loans 1.08% 1.19% 1.32% 1.30% 1.30%
ACL to nonperforming loans 70.99% 72.92% 89.28% 88.69% 143.89%
Net charge offs$980 $656 $750 $109 $67 
Average net charge off rate (annualized) 0.08% 0.05% 0.06% 0.01% 0.01%
                


 At 
Supplemental Balance Sheet HighlightsSeptember 30, June 30, March 31,  December 31, September 30, 
(Dollars in Thousands, Unaudited)2021 2021 2021 2020 2020 
Funding by type:          
Deposits:          
Non-interest-bearing deposits$631,344 $593,718 $545,746 $518,828 $487,710 
Interest-bearing demand 1,937,661  1,902,478  1,923,184  1,752,699  1,561,135 
Savings 1,089,699  1,111,364  1,105,481  1,075,122  1,025,245 
Certificates of deposit 1,736,435  1,877,746  1,800,041  1,965,964  1,965,822 
Interest-bearing deposits 4,763,795  4,891,588  4,828,706  4,793,785  4,552,202 
Total deposits 5,395,139  5,485,306  5,374,452  5,312,613  5,039,912 
           
Borrowings:          
Federal Home Loan Bank advances 665,990  665,876  865,763  865,651  1,077,540 
Overnight borrowings 55,000  20,000  -  -  - 
Total borrowings 720,990  685,876  865,763  865,651  1,077,540 
           
Total funding$6,116,129 $6,171,182 $6,240,215 $6,178,264 $6,117,452 
           
Loans as a % of deposits 88.1% 87.7% 88.2% 89.9% 97.4%
Deposits as a % of total funding 88.2% 88.9% 86.1% 86.0% 82.4%
Borrowings as a % of total funding 11.8% 11.1% 13.9% 14.0% 17.6%
           
Funding by source:          
Retail deposits:          
Non-interest-bearing deposits$631,344 $593,718 $545,746 $518,828 $487,710 
Interest-bearing demand 1,937,661  1,902,478  1,923,184  1,752,699  1,561,135 
Savings 1,089,699  1,111,364  1,105,481  1,075,122  1,025,245 
Certificates of deposit 1,264,016  1,398,808  1,508,494  1,658,277  1,775,189 
Total retail deposits 4,922,720  5,006,368  5,082,905  5,004,926  4,849,279 
           
Wholesale funding:          
Certificates of deposit (listing service)$13,817 $20,322 $32,952 $43,112 $57,251 
Certificates of deposit (brokered) 458,602  458,616  258,595  264,575  133,382 
Total wholesale deposits 472,419  478,938  291,547  307,687  190,633 
FHLB advances 665,990  665,876  865,763  865,651  1,077,540 
Overnight borrowings 55,000  20,000  -  -  - 
Total wholesale funding 1,193,409  1,164,814  1,157,310  1,173,338  1,268,173 
           
Total funding$6,116,129 $6,171,182 $6,240,215 $6,178,264 $6,117,452 
           
Retail funding as a % of total funding 80.5% 81.1% 81.5% 81.0% 79.3%
Wholesale funding as a % of total funding 19.5% 18.9% 18.5% 19.0% 20.7%
                


Consolidated Statements of IncomeThree Months Ended 
(Dollars and Shares in Thousands,September 30, June 30, March 31,  December 31, September 30, 
Except Per Share Data, Unaudited)2021 2021 2021 2020 2020 
Interest income          
Loans (1)$48,230 $48,464 $50,159 $50,806 $52,811 
Taxable investment securities 8,212  8,304  7,891  7,707  7,336 
Tax-exempt investment securities 333  355  410  433  454 
Other interest-earning assets 431  549  705  787  914 
Total interest income 57,206  57,672  59,165  59,733  61,515 
           
Interest expense          
Deposits 4,065  5,156  6,670  8,647  11,062 
Borrowings 3,551  3,451  4,012  5,193  5,660 
Total interest expense 7,616  8,607  10,682  13,840  16,722 
Net interest income 49,590  49,065  48,483  45,893  44,793 
(Reversal of) provision for credit losses (5,400) (4,941) 1,126  (1,365) 4,059 
Net interest income after (reversal of)
provision for credit losses
 54,990  54,006  47,357  47,258  40,734 
           
