FAIRFIELD, N.J., April 27, 2017 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ:KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended March 31, 2017 of $4.1 million, or $0.05 per basic and diluted share.  The results represent a decrease in net income of $1.4 million compared to net income of $5.5 million, or $0.06 per basic and diluted share, for the quarter ended December 31, 2016.

The decrease in net income between linked periods largely reflected the impact of the first “full-quarter” cost of the Company’s 2016 Equity Incentive Plan approved by shareholders in October 2016.  Based on the original value of the grants at the time they were issued on December 1, 2016, coupled with the five year vesting period, the “pre-tax” and “after-tax” expense associated with the noted grants total approximately $1.6 million and $1.1 million per quarter, respectively.

Overview

The Company continued to execute strategies during the third quarter of fiscal 2017 intended to grow and diversify its balance sheet while increasing 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 noteworthy highlights for the quarter:

• The Company’s aggregate loan portfolio, excluding loans held for sale and the allowance for loan losses, increased by $148.7 million, or 5.0%, to $3.12 billion, or 65.1% of total assets, at March 31, 2017 from $2.97 billion, or 64.9% of total assets, at December 31, 2016.  This growth largely reflected the Company’s continued strategic focus on commercial loans, which increased by $147.4 million, or 6.4% during the period.
  
  

• Nonperforming loans decreased to $21.0 million, or 0.67% of total loans, at March 31, 2017 from $21.6 million, or 0.72% of total loans, at December 31, 2016.
  
  

• The allowance for loan losses increased to $27.6 million at March 31, 2017 from $26.1 million at December 31, 2016, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of total loans, that was unchanged at 0.88% between comparative periods.
  
  

• The “nonperforming loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of nonperforming loans, increased to 131.4% at March 31, 2017 from 120.8% at December 31, 2016.
  
  

• The Company’s securities portfolio decreased by $72.2 million, or 6.1%, to $1.12 billion, or 23.3% of total assets, at March 31, 2017 from $1.19 billion, or 25.9% of total assets, at December 31, 2016.  The decrease largely reflected the sale of highly-seasoned, fixed-rate mortgage-backed securities to fund a portion of the loan growth during the period coupled with normal principal repayments arising from amortization, calls and maturities of securities.  A portion of these cash flows were reinvested into uncapped, floating-rate securities for interest rate risk management purposes while a lesser portion was reinvested into tax-favored municipal securities.  The net decrease in the securities portfolio was also partially offset by a net increase in the fair value of the available for sale portfolio during the period.
  
  

• The balance of cash and cash equivalents increased by $133.6 million to $170.6 million at March 31, 2017 from $37.0 million at December 31, 2016.  The increase in cash and equivalents largely reflected a temporary increase in the balance of short-term liquid assets arising from additional borrowings drawn at the close of the period to fund future loan growth, as described in greater detail below.
  
  The Company continued its efforts to reallocate interest-earning cash and equivalents into comparatively higher-yielding assets in the loan portfolio throughout the quarter ended March 31, 2017.  Despite the noted increase in the quarter-end balance of cash and equivalents, the average balance of other interest- earning assets decreased by $9.7 million to $61.3 million for the quarter ended March 31, 2017 from $71.1 million for the quarter ended December 31, 2016.  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 $107.2 million to $2.85 billion at March 31, 2017, from $2.75 billion at December 31, 2016.  The growth in deposits during the third quarter included a $91.7 million increase in interest-bearing deposits coupled with an increase in non-interest-bearing deposits of $15.6 million.  The increase in deposits largely reflected the combined effects of new product, pricing and marketing strategies enacted during the period.
  
  

• Total borrowings increased by $123.4 million to $825.3 million at March 31, 2017, from $701.8 million at December 31, 2016.  The increase in borrowings reflected an increase of $110.0 million in FHLB advances coupled with a $13.4 million increase in depositor sweep account balances.  The increase in FHLB advances largely reflected an additional $200.0 million of advances drawn during the quarter ended March 31, 2017 to fund loan growth.   The Company utilized interest-rate derivatives to extend the effective duration of these short-term advances to largely offset that of the loans funded for interest rate risk management purposes.  A portion of these new advances was used to repay $90.0 million of overnight advances that were outstanding at the close of the prior quarter ended December 31, 2016.  Such advances had been previously drawn to temporarily fund loan growth through that date.
  
  

• The Company’s total assets increased by $210.9 million to $4.80 billion at March 31, 2017 from $4.59 billion at December 31, 2016.
  
