Kearny Financial Corp. Reports First Quarter 2020 Operating Results

FAIRFIELD, N.J., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended September 30, 2019 of $11.4 million, or $0.13 per basic and diluted share.  The results represent an increase of $2.6 million compared to net income of $8.8 million, or $0.10 per basic and diluted share, for the quarter ended June 30, 2019.

Net income for the quarter ended September 30, 2019 was impacted by a non-recurring increase of $567,000 in non-interest expense and a non-recurring decrease of $106,000 in non-interest income which were recognized in conjunction with the Company’s previously announced branch consolidations.  Adjusting for the impact of such charges, net of tax benefit, the Company’s adjusted net income for the quarter ended September 30, 2019 would have been $11.8 million or $0.14 per basic and diluted share.  This compares to adjusted net income of $10.0 million or $0.11 per basic and diluted share for the quarter ended June 30, 2019.

Craig L. Montanaro, President and Chief Executive Officer, commented, “I am pleased to report that fiscal 2020 is off to a strong start.  We have made meaningful progress towards our goal of realigning our funding base, with a focus on growth in lower-cost core deposit relationships.  To that end, we grew core deposits by $111.4 million during the first quarter while facilitating the outflow of $75.3 million in wholesale funding.  This success coincided with our previously announced branch consolidations which were executed with a negligible loss in deposit balances.  On the technology front, we continued the ongoing evolution of our digital delivery channels with the deployment of online account opening and the launch of our new website, which was redesigned from the ground up with a mobile-first mindset.”

Balance Sheet Highlights

• Deposits increased by $49.6 million to $4.20 billion at September 30, 2019 from $4.15 billion at June 30, 2019.  This net increase in deposits was attributable to an increase of $125.0 million in retail deposits that was partially offset by a decrease of $75.3 million in wholesale deposits.  The net growth and reallocation of the Company’s deposits for the quarter ended September 30, 2019 reflected its continuing effort to realign its funding mix in favor of core deposits.
• Loans receivable decreased by $74.2 million to $4.60 billion, or 69.3% of total assets, at September 30, 2019 from $4.68 billion, or 70.5% of total assets, at June 30, 2019.  The decrease in loans receivable was attributable to loan prepayments outpacing origination volume.
• Borrowings decreased by $40.9 million to $1.28 billion, or 19.3% of total assets, at September 30, 2019, from $1.32 billion, or 19.9% of total assets at June 30, 2019.  As noted above, the decrease in borrowings for the quarter ended September 30, 2019 reflected the Company’s continuing effort to realign its funding mix in favor of core deposits.
• Investment securities decreased by $21.3 million to $1.27 billion, or 19.1% of total assets, at September 30, 2019 from $1.29 billion, or 19.5% of total assets, at June 30, 2019.  In conjunction with the adoption of ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," the Company reclassified $537.7 million of investment securities from held-to-maturity to available-for-sale.

Earnings Highlights

Net Interest Income, Spread and Margin

• Net interest income decreased by $459,000 to $36.7 million for the quarter ended September 30, 2019, from $37.1 million for the quarter ended June 30, 2019.  The decrease in net interest income was the result of an increase of $910,000 in interest expense partially offset by an increase of $451,000 in interest income.
• Net interest spread decreased three basis points to 2.15% for the quarter ended September 30, 2019 from 2.18% for the quarter ended June 30, 2019.  The decrease in spread primarily reflected a six basis point increase in the cost of interest-bearing liabilities partially offset by a three basis point increase in the yield on interest-earning assets.
• The factors that contributed to the quarterly change in net interest spread also contributed to a three basis point decrease in net interest margin to 2.42% for the quarter ended September 30, 2019 from 2.45% for the quarter ended June 30, 2019.

Non-Interest Income

• Fees and service charges increased by $128,000, or 9.6%, to $1.5 million for the quarter ended September 30, 2019 compared to $1.3 million for the quarter ended June 30, 2019.

• Aggregate loan sale gains attained record levels for the quarter ended September 30, 2019 increasing by $409,000, or 208.7%, to $605,000 from $196,000 for the quarter ended June 30, 2019.  The increase in loan sale gains largely reflected an increase in the volume of residential mortgage loans sold.
• Miscellaneous non-interest income decreased by $123,000, to $5,000 for the quarter ended September 30, 2019 from $128,000 for the quarter ended June 30, 2019.  This decrease was attributable to a non-recurring loss on asset disposals associated with the branch consolidations noted above.

Non-Interest Expense

• Non-interest expense decreased by $2.5 million to $26.2 million for the quarter ended September 30, 2019 compared to $28.7 million for the quarter ended June 30, 2019.  The decrease was largely attributable to a decrease of $1.2 million in non-recurring branch consolidation expenses to $567,000 for the quarter ended September 30, 2019 from $1.7 million for the quarter ended June 30, 2019.  Also contributing to the net decrease were decreases of $438,000 in FDIC insurance expense and $413,000 in advertising and marketing expense, partially offset by increases in net occupancy expense of premises and equipment and systems expense. For the quarter ended September 30, 2019 the Company recorded no expense associated with FDIC insurance premiums as a result of the FDIC’s Deposit Insurance Fund Reserve Ratio having reached a pre-established threshold defined by federal regulation.  Upon reaching this threshold qualifying banks with total consolidated assets of less than $10 billion were awarded assessment credits to be utilized towards their FDIC insurance premiums.

