Kearny Financial Corp. Reports Second Quarter 2017 Operating Results

FAIRFIELD, NJ--(Marketwired - Jan 30, 2017) - Kearny Financial Corp. (NASDAQ: KRNY) (the "Company"), the holding company of Kearny Bank (the "Bank"), today reported net income for the quarter ended December 31, 2016 of $5.5 million, or $0.06 per basic and diluted share. The results represent an increase in net income of $797,000, or 17.0%, compared to net income of $4.7 million, or $0.05 per basic and diluted share, for the quarter ended September 30, 2016.

Overview

The Company continued to execute strategies during the second quarter of fiscal 2017 that were 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 $128.3 million, or 4.5%, to $2.97 billion, or 64.9% of total assets, at December 31, 2016 from $2.85 billion, or 62.9% of total assets, at September 30, 2016. This growth largely reflected the Company's continued strategic focus on commercial loans, which increased by $156.5 million or 7.3% during the period.
  
  
• Nonperforming loans decreased to $21.6 million, or 0.72% of total loans, at December 31, 2016 from $21.8 million, or 0.77% of total loans, at September 30, 2016.
  
  
• The allowance for loan losses increased to $26.1 million at December 31, 2016 from $25.0 million at September 30, 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 120.8% at December 31, 2016 from 114.5% at September 30, 2016.
  
  
• The Company's securities portfolio decreased by $38.4 million, or 3.1%, to $1.19 billion, or 25.9% of total assets, at December 31, 2016 from $1.23 billion, or 27.1% of total assets, at September 30, 2016. The decrease partly reflected the reinvestment of a significant portion of security cash flows into the loan portfolio while also reflecting decreases in the fair value of the available for sale portfolio due to an increase in interest rates during the period.
  
  

The decrease in the securities portfolio was partially offset by the Company's purchase of $15.0 million in subordinated debt issued by a profitable, well capitalized New Jersey-based community bank during the quarter ended December 31, 2016. The subordinated notes, which were acquired through a privately negotiated transaction, have a maturity date of December 22, 2026 and bear interest at the rate of 5.75% per annum, payable quarterly, for the first five years of the term, and then at a variable rate that will reset quarterly to a level equal to the then current 3-month LIBOR plus 350 basis points over the remainder of the term. The notes are redeemable after five years subject to satisfaction of certain conditions. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior to the issuer's general and secured creditors and depositors.

• The balance of cash and cash equivalents decreased by $35.6 million to $37.0 million at December 31, 2016 from $72.6 million at September 30, 2016. The decrease in cash and equivalents largely reflected the reallocation of interest-earning cash and equivalents into comparatively higher-yielding assets in the loan portfolio. Such reallocation contributed significantly to a $133.5 million decrease in the average balance of other interest-earning assets to $71.1 million for the quarter ended December 31, 2016 from $204.6 million for the quarter ended September 30, 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 $12.1 million to $2.75 billion at December 31, 2016, from $2.73 billion at September 30, 2016. The growth in deposits during the second quarter included a $22.8 million increase in interest-bearing deposits that was partially offset by a decrease in non-interest-bearing deposits of $10.8 million. The decrease in non-interest-bearing deposits generally reflected day-to-day fluctuations in the balance of such deposits, as average balances increased by $2.0 million between comparative periods.
  
  
• The Company's total assets increased by $62.0 million to $4.59 billion at December 31, 2016 from $4.52 billion at September 30, 2016.
  
  
• The Company's stockholders' equity decreased by $4.9 million to $1.11 billion at December 31, 2016 from $1.12 billion at September 30, 2016. The decrease partly reflected the return of capital to shareholders through share repurchases and cash dividends during the quarter ended December 31, 2016. These decreases were partially offset by net income earned for the period coupled with a net increase in accumulated other comprehensive income reflecting an increase in the fair value of the Company's derivatives portfolio that more than offset the noted decrease in the fair value of its available for sale securities.
  
  

At December 31, 2016, the Company's total consolidated equity to assets ratio was 24.31% while the Bank's total consolidated equity to assets ratio was 17.91%. The Company's and Bank's capital ratios at December 31, 2016 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 more than 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 $1.6 million, or 6.6%, to $25.6 million for the quarter ended December 31, 2016 from $24.0 million for the quarter ended September 30, 2016.
  
  
• The Company's net interest margin increased 13 basis points to 2.45% for the quarter ended December 31, 2016 from 2.32% for the quarter ended September 30, 2016 while the net interest rate spread increased by 16 basis points to 2.18% from 2.02% 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 $198,000 reflecting an annualized charge off rate of 0.03% on the average balance of total loans for the quarter ended December 31, 2016. By comparison, the Company's net charge offs totaled approximately $354,000 for the quarter ended September 30, 2016, reflecting an annualized charge off rate of 0.05%.
  
