Kearny Financial Corp. Reports Fiscal 2021 Third Quarter Results


FAIRFIELD, N.J., April 29, 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 March 31, 2021 of $16.4 million, or $0.20 per diluted share, compared to $16.9 million, or $0.20 per diluted share, for the quarter ended December 31, 2020.

Craig L. Montanaro, President and Chief Executive Officer, commented, “This quarter’s performance was highlighted by double-digit margin expansion largely resulting from a 22 basis point decrease in the cost of our interest-bearing liabilities. The success we have had in shifting our funding mix, controlling operating expenses and building valuable long-term lending and deposit relationships serves us well today and into the future.”

With regard to the current credit environment, Mr. Montanaro further noted, “Despite an increase of $4.2 million in reserves on individually evaluated loans, largely attributable to two non-performing commercial real estate loans, asset quality remains solid. Our fortress-like balance sheet, comprised of significant levels of excess capital and a robust allowance for credit losses, positions us to withstand the ongoing economic impact of the pandemic while allowing us to take advantage of strategic capital deployment opportunities as they may arise.”

Balance Sheet

  • Deposits increased by $61.8 million to $5.37 billion at March 31, 2021 from $5.31 billion at December 31, 2020, reflecting growth of $227.8 million, or 6.8%, in core non-maturity deposits.
  • Loans receivable decreased by $30.4 million to $4.80 billion at March 31, 2021 from $4.83 billion at December 31, 2020. Included in the net decrease for the period was a reduction of $18.3 million in Paycheck Protection Program (“PPP”) loan balances.
  • Investment securities increased to $1.81 billion, or 24.5% of total assets, at March 31, 2021 from $1.73 billion at December 31, 2020, while borrowings remained relatively flat, increasing to $865.8 million, or 11.8% of total assets, from $865.7 million, or 11.8% of total assets, for those same comparative periods.

Earnings

Net Interest Income and Net Interest Margin

  • Net interest income increased by $3.1 million to $47.6 million for the quarter ended March 31, 2021 from $44.6 million for the quarter ended December 31, 2020. This increase was the result of a $3.2 million reduction in interest expense that was partially offset by an $80,000 decline in interest income. Included in net interest income was purchase accounting accretion of $4.8 million and $3.7 million, for the quarters ended March 31, 2021 and December 31, 2020, respectively.
  • Net interest margin increased by 19 basis points to 2.83% for the quarter ended March 31, 2021 from 2.64% for the quarter ended December 31, 2020. For those same comparative periods, yield on interest-earning assets increased by one basis point to 3.46% while the cost of interest-bearing liabilities decreased by 22 basis points to 0.75%.

Non-Interest Income

  • Fees and service charges totaled $1.3 million for the quarter ended March 31, 2021 compared to $1.9 million for the quarter ended December 31, 2020. This decrease was largely attributable to a decrease of $488,000 in loan pre-payment penalty income to $871,000 for the quarter ended March 31, 2021.
  • Gain on sale of loans totaled $943,000 for the quarter ended March 31, 2021 compared to $2.4 million for the quarter ended December 31, 2020. This decrease was largely attributable to the strategic decision to retain a greater percentage of originated loans within the portfolio, compared to the prior quarter.
  • Gain on sale and call of securities was $18,000 for the quarter ended March 31, 2021 compared to $813,000 for the quarter ended December 31, 2020. This decrease was largely attributable to a gain recorded in the prior comparative period in connection with a previously disclosed wholesale restructuring transaction.
  • Included in other non-interest income was a non-recurring gain of $837,000 attributable to the sale of two properties which previously served as Kearny Bank retail branch locations and were sold in connection with branch consolidation activities.

Non-Interest Expense

  • Non-interest expense decreased by $694,000 to $29.8 million for the quarter ended March 31, 2021 compared to $30.5 million for the quarter ended December 31, 2020. The decrease was largely attributable to $796,000 in debt extinguishment expense recognized in the prior comparative period with no such expense recognized in the current period.
  • Included in other non-interest expense for the quarter ended March 31, 2021 was an asset impairment charge of $375,000 related to the consolidation and closure of one additional branch location.
  • The efficiency and non-interest expense ratios were 56.15% and 1.62%, respectively, for the quarter ended March 31, 2021 as compared to 59.01% and 1.65%, respectively, for the quarter ended December 31, 2020.

Income Taxes

  • Income tax expense totaled $5.7 million for the quarter ended March 31, 2021 compared to $5.6 million for the quarter ended December 31, 2020, resulting in effective tax rates of 25.9% and 24.9%, respectively.

Performance Highlights

  • Return on average assets was 0.89% for the quarter ended March 31, 2021 as compared to 0.92% for the quarter ended December 31, 2020.
  • Return on average equity was 6.07% for the quarters ended March 31, 2021 and December 31, 2020. Return on average tangible equity was 7.57% for the quarter ended March 31, 2021 as compared to 7.52% for the quarter ended December 31, 2020.