• The Company’s non-interest expense ratio totaled 1.58% for the quarter ended September 30, 2019 compared to 1.73% for the prior quarter ended June 30, 2019.  Adjusting for the impact of the branch consolidation expenses noted earlier, the Company’s non-interest expense ratios would have been 1.55% for the quarter ended September 30, 2019.
• The Company’s efficiency ratio was 64.6% for the quarter ended September 30, 2019 compared to 70.9% for the prior quarter ended June 30, 2019.  Adjusting for the impact of the branch consolidation expenses noted earlier, the Company’s efficiency ratio would have been 63.2% for the quarter ended September 30, 2019.

Income Taxes

• Income tax expense totaled $3.8 million for the quarter ended September 30, 2019 compared to $2.3 million for the quarter ended June 30, 2019 resulting in effective tax rates of 25.1% and 20.8%, respectively.  The increase in income tax expense, and corresponding effective tax rate, largely reflected a higher level of pre-tax net income as compared to the prior period coupled with non-recurring adjustments during the prior period arising from updates to state income tax apportionment levels.

Performance Ratios

• Return on average assets for the quarter ended September 30, 2019 increased to 0.68% from 0.53% for the quarter ended June 30, 2019.  Adjusting for the impact of the branch consolidation expenses noted earlier, the Company’s return on average assets would have been 0.71% for the quarter ended September 30, 2019.
• Return on average equity increased to 4.08% for the quarter ended September 30, 2019 from 3.08% for the quarter ended June 30, 2019.  Adjusting for the impact of the branch consolidation expenses noted earlier, the Company’s return on average equity would have been 4.25% for the quarter ended September 30, 2019.
• Return on average tangible equity increased to 5.06% for the quarter ended September 30, 2019 from 3.80% for the quarter ended June 30, 2019.  Adjusting for the impact of the branch consolidation expenses noted earlier, the Company’s return on average tangible equity would have been 5.28% for the quarter ended September 30, 2019.

Asset Quality Highlights

• Asset quality remained strong throughout the quarter ended September 30, 2019.  The outstanding balance of non-performing loans totaled $21.8 million, or 0.47% of total loans, at September 30, 2019 as compared to $20.3 million, or 0.43% of total loans, at June 30, 2019.
• The allowance for loan losses (“ALLL”) decreased to $32.4 million at September 30, 2019 from $33.3 million at June 30, 2019, resulting in an ALLL to total loans ratio of 0.70% for both comparative periods. The balance of the allowance for loan losses reflects the impact of purchase accounting which generally precludes acquired loan balances from being considered in the balance of the allowance for loan losses at the time of their acquisition.

• Net charge offs totaled $60,000 for the quarter ended September 30, 2019, reflecting an annualized net charge off rate of 0.01% on the average balance of total loans for the period.  By comparison, net charge offs totaled $495,000 for the quarter ended June 30, 2019, reflecting an annualized net charge off rate of 0.04%.
• The Company recorded a loan loss provision reversal of $782,000 for the quarter ended September 30, 2019 compared to a loan loss provision of $664,000 for the quarter ended June 30, 2019.  The decrease in provision for loan losses was largely attributable to a net decrease during the quarter ended September 30, 2019 in the balance of the loan portfolio that was collectively evaluated for impairment compared to an increase in such balances during the prior quarter ending June 30, 2019, while also reflecting a decrease in net charge-offs between the comparative periods.

Capital Highlights

• During the quarter ended September 30, 2019, the Company repurchased 2,326,051 shares of its common stock at a total cost of $30.6 million and an average cost of $13.15 per share.  Through September 30, 2019, the Company repurchased a total of 5,407,794 shares, or 58.7% of the shares authorized for repurchase under the current repurchase program, at a total cost of $71.9 million and at an average cost of $13.30 per share.
• The Company maintained its regular quarterly cash dividend of $0.06 per share during the quarter ended September 30, 2019.  The Company continually evaluates its dividend policies in relation to its overall capital management and shareholder value objectives.
• Book value per share increased by $0.15 to $12.80 at September 30, 2019, from $12.65 at June 30, 2019.  Tangible book value per share increased by $0.09 to $10.31 at September 30, 2019, from $10.22 at June 30, 2019.
• The Company’s and Bank’s regulatory capital ratios at September 30, 2019 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.

