Kearny Financial Corp. Reports Fiscal 2021 First Quarter Results

Irene L. Joffman

FAIRFIELD, N.J., Oct. 29, 2020 (GLOBE NEWSWIRE) — Kearny Financial Corp. (NASDAQ GS: KRNY) (the Company), the holding company of Kearny Bank (the Bank), reported net income for the first quarter ended September 30, 2020 of $11.4 million, or $0.13 per diluted share. These results represent a decrease of $2.3 million from $13.7 million, or $0.17 per diluted share, for the fourth quarter ended June 30, 2020.

Reported net income for the quarters ended September 30, 2020 and June 30, 2020 was impacted by various non-recurring items which were recognized in conjunction with the Companys July 10, 2020 acquisition of MSB Financial Corp. (MSB) and its subsidiary Millington Bank. Excluding the effects of these non-recurring items, net of tax, net income would have been $15.0 million, or $0.17 per diluted share for the quarter ended September 30, 2020 compared to $14.1 million or $0.17 per diluted share for the quarter ended June 30, 2020.

Craig L. Montanaro, President and Chief Executive Officer, commented, I am pleased to report that core earnings remain strong and our level of active COVID-19 related loan modifications has declined to $76.9 million, or 1.5% of total loans. While challenges related to the pandemic persist, we remain completely focused on expanding our relationships with our clients and executing our strategic plan.

With regard to the recently completed MSB acquisition, Mr. Montanaro further commented, With nearly a full quarter of combined operations behind us, I can confidently state that this merger has been a success. The expansion into Somerset and Morris counties presents an excellent growth opportunity for our lending and deposit teams. From an operational perspective, the conversion of MSBs technology systems simultaneous with the closing will allow us to recognize our anticipated cost savings more quickly than in our prior transactions.

MSB Acquisition Highlights

  • On July 10, 2020, the Company completed its acquisition of MSB which increased total assets by $581.9 million, net loans by $530.2 million and total deposits by $460.2 million.

  • Of the $530.2 million of loans acquired, $65.3 million, or 12.3%, were classified as Purchased Credit Deteriorated (PCD) and had associated credit reserves of $3.9 million. Provision for credit losses attributable to non-PCD acquired loans totaled $5.1 million.

  • As the fair value of the net assets acquired exceeded the purchase price, a bargain purchase gain of $3.1 million was recognized.

  • Tangible book value dilution totaled 1.4%, or 1.8% inclusive of the impact of the provision for credit losses on the acquired loans.

  • Integration of MSBs technology systems and the re-branding of all Millington Bank branches was completed simultaneous with the closing of the transaction, thereby accelerating non-interest expense reductions, which are expected to exceed 45%.

Balance Sheet

  • Deposits increased by $609.6 million to $5.04 billion at September 30, 2020 from $4.43 billion at June 30, 2020, largely reflecting the impact of $460.2 million of deposits acquired from MSB coupled with organic growth of $179.0 million in core non-maturity deposits.

  • Loans receivable increased by $456.4 million to $4.95 billion at September 30, 2020 from $4.50 billion at June 30, 2020. The net increase in loans reflected the impact of $530.2 million of loans that were acquired in conjunction with the acquisition of MSB, partially offset by a net decline in non-acquired loan balances, driven largely by accelerated loan pre-payment activity, as compared to the prior quarter.

  • Investment securities increased to $1.54 billion, or 21.1% of total assets, at September 30, 2020 from $1.42 billion at June 30, 2020, while borrowings decreased to $1.08 billion, or 14.7% of total assets, from $1.17 billion, for those same comparative periods.

Earnings

Net Interest Income, Spread and Margin

  • Net interest income for the quarter ended September 30, 2020 increased by $3.7 million to $44.2 million from $40.5 million for the quarter ended June 30, 2020. This increase reflected growth in interest income of $3.5 million coupled with a reduction in interest expense of $179,000. Included in net interest income was purchase accounting accretion of $4.2 million and $3.0 million, for the quarters ended September 30, 2020 and June 30, 2020, respectively.

  • Net interest margin, for the quarter ended September 30, 2020, increased by four basis points to 2.66%. This increase primarily reflected a reduction in the cost of interest-bearing liabilities, partially offset by a reduction in the yield on interest-earning assets.

  • Yield on interest-earning assets, for the quarter ended September 30, 2020, decreased by five basis points to 3.67% which was largely attributable to a 68 basis point decrease in the yield on taxable investment securities partially offset by a 16 basis point increase in the yield on loans. Cost of interest-bearing liabilities decreased by nine basis points to 1.20% which was attributable to a 27 basis point decrease in the cost of interest-bearing deposits partially offset by a 63 basis point increase in the cost of borrowings.

Non-Interest Income

  • For the quarter ended September 30, 2020, a non-recurring bargain purchase gain of $3.1 million was recognized in conjunction with the acquisition of MSB, as noted above.

  • Fees and service charges totaled $1.1 million for the quarter ended September 30, 2020, compared to $1.7 million for the quarter ended June 30, 2020. The decrease was largely attributable to a decline of $703,000 in loan pre-payment penalty income to $647,000.

  • Loan sale gains achieved record levels, totaling $1.9 million for the quarter ended September 30, 2020 as compared to $1.3 million for the quarter ended June 30, 2020. The increase in loan sale gains primarily reflected growth in the volume of residential mortgage loans sold coupled with an increase in the margin at which such loans were sold.

  • Gain (loss) on sale and call of securities reflected a loss of $377,000 for the quarter ended September 30, 2020 compared to a gain of $19,000 for the quarter ended June 30, 2020.

Non-Interest Expense

  • Non-interest expense increased by $6.7 million to $33.6 million for the quarter ended September 30, 2020 compared to $26.9 million for the quarter ended June 30, 2020. The increase in non-interest expense was partly attributable to an increase of $3.9 million in merger-related expense which was recognized in conjunction with the Companys acquisition of MSB. The remaining change in non-interest expense included increases in salaries and employee benefits, net occupancy expense of premises, equipment and systems expense, FDIC insurance premiums and miscellaneous expense. A substantial portion of these increases were attributable to the additional infrastructure and personnel acquired from MSB.

  • As part of the Companys ongoing initiative to improve operating efficiency, two additional branch locations will be consolidated during the Companys second and third fiscal quarters. Once completed, this will bring the total number of consolidations to 12 over the past 24 months.

