Kearny Financial Corp. 10-Q Quarterly Report May 2018

Fairfield, New Jersey, April 27, 2018 – Kearny Financial Corp. (NASDAQ GS: KRNY) (the "Company"), the holding company of Kearny Bank (the "Bank"), today reported net income for the quarter ended March 31, 2018 of $5.4 million, or $0.07 per basic and diluted share. The results represent an increase in net income of $4.1 million compared to net income of $1.3 million, or $0.02 per basic and diluted share, for the quarter ended December 31, 2017.

The increase in net income partly reflected a decrease in merger-related expenses related to the Company's acquisition of Clifton Bancorp, Inc. ("CSBK"), the holding company for Clifton Savings Bank ("Clifton"), which closed on April 2, 2018. Such expenses decreased by $792,000 to $401,000 for the quarter ended March 31, 2018 compared to $1.2 million for the quarter ended December 31, 2017. The Company estimates that merger-related expenses adversely impacted net income by approximately $379,000 and $1.0 million for the quarters ended March 31, 2018 and December 31, 2017, respectively, due to their limited income tax deductibility. The Company expects to recognize additional merger-related expenses during the fourth quarter ending June 30, 2018 in conjunction with the closing of the CSBK merger transaction.

Under the terms of the merger agreement, each outstanding share of CSBK common stock was exchanged for 1.191 shares of the Company's common stock, resulting in the Company issuing 25.4 million shares of common stock to CSBK stockholders in conjunction with the merger's closing. An additional $7,000 in cash was distributed to CSBK stockholders in lieu of fractional shares representing the equivalent of $13.24 per whole share of Kearny Financial Corp.

The increase in net income also reflected the impact of federal income tax reform that was codified through the passage of the Tax Cuts and Jobs Act (the "Act") during the prior quarter ended December 31, 2017. The Act permanently reduced the Company's federal income tax rate from 35% to 21% while also including other provisions that altered the deductibility of certain recurring expenses recognized by the Company. The provisions of the Act positively impacted the Company's earnings during the quarter ended March 31, 2018. However, the passage of the Act resulted in a $3.5 million net reduction in the carrying value of the Company's deferred income tax assets and liabilities with an equal and offsetting charge to income tax expense during the prior quarter ended December 31, 2017.

The net charge of $3.5 million attributable to the changes in the carrying value of deferred income tax items was partially offset by a $769,000 reduction in current-year income tax expense attributable to the noted reduction in the Company's income tax rate. For the current "transition" year ending June 30, 2018, the Company's statutory federal income tax rate has been reduced to 28%, reflecting effective statutory rates of 35% and 21% for the first and second halves of the year, respectively. For the fiscal year ending June 30, 2019 and thereafter, the Company's statutory federal income tax rate will be reduced to 21%.

Excluding the impact on net income arising from the non-recurring, merger-related expenses discussed above, the Company's net income would have been $5.8 million or $0.08 per basic and diluted share for the three months ended March 31, 2018. By comparison, excluding the impacts on net income arising from non-recurring merger-related expenses and federal income tax reform discussed above, the Company's net income would have been $5.0 million or $0.06 per basic and diluted share for the three months ended December 31, 2017.

Stock Repurchase Authorization

In addition to reporting operating results for the third quarter ended March 31, 2018, the Company also announced today that the Board of Directors has authorized a third stock repurchase plan to acquire up to 10,238,557 shares or 10% of the Company's currently outstanding common stock. In conjunction with the commencement of a third stock repurchase plan, the Company also announced the completion of its second 10% stock repurchase plan. That second plan, which was announced on May 24, 2017, authorized the repurchase of up to 8,559,084 shares. As discussed in greater detail below, the Company repurchased 8,559,084 shares under that plan, at a total cost of $122.0 million and an average cost of $14.25 per share.

Repurchases under the third stock repurchase plan will be made from time to time in the open market, through block trades, in privately negotiated stock purchases or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission regulations. Such repurchases will be made at management's discretion at prices management considers to be attractive and in the best interests of the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company's financial performance. Open market purchases will be conducted in accordance with the limitations set forth in Rule 10b-18 of the Securities and Exchange Commission and other applicable legal requirements.

The third stock repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The third stock repurchase program does not obligate the Company to purchase any particular number of shares, and there is no guarantee as to the exact number of shares to be repurchased by the Company.

