Kearny Financial Corp. (1617242) SEC Filing 8-K Material Event for the period ending Monday, April 29, 2019

•

Loans, excluding loans held for sale and the allowance for loan losses, decreased by $93.6 million to $4.66 billion, or 70.0% of total assets, at March 31, 2019 from $4.75 billion, or 70.9% of total assets, at December 31, 2018.  The decrease in loans was largely attributable to an elevated level of pre-payment activity in the commercial mortgage loan portfolio which outpaced loan origination volume during the period.  

•

Deposits decreased by $35.9 million to $4.14 billion at March 31, 2019, from $4.17 billion at December 31, 2018.  The net decrease was attributable to a decline of $47.3 million in wholesale deposits that was partially offset by an increase of $11.4 million in retail deposits reflecting the Company’s ongoing efforts to reallocate its funding mix from wholesale to retail deposits.

•

Investment securities increased by $54.2 million to $1.32 billion at March 31, 2019 from $1.26 billion at December 31, 2018 as a portion of the cash flows from the loan portfolio were deployed into U.S. agency commercial mortgage-backed securities with similar yields to the loans that pre-paid during the period.

•

Borrowings increased by $15.7 million to $1.33 billion at March 31, 2019, from $1.31 billion at December 31, 2018.  The net increase in borrowings reflected a $20.2 million increase in depositor sweep account balances that was partially offset by the repayment of a $5.0 million long-term Federal Home Loan Bank (“FHLB”) advance that matured during the period.  

•

Interest income decreased by $365,000 to $59.7 million for the quarter ended March 31, 2019 from $60.0 million for the quarter ended December 31, 2018 while interest expense increased by $346,000 to $21.0 million from $20.7 million between the same comparative periods.  Consequently, net interest income decreased by $711,000 to $38.6 million for the quarter ended March 31, 2019, from $39.3 million for the quarter ended December 31, 2018.  

•

The Company’s interest rate spread decreased three basis points to 2.28% for the quarter ended March 31, 2019 from 2.31% for the quarter ended December 31, 2018.  The decrease in the interest rate spread primarily reflected a three basis point increase in the average cost of interest-bearing liabilities to 1.63% for the quarter ended March 31, 2019 from 1.60% for the quarter ended December 31, 2018 while the average yield on interest-earning assets remained stable at 3.91% for those same comparative periods.  The factors that contributed to the change in interest rate spread also contributed to a three basis point decrease in the Company’s net interest margin to 2.53% from 2.56%, for the same comparative periods.

•

Fees and service charges increased by $416,000, or 33.1%, to $1.7 million for the quarter ended March 31, 2019 compared to $1.3 million for the quarter ended December 31, 2018.  This increase was largely driven by pre-payment fee income on commercial real estate loans related to the elevated level of pre-payment activity noted above.

•

Aggregate loan sale gains increased by $50,000, or 49.5%, to $151,000 for the quarter ended March 31, 2019 as compared to $101,000 for the quarter ended December 31, 2018 largely reflecting an increase in the volume of loans sold.

•

Non-interest expense decreased by $499,000 to $26.8 million for the quarter ended March 31, 2019 compared to $27.3 million for the quarter ended December 31, 2018.  The decrease was largely attributable to various non-recurring expenses that were recognized during the quarter ended December 31, 2018 in conjunction with the October 2018 conversion of Clifton Savings Bank’s core processing system.  The decrease in non-interest expense also reflected a net decrease of $349,000 in salaries and employee benefit expense from $15.7 million for the quarter ended December 31, 2018 to $15.4 million for the quarter ended March 31, 2019 largely attributable to decreases in wages, overtime and employee bonus compensation, partially offset by an increase in employer payroll tax expense.  These decreases were partially offset by an increase in facilities occupancy expense which was primarily attributable to seasonal fluctuations in such expenses.

•

The Company’s ratio of non-interest expense to average assets totaled 1.60% for the quarter ended March 31, 2019 compared to 1.62% for the prior quarter ended December 31, 2018.  For those same comparative periods, the Company’s efficiency ratios were 63.3% and 63.9%, respectively.  

•

Income tax expense totaled $4.3 million for the quarter ended March 31, 2019 compared to $3.6 million for the quarter ended December 31, 2018 resulting in effective tax rates of 27.4% and 25.3%, respectively.

•

The Company’s return on average assets for the quarter ended March 31, 2019 increased to 0.68% from 0.64% for the quarter ended December 31, 2018.  

•

The Company’s return on average equity increased to 3.89% for the quarter ended March 31, 2019 from 3.55% for the quarter ended December 31, 2018 while the Company’s return on average tangible equity increased to 4.78% from 4.33% for the comparative periods.