Asset Quality

  • The balance of non-performing assets remained relatively stable at $71.6 million, or 0.97% of total assets, at March 31, 2021 compared $71.7 million, or 0.98% of total assets, at December 31, 2020.
  • Based on Section 4013 of the CARES Act, the Consolidated Appropriations Act, 2021 and related guidance promulgated by federal banking regulators, qualifying loan modifications, including short-term payment deferrals, are not considered to be troubled debt restructurings. As of March 31, 2021, the Company had active payment deferrals on 32 loans totaling $52.9 million, representing 1.10% of total loans.
  • Net charge offs totaled $750,000 for the quarter ended March 31, 2021 compared to $109,000 for the quarter ended December 31, 2020, reflecting annualized net charge off rates of 0.06% and 0.01% for the those same comparative periods. Net charge offs for the quarter were largely attributable to one Small Business Administration 7a loan totaling $675,000.
  • Provision for credit losses totaled $1.1 million for the quarter ended March 31, 2021 compared to a provision for credit losses reversal of $1.4 million for the quarter ended December 31, 2020. The comparatively higher level of provision primarily reflected an increase in reserves on individually evaluated loans of $4.2 million, partially offset by a release of reserves within the one- to four-family residential segments, reflecting the improving credit risk outlook for that asset class.
  • The increase in reserves on individually evaluated loans, noted above, was largely attributable to two non-performing commercial real estate loans, with principal balances totaling $9.8 million, secured by properties located in New York City.
  • The Allowance for Credit Losses (“ACL”) increased to $63.8 million at March 31, 2021 from $63.4 million at December 31, 2020, with such balances reflecting an ACL to total loans ratio of 1.32% and 1.30%, respectively, as of those dates.

Liquidity & Capital

  • At March 31, 2021, liquid assets included $109.0 million of short-term cash and equivalents supplemented by $1.78 billion of investment securities classified as available for sale. The Company had the capacity to borrow additional funds totaling $615.0 million via unsecured lines of credit and $1.81 billion and $257.0 million, without pledging additional collateral, from the FHLB of New York and Federal Reserve Bank, respectively.
  • During the quarter ended March 31, 2021, the Company repurchased 3,026,564 shares of common stock at a cost of $34.9 million, or $11.52 per share.
  • For the quarter ended March 31, 2021, book value per share increased by $0.12 to $12.98 while tangible book value per share increased by $0.03 to $10.36.
  • At March 31, 2021, the Company’s ratio of tangible equity to tangible assets equaled 11.89%.  At March 31, 2021, 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.

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 is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened or 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 reopen or remain open, and high levels of unemployment continue for an extended period of time, 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 
             
Summary Balance SheetAt
   Variance 
(Dollars and Shares in Thousands,March 31, December 31, Variance or Change
Except Per Share Data, Unaudited)2021 2020 or Change
Pct. 
Assets            
Cash and cash equivalents$108,991 $129,694 $(20,703) -16.0%
Securities available for sale 1,778,970  1,695,893  83,077  4.9%
Securities held to maturity 27,168  29,549  (2,381) -8.1%
Loans held-for-sale 5,172  12,601  (7,429) -59.0%
Loans receivable 4,798,239  4,828,634  (30,395) -0.6%
Less allowance for credit losses on loans (63,762) (63,386) (376) 0.6%
Net loans receivable 4,734,477  4,765,248  (30,771) -0.6%
Premises and equipment 60,360  61,181  (821) -1.3%
Federal Home Loan Bank stock 45,578  45,578  -  0.0%
Accrued interest receivable 20,562  19,826  736  3.7%
Goodwill 210,895  210,895  -  0.0%
Core deposit intangible 3,888  4,151  (263) -6.3%
Bank owned life insurance 281,765  280,235  1,530  0.5%
Deferred income taxes, net 32,230  30,846  1,384  4.5%
Other real estate owned 178  178  -  0.0%
Other assets 47,760  49,278  (1,518) -3.1%
Total assets$7,357,994 $7,335,153 $22,841  0.3%
             
Liabilities            
Deposits$5,374,452 $5,312,613 $61,839  1.2%
Borrowings 865,763  865,651  112  0.0%
Advance payments by borrowers for taxes 15,300  16,100  (800) -5.0%
Other liabilities 38,667  48,448  (9,781) -20.2%
Total liabilities 6,294,182  6,242,812  51,370  0.8%
             
Stockholders' Equity            
Common stock 820  849  (29) -3.4%
Paid-in capital 691,280  724,389  (33,109) -4.6%
Retained earnings 397,594  388,376  9,218  2.4%
Unearned ESOP shares (27,239) (27,726) 487  -1.8%
Accumulated other comprehensive income 1,357  6,453  (5,096) -79.0%
Total stockholders' equity 1,063,812  1,092,341  (28,529) -2.6%
Total liabilities and stockholders' equity$7,357,994 $7,335,153 $22,841  0.3%
             
Consolidated capital ratios            
Equity to assets 14.46% 14.89% -0.43%   
Tangible equity to tangible assets (1) 11.89% 12.32% -0.44%   
             
Share data            
Outstanding shares 81,943  84,938  (2,995) -3.5%
Book value per share$12.98 $12.86 $0.12  0.9%
Tangible book value per share (2)$10.36 $10.33 $0.03  0.3%