  
• The Company's provision for loan losses totaled $1.3 million for the quarter ended December 31, 2016 compared to $1.1 million for the quarter ended September 30, 2016. The provisions for both periods largely reflected the overall growth in the performing portion of the loan portfolio which is collectively evaluated for impairment using historical and environmental loss factors. In addition to updating the historical loss factors for the trend of decreasing charge offs, environmental loss factors were also updated during the quarter ended December 31, 2016 to reflect the increased concentration and decreased seasoning in the Company's multi-family loan sectors.
  
  

The strategies executed by the Company during the second 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 increased to $297,000 for the quarter ended December 31, 2016 compared to $112,000 for the quarter ended September 30, 2016, which largely reflected an increase in the volume of loans originated and sold between comparative periods. 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 $162,000 for the quarter ended December 31, 2016 compared to $188,000 for the quarter ended September 30, 2016, reflecting a slight decrease in the balance of SBA loans originated and sold between comparative periods.
  
  

The Company continues to evaluate and implement operating 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. As highlighted below, these tactics have enabled the Company to generally improve operating efficiency and defray a portion of the compensation costs associated with its recently implemented equity incentive plans:

• The Company's operating efficiency ratio decreased (improved) to 66.7% for the quarter ended December 31, 2016 compared to 70.0% for the prior quarter ended September 30, 2016.
  
  
• The Company reduced its number of full time equivalent ("FTE") employees by eight during the latest quarter to 434 at December 31, 2016 from 442 at September 30, 2016 with the reduction in FTE count arising largely through attrition.
  
  
• The Company's ratio of non-interest expense to average assets totaled 1.71% for the quarter ended December 31, 2016 compared to 1.66% for the prior quarter ended September 30, 2016. The increase in the non-interest expense ratio largely reflected the recognition of additional costs associated with the granting of benefits to employees and directors under the terms of the Company's 2016 Equity Incentive Plan approved by shareholders in October 2016.
  
  

Specifically, the noted grants comprised 1,387,390 shares of restricted stock and 3,290,000 stock options issued on December 1, 2016 that will be earned and vested by plan participants over a five-year period with the vesting of certain restricted stock benefits further subject to "performance-based" metrics. The noted shares of restricted stock were issued from authorized shares during the quarter ended December 31, 2016 and are included in the number of the Company's outstanding shares reported as of that date.

Based on the Company's closing stock price on the date of grant and other assumptions supporting the Company's valuation of the stock options granted under a Black-Scholes calculation methodology, the Company expects the annual pre-tax cost of the grants issued on December 1, 2016 to total approximately $6.2 million with an annual "after-tax" estimated cost of $4.3 million. Given the grant date of December 1, 2016, the Company recognized 8.33% (one-twelfth) or approximately $517,000 in pre-tax expense associated the with noted grants resulting in an "after-tax" charge to net income of approximately $356,000 during the quarter ended December 31, 2016. Beginning with the next quarter ending March 31, 2017, the ongoing quarterly "pre-tax" and "after-tax" expense associated with the noted grants is expected to total $1.6 million and $1.1 million, respectively.

Collectively, the factors noted above contributed to an increase in recurring operating earnings for the quarter ended December 31, 2016 compared to the prior quarter ended September 30, 2016 as highlighted below:

• The Company's return on average assets for the quarter ended December 31, 2016 totaled 0.48% compared to 0.41% for the prior quarter ended September 30, 2016.
  
  
• The Company's return on average equity for the quarter ended December 31, 2016 totaled 1.96% compared to 1.66% for the prior quarter ended September 30, 2016.
  
  

The earnings for the quarter ended December 31, 2016 augmented the Company's stockholders' equity, which continues to reflect the excess 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 second quarter of fiscal 2017 to further support shareholder value:

• The Company continued its payment of a regular quarterly cash dividend of $0.02 per share to stockholders during the quarter ended December 31, 2016. The Company is currently evaluating its dividend policies and practices, including the level of its regular quarterly cash dividend, in relation to its larger 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. However, the volume of shares repurchased during the quarter ended December 31, 2016 decreased compared to prior quarters reflecting the significant increase in the Company's share price during the period.
  
