Kearny Financial Corp. Reports Fiscal 2022 First Quarter Results and 10% Increase in Cash Dividend

FAIRFIELD, N.J., Oct. 27, 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 September 30, 2021 of $19.7 million, or $0.26 per diluted share, compared to $18.5 million, or $0.24 per diluted share, for the quarter ended June 30, 2021.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.11 per share, payable on November 24, 2021 to stockholders of record as of November 10, 2021. This dividend represents an increase of $0.01, or 10%, from the prior quarter’s dividend of $0.10 per share.

Craig L. Montanaro, President and Chief Executive Officer, commented, “We are very pleased with our first quarter results which reflected record earnings, continued net interest margin expansion and sustained growth in non-interest-bearing deposits, which increased 6.3% from June 30, 2021. Additionally, we continued to right-size our retail branch footprint with the announcement of three additional branch consolidations, bringing our total to 15 over the past two and a half years.” Mr. Montanaro continued, “Despite strong origination volume, loan balances for the quarter were negatively impacted by record levels of commercial loan repayment activity. However, we remain optimistic as our commercial loan pipeline stands at a historically high level heading into the second quarter of the fiscal year.”

Regarding the Company’s capital management strategies Mr. Montanaro noted, “As we move further into fiscal 2022, capital management remains a strategic priority. Our recent authorization of a new 10% share repurchase plan, coupled with the increase in our quarterly cash dividend, demonstrates our commitment to returning excess capital to our shareholders while retaining sufficient capital to allow us to take advantage of strategic capital deployment opportunities as they may arise.”

Balance Sheet

• Deposits decreased $90.2 million to $5.40 billion at September 30, 2021, from $5.49 billion at June 30, 2021, reflecting the controlled run-off of time deposits which was partially offset by growth in core non-maturity deposits. For the quarter ended September 30, 2021, non-interest-bearing deposits increased $37.6 million, or 6.3%.
• Loans receivable decreased $62.1 million to $4.79 billion at September 30, 2021, from $4.85 billion at June 30, 2021, due primarily to record levels of repayment activity in the commercial real estate and multifamily mortgage portfolios that more than offset the strong loan origination volume for the quarter.
• Investment securities decreased $26.3 million to $1.69 billion at September 30, 2021, from $1.72 billion at June 30, 2021, representing 23.5% of total assets at each of those comparative periods.
• Borrowings increased $35.1 million to $721.0 million, or 10.0% of total assets, at September 30, 2021, from $685.9 million, or 9.4% of total assets, at June 30, 2021.

Earnings

Performance Highlights

• Return on average assets improved to 1.09% for the quarter ended September 30, 2021. Excluding the impact of non-recurring items, including branch consolidation charges, impairment charges and net effect of sale and call of securities, return on average assets would have been 1.15%. (1)

• Return on average equity improved to 7.66% for the quarter ended September 30, 2021 while return on average tangible equity improved to 9.67%. Excluding the impact of non-recurring items, as noted above, return on average tangible equity would have been 10.26%. ⁽¹⁾

Net Interest Income and Net Interest Margin

• Effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented in this earnings release reflect this reclassification. Except where noted in the footnotes to the tables provided in this earnings release, there were no other changes resulting from this reclassification.
• Net interest margin expanded seven basis points to 2.99% for the quarter ended September 30, 2021, from 2.92% for the quarter ended June 30, 2021, and was largely due to a reduction in the cost of interest-bearing liabilities, which declined six basis points to 0.55%.
• Net interest income increased $525,000 to $49.6 million for the quarter ended September 30, 2021, from $49.1 million for the quarter ended June 30, 2021. Included in net interest income for the quarters ended September 30, 2021 and June 30, 2021, respectively, was purchase accounting accretion of $2.9 million and $3.1 million, and loan prepayment penalty income of $1.7 million and $902,000.

Non-Interest Income

• Fees and service charges increased $184,000 to $607,000 for the quarter ended September 30, 2021 from $423,000 for the quarter ended June 30, 2021, and was largely attributable to fluctuations in various loan-related fee categories.
• Gain on sale of loans increased $643,000 to $1.0 million for the quarter ended September 30, 2021 from $363,000 for the quarter ended June 30, 2021. This increase largely reflected greater volume and an improved average sales price of residential mortgage loans sold during the period.
• Included in other income for the prior quarter ended June 30, 2021 were non-recurring gains of $205,000 attributable to the sale of properties sold in connection with branch consolidation activities, as previously disclosed. No such gains were recorded during the quarter ended September 30, 2021.