Income Taxes

  • Income tax expense totaled $2.9 million for the quarter ended September 30, 2020 compared to $4.7 million for the quarter ended June 30, 2020, resulting in effective tax rates of 20.2% and 25.6%, respectively.

  • The decrease in effective income tax rate for the quarter ended September 30, 2020 reflected the effects of various non-recurring items recorded in conjunction with the Companys acquisition of MSB, as noted above.

Performance Ratios

  • Return on average assets declined to 0.63% for the quarter ended September 30, 2020 from 0.81% for the quarter ended June 30, 2020. Adjusting for the impact of non-recurring items, as noted above, the return on average assets was unchanged at 0.83% for the quarters ended September 30, 2020 and June 30, 2020.

  • Return on average equity declined to 4.10% for the quarter ended September 30, 2020 from 5.08% for the quarter ended June 30, 2020 while return on average tangible equity decreased to 5.08% from 6.35% for those same comparative periods, respectively. Adjusting for the impact of non-recurring items, as noted above, the return on average equity increased to 5.40% for the quarter ended September 30, 2020 from 5.24% for the quarter ended June 30, 2020 while the return on average tangible equity increased to 6.70% from 6.55% for those same comparative periods.

Asset Quality

  • On July 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), also known as the Current Expected Credit Loss (CECL) standard. CECL requires the measurement of all expected credit losses over the life of financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In connection with the adoption of CECL, the Company recognized a cumulative effect adjustment that reduced stockholders equity by $14.2 million, net of tax. At adoption, the Company increased its allowance for credit losses (ACL) by $19.6 million and $536,000, respectively, for loans and unfunded commitments.

  • On July 10, 2020 the Company completed its acquisition of MSB, which resulted in an increase to the ACL of $9.0 million. Of this increase, $3.9 million was attributable to PCD loans and was recorded as an adjustment to their amortized cost basis. The remaining $5.1 million increase was attributable to non-PCD loans and was recorded via a provision for credit losses.

  • The outstanding balance of non-performing loans totaled $45.1 million, or 0.91% of total loans, at September 30, 2020 compared to $36.7 million, or 0.82% of total loans, at June 30, 2020. The increase was largely attributable to non-performing loans acquired from MSB that totaled $5.8 million at September 30, 2020.  

  • Based on Section 4013 of the CARES Act and the related guidance promulgated by federal banking regulators, qualifying short-term loan modifications are not considered to be troubled debt restructurings. As of September 30, 2020, the Company had active payment deferrals on 63 loans totaling $76.9 million, representing 1.5% of total loans. This represents a small portion of the total deferrals granted and a substantial decrease in the number and amount of active deferrals at June 30, 2020.

The following table identifies the level of active and total non-TDR loan modifications at September 30, 2020:

 

September 30, 2020

 

 

Active Modifications (1)

 

 

Total Modifications (1)

 

 

Increase/(Decrease)

 

 

# of Loans

 

 

Balance

 

 

# of Loans

 

 

Balance

 

 

# of Loans

 

 

Balance

 

 

(Dollars In Thousands)

 

Commercial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family mortgage

 

7

 

 

$

15,910

 

 

 

143

 

 

$

393,156

 

 

 

(136

)

 

$

(377,246

)

Nonresidential mortgage

 

11

 

 

 

41,660

 

 

 

168

 

 

 

305,841

 

 

 

(157

)

 

 

(264,181

)

Commercial business

 

4

 

 

 

2,684

 

 

 

60

 

 

 

10,107

 

 

 

(56

)

 

 

(7,423

)

Construction

 

1

 

 

 

2,537

 

 

 

5

 

 

 

12,240

 

 

 

(4

)

 

 

(9,703

)

Total commercial loans

 

23

 

 

 

62,791

 

 

 

376

 

 

 

721,344

 

 

 

(353

)

 

 

(658,553

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

36

 

 

 

13,866

 

 

 

420

 

 

 

156,963

 

 

 

(384

)

 

 

(143,097

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans

 

4

 

 

 

252

 

 

 

47

 

 

 

4,603

 

 

 

(43

)

 

 

(4,351

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

63

 

 

$

76,909

 

 

 

843

 

 

$

882,910

 

 

 

(780

)

 

$

(806,001

)

______________________
(1)    Includes loans acquired in conjunction with the Companys acquisition of MSB Financial Corp. on July 10, 2020.

  • Net charge offs totaled $67,000 for the quarter ended September 30, 2020 compared to $38,000 for the quarter ended June 30, 2020 reflecting an annualized net charge off rate of 0.01% and 0.00% for those same comparative periods.  

  • Provision for credit losses totaled $4.1 million for the quarter ended September 30, 2020 and largely reflected $5.1 million of provision attributable to the acquired MSB loans, as noted above, partially offset by the effects of a decrease in the overall balance of the portion of the loan portfolio that was collectively evaluated for impairment. By comparison, the provision for loan losses for the quarter ended June 30, 2020, under prior accounting guidance, totaled $174,000.  

  • The ACL increased to $64.9 million, or 1.30% of total loans, at September 30, 2020 from $37.3 million, or 0.82% of total loans, at June 30, 2020. This increase was the result of the combined effects of the CECL adoption-date cumulative effect adjustment, reserves for PCD loans acquired from MSB and quarter-to-date provisions for credit losses, net of quarter-to-date charge-offs.

Liquidity & Capital

  • At September 30, 2020, the Companys liquid assets included $145.8 million of short-term cash and equivalents supplemented by $1.51 billion of investment securities classified as available for sale. In addition, the Company had the capacity to borrow additional funds totaling $615.0 million via unsecured lines of credit and $1.57 billion and $296.3 million, without pledging additional collateral, from the Federal Home Loan Bank of New York and Federal Reserve Bank, respectively.

  • On October 19, 2020, the Company announced the resumption of its current stock repurchase plan, which has 761,030 shares of common stock remaining to be repurchased. In addition, the Company announced the approval of a new repurchase plan totaling 4,475,523 shares, or 5% of the Companys outstanding common stock. Through September 30, 2020, the Company had repurchased 8,457,294 shares, or 91.7% of the shares authorized for repurchase under the current repurchase plan, at a cost of $111.1 million, or an average of $13.14 per share.