_______________________
(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.

Summary Income StatementFor the three months ended
   Variance
(Dollars and Shares in Thousands,March 31,
December 31,
Variance
or Change
Except Per Share Data, Unaudited)2021
2020
or Change
Pct.
Interest income            
Loans$49,307 $49,466 $(159) -0.3%
Taxable investment securities 7,891  7,707  184  2.4%
Tax-exempt investment securities 410  433  (23) -5.3%
Other interest-earning assets 705  787  (82) -10.4%
Total Interest Income 58,313  58,393  (80) -0.1%
             
Interest expense            
Deposits 6,670  8,647  (1,977) -22.9%
Borrowings 4,012  5,193  (1,181) -22.7%
Total interest expense 10,682  13,840  (3,158) -22.8%
Net interest income 47,631  44,553  3,078  6.9%
Provision for (reversal of) credit losses 1,126  (1,365) 2,491  182.5%
Net interest income after provision for (reversal of)
credit losses
 46,505  45,918  587  1.3%
             
Non-interest income            
Fees and service charges 1,325  1,896  (571) -30.1%
Gain on sale and call of securities 18  813  (795) -97.8%
Gain on sale of loans 943  2,378  (1,435) -60.3%
Income from bank owned life insurance 1,530  1,596  (66) -4.1%
Electronic banking fees and charges 456  404  52  12.9%
Other income 1,194  67  1,127  1682.1%
Total non-interest income 5,466  7,154  (1,688) -23.6%
             
Non-interest expense            
Salaries and employee benefits 16,965  17,081  (116) -0.7%
Net occupancy expense of premises 3,433  3,120  313  10.0%
Equipment and systems 3,823  3,902  (79) -2.0%
Advertising and marketing 567  513  54  10.5%
Federal deposit insurance premium 488  490  (2) -0.4%
Directors' compensation 748  748  -  0.0%
Debt extinguishment expenses -  796  (796) -100.0%
Other expense 3,792  3,860  (68) -1.8%
Total non-interest expense 29,816  30,510  (694) -2.3%
Income before income taxes 22,155  22,562  (407) -1.8%
Income taxes 5,732  5,614  118  2.1%
Net income$16,423 $16,948 $(525) -3.1%
             
Net income per common share (EPS)            
Basic$0.20 $0.20 $0.00    
Diluted$0.20 $0.20 $0.00    
             
Dividends declared            
Cash dividends declared per common share$0.09 $0.08 $0.01    
Cash dividends declared$7,205 $6,706 $499    
Dividend payout ratio 43.9% 39.6% 4.3%   
             
Weighted average number of common
shares outstanding
            
Basic 80,673  85,120  (4,447)   
Diluted 80,690  85,123  (4,433)   
             


 For the three months ended
   Variance
Average Balance Sheet DataMarch 31,
December 31,
Variance
or Change
(Dollars in Thousands, Unaudited)2021
2020
or Change
Pct.
Assets            
Interest-earning assets:            
Loans receivable, including loans held for sale$4,816,592 $4,871,268 $(54,676) -1.1%
Taxable investment securities 1,674,223  1,544,095  130,128  8.4%
Tax-exempt investment securities 73,573  79,044  (5,471) -6.9%
Other interest-earning assets 169,291  266,114  (96,823) -36.4%
Total interest-earning assets 6,733,679  6,760,521  (26,842) -0.4%
Non-interest-earning assets 617,440  632,084  (14,644) -2.3%
Total assets$7,351,119 $7,392,605 $(41,486) -0.6%
             
Liabilities and Stockholders' Equity            
Interest-bearing liabilities:            
Deposits:            
Interest-bearing demand$1,831,617 $1,683,222 $148,395  8.8%
Savings 1,084,981  1,058,675  26,306  2.5%
Certificates of deposit 1,904,234  1,899,406  4,828  0.3%
Total interest-bearing deposits 4,820,832  4,641,303  179,529  3.9%
Borrowings:            
Federal Home Loan Bank advances 865,690  1,057,958  (192,268) -18.2%
Total interest-bearing liabilities 5,686,522  5,699,261  (12,739) -0.2%
Non-interest-bearing liabilities:            
Non-interest-bearing deposits 525,018  502,479  22,539  4.5%
Other non-interest-bearing liabilities 57,018  73,683  (16,665) -22.6%
Total non-interest-bearing liabilities 582,036  576,162  5,874  1.0%
Total liabilities 6,268,558  6,275,423  (6,865) -0.1%
Stockholders' equity 1,082,561  1,117,182  (34,621) -3.1%
Total liabilities and stockholders' equity$7,351,119 $7,392,605 $(41,486) -0.6%
             
Average interest-earning assets to average
interest-bearing liabilities
 118.41% 118.62% -0.21% -0.2%
             


 For the three months ended
   
 March 31,
December 31,
Variance
Performance Ratio Highlights20212020or Change
Average yield on interest-earning assets:         
Loans receivable, including loans held for sale 4.09% 4.06% 0.03%
Taxable investment securities 1.89% 2.00% -0.11%
Tax-exempt investment securities (1) 2.23% 2.19% 0.04%
Other interest-earning assets 1.67% 1.18% 0.49%
Total interest-earning assets 3.46% 3.45% 0.01%
          
