Kearny Financial Corp. Reports Fiscal 2021 Third Quarter Results

FAIRFIELD, N.J., April 29, 2021 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the "Company"), the holding company of Kearny Bank (the "Bank"), reported net income for the quarter ended March 31, 2021 of $16.4 million, or $0.20 per diluted share, compared to $16.9 million, or $0.20 per diluted share, for the quarter ended December 31, 2020.

Craig L. Montanaro, President and Chief Executive Officer, commented, "This quarter's performance was highlighted by double-digit margin expansion largely resulting from a 22 basis point decrease in the cost of our interest-bearing liabilities. The success we have had in shifting our funding mix, controlling operating expenses and building valuable long-term lending and deposit relationships serves us well today and into the future."

With regard to the current credit environment, Mr. Montanaro further noted, "Despite an increase of $4.2 million in reserves on individually evaluated loans, largely attributable to two non-performing commercial real estate loans, asset quality remains solid. Our fortress-like balance sheet, comprised of significant levels of excess capital and a robust allowance for credit losses, positions us to withstand the ongoing economic impact of the pandemic while allowing us to take advantage of strategic capital deployment opportunities as they may arise."

Balance Sheet

• Deposits increased by $61.8 million to $5.37 billion at March 31, 2021 from $5.31 billion at December 31, 2020, reflecting growth of $227.8 million, or 6.8%, in core non-maturity deposits.
• Loans receivable decreased by $30.4 million to $4.80 billion at March 31, 2021 from $4.83 billion at December 31, 2020. Included in the net decrease for the period was a reduction of $18.3 million in Paycheck Protection Program ("PPP") loan balances.
• Investment securities increased to $1.81 billion, or 24.5% of total assets, at March 31, 2021 from $1.73 billion at December 31, 2020, while borrowings remained relatively flat, increasing to $865.8 million, or 11.8% of total assets, from $865.7 million, or 11.8% of total assets, for those same comparative periods.
  

Earnings

Net Interest Income and Net Interest Margin

• Net interest income increased by $3.1 million to $47.6 million for the quarter ended March 31, 2021 from $44.6 million for the quarter ended December 31, 2020. This increase was the result of a $3.2 million reduction in interest expense that was partially offset by an $80,000 decline in interest income. Included in net interest income was purchase accounting accretion of $4.8 million and $3.7 million, for the quarters ended March 31, 2021 and December 31, 2020, respectively.
• Net interest margin increased by 19 basis points to 2.83% for the quarter ended March 31, 2021 from 2.64% for the quarter ended December 31, 2020. For those same comparative periods, yield on interest-earning assets increased by one basis point to 3.46% while the cost of interest-bearing liabilities decreased by 22 basis points to 0.75%.

Non-Interest Income

• Fees and service charges totaled $1.3 million for the quarter ended March 31, 2021 compared to $1.9 million for the quarter ended December 31, 2020. This decrease was largely attributable to a decrease of $488,000 in loan pre-payment penalty income to $871,000 for the quarter ended March 31, 2021.
• Gain on sale of loans totaled $943,000 for the quarter ended March 31, 2021 compared to $2.4 million for the quarter ended December 31, 2020. This decrease was largely attributable to the strategic decision to retain a greater percentage of originated loans within the portfolio, compared to the prior quarter.
• Gain on sale and call of securities was $18,000 for the quarter ended March 31, 2021 compared to $813,000 for the quarter ended December 31, 2020. This decrease was largely attributable to a gain recorded in the prior comparative period in connection with a previously disclosed wholesale restructuring transaction.
• Included in other non-interest income was a non-recurring gain of $837,000 attributable to the sale of two properties which previously served as Kearny Bank retail branch locations and were sold in connection with branch consolidation activities.