Non-interest income          
Fees and service charges (1) 607  423  473  556  445 
Gain (loss) on sale and call of securities 1  313  18  813  (377)
Gain on sale of loans 1,006  363  943  2,378  1,890 
Income from bank owned life insurance 1,561  1,545  1,530  1,596  1,596 
Electronic banking fees and charges 407  452  456  404  405 
Bargain purchase gain -  -  -  -  3,053 
Other income 218  400  1,194  67  90 
Total non-interest income 3,800  3,496  4,614  5,814  7,102 
           
Non-interest expense          
Salaries and employee benefits 18,617  17,777  16,965  17,081  16,977 
Net occupancy expense of premises 4,547  2,998  3,433  3,120  3,122 
Equipment and systems 3,825  3,575  3,823  3,902  3,570 
Advertising and marketing 392  581  567  513  500 
Federal deposit insurance premium 492  490  488  490  472 
Directors' compensation 803  749  748  748  748 
Merger-related expenses -  -  -  -  4,349 
Debt extinguishment expenses -  -  -  796  - 
Other expense 3,127  5,816  3,792  3,860  3,835 
Total non-interest expense 31,803  31,986  29,816  30,510  33,573 
Income before income taxes 26,987  25,516  22,155  22,562  14,263 
Income taxes 7,272  7,033  5,732  5,614  2,884 
Net income$19,715 $18,483 $16,423 $16,948 $11,379 
           
Net income per common share (EPS)          
Basic$0.26 $0.24 $0.20 $0.20 $0.13 
Diluted$0.26 $0.24 $0.20 $0.20 $0.13 
           
Dividends declared          
Cash dividends declared per common share$0.10 $0.10 $0.09 $0.08 $0.08 
Cash dividends declared$7,381 $7,710 $7,205 $6,706 $6,917 
Dividend payout ratio 37.4% 41.7% 43.9% 39.6% 60.8%
           
Weighted average number of common
shares outstanding
          
Basic 74,537  77,658  80,673  85,120  86,008 
Diluted 74,556  77,680  80,690  85,123  86,009 


________________
(1)Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Periods prior to September 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the periods ended June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020 was $902,000, $852,000, $1,340,000 and $631,000, respectively.
  


 Three Months Ended 
Average Balance Sheet DataSeptember 30, June 30, March 31,  December 31, September 30, 
(Dollars in Thousands, Unaudited)2021 2021 2021 2020 2020 
Assets          
Interest-earning assets:          
Loans receivable, including loans held for sale$4,835,676 $4,817,980 $4,816,592 $4,871,268 $4,958,293 
Taxable investment securities 1,649,953  1,720,838  1,674,223  1,544,095  1,350,511 
Tax-exempt investment securities 59,115  63,047  73,573  79,044  82,603 
Other interest-earning assets 85,749  117,212  169,291  266,114  247,543 
Total interest-earning assets 6,630,493  6,719,077  6,733,679  6,760,521  6,638,950 
Non-interest-earning assets 616,735  609,762  617,440  632,084  624,252 
Total assets$7,247,228 $7,328,839 $7,351,119 $7,392,605 $7,263,202 
           
Liabilities and Stockholders' Equity          
Interest-bearing liabilities:          
Deposits:          
Interest-bearing demand$1,954,271 $1,930,193 $1,831,617 $1,683,222 $1,464,238 
Savings 1,102,865  1,118,402  1,084,981  1,058,675  1,006,075 
Certificates of deposit 1,798,473  1,934,650  1,904,234  1,899,406  1,988,689 
Total interest-bearing deposits 4,855,609  4,983,245  4,820,832  4,641,303  4,459,002 
Borrowings:          
Federal Home Loan Bank advances 665,915  665,802  865,690  1,057,958  1,130,836 
Other borrowings 28,532  6,670  -  -  3,568 
Total borrowings 694,447  672,472  865,690  1,057,958  1,134,404 
Total interest-bearing liabilities 5,550,056  5,655,717  5,686,522  5,699,261  5,593,406 
Non-interest-bearing liabilities:          
Non-interest-bearing deposits 610,271  566,632  525,018  502,479  479,141 
Other non-interest-bearing liabilities 56,893  52,292  57,018  73,683  79,620 
Total non-interest-bearing liabilities 667,164  618,924  582,036  576,162  558,761 
Total liabilities 6,217,220  6,274,641  6,268,558  6,275,423  6,152,167 
Stockholders' equity 1,030,008  1,054,198  1,082,561  1,117,182  1,111,035 
Total liabilities and stockholders' equity$7,247,228 $7,328,839 $7,351,119 $7,392,605 $7,263,202 
           