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)	2019			2019			or Change			Pct.
Assets
Cash and cash equivalents	$	129,305		$	38,935		$	90,370			232.1	%
Securities available for sale		1,231,691			714,263			517,428			72.4	%
Securities held to maturity		37,888			576,652			(538,764	)		-93.4	%
Loans held-for-sale		10,495			12,267			(1,772	)		-14.4	%
Loans receivable, including yield adjustments		4,604,738			4,678,928			(74,190	)		-1.6	%
Less allowance for loan losses		(32,432	)		(33,274	)		842			-2.5	%
Net loans receivable		4,572,306			4,645,654			(73,348	)		-1.6	%
Premises and equipment		56,599			56,854			(255	)		-0.4	%
Federal Home Loan Bank stock		63,739			64,190			(451	)		-0.7	%
Accrued interest receivable		19,393			19,360			33			0.2	%
Goodwill		210,895			210,895			-			0.0	%
Core deposit intangible		4,852			5,160			(308	)		-6.0	%
Bank owned life insurance		257,735			256,155			1,580			0.6	%
Deferred income taxes, net		21,742			25,367			(3,625	)		-14.3	%
Other real estate owned		-			-			-			0.0	%
Other assets		24,366			9,077			15,289			168.4	%
Total assets	$	6,641,006		$	6,634,829		$	6,177			0.1	%
Liabilities
Deposits	$	4,197,250		$	4,147,610		$	49,640			1.2	%
Borrowings		1,281,118			1,321,982			(40,864	)		-3.1	%
Advance payments by borrowers for taxes		16,102			16,887			(785	)		-4.6	%
Other liabilities		35,747			21,191			14,556			68.7	%
Total liabilities		5,530,217			5,507,670			22,547			0.4	%
Stockholders' Equity
Common stock		868			891			(23	)		-2.6	%
Paid-in capital		758,385			787,394			(29,009	)		-3.7	%
Retained earnings		373,004			366,679			6,325			1.7	%
Unearned ESOP shares		(30,158	)		(30,644	)		486			-1.6	%
Accumulated other comprehensive income, net		8,690			2,839			5,851			206.1	%
Total stockholders' equity		1,110,789			1,127,159			(16,370	)		-1.5	%
Total liabilities and stockholders' equity	$	6,641,006		$	6,634,829		$	6,177			0.1	%
Consolidated capital ratios
Equity to assets		16.73	%		16.99	%		-0.26	%
Tangible equity to tangible assets		13.93	%		14.19	%		-0.26	%
Share data
Outstanding shares		86,786			89,126			(2,340	)		-2.6	%
Book value per share	$	12.80		$	12.65		$	0.15			1.2	%
Tangible book value per share (1)	$	10.31		$	10.22		$	0.09			0.9	%
___________________(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)	2019			2019			or Change			Pct.
Interest income
Loans	$	48,600		$	47,818		$	782			1.6	%
Taxable investment securities		9,328			9,772			(444	)		-4.5	%
Tax-exempt investment securities		693			700			(7	)		-1.0	%
Other interest-earning assets		1,278			1,158			120			10.4	%
Total Interest Income		59,899			59,448			451			0.8	%
Interest expense
Deposits		16,055			15,131			924			6.1	%
Borrowings		7,157			7,171			(14	)		-0.2	%
Total interest expense		23,212			22,302			910			4.1	%
Net interest income		36,687			37,146			(459	)		-1.2	%
(Reversal of) provision for loan losses		(782	)		664			(1,446	)		217.8	%
Net interest income after (reversal of) provision for loan losses		37,469			36,482			987			2.7	%
Non-interest income
Fees and service charges		1,468			1,340			128			9.6	%
Loss on sale and call of securities		(14	)		(141	)		127			90.1	%
Gain on sale of loans		605			196			409			208.7	%
Gain on sale and write down of other real estate owned		-			9			(9	)		-100.0	%
Income from bank owned life insurance		1,580			1,586			(6	)		-0.4	%
Electronic banking fees and charges		318			270			48			17.8	%
Miscellaneous		5			128			(123	)		-96.1	%
Total non-interest income		3,962			3,388			574			16.9	%
Non-interest expense
Salaries and employee benefits		15,777			16,338			(561	)		-3.4	%
Net occupancy expense of premises		2,969			2,744			225			8.2	%
Equipment and systems		3,089			2,917			172			5.9	%
Advertising and marketing		535			948			(413	)		-43.6	%
Federal deposit insurance premium		-			438			(438	)		-100.0	%
Directors' compensation		770			770			-			0.0	%
Miscellaneous		3,104			4,590			(1,486	)		-32.4	%
Total non-interest expense		26,244			28,745			(2,501	)		-8.7	%
Income before income taxes		15,187			11,125			4,062			36.5	%
Income taxes		3,817			2,314			1,503			65.0	%
Net income	$	11,370		$	8,811		$	2,559			29.0	%
Net income per common share (EPS)
Basic	$	0.13		$	0.10		$	0.03
Diluted	$	0.13		$	0.10		$	0.03
Dividends declared
Cash dividends declared per common share	$	0.06		$	0.06		$	-
Cash dividends declared	$	5,045		$	5,204		$	(159	)
Dividend payout ratio		44.4	%		59.1	%		-14.7	%
Weighted average number of  common shares outstanding
Basic		84,756			87,090			(2,334	)
Diluted		84,793			87,132			(2,339	)

	For the three months ended									Variance
Average Balance Sheet Data	September 30,			June 30,			Variance			or Change
(Dollars in Thousands, Unaudited)	2019			2019			or Change			Pct.
Assets
Interest-earning assets:
Loans receivable, including loans held for sale		4,656,192		$	4,648,362		$	7,830			0.2	%
Taxable investment securities		1,147,698			1,184,401			(36,703	)		-3.1	%
Tax-exempt investment securities		129,339			132,110			(2,771	)		-2.1	%
Other interest-earning assets		125,114			98,374			26,740			27.2	%
Total interest-earning assets		6,058,343			6,063,247			(4,904	)		-0.1	%
Non-interest-earning assets		585,826			572,218			13,608			2.4	%
Total assets	$	6,644,169		$	6,635,465		$	8,704			0.1	%
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	883,843		$	815,624		$	68,219			8.4	%
Savings and club		799,181			780,558			18,623			2.4	%
Certificates of deposit		2,179,333			2,229,723			(50,390	)		-2.3	%
Total interest-bearing deposits		3,862,357			3,825,905			36,452			1.0	%
Borrowings:
Federal Home Loan Bank advances		1,277,145			1,284,427			(7,282	)		-0.6	%
Other borrowings		10,012			29,439			(19,427	)		-66.0	%
Total borrowings		1,287,157			1,313,866			(26,709	)		-2.0	%
Total interest-bearing liabilities		5,149,514			5,139,771			9,743			0.2	%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		320,641			311,648			8,993			2.9	%
Other non-interest-bearing liabilities		60,078			39,294			20,784			52.9	%
Total non-interest-bearing liabilities		380,719			350,942			29,777			8.5	%
Total liabilities		5,530,233			5,490,713			39,520			0.7	%
Stockholders' equity		1,113,936			1,144,752			(30,816	)		-2.7	%
Total liabilities and stockholders' equity	$	6,644,169		$	6,635,465		$	8,704			0.1	%
Average interest-earning assets to average interest-bearing liabilities		117.65	%		117.97	%		-0.32	%		-0.3	%