Overview of Financial Performance

The Company continued to execute strategies during the third quarter of fiscal 2018 intended to grow and diversify its balance sheet while increasing its core earnings and prudently managing capital to promote long-term growth in shareholder value. These strategies resulted in several incremental balance sheet growth and diversification achievements that are included among the following highlights for the quarter:

The Company's aggregate loan portfolio, excluding loans held for sale and the allowance for loan losses, increased by $59.9 million to $3.35 billion, or 67.9% of total assets, at March 31, 2018 from $3.29 billion, or 68.0% of total assets, at December 31, 2017. The growth in the loan portfolio largely reflected the Company's continued strategic focus on growing and diversifying its commercial loan portfolio with the outstanding balance of commercial mortgage loans increasing by $77.3 million to $2.58 billion at March 31, 2018. The rate of growth in commercial mortgage loans during the quarter ended March 31, 2018 continued to reflect the impact of an accelerated rate of loan prepayments that partially offset the increase in loans arising from new loan origination volume. The Company continues to execute strategies designed to increase the origination volume of commercial mortgage loans to compensate for the noted increase in prepayments. Toward that end, the Company's pipeline of commercial mortgage loans in the underwriting process increased during the quarter ended March 31, 2018.

The outstanding balance of residential mortgage loans held in the portfolio, including home equity loans and lines of credit, decreased by $12.0 million to $643.3 million at March 31, 2018 from $655.3 million at December 31, 2017. The decrease largely reflected the Company's continued emphasis on its mortgage banking strategy through which most residential mortgage loans originated are sold into the secondary market. Where appropriate, the Company augments the balance of loans originated and retained in portfolio with additional loan purchases to generally maintain the balance of residential mortgage loans as a percentage of the aggregate loan portfolio over time.

·	Nonperforming loans decreased by $2.1 million to $14.2 million, or 0.42% of total loans, at March 31, 2018 from $16.3 million, or 0.50% of total loans, at December 31, 2017.

·	The allowance for loan losses increased to $30.2 million at March 31, 2018 from $30.1 million at December 31, 2017, resulting in a "total loan coverage ratio", representing the balance of the allowance for loan losses as a percentage of total loans, of 0.90% and 0.91%, respectively.

·	The "nonperforming loan coverage ratio", representing the balance of the allowance for loan losses as a percentage of nonperforming loans, increased to 212.5% at March 31, 2018 from 184.0% at December 31, 2017.

The Company's securities portfolio increased by $35.0 million to $1.14 billion, or 23.2% of total assets, at March 31, 2018 from $1.11 billion, or 22.9% of total assets, at December 31, 2017. The net increase in the securities portfolio partly reflected purchases of uncapped, floating-rate securities and subordinated debt issued by one community bank. The growth due to security purchases was partially offset by normal principal repayments arising from amortization and maturities of securities. The increase in the securities portfolio was partially offset by a $2.0 million decrease in the fair value of the available for sale securities portfolio during the period.

The balance of cash and cash equivalents decreased by $12.4 million to $38.3 million at March 31, 2018 from $50.7 million at December 31, 2017. The decrease largely reflected day-to-day operating fluctuations in the Company's balance of cash and cash equivalents. The Company continues to limit the balance of cash and cash equivalents held to the minimum levels needed to meet its day-to-day funding obligations and overall liquidity risk management objectives. Toward that end, the average balance of other interest-earning assets decreased by $14.7 million to $67.8 million for the quarter ended March 31, 2018 compared to $82.5 million for the quarter ended December 31, 2017. Other interest-earning assets generally include the balance of interest-earning cash deposits held in other banks coupled with the balance of the Bank's mandatory investment in the capital stock of the Federal Home Loan Bank of New York.

The Company's total deposits increased by $34.0 million to $3.07 billion at March 31, 2018, from $3.03 billion at December 31, 2017. The net growth in deposits reflected a $38.9 million increase in interest-bearing deposits that was partially offset by a $4.8 million decrease in non-interest-bearing deposits. The growth in interest-bearing deposits largely reflected the continuing effects of product, pricing and marketing strategies implemented during fiscal 2018. The decrease in non-interest-bearing deposits largely reflected day-to-day operating fluctuations in such balances.

Total borrowings increased by $53.1 million to $852.0 million at March 31, 2018, from $798.9 million at December 31, 2017. The increase in borrowings partly reflected a $42.0 million increase in overnight borrowings drawn for liquidity management purposes coupled with an $11.1 million increase in depositor sweep account balances representing normal day-to-day fluctuations in such balances.

The Company's stockholders' equity increased by $1.9 million to $991.2 million at March 31, 2018 from $989.3 million at December 31, 2017. The increase largely reflected net income earned during the period coupled with a net increase in accumulated other comprehensive income reflecting an increase in the fair value of the Company's derivatives portfolio, which was partially offset by a decrease in the fair value of the Company's available for sale securities portfolio. The increase in stockholders' equity was partially offset by the effects of the Company's share repurchases and cash dividends paid to stockholders during the period.