Non-Interest Expense

• Non-interest expense decreased by $694,000 to $29.8 million for the quarter ended March 31, 2021 compared to $30.5 million for the quarter ended December 31, 2020. The decrease was largely attributable to $796,000 in debt extinguishment expense recognized in the prior comparative period with no such expense recognized in the current period.
• Included in other non-interest expense for the quarter ended March 31, 2021 was an asset impairment charge of $375,000 related to the consolidation and closure of one additional branch location.
• The efficiency and non-interest expense ratios were 56.15% and 1.62%, respectively, for the quarter ended March 31, 2021 as compared to 59.01% and 1.65%, respectively, for the quarter ended December 31, 2020.
  

Income Taxes

• Income tax expense totaled $5.7 million for the quarter ended March 31, 2021 compared to $5.6 million for the quarter ended December 31, 2020, resulting in effective tax rates of 25.9% and 24.9%, respectively.
  

Performance Highlights

• Return on average assets was 0.89% for the quarter ended March 31, 2021 as compared to 0.92% for the quarter ended December 31, 2020.
• Return on average equity was 6.07% for the quarters ended March 31, 2021 and December 31, 2020. Return on average tangible equity was 7.57% for the quarter ended March 31, 2021 as compared to 7.52% for the quarter ended December 31, 2020.

Asset Quality

• The balance of non-performing assets remained relatively stable at $71.6 million, or 0.97% of total assets, at March 31, 2021 compared $71.7 million, or 0.98% of total assets, at December 31, 2020.
• Based on Section 4013 of the CARES Act, the Consolidated Appropriations Act, 2021 and related guidance promulgated by federal banking regulators, qualifying loan modifications, including short-term payment deferrals, are not considered to be troubled debt restructurings. As of March 31, 2021, the Company had active payment deferrals on 32 loans totaling $52.9 million, representing 1.10% of total loans.
• Net charge offs totaled $750,000 for the quarter ended March 31, 2021 compared to $109,000 for the quarter ended December 31, 2020, reflecting annualized net charge off rates of 0.06% and 0.01% for the those same comparative periods. Net charge offs for the quarter were largely attributable to one Small Business Administration 7a loan totaling $675,000.
• Provision for credit losses totaled $1.1 million for the quarter ended March 31, 2021 compared to a provision for credit losses reversal of $1.4 million for the quarter ended December 31, 2020. The comparatively higher level of provision primarily reflected an increase in reserves on individually evaluated loans of $4.2 million, partially offset by a release of reserves within the one- to four-family residential segments, reflecting the improving credit risk outlook for that asset class.
• The increase in reserves on individually evaluated loans, noted above, was largely attributable to two non-performing commercial real estate loans, with principal balances totaling $9.8 million, secured by properties located in New York City.
• The Allowance for Credit Losses ("ACL") increased to $63.8 million at March 31, 2021 from $63.4 million at December 31, 2020, with such balances reflecting an ACL to total loans ratio of 1.32% and 1.30%, respectively, as of those dates.

Liquidity & Capital

• At March 31, 2021, liquid assets included $109.0 million of short-term cash and equivalents supplemented by $1.78 billion of investment securities classified as available for sale. The Company had the capacity to borrow additional funds totaling $615.0 million via unsecured lines of credit and $1.81 billion and $257.0 million, without pledging additional collateral, from the FHLB of New York and Federal Reserve Bank, respectively.
• During the quarter ended March 31, 2021, the Company repurchased 3,026,564 shares of common stock at a cost of $34.9 million, or $11.52 per share.
• For the quarter ended March 31, 2021, book value per share increased by $0.12 to $12.98 while tangible book value per share increased by $0.03 to $10.36.
• At March 31, 2021, the Company's ratio of tangible equity to tangible assets equaled 11.89%.  At March 31, 2021, the regulatory capital ratios, of both the Company and the Bank were in excess of the levels required by federal banking regulators to be classified as "well-capitalized" under regulatory guidelines.

Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

In addition, the COVID-19 pandemic 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 credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; 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

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

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(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.

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