Average cost of interest-bearing liabilities:         
Deposits:         
Interest-bearing demand 0.34% 0.47% -0.13%
Savings 0.21% 0.33% -0.12%
Certificates of deposit 0.96% 1.22% -0.26%
Total interest-bearing deposits 0.55% 0.75% -0.20%
Borrowings:         
Federal Home Loan Bank advances 1.85% 1.96% -0.11%
Total interest-bearing liabilities 0.75% 0.97% -0.22%
          
Interest rate spread (2) 2.71% 2.48% 0.23%
Net interest margin (3) 2.83% 2.64% 0.19%
          
Non-interest income to average assets
(annualized)
 0.30% 0.39% -0.09%
Non-interest expense to average assets
(annualized)
 1.62% 1.65% -0.03%
          
Efficiency ratio (4) 56.15% 59.01% -2.86%
          
Return on average assets (annualized) 0.89% 0.92% -0.03%
Return on average equity (annualized) 6.07% 6.07% 0.00%
Return on average tangible equity (annualized) (5) 7.57% 7.52% 0.05%

_______________________
(1)  The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(2)  Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(3)  Net interest income divided by average interest-earning assets.
(4)  Non-interest expense divided by the sum of net interest income and non-interest income.
(5)  Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.

Five-Quarter Financial Trend Analysis 
                
Summary Balance SheetAt 
(Dollars and Shares in Thousands,March 31,  December 31,  September 30,
June 30,
March 31,
Except Per Share Data, Unaudited)2021 2020 2020
2020
2020
Assets               
Cash and cash equivalents$108,991 $129,694 $145,818 $180,967 $59,452 
Securities available for sale 1,778,970  1,695,893  1,508,542  1,385,703  1,476,344 
Securities held to maturity 27,168  29,549  31,576  32,556  34,618 
Loans held-for-sale 5,172  12,601  20,170  20,789  11,245 
Loans receivable 4,798,239  4,828,634  4,954,750  4,498,397  4,562,512 
Less allowance for credit losses on loans (63,762) (63,386) (64,860) (37,327) (37,191)
Net loans receivable 4,734,477  4,765,248  4,889,890  4,461,070  4,525,321 
Premises and equipment 60,360  61,181  61,808  57,389  58,985 
Federal Home Loan Bank stock 45,578  45,578  55,118  58,654  59,324 
Accrued interest receivable 20,562  19,826  20,368  17,373  19,036 
Goodwill 210,895  210,895  210,895  210,895  210,895 
Core deposit intangible 3,888  4,151  4,420  3,995  4,242 
Bank owned life insurance 281,765  280,235  278,639  262,380  260,843 
Deferred income taxes, net 32,230  30,846  33,319  25,480  27,150 
Other real estate owned 178  178  178  178  178 
Other assets 47,760  49,278  49,468  40,746  26,200 
Total assets$7,357,994 $7,335,153 $7,310,209 $6,758,175 $6,773,833 
                
Liabilities               
Deposits$5,374,452 $5,312,613 $5,039,912 $4,430,282 $4,253,254 
Borrowings 865,763  865,651  1,077,540  1,173,165  1,384,025 
Advance payments by borrowers for taxes 15,300  16,100  17,008  16,569  16,492 
Other liabilities 38,667  48,448  51,689  53,982  50,390 
Total liabilities 6,294,182  6,242,812  6,186,149  5,673,998  5,704,161 
                
Stockholders' Equity               
Common stock 820  849  895  837  837 
Paid-in capital 691,280  724,389  769,269  722,871  721,474 
Retained earnings 397,594  388,376  378,134  387,911  380,671 
Unearned ESOP shares (27,239) (27,726) (28,212) (28,699) (29,185)
Accumulated other comprehensive income (loss) 1,357  6,453  3,974  1,257  (4,125)
Total stockholders' equity 1,063,812  1,092,341  1,124,060  1,084,177  1,069,672 
Total liabilities and stockholders' equity$7,357,994 $7,335,153 $7,310,209 $6,758,175 $6,773,833 
                
Consolidated capital ratios               
Equity to assets 14.46% 14.89% 15.38% 16.04% 15.79%
Tangible equity to tangible assets (1) 11.89% 12.32% 12.81% 13.29% 13.03%
                
Share data               
Outstanding shares 81,943  84,938  89,510  83,663  83,664 
Book value per share$12.98 $12.86 $12.56 $12.96 $12.79 
Tangible book value per share (2)$10.36 $10.33 $10.15 $10.39 $10.21 

_______________________
(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 HighlightsMarch 31,
December 31,
September 30,
June 30,
March 31,
(Dollars in Thousands, Unaudited)2021
2020
2020
2020
2020
Cash and cash equivalents               
Cash and due from depository institutions$20,502 $23,968 $18,628 $20,391 $20,200 
Interest-bearing deposits in other banks 88,489  105,726  127,190  160,576  39,252 
Total cash and cash equivalents$108,991 $129,694 $145,818 $180,967 $59,452 
                