At March 31, 2018, the Company's total consolidated equity to assets ratio was 20.09% while the Bank's total consolidated equity to assets ratio was 17.66%. The Company's and Bank's capital ratios at March 31, 2018 were well in excess of the levels required by federal banking regulators to be classified as "well-capitalized" under regulatory guidelines.

As highlighted below, the noted balance sheet growth, reinvestment and reallocation achievements helped to offset the adverse effects of an increase in market interest rates and a flattening yield curve on the Company's net interest margin:

·	The Company's net interest income increased by $222,000 to $27.1 million for the quarter ended March 31, 2018 from $26.8 million for the quarter ended December 31, 2017.

·	The Company's net interest margin remained stable at 2.41% for the quarters ended March 31, 2018 and December 31, 2017 while the net interest rate spread increased by one basis point to 2.15% from 2.14% for those same comparative periods, respectively.

The level of the Company's charge offs and provision for loan losses continued to reflect strong asset quality metrics:

The Company recognized net charge offs totaling approximately $241,000, reflecting an annualized net charge off rate of 0.03% on the average balance of total loans for the quarter ended March 31, 2018. By comparison, the Company's net charge offs totaled approximately $315,000 for the quarter ended December 31, 2017, reflecting an annualized net charge off rate of 0.04%.

The Company's provision for loan losses decreased by $513,000 to $423,000 for the quarter ended March 31, 2018 compared to $936,000 for the quarter ended December 31, 2017. The decrease in the provision was partly attributable to the decrease in net charge offs between the two comparative periods, as discussed. The decrease also reflected the effects of updates to historical and environmental loss factors that decreased the level of provision expense between comparative periods. The decrease in provision expense was partially offset by the effects of comparatively greater growth during the quarter ended March 31, 2018 in the performing portion of the loan portfolio that is collectively evaluated for impairment using historical and environmental loss factors.

The strategies executed by the Company during the quarter ended March 31, 2018 continued to strengthen and diversify its sources of non-interest income, as highlighted below:

Gains on sale of residential mortgage loans totaled $202,000 for the quarter ended March 31, 2018 compared to $200,000 for the quarter ended December 31, 2017. The modest increase in gains on sale reflected an increase in the volume of loans originated and sold that was partially offset by a decrease in the average net gain recognized per loan sold between comparative periods.

·	Gains on sale of loans originated under Small Business Administration ("SBA") programs totaled $144,000 for the quarter ended March 31, 2018. By comparison, there were no SBA loans originated and sold during the three months ended December 31, 2017.

In addition to the items noted above, fees and service charges increased by $128,000 to $1.5 million for the quarter ended March 31, 2018 from $1.4 million for the quarter ended December 31, 2017. The increase was largely attributable to an increase in commercial mortgage loan prepayment charges recognized between comparative periods.

The Company continues to evaluate and implement tactics and strategies designed to improve operating practices, policies and procedures while making more efficient and effective use of its supporting infrastructure, including human resources, facilities and information technology systems.

The Company's ratio of non-interest expense to average assets totaled 1.85% for the quarter ended March 31, 2018 compared to 1.89% for the prior quarter ended December 31, 2017. For those same comparative periods, the Company's operating efficiency ratio decreased to 73.7% from 75.6%, respectively. Excluding the impact of merger-related expenses, as discussed above, the Company's non-interest expense to average assets ratios would have been 1.82% and 1.79% for the quarters ended March 31, 2018 and December 31, 2017, respectively, while the Company's operating efficiency ratios would have been 72.4% and 71.7% for those same periods, respectively.

Collectively, the factors noted above contributed to the increase in net income for the quarter ended March 31, 2018 compared to the prior quarter ended December 31, 2017. The increase in net income had a favorable impact on the Company's earnings-based performance ratios as highlighted below:

The Company's return on average assets for the quarter ended March 31, 2018 totaled 0.44% compared to 0.11% for the prior quarter ended December 31, 2017. Excluding the impacts on net income arising from the non-recurring effects of merger-related expenses and federal income tax reform, as discussed above, the Company's return on average assets would have been 0.47% and 0.42% for the quarters ended March 31, 2018 and December 31, 2017, respectively.

The Company's return on average equity for the quarter ended March 31, 2018 totaled 2.18% compared to 0.51% for the prior quarter ended December 31, 2017. Excluding the impacts on net income arising from the non-recurring effects of merger-related expenses and federal income tax reform, as discussed above, the Company's return on average equity would have been 2.33% and 2.00% for the quarters ended March 31, 2018 and December 31, 2017, respectively.