	For the three months ended
	September 30,			June 30,			Variance
Performance Ratio Highlights	2019			2019			or Change
Average yield on interest-earning assets:
Loans receivable, including loans held for sale		4.18	%		4.11	%		0.07	%
Taxable investment securities		3.25	%		3.30	%		-0.05	%
Tax-exempt investment securities (1)		2.14	%		2.12	%		0.02	%
Other interest-earning assets		4.09	%		4.71	%		-0.62	%
Total interest-earning assets		3.95	%		3.92	%		0.03	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand		1.30	%		1.19	%		0.11	%
Savings and club		0.77	%		0.68	%		0.09	%
Certificates of deposit		2.14	%		2.04	%		0.10	%
Total interest-bearing deposits		1.66	%		1.58	%		0.08	%
Borrowings:
Federal Home Loan Bank advances		2.24	%		2.21	%		0.03	%
Other borrowings		0.66	%		0.99	%		-0.33	%
Total borrowings		2.22	%		2.18	%		0.04	%
Total interest-bearing liabilities		1.80	%		1.74	%		0.06	%
Interest rate spread (2)		2.15	%		2.18	%		-0.03	%
Net interest margin (3)		2.42	%		2.45	%		-0.03	%
Non-interest income to average assets (annualized)		0.24	%		0.20	%		0.03	%
Non-interest expense to average assets (annualized)		1.58	%		1.73	%		-0.15	%
Efficiency ratio (4)		64.56	%		70.91	%		-6.35	%
Return on average assets (annualized)		0.68	%		0.53	%		0.15	%
Return on average equity (annualized)		4.08	%		3.08	%		1.00	%
Return on average tangible equity (annualized) (5)		5.06	%		3.80	%		1.26	%
___________________(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)	2019			2019			2019			2018			2018
Assets
Cash and cash equivalents	$	129,305		$	38,935		$	54,160		$	51,483		$	44,486
Securities available for sale		1,231,691			714,263			726,920			666,602			706,240
Securities held to maturity		37,888			576,652			592,199			598,318			602,838
Loans held-for-sale		10,495			12,267			997			1,001			1,503
Loans receivable, including yield adjustments		4,604,738			4,678,928			4,659,804			4,753,392			4,660,507
Less allowance for loan losses		(32,432	)		(33,274	)		(33,105	)		(33,526	)		(32,731	)
Net loans receivable		4,572,306			4,645,654			4,626,699			4,719,866			4,627,776
Premises and equipment		56,599			56,854			58,274			58,414			57,635
Federal Home Loan Bank stock		63,739			64,190			64,288			64,514			66,428
Accrued interest receivable		19,393			19,360			20,326			19,435			19,455
Goodwill		210,895			210,895			210,895			210,895			210,895
Core deposit intangible		4,852			5,160			5,470			5,743			6,018
Bank owned life insurance		257,735			256,155			254,569			253,009			251,410
Deferred income taxes, net		21,742			25,367			24,182			24,692			22,136
Other real estate owned		-			-			209			508			674
Other assets		24,366			9,077			19,563			27,960			38,717
Total assets	$	6,641,006		$	6,634,829		$	6,658,751		$	6,702,440		$	6,656,211
Liabilities
Deposits		4,197,250		$	4,147,610		$	4,137,573		$	4,173,434		$	3,954,821
Borrowings		1,281,118			1,321,982			1,326,216			1,310,547			1,419,424
Advance payments by borrowers for taxes		16,102			16,887			17,208			17,201			10,687
Other liabilities		35,747			21,191			19,643			17,997			35,198
Total liabilities		5,530,217			5,507,670			5,500,640			5,519,179			5,420,130
Stockholders' Equity
Common stock		868			891			915			938			978
Paid-in capital		758,385			787,394			817,675			848,145			897,551
Retained earnings		373,004			366,679			363,072			356,993			350,838
Unearned ESOP shares		(30,158	)		(30,644	)		(31,130	)		(31,617	)		(32,104	)
Accumulated other comprehensive income, net		8,690			2,839			7,579			8,802			18,818
Total stockholders' equity		1,110,789			1,127,159			1,158,111			1,183,261			1,236,081
Total liabilities and stockholders' equity	$	6,641,006		$	6,634,829		$	6,658,751		$	6,702,440		$	6,656,211
Consolidated capital ratios
Equity to assets		16.73	%		16.99	%		17.39	%		17.65	%		18.57	%
Tangible equity to tangible assets		13.93	%		14.19	%		14.62	%		14.90	%		15.83	%
Share data
Outstanding shares		86,786			89,126			91,495			93,772			97,754
Book value per share	$	12.80		$	12.65		$	12.66		$	12.62		$	12.64
Tangible book value per share (1)	$	10.31		$	10.22		$	10.29		$	10.31		$	10.43
___________________(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)	2019			2019			2019			2018			2018
Cash and cash equivalents
Cash and due from depository institutions	$	16,106		$	19,032		$	15,943		$	24,361		$	21,973
Interest-bearing deposits in other banks		113,199			19,903			38,217			27,122			22,513
Total cash and cash equivalents	$	129,305		$	38,935		$	54,160		$	51,483		$	44,486
Securities available for sale
Debt securities:
U.S. agency securities	$	694		$	3,678		$	3,737		$	3,942		$	4,070
Municipal and state obligations		91,050			26,951			26,731			26,205			25,907
Asset-backed securities		181,068			179,313			180,145			180,828			182,390
Collateralized loan obligations		198,549			208,611			207,906			184,439			215,569
Corporate bonds		191,241			122,024			121,597			144,692			147,811
Trust preferred securities		3,775			3,756			3,775			3,726			3,794
Debt securities		666,377			544,333			543,891			543,832			579,541
Mortgage-backed securities:
Collateralized mortgage obligations		63,594			21,390			21,660			23,019			23,097
Residential pass-through securities		202,858			44,303			70,513			91,918			95,795
Commercial pass-through securities		298,862			104,237			90,856			7,833			7,807
Mortgage-backed securities		565,314			169,930			183,029			122,770			126,699
Total securities available for sale	$	1,231,691		$	714,263		$	726,920		$	666,602		$	706,240
Securities held to maturity
Debt securities:
Municipal and state obligations	$	37,888		$	104,086		$	107,375		$	107,826		$	109,061
Corporate bonds		-			63,086			63,107			56,255			46,275
Debt securities		37,888			167,172			170,482			164,081			155,336
Mortgage-backed securities:
Collateralized mortgage obligations		-			46,381			49,368			51,540			54,130
Residential pass-through securities		-			166,283			174,338			182,335			190,812
Commercial pass-through securities		-			196,816			198,011			200,362			202,560
Mortgage-backed securities		-			409,480			421,717			434,237			447,502
Total securities held to maturity	$	37,888		$	576,652		$	592,199		$	598,318		$	602,838
Total securities	$	1,269,579		$	1,290,915		$	1,319,119		$	1,264,920		$	1,309,078

