Business
Kearny Financial Corp. Reports Fiscal 2021 First Quarter Results
FAIRFIELD, N.J., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”),
About this update from Kearny Financial
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 Company’s 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 MSB’s 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 MSB’s 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 Company’s 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 Company’s ongoing initiative to improve operating efficiency, two additional branch locations will be consolidated during the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. In addition, the COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened or remain open. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to substantially reopen or remain open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for 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 Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; due to a decline in our stock price or other factors, goodwill may become impaired and be required to be written down; and our cyber security risks are increased as the result of an increase in the number of employees working remotely. Category: Earnings Linked-Quarter Comparative Financial Analysis Summary Balance SheetAt Variance (Dollars and Shares in Thousands,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 StatementFor 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 DataSeptember 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 Highlights2020 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 SheetAt (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 HighlightsSeptember 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 HighlightsSeptember 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 HighlightsSeptember 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 StatementFor 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 DataSeptember 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 Highlights2020 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-GAAPFor 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-GAAPFor 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, orKeith Suchodolski, Executive Vice President and Chief Financial OfficerKearny Financial Corp.(973) 244-4500 Source: Kearny Bank