The Company continued to execute key capital management strategies during the quarter ended March 31, 2018 to further support shareholder value:

·	The Company maintained its regular quarterly cash dividend payable to stockholders of $0.03 per share declared and paid during the quarter ended March 31, 2018.

In May 2017, the Company announced its second share repurchase plan through which it authorized the repurchase of up to 8,559,084 shares, or 10%, of the Company's outstanding shares. During the quarter ended March 31, 2018, the Company repurchased a total of 758,896 of its shares at an average cost of $14.26 per share. The volume of the Company's share repurchases during the quarter ended March 31, 2018 reflected a significant period of inactivity during the pendency of the merger transaction with CSBK. Through March 31, 2018, the Company has repurchased a total of 6,745,736 shares, or 78.8% of the number of shares authorized under the noted program, at a total cost of $97.9 million and at an average cost of $14.51 per share.

The Company's capital management strategies are continuing into the fourth quarter ending June 30, 2018, as highlighted below:

·	Subsequent to the closing of the merger with CSBK on April 2, 2018, the Company completed the second share repurchase plan by repurchasing the remaining 1,813,348 shares under the program announced in May 2017 at an average cost of $13.29 per share.

·	As discussed above, the Company has announced its third share repurchase program through which it authorized the repurchase of up to 10,238,557 shares, or 10%, of the Company's outstanding shares.

The exhibits that follow this narrative begin with the presentation of the Linked-Quarter Comparative Financial Analysis that supports the discussion above by presenting the Company's financial condition and operating results for the quarter ended March 31, 2018 compared to those for the prior quarter ended December 31, 2017. This analysis is followed by a tabular Five-Quarter Financial Trend Analysis that presents similar financial information, together with other financial highlights and performance metrics, over a consecutive five quarter look-back period that is intended to reflect the Company's financial performance and strategic achievements over this extended period of time.

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
(Dollars and Shares in Thousands,	March 31,			December 31,			Variance			Variance
Except Per Share Data, Unaudited)	2018			2017			or Change			or Change Pct.
Assets
Cash and cash equivalents	$	38,283		$	50,685		$	(12,402	)		(24.5	)
Securities available for sale		684,771			637,671			47,100			7.4
Securities held to maturity		459,380			471,452			(12,072	)		(2.6	)
Loans held-for-sale		2,377			3,490			(1,113	)		(31.9	)
Loans receivable, including yield adjustments		3,351,369			3,291,516			59,853			1.8
Less allowance for loan losses		(30,248	)		(30,066	)		(182	)		0.6
Net loans receivable		3,321,121			3,261,450			59,671			1.8
Premises and equipment		42,856			41,829			1,027			2.5
Federal Home Loan Bank stock		39,112			39,113			(1	)		(0.0	)
Accrued interest receivable		13,926			13,524			402			3.0
Goodwill		108,591			108,591			-			-
Bank owned life insurance		184,981			183,754			1,227			0.7
Deferred income taxes, net		3,898			6,941			(3,043	)		(43.8	)
Other assets		34,404			25,347			9,057			35.7
Total assets	$	4,933,700		$	4,843,847		$	89,853			1.9

Liabilities
Deposits	$	3,067,798		$	3,033,766		$	34,032			1.1
Borrowings		852,009			798,864			53,145			6.7
Advance payments by borrowers for taxes		8,969			8,511			458			5.4
Other liabilities		13,723			13,433			290			2.2
Total liabilities		3,942,499			3,854,574			87,925			2.3

Stockholders' Equity
Common stock		788			795			(7	)		(0.9	)
Paid-in capital		653,045			662,093			(9,048	)		(1.4	)
Retained earnings		355,270			353,536			1,734			0.5
Unearned ESOP shares		(33,076	)		(33,563	)		487			(1.5	)
Accumulated other comprehensive income, net		15,174			6,412			8,762			136.7
Total stockholders' equity		991,201			989,273			1,928			0.2
Total liabilities and stockholders' equity	$	4,933,700		$	4,843,847		$	89,853			1.9

Consolidated capital ratios
Equity to assets		20.09	%		20.42	%		-0.33	%
Tangible equity to tangible assets		18.29	%		18.59	%		-0.30	%

Share data
Outstanding shares		78,765			79,527			(762	)		(1.0	)
Equity per share	$	12.58		$	12.44		$	0.14			1.1
Tangible equity per share⁽¹⁾	$	11.20		$	11.07		$	0.13			1.2
⁽¹⁾Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.