	At
Supplemental Balance Sheet Highlights	September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in Thousands, Unaudited)	2019			2019			2019			2018			2018
Loan portfolio composition:
Residential first mortgage loans	$	1,319,750		$	1,344,044		$	1,325,105		$	1,334,284		$	1,303,249
Home equity loans and lines of credit		93,304			96,165			97,788			96,001			93,473
Residential mortgage loans		1,413,054			1,440,209			1,422,893			1,430,285			1,396,722
Multifamily mortgage loans		1,922,968			1,946,391			1,956,571			1,974,409			1,898,831
Nonresidential and mixed use mortgage loans		1,230,963			1,258,869			1,249,215			1,302,583			1,315,279
Commercial mortgage loans		3,153,931			3,205,260			3,205,786			3,276,992			3,214,110
Commercial business loans		66,889			65,763			66,476			70,059			78,317
Construction loans		14,637			13,907			14,377			28,405			26,581
Account loans		3,530			3,732			3,360			3,310			3,133
Other consumer loans		1,679			2,082			2,624			3,524			4,427
Consumer loans		5,209			5,814			5,984			6,834			7,560
Total loans, excluding yield adjustments		4,653,720			4,730,953			4,715,516			4,812,575			4,723,290
Unamortized yield adjustments		(48,982	)		(52,025	)		(55,712	)		(59,183	)		(62,783	)
Loans receivable, including yield adjustments		4,604,738			4,678,928			4,659,804			4,753,392			4,660,507
Less allowance for loan losses		(32,432	)		(33,274	)		(33,105	)		(33,526	)		(32,731	)
Net loans receivable	$	4,572,306		$	4,645,654		$	4,626,699		$	4,719,866		$	4,627,776
Loan portfolio allocation:
Residential first mortgage loans		28.4	%		28.4	%		28.1	%		27.7	%		27.6	%
Home equity loans and lines of credit		2.0	%		2.0	%		2.1	%		2.0	%		2.0	%
Residential mortgage loans		30.4	%		30.4	%		30.2	%		29.7	%		29.6	%
Multifamily mortgage loans		41.3	%		41.2	%		41.5	%		41.0	%		40.2	%
Nonresidential and mixed use mortgage loans		26.5	%		26.6	%		26.5	%		27.1	%		27.8	%
Commercial mortgage loans		67.8	%		67.8	%		68.0	%		68.1	%		68.0	%
Commercial business loans		1.4	%		1.4	%		1.3	%		1.4	%		1.6	%
Construction loans		0.3	%		0.3	%		0.3	%		0.6	%		0.6	%
Account loans		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Other consumer loans		0.0	%		0.0	%		0.1	%		0.1	%		0.1	%
Consumer loans		0.1	%		0.1	%		0.2	%		0.2	%		0.2	%
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	$	15		$	22		$	23		$	32		$	19
Nonaccrual loans		21,766			20,248			21,297			20,743			20,473
Total nonperforming loans		21,781			20,270			21,320			20,775			20,492
Other real estate owned		-			-			209			508			674
Total nonperforming assets	$	21,781		$	20,270		$	21,529		$	21,283		$	21,166
Nonperforming loans (% total loans)		0.47	%		0.43	%		0.46	%		0.44	%		0.44	%
Nonperforming assets (% total assets)		0.33	%		0.31	%		0.32	%		0.32	%		0.32	%
Allowance for loan losses (ALLL):
ALLL to total loans		0.70	%		0.70	%		0.70	%		0.70	%		0.69	%
ALLL to nonperforming loans		148.90	%		164.15	%		155.28	%		161.38	%		159.73	%
Net charge offs	$	60		$	495		$	242		$	176		$	234
Average net charge off rate (annualized)		0.01	%		0.04	%		0.02	%		0.01	%		0.02	%