•

Asset quality remained strong throughout the quarter ended March 31, 2019.  The outstanding balance of nonperforming loans totaled $21.3 million, or 0.46% of total loans, at March 31, 2019 as compared to $20.8 million, or 0.44% of total loans, at December 31, 2018.  

•

The allowance for loan losses decreased to $33.1 million at March 31, 2019 from $33.5 million at December 31, 2018, resulting in a total loan coverage ratio, representing the balance of the allowance for loan losses as a percentage of total loans, excluding loans held for sale, of 0.70% for both comparative periods.  The total loan coverage ratio for both periods 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.

•

The Company recognized net charge offs totaling approximately $242,000 for the quarter ended March 31, 2019, reflecting an annualized net charge off rate of 0.02% on the average balance of total loans for the period. By comparison, the Company’s

net charge offs totaled approximately $176,000 for the quarter ended December 31, 2018, reflecting an annualized net charge off rate of 0.01%.

•

The Company recorded a loan loss provision reversal of $179,000 for the quarter ended March 31, 2019 as compared to a provision for loan loss expense of $971,000 for the quarter ended December 31, 2018.  The decrease in provision for loan loss was largely attributable to the net decrease during the quarter ended March 31, 2019 in the performing portion of the loan portfolio that was collectively evaluated for impairment.

•

The Company increased its regular quarterly cash dividend by $0.01 per share, to $0.06 per share during the quarter ended March 31, 2019, from $0.05 per share during the quarter ended December 31, 2018.  The Company continually evaluates its dividend policies and practices in relation to its overall capital management and shareholder value objectives.

•

In March 2019, the Company completed the repurchase of its shares of common stock under its third share repurchase program announced in April 2018 through which it authorized the repurchase of 10,238,557 shares, or 10%, of the Company’s outstanding shares.  The shares associated with this third program were repurchased at a total cost of $138.8 million and at an average cost of $13.55 per share.  Concurrently, the Company announced its fourth share repurchase program through which it authorized the repurchase of 9,218,324 shares, or 10%, of the Company’s outstanding shares as of that date.

•

During the quarter ended March 31, 2019, the Company repurchased 2,445,689 shares of its common stock at a total cost of $32.4 million and an average cost of $13.24 per share.  The shares of common stock repurchased during the period included 1,757,572 shares attributed to the completion of the Company’s third share repurchase program, as noted above.  Such shares were repurchased at a total cost of $23.3 million and an average cost of $13.24 per share.  The additional 688,117 shares repurchased during the period represented 7.5% of the total shares to be repurchased under the Company’s fourth share repurchase program, also noted above.  Such shares were repurchased at a total cost of $9.1 million and at an average cost of $13.24 per share.

•

The Company’s and Bank’s regulatory capital ratios at March 31, 2019 were in excess of the levels required by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines.  

Linked-Quarter Comparative Financial Analysis

Summary Balance Sheet

At

Variance

(Dollars and Shares in Thousands,

March 31,

December 31,

Variance

or Change

Except Per Share Data, Unaudited)

2019

2018

or Change

Pct.

Assets

Cash and cash equivalents

$

54,160

$

51,483

$

2,677

5.2

%

Securities available for sale

726,920

666,602

60,318

9.0

%

Securities held to maturity

592,199

598,318

(6,119

)

-1.0

%

Loans held-for-sale

997

1,001

(4

)

-0.4

%

Loans receivable, including yield adjustments

4,659,804

4,753,392

(93,588

)

-2.0

%

Less allowance for loan losses

(33,105

)

(33,526

)

421

-1.3

%

Net loans receivable

4,626,699

4,719,866

(93,167

)

-2.0

%

Premises and equipment

58,274

58,414

(140

)

-0.2

%

Federal Home Loan Bank stock

64,288

64,514

(226

)

-0.4

%

Accrued interest receivable

20,326

19,435

891

4.6

%

Goodwill

210,895

210,895

-

0.0

%

Core deposit intangible

5,470

5,743

(273

)

-4.8

%

Bank owned life insurance

254,569

253,009

1,560

0.6

%

Deferred income taxes, net

24,182

24,692

(510

)

-2.1

%

Other real estate owned

209

508

(299

)

-58.9

%

Other assets

19,563

27,960

(8,397

)

-30.0

%

Total assets

$

6,658,751

$

6,702,440

$

(43,689

)

-0.7

%

Liabilities

Deposits

$

4,137,573

$

4,173,434

$

(35,861

)

-0.9

%

Borrowings

1,326,216

1,310,547

15,669

1.2

%

Advance payments by borrowers for taxes

17,208

17,201

7

0.0

%

Other liabilities

19,643

17,997

1,646

9.1

%

Total liabilities

5,500,640

5,519,179

(18,539

)

-0.3

%

Stockholders' Equity

Common stock

915

938

(23

)

