Kearny Financial Corp. Announces Third Quarter Fiscal 2022

Kearny Financial Corp. Announces Third Quarter Fiscal 2022

FAIRFIELD, N.J., April 28, 2022 (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, 2022 of $17.7 million, or $0.25 per diluted share, compared to $18.8 million, or $0.26 per diluted share, for the quarter ended December 31, 2021.

The Company also announced that its Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on May 25, 2022 to stockholders of record as of May 11, 2022.

Craig L. Montanaro, President and Chief Executive Officer, commented, “This quarter was highlighted by outstanding core growth on both sides of the balance sheet as total loans increased $176.8 million, or 14.8% annualized, and core non-maturity deposits increased $66.2 million or 6.8% annualized. While much of the earnings benefit of this growth will not begin to be recognized until the quarter ended June 30, I am very pleased with our performance and the ongoing strength of our commercial loan pipeline, which totaled $1.5 billion at quarter end.”

Regarding the macroeconomic and geopolitical environment, Mr. Montanaro noted, “During the quarter, intermediate and long-term interest rates increased at a rapid pace. At the same time, inflation, supply chain and geopolitical risks cast a shadow over the U.S. economic outlook. Despite these risks, I believe that our core business prospects remain strong and our markets ripe with opportunity. As we head into the final quarter of our fiscal year, and beyond, we remain steadfast in the execution of our strategic plan, with its focus on the continued growth of long-term shareholder value.”

Balance Sheet

  • Loans receivable increased $176.8 million to $5.00 billion at March 31, 2022, from $4.83 billion at December 31, 2021, reflecting growth of $68.6 million in multi-family mortgage loans, $59.5 million in nonresidential mortgage loans and $50.7 million in one- to four-family residential mortgage loans.
  • Deposits increased $74.6 million to $5.53 billion at March 31, 2022, from $5.45 billion at December 31, 2021, primarily reflecting growth of $66.2 million in core non-maturity deposits.
  • Investment securities increased $3.7 million to $1.65 billion, or 22.3% of total assets, at March 31, 2022, from $1.64 billion, or 22.9% of total assets, at December 31, 2021.
  • Borrowings increased $165.1 million to $851.2 million, or 11.5% of total assets, at March 31, 2022, from $686.1 million, or 9.5% of total assets, at December 31, 2021.

Earnings

Performance Highlights

  • Return on average assets was 0.98% for the quarter ended March 31, 2022 compared to 1.05% for the quarter ended December 31, 2021.
  • Return on average equity was 7.24% and 7.46% for the quarters ended March 31, 2022 and December 31, 2021, respectively. Return on average tangible equity was 9.27% and 9.49% for those same comparative periods.

Net Interest Income and Net Interest Margin

  • Net interest margin contracted seven basis points to 2.89% for the quarter ended March 31, 2022, from 2.96% for the quarter ended December 31, 2021. The decrease in net interest margin was due largely to a reduction in yield on earning assets, partially offset by a reduction in cost of interest-bearing liabilities. The reduction in yield on earning assets was partly attributable to declines in purchase accounting accretion and loan prepayment penalty income.
  • Net interest income decreased $960,000 to $47.7 million for the quarter ended March 31, 2022, from $48.7 million for the quarter ended December 31, 2021. Included in net interest income for the quarters ended March 31, 2022 and December 31, 2021, respectively, was purchase accounting accretion of $1.9 million and $2.6 million, and loan prepayment penalty income of $1.3 million and $1.5 million.

Non-Interest Income

  • Gain on sale of loans decreased $594,000 to $376,000 for the quarter ended March 31, 2022, from $970,000 for the quarter ended December 31, 2021. This decrease was largely attributable to the decrease in volume of loans sold driven by seasonal fluctuations in residential real estate activity and increases in market interest rates.
  • Included in other income for the quarter ended December 31, 2021 was a non-recurring gain of $356,000 attributable to the sale of one property recognized in conjunction with the Bank’s ongoing retail branch consolidation efforts. No such gain was recorded in the quarter ended March 31, 2022.

Non-Interest Expense

  • Non-interest expense increased $953,000 to $30.6 million for the quarter ended March 31, 2022, from $29.7 million for the quarter ended December 31, 2021. Salary and benefit expense increased $1.1 million attributable largely to increases of $433,000 in payroll taxes associated with the start of the new calendar year and $354,000 in incentive payments tied to increased loan origination volume, as well as $120,000 of non-recurring incentive payments to front-line retail personnel.
  • The efficiency and non-interest expense ratios were 60.14% and 1.70%, respectively, for the quarter ended March 31, 2022, as compared to 56.17% and 1.65%, respectively, for the quarter ended December 31, 2021.

Income Taxes

  • Income tax expense decreased $279,000 to $6.5 million for the quarter ended March 31, 2022 compared to $6.8 million for the quarter ended December 31, 2021, resulting in effective tax rates of 26.9% and 26.6%, respectively.