  

• The Company’s stockholders’ equity decreased by $20.6 million to $1.09 billion at March 31, 2017 from $1.11 billion at December 31, 2016.  The decrease partly reflected the return of capital to shareholders through share repurchases and cash dividends during the quarter ended March 31, 2017.  These decreases were partially offset by net income earned for the period coupled with a net increase in accumulated other comprehensive income reflecting increases in the fair value of the Company’s derivatives and available for sale securities portfolios.
  
  At March 31, 2017, the Company’s total consolidated equity to assets ratio was 22.81% while the Bank’s total consolidated equity to assets ratio was 17.36%. The Company’s and Bank’s capital ratios at March 31, 2017 were well in excess of the levels required by federal banking regulators to be classified “well-capitalized” under regulatory guidelines.
  
  

As highlighted below, the noted balance sheet growth, reinvestment and reallocation achievements helped to offset the adverse effects on net interest income that resulted from the downward pressure on net interest margin arising from low market interest rates and a generally flat yield curve:

• The Company’s net interest income increased $591,000 to $26.2 million for the quarter ended March 31, 2017 from $25.6 million for the quarter ended December 31, 2016.
  
  

• The Company’s net interest margin increased three basis points to 2.48% for the quarter ended March 31, 2017 from 2.45% for the quarter ended December 31, 2016 while the net interest rate spread also increased by three basis points to 2.21% from 2.18% for those same comparative periods, respectively.

The levels 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 $254,000, reflecting an annualized charge off rate of 0.03% on the average balance of total loans for the quarter ended March 31, 2017.  By comparison, the Company’s net charge offs totaled approximately $198,000 for the quarter ended December 31, 2016, reflecting an annualized charge off rate of 0.03%.
  
  

• The Company’s provision for loan losses totaled $1.8 million for the quarter ended March 31, 2017 compared to $1.3 million for the quarter ended December 31, 2016.  The increase in the provision partly reflected the comparatively greater level of growth during the quarter ended March 31, 2017 in the performing portion of the loan portfolio which is collectively evaluated for impairment using historical and environmental loss factors.  The increase in the provision also reflected updates to historical loss factors during the quarter ended March 31, 2017 to reflect the increase in net charge off activity for the period while also reflecting less noteworthy updates to environmental loss factors during the period.

The strategies executed by the Company during the third quarter of fiscal 2017 also served to strengthen and diversify its sources of non-interest income, as highlighted below:

• Gains on sale of residential mortgage loans totaled $166,000 for the quarter ended March 31, 2017 compared to $297,000 for the quarter ended December 31, 2016, which largely reflected a seasonal decrease in the volume of loans originated and sold between comparative periods.  The Company expects to increase the volume of residential mortgage loans originated and sold during the fourth quarter ending June 30, 2017 compared to the quarter ended March 31, 2017.  In addition to bolstering non-interest income, the Company’s mortgage banking strategy is expected to help manage its exposure to interest rate risk.
  
  

• Gains on sale of SBA loans originated totaled $80,000 for the quarter ended March 31, 2017 compared to $162,000 for the quarter ended December 31, 2016, reflecting a decrease in the balance of SBA loans originated and sold between comparative periods.  Based on the number and balance of originated loans in the underwriting process at March 31, 2017, the Company expects to increase the volume of SBA loans sold during the quarter ending June 30, 2017 compared to the quarter ended March 31, 2017.

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.  These tactics have enabled the Company to defray a portion of the compensation costs associated with the Company’s 2016 Equity Incentive Plan, as discussed above:

• The Company’s ratio of non-interest expense to average assets totaled 1.84% for the quarter ended March 31, 2017 compared to 1.71% for the prior quarter ended December 31, 2016.  For those same comparative periods, the Company’s operating efficiency ratio increased to 73.9% from 66.7%, respectively.  The Company estimates that the recurring expenses associated with its 2016 Equity Incentive Plan increased its ratio of non-interest expense to average assets by 0.14% for the quarter ended March 31, 2017 while adding 5.46% to its efficiency ratio for the same period.
  
  

• The Company increased its number of full time equivalent (“FTE”) employees by 12 during the latest quarter to 446 at March 31, 2017 from 434 at December 31, 2016.  The increase in FTE count predominantly reflected increases in lending-related positions supporting the Company’s growing mortgage banking business line as well as increases in commercial mortgage lending and commercial business lending resources.

Collectively, the factors noted above contributed to a decrease in recurring operating earnings for the quarter ended March 31, 2017 compared to the prior quarter ended December 31, 2016 as highlighted below:

• The Company’s return on average assets for the quarter ended March 31, 2017 totaled 0.36% compared to 0.48% for the prior quarter ended December 31, 2016.
  