Average interest-earning assets to average
interest-bearing liabilities
 119.47% 118.80% 118.41% 118.62% 118.69%
                


 Three Months Ended 
 September 30, June 30, March 31,  December 31, September 30, 
Performance Ratio Highlights2021 2021 2021 2020 2020 
Average yield on interest-earning assets:          
Loans receivable, including loans held for sale (1) 3.99% 4.02% 4.17% 4.17% 4.26%
Taxable investment securities 1.99% 1.93% 1.89% 2.00% 2.17%
Tax-exempt investment securities (2) 2.25% 2.25% 2.23% 2.19% 2.20%
Other interest-earning assets 2.01% 1.87% 1.67% 1.18% 1.48%
Total interest-earning assets (1) 3.45% 3.43% 3.51% 3.53% 3.71%
           
Average cost of interest-bearing liabilities:          
Deposits:          
Interest-bearing demand 0.23% 0.27% 0.34% 0.47% 0.60%
Savings 0.12% 0.15% 0.21% 0.33% 0.57%
Certificates of deposit 0.57% 0.71% 0.96% 1.22% 1.50%
Total interest-bearing deposits 0.33% 0.41% 0.55% 0.75% 0.99%
Borrowings:          
Federal Home Loan Bank advances 2.13% 2.07% 1.85% 1.96% 2.00%
Other borrowings 0.10% 0.07% 0.00% 0.00% 0.04%
Total borrowings 2.05% 2.05% 1.85% 1.96% 2.00%
Total interest-bearing liabilities 0.55% 0.61% 0.75% 0.97% 1.20%
           
Interest rate spread (1) (3) 2.90% 2.82% 2.76% 2.56% 2.51%
Net interest margin (1) (4) 2.99% 2.92% 2.88% 2.72% 2.70%
           
Non-interest income to average assets
(annualized) (1)
 0.21% 0.19% 0.25% 0.31% 0.39%
Non-interest expense to average assets
(annualized)
 1.76% 1.75% 1.62% 1.65% 1.85%
           
Efficiency ratio (5) 59.57% 60.86% 56.15% 59.01% 64.69%
           
Return on average assets (annualized) 1.09% 1.01% 0.89% 0.92% 0.63%
Return on average equity (annualized) 7.66% 7.01% 6.07% 6.07% 4.10%
Return on average tangible equity (annualized) (6) 9.67% 8.81% 7.57% 7.52% 5.08%


________________
(1)Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Periods prior to September 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the periods ended June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020 was $902,000, $852,000, $1,340,000 and $631,000, respectively.
(2)The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(3)Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(4)Net interest income divided by average interest-earning assets.
(5)Non-interest expense divided by the sum of net interest income and non-interest income.
(6)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-GAAPThree Months Ended 
(Dollars and Shares in Thousands,September 30, June 30, March 31,  December 31, September 30, 
Except Per Share Data)2021 2021 2021 2020 2020 
Adjusted net income:          
Net income (GAAP)$19,715 $18,483 $16,423 $16,948 $11,379 
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 
Branch consolidation expenses and impairment
charges
 1,209  870  264  243  - 
Net effect of sale and call of securities (1) (220) (13) (571) - 
Debt extinguishment expenses -  -  -  558  - 
Reversal of income tax valuation allowance -  (12) -  (523) - 
Net effect of sales of other assets -  (144) (587) -  - 
Adjusted net income$20,923 $18,977 $16,087 $16,655 $15,012 
           
Calculation of pre-tax, pre-provision net
revenue:
          