Securities available for sale               
Debt securities:               
Municipal and state obligations$43,060 $47,763 $50,877 $54,054 $58,151 
Asset-backed securities 250,741  255,407  258,801  172,447  169,102 
Collateralized loan obligations 169,776  196,685  196,398  193,788  189,565 
Corporate bonds 173,462  167,168  122,276  143,639  163,715 
Trust preferred securities 2,881  2,866  2,773  2,627  2,852 
Debt securities 639,920  669,889  631,125  566,555  583,385 
                
Mortgage-backed securities:               
Collateralized mortgage obligations 16,800  20,510  25,770  30,903  34,671 
Residential pass-through securities 806,655  705,991  625,715  561,954  607,113 
Commercial pass-through securities 315,595  299,503  225,932  226,291  251,175 
Mortgage-backed securities 1,139,050  1,026,004  877,417  819,148  892,959 
  Total securities available for sale$1,778,970 $1,695,893 $1,508,542 $1,385,703 $1,476,344 
                
Securities held to maturity               
Debt securities:               
Municipal and state obligations$27,168 $29,549 $31,576 $32,556 $34,618 
  Total securities held to maturity$27,168 $29,549 $31,576 $32,556 $34,618 
                
    Total securities$1,806,138 $1,725,442 $1,540,118 $1,418,259 $1,510,962 
                


 At
Supplemental Balance Sheet HighlightsMarch 31,
December 31,
September 30,
June 30,
March 31,
(Dollars in Thousands, Unaudited)2021
2020
2020
2020
2020
Loan portfolio composition:               
Commercial loans:               
Multi-family$2,055,396 $2,076,483 $2,110,300 $2,059,568 $1,879,907 
Nonresidential 1,110,765  1,123,695  1,124,330  960,853  1,202,652 
Commercial business 183,181  202,010  255,888  138,788  73,922 
Construction 95,533  90,398  79,178  20,961  17,880 
Total commercial loans 3,444,875  3,492,586  3,569,696  3,180,170  3,174,361 
One- to four-family residential mortgage loans 1,323,485  1,305,351  1,353,197  1,273,022  1,338,099 
Consumer loans:               
Home equity loans and lines of credit 59,721  65,298  71,540  82,920  87,909 
Other consumer loans 3,445  4,123  4,136  3,991  4,604 
Total consumer loans 63,166  69,421  75,676  86,911  92,513 
 Total loans, excluding yield adjustments 4,831,526  4,867,358  4,998,569  4,540,103  4,604,973 
Unaccreted yield adjustments (33,287) (38,724) (43,819) (41,706) (42,461)
 Loans receivable, net of yield adjustments 4,798,239  4,828,634  4,954,750  4,498,397  4,562,512 
Less allowance for credit losses on loans (63,762) (63,386) (64,860) (37,327) (37,191)
    Net loans receivable$4,734,477 $4,765,248 $4,889,890 $4,461,070 $4,525,321 
                
Loan portfolio allocation:               
Commercial loans:               
Multi-family 42.5% 42.7% 42.2% 45.3% 40.8%
Nonresidential 23.0% 23.1% 22.5% 21.2% 26.1%
Commercial business 3.8% 4.2% 5.1% 3.1% 1.6%
Construction 2.0% 1.8% 1.6% 0.4% 0.4%
Total commercial loans 71.3% 71.8% 71.4% 70.0% 68.9%
One- to four-family residential mortgage loans 27.4% 26.8% 27.1% 28.1% 29.1%
Consumer loans:               
Home equity loans and lines of credit 1.2% 1.3% 1.4% 1.8% 1.9%
Other consumer loans 0.1% 0.1% 0.1% 0.1% 0.1%
Total consumer loans 1.3% 1.4% 1.5% 1.9% 2.0%
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 $5 $12 
Nonaccrual loans 71,416  71,472  44,837  36,691  35,384 
Total nonperforming loans 71,418  71,472  45,075  36,696  35,396 
Other real estate owned 178  178  178  178  178 
Total nonperforming assets$71,596 $71,650 $45,253 $36,874 $35,574 
                
Nonperforming loans (% total loans) 1.49% 1.48% 0.91% 0.82% 0.78%
Nonperforming assets (% total assets) 0.97% 0.98% 0.62% 0.55% 0.53%
                
Allowance for credit losses on loans (ACL):               
ACL to total loans 1.32% 1.30% 1.30% 0.82% 0.81%
ACL to nonperforming loans 89.28% 88.69% 143.89% 101.72% 105.07%
Net charge offs$750 $109 $67 $38 $16 
Average net charge off rate (annualized) 0.06% 0.01% 0.01% 0.00% 0.00%
                


 At
Supplemental Balance Sheet HighlightsMarch 31,
December 31,
September 30,
June 30,
March 31,
(Dollars in Thousands, Unaudited)2021
2020
2020
2020
2020
Funding by type:               
Deposits:               
Non-interest-bearing deposits$545,746 $518,828 $487,710 $419,138 $321,824 
Interest-bearing demand 1,923,184  1,752,699  1,561,135  1,264,151  1,134,420 
Savings 1,105,481  1,075,122  1,025,245  906,597  848,950 
Certificates of deposit 1,800,041  1,965,964  1,965,822  1,840,396  1,948,060 
Interest-bearing deposits 4,828,706  4,793,785  4,552,202  4,011,144  3,931,430 
Total deposits 5,374,452  5,312,613  5,039,912  4,430,282  4,253,254 
                