Asset Quality

  • The balance of non-performing assets increased $8.2 million to $81.0 million, or 1.10% of total assets, at March 31, 2022, from $72.8 million, or 1.01% of total assets, at December 31, 2021. The increase was largely due to one $8.9 million loan that was placed on non-accrual during the quarter ended March 31, 2022.
  • Net charge-offs totaled $436,000, or 0.04% of average loans, on an annualized basis, for the quarter ended March 31, 2022, compared to $1.1 million, or 0.10%, for the quarter ended December 31, 2021.
  • For the quarter ended March 31, 2022, the Company recorded a provision for credit losses reversal of $3.9 million, compared to a provision for credit losses reversal of $2.4 million for the quarter ended December 31, 2021. The reversal for the quarter ended March 31, 2022 was primarily driven by continued improvement in the Company’s economic forecast. In addition, there was a net reduction in reserves on individually evaluated loans primarily related to improved collateral values.
  • The ACL decreased $4.4 million to $43.9 million, or 0.87% of total loans, at March 31, 2022, from $48.2 million, or 0.99% of total loans, at December 31, 2021.

Capital

  • For the quarter ended March 31, 2022, book value per share decreased $0.18 to $13.37 and tangible book value per share decreased $0.26 to $10.38. These decreases were driven by a $24.5 million decline in accumulated other comprehensive (loss) income due primarily to a decrease in the fair value of the Company’s available for sale securities, partially offset by an increase in the fair value of the Company’s derivatives portfolio.
  • During the quarter ended March 31, 2022, the Company repurchased 2,019,625 shares of common stock at a cost of $27.0 million, or $13.35 per share. Through March 31, 2022, the Company repurchased a total of 4,522,301 shares, or 59.5% of the shares authorized for repurchase under the current repurchase program, at a total cost of $59.6 million or $13.18 per share.
  • At March 31, 2022, the Company’s tangible equity to tangible assets ratio equaled 10.3% while 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 has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including whether the coronavirus can continue to be controlled and abated and if the economy is able to remain open. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially remain open, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; due to a decline in our stock price or other factors, goodwill may become impaired and be required to be written down; and our cyber security risks are increased as the result of an increase in the number of employees working remotely.

Category: Earnings

Linked-Quarter Comparative Financial Analysis
Kearny Financial Corp.
Consolidated Balance Sheets
(Unaudited)
                 
(Dollars and Shares in Thousands, March 31,   December 31,   Variance   Variance  
Except Per Share Data) 2022   2021   or Change   or Change Pct.  
Assets                
Cash and cash equivalents $ 62,379   $ 60,452   $ 1,927   3.2 %
Securities available for sale   1,526,086     1,591,066     (64,980 ) -4.1 %
Securities held to maturity   121,853     53,142     68,711   129.3 %
Loans held-for-sale   2,822     12,549     (9,727 ) -77.5 %
Loans receivable   5,003,201     4,826,404     176,797   3.7 %
Less: allowance for credit losses on loans   (43,860 )   (48,216 )   4,356   -9.0 %
Net loans receivable   4,959,341     4,778,188     181,153   3.8 %
Premises and equipment   53,727     54,067     (340 ) -0.6 %
Federal Home Loan Bank stock   30,997     36,622     (5,625 ) -15.4 %
Accrued interest receivable   19,517     18,495     1,022   5.5 %
Goodwill   210,895     210,895       0.0 %
Core deposit intangible   3,166     3,344     (178 ) -5.3 %
Bank owned life insurance   287,644     286,433     1,211   0.4 %
Deferred income taxes, net   34,349     25,709     8,640   33.6 %
Other real estate owned   401     658     (257 ) -39.1 %
Other assets   76,714     54,603     22,111   40.5 %
Total assets $ 7,389,891   $ 7,186,223   $ 203,668   2.8 %
                 
Liabilities                
Deposits:                
Non-interest-bearing   621,954   $ 604,805   $ 17,149   2.8 %
Interest-bearing   4,906,708     4,849,220     57,488   1.2 %
Total deposits   5,528,662     5,454,025     74,637   1.4 %
Borrowings   851,220     686,105     165,115   24.1 %
Advance payments by borrowers for taxes   16,979     16,772     207   1.2 %
Other liabilities   37,861     33,851     4,010   11.8 %
Total liabilities   6,434,722     6,190,753     243,969   3.9 %
                 
Stockholders’ Equity                
Common stock   714     735     (21 ) -2.9 %
Paid-in capital   561,176     587,392     (26,216 ) -4.5 %
Retained earnings   441,522     431,549     9,973   2.3 %
Unearned ESOP shares   (25,294 )   (25,780 )   486   -1.9 %
Accumulated other comprehensive (loss) income   (22,949 )   1,574     (24,523 ) -1558.0 %
Total stockholders’ equity   955,169     995,470     (40,301 ) -4.0 %
Total liabilities and stockholders’ equity $ 7,389,891   $ 7,186,223   $ 203,668   2.8 %
                 
Consolidated capital ratios                
Equity to assets   12.93 %   13.85 %   -0.92 %    
Tangible equity to tangible assets (1)   10.33 %   11.21 %   -0.88 %    
                 
Share data                
Outstanding shares   71,424     73,453     (2,029 ) -2.8 %
Book value per share $ 13.37   $ 13.55   $ (0.18 ) -1.3 %
Tangible book value per share (2) $ 10.38   $ 10.64   $ (0.26 ) -2.4 %
________________________
(1) Tangible equity equals total stockholders’ equity reduced by goodwill and core deposit intangible assets. Tangible assets equals total assets reduced by goodwill and core deposit intangible assets.
(2) Tangible book value equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.
Kearny Financial Corp.
Consolidated Statements of Income
(Unaudited)
                 