	At
Supplemental Balance Sheet Highlights	September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in Thousands, Unaudited)	2019			2019			2019			2018			2018
Funding by type:
Deposits:
Non-interest-bearing deposits	$	322,846		$	309,063		$	303,713		$	305,392		$	308,631
Interest-bearing demand		931,188			843,432			800,023			807,389			786,069
Savings and club		800,514			790,658			777,678			760,499			743,289
Certificates of deposit		2,142,702			2,204,457			2,256,159			2,300,154			2,116,832
Interest-bearing deposits		3,874,404			3,838,547			3,833,860			3,868,042			3,646,190
Total deposits		4,197,250			4,147,610			4,137,573			4,173,434			3,954,821
Borrowings:
Federal Home Loan Bank advances		1,273,618			1,283,211			1,289,285			1,293,845			1,335,844
Overnight borrowings		-			30,000			-			-			60,000
Depositor sweep accounts		7,500			8,771			36,931			16,702			23,580
Total borrowings		1,281,118			1,321,982			1,326,216			1,310,547			1,419,424
Total funding	$	5,478,368		$	5,469,592		$	5,463,789		$	5,483,981		$	5,374,245
Loans as a % of deposits		109.2	%		112.3	%		111.8	%		113.1	%		117.1	%
Deposits as a % of total funding		76.6	%		75.8	%		75.7	%		76.1	%		73.6	%
Borrowings as a % of total funding		23.4	%		24.2	%		24.3	%		23.9	%		26.4	%
Funding by source:
Retail funding:
Non-interest-bearing deposits	$	322,846		$	309,063		$	303,713		$	305,392		$	308,631
Interest-bearing demand		931,188			843,432			800,023			807,389			786,069
Savings and club		800,514			790,658			777,678			760,499			743,289
Certificates of deposit		1,916,132			1,902,542			1,925,630			1,922,287			1,871,903
Total retail deposits		3,970,680			3,845,695			3,807,044			3,795,567			3,709,892
Depositor sweep accounts		7,500			8,771			36,931			16,702			23,580
Total retail funding		3,978,180			3,854,466			3,843,975			3,812,269			3,733,472
Wholesale funding:
Certificates of deposit (listing service)	$	57,534		$	66,110		$	78,704		$	108,067		$	104,990
Certificates of deposit (brokered)		169,036			235,805			251,825			269,800			139,939
Total wholesale deposits		226,570			301,915			330,529			377,867			244,929
FHLB advances		1,273,618			1,283,211			1,289,285			1,293,845			1,335,844
Overnight borrowings		-			30,000			-			-			60,000
Total wholesale funding		1,500,188			1,615,126			1,619,814			1,671,712			1,640,773
Total funding	$	5,478,368		$	5,469,592		$	5,463,789		$	5,483,981		$	5,374,245
Retail funding as a % of total funding		72.6	%		70.5	%		70.4	%		69.5	%		69.5	%
Wholesale funding as a % of total funding		27.4	%		29.5	%		29.6	%		30.5	%		30.5	%

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)	2019			2019			2019			2018			2018
Interest income
Loans	$	48,600		$	47,818		$	48,116		$	49,015		$	47,437
Taxable investment securities		9,328			9,772			9,511			9,051			8,879
Tax-exempt investment securities		693			700			710			713			716
Other interest-earning assets		1,278			1,158			1,320			1,243			1,174
Total interest income		59,899			59,448			59,657			60,022			58,206
Interest expense
Deposits		16,055			15,131			14,114			12,727			10,539
Borrowings		7,157			7,171			6,905			7,946			7,487
Total interest expense		23,212			22,302			21,019			20,673			18,026
Net interest income		36,687			37,146			38,638			39,349			40,180
(Reversal of) provision for loan losses		(782	)		664			(179	)		971			2,100
Net interest income after (reversal of) provision for loan losses		37,469			36,482			38,817			38,378			38,080
Non-interest income
Fees and service charges		1,468			1,340			1,674			1,258			1,173
Loss on sale and call of securities		(14	)		(141	)		(182	)		-			-
Gain on sale of loans		605			196			151			101			132
Gain (loss) on sale and write down of other real estate owned		-			9			(6	)		36			(50	)
Income from bank owned life insurance		1,580			1,586			1,560			1,599			1,594
Electronic banking fees and charges		318			270			253			277			250
Miscellaneous		5			128			226			38			83
Total non-interest income		3,962			3,388			3,676			3,309			3,182
Non-interest expense
Salaries and employee benefits		15,777			16,338			15,350			15,699			15,642
Net occupancy expense of premises		2,969			2,744			2,979			2,761			2,736
Equipment and systems		3,089			2,917			3,053			3,377			2,926
Advertising and marketing		535			948			739			787			577
Federal deposit insurance premium		-			438			455			421			465
Directors' compensation		770			770			770			746			758
Miscellaneous		3,104			4,590			3,425			3,479			3,353
Total non-interest expense		26,244			28,745			26,771			27,270			26,457
Income before income taxes		15,187			11,125			15,722			14,417			14,805
Income taxes		3,817			2,314			4,305			3,649			3,659
Net income	$	11,370		$	8,811		$	11,417		$	10,768		$	11,146
Net income per common share (EPS)
Basic	$	0.13		$	0.10		$	0.13		$	0.12		$	0.12
Diluted	$	0.13		$	0.10		$	0.13		$	0.12		$	0.12
Dividends declared (1)
Cash dividends declared per common share	$	0.06		$	0.06		$	0.06		$	0.05		$	0.20
Cash dividends declared	$	5,045		$	5,204		$	5,338		$	4,082		$	19,404
Dividend payout ratio		44.4	%		59.1	%		46.8	%		37.9	%		174.1	%
Weighted average number of  common shares outstanding
Basic		84,756			87,090			89,488			92,434			95,127
Diluted		84,793			87,132			89,532			92,480			95,181
___________________(1)   Dividends declared during the quarter ended September 30, 2018 include a $0.16 special dividend representing a supplemental distribution of net income to stockholders from the fiscal year ended June 30, 2018.