Borrowings:               
Federal Home Loan Bank advances 865,763  865,651  1,077,540  1,167,429  1,177,319 
Overnight borrowings -  -  -  -  200,000 
Depositor sweep accounts -  -  -  5,736  6,706 
Total borrowings 865,763  865,651  1,077,540  1,173,165  1,384,025 
                
  Total funding$6,240,215 $6,178,264 $6,117,452 $5,603,447 $5,637,279 
                
Loans as a % of deposits 88.2% 89.9% 97.4% 101.2% 106.7%
Deposits as a % of total funding 86.1% 86.0% 82.4% 79.1% 75.4%
Borrowings as a % of total funding 13.9% 14.0% 17.6% 20.9% 24.6%
                
Funding by source:               
Retail funding:               
Non-interest-bearing deposits$545,746 $518,828 $487,710 $419,138 $321,824 
Interest-bearing demand 1,923,184  1,752,699  1,561,135  1,264,151  1,134,420 
Savings 1,105,481  1,075,122  1,025,245  906,597  848,950 
Certificates of deposit 1,508,494  1,658,277  1,775,189  1,773,257  1,833,081 
Total retail deposits 5,082,905  5,004,926  4,849,279  4,363,143  4,138,275 
Depositor sweep accounts -  -  -  5,736  6,706 
Total retail funding 5,082,905  5,004,926  4,849,279  4,368,879  4,144,981 
                
Wholesale funding:               
Certificates of deposit (listing service)$32,952 $43,112 $57,251 $35,760 $33,608 
Certificates of deposit (brokered) 258,595  264,575  133,382  31,379  81,371 
Total wholesale deposits 291,547  307,687  190,633  67,139  114,979 
FHLB advances 865,763  865,651  1,077,540  1,167,429  1,177,319 
Overnight borrowings -  -  -  -  200,000 
Total wholesale funding 1,157,310  1,173,338  1,268,173  1,234,568  1,492,298 
                
Total funding$6,240,215 $6,178,264 $6,117,452 $5,603,447 $5,637,279 
                
Retail funding as a % of total funding 81.5% 81.0% 79.3% 78.0% 73.5%
Wholesale funding as a % of total funding 18.5% 19.0% 20.7% 22.0% 26.5%
                


Summary Income StatementFor the three months ended
(Dollars and Shares in Thousands,March 31,
December 31,
September 30,June 30,March 31,
Except Per Share Data, Unaudited)20212020
20202020
2020
Interest income               
Loans$49,307 $49,466 $52,180 $46,192 $46,603 
Taxable investment securities 7,891  7,707  7,336  9,769  10,526 
Tax-exempt investment securities 410  433  454  487  547 
Other interest-earning assets 705  787  914  903  1,100 
Total interest income 58,313  58,393  60,884  57,351  58,776 
                
Interest expense               
Deposits 6,670  8,647  11,062  12,439  14,768 
Borrowings 4,012  5,193  5,660  4,462  6,398 
Total interest expense 10,682  13,840  16,722  16,901  21,166 
Net interest income 47,631  44,553  44,162  40,450  37,610 
Provision for (reversal of) credit losses 1,126  (1,365) 4,059  174  6,270 
Net interest income after provision for
(reversal of) credit losses
 46,505  45,918  40,103  40,276  31,340 
                
Non-interest income               
Fees and service charges 1,325  1,896  1,076  1,696  1,338 
Gain (loss) on sale and call of securities 18  813  (377) 19  2,234 
Gain on sale of loans 943  2,378  1,890  1,348  565 
Income from bank owned life insurance 1,530  1,596  1,596  1,537  1,532 
Electronic banking fees and charges 456  404  405  325  309 
Bargain purchase gain -  -  3,053  -  - 
Other income 1,194  67  90  77  223 
Total non-interest income 5,466  7,154  7,733  5,002  6,201 
                
Non-interest expense               
Salaries and employee benefits 16,965  17,081  16,977  15,527  15,537 
Net occupancy expense of premises 3,433  3,120  3,122  2,688  2,685 
Equipment and systems 3,823  3,902  3,570  2,948  2,672 
Advertising and marketing 567  513  500  751  612 
Federal deposit insurance premium 488  490  472  286  - 
Directors' compensation 748  748  748  769  771 
Merger-related expenses -  -  4,349  447  285 
Debt extinguishment expenses -  796  -  -  2,156 
Other expense 3,792  3,860  3,835  3,475  3,344 
Total non-interest expense 29,816  30,510  33,573  26,891  28,062 
Income before income taxes 22,155  22,562  14,263  18,387  9,479 
Income taxes 5,732  5,614  2,884  4,698  225 
Net income$16,423 $16,948 $11,379 $13,689 $9,254 
                
Net income per common share (EPS)               
Basic$0.20 $0.20 $0.13 $0.17 $0.11 
Diluted$0.20 $0.20 $0.13 $0.17 $0.11 
                
Dividends declared               
Cash dividends declared per common share$0.09 $0.08 $0.08 $0.08 $0.08 
Cash dividends declared$7,205 $6,706 $6,917 $6,449 $6,479 
Dividend payout ratio 43.9% 39.6% 60.8% 47.1% 70.0%
                