  Three Months Ended          
(Dollars and Shares in Thousands, March 31,   December 31,   Variance   Variance  
Except Per Share Data) 2022   2021   or Change   or Change Pct.  
Interest income                
Loans $ 45,846   $ 47,575   $ (1,729 ) -3.6 %
Taxable investment securities   8,024     7,595     429   5.6 %
Tax-exempt investment securities   316     327     (11 ) -3.4 %
Other interest-earning assets   415     415       0.0 %
Total interest income   54,601     55,912     (1,311 ) -2.3 %
                 
Interest expense                
Deposits   3,565     3,663     (98 ) -2.7 %
Borrowings   3,309     3,562     (253 ) -7.1 %
Total interest expense   6,874     7,225     (351 ) -4.9 %
Net interest income   47,727     48,687     (960 ) -2.0 %
Reversal of provision for credit losses   (3,920 )   (2,420 )   (1,500 ) 62.0 %
Net interest income after reversal of provision
for credit losses
  51,647     51,107     540   1.1 %
                 
Non-interest income                
Fees and service charges   617     698     (81 ) -11.6 %
Gain on sale and call of securities   3         3   0.0 %
Gain on sale of loans   376     970     (594 ) -61.2 %
Gain on sale of other real estate owned   14         14   0.0 %
Income from bank owned life insurance   1,511     1,562     (51 ) -3.3 %
Electronic banking fees and charges   432     421     11   2.6 %
Other income   238     482     (244 ) -50.6 %
Total non-interest income   3,191     4,133     (942 ) -22.8 %
                 
Non-interest expense                
Salaries and employee benefits   19,184     18,096     1,088   6.0 %
Net occupancy expense of premises   3,223     3,156     67   2.1 %
Equipment and systems   3,822     3,723     99   2.7 %
Advertising and marketing   516     448     68   15.2 %
Federal deposit insurance premium   480     721     (241 ) -33.4 %
Directors’ compensation   340     649     (309 ) -47.6 %
Other expense   3,058     2,877     181   6.3 %
Total non-interest expense   30,623     29,670     953   3.2 %
Income before income taxes   24,215     25,570     (1,355 ) -5.3 %
Income taxes   6,522     6,801     (279 ) -4.1 %
Net income $ 17,693   $ 18,769   $ (1,076 ) -5.7 %
                 
Net income per common share (EPS)                
Basic $ 0.25   $ 0.26   $ (0.01 )    
Diluted $ 0.25   $ 0.26   $ (0.01 )    
                 
Dividends declared                
Cash dividends declared per common share $ 0.11   $ 0.11   $      
Cash dividends declared $ 7,720   $ 7,921   $ (201 )    
Dividend payout ratio   43.6 %   42.2 %   1.4 %    
                 
Weighted average number of common
shares outstanding
               
Basic   69,790     72,011     (2,221 )    
Diluted   69,817     72,037     (2,220 )    
Kearny Financial Corp.
Average Balance Sheet Data
(Unaudited)
                 
  Three Months Ended          
  March 31,   December 31,   Variance   Variance  
(Dollars in Thousands) 2022   2021   or Change   or Change Pct.  
Assets                
Interest-earning assets:                
Loans receivable, including loans held for sale $ 4,850,236   $ 4,822,959   $ 27,277   0.6 %
Taxable investment securities   1,620,996     1,610,395     10,601   0.7 %
Tax-exempt investment securities   55,390     57,686     (2,296 ) -4.0 %
Other interest-earning assets   79,644     77,811     1,833   2.4 %
Total interest-earning assets   6,606,266     6,568,851     37,415   0.6 %
Non-interest-earning assets   601,684     611,390     (9,706 ) -1.6 %
Total assets $ 7,207,950   $ 7,180,241   $ 27,709   0.4 %
                 
Liabilities and Stockholders’ Equity                
Interest-bearing liabilities:                
Deposits:                
Interest-bearing demand $ 2,133,977   $ 2,027,021   $ 106,956   5.3 %
Savings   1,088,351     1,086,903     1,448   0.1 %
Certificates of deposit   1,650,048     1,693,423     (43,375 ) -2.6 %
Total interest-bearing deposits   4,872,376     4,807,347     65,029   1.4 %
Borrowings:                
Federal Home Loan Bank advances   632,811     666,029     (33,218 ) -5.0 %
Other borrowings   51,667     26,033     25,634   98.5 %
Total borrowings   684,478     692,062     (7,584 ) -1.1 %
Total interest-bearing liabilities   5,556,854     5,499,409     57,445   1.0 %
Non-interest-bearing liabilities:                
Non-interest-bearing deposits   624,152     624,200     (48 ) 0.0 %
Other non-interest-bearing liabilities   49,455     50,870     (1,415 ) -2.8 %
Total non-interest-bearing liabilities   673,607     675,070     (1,463 ) -0.2 %
Total liabilities   6,230,461     6,174,479     55,982   0.9 %
Stockholders’ equity   977,489     1,005,762     (28,273 ) -2.8 %
Total liabilities and stockholders’ equity $ 7,207,950   $ 7,180,241   $ 27,709   0.4 %
                 