  • For the quarter ended September 30, 2020, the Company maintained its quarterly cash dividend of $0.08 per share.

  • Tangible book value per share decreased by $0.24 to $10.15 at September 30, 2020. This decrease was largely attributable to the combined effects of the July 1, 2020 adoption of CECL and the July 10, 2020 acquisition of MSB.

  • At September 30, 2020 the Companys ratio of tangible equity to tangible assets equaled 12.81%.  The regulatory capital ratios, of both the Company and the Bank, at September 30, 2020, 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 i nclude, 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 loan 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 Boards 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 Sheet

At

 

 

 

 

Variance

 

(Dollars and Shares in Thousands,

September 30,

 

June 30,

 

Variance

 

or Change

 

Except Per Share Data, Unaudited)

2020

 

2020

 

or Change

 

Pct.

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

145,818

 

$

180,967

 

$

(35,149

)

 

-19.4

%

Securities available for sale

 

1,508,542

 

 

1,385,703

 

 

122,839

 

 

8.9

%

Securities held to maturity

 

31,576

 

 

32,556

 

 

(980

)

 

-3.0

%

Loans held-for-sale

 

20,170

 

 

20,789

 

 

(619

)

 

-3.0

%

Loans receivable, including yield adjustments

 

4,954,750

 

 

4,498,397

 

 

456,353

 

 

10.1

%

Less allowance for credit losses on loans

 

(64,860

)

 

(37,327

)

 

(27,533

)

 

73.8

%

Net loans receivable

 

4,889,890

 

 

4,461,070

 

 

428,820

 

 

9.6

%

Premises and equipment

 

61,808

 

 

57,389

 

 

4,419

 

 

7.7

%

Federal Home Loan Bank stock

 

55,118

 

 

58,654

 

 

(3,536

)

 

-6.0

%

Accrued interest receivable

 

20,368

 

 

17,373

 

 

2,995

 

 

17.2

%

Goodwill

 

210,895

 

 

210,895

 

 

 

 

0.0

%

Core deposit intangible

 

4,420

 

 

3,995

 

 

425

 

 

10.6

%

Bank owned life insurance

 

278,639

 

 

262,380

 

 

16,259

 

 

6.2

%

Deferred income taxes, net

 

33,319

 

 

25,480

 

 

7,839

 

 

30.8

%

Other real estate owned

 

178

 

 

178

 

 

 

 

0.0

%

Other assets

 

49,468

 

 

40,746

 

 

8,722

 

 

21.4

%

Total assets

$

7,310,209

 

$

6,758,175

 

$

552,034

 

 

8.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

$

5,039,912

 

$

4,430,282

 

$

609,630

 

 

13.8

%

Borrowings

 

1,077,540

 

 

1,173,165

 

 

(95,625

)

 

-8.2

%

Advance payments by borrowers for taxes

 

17,008

 

 

16,569

 

 

439

 

 

2.6

%

Other liabilities

 

51,689

 

 

53,982

 

 

(2,293

)

 

-4.2

%

Total liabilities

 

6,186,149

 

 

5,673,998

 

 

512,151

 

 

9.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

895

 

 

837

 

 

58

 

 

6.9

%

Paid-in capital

 

769,269

 

 

722,871

 

 

46,398

 

 

6.4

%

Retained earnings

 

378,134

 

 

387,911

 

 

(9,777

)

 

-2.5

%

Unearned ESOP shares

 

(28,212

)

 

(28,699

)

 

487

 

 

-1.7

%

Accumulated other comprehensive income, net

 

3,974

 

 

1,257

 

 

2,717

 

 

216.1

%

Total stockholders’ equity

 

1,124,060

 

 

1,084,177

 

 

39,883

 

 

3.7

%

Total liabilities and stockholders’ equity

$

7,310,209

 

$

6,758,175

 

$

552,034

 

 

8.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated capital ratios

 

 

 

 

 

 

 

 

 

 

 

 

Equity to assets

 

15.38

%

 

16.04

%

 

-0.66

%

 

 

 

Tangible equity to tangible assets

 

12.81

%

 

13.29

%

 

-0.48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share data

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding shares

 

89,510

 

 

83,663

 

 

5,847

 

 

7.0

%

Book value per share

$

12.56

 

$

12.96

 

$

(0.40

)

 

-3.1

%

Tangible book value per share (1)

$

10.15

 

$

10.39

 

$

(0.24

)

 

-2.3

%

______________________
(1)   Tangible book value equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.

 

 

 

 

 

 

 

 

Summary Income Statement

For the three months ended

 

 

 

 

Variance

 

(Dollars and Shares in Thousands,

September 30,

 

June 30,

 

Variance

 

or Change

 

Except Per Share Data, Unaudited)

2020

 

2020

 

or Change

 

Pct.

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

Loans

$

52,180

 

$

46,192

 

$

5,988

 

 

13.0

%

Taxable investment securities

 

7,336

 

 

9,769

 

 

(2,433

)

 

-24.9

%

Tax-exempt investment securities

 

454

 

 

487

 

 

(33

)

 

-6.8

%

Other interest-earning assets

 

914

 

 

903

 

 

11

 

 

1.2

%

Total Interest Income

 

60,884

 

 

57,351

 

 

3,533

 

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

11,062

 

 

12,439

 

 

(1,377

)

 

-11.1

%

Borrowings

 

5,660

 

 

4,462

 

 

1,198

 

 

26.8

%

Total interest expense

 

16,722

 

 

16,901

 

 

(179

)

 

-1.1

%

Net interest income

 

44,162

 

 

40,450

 

 

3,712

 

 

9.2

%

Provision for credit losses on loans

 

4,059

 

 

174

 

 

3,885

 

 

2232.8

%

Net interest income after provision for
credit losses on loans

 

40,103

 

 

40,276

 

 

(173

)

 

-0.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

1,076

 

 

1,696

 

 

(620

)

 

-36.6

%

(Loss) gain on sale and call of securities

 

(377

)

 

19

 

 

(396

)

 

-2084.2

%

Gain on sale of loans

 

1,890

 

 

1,348

 

 

542

 

 

40.2

%

Income from bank owned life insurance

 

1,596

 

 

1,537

 

 

59

 

 

3.8

%

Electronic banking fees and charges

 

405

 

 

325

 

 

80

 

 

24.6

%

Bargain purchase gain

 

3,053

 