Summary Income Statement	For the three months ended
(Dollars and Shares in Thousands,	March 31,			December 31,			Variance			Variance
Except Per Share Data, Unaudited)	2018			2017			or Change			or Change Pct.
Interest income
Loans	$	30,728		$	30,610		$	118			0.4
Mortgage-backed securities		2,817			2,848			(31	)		(1.1	)
Debt securities:
Taxable		3,633			3,229			404			12.5
Tax-exempt		652			641			11			1.7
Other interest-earning assets		715			704			11			1.6
Total Interest Income		38,545			38,032			513			1.3

Interest expense
Deposits		7,026			6,649			377			5.7
Borrowings		4,462			4,548			(86	)		(1.9	)
Total interest expense		11,488			11,197			291			2.6
Net interest income		27,057			26,835			222			0.8
Provision for loan losses		423			936			(513	)		(54.8	)
Net interest income after provision for loan losses		26,634			25,899			735			2.8

Non-interest income
Fees and service charges		1,537			1,409			128			9.1
Loss on sale and call of securities		(1	)		-			(1	)		-
Gain on sale of loans		346			200			146			73.0
Gain on sale of real estate owned		7			23			(16	)		(69.6	)
Income from bank owned life insurance		1,227			1,264			(37	)		(2.9	)
Electronic banking fees and charges		243			302			(59	)		(19.5	)
Miscellaneous		189			65			124			190.8
Total non-interest income		3,548			3,263			285			8.7

Non-interest expense
Salaries and employee benefits		12,888			12,926			(38	)		(0.3	)
Net occupancy expense of premises		2,359			2,122			237			11.2
Equipment and systems		2,323			2,193			130			5.9
Advertising and marketing		745			748			(3	)		(0.4	)
Federal deposit insurance premium		350			343			7			2.0
Directors' compensation		689			688			1			0.1
Merger-related expenses		401			1,193			(792	)		(66.4	)
Miscellaneous		2,788			2,551			237			9.3
Total non-interest expense		22,543			22,764			(221	)		(1.0	)
Income before income taxes		7,639			6,398			1,241			19.4
Income taxes		2,262			5,129			(2,867	)		(55.9	)
Net income	$	5,377		$	1,269		$	4,108			323.7

Net income per common share (EPS)
Basic	$	0.07		$	0.02		$	0.05
Diluted	$	0.07		$	0.02		$	0.05

Dividends declared
Cash dividends declared per common share	$	0.03		$	0.03		$	-
Cash dividends declared	$	2,264		$	1,856		$	408
Dividend payout ratio		42.1	%		146.3	%		-104.2	%

Weighted average number of common shares outstanding
Basic		75,492			77,174			(1,682	)
Diluted		75,539			77,239			(1,700	)

Average Balance Sheet Data	For the three months ended
(Dollars in Thousands, Unaudited)	March 31,			December 31,			Variance			Variance
	2018			2017			or Change			or Change Pct.
Assets
Interest-earning assets:
Loans receivable, including loans held for sale	$	3,293,664		$	3,255,862		$	37,802			1.2
Mortgage-backed securities		492,232			501,081			(8,849	)		(1.8	)
Debt securities:											-
Tax-exempt		127,605			126,214			1,391			1.1
Taxable		511,368			495,316			16,052			3.2
Total debt securities		638,973			621,530			17,443			2.8
Other interest-earning assets		67,770			82,539			(14,769	)		(17.9	)
Total interest-earning assets		4,492,639			4,461,012			31,627			0.7
Non-interest-earning assets		369,299			364,015			5,284			1.5
Total assets	$	4,861,938		$	4,825,027		$	36,911			0.8

Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	871,060		$	854,400		$	16,660			1.9
Savings and club		513,974			518,542			(4,568	)		(0.9	)
Certificates of deposit		1,386,398			1,337,560			48,838			3.7
Total interest-bearing deposits		2,771,432			2,710,502			60,930			2.2
Borrowings:
Federal Home Loan Bank Advances		777,721			777,460			261			0.0
Other borrowings		33,529			30,606			2,923			9.6
Total borrowings		811,250			808,066			3,184			0.4
Total interest-bearing liabilities		3,582,682			3,518,568			64,114			1.8
Non-interest-bearing liabilities:
Non-interest-bearing deposits		267,152			277,236			(10,084	)		(3.6	)
Other non-interest-bearing liabilities		23,382			24,396			(1,014	)		(4.2	)
Total non-interest-bearing liabilities		290,534			301,632			(11,098	)		(3.7	)
Total liabilities		3,873,216			3,820,200			53,016			1.4
Stockholders' equity		988,722			1,004,827			(16,105	)		(1.6	)
Total liabilities and stockholders' equity	$	4,861,938		$	4,825,027		$	36,911			0.8