  

• The Company’s return on average equity for the quarter ended March 31, 2017 totaled 1.47% compared to 1.96% for the prior quarter ended December 31, 2016.

The earnings for the quarter ended March 31, 2017 augmented the Company’s stockholders’ equity, which continues to reflect the capital resulting from the second-step conversion and stock offering that was completed in fiscal 2015.  As such, the Company continued to execute two key capital management strategies during the third quarter of fiscal 2017 to further support shareholder value:

• The Company increased its regular quarterly cash dividend payable to stockholders by $0.01 to $0.03 per share during the quarter ended March 31, 2017.  The Company continues to evaluate its dividend policies and practices in relation to its capital management and shareholder value objectives.
  
  

• The Company continued to repurchase shares of its capital stock under the share repurchase program announced in May 2016 through which it authorized a repurchase of 9,352,809 shares, or 10%, of the Company’s outstanding shares.  For the quarter ended March 31, 2017, the Company repurchased a total of 1,982,883 of its shares at an average cost of $15.04 per share compared to 1,286,533 shares repurchased during the prior quarter ended December 31, 2016 at an average cost of $14.55 per share.  Through March 31, 2017, the Company has repurchased 7,721,888 shares, or 82.6% of the number authorized under the current program, at a total cost of $106.6 million and at an average cost of $13.81 per share.