Average interest-earning assets to average
 interest-bearing liabilities
  118.89 %   119.45 %   -0.56 % -0.5 %
Kearny Financial Corp.
Performance Ratio Highlights
(Unaudited)
             
  Three Months Ended      
  March 31,   December 31,   Variance  
  2022   2021   or Change  
Average yield on interest-earning assets:            
Loans receivable, including loans held for sale 3.78 % 3.95 % -0.17 %
Taxable investment securities 1.98 % 1.89 % 0.09 %
Tax-exempt investment securities (1) 2.28 % 2.26 % 0.02 %
Other interest-earning assets 2.08 % 2.13 % -0.05 %
Total interest-earning assets 3.31 % 3.40 % -0.09 %
             
Average cost of interest-bearing liabilities:            
Deposits:            
Interest-bearing demand 0.22 % 0.22 % 0.00 %
Savings 0.10 % 0.11 % -0.01 %
Certificates of deposit 0.52 % 0.53 % -0.01 %
Total interest-bearing deposits 0.29 % 0.30 % -0.01 %
Borrowings:            
Federal Home Loan Bank advances 2.08 % 2.14 % -0.06 %
Other borrowings 0.17 % 0.09 % 0.08 %
Total borrowings 1.93 % 2.06 % -0.13 %
Total interest-bearing liabilities 0.49 % 0.53 % -0.04 %
             
Interest rate spread (2) 2.82 % 2.87 % -0.05 %
Net interest margin (3) 2.89 % 2.96 % -0.07 %
             
Non-interest income to average assets
 (annualized)
0.18 % 0.23 % -0.05 %
Non-interest expense to average assets
 (annualized)
1.70 % 1.65 % 0.05 %
             
Efficiency ratio (4) 60.14 % 56.17 % 3.97 %
             
Return on average assets (annualized) 0.98 % 1.05 % -0.07 %
Return on average equity (annualized) 7.24 % 7.46 % -0.22 %
Return on average tangible equity (annualized) (5) 9.27 % 9.49 % -0.22 %
________________________
(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
Consolidated Balance Sheets At  
(Dollars and Shares in Thousands,
Except Per Share Data)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
  (Unaudited) (Unaudited) (Unaudited) (Audited) (Unaudited)
Assets                    
Cash and cash equivalents $ 62,379   $ 60,452   $ 54,070   $ 67,855   $ 108,991  
Securities available for sale   1,526,086     1,591,066     1,651,156     1,676,864     1,778,970  
Securities held to maturity   121,853     53,142     37,497     38,138     27,168  
Loans held-for-sale   2,822     12,549     12,884     16,492     5,172  
Loans receivable   5,003,201     4,826,404     4,789,339     4,851,394     4,798,239  
Less: allowance for credit losses on loans   (43,860 )   (48,216 )   (51,785 )   (58,165 )   (63,762 )
Net loans receivable   4,959,341     4,778,188     4,737,554     4,793,229     4,734,477  
Premises and equipment   53,727     54,067     55,236     56,338     60,360  
Federal Home Loan Bank stock   30,997     36,622     36,615     36,615     45,578  
Accrued interest receivable   19,517     18,495     19,541     19,362     20,562  
Goodwill   210,895     210,895     210,895     210,895     210,895  
Core deposit intangible   3,166     3,344     3,524     3,705     3,888  
Bank owned life insurance   287,644     286,433     284,871     283,310     281,765  
Deferred income taxes, net   34,349     25,709     27,771     29,323     32,230  
Other real estate owned   401     658     178     178     178  
Other assets   76,714     54,603     51,896     51,431     47,760  
Total assets $ 7,389,891   $ 7,186,223   $ 7,183,688   $ 7,283,735   $ 7,357,994  
                     
Liabilities                    
Deposits:                    
Non-interest-bearing $ 621,954   $ 604,805   $ 631,344   $ 593,718   $ 545,746  
Interest-bearing   4,906,708     4,849,220     4,763,795     4,891,588     4,828,706  
Total deposits   5,528,662     5,454,025     5,395,139     5,485,306     5,374,452  
Borrowings   851,220     686,105     720,990     685,876     865,763  
Advance payments by borrowers for taxes   16,979     16,772     16,222     15,752     15,300  
Other liabilities   37,861     33,851     36,914     53,857     38,667  
Total liabilities   6,434,722     6,190,753     6,169,265     6,240,791     6,294,182  
                     
Stockholders’ Equity                    
Common stock   714     735     758     790     820  
Paid-in capital   561,176     587,392     616,894     654,396     691,280  
Retained earnings   441,522     431,549     420,701     408,367     397,594  
Unearned ESOP shares   (25,294 )   (25,780 )   (26,266 )   (26,753 )   (27,239 )
Accumulated other comprehensive (loss)
 income
  (22,949 )   1,574     2,336     6,144     1,357  
Total stockholders’ equity   955,169     995,470     1,014,423     1,042,944     1,063,812  
Total liabilities and stockholders’ equity $ 7,389,891   $ 7,186,223   $ 7,183,688   $ 7,283,735   $ 7,357,994  
                     
Consolidated capital ratios                    
Equity to assets   12.93 %   13.85 %   14.12 %   14.32 %   14.46 %
Tangible equity to tangible assets (1)   10.33 %   11.21 %   11.48 %   11.72 %   11.89 %
                     