	For the three months ended
Average Balance Sheet Data	September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in Thousands, Unaudited)	2019			2019			2019			2018			2018
Assets
Interest-earning assets:
Loans receivable, including loans held for sale	$	4,656,192		$	4,648,362		$	4,709,052		$	4,758,587		$	4,562,375
Taxable investment securities		1,147,698			1,184,401			1,161,492			1,158,720			1,180,655
Tax-exempt investment securities		129,339			132,110			134,309			135,453			136,056
Other interest-earning assets		125,114			98,374			107,554			87,916			112,629
Total interest-earning assets		6,058,343			6,063,247			6,112,407			6,140,676			5,991,715
Non-interest-earning assets		585,826			572,218			574,921			587,921			596,006
Total assets	$	6,644,169		$	6,635,465		$	6,687,328		$	6,728,597		$	6,587,721
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	883,843		$	815,624		$	790,567		$	792,989		$	788,148
Savings and club		799,181			780,558			773,308			743,676			747,743
Certificates of deposit		2,179,333			2,229,723			2,288,836			2,214,932			2,046,997
Total interest-bearing deposits		3,862,357			3,825,905			3,852,711			3,751,597			3,582,888
Borrowings:
Federal Home Loan Bank advances		1,277,145			1,284,427			1,292,168			1,293,470			1,350,113
Other borrowings		10,012			29,439			26,037			119,281			40,981
Total borrowings		1,287,157			1,313,866			1,318,205			1,412,751			1,391,094
Total interest-bearing liabilities		5,149,514			5,139,771			5,170,916			5,164,348			4,973,982
Non-interest-bearing liabilities:
Non-interest-bearing deposits		320,641			311,648			307,645			315,165			314,114
Other non-interest-bearing liabilities		60,078			39,294			35,930			37,374			43,533
Total non-interest-bearing liabilities		380,719			350,942			343,575			352,539			357,647
Total liabilities		5,530,233			5,490,713			5,514,491			5,516,887			5,331,629
Stockholders' equity		1,113,936			1,144,752			1,172,837			1,211,710			1,256,092
Total liabilities and stockholders' equity	$	6,644,169		$	6,635,465		$	6,687,328		$	6,728,597		$	6,587,721
Average interest-earning assets to average interest-bearing liabilities		117.65	%		117.97	%		118.21	%		118.91	%		120.46	%