Average interest-earning assets to average interest-bearing liabilities		125.40	%		126.78	%		-1.38	%		(1.1	)

Performance Ratio Highlights	For the three months ended
	March 31,			December 31,			Variance
	2018			2017			or Change
Average yield on interest-earning assets:
Loans receivable, including loans held for sale		3.73	%		3.76	%		-0.03	%
Mortgage-backed securities		2.29	%		2.27	%		0.02	%
Debt securities:
Tax-exempt ⁽¹⁾		2.04	%		2.03	%		0.01	%
Taxable		2.84	%		2.61	%		0.23	%
Total debt securities		2.68	%		2.49	%		0.19	%
Other interest-earning assets		4.22	%		3.42	%		0.80	%
Total interest-earning assets		3.43	%		3.41	%		0.02	%

Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand		0.84	%		0.80	%		0.04	%
Savings and club		0.12	%		0.12	%		0.00	%
Certificates of deposit		1.46	%		1.43	%		0.03	%
Total interest-bearing deposits		1.01	%		0.98	%		0.03	%
Borrowings:
Federal Home Loan Bank Advances		2.27	%		2.33	%		-0.06	%
Other borrowings		0.56	%		0.27	%		0.29	%
Total borrowings		2.20	%		2.25	%		-0.05	%
Total interest-bearing liabilities		1.28	%		1.27	%		0.01	%

Interest rate spread⁽²⁾		2.15	%		2.14	%		0.01	%
Net interest margin⁽³⁾		2.41	%		2.41	%		0.00	%

Non-interest income to average assets (annualized)		0.29	%		0.27	%		0.02	%
Non-interest expense to average assets (annualized)		1.85	%		1.89	%		-0.04	%

Efficiency ratio⁽⁴⁾		73.66	%		75.63	%		-1.97	%

Return on average assets (annualized)		0.44	%		0.11	%		0.33	%
Return on average equity (annualized)		2.18	%		0.51	%		1.67	%
⁽¹⁾The yield on tax-exempt 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.

Five-Quarter Financial Trend Analysis

Summary Balance Sheet							At
(Dollars and Shares in Thousands,	March 31,			December 31,			September 30,			June 30,			March 31,
Except Per Share Data, Unaudited)	2018			2017			2017			2017			2017
Assets
Cash and cash equivalents	$	38,283		$	50,685		$	38,823		$	78,237		$	170,591
Securities available for sale		684,771			637,671			636,600			613,760			614,948
Securities held to maturity		459,380			471,452			482,926			493,321			501,987
Loans held-for-sale		2,377			3,490			3,808			4,692			744
Loans receivable, including yield adjustments		3,351,369			3,291,516			3,260,328			3,245,261			3,122,628
Less allowance for loan losses		(30,248	)		(30,066	)		(29,445	)		(29,286	)		(27,614	)
Net loans receivable		3,321,121			3,261,450			3,230,883			3,215,975			3,095,014
Premises and equipment		42,856			41,829			40,132			39,585			38,904
Federal Home Loan Bank stock		39,112			39,113			39,115			39,958			39,474
Accrued interest receivable		13,926			13,524			13,268			12,493			12,320
Goodwill		108,591			108,591			108,591			108,591			108,591
Bank owned life insurance		184,981			183,754			182,489			181,223			179,935
Deferred income taxes, net		3,898			6,941			13,230			15,454			14,318
Other assets		34,404			25,347			18,285			14,838			19,416
Total assets	$	4,933,700		$	4,843,847		$	4,808,150		$	4,818,127		$	4,796,242

Liabilities
Deposits	$	3,067,798		$	3,033,766		$	2,953,268		$	2,930,127		$	2,853,263
Borrowings		852,009			798,864			808,554			806,228			825,260
Advance payments by borrowers for taxes		8,969			8,511			9,787			8,711			8,059
Other liabilities		13,723			13,433			22,308			15,880			15,650
Total liabilities		3,942,499			3,854,574			3,793,917			3,760,946			3,702,232

Stockholders' Equity
Common stock		788			795			815			844			873
Paid-in capital		653,045			662,093			690,204			728,790			768,373
Retained earnings		355,270			353,536			354,123			361,039			359,083
Unearned ESOP shares		(33,076	)		(33,563	)		(34,049	)		(34,536	)		(35,022	)
Accumulated other comprehensive income, net		15,174			6,412			3,140			1,044			703
Total stockholders' equity		991,201			989,273			1,014,233			1,057,181			1,094,010
Total liabilities and stockholders' equity	$	4,933,700		$	4,843,847		$	4,808,150		$	4,818,127		$	4,796,242

Consolidated capital ratios
Equity to assets		20.09	%		20.42	%		21.09	%		21.94	%		22.81	%
Tangible equity to tangible assets		18.29	%		18.59	%		19.27	%		20.14	%		21.02	%

Share data
Outstanding shares		78,765			79,527			81,548			84,351			87,256
Equity per share	$	12.58		$	12.44		$	12.44		$	12.53		$	12.54
Tangible equity per share⁽¹⁾	$	11.20		$	11.07		$	11.10		$	11.24		$	11.29
⁽¹⁾Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.