Share data                    
Outstanding shares   71,424     73,453     75,800     78,965     81,943  
Book value per share $ 13.37   $ 13.55   $ 13.38   $ 13.21   $ 12.98  
Tangible book value per share (2) $ 10.38   $ 10.64   $ 10.55   $ 10.49   $ 10.36  
________________________
(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 Highlights
(Dollars in Thousands, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Loan portfolio composition:                    
Commercial loans:                    
Multi-family mortgage $ 2,076,003   $ 2,007,431   $ 1,978,681   $ 2,039,260   $ 2,055,396  
Nonresidential mortgage   1,085,988     1,026,447     1,023,391     1,079,444     1,110,765  
Commercial business   169,551     180,429     169,392     168,951     183,181  
Construction   121,137     110,703     112,226     93,804     95,533  
Total commercial loans   3,452,679     3,325,010     3,283,690     3,381,459     3,444,875  
One- to four-family residential mortgage   1,527,980     1,477,267     1,483,106     1,447,721     1,323,485  
Consumer loans:                    
Home equity loans   41,501     43,934     44,912     47,871     59,721  
Other consumer   2,755     3,040     3,020     3,259     3,445  
Total consumer loans   44,256     46,974     47,932     51,130     63,166  
Total loans, excluding yield adjustments   5,024,915     4,849,251     4,814,728     4,880,310     4,831,526  
Unaccreted yield adjustments   (21,714 )   (22,847 )   (25,389 )   (28,916 )   (33,287 )
Loans receivable, net of yield adjustments   5,003,201     4,826,404     4,789,339     4,851,394     4,798,239  
Less: allowance for credit losses on loans   (43,860 )   (48,216 )   (51,785 )   (58,165 )   (63,762 )
Net loans receivable $ 4,959,341   $ 4,778,188   $ 4,737,554   $ 4,793,229   $ 4,734,477  
                     
Loan portfolio allocation:                    
Commercial loans:                    
Multi-family mortgage   41.3 %   41.4 %   41.1 %   41.8 %   42.5 %
Nonresidential mortgage   21.6 %   21.2 %   21.3 %   22.1 %   23.0 %
Commercial business   3.4 %   3.7 %   3.5 %   3.5 %   3.8 %
Construction   2.4 %   2.3 %   2.3 %   1.9 %   2.0 %
Total commercial loans   68.7 %   68.6 %   68.2 %   69.3 %   71.3 %
One- to four-family residential mortgage   30.4 %   30.5 %   30.8 %   29.7 %   27.4 %
Consumer loans:                    
Home equity loans   0.8 %   0.9 %   0.9 %   0.9 %   1.2 %
Other consumer   0.1 %   0.0 %   0.1 %   0.1 %   0.1 %
Total consumer loans   0.9 %   0.9 %   1.0 %   1.0 %   1.3 %
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  
Nonaccrual loans   80,595     72,138     72,945     79,767     71,416  
Total nonperforming loans   80,595     72,138     72,945     79,767     71,418  
Other real estate owned   401     658     178     178     178  
Total nonperforming assets $ 80,996   $ 72,796   $ 73,123   $ 79,945   $ 71,596  
                     
Nonperforming loans (% total loans)   1.61 %   1.49 %   1.52 %   1.64 %   1.49 %
Nonperforming assets (% total assets)   1.10 %   1.01 %   1.02 %   1.10 %   0.97 %
                     
Allowance for credit losses on loans (ACL):                    
ACL to total loans   0.87 %   0.99 %   1.08 %   1.19 %   1.32 %
ACL to nonperforming loans   54.42 %   66.84 %   70.99 %   72.92 %   89.28 %
Net charge-offs $ 436   $ 1,149   $ 980   $ 656   $ 750  
Average net charge-off rate (annualized)   0.04 %   0.10 %   0.08 %   0.05 %   0.06 %
  At  
Supplemental Balance Sheet Highlights
(Dollars in Thousands, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Funding by type:                    
Deposits:                    
Non-interest-bearing deposits $ 621,954   $ 604,805   $ 631,344   $ 593,718   $ 545,746  
Interest-bearing demand   2,154,488     2,106,693     1,937,661     1,902,478     1,923,184  
Savings   1,088,974     1,087,740     1,089,699     1,111,364     1,105,481  
Certificates of deposit   1,663,246     1,654,787     1,736,435     1,877,746     1,800,041  
Interest-bearing deposits   4,906,708     4,849,220     4,763,795     4,891,588     4,828,706  
Total deposits   5,528,662     5,454,025     5,395,139     5,485,306     5,374,452  
                     
Borrowings:                    
Federal Home Loan Bank advances   541,220     666,105     665,990     665,876     865,763  
Overnight borrowings   310,000     20,000     55,000     20,000      
Total borrowings   851,220     686,105     720,990     685,876     865,763  
                     
Total funding $ 6,379,882   $ 6,140,130   $ 6,116,129   $ 6,171,182   $ 6,240,215  
                     
Loans as a % of deposits   89.8 %   87.8 %   88.1 %   87.7 %   88.2 %
Deposits as a % of total funding   86.7 %   88.8 %   88.2 %   88.9 %   86.1 %
Borrowings as a % of total funding   13.3 %   11.2 %   11.8 %   11.1 %   13.9 %
                     