	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
Performance Ratio Highlights	2019			2019			2019			2018			2018
Average yield on interest-earning assets:
Loans receivable, including loans held for sale		4.18	%		4.11	%		4.09	%		4.12	%		4.16	%
Taxable investment securities		3.25	%		3.30	%		3.28	%		3.12	%		3.01	%
Tax-exempt investment securities (1)		2.14	%		2.12	%		2.12	%		2.11	%		2.10	%
Other interest-earning assets		4.09	%		4.71	%		4.91	%		5.66	%		4.17	%
Total interest-earning assets		3.95	%		3.92	%		3.91	%		3.91	%		3.89	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand		1.30	%		1.19	%		1.06	%		0.97	%		0.86	%
Savings and club		0.77	%		0.68	%		0.60	%		0.49	%		0.41	%
Certificates of deposit		2.14	%		2.04	%		1.90	%		1.79	%		1.58	%
Total interest-bearing deposits		1.66	%		1.58	%		1.47	%		1.36	%		1.18	%
Borrowings:
Federal Home Loan Bank advances		2.24	%		2.21	%		2.13	%		2.27	%		2.19	%
Other borrowings		0.66	%		0.99	%		0.35	%		1.99	%		0.94	%
Total borrowings		2.22	%		2.18	%		2.10	%		2.25	%		2.15	%
Total interest-bearing liabilities		1.80	%		1.74	%		1.63	%		1.60	%		1.45	%
Interest rate spread (2)		2.15	%		2.18	%		2.28	%		2.31	%		2.44	%
Net interest margin (3)		2.42	%		2.45	%		2.53	%		2.56	%		2.68	%
Non-interest income to average assets (annualized)		0.24	%		0.20	%		0.22	%		0.20	%		0.19	%
Non-interest expense to average assets (annualized)		1.58	%		1.73	%		1.60	%		1.62	%		1.61	%
Efficiency ratio (4)		64.56	%		70.91	%		63.27	%		63.93	%		61.01	%
Return on average assets (annualized)		0.68	%		0.53	%		0.68	%		0.64	%		0.68	%
Return on average equity (annualized)		4.08	%		3.08	%		3.89	%		3.55	%		3.55	%
Return on average tangible equity (annualized) (5)		5.06	%		3.80	%		4.78	%		4.33	%		4.29	%
___________________(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)	2019			2019			2019			2018			2018
Adjusted Net Income
Net income (GAAP)	$	11,370		$	8,811		$	11,417		$	10,768		$	11,146
Add: Branch consolidation expenses - net of tax		475			1,216			-			-			-
Adjusted net income (non-GAAP)	$	11,845		$	10,027		$	11,417		$	10,768		$	11,146
Adjusted Net Income per Common Share (EPS)
Net income per common share Basic and Diluted (GAAP)	$	0.13		$	0.10		$	0.13		$	0.12		$	0.12
Add: Branch consolidation expenses - net of tax		0.01			0.01			-			-			-
Adjusted net income per common share Basic and Diluted (non-GAAP)	$	0.14		$	0.11		$	0.13		$	0.12		$	0.12
Adjusted Non-Interest Expense
Non-interest expense (GAAP)	$	26,244		$	28,745		$	26,771		$	27,270		$	26,457
Less: Branch consolidation expenses (1) (2)		(567	)		(1,725	)		-			-			-
Adjusted non-interest expense (non-GAAP)	$	25,677		$	27,020		$	26,771		$	27,270		$	26,457
Adjusted Non-Interest Income
Non-interest income (GAAP)	$	3,962		$	3,388		$	3,676		$	3,309		$	3,182
Less: Branch consolidation expenses (1)		106			-			-			-			-
Adjusted non-interest income (non-GAAP)	$	4,068		$	3,388		$	3,676		$	3,309		$	3,182
Adjusted Non-Interest Expense Ratio
Non-interest expense to average assets (GAAP)		1.58	%		1.73	%		1.60	%		1.62	%		1.61	%
Less: Branch consolidation expenses		-0.03	%		-0.10	%		0.00	%		0.00	%		0.00	%
Adjusted non-interest expense ratio (non-GAAP)		1.55	%		1.63	%		1.60	%		1.62	%		1.61	%
Adjusted Efficiency Ratio
Non-interest expense / (Net interest income + non-interest income) (GAAP)		64.6	%		70.9	%		63.3	%		63.9	%		61.0	%
Less: Branch consolidation expenses		-1.4	%		-4.3	%		0.0	%		0.0	%		0.0	%
Adjusted efficiency ratio (non-GAAP)		63.2	%		66.6	%		63.3	%		63.9	%		61.0	%
Adjusted Return on Average Assets
Return on average assets (GAAP)		0.68	%		0.53	%		0.68	%		0.64	%		0.68	%
Add: Branch consolidation expenses - net of tax		0.03	%		0.07	%		0.00	%		0.00	%		0.00	%
Adjusted return on average assets (non-GAAP)		0.71	%		0.60	%		0.68	%		0.64	%		0.68	%
Adjusted Return on Average Equity
Return on average equity (GAAP)		4.08	%		3.08	%		3.89	%		3.55	%		3.55	%
Add: Branch consolidation expenses - net of tax		0.17	%		0.42	%		0.00	%		0.00	%		0.00	%
Adjusted return on average equity (non-GAAP)		4.25	%		3.50	%		3.89	%		3.55	%		3.55	%
___________________(1)   For the quarter ended September 30, 2019, the amounts included in branch consolidation expenses were located on the income statement in salaries and employee benefits, miscellaneous expense and miscellaneous non-interest income totaling $331,000, $236,000 and $106,000, respectively.
(2)   For the quarter ended June 30, 2019, the amounts included in branch consolidation expenses were located on the income statement in salaries and employee benefits and miscellaneous expense totaling $654,000 and $1,071,000, respectively.

	For the three months ended
Reconciliation of GAAP to Non-GAAP	September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in Thousands, Unaudited)	2019			2019			2019			2018			2018
Calculation of Return on Average Tangible Equity
Net income annualized (GAAP)	$	45,480		$	35,244		$	45,668		$	43,072		$	44,584
Total Average equity (GAAP)	$	1,113,936		$	1,144,752		$	1,172,837		$	1,211,710		$	1,256,092
Less: average goodwill		(210,895	)		(210,895	)		(210,895	)		(210,895	)		(210,895	)
Less: average other intangible assets		(5,006	)		(5,313	)		(5,606	)		(5,915	)		(6,191	)
Average tangible equity (non-GAAP)	$	898,035		$	928,544		$	956,336		$	994,900		$	1,039,006
Return on average tangible equity (non-GAAP)		5.06	%		3.80	%		4.78	%		4.33	%		4.29	%
Calculation of Adjusted Return on Average Tangible Equity
Adjusted net income annualized (non-GAAP)	$	47,380		$	40,108		$	45,668		$	43,072		$	44,584
Total Average equity (GAAP)	$	1,113,936		$	1,144,752		$	1,172,837		$	1,211,710		$	1,256,092
Less: average goodwill		(210,895	)		(210,895	)		(210,895	)		(210,895	)		(210,895	)
Less: average other intangible assets		(5,006	)		(5,313	)		(5,606	)		(5,915	)		(6,191	)
Average tangible equity (non-GAAP)	$	898,035		$	928,544		$	956,336		$	994,900		$	1,039,006
Adjusted return on average tangible equity (non-GAAP)		5.28	%		4.32	%		4.78	%		4.33	%		4.29	%

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

Source: Kearny Bank