-2.5

%

Paid-in capital

817,675

848,145

(30,470

)

-3.6

%

Retained earnings

363,072

356,993

6,079

1.7

%

Unearned ESOP shares

(31,130

)

(31,617

)

487

-1.5

%

Accumulated other comprehensive income, net

7,579

8,802

(1,223

)

-13.9

%

Total stockholders' equity

1,158,111

1,183,261

(25,150

)

-2.1

%

Total liabilities and stockholders' equity

$

6,658,751

$

6,702,440

$

(43,689

)

-0.7

%

Consolidated capital ratios

Equity to assets

17.39

%

17.65

%

-0.26

%

Tangible equity to tangible assets

14.62

%

14.90

%

-0.28

%

Share data

Outstanding shares

91,495

93,772

(2,277

)

-2.4

%

Equity per share

$

12.66

$

12.62

$

0.04

0.3

%

Tangible equity per share ⁽¹⁾

$

10.29

$

10.31

$

(0.02

)

-0.2

%

(1)

Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.

Summary Income Statement

For the three months ended

Variance

(Dollars and Shares in Thousands,

March 31,

December 31,

Variance

or Change

Except Per Share Data, Unaudited)

2019

2018

or Change

Pct.

Interest income

Loans

$

48,116

$

49,015

$

(899

)

-1.8

%

Taxable investment securities

9,511

9,051

460

5.1

%

Tax-exempt investment securities

710

713

(3

)

-0.4

%

Other interest-earning assets

1,320

1,243

77

6.2

%

Total Interest Income

59,657

60,022

(365

)

-0.6

%

Interest expense

Deposits

14,114

12,727

1,387

10.9

%

Borrowings

6,905

7,946

(1,041

)

-13.1

%

Total interest expense

21,019

20,673

346

1.7

%

Net interest income

38,638

39,349

(711

)

-1.8

%

(Reversal of) provision for loan losses

(179

)

971

(1,150

)

-118.4

%

Net interest income after provision for

  loan losses

38,817

38,378

439

1.1

%

Non-interest income

Fees and service charges

1,674

1,258

416

33.1

%

Loss on sale and call of securities

(182

)

-

(182

)

N/A

Gain on sale of loans

151

101

50

49.5

%

(Loss) gain on sale and write down of other real estate owned

(6

)

36

(42

)

-116.7

%

Income from bank owned life insurance

1,560

1,599

(39

)

-2.4

%

Electronic banking fees and charges

253

277

(24

)

-8.7

%

Miscellaneous

226

38

188

494.7

%

Total non-interest income

3,676

3,309

367

11.1

%

Non-interest expense

Salaries and employee benefits

15,350

15,699

(349

)

-2.2

%

Net occupancy expense of premises

2,979

2,761

218

7.9

%

Equipment and systems

3,053

3,377

(324

)

-9.6

%

Advertising and marketing

739

787

(48

)

-6.1

%

Federal deposit insurance premium

455

421

34

8.1

%

Directors' compensation

770

746

24

3.2

%

Miscellaneous

3,425

3,479

(54

)

-1.6

%

Total non-interest expense

26,771

27,270

(499

)

-1.8

%

Income before income taxes

15,722

14,417

1,305

9.1

%

Income taxes

4,305

3,649

656

18.0

%

Net income

$

11,417

$

10,768

$

649

6.0

%

Net income per common share (EPS)

Basic

$

0.13

$

0.12

$

0.01

Diluted

$

0.13

$

0.12

$

0.01

Dividends declared

Cash dividends declared per common share

$

0.06

$

0.05

$

0.01

Cash dividends declared

$

5,338

$

4,082

$

1,256

Dividend payout ratio

46.8

%

37.9

%

8.8

%

Weighted average number of  common

shares outstanding

Basic

89,488

92,434

(2,946

)

Diluted

89,532

92,480

(2,948

)

For the three months ended

Variance

Average Balance Sheet Data

March 31,

December 31,

Variance

or Change

(Dollars in Thousands, Unaudited)

2019

2018

or Change

Pct.

Assets

Interest-earning assets:

Loans receivable, including loans held for sale

$

4,709,052

$

4,758,587

$

(49,535

)

-1.0

%

Taxable investment securities

1,161,492

1,158,720

2,772

0.2

%

Tax-exempt investment securities

134,309

135,453

(1,144

)

-0.8

%

Other interest-earning assets

107,554

87,916

19,638

22.3

%

Total interest-earning assets

6,112,407

6,140,676

(28,269

)

-0.5

%

Non-interest-earning assets

574,921

587,921

(13,000

)

-2.2

%

Total assets

$

6,687,328

$

6,728,597

$

(41,269

)

-0.6

%

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

790,567

$

792,989

$

(2,422

)