 

 

 

3,053

 

 

0.0

%

Other income

 

90

 

 

77

 

 

13

 

 

16.9

%

Total non-interest income

 

7,733

 

 

5,002

 

 

2,731

 

 

54.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

16,977

 

 

15,527

 

 

1,450

 

 

9.3

%

Net occupancy expense of premises

 

3,122

 

 

2,688

 

 

434

 

 

16.1

%

Equipment and systems

 

3,570

 

 

2,948

 

 

622

 

 

21.1

%

Advertising and marketing

 

500

 

 

751

 

 

(251

)

 

-33.4

%

Federal deposit insurance premium

 

472

 

 

286

 

 

186

 

 

65.0

%

Directors’ compensation

 

748

 

 

769

 

 

(21

)

 

-2.7

%

Merger-related expenses

 

4,349

 

 

447

 

 

3,902

 

 

872.9

%

Other expense

 

3,835

 

 

3,475

 

 

360

 

 

10.4

%

Total non-interest expense

 

33,573

 

 

26,891

 

 

6,682

 

 

24.8

%

Income before income taxes

 

14,263

 

 

18,387

 

 

(4,124

)

 

-22.4

%

Income taxes

 

2,884

 

 

4,698

 

 

(1,814

)

 

-38.6

%

Net income

$

11,379

 

$

13,689

 

$

(2,310

)

 

-16.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share (EPS)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.13

 

$

0.17

 

$

(0.04

)

 

 

 

Diluted

$

0.13

 

$

0.17

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

0.08

 

$

0.08

 

$

 

 

 

 

Cash dividends declared

$

6,917

 

$

6,449

 

$

468

 

 

 

 

Dividend payout ratio

 

60.8

%

 

47.1

%

 

13.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common
shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

86,008

 

 

80,678

 

 

5,330

 

 

 

 

Diluted

 

86,009

 

 

80,680

 

 

5,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

Variance

 

Average Balance Sheet Data

September 30,

 

June 30,

 

Variance

 

or Change

 

(Dollars in Thousands, Unaudited)

2020

 

2020

 

or Change

 

Pct.

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including loans held for sale

$

4,958,293

 

$

4,567,229

 

$

391,064

 

 

8.6

%

Taxable investment securities

 

1,350,511

 

 

1,369,014

 

 

(18,503

)

 

-1.4

%

Tax-exempt investment securities

 

82,603

 

 

89,263

 

 

(6,660

)

 

-7.5

%

Other interest-earning assets

 

247,543

 

 

141,964

 

 

105,579

 

 

74.4

%

Total interest-earning assets

 

6,638,950

 

 

6,167,470

 

 

471,480

 

 

7.6

%

Non-interest-earning assets

 

624,252

 

 

605,876

 

 

18,376

 

 

3.0

%

Total assets

$

7,263,202

 

$

6,773,346

 

$

489,856

 

 

7.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

$

1,464,238

 

$

1,189,044

 

$

275,194

 

 

23.1

%

Savings

 

1,006,075

 

 

876,580

 

 

129,495

 

 

14.8

%

Certificates of deposit

 

1,988,689

 

 

1,879,039

 

 

109,650

 

 

5.8

%

Total interest-bearing deposits

 

4,459,002

 

 

3,944,663

 

 

514,339

 

 

13.0

%

Borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

1,130,836

 

 

1,202,522

 

 

(71,686

)

 

-6.0

%

Other borrowings

 

3,568

 

 

96,770

 

 

(93,202

)

 

-96.3

%

Total borrowings

 

1,134,404

 

 

1,299,292

 

 

(164,888

)

 

-12.7

%

Total interest-bearing liabilities

 

5,593,406

 

 

5,243,955

 

 

349,451

 

 

6.7

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposits

 

479,141

 

 

380,067

 

 

99,074

 

 

26.1

%

Other non-interest-bearing liabilities

 

79,620

 

 

72,007

 

 

7,613

 

 

10.6

%

Total non-interest-bearing liabilities

 

558,761

 

 

452,074

 

 

106,687

 

 

23.6

%

Total liabilities

 

6,152,167

 

 

5,696,029

 

 

456,138

 

 

8.0

%

Stockholders’ equity

 

1,111,035

 

 

1,077,317

 

 

33,718

 

 

3.1

%

Total liabilities and stockholders’ equity

$

7,263,202

 

$

6,773,346

 

$

489,856

 

 

7.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Average interest-earning assets to average
interest-bearing liabilities

 

118.69

%

 

117.61

%

 

1.08

%

 

0.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

 

September 30,

 

June 30,

 

Variance

 

Performance Ratio Highlights

2020

 

2020

 

or Change

 

Average yield on interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans receivable, including loans held for sale

 

4.21

%

 

4.05

%

 

0.16

%

Taxable investment securities

 

2.17

%

 

2.85

%

 

-0.68

%

Tax-exempt investment securities (1)

 

2.20

%

 

2.18

%

 

0.02

%

Other interest-earning assets

 

1.48

%

 

2.54

%

 

-1.06

%

Total interest-earning assets

 

3.67

%

 

3.72

%

 

-0.05

%

 

 

 

 

 

 

 

 

 

 

Average cost of interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

0.60

%

 

0.72

%

 

-0.12

%

Savings

 

0.57

%

 

0.81

%

 

-0.24

%

Certificates of deposit

 

1.50

%

 

1.82

%

 

-0.32

%

Total interest-bearing deposits

 

0.99

%

 

1.26

%

 

-0.27

%

Borrowings:

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

2.00

%

 

1.47

%

 

0.53

%

Other borrowings

 

0.04

%

 

0.13

%

 

-0.09

%

Total borrowings

 

2.00

%

 

1.37

%

 

0.63

%

Total interest-bearing liabilities

 

1.20

%

 

1.29

%

 

-0.09

%

 

 

 

 

 

 

 

 

 

 

Interest rate spread (2)

 

2.47

%

 

2.43

%

 

0.04

%

Net interest margin (3)

 

2.66

%

 

2.62

%

 

0.04

%

 

 

 

 

 

 

 

 

 

 

Non-interest income to average assets
(annualized)

 

0.43

%

 

0.30

%

 

0.13

%

Non-interest expense to average assets
(annualized)

 

1.85

%

 

1.59

%

 

0.26

%

 

 

 