  

For the quarter ended December 31, 2016, the Company repurchased a total of 1,286,533 of its shares at an average cost of $14.55 per share compared to 2,746,290 shares repurchased during the prior quarter ended September 30, 2016 at an average cost of $13.04 per share. Through December 31, 2016, the Company has repurchased 5,739,005 shares, or 61.4% of the number authorized under the current program, at a total cost of $76.8 million and at an average cost of $13.38 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, December 31, 2016 compared to those for the prior quarter ended September 30, 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)				At						Variance or Change			Variance or Change Pct.
				December 31, 2016			September 30, 2016
Assets
Cash and cash equivalents				$	37,032		$	72,593		$	(35,561	)	(49.0	)
Securities available for sale					671,281			689,151			(17,870	)	(2.6	)
Securities held to maturity					517,819			538,319			(20,500	)	(3.8	)
Loans held-for-sale					6,686			4,489			2,197		48.9
Loans receivable, including yield adjustments					2,973,931			2,845,605			128,326		4.5
	Less allowance for loan losses				(26,060	)		(25,003	)		(1,057	)	4.2
		Net loans receivable			2,947,871			2,820,602			127,269		4.5
Premises and equipment					38,341			38,125			216		0.6
Federal Home Loan Bank stock					34,525			31,601			2,924		9.3
Accrued interest receivable					11,809			11,666			143		1.2
Goodwill					108,591			108,591			-		-
Bank owned life insurance					178,656			177,334			1,322		0.7
Deferred income taxes, net					16,098			22,914			(6,816	)	(29.7	)
Other assets					16,599			7,896			8,703		110.2
			Total assets	$	4,585,308		$	4,523,281		$	62,027		1.4
Liabilities
Deposits				$	2,746,017		$	2,733,960		$	12,057		0.4
Borrowings					701,849			633,389			68,460		10.8
Advance payments by borrowers for taxes					7,618			7,597			21		0.3
Other liabilities					15,172			28,801			(13,629	)	(47.3	)
	Total liabilities				3,470,656			3,403,747			66,909		2.0
Stockholders' Equity
Common stock					892			891			1		0.1
Paid-in capital					795,773			813,648			(17,875	)	(2.2	)
Retained earnings					357,540			353,763			3,777		1.1
Unearned ESOP shares					(35,508	)		(35,995	)		487		(1.4	)
Accumulated other comprehensive loss, net					(4,045	)		(12,773	)		8,728		(68.3	)
	Total stockholders' equity				1,114,652			1,119,534			(4,882	)	(0.4	)
		Total liabilities and stockholders' equity		$	4,585,308		$	4,523,281			62,027		1.4
Consolidated capital ratios
	Equity to assets				24.31	%		24.75	%		-0.44	%
	Tangible equity to tangible assets				22.47	%		22.89	%		-0.42	%
Share data
	Outstanding shares (period end)				89,176			89,076			101		0.1
	Equity per share			$	12.50		$	12.57		$	(0.07	)	(0.5	)
	Tangible equity per share (1)			$	11.28		$	11.34		$	(0.06	)	(0.5	)

(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 ended							Variance or Change			Variance or Change Pct.
					December 31, 2016				September 30, 2016
Interest income
	Loans				$	27,407			$	25,697		$	1,710		6.7
	Mortgage-backed securities					3,779				3,937			(158	)	(4.0	)
	Debt securities:
		Taxable				2,146				2,040			106		5.2
		Tax-exempt				562				551			11		2.0
	Other interest-earning assets					421				581			(160	)	(27.5	)
		Total Interest Income				34,315				32,806			1,509		4.6
Interest expense
	Deposits					5,410				5,361			49		0.9
	Borrowings					3,289				3,424			(135	)	(3.9	)
		Total interest expense				8,699				8,785			(86	)	(1.0	)
		Net interest income				25,616				24,021			1,595		6.6
Provision for loan losses						1,255				1,129			126		11.2
		Net interest income after provision for loan losses				24,361				22,892			1,469		6.4
Non-interest income
	Fees and service charges					1,289				663			626		94.4
	Gain on sale and call of securities					21				-			21		-
	Gain on sale of loans					459				300			159		53.0
	Gain (loss) on sale of real estate owned					12				(15	)		27		(180.0	)
	Income from bank owned life insurance					1,321				1,319			2		0.2
	Electronic banking fees and charges					270				283			(13	)	(4.6	)
	Miscellaneous					74				79			(5	)	(6.3	)
		Total non-interest income				3,446				2,629			817		31.1
Non-interest expense
	Salaries and employee benefits					11,592				10,909			683		6.3
	Net occupancy expense of premises					1,976				1,941			35		1.8
	Equipment and systems					2,030				2,048			(18	)	(0.9	)
	Advertising and marketing					387				549			(162	)	(29.5	)
	Federal deposit insurance premium					339				305			34		11.1
	Directors' compensation					379				225			154		68.4
	Miscellaneous					2,670				2,683			(13	)	(0.5	)
		Total non-interest expense				19,373				18,660			713		3.8
			Income before income taxes			8,434				6,861			1,573		22.9
	Income taxes					2,970				2,194			776		35.4
			Net income		$	5,464			$	4,667			797		17.1
Net income per common share (EPS)
	Basic				$	0.06			$	0.05		$	0.01
	Diluted				$	0.06			$	0.05		$	0.01
Dividends paid
	Cash dividends paid per common share				$	0.02			$	0.02		$	-
	Cash dividends paid				$	1,687			$	1,710		$	(23	)
	Dividend payout ratio					30.9	%			36.6	%		-5.77	%
Weighted average number of common shares outstanding
	Basic					85,174				86,246			(1,072	)
	Diluted					85,258				86,304			(1,046	)