Supplemental Balance Sheet Highlights					At
(Dollars in Thousands, Unaudited)	March 31,		December 31,		September 30,		June 30,		March 31,
	2018		2017		2017		2017		2017
Cash and cash equivalents
Cash and due from depository institutions	$	18,229	$	17,899	$	17,972	$	18,889	$	17,429
Interest-bearing deposits in other banks		20,054		32,786		20,851		59,348		153,162
Total cash and cash equivalents	$	38,283	$	50,685	$	38,823	$	78,237	$	170,591

Securities available for sale
Debt securities:
U.S. agency securities	$	4,667	$	4,810	$	5,063	$	5,316	$	5,622
Municipal and state obligations		26,733		27,428		27,725		27,740		27,259
Asset-backed securities		182,066		169,484		163,615		162,429		150,805
Collateralized loan obligations		178,342		133,341		128,383		98,154		104,811
Corporate bonds		142,202		142,397		142,489		142,318		141,134
Trust preferred securities		8,485		8,494		8,544		8,540		8,248
Debt securities available for sale		542,495		485,954		475,819		444,497		437,879

Mortgage-backed securities:
Collateralized mortgage obligations		25,601		27,187		28,790		30,536		31,941
Residential pass-through securities		108,736		116,496		123,868		130,550		136,926
Commercial pass-through securities		7,939		8,034		8,123		8,177		8,202
Mortgage-backed securities		142,276		151,717		160,781		169,263		177,069
Total securities available for sale	$	684,771	$	637,671	$	636,600	$	613,760	$	614,948

Securities held to maturity
Debt securities:
U.S. agency securities	$	-	$	-	$	35,000	$	35,000	$	35,000
Municipal and state obligations		98,011		100,671		95,954		94,713		91,038
Subordinated debt		30,000		25,000		15,000		15,000		15,000
Debt securities held to maturity		128,011		125,671		145,954		144,713		141,038

Mortgage-backed securities:
Collateralized mortgage obligations		34,309		35,861		16,600		17,854		19,193
Residential pass-through securities		151,605		160,487		169,257		178,813		186,248
Commercial pass-through securities		145,455		149,433		151,115		151,941		155,508
Mortgage-backed securities		331,369		345,781		336,972		348,608		360,949
Total securities held to maturity	$	459,380	$	471,452	$	482,926	$	493,321	$	501,987

Total securities	$	1,144,151	$	1,109,123	$	1,119,526	$	1,107,081	$	1,116,935

Supplemental Balance Sheet Highlights							At
(Dollars in Thousands, Unaudited)	March 31,			December 31,			September 30,			June 30,			March 31,
	2018			2017			2017			2017			2017
Loan portfolio composition:
Residential first mortgage loans	$	563,807		$	574,322		$	559,593		$	567,323		$	566,665
Home equity loans and lines of credit		79,522			80,961			80,746			82,822			82,412
Residential mortgage loans		643,329			655,283			640,339			650,145			649,077
Multifamily mortgage loans		1,471,573			1,438,386			1,427,840			1,412,575			1,371,339
Nonresidential and mixed use mortgage loans		1,113,385			1,069,254			1,085,983			1,085,064			995,782
Commercial mortgage loans		2,584,958			2,507,640			2,513,823			2,497,639			2,367,121
Commercial business loans		88,216			92,442			81,676			74,471			83,754
Construction loans		22,963			22,205			8,320			3,815			1,494
Account loans		3,038			2,996			2,800			2,863			2,860
Other consumer loans		7,186			8,951			10,988			13,520			15,313
Consumer loans		10,224			11,947			13,788			16,383			18,173
Total loans, excluding yield adjustments		3,349,690			3,289,517			3,257,946			3,242,453			3,119,619
Unamortized yield adjustments		1,679			1,999			2,382			2,808			3,009
Loans receivable, including yield adjustments		3,351,369			3,291,516			3,260,328			3,245,261			3,122,628
Less allowance for loan losses		(30,248	)		(30,066	)		(29,445	)		(29,286	)		(27,614	)
Net loans receivable	$	3,321,121		$	3,261,450		$	3,230,883		$	3,215,975		$	3,095,014