 

 

 

 

 

 

 

Efficiency ratio (4)

 

64.69

%

 

59.16

%

 

5.53

%

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)

 

0.63

%

 

0.81

%

 

-0.18

%

Return on average equity (annualized)

 

4.10

%

 

5.08

%

 

-0.98

%

Return on average tangible equity (annualized) (5)

 

5.08

%

 

6.35

%

 

-1.27

%

______________________
(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 Sheet

At

 

(Dollars and Shares in Thousands,

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

Except Per Share Data, Unaudited)

2020

 

2020

 

2020

 

2019

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

145,818

 

$

180,967

 

$

59,452

 

$

41,796

 

$

129,305

 

Securities available for sale

 

1,508,542

 

 

1,385,703

 

 

1,476,344

 

 

1,402,206

 

 

1,231,691

 

Securities held to maturity

 

31,576

 

 

32,556

 

 

34,618

 

 

36,073

 

 

37,888

 

Loans held-for-sale

 

20,170

 

 

20,789

 

 

11,245

 

 

5,952

 

 

10,495

 

Loans receivable, including yield adjustments

 

4,954,750

 

 

4,498,397

 

 

4,562,512

 

 

4,492,697

 

 

4,604,738

 

Less allowance for credit losses on loans

 

(64,860

)

 

(37,327

)

 

(37,191

)

 

(30,937

)

 

(32,432

)

Net loans receivable

 

4,889,890

 

 

4,461,070

 

 

4,525,321

 

 

4,461,760

 

 

4,572,306

 

Premises and equipment

 

61,808

 

 

57,389

 

 

58,985

 

 

56,542

 

 

56,599

 

Federal Home Loan Bank stock

 

55,118

 

 

58,654

 

 

59,324

 

 

62,838

 

 

63,739

 

Accrued interest receivable

 

20,368

 

 

17,373

 

 

19,036

 

 

18,261

 

 

19,393

 

Goodwill

 

210,895

 

 

210,895

 

 

210,895

 

 

210,895

 

 

210,895

 

Core deposit intangible

 

4,420

 

 

3,995

 

 

4,242

 

 

4,545

 

 

4,852

 

Bank owned life insurance

 

278,639

 

 

262,380

 

 

260,843

 

 

259,312

 

 

257,735

 

Deferred income taxes, net

 

33,319

 

 

25,480

 

 

27,150

 

 

20,438

 

 

21,742

 

Other real estate owned

 

178

 

 

178

 

 

178

 

 

178

 

 

 

Other assets

 

49,468

 

 

40,746

 

 

26,200

 

 

29,605

 

 

24,366

 

Total assets

$

7,310,209

 

$

6,758,175

 

$

6,773,833

 

$

6,610,401

 

$

6,641,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

$

5,039,912

 

$

4,430,282

 

$

4,253,254

 

$

4,188,822

 

$

4,197,250

 

Borrowings

 

1,077,540

 

 

1,173,165

 

 

1,384,025

 

 

1,275,049

 

 

1,281,118

 

Advance payments by borrowers for taxes

 

17,008

 

 

16,569

 

 

16,492

 

 

16,585

 

 

16,102

 

Other liabilities

 

51,689

 

 

53,982

 

 

50,390

 

 

35,375

 

 

35,747

 

Total liabilities

 

6,186,149

 

 

5,673,998

 

 

5,704,161

 

 

5,515,831

 

 

5,530,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

895

 

 

837

 

 

837

 

 

851

 

 

868

 

Paid-in capital

 

769,269

 

 

722,871

 

 

721,474

 

 

737,539

 

 

758,385

 

Retained earnings

 

378,134

 

 

387,911

 

 

380,671

 

 

377,896

 

 

373,004

 

Unearned ESOP shares

 

(28,212

)

 

(28,699

)

 

(29,185

)

 

(29,671

)

 

(30,158

)

Accumulated other comprehensive income (loss), net

 

3,974

 

 

1,257

 

 

(4,125

)

 

7,955

 

 

8,690

 

Total stockholders’ equity

 

1,124,060

 

 

1,084,177

 

 

1,069,672

 

 

1,094,570

 

 

1,110,789

 

Total liabilities and stockholders’ equity

$

7,310,209

 

$

6,758,175

 

$

6,773,833

 

$

6,610,401

 

$

6,641,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated capital ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity to assets

 

15.38

%

 

16.04

%

 

15.79

%

 

16.56

%

 

16.73

%

Tangible equity to tangible assets

 

12.81

%

 

13.29

%

 

13.03

%

 

13.75

%

 

13.93

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding shares

 

89,510

 

 

83,663

 

 

83,664

 

 

85,150

 

 

86,786

 

Book value per share

$

12.56

 

$

12.96

 

$

12.79

 

$

12.85

 

$

12.80

 

Tangible book value per share (1)

$

10.15

 

$

10.39

 

$

10.21

 

$

10.32

 

$

10.31

 

______________________
(1)   Tangible book value equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.

 

 

 

 

At

 

Supplemental Balance Sheet Highlights

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

(Dollars in Thousands, Unaudited)

2020

 

2020

 

2020

 

2019

 

2019

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from depository institutions

$

18,628

 

$

20,391

 

$

20,200

 

$

17,843

 

$

16,106

 

Interest-bearing deposits in other banks

 

127,190

 

 

160,576

 

 

39,252

 

 

23,953

 

 

113,199

 

Total cash and cash equivalents

$

145,818

 

$

180,967

 

$

59,452

 

$

41,796

 

$

129,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

 

$

 

$

 

$

606

 

$

694

 

Municipal and state obligations

 

50,877

 

 

54,054

 

 

58,151

 

 

88,057

 

 

91,050

 

Asset-backed securities

 

258,801

 

 

172,447

 

 

169,102

 

 

177,676

 

 

181,068

 

Collateralized loan obligations

 

196,398

 

 

193,788

 

 

189,565

 

 

198,324

 

 

198,549

 

Corporate bonds

 

122,276

 

 

143,639

 

 

163,715

 

 

192,074

 

 

191,241

 

Trust preferred securities

 

2,773

 

 

2,627

 

 

2,852

 

 

3,795

 

 

3,775

 

Debt securities

 

631,125

 

 

566,555

 

 

583,385

 

 

660,532

 

 

666,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

25,770

 

 

30,903

 