Funding by source:                    
Retail deposits:                    
Non-interest-bearing deposits $ 621,954   $ 604,805   $ 631,344   $ 593,718   $ 545,746  
Interest-bearing demand   2,154,488     2,106,693     1,937,661     1,902,478     1,923,184  
Savings   1,088,974     1,087,740     1,089,699     1,111,364     1,105,481  
Certificates of deposit   1,122,228     1,184,530     1,264,016     1,398,808     1,508,494  
Total retail deposits   4,987,644     4,983,768     4,922,720     5,006,368     5,082,905  
                     
Wholesale funding:                    
Certificates of deposit (listing service) $ 9,981   $ 11,622   $ 13,817   $ 20,322   $ 32,952  
Certificates of deposit (brokered)   531,037     458,635     458,602     458,616     258,595  
Total wholesale deposits   541,018     470,257     472,419     478,938     291,547  
FHLB advances   541,220     666,105     665,990     665,876     865,763  
Overnight borrowings   310,000     20,000     55,000     20,000      
Total wholesale funding   1,392,238     1,156,362     1,193,409     1,164,814     1,157,310  
                     
Total funding $ 6,379,882   $ 6,140,130   $ 6,116,129   $ 6,171,182   $ 6,240,215  
                     
Retail funding as a % of total funding   78.2 %   81.2 %   80.5 %   81.1 %   81.5 %
Wholesale funding as a % of total funding   21.8 %   18.8 %   19.5 %   18.9 %   18.5 %
Consolidated Statements of Income Three Months Ended  
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Interest income                    
Loans (1) $ 45,846   $ 47,575   $ 48,230   $ 48,464   $ 50,159  
Taxable investment securities   8,024     7,595     8,212     8,304     7,891  
Tax-exempt investment securities   316     327     333     355     410  
Other interest-earning assets   415     415     431     549     705  
Total interest income   54,601     55,912     57,206     57,672     59,165  
                     
Interest expense                    
Deposits   3,565     3,663     4,065     5,156     6,670  
Borrowings   3,309     3,562     3,551     3,451     4,012  
Total interest expense   6,874     7,225     7,616     8,607     10,682  
Net interest income   47,727     48,687     49,590     49,065     48,483  
(Reversal of) provision for credit losses   (3,920 )   (2,420 )   (5,400 )   (4,941 )   1,126  
Net interest income after (reversal of)
 provision for credit losses
  51,647     51,107     54,990     54,006     47,357  
                     
Non-interest income                    
Fees and service charges (1)   617     698     607     423     473  
Gain on sale and call of securities   3         1     313     18  
Gain on sale of loans   376     970     1,006     363     943  
Gain on sale of other real estate owned   14                  
Income from bank owned life insurance   1,511     1,562     1,561     1,545     1,530  
Electronic banking fees and charges   432     421     407     452     456  
Other income   238     482     218     400     1,194  
Total non-interest income   3,191     4,133     3,800     3,496     4,614  
                     
Non-interest expense                    
Salaries and employee benefits   19,184     18,096     18,617     17,777     16,965  
Net occupancy expense of premises   3,223     3,156     4,547     2,998     3,433  
Equipment and systems   3,822     3,723     3,825     3,575     3,823  
Advertising and marketing   516     448     392     581     567  
Federal deposit insurance premium   480     721     492     490     488  
Directors’ compensation   340     649     803     749     748  
Other expense   3,058     2,877     3,127     5,816     3,792  
Total non-interest expense   30,623     29,670     31,803     31,986     29,816  
Income before income taxes   24,215     25,570     26,987     25,516     22,155  
Income taxes   6,522     6,801     7,272     7,033     5,732  
Net income $ 17,693   $ 18,769   $ 19,715   $ 18,483   $ 16,423  
                     
Net income per common share (EPS)                    
Basic $ 0.25   $ 0.26   $ 0.26   $ 0.24   $ 0.20  
Diluted $ 0.25   $ 0.26   $ 0.26   $ 0.24   $ 0.20  
                     
Dividends declared                    
Cash dividends declared per common share $ 0.11   $ 0.11   $ 0.10   $ 0.10   $ 0.09  
Cash dividends declared $ 7,720   $ 7,921   $ 7,381   $ 7,710   $ 7,205  
Dividend payout ratio   43.6 %   42.2 %   37.4 %   41.7 %   43.9 %
                     
Weighted average number of common
 shares outstanding
                   
Basic   69,790     72,011     74,537     77,658     80,673  
Diluted   69,817     72,037     74,556     77,680     80,690  
________________________
(1) Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Periods prior to the quarter ended September 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the quarters ended June 30, 2021 and March 31, 2021 was $902,000 and $852,000, respectively.
  Three Months Ended  
Average Balance Sheet Data
(Dollars in Thousands, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Assets                    
Interest-earning assets:                    
Loans receivable, including loans held for
sale
$ 4,850,236   $ 4,822,959   $ 4,835,676   $ 4,817,980   $ 4,816,592  
Taxable investment securities   1,620,996     1,610,395     1,649,953     1,720,838     1,674,223  
Tax-exempt investment securities   55,390     57,686     59,115     63,047     73,573  
Other interest-earning assets   79,644     77,811     85,749     117,212     169,291  
Total interest-earning assets   6,606,266     6,568,851     6,630,493     6,719,077     6,733,679  
Non-interest-earning assets   601,684     611,390     616,735     609,762     617,440  
Total assets $ 7,207,950   $ 7,180,241   $ 7,247,228   $ 7,328,839   $ 7,351,119  
                     