Average Balance Sheet Data (Dollars in Thousands, Unaudited)						For the three months ended						Variance or Change			Variance or Change Pct.
						December 31,			September 30,
						2016			2016
Assets
Interest-earning assets:
	Loans receivable, including loans held for sale					$	2,899,794		$	2,697,096		$	202,698		7.5
	Mortgage-backed securities						673,569			695,876			(22,307	)	(3.2	)
	Debt securities:														-
		Tax-exempt					112,221			109,625			2,596		2.4
		Taxable					419,966			442,233			(22,267	)	(5.0	)
			Total debt securities				532,187			551,858			(19,671	)	(3.6	)
	Other interest-earning assets						71,072			204,621			(133,549	)	(65.3	)
				Total interest-earning assets			4,176,622			4,149,451			27,171		0.7
Non-interest-earning assets							351,458			359,514			(8,056	)	(2.2	)
					Total assets	$	4,528,080		$	4,508,965		$	19,115		0.4
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand				$	761,765		$	748,516		$	13,249		1.8
		Savings and club					518,225			515,615			2,610		0.5
		Certificates of deposit					1,224,592			1,215,081			9,511		0.8
			Total interest-bearing deposits				2,504,582			2,479,212			25,370		1.0
	Borrowings:
		Federal Home Loan Bank Advances					594,238			577,305			16,933		2.9
		Other borrowings					35,273			33,530			1,743		5.2
			Total borrowings				629,511			610,835			18,676		3.1
				Total interest-bearing liabilities			3,134,093			3,090,047			44,046		1.4
Non-interest-bearing liabilities:
	Non-interest-bearing deposits						245,928			243,964			1,964		0.8
	Other non-interest-bearing liabilities						31,781			47,092			(15,311	)	(32.5	)
		Total non-interest-bearing liabilities					277,709			291,056			(13,347	)	(4.6	)
			Total liabilities				3,411,802			3,381,103			30,699		0.9
Stockholders' equity							1,116,278			1,127,862			(11,584	)	(1.0	)
				Total liabilities and stockholders' equity		$	4,528,080		$	4,508,965			19,115		0.4
	Average interest-earning assets to average interest-bearing liabilities						133.26	%		134.28	%		-1.02	%	-0.8

Performance Ratio Highlights						For the three months ended				Variance or Change		Variance or Change Pct.
						December 31, 2016		September 30, 2016
Average yield on interest-earning assets:
	Loans receivable, including loans held for sale					3.78%		3.81%		-0.03%
	Mortgage-backed securities					2.24%		2.26%		-0.02%
	Debt securities:
		Tax-exempt				2.00%		2.01%		-0.01%
		Taxable				2.04%		1.85%		0.19%
			Total debt securities			2.04%		1.88%		0.16%
	Other interest-earning assets					2.37%		1.14%		1.23%
			Total interest-earning assets			3.29%		3.16%		0.13%
Average cost of interest-bearing liabilities:
	Deposits:
		Interest-bearing demand				0.62%		0.63%		-0.01%
		Savings and club				0.12%		0.15%		-0.03%
		Certificates of deposit				1.33%		1.31%		0.02%
			Total interest-bearing deposits			0.86%		0.87%		-0.01%
	Borrowings:
		Federal Home Loan Bank Advances				2.20%		2.35%		-0.15%
		Other borrowings				0.29%		0.42%		-0.13%
			Total borrowings			2.09%		2.24%		-0.15%
				Total interest-bearing liabilities		1.11%		1.14%		-0.03%
	Interest rate spread (1)					2.18%		2.02%		0.16%
	Net interest margin (2)					2.45%		2.32%		0.13%
	Non-interest income to average assets (annualized)					0.30%		0.23%		0.07%
	Non-interest expense to average assets (annualized)					1.71%		1.66%		0.05%
	Efficiency ratio (3)					66.66%		70.02%		-3.36%
	Return on average assets (annualized)					0.48%		0.41%		0.07%
	Return on average equity (annualized)					1.96%		1.66%		0.30%