 

34,671

 

 

57,839

 

 

63,594

 

Residential pass-through securities

 

625,715

 

 

561,954

 

 

607,113

 

 

360,900

 

 

202,858

 

Commercial pass-through securities

 

225,932

 

 

226,291

 

 

251,175

 

 

322,935

 

 

298,862

 

Mortgage-backed securities

 

877,417

 

 

819,148

 

 

892,959

 

 

741,674

 

 

565,314

 

Total securities available for sale

$

1,508,542

 

$

1,385,703

 

$

1,476,344

 

$

1,402,206

 

$

1,231,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal and state obligations

$

31,576

 

$

32,556

 

$

34,618

 

$

36,073

 

$

37,888

 

Debt securities

 

31,576

 

 

32,556

 

 

34,618

 

 

36,073

 

 

37,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

$

31,576

 

$

32,556

 

$

34,618

 

$

36,073

 

$

37,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

$

1,540,118

 

$

1,418,259

 

$

1,510,962

 

$

1,438,279

 

$

1,269,579

 

 

 

 

 

At

 

Supplemental Balance Sheet Highlights

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

(Dollars in Thousands, Unaudited)

2020

 

2020

 

2020

 

2019

 

2019

 

Loan portfolio composition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

$

2,110,300

 

$

2,059,568

 

$

1,879,907

 

$

1,856,591

 

$

1,922,968

 

Nonresidential

 

1,124,330

 

 

960,853

 

 

1,202,652

 

 

1,172,213

 

 

1,230,963

 

Commercial business

 

255,888

 

 

138,788

 

 

73,922

 

 

67,887

 

 

66,889

 

Construction

 

79,178

 

 

20,961

 

 

17,880

 

 

16,221

 

 

14,637

 

Total commercial loans

 

3,569,696

 

 

3,180,170

 

 

3,174,361

 

 

3,112,912

 

 

3,235,457

 

One- to four-family residential mortgage loans

 

1,353,197

 

 

1,273,022

 

 

1,338,099

 

 

1,331,301

 

 

1,319,750

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

71,540

 

 

82,920

 

 

87,909

89,916 93,304 Other consumer loans 4,136 3,991 4,604 4,908 5,209 Total consumer loans 75,676 86,911 92,513 94,824 98,513 Total loans, excluding yield adjustments 4,998,569 4,540,103 4,604,973 4,539,037 4,653,720 Unaccreted yield adjustments (43,819 ) (41,706 ) (42,461 ) (46,340 ) (48,982 ) Loans receivable, net of yield adjustments 4,954,750 4,498,397 4,562,512 4,492,697 4,604,738 Less allowance for credit losses on loans (64,860 ) (37,327 ) (37,191 ) (30,937 ) (32,432 ) Net loans receivable $ 4,889,890 $ 4,461,070 $ 4,525,321 $ 4,461,760 $ 4,572,306 Loan portfolio allocation: Commercial loans: Multi-family 42.2 % 45.3 % 40.8 % 40.9 % 41.3 % Nonresidential 22.5 % 21.2 % 26.1 % 25.8 % 26.5 % Commercial business 5.1 % 3.1 % 1.6 % 1.5 % 1.4 % Construction 1.6 % 0.4 % 0.4 % 0.4 % 0.3 % Total commercial loans 71.4 % 70.0 % 68.9 % 68.6 % 69.5 % One- to four-family residential mortgage loans 27.1 % 28.1 % 29.1 % 29.3 % 28.4 % Consumer loans: Home equity loans and lines of credit 1.4 % 1.8 % 1.9 % 2.0 % 2.0 % Other consumer loans 0.1 % 0.1 % 0.1 % 0.1 % 0.1 % Total consumer loans 1.5 % 1.9 % 2.0 % 2.1 % 2.1 % 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 $ 238 $ 5 $ 12 $ 19 $ 15 Nonaccrual loans 44,837 36,691 35,384 21,935 21,766 Total nonperforming loans 45,075 36,696 35,396 21,954 21,781 Other real estate owned 178 178 178 178 – Total nonperforming assets $ 45,253 $ 36,874 $ 35,574 $ 22,132 $ 21,781 Nonperforming loans (% total loans) 0.91 % 0.82 % 0.78 % 0.49 % 0.47 % Nonperforming assets (% total assets) 0.62 % 0.55 % 0.53 % 0.33 % 0.33 % Allowance for credit losses on loans (ACL): ACL to total loans 1.30 % 0.82 % 0.81 % 0.68 % 0.70 % ACL to nonperforming loans 143.89 % 101.72 % 105.07 % 140.92 % 148.90 % Net charge offs $ 67 $ 38 $ 16 $ 30 $ 60 Average net charge off rate (annualized) 0.01 % 0.00 % 0.00 % 0.00 % 0.01 %

At

Supplemental Balance Sheet Highlights

September 30,

June 30,

March 31,

December 31,

September 30,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2019

2019

Funding by type:

Deposits:

Non-interest-bearing deposits

$

487,710

$

419,138

$

321,824

$

312,098

$

322,846

Interest-bearing demand

1,561,135

1,264,151

1,134,420

1,060,434

931,188

Savings

1,025,245

906,597

848,950

829,321

800,514

Certificates of deposit

1,965,822

1,840,396

1,948,060

1,986,969

2,142,702

Interest-bearing deposits

4,552,202

4,011,144

3,931,430

3,876,724

3,874,404

Total deposits

5,039,912

4,430,282

4,253,254

4,188,822

4,197,250

Borrowings:

Federal Home Loan Bank advances

1,077,540

1,167,429

1,177,319

1,253,958

1,273,618

Overnight borrowings

200,000

15,000

Depositor sweep accounts

5,736

6,706

6,091

7,500

Total borrowings

1,077,540

1,173,165

1,384,025

1,275,049

1,281,118

Total funding

$

6,117,452

$

5,603,447

$

5,637,279

$

5,463,871

$

5,478,368

Loans as a % of deposits

97.4

%

101.2

%

106.7

%

106.7

%

109.2

%

Deposits as a % of total funding

82.4

%

79.1

%

75.4

%

76.7

%

76.6

%

Borrowings as a % of total funding

17.6

%

20.9

%

24.6

%

23.3

%

23.4

%

Funding by source:

Retail funding:

Non-interest-bearing deposits

$

487,710

$

419,138

$

321,824

$

312,098

$

322,846

Interest-bearing demand

1,561,135

1,264,151

1,134,420

1,060,434

931,188

Savings

1,025,245

906,597

848,950

829,321

800,514

Certificates of deposit

1,775,189

1,773,257

1,833,081

1,876,280

1,916,132

Total retail deposits

4,849,279

4,363,143

4,138,275

4,078,133

3,970,680

Depositor sweep accounts

5,736

6,706

6,091

7,500

Total retail funding

4,849,279

4,368,879

4,144,981

4,084,224

3,978,180

Wholesale funding:

Certificates of deposit (listing service)

$

57,251

$

35,760

$

33,608

$

42,119

$

57,534

Certificates of deposit (brokered)

133,382

31,379

81,371

68,570

169,036

Total wholesale deposits

190,633

67,139

114,979

110,689

226,570

FHLB advances

1,077,540

1,167,429

1,177,319

1,253,958

1,273,618

Overnight borrowings

200,000

15,000

Total wholesale funding

1,268,173

1,234,568

1,492,298

1,379,647

1,500,188

Total funding

$

6,117,452

$

5,603,447

$

5,637,279

$

5,463,871

$

5,478,368

Retail funding as a % of total funding

79.3

%

78.0

%

73.5

%

74.7

%

72.6

%

Wholesale funding as a % of total funding

20.7

%

22.0

%

26.5

%

25.3

%

27.4

%

Summary Income Statement

For the three months ended

(Dollars and Shares in Thousands,

September 30,

June 30,

March 31,

December 31,

September 30,

Except Per Share Data, Unaudited)

2020

2020

2020

2019

2019

Interest income

Loans

$

52,180

$

46,192

$

46,603

$

45,608

$

48,600

Taxable investment securities

7,336

9,769

10,526

9,698

9,328

Tax-exempt investment securities

454

487

547

666

693

Other interest-earning assets

914

903

1,100

1,210

1,278

Total interest income

60,884

57,351

58,776

57,182

59,899

Interest expense

Deposits

11,062

12,439

14,768

15,590

16,055

Borrowings

5,660

4,462

6,398

6,985

7,157

Total interest expense

16,722

16,901

21,166

22,575

23,212

Net interest income

44,162

40,450

37,610

34,607

36,687

Provision for (reversal of) credit losses on loans

4,059

174

6,270

(1,465

)

(782

)

Net interest income after provision for
(reversal of) credit losses on loans

40,103

40,276

31,340

36,072

37,469

Non-interest income

Fees and service charges

1,076

1,696

1,338

2,145

1,468

(Loss) gain on sale and call of securities

(377

)

19

2,234

11

(14

)

Gain on sale of loans

1,890

1,348

565

668

605

Loss on sale and write down of other real estate
owned

(28

)

Income from bank owned life insurance

1,596

1,537

1,532

1,576

1,580

Electronic banking fees and charges

405

325

309

293

318

Bargain purchase gain

3,053

Other income

90

77

223

(111

)

5

Total non-interest income

7,733

5,002

6,201

4,554

3,962

Non-interest expense

Salaries and employee benefits

16,977

15,527

15,537

15,174

15,777

Net occupancy expense of premises

3,122

2,688

2,685

3,082

2,969

Equipment and systems

3,570

2,948

2,672

3,046

3,089

Advertising and marketing

500

751

612

890

535

Federal deposit insurance premium

472

286

Directors’ compensation

748

769

771

769

770

Merger-related expenses

4,349

447

285

219

Debt extinguishment expenses

2,156

Other expense

3,835

3,475

3,344

3,247

3,104

Total non-interest expense

33,573

26,891

28,062

26,427

26,244

Income before income taxes

14,263

18,387

9,479

14,199

15,187

Income taxes

2,884

4,698

225

3,547

3,817

Net income

$

11,379

$

13,689

$

9,254

$

10,652

$

11,370

Net income per common share (EPS)

Basic

$

0.13

$

0.17

$

0.11

$

0.13

$

0.13

Diluted

$

0.13

$

0.17

$

0.11

$

0.13

$

0.13

Dividends declared (1)

Cash dividends declared per common share

$

0.08

$

0.08

$

0.08

$

0.07

$

0.06

Cash dividends declared

$

6,917

$

6,449

$

6,479

$

5,760

$

5,045

Dividend payout ratio

60.8

%

47.1

%

70.0

%

54.1

%

44.4

%

Weighted average number of common
shares outstanding

Basic

86,008

80,678

81,339

82,831

84,756

Diluted

86,009

80,680

81,358

82,876

84,793

For the three months ended

Average Balance Sheet Data

September 30,

June 30,

March 31,

December 31,

September 30,

(Dollars in Thousands, Unaudited)

2020

2020

2020

2019

2019

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,958,293

$

4,567,229

$

4,503,996

$

4,547,126

$

4,656,192

Taxable investment securities

1,350,511

1,369,014

1,406,973

1,244,475

1,147,698

Tax-exempt investment securities

82,603

89,263

101,771

125,187

129,339

Other interest-earning assets

247,543

141,964

104,241

117,811

125,114

Total interest-earning assets

6,638,950

6,167,470

6,116,981

6,034,599

6,058,343

Non-interest-earning assets

624,252

605,876

598,335

590,746

585,826

Total assets

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

$

6,644,169

Liabilities and Stockholders’ Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

1,464,238

$

1,189,044

$

1,112,080

$

982,163

$

883,843

Savings

1,006,075

876,580

838,501

813,626

799,181

Certificates of deposit

1,988,689

1,879,039

2,004,785

2,063,066

2,179,333

Total interest-bearing deposits

4,459,002

3,944,663

3,955,366

3,858,855

3,862,357

Borrowings:

Federal Home Loan Bank advances

1,130,836

1,202,522

1,208,627

1,255,597

1,277,145

Other borrowings

3,568

96,770

87,072

34,733

10,012

Total borrowings

1,134,404

1,299,292

1,295,699

1,290,330

1,287,157

Total interest-bearing liabilities

5,593,406

5,243,955

5,251,065

5,149,185

5,149,514

Non-interest-bearing liabilities:

Non-interest-bearing deposits

479,141

380,067

317,530

320,161

320,641

Other non-interest-bearing liabilities

79,620

72,007

55,456

53,479

60,078

Total non-interest-bearing liabilities

558,761

452,074

372,986

373,640

380,719

Total liabilities

6,152,167

5,696,029

5,624,051

5,522,825

5,530,233

Stockholders’ equity

1,111,035

1,077,317

1,091,265

1,102,520

1,113,936

Total liabilities and stockholders’ equity

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

$

6,644,169

Average interest-earning assets to average
interest-bearing liabilities

118.69

%

117.61

%

116.49

%

117.20

%

117.65

%

For the three months ended

September 30,

June 30,

March 31,

December 31,

September 30,

Performance Ratio Highlights

2020

2020

2020

2019

2019

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.21

%

4.05

%

4.14

%

4.01

%

4.18

%

Taxable investment securities

2.17

%

2.85

%

2.99

%

3.12

%

3.25

%

Tax-exempt investment securities (1)

2.20

%

2.18

%

2.15

%

2.13

%

2.14

%

Other interest-earning assets

1.48

%

2.54

%

4.22

%

4.11

%

4.09

%

Total interest-earning assets

3.67

%

3.72

%

3.84

%

3.79

%

3.95

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

0.60

%

0.72

%

1.17

%

1.29

%

1.30

%

Savings

0.57

%

0.81

%

0.85

%

0.81

%

0.77

%

Certificates of deposit

1.50

%

1.82

%

1.94

%

2.09

%

2.14

%

Total interest-bearing deposits

0.99

%

1.26

%

1.49

%

1.62

%

1.66

%

Borrowings:

Federal Home Loan Bank advances

2.00

%

1.47

%

2.03

%

2.19

%

2.24

%

Other borrowings

0.04

%

0.13

%

1.17

%

1.36

%

0.66

%

Total borrowings

2.00

%

1.37

%

1.98

%

2.17

%

2.22

%

Total interest-bearing liabilities

1.20

%

1.29

%

1.61

%

1.75

%

1.80

%

Interest rate spread (2)

2.47

%

2.43

%

2.23

%

2.04

%

2.15

%

Net interest margin (3)

2.66

%

2.62

%

2.46

%

2.29

%

2.42

%

Non-interest income to average assets
(annualized)

0.43

%

0.30

%

0.37

%

0.27

%

0.24

%

Non-interest expense to average assets
(annualized)

1.85

%

1.59

%

1.67

%

1.60

%

1.58

%

Efficiency ratio (4)

64.69

%

59.16

%

64.05

%

67.48

%

64.56

%

Return on average assets (annualized)

0.63

%

0.81

%

0.55

%

0.64

%

0.68

%

Return on average equity (annualized)

4.10

%

5.08

%

3.39

%

3.86

%

4.08

%

Return on average tangible equity (annualized) (5)

5.08

%

6.35

%

4.23

%

4.80

%

5.06

%

______________________
(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-GAAP

For the three months ended

(Dollars in Thousands,

September 30,

June 30,

March 31,

December 31,

September 30,

Except Per Share Data, Unaudited)

2020

2020

2020

2019

2019

Adjusted net income:

Net income (GAAP)

$

11,379

$

13,689

$

9,254

$

10,652

$

11,370

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

183

Branch consolidation expenses

274

475

Net effect of wholesale restructuring transaction

(55

)

Reversal of income tax valuation allowance

(591

)

Tax benefit arising from adoption of the CARES
Act provisions

(1,624

)

Net income (non-GAAP)

$

15,012

$

14,115

$

7,253

$

11,109

$

11,845

Calculation of pre-tax, pre-provision income:

Net income (GAAP)

$

11,379

$

13,689

$

9,254

$

10,652

$

11,370

Adjustments to net income (GAAP):

Provision for income taxes

2,884

4,698

225

3,547

3,817

Provision for (reversal of) credit losses on loans

4,059

174

6,270

(1,465

)

(782

)

Pre-tax, pre-provision income (non-GAAP)

$

18,322

$

18,561

$

15,749

$

12,734

$

14,405

Adjusted earnings per share:

Weighted average common shares – basic

86,008

80,678

81,339

82,831

84,756

Weighted average common shares – diluted

86,009

80,680

81,358

82,876

84,793

Earnings per share – basic (GAAP)

$

0.13

$

0.17

$

0.11

$

0.13

$

0.13

Earnings per share – diluted (GAAP)

$

0.13

$

0.17

$

0.11

$

0.13

$

0.13

Adjusted earnings per share – basic (non-GAAP)

$

0.17

$

0.17

$

0.09

$

0.13

$

0.14

Adjusted earnings per share – diluted (non-GAAP)

$

0.17

$

0.17

$

0.09

$

0.13

$

0.14

Adjusted return on average assets:

Total average assets

$

7,263,202

$

6,773,346

$

6,715,316

$

6,625,345

$

6,644,169

Return on average assets (GAAP)

0.63

%

0.81

%

0.55

%

0.64

%

0.68

%

Adjusted return on average assets (non-GAAP)

0.83

%

0.83

%

0.43

%

0.67

%

0.71

%

Adjusted return on average equity:

Total average equity

$

1,111,035

$

1,077,317

$

1,091,265

$

1,102,520

$

1,113,936

Return on average equity (GAAP)

4.10

%

5.08

%

3.39

%

3.86

%

4.08

%

Adjusted return on average equity (non-GAAP)

5.40

%

5.24

%

2.66

%

4.03

%

4.25

%

Reconciliation of GAAP to Non-GAAP

For the three months ended

(Dollars in Thousands,

September 30,

June 30,

March 31,

December 31,

September 30,

Except Per Share Data, Unaudited)

2020

2020

2020

2019

2019

Adjusted return on average tangible equity:

Total average equity

$

1,111,035

$

1,077,317

$

1,091,265

$

1,102,520

$

1,113,936

Less: average goodwill

(210,895

)

(210,895

)

(210,895

)

(210,895

)

(210,895

)

Less: average other intangible assets

(4,341

)

(4,124

)

(4,408

)

(4,711

)

(5,006

)

$

895,799

$

862,298

$

875,962

$

886,914

$

898,035

Return on average tangible equity (non-GAAP)

5.08

%

6.35

%

4.23

%

4.80

%

5.06

%

Adjusted return on average tangible equity
(non-GAAP)

6.70

%

6.55

%

3.31

%

5.01

%

5.28

%

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

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