SOURCE: Kearny Financial Corp.

Kearny Financial Corp.

January 30, 2017 19:00 ET

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

Contact Information

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