(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
				December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
Assets
Cash and cash equivalents				$	37,032		$	72,593		$	199,200		$	114,956		$	112,864
Securities available for sale					671,281			689,151			673,537			685,787			721,432
Securities held to maturity					517,819			538,319			577,286			592,430			598,391
Loans held-for-sale					6,686			4,489			3,316			-			-
Loans receivable, including yield adjustments					2,973,931			2,845,605			2,673,987			2,720,069			2,601,750
	Less allowance for loan losses				(26,060	)		(25,003	)		(24,229	)		(23,010	)		(20,514	)
		Net loans receivable			2,947,871			2,820,602			2,649,758			2,697,059			2,581,236
Premises and equipment					38,341			38,125			38,385			38,598			39,156
Federal Home Loan Bank stock					34,525			31,601			30,612			29,670			29,671
Accrued interest receivable					11,809			11,666			11,212			11,626			10,929
Goodwill					108,591			108,591			108,591			108,591			108,591
Bank owned life insurance					178,656			177,334			176,016			174,642			173,251
Deferred income taxes, net					16,098			22,914			25,973			27,340			23,252
Other assets					16,599			7,896			6,173			5,310			6,273
			Total assets	$	4,585,308		$	4,523,281		$	4,500,059		$	4,486,009		$	4,405,046
Liabilities
Deposits				$	2,746,017		$	2,733,960		$	2,694,833		$	2,660,773		$	2,583,185
Borrowings					701,849			633,389			614,423			618,320			620,409
Advance payments by borrowers for taxes					7,618			7,597			7,906			8,141			8,037
Other liabilities					15,172			28,801			35,268			34,029			26,939
		Total liabilities			3,470,656			3,403,747			3,352,430			3,321,263			3,238,570
Stockholders' Equity
Common stock					892			891			918			935			935
Paid-in capital					795,773			813,648			849,173			871,156			870,912
Retained earnings					357,540			353,763			350,806			347,717			345,343
Unearned ESOP shares					(35,508	)		(35,995	)		(36,481	)		(36,968	)		(37,454	)
Accumulated other comprehensive loss, net					(4,045	)		(12,773	)		(16,787	)		(18,094	)		(13,260	)
		Total stockholders' equity			1,114,652			1,119,534			1,147,629			1,164,746			1,166,476
			Total liabilities and stockholders' equity	$	4,585,308		$	4,523,281		$	4,500,059		$	4,486,009		$	4,405,046
Consolidated capital ratios
	Equity to assets				24.31	%		24.75	%		25.50	%		25.96	%		26.48	%
	Tangible equity to tangible assets				22.47	%		22.89	%		23.65	%		24.12	%		24.61	%
Share data
	Outstanding shares (period end)				89,176			89,076			91,822			93,528			93,528
	Equity per share			$	12.50		$	12.57		$	12.50		$	12.45		$	12.47
	Tangible equity per share (1)			$	11.28		$	11.34		$	11.31		$	11.29		$	11.31

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

Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)							At
							December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
Cash and cash equivalents
	Cash and due from depository institutions						$	17,541		$	18,829		$	21,328		$	20,372		$	21,440
	Interest-bearing deposits in other banks							19,491			53,764			177,872			94,584			91,424
		Total cash and cash equivalents					$	37,032		$	72,593		$	199,200		$	114,956		$	112,864
Securities available for sale
	Debt securities:
		U.S. agency securities					$	5,809		$	6,172		$	6,440		$	6,724		$	6,837
		Municipal and state obligations						27,090			28,259			28,398			28,066			27,683
		Asset-backed securities						121,445			84,065			82,625			84,396			84,179
		Collateralized loan obligations						98,447			128,047			127,374			124,941			127,288
		Corporate bonds						138,564			137,976			137,404			136,678			159,657
		Trust preferred securities						8,101			7,968			7,669			7,263			7,851
			Debt securities available for sale					399,456			392,487			389,910			388,068			413,495
	Mortgage-backed securities:
		Collateralized mortgage obligations						52,333			57,170			60,577			63,744			64,716
		Residential pass-through securities						211,258			231,052			214,526			225,469			234,455
		Commercial pass-through securities						8,234			8,442			8,524			8,506			8,766
			Mortgage-backed securities					271,825			296,664			283,627			297,719			307,937
			Total securities available for sale				$	671,281		$	689,151		$	673,537		$	685,787		$	721,432
Securities held to maturity
	Debt securities:
		U.S. agency securities					$	34,999		$	59,995		$	84,992		$	84,990		$	84,989
		Municipal and state obligations						87,682			82,087			82,179			82,154			82,337
		Subordinated debt						15,000			-			-			-			-
			Debt securities held to maturity					137,681			142,082			167,171			167,144			167,326
	Mortgage-backed securities:
		Collateralized mortgage obligations						20,543			21,699			23,081			24,561			25,821
		Residential pass-through securities						200,402			211,930			223,632			234,595			238,283
		Commercial pass-through securities						159,193			162,608			163,402			166,130			166,961
			Mortgage-backed securities					380,138			396,237			410,115			425,286			431,065
				Total securities held to maturity			$	517,819		$	538,319		$	577,286		$	592,430		$	598,391
					Total securities		$	1,189,100		$	1,227,470		$	1,250,823		$	1,278,217		$	1,319,823

Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)				At
				December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
Loan portfolio composition:
	Residential first mortgage loans			$	562,466		$	584,156		$	605,203		$	620,867		$	618,409
	Home equity loans and lines of credit				83,305			85,799			89,566			90,610			91,486
		Residential mortgage loans			645,771			669,955			694,769			711,477			709,895
	Multifamily mortgage loans				1,295,207			1,142,908			1,040,293			1,044,180			972,020
	Nonresidential and mixed use mortgage loans				932,616			916,769			820,673			837,758			799,909
		Commercial mortgage loans			2,227,823			2,059,677			1,860,966			1,881,938			1,771,929
	Commercial business loans				75,640			87,333			88,207			95,131			97,682
	Construction loans				927			2,059			2,038			3,734			3,697
	Account loans				2,980			3,012			3,349			3,313			3,368
	Other consumer loans				17,501			19,870			22,052			21,642			12,452
		Consumer loans			20,481			22,882			25,401			24,955			15,820
		Total loans, excluding yield adjs			2,970,642			2,841,906			2,671,381			2,717,235			2,599,023
	Unamortized yield adjustments				3,289			3,699			2,606			2,834			2,727
			Loans receivable, including yield adjs		2,973,931			2,845,605			2,673,987			2,720,069			2,601,750
	Less allowance for loan losses				(26,060	)		(25,003	)		(24,229	)		(23,010	)		(20,514	)
			Net loans receivable	$	2,947,871		$	2,820,602		$	2,649,758		$	2,697,059		$	2,581,236
Loan portfolio allocation:
	Residential first mortgage loans				18.9	%		20.6	%		22.7	%		22.8	%		23.8	%
	Home equity loans and lines of credit				2.8	%		3.0	%		3.4	%		3.3	%		3.5	%
		Residential mortgage loans			21.7	%		23.6	%		26.0	%		26.2	%		27.3	%
	Multifamily mortgage loans				43.6	%		40.2	%		38.9	%		38.4	%		37.4	%
	Nonresidential and mixed use mortgage loans				31.4	%		32.3	%		30.7	%		30.8	%		30.8	%
		Commercial mortgage loans			75.0	%		72.5	%		69.7	%		69.3	%		68.2	%
	Commercial business loans				2.5	%		3.1	%		3.3	%		3.5	%		3.8	%
	Construction loans				0.0	%		0.1	%		0.1	%		0.1	%		0.1	%
	Account loans				0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
	Other consumer loans				0.6	%		0.7	%		0.8	%		0.8	%		0.5	%
		Consumer loans			0.7	%		0.8	%		1.0	%		0.9	%		0.6	%
			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			$	92		$	77		$	38		$	-		$	-
	Nonaccrual loans				21,473			21,768			21,017			28,275			20,966
		Total nonperforming loans			21,565			21,845			21,055			28,275			20,966
	Other real estate owned				2,037			1,356			826			1,475			2,313
		Total Nonperforming assets		$	23,602		$	23,201		$	21,881		$	29,750		$	23,279
		Nonperforming loans (% total loans)			0.72	%		0.77	%		0.79	%		1.04	%		0.81	%
		Nonperforming assets (% total assets)			0.51	%		0.51	%		0.49	%		0.66	%		0.53	%
Allowance for loan losses (ALLL):
	ALLL to total loans				0.88	%		0.88	%		0.91	%		0.85	%		0.79	%
	ALLL to nonperforming loans				120.84	%		114.46	%		115.07	%		81.38	%		97.84	%
	Net charge offs			$	198		$	354		$	827		$	93		$	591
	Average net charge off rate (annualized)				0.03	%		0.05	%		0.12	%		0.01	%		0.09	%

Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)						At
						December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
Funding by type:
Deposits
	Non-interest-bearing deposits					$	240,367		$	251,141		$	238,751		$	226,700		$	213,242
	Interest-bearing demand						768,556			750,126			732,633			717,603			728,815
	Savings and club						519,257			514,909			516,023			520,826			514,935
	Certificates of deposit						1,217,837			1,217,784			1,207,426			1,195,644			1,126,193
		Interest-bearing deposits					2,505,650			2,482,819			2,456,082			2,434,073			2,369,943
			Total deposits				2,746,017			2,733,960			2,694,833			2,660,773			2,583,185
Borrowings:
		Federal Home Loan Bank advances					665,742			600,765			578,788			585,317			585,347
		Depositor sweep accounts					36,107			32,624			35,635			33,003			35,062
			Total borrowings				701,849			633,389			614,423			618,320			620,409
				Total funding		$	3,447,866		$	3,367,349		$	3,309,256		$	3,279,093		$	3,203,594
	Loans as a % of deposits						107.6	%		103.3	%		98.5	%		101.4	%		99.9	%
	Deposits as a % of total funding						79.6	%		81.2	%		81.4	%		81.1	%		80.6	%
	Borrowings as a % of total funding						20.4	%		18.8	%		18.6	%		18.9	%		19.4	%
Funding by source:
Retail funding
	Non-interest-bearing deposits					$	240,367		$	251,141		$	238,751		$	226,700		$	213,242
	Interest-bearing demand						544,487			527,511			508,528			493,831			482,200
	Savings and club						519,257			514,909			516,023			520,826			514,935
	Certificates of deposit						1,113,073			1,119,922			1,109,203			1,097,414			1,017,879
		Total retail deposits					2,417,184			2,413,483			2,372,505			2,338,771			2,228,256
	Depositor sweep accounts						36,107			32,624			35,635			33,003			35,062
		Total retail funding				$	2,453,291		$	2,446,107		$	2,408,140		$	2,371,774		$	2,263,318
Wholesale funding:
	Interest-bearing demand					$	224,069		$	222,615		$	224,105		$	223,772		$	246,615
	Certificates of deposit (listing service)						96,516			89,608			89,857			89,857			89,857
	Certificates of deposit (brokered)						8,248			8,254			8,366			8,373			18,457
		Total wholesale deposits					328,833			320,477			322,328			322,002			354,929
	FHLB Advances						665,742			600,765			578,788			585,317			585,347
		Total wholesale funding					994,575			921,242			901,116			907,319			940,276
			Total funding			$	3,447,866		$	3,367,349		$	3,309,256		$	3,279,093		$	3,203,594
	Retail funding as a % of total funding						71.2	%		72.6	%		72.8	%		72.3	%		70.6	%
	Wholesale funding as a % of total funding						28.8	%		27.4	%		27.2	%		27.7	%		29.4	%

Summary Income Statement (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)					For the three months ended
					December 31, 2016		September 30, 2016	June 30, 2016		March 31, 2016	December 31, 2015
Interest income
	Loans				$ 27,407		$ 25,697	$ 25,698		$ 25,585	$ 24,641
	Mortgage-backed securities				3,779		3,937	4,032		4,296	4,409
	Debt securities:
		Taxable			2,146		2,040	1,990		1,988	1,845
		Tax-exempt			562		551	551		551	555
	Other interest-earning assets				421		581	496		462	374
			Total Interest Income		34,315		32,806	32,767		32,882	31,824
Interest expense
	Deposits				5,410		5,361	5,140		4,932	4,529
	Borrowings				3,289		3,424	3,400		3,486	3,357
		Total interest expense			8,699		8,785	8,540		8,418	7,886
		Net interest income			25,616		24,021	24,227		24,464	23,938
Provision for loan losses					1,255		1,129	2,046		2,589	3,414
		Net interest income after provision for loan losses			24,361		22,892	22,181		21,875	20,524
Non-interest income
	Fees and service charges				1,289		663	1,340		794	709
	Gain on sale and call of securities				21		-	-		-	2
	Gain on sale of loans				459		300	132		156	76
	Gain (loss) on sale of real estate owned				12		(15)	24		(48)	(113)
	Income from bank owned life insurance				1,321		1,319	1,374		1,390	1,409
	Electronic banking fees and charges				270		283	284		244	277
	Miscellaneous				74		79	57		77	50
		Total non-interest income			3,446		2,629	3,211		2,613	2,410
Non-interest expense
	Salaries and employee benefits				11,592		10,909	10,640		10,459	10,381
	Net occupancy expense of premises				1,976		1,941	1,813		1,991	1,774
	Equipment and systems				2,030		2,048	2,092		2,045	1,614
	Advertising and marketing				387		549	490		539	563
	Federal deposit insurance premium				339		305	687		684	675
	Directors' compensation				379		225	224		225	181
	Miscellaneous				2,670		2,683	1,732		2,710	2,516
		Total non-interest expense			19,373		18,660	17,678		18,653	17,704
			Income before income taxes		8,434		6,861	7,714		5,835	5,230
	Income taxes				2,970		2,194	2,833		1,667	1,433
			Net income		$ 5,464		$ 4,667	$ 4,881		$ 4,168	$ 3,797
Net income per common share (EPS)
	Basic				$ 0.06		$ 0.05	$ 0.05		$ 0.05	$ 0.04
	Diluted				$ 0.06		$ 0.05	$ 0.05		$ 0.05	$ 0.04
Dividends paid
	Cash dividends paid per common share				$ 0.02		$ 0.02	$ 0.02		$ 0.02	$ 0.02
	Cash dividends paid				$ 1,687		$ 1,710	$ 1,792		$ 1,793	$ 1,789
	Dividend payout ratio				30.9%		36.6%	36.7%		43.0%	47.1%
Weighted average number of common shares outstanding
	Basic				85,174		86,246	89,443		89,690	89,640
	Diluted				85,258		86,304	89,481		89,724	89,674