Non-Interest Expense

• Non-interest expense decreased $183,000 to $31.8 million for the quarter ended September 30, 2021, from $32.0 million for the quarter ended June 30, 2021. Salaries and benefits expense increased $840,000, or 4.7%, from June 30, 2021 due largely to annual merit increases and increases in benefit plan expense. Net occupancy expense increased $1.5 million, or 51.7%, primarily due to non-recurring expense of $1.3 million and $250,000, respectively, related to the consolidation of three retail branch locations and facility repairs made in connection with damage incurred during Tropical Storm Ida.
• Other expense decreased $2.7 million to $3.1 million for the quarter ended September 30, 2021, from $5.8 million for the quarter ended June 30, 2021 and was largely comprised of declines of $1.6 million and $566,000, respectively, in asset impairment charges and provisions for credit losses on off-balance sheet credit exposures. Also contributing to the decrease were less noteworthy reductions in loan expense, legal fees and consulting fees. For the quarter ended September 30, 2021, asset impairment charges recorded in other expense, related to the previously noted branch consolidations, totaled $420,000, while provisions for credit losses on off-balance sheet credit exposures reflected a provision reversal of $124,000.
• The efficiency and non-interest expense ratios were 59.57% and 1.76%, respectively, for the quarter ended September 30, 2021. Excluding the impact of non-recurring items, as noted above, the efficiency and non-interest expense ratios for the quarter ended September 30, 2021 would have been 56.36% and 1.66%, respectively. ⁽¹⁾

Income Taxes

• Income tax expense increased $239,000 to $7.3 million for the quarter ended September 30, 2021 compared to $7.0 million for the quarter ended June 30, 2021, resulting in effective tax rates of 26.9% and 27.6%, respectively.

Asset Quality

• The balance of non-performing loans decreased $6.8 million to $72.9 million, or 1.02% of total assets, at September 30, 2021, from $79.8 million, or 1.10% of total assets, at June 30, 2021. At September 30, 2021, the Company had active COVID-19 payment deferrals on 13 residential mortgage and home equity loans totaling $5.6 million, representing 0.12% of total loans.
• Net charge offs totaled $980,000, or 0.08% of average loans, on an annualized basis, for the quarter ended September 30, 2021 compared to $656,000, or 0.05%, for the quarter ended June 30, 2021. Of the charge-offs recorded during the quarter ended September 30, 2021, $935,000, or 95.5%, had previously been individually reserved for within the allowance for credit losses (“ACL”).
• For the quarter ended September 30, 2021, the Company recorded a provision for credit loss reversal of $5.4 million, compared to a provision for credit loss reversal of $4.9 million for the quarter ended June 30, 2021. The reversal for the quarter ended September 30, 2021 primarily reflected a reduction in the expected life of various segments of the loan portfolio along with continued improvement in the Company’s credit risk outlook.
• The ACL decreased to $51.8 million, or 1.08% of total loans, at September 30, 2021, from $58.2 million, or 1.19% of total loans at June 30, 2021.

Capital

• For the quarter ended September 30, 2021, book value per share increased by $0.17 to $13.38 while tangible book value per share increased by $0.06 to $10.55.
• During the quarter ended September 30, 2021, the Company repurchased 3,157,788 shares of common stock at a cost of $39.0 million, or $12.35 per share.
• On September 20, 2021, the Company announced the completion of its seventh stock repurchase plan which authorized the repurchase of 4,064,649 shares. Such shares were repurchased at a cost of $50.5 million, or an average price of $12.43 per share. On September 22, 2021, the Company announced the authorization of an eighth stock repurchase plan to repurchase up to 7,602,021 shares, or approximately 10% of the Company’s outstanding shares as of that date. Through September 30, 2021, the Company repurchased a total of 213,139 shares, or 2.8% of the shares authorized for repurchase under the current repurchase program, at a total cost of $2.6 million and at an average cost of $12.41 per share.
• At September 30, 2021, the Company’s tangible equity to tangible assets ratio equaled 11.48% and 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.

(1) Please reference the Reconciliation of GAAP to Non-GAAP tables for a reconciliation of the non-GAAP financial measures.

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 has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including whether the coronavirus can continue to be controlled and abated and if the economy is able to 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 remain open, 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

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.