Liabilities and Stockholders’ Equity                    
Interest-bearing liabilities:                    
Deposits:                    
Interest-bearing demand $ 2,133,977   $ 2,027,021   $ 1,954,271   $ 1,930,193   $ 1,831,617  
Savings   1,088,351     1,086,903     1,102,865     1,118,402     1,084,981  
Certificates of deposit   1,650,048     1,693,423     1,798,473     1,934,650     1,904,234  
Total interest-bearing deposits   4,872,376     4,807,347     4,855,609     4,983,245     4,820,832  
Borrowings:                    
Federal Home Loan Bank advances   632,811     666,029     665,915     665,802     865,690  
Other borrowings   51,667     26,033     28,532     6,670      
Total borrowings   684,478     692,062     694,447     672,472     865,690  
Total interest-bearing liabilities   5,556,854     5,499,409     5,550,056     5,655,717     5,686,522  
Non-interest-bearing liabilities:                    
Non-interest-bearing deposits   624,152     624,200     610,271     566,632     525,018  
Other non-interest-bearing liabilities   49,455     50,870     56,893     52,292     57,018  
Total non-interest-bearing liabilities   673,607     675,070     667,164     618,924     582,036  
Total liabilities   6,230,461     6,174,479     6,217,220     6,274,641     6,268,558  
Stockholders’ equity   977,489     1,005,762     1,030,008     1,054,198     1,082,561  
Total liabilities and stockholders’ equity $ 7,207,950   $ 7,180,241   $ 7,247,228   $ 7,328,839   $ 7,351,119  
                     
Average interest-earning assets to average
 interest-bearing liabilities
  118.89 %   119.45 %   119.47 %   118.80 %   118.41 %
  Three Months Ended  
Performance Ratio Highlights March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Average yield on interest-earning assets:                    
Loans receivable, including loans held for
 sale (1)
  3.78 %   3.95 %   3.99 %   4.02 %   4.17 %
Taxable investment securities   1.98 %   1.89 %   1.99 %   1.93 %   1.89 %
Tax-exempt investment securities (2)   2.28 %   2.26 %   2.25 %   2.25 %   2.23 %
Other interest-earning assets   2.08 %   2.13 %   2.01 %   1.87 %   1.67 %
Total interest-earning assets (1)   3.31 %   3.40 %   3.45 %   3.43 %   3.51 %
                     
Average cost of interest-bearing liabilities:                    
Deposits:                    
Interest-bearing demand   0.22 %   0.22 %   0.23 %   0.27 %   0.34 %
Savings   0.10 %   0.11 %   0.12 %   0.15 %   0.21 %
Certificates of deposit   0.52 %   0.53 %   0.57 %   0.71 %   0.96 %
Total interest-bearing deposits   0.29 %   0.30 %   0.33 %   0.41 %   0.55 %
Borrowings:                    
Federal Home Loan Bank advances   2.08 %   2.14 %   2.13 %   2.07 %   1.85 %
Other borrowings   0.17 %   0.09 %   0.10 %   0.07 %   0.00 %
Total borrowings   1.93 %   2.06 %   2.05 %   2.05 %   1.85 %
Total interest-bearing liabilities   0.49 %   0.53 %   0.55 %   0.61 %   0.75 %
                     
Interest rate spread (1) (3)   2.82 %   2.87 %   2.90 %   2.82 %   2.76 %
Net interest margin (1) (4)   2.89 %   2.96 %   2.99 %   2.92 %   2.88 %
                     
Non-interest income to average assets
 (annualized) (1)
  0.18 %   0.23 %   0.21 %   0.19 %   0.25 %
Non-interest expense to average assets
 (annualized)
  1.70 %   1.65 %   1.76 %   1.75 %   1.62 %
                     
Efficiency ratio (5)   60.14 %   56.17 %   59.57 %   60.86 %   56.15 %
                     
Return on average assets (annualized)   0.98 %   1.05 %   1.09 %   1.01 %   0.89 %
Return on average equity (annualized)   7.24 %   7.46 %   7.66 %   7.01 %   6.07 %
Return on average tangible equity
 (annualized) (6)
  9.27 %   9.49 %   9.67 %   8.81 %   7.57 %
________________________
(1) Effective July 1, 2021, loan prepayment penalty income is recorded as a component of interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Periods prior to the quarter ended September 30, 2021 have been adjusted to reflect this change. Loan prepayment penalty income for the quarters ended June 30, 2021 and March 31, 2021 was $902,000 and $852,000, respectively.
(2) The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(3) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest income and non-interest income.
(6) Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.