Average Balance Sheet Data (Dollars in Thousands, Unaudited)					For the three months ended
					December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
Assets
Interest-earning assets:
	Loans receivable, including loans held for sale				$	2,899,794		$	2,697,096		$	2,682,755		$	2,564,753		$	2,496,324
	Mortgage-backed securities					673,569			695,876			705,962			730,810			751,576
	Debt securities:
		Tax-exempt				112,221			109,625			109,691			109,798			111,611
		Taxable				419,966			442,233			459,731			474,547			495,982
			Total debt securities			532,187			551,858			569,422			584,345			607,593
	Other interest-earning assets					71,072			204,621			191,129			135,872			167,476
			Total interest-earning assets			4,176,622			4,149,451			4,149,268			4,015,780			4,022,969
Non-interest-earning assets						351,458			359,514			352,841			356,578			358,633
				Total assets	$	4,528,080		$	4,508,965		$	4,502,109		$	4,372,358		$	4,381,602
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand			$	761,765		$	748,516		$	726,327		$	725,070		$	716,008
		Savings and club				518,225			515,615			519,055			515,762			510,818
		Certificates of deposit				1,224,592			1,215,081			1,200,874			1,177,147			1,099,626
			Total interest-bearing deposits			2,504,582			2,479,212			2,446,256			2,417,979			2,326,452
	Borrowings:
	Federal Home Loan Bank Advances					594,238			577,305			585,085			585,329			586,314
	Other borrowings					35,273			33,530			32,183			32,598			39,980
			Total borrowings			629,511			610,835			617,268			617,927			626,294
				Total interest-bearing liabilities		3,134,093			3,090,047			3,063,524			3,035,906			2,952,746
Non-interest-bearing liabilities:
	Non-interest-bearing deposits					245,928			243,964			232,698			217,841			223,451
	Other non-interest-bearing liabilities					31,781			47,092			41,577			41,480			39,396
			Total non-interest-bearing liabilities			277,709			291,056			274,275			259,321			262,847
			Total liabilities			3,411,802			3,381,103			3,337,799			3,295,227			3,215,593
Stockholders' equity						1,116,278			1,127,862			1,164,310			1,167,131			1,166,009
		Total liabilities and stockholders' equity			$	4,528,080		$	4,508,965		$	4,502,109		$	4,462,358		$	4,381,602
	Average interest-earning assets to average interest-bearing liabilities					133.26	%		134.28	%		135.44	%		135.24	%		136.25	%

Performance Ratio Highlights						For the three months ended
						December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016		December 31, 2015
Average yield on interest-earning assets:
	Loans receivable, including loans held for sale					3.78%		3.81%		3.83%		3.85%		3.95%
	Mortgage-backed securities					2.24%		2.26%		2.28%		2.35%		2.35%
	Debt securities:
		Tax-exempt				2.00%		2.01%		2.01%		2.01%		1.99%
		Taxable				2.04%		1.85%		1.73%		1.68%		1.49%
			Total debt securities			2.04%		1.88%		1.79%		1.74%		1.58%
	Other interest-earning assets					2.37%		1.14%		1.04%		1.36%		0.90%
				Total interest-earning assets		3.29%		3.16%		3.16%		3.20%		3.16%
Average cost of interest-bearing liabilities:
	Deposits:
		Interest-bearing demand				0.62%		0.63%		0.62%		0.60%		0.57%
		Savings and club				0.12%		0.15%		0.16%		0.16%		0.17%
		Certificates of deposit				1.33%		1.31%		1.27%		1.23%		1.20%
			Total interest-bearing deposits			0.86%		0.87%		0.84%		0.82%		0.78%
	Borrowings:
		Federal Home Loan Bank Advances				2.20%		2.35%		2.30%		2.35%		2.25%
		Other borrowings				0.29%		0.42%		0.50%		0.51%		0.53%
			Total borrowings			2.09%		2.24%		2.20%		2.26%		2.14%
			Total interest-bearing liabilities			1.11%		1.14%		1.12%		1.11%		1.07%
	Interest rate spread (1)					2.18%		2.02%		2.04%		2.09%		2.09%
	Net interest margin (2)					2.45%		2.32%		2.34%		2.38%		2.38%
	Non-interest income to average assets (annualized)					0.30%		0.23%		0.29%		0.23%		0.22%
	Non-interest expense to average assets (annualized)					1.71%		1.66%		1.57%		1.67%		1.62%
	Efficiency ratio					66.66%		70.02%		64.43%		68.89%		67.19%
	Return on average assets (annualized)					0.48%		0.41%		0.43%		0.37%		0.35%
	Return on average equity (annualized)					1.96%		1.66%		1.68%		1.43%		1.30%

(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