Weighted average number of common
shares outstanding
               
Basic 80,673  85,120  86,008  80,678  81,339 
Diluted 80,690  85,123  86,009  80,680  81,358 


 For the three months ended 
Average Balance Sheet DataMarch 31,  December 31,  September 30, June 30, March 31, 
(Dollars in Thousands, Unaudited)2021 2020 2020 2020 2020 
Assets               
Interest-earning assets:               
Loans receivable, including loans held for sale$4,816,592 $4,871,268 $4,958,293 $4,567,229 $4,503,996 
Taxable investment securities 1,674,223  1,544,095  1,350,511  1,369,014  1,406,973 
Tax-exempt investment securities 73,573  79,044  82,603  89,263  101,771 
Other interest-earning assets 169,291  266,114  247,543  141,964  104,241 
Total interest-earning assets 6,733,679  6,760,521  6,638,950  6,167,470  6,116,981 
Non-interest-earning assets 617,440  632,084  624,252  605,876  598,335 
Total assets$7,351,119 $7,392,605 $7,263,202 $6,773,346 $6,715,316 
                
Liabilities and Stockholders' Equity               
Interest-bearing liabilities:               
Deposits:               
Interest-bearing demand$1,831,617 $1,683,222 $1,464,238 $1,189,044 $1,112,080 
Savings 1,084,981  1,058,675  1,006,075  876,580  838,501 
Certificates of deposit 1,904,234  1,899,406  1,988,689  1,879,039  2,004,785 
Total interest-bearing deposits 4,820,832  4,641,303  4,459,002  3,944,663  3,955,366 
Borrowings:               
Federal Home Loan Bank advances 865,690  1,057,958  1,130,836  1,202,522  1,208,627 
Other borrowings -  -  3,568  96,770  87,072 
Total borrowings 865,690  1,057,958  1,134,404  1,299,292  1,295,699 
Total interest-bearing liabilities 5,686,522  5,699,261  5,593,406  5,243,955  5,251,065 
Non-interest-bearing liabilities:               
Non-interest-bearing deposits 525,018  502,479  479,141  380,067  317,530 
Other non-interest-bearing liabilities 57,018  73,683  79,620  72,007  55,456 
Total non-interest-bearing liabilities 582,036  576,162  558,761  452,074  372,986 
Total liabilities 6,268,558  6,275,423  6,152,167  5,696,029  5,624,051 
Stockholders' equity 1,082,561  1,117,182  1,111,035  1,077,317  1,091,265 
Total liabilities and stockholders' equity$7,351,119 $7,392,605 $7,263,202 $6,773,346 $6,715,316 
                
Average interest-earning assets to average
interest-bearing liabilities
 118.41% 118.62% 118.69% 117.61% 116.49%


 For the three months ended
 March 31, December 31, September 30,June 30,March 31,
Performance Ratio Highlights2021
2020202020202020
Average yield on interest-earning assets:               
Loans receivable, including loans held for sale 4.09% 4.06% 4.21% 4.05% 4.14%
Taxable investment securities 1.89% 2.00% 2.17% 2.85% 2.99%
Tax-exempt investment securities (1) 2.23% 2.19% 2.20% 2.18% 2.15%
Other interest-earning assets 1.67% 1.18% 1.48% 2.54% 4.22%
Total interest-earning assets 3.46% 3.45% 3.67% 3.72% 3.84%
                
Average cost of interest-bearing liabilities:               
Deposits:               
Interest-bearing demand 0.34% 0.47% 0.60% 0.72% 1.17%
Savings 0.21% 0.33% 0.57% 0.81% 0.85%
Certificates of deposit 0.96% 1.22% 1.50% 1.82% 1.94%
Total interest-bearing deposits 0.55% 0.75% 0.99% 1.26% 1.49%
Borrowings:               
Federal Home Loan Bank advances 1.85% 1.96% 2.00% 1.47% 2.03%
Other borrowings 0.00% 0.00% 0.04% 0.13% 1.17%
Total borrowings 1.85% 1.96% 2.00% 1.37% 1.98%
 Total interest-bearing liabilities 0.75% 0.97% 1.20% 1.29% 1.61%
                
Interest rate spread (2) 2.71% 2.48% 2.47% 2.43% 2.23%
Net interest margin (3) 2.83% 2.64% 2.66% 2.62% 2.46%
                
Non-interest income to average assets
(annualized)
 0.30% 0.39% 0.43% 0.30% 0.37%
Non-interest expense to average assets
(annualized)
 1.62% 1.65% 1.85% 1.59% 1.67%
                
Efficiency ratio (4) 56.15% 59.01% 64.69% 59.16% 64.05%
                
Return on average assets (annualized) 0.89% 0.92% 0.63% 0.81% 0.55%
Return on average equity (annualized) 6.07% 6.07% 4.10% 5.08% 3.39%
Return on average tangible equity (annualized) (5) 7.57% 7.52% 5.08% 6.35% 4.23%