The following tables provide a reconciliation of certain financial measures calculated in accordance with Generally Accepted Accounting Principles (“GAAP”) (as reported) and non-GAAP measures. 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. 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 Three Months Ended  
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Adjusted net income:                    
Net income (GAAP) $ 17,693   $ 18,769   $ 19,715   $ 18,483   $ 16,423  
Non-recurring transactions – net of tax:                    
Branch consolidation expenses and
 impairment charges
      132     1,209     870     264  
Net effect of sale and call of securities   (2 )       (1 )   (220 )   (13 )
Reversal of income tax valuation
 allowance
              (12 )    
Net effect of sales of other assets       (251 )       (144 )   (587 )
Adjusted net income $ 17,691   $ 18,650   $ 20,923   $ 18,977   $ 16,087  
                     
Calculation of pre-tax, pre-provision net revenue:                    
Net income (GAAP) $ 17,693   $ 18,769   $ 19,715   $ 18,483   $ 16,423  
Adjustments to net income (GAAP):                    
Provision for income taxes   6,522     6,801     7,272     7,033     5,732  
(Reversal of) provision for credit losses   (3,920 )   (2,420 )   (5,400 )   (4,941 )   1,126  
Pre-tax, pre-provision net revenue
 (non-GAAP)
$ 20,295   $ 23,150   $ 21,587   $ 20,575   $ 23,281  
                     
Adjusted earnings per share:                    
Weighted average common shares – basic   69,790     72,011     74,537     77,658     80,673  
Weighted average common shares – diluted   69,817     72,037     74,556     77,680     80,690  
                     
Earnings per share – basic (GAAP) $ 0.25   $ 0.26   $ 0.26   $ 0.24   $ 0.20  
Earnings per share – diluted (GAAP) $ 0.25   $ 0.26   $ 0.26   $ 0.24   $ 0.20  
                     
Adjusted earnings per share – basic
 (non-GAAP)
$ 0.25   $ 0.26   $ 0.28   $ 0.24   $ 0.20  
Adjusted earnings per share – diluted
 (non-GAAP)
$ 0.25   $ 0.26   $ 0.28   $ 0.24   $ 0.20  
                     
Adjusted return on average assets:                    
Total average assets $ 7,207,950   $ 7,180,241   $ 7,247,228   $ 7,328,839   $ 7,351,119  
                     
Return on average assets (GAAP)   0.98 %   1.05 %   1.09 %   1.01 %   0.89 %
Adjusted return on average assets
 (non-GAAP)
  0.98 %   1.04 %   1.15 %   1.04 %   0.88 %
                     
Adjusted return on average equity:                    
Total average equity $ 977,489   $ 1,005,762   $ 1,030,008   $ 1,054,198   $ 1,082,561  
                     
Return on average equity (GAAP)   7.24 %   7.46 %   7.66 %   7.01 %   6.07 %
Adjusted return on average equity
 (non-GAAP)
  7.24 %   7.42 %   8.13 %   7.20 %   5.94 %
Reconciliation of GAAP to Non-GAAP Three Months Ended  
(Dollars and Shares in Thousands,
Except Per Share Data, Unaudited)
March 31,
2022
December 31,
2021
September 30,
2021
June 30,
2021
March 31,
2021
Adjusted return on average tangible
 equity:
                   
Total average equity $ 977,489   $ 1,005,762   $ 1,030,008   $ 1,054,198   $ 1,082,561  
Less: average goodwill   (210,895 )   (210,895 )   (210,895 )   (210,895 )   (210,895 )
Less: average other intangible assets   (3,282 )   (3,462 )   (3,641 )   (3,825 )   (4,045 )
  $ 763,312   $ 791,405   $ 815,472   $ 839,478   $ 867,621  
                     
Return on average tangible equity
 (non-GAAP)
  9.27 %   9.49 %   9.67 %   8.81 %   7.57 %
Adjusted return on average tangible equity
 (non-GAAP)
  9.27 %   9.43 %   10.26 %   9.04 %   7.42 %
                     
Adjusted non-interest expense ratio:                    
Non-interest expense (GAAP) $ 30,623   $ 29,670   $ 31,803   $ 31,986   $ 29,816  
Non-recurring transactions:                    
Branch consolidation expenses and
 impairment charges
      (187 )   (1,711 )   (1,239 )   (375 )
Non-interest expense (non-GAAP) $ 30,623   $ 29,483   $ 30,092   $ 30,747   $ 29,441  
                     
Non-interest expense ratio (GAAP)   1.70 %   1.65 %   1.76 %   1.75 %   1.62 %
Adjusted non-interest expense ratio
 (non-GAAP)
  1.70 %   1.64 %   1.66 %   1.68 %   1.60 %
                     
Adjusted efficiency ratio:                    
Non-interest expense (non-GAAP) $ 30,623   $ 29,483   $ 30,092   $ 30,747   $ 29,441  
                     
Net interest income (GAAP) $ 47,727   $ 48,687   $ 49,590   $ 49,065   $ 48,483  
Total non-interest income (GAAP)   3,191     4,133     3,800     3,496     4,614  
Non-recurring transactions:                    
Net effect of sale and call of securities   (3 )       (1 )   (313 )   (18 )
Net effect of sales of other assets       (356 )       (205 )   (837 )
Total revenue (non-GAAP) $ 50,915   $ 52,464   $ 53,389   $ 52,043   $ 52,242  
                     
Efficiency ratio (GAAP)   60.14 %   56.17 %   59.57 %   60.86 %   56.15 %
Adjusted efficiency ratio (non-GAAP)   60.15 %   56.20 %   56.36 %   59.08 %   56.36 %

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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