Loan portfolio allocation:
Residential first mortgage loans		16.8	%		17.5	%		17.2	%		17.5	%		18.2	%
Home equity loans and lines of credit		2.4	%		2.5	%		2.5	%		2.6	%		2.6	%
Residential mortgage loans		19.2	%		20.0	%		19.7	%		20.1	%		20.8	%
Multifamily mortgage loans		43.9	%		43.7	%		43.8	%		43.6	%		44.0	%
Nonresidential and mixed use mortgage loans		33.2	%		32.5	%		33.3	%		33.5	%		31.9	%
Commercial mortgage loans		77.1	%		76.2	%		77.2	%		77.0	%		75.9	%
Commercial business loans		2.6	%		2.8	%		2.5	%		2.3	%		2.7	%
Construction loans		0.7	%		0.7	%		0.3	%		0.1	%		0.0	%
Account loans		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Other consumer loans		0.3	%		0.2	%		0.3	%		0.4	%		0.5	%
Consumer loans		0.4	%		0.3	%		0.4	%		0.5	%		0.6	%
Total loans, excluding yield adjustments		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Asset quality:
Nonperforming assets:
Accruing loans > 90 days past due	$	45		$	31		$	105		$	74		$	65
Nonaccrual loans		14,190			16,315			18,006			18,798			20,950
Total nonperforming loans		14,235			16,346			18,111			18,872			21,015
Other real estate owned		1,094			1,693			2,424			1,632			1,668
Total nonperforming assets	$	15,329		$	18,039		$	20,535		$	20,504		$	22,683

Nonperforming loans (% total loans)		0.42	%		0.50	%		0.56	%		0.58	%		0.67	%
Nonperforming assets (% total assets)		0.31	%		0.37	%		0.43	%		0.43	%		0.47	%

Allowance for loan losses (ALLL):
ALLL to total loans		0.90	%		0.91	%		0.90	%		0.90	%		0.88	%
ALLL to nonperforming loans		212.49	%		183.93	%		162.58	%		155.18	%		131.40	%
Net charge offs (recoveries)	$	241		$	315		$	471		$	(483	)	$	254
Average net charge off (recovery) rate (annualized)		0.03	%		0.04	%		0.06	%		-0.06	%		0.03	%

Supplemental Balance Sheet Highlights							At
(Dollars in Thousands, Unaudited)	March 31,			December 31,			September 30,			June 30,			March 31,
	2018			2017			2017			2017			2017
Funding by type:
Deposits
Non-interest-bearing deposits	$	270,217		$	275,065		$	279,263		$	267,412		$	255,939
Interest-bearing demand		871,801			879,732			856,122			847,663			798,203
Savings and club		515,807			517,400			519,040			523,984			524,002
Certificates of deposit		1,409,973			1,361,569			1,298,843			1,291,068			1,275,119
Interest-bearing deposits		2,797,581			2,758,701			2,674,005			2,662,715			2,597,324
Total deposits		3,067,798			3,033,766			2,953,268			2,930,127			2,853,263

Borrowings:
Federal Home Loan Bank advances		775,625			775,649			775,673			775,696			775,719
Overnight borrowings		42,000			-			-			-			-
Depositor sweep accounts		34,384			23,215			32,881			30,532			49,541
Total borrowings		852,009			798,864			808,554			806,228			825,260

Total funding	$	3,919,807		$	3,832,630		$	3,761,822		$	3,736,355		$	3,678,523

Loans as a % of deposits		108.3	%		107.6	%		109.5	%		109.9	%		108.5	%
Deposits as a % of total funding		78.3	%		79.2	%		78.5	%		78.4	%		77.6	%
Borrowings as a % of total funding		21.7	%		20.8	%		21.5	%		21.6	%		22.4	%

Funding by source:
Retail funding
Non-interest-bearing deposits	$	270,217		$	275,065		$	279,263		$	267,412		$	255,939
Interest-bearing demand		656,490			657,696			633,778			625,061			568,865
Savings and club		515,807			517,400			519,040			523,984			524,002
Certificates of deposit		1,248,218			1,210,616			1,175,407			1,168,010			1,152,025
Total retail deposits		2,690,732			2,660,777			2,607,488			2,584,467			2,500,831
Depositor sweep accounts		34,384			23,215			32,881			30,532			49,541
Total retail funding		2,725,116			2,683,992			2,640,369			2,614,999			2,550,372

Wholesale funding:
Interest-bearing demand	$	215,311		$

Kearny Financial Corp. (1617242) SEC Filing 10-Q Quarterly report for the period ending Saturday, March 31, 2018

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