Net income (GAAP)$19,715 $18,483 $16,423 $16,948 $11,379 
Adjustments to net income (GAAP):          
Provision for income taxes 7,272  7,033  5,732  5,614  2,884 
(Reversal of) provision for credit losses (5,400) (4,941) 1,126  (1,365) 4,059 
Pre-tax, pre-provision net revenue (non-GAAP)$21,587 $20,575 $23,281 $21,197 $18,322 
           
Adjusted earnings per share:          
Weighted average common shares - basic 74,537  77,658  80,673  85,120  86,008 
Weighted average common shares - diluted 74,556  77,680  80,690  85,123  86,009 
           
Earnings per share - basic (GAAP)$0.26 $0.24 $0.20 $0.20 $0.13 
Earnings per share - diluted (GAAP)$0.26 $0.24 $0.20 $0.20 $0.13 
           
Adjusted earnings per share - basic (non-GAAP)$0.28 $0.24 $0.20 $0.20 $0.17 
Adjusted earnings per share - diluted (non-GAAP)$0.28 $0.24 $0.20 $0.20 $0.17 
           
Adjusted return on average assets:          
Total average assets$7,247,228 $7,328,839 $7,351,119 $7,392,605 $7,263,202 
           
Return on average assets (GAAP) 1.09% 1.01% 0.89% 0.92% 0.63%
Adjusted return on average assets (non-GAAP) 1.15% 1.04% 0.88% 0.90% 0.83%
           
Adjusted return on average equity:          
Total average equity$1,030,008 $1,054,198 $1,082,561 $1,117,182 $1,111,035 
           
Return on average equity (GAAP) 7.66% 7.01% 6.07% 6.07% 4.10%
Adjusted return on average equity (non-GAAP) 8.13% 7.20% 5.94% 5.96% 5.40%
                


 Three Months Ended 
Reconciliation of GAAP to Non-GAAPSeptember 30, June 30, March 31,  December 31, September 30, 
(Dollars in Thousands)2021 2021 2021 2020 2020 
Adjusted return on average tangible equity:          
Total average equity$1,030,008 $1,054,198 $1,082,561 $1,117,182 $1,111,035 
Less: average goodwill (210,895) (210,895) (210,895) (210,895) (210,895)
Less: average other intangible assets (3,641) (3,825) (4,045) (4,317) (4,341)
 $815,472 $839,478 $867,621 $901,970 $895,799 
    -  -  -  - 
Return on average tangible equity (non-GAAP) 9.67% 8.81% 7.57% 7.52% 5.08%
Adjusted return on average tangible equity
(non-GAAP)
 10.26% 9.04% 7.42% 7.39% 6.70%
           
Adjusted non-interest expense ratio:          
Non-interest expense (GAAP)$31,803 $31,986 $29,816 $30,510 $33,573 
Non-recurring transactions:          
Merger-related expenses -  -  -  -  (4,349)
Branch consolidation expenses and
impairment charges
 (1,711) (1,239) (375) (347) - 
Debt extinguishment expenses -  -  -  (796) - 
Non-interest expense (non-GAAP)$30,092 $30,747 $29,441 $29,367 $29,224 
           
Non-interest expense ratio (GAAP) 1.76% 1.75% 1.62% 1.65% 1.85%
Adjusted non-interest expense ratio (non-GAAP) 1.66% 1.68% 1.60% 1.59% 1.61%
           
Adjusted efficiency ratio:          
Non-interest expense (non-GAAP)$30,092 $30,747 $29,441 $29,367 $29,224 
           
Net interest income (GAAP)$49,590 $49,065 $48,483 $45,893 $44,793 
Total non-interest income (GAAP) 3,800  3,496  4,614  5,814  7,102 
Non-recurring transactions:          
Net effect of sale and call of securities (1) (313) (18) (813) - 
Bargain purchase gain -  -  -  -  (3,053)
Net effect of sales of other assets -  (205) (837) -  - 
Total revenue (non-GAAP)$53,389 $52,043 $52,242 $50,894 $48,842 
           
Efficiency ratio (GAAP) 59.57% 60.86% 56.15% 59.01% 64.69%
Adjusted efficiency ratio (non-GAAP) 56.36% 59.08% 56.36% 57.70% 59.83%
                

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


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