The exhibits that follow this narrative begin with the presentation of a tabular 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, 2017 compared to those for the prior quarter ended December 31, 2016.  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 Kearny Financial Corp. 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 (Dollars in Thousands, Except Per Share Data, Unaudited)	At							Variance or Change			Variance or Change Pct.
	March 31,				December 31,
		2017				2016
Assets
Cash and cash equivalents		$	170,591		$	37,032		$	133,559			360.7
Securities available for sale			614,948			671,281			(56,333	)		(8.4	)
Securities held to maturity			501,987			517,819			(15,832	)		(3.1	)
Loans held-for-sale			744			6,686			(5,942	)		(88.9	)
Loans receivable, including yield adjustments			3,122,628			2,973,931			148,697			5.0
Less allowance for loan losses			(27,614	)		(26,060	)		(1,554	)		6.0
Net loans receivable			3,095,014			2,947,871			147,143			5.0
Premises and equipment			38,904			38,341			563			1.5
Federal Home Loan Bank stock			39,474			34,525			4,949			14.3
Accrued interest receivable			12,320			11,809			511			4.3
Goodwill			108,591			108,591			-			-
Bank owned life insurance			179,935			178,656			1,279			0.7
Deferred income taxes, net			14,318			16,098			(1,780	)		(11.1	)
Other assets			19,416			16,599			2,817			17.0
Total assets		$	4,796,242		$	4,585,308		$	210,934			4.6
Liabilities
Deposits		$	2,853,263		$	2,746,017		$	107,246			3.9
Borrowings			825,260			701,849			123,411			17.6
Advance payments by borrowers for taxes			8,059			7,618			441			5.8
Other liabilities			15,650			15,172			478			3.2
Total liabilities			3,702,232			3,470,656			231,576			6.7
Stockholders' Equity
Common stock			873			892			(19	)		(2.1	)
Paid-in capital			768,373			795,773			(27,400	)		(3.4	)
Retained earnings			359,083			357,540			1,543			0.4
Unearned ESOP shares			(35,022	)		(35,508	)		486			(1.4	)
Accumulated other comprehensive income (loss), net			703			(4,045	)		4,748			(117.4	)
Total stockholders' equity			1,094,010			1,114,652			(20,642	)		(1.9	)
Total liabilities and stockholders' equity		$	4,796,242		$	4,585,308		$	210,934			4.6
Consolidated capital ratios
Equity to assets			22.81	%		24.31	%		-1.50	%
Tangible equity to tangible assets			21.02	%		22.47	%		-1.45	%
Share data
Outstanding shares (period end)			87,256			89,176			(1,920	)		(2.2	)
Equity per share		$	12.54		$	12.50		$	0.04			0.3
Tangible equity per share (1)		$	11.29		$	11.28		$	0.01			0.1
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.
Summary Income Statement (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	For the three months ended							Variance or Change			Variance or Change Pct.
	March 31,				December 31,
		2017				2016
Interest income
Loans		$	28,235		$	27,407		$	828			3.0
Mortgage-backed securities			3,222			3,779			(557	)		(14.7	)
Debt securities:			-
Taxable			2,488			2,146			342			15.9
Tax-exempt			582			562			20			3.6
Other interest-earning assets			481			421			60			14.3
Total Interest Income			35,008			34,315			693			2.0
Interest expense
Deposits			5,420			5,410			10			0.2
Borrowings			3,381			3,289			92			2.8
Total interest expense			8,801			8,699			102			1.2
Net interest income			26,207			25,616			591			2.3
Provision for loan losses			1,809			1,255			554			44.1
Net interest income after provision for   loan losses			24,398			24,361			37			0.2
Non-interest income
Fees and service charges			498			1,289			(791	)		(61.4	)
(Loss) gain on sale and call of securities			(22	)		21			(43	)		(204.8	)
Gain on sale of loans			245			459			(214	)		(46.6	)
(Loss) gain on sale of real estate owned			(106	)		12			(118	)		(983.3	)
Income from bank owned life insurance			1,279			1,321			(42	)		(3.2	)
Electronic banking fees and charges			240			270			(30	)		(11.1	)
Miscellaneous			119			74			45			60.8
Total non-interest income			2,253			3,446			(1,193	)		(34.6	)
Non-interest expense
Salaries and employee benefits			12,430			11,592			838			7.2
Net occupancy expense of premises			2,088			1,976			112			5.7
Equipment and systems			2,068			2,030			38			1.9
Advertising and marketing			753			387			366			94.6
Federal deposit insurance premium			338			339			(1	)		(0.3	)
Directors' compensation			689			379			310			81.8
Miscellaneous			2,668			2,670			(2	)		(0.1	)
Total non-interest expense			21,034			19,373			1,661			8.6
Income before income taxes			5,617			8,434			(2,817	)		(33.4	)
Income taxes			1,549			2,970			(1,421	)		(47.8	)
Net income		$	4,068		$	5,464		$	(1,396	)		(25.5	)
Net income per common share (EPS)
Basic		$	0.05		$	0.06		$	(0.01	)
Diluted		$	0.05		$	0.06		$	(0.01	)
Dividends declared
Cash dividends declared per common share		$	0.03		$	0.02		$	0.01
Cash dividends declared		$	2,525		$	1,687		$	838
Dividend payout ratio			62.1	%		30.9	%		31.19	%
Weighted average number of  common  shares outstanding
Basic			84,542			85,174			(632	)
Diluted			84,624			85,258			(634	)
Average Balance Sheet Data (Dollars in Thousands, Unaudited)	For the three months ended							Variance or Change			Variance or Change Pct.
	March 31,				December 31,
		2017				2016
Assets
Interest-earning assets:
Loans receivable, including loans held for sale		$	3,029,151		$	2,899,794		$	129,357			4.5
Mortgage-backed securities			582,591			673,569			(90,978	)		(13.5	)
Debt securities:												-
