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.