_______________________
(1)  The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(2)  Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(3)  Net interest income divided by average interest-earning assets.
(4)  Non-interest expense divided by the sum of net interest income and non-interest income.
(5) 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-GAAPFor the three months ended
(Dollars in Thousands,March 31,December 31,
September 30,June 30,March 31,
Except Per Share Data, Unaudited)2021
2020202020202020
Adjusted net income:               
Net income (GAAP)$16,423 $16,948 $11,379 $13,689 $9,254 
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  426  269 
Branch consolidation expenses 264  243  -  -  - 
Net effect of sales and calls of securities (13) (571) -  -  (1,575)
Debt extinguishment expenses -  559  -  -  1,520 
Reversal of income tax valuation allowance -  (523) -  -  (591)
Tax benefit arising from adoption of the
CARES Act provisions
 -  -  -  -  (1,624)
Net effect of sales of other assets (587) -  -  -  - 
Net income (non-GAAP)$16,087 $16,656 $15,012 $14,115 $7,253 
                
Calculation of pre-tax, pre-provision net
revenue:
               
Net income (GAAP)$16,423 $16,948 $11,379 $13,689 $9,254 
Adjustments to net income (GAAP):               
Provision for income taxes 5,732  5,614  2,884  4,698  225 
Provision for (reversal of) credit losses 1,126  (1,365) 4,059  174  6,270 
Pre-tax, pre-provision net revenue (non-GAAP)$23,281 $21,197 $18,322 $18,561 $15,749 
                
Adjusted earnings per share:               
Weighted average common shares - basic 80,673  85,120  86,008  80,678  81,339 
Weighted average common shares - diluted 80,690  85,123  86,009  80,680  81,358 
                
Earnings per share - basic (GAAP)$0.20 $0.20 $0.13 $0.17 $0.11 
Earnings per share - diluted (GAAP)$0.20 $0.20 $0.13 $0.17 $0.11 
                
Adjusted earnings per share - basic (non-GAAP)$0.20 $0.20 $0.17 $0.17 $0.09 
Adjusted earnings per share - diluted (non-GAAP)$0.20 $0.20 $0.17 $0.17 $0.09 
                
Adjusted return on average assets:               
Total average assets$7,351,119 $7,392,605 $7,263,202 $6,773,346 $6,715,316 
                
Return on average assets (GAAP) 0.89% 0.92% 0.63% 0.81% 0.55%
Adjusted return on average assets (non-GAAP) 0.88% 0.90% 0.83% 0.83% 0.43%
                
Adjusted return on average equity:               
Total average equity$1,082,561 $1,117,182 $1,111,035 $1,077,317 $1,091,265 
                
Return on average equity (GAAP) 6.07% 6.07% 4.10% 5.08% 3.39%
Adjusted return on average equity (non-GAAP) 5.94% 5.96% 5.40% 5.24% 2.66%
                


Reconciliation of GAAP to Non-GAAPFor the three months ended
(Dollars in Thousands,March 31,
December 31,
September 30,
June 30,
March 31,
Except Per Share Data, Unaudited)2021
2020
2020
2020
2020
Adjusted return on average tangible equity:               
Total average equity$1,082,561 $1,117,182 $1,111,035 $1,077,317 $1,091,265 
Less: average goodwill (210,895) (210,895) (210,895) (210,895) (210,895)
Less: average other intangible assets (4,045) (4,317) (4,341) (4,124) (4,408)
 $867,621 $901,970 $895,799 $862,298 $875,962 
                
Return on average tangible equity (non-GAAP) 7.57% 7.52% 5.08% 6.35% 4.23%
Adjusted return on average tangible equity
(non-GAAP)
 7.42% 7.39% 6.70% 6.55% 3.31%
                
Adjusted non-interest expense ratio:               
Non-interest expense (GAAP)$29,816 $30,510 $33,573 $26,891 $28,062 
Non-recurring transactions:               
Merger-related expenses -  -  (4,349) (447) (285)
Branch consolidation expenses (375) (347) -  -  - 
Debt extinguishment expenses -  (796) -  -  (2,156)
  Non-interest expense (non-GAAP)$29,441 $29,367 $29,224 $26,444 $25,621 
                
Non-interest expense ratio (GAAP) 1.62% 1.65% 1.85% 1.59% 1.67%
Adjusted non-interest expense ratio (non-GAAP) 1.60% 1.59% 1.61% 1.56% 1.53%
                
Adjusted efficiency ratio:               
Non-interest expense (non-GAAP)$29,441 $29,367 $29,224 $26,444 $25,621 
                
Net interest income (GAAP)$47,631 $44,553 $44,162 $40,450 $37,610 
Total non-interest income (GAAP) 5,466  7,154  7,733  5,002  6,201 
Non-recurring transactions:               
Net effect of sales and calls of securities (18) (813) -  -  (2,234)
Bargain purchase gain -  -  (3,053) -  - 
Net effect of sales of other assets (837) -  -  -  - 
  Total revenue (non-GAAP)$52,242 $50,894 $48,842 $45,452 $41,577 
                
Efficiency ratio (GAAP) 56.15% 59.01% 64.69% 59.16% 64.05%
Adjusted efficiency ratio (non-GAAP) 56.36% 57.70% 59.83% 58.18% 61.62%
                

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