-0.3

%

Savings and club

773,308

743,676

29,632

4.0

%

Certificates of deposit

2,288,836

2,214,932

73,904

3.3

%

Total interest-bearing deposits

3,852,711

3,751,597

101,114

2.7

%

Borrowings:

Federal Home Loan Bank advances

1,292,168

1,293,470

(1,302

)

-0.1

%

Other borrowings

26,037

119,281

(93,244

)

-78.2

%

Total borrowings

1,318,205

1,412,751

(94,546

)

-6.7

%

Total interest-bearing liabilities

5,170,916

5,164,348

6,568

0.1

%

Non-interest-bearing liabilities:

Non-interest-bearing deposits

307,645

315,165

(7,520

)

-2.4

%

Other non-interest-bearing liabilities

35,930

37,374

(1,444

)

-3.9

%

Total non-interest-bearing liabilities

343,575

352,539

(8,964

)

-2.5

%

Total liabilities

5,514,491

5,516,887

(2,396

)

0.0

%

Stockholders' equity

1,172,837

1,211,710

(38,873

)

-3.2

%

Total liabilities and stockholders' equity

$

6,687,328

$

6,728,597

$

(41,269

)

-0.6

%

Average interest-earning assets to average

interest-bearing liabilities

118.21

%

118.91

%

-0.70

%

-0.6

%

For the three months ended

March 31,

December 31,

Variance

Performance Ratio Highlights

2019

2018

or Change

Average yield on interest-earning assets:

Loans receivable, including loans held for sale

4.09

%

4.12

%

-0.03

%

Taxable investment securities

3.28

%

3.12

%

0.16

%

Tax-exempt investment securities ⁽¹⁾

2.12

%

2.11

%

0.01

%

Other interest-earning assets

4.91

%

5.66

%

-0.75

%

Total interest-earning assets

3.91

%

3.91

%

0.00

%

Average cost of interest-bearing liabilities:

Deposits:

Interest-bearing demand

1.06

%

0.97

%

0.09

%

Savings and club

0.60

%

0.49

%

0.11

%

Certificates of deposit

1.90

%

1.79

%

0.11

%

Total interest-bearing deposits

1.47

%

1.36

%

0.11

%

Borrowings:

Federal Home Loan Bank advances

2.13

%

2.27

%

-0.14

%

Other borrowings

0.35

%

1.99

%

-1.64

%

Total borrowings

2.10

%

2.25

%

-0.15

%

Total interest-bearing liabilities

1.63

%

1.60

%

0.03

%

Interest rate spread ⁽²⁾

2.28

%

2.31

%

-0.03

%

Net interest margin ⁽³⁾

2.53

%

2.56

%

-0.03

%

Non-interest income to average assets

(annualized)

0.22

%

0.20

%

0.02

%

Non-interest expense to average assets

(annualized)

1.60

%

1.62

%

-0.02

%

Efficiency ratio ⁽⁴⁾

63.27

%

63.93

%

-0.66

%

Return on average assets (annualized)

0.68

%

0.64

%

0.04

%

Return on average equity (annualized)

3.89

%

3.55

%

0.34

%

Return on average tangible equity (annualized) ⁽⁵⁾

4.78

%

4.33

%

0.45

%

(1)

The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.

(2)

Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.

(3)

Net interest income divided by average interest-earning assets.

(4)

Non-interest expense divided by the sum of net interest income and non-interest income.

(5)

Average tangible equity equals total average stockholders’ equity reduced by average goodwill and average core deposit intangible assets.

Five-Quarter Financial Trend Analysis

Summary Balance Sheet

At

(Dollars and Shares in Thousands,

March 31,

December 31,

September 30,

June 30,

March 31,

Except Per Share Data, Unaudited)

2019

2018

2018

2018

2018

Assets

Cash and cash equivalents

$

54,160

$

51,483

$

44,486

$

128,864

$

38,283

Securities available for sale

726,920

666,602

706,240

725,085

684,771

Securities held to maturity

592,199

598,318

602,838

589,730

459,380

Loans held-for-sale

997

1,001

1,503

863

2,377

Loans receivable, including yield adjustments

4,659,804

4,753,392

4,660,507

4,501,348

3,351,369

Less allowance for loan losses

(33,105

)

(33,526

)

(32,731

)

(30,865

)

(30,248

)

Net loans receivable

4,626,699

4,719,866

4,627,776

4,470,483

3,321,121

Premises and equipment

58,274

58,414

57,635

56,240

42,856

Federal Home Loan Bank stock

64,288

64,514

66,428

59,004

39,112

Accrued interest receivable

20,326

19,435

19,455

18,510

13,926

Goodwill

210,895

210,895

210,895

210,895

108,591

Core deposit intangible

5,470

5,743

6,018

6,295

206

Bank owned life insurance

254,569

253,009

251,410