Tax-exempt			116,479			112,221			4,258			3.8
Taxable			441,124			419,966			21,158			5.0
Total debt securities			557,603			532,187			25,416			4.8
Other interest-earning assets			61,336			71,072			(9,736	)		(13.7	)
Total interest-earning assets			4,230,681			4,176,622			54,059			1.3
Non-interest-earning assets			352,419			351,458			961			0.3
Total assets		$	4,583,100		$	4,528,080		$	55,020			1.2
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand		$	756,520		$	761,765		$	(5,245	)		(0.7	)
Savings and club			520,572			518,225			2,347			0.5
Certificates of deposit			1,242,757			1,224,592			18,165			1.5
Total interest-bearing deposits			2,519,849			2,504,582			15,267			0.6
Borrowings:
Federal Home Loan Bank Advances			643,504			594,238			49,266			8.3
Other borrowings			44,940			35,273			9,667			27.4
Total borrowings			688,444			629,511			58,933			9.4
Total interest-bearing liabilities			3,208,293			3,134,093			74,200			2.4
Non-interest-bearing liabilities:
Non-interest-bearing deposits			246,449			245,928			521			0.2
Other non-interest-bearing liabilities			25,028			31,781			(6,753	)		(21.2	)
Total non-interest-bearing liabilities			271,477			277,709			(6,232	)		(2.2	)
Total liabilities			3,479,770			3,411,802			67,968			2.0
Stockholders' equity			1,103,330			1,116,278			(12,948	)		(1.2	)
Total liabilities and stockholders' equity		$	4,583,100		$	4,528,080		$	55,020			1.2
Average interest-earning assets to average  interest-bearing liabilities			131.87	%		133.26	%		-1.39	%		-1.0
Performance Ratio Highlights	For the three months ended							Variance or Change			Variance or Change Pct.
	March 31,				December 31,
		2017				2016
Average yield on interest-earning assets:
Loans receivable, including loans held for sale			3.73	%		3.78	%		-0.05	%
Mortgage-backed securities			2.21	%		2.24	%		-0.03	%
Debt securities:
Tax-exempt			2.00	%		2.00	%		0.00	%
Taxable			2.26	%		2.04	%		0.22	%
Total debt securities			2.20	%		2.04	%		0.16	%
Other interest-earning assets			3.13	%		2.37	%		0.76	%
Total interest-earning assets			3.31	%		3.29	%		0.02	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand			0.65	%		0.62	%		0.03	%
Savings and club			0.12	%		0.12	%		0.00	%
Certificates of deposit			1.30	%		1.33	%		-0.03	%
Total interest-bearing deposits			0.86	%		0.86	%		0.00	%
Borrowings:
Federal Home Loan Bank Advances			2.08	%		2.20	%		-0.12	%
Other borrowings			0.35	%		0.29	%		0.06	%
Total borrowings			1.96	%		2.09	%		-0.13	%
Total interest-bearing liabilities			1.10	%		1.11	%		-0.01	%
Interest rate spread (1)			2.21	%		2.18	%		0.03	%
Net interest margin (2)			2.48	%		2.45	%		0.03	%
Non-interest income to average assets  (annualized)			0.20	%		0.30	%		-0.10	%
Non-interest expense to average assets  (annualized)			1.84	%		1.71	%		0.13	%
Efficiency ratio (3)			73.91	%		66.66	%		7.25	%
Return on average assets (annualized)			0.36	%		0.48	%		-0.12	%
Return on average equity (annualized)			1.47	%		1.96	%		-0.49	%
(1) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
(3) Non-interest expense divided by the sum of net interest income and non-interest income.
Five-Quarter Financial Trend Analysis
Summary Balance Sheet (Dollars in Thousands, Except Per Share Data, Unaudited)	At
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Assets
Cash and cash equivalents		$	170,591		$	37,032		$	72,593		$	199,200		$	114,956
Securities available for sale			614,948			671,281			689,151			673,537			685,787
Securities held to maturity			501,987			517,819			538,319			577,286			592,430
Loans held-for-sale			744			6,686			4,489			3,316			-
Loans receivable, including yield adjustments			3,122,628			2,973,931			2,845,605			2,673,987			2,720,069
Less allowance for loan losses			(27,614	)		(26,060	)		(25,003	)		(24,229	)		(23,010	)
Net loans receivable			3,095,014			2,947,871			2,820,602			2,649,758			2,697,059
Premises and equipment			38,904			38,341			38,125			38,385			38,598
Federal Home Loan Bank stock			39,474			34,525			31,601			30,612			29,670
Accrued interest receivable			12,320			11,809			11,666			11,212			11,626
Goodwill			108,591			108,591			108,591			108,591			108,591
Bank owned life insurance			179,935			178,656			177,334			176,016			174,642
Deferred income taxes, net			14,318			16,098			22,914			25,973			27,340
Other assets			19,416			16,599			7,896			6,173			5,310
Total assets		$	4,796,242		$	4,585,308		$	4,523,281		$	4,500,059		$	4,486,009
Liabilities
Deposits		$	2,853,263		$	2,746,017		$	2,733,960		$	2,694,833		$	2,660,773
Borrowings			825,260			701,849			633,389			614,423			618,320
Advance payments by borrowers for taxes			8,059			7,618			7,597			7,906			8,141
Other liabilities			15,650			15,172			28,801			35,268			34,029
Total liabilities			3,702,232			3,470,656			3,403,747			3,352,430			3,321,263
Stockholders' Equity
Common stock			873			892			891			918			935
Paid-in capital			768,373			795,773			813,648			849,173			871,156
Retained earnings			359,083			357,540			353,763			350,806			347,717
Unearned ESOP shares			(35,022	)		(35,508	)		(35,995	)		(36,481	)		(36,968	)
Accumulated other comprehensive income (loss), net			703			(4,045	)		(12,773	)		(16,787	)		(18,094	)
Total stockholders' equity			1,094,010			1,114,652			1,119,534			1,147,629			1,164,746
Total liabilities and stockholders' equity		$	4,796,242		$	4,585,308		$	4,523,281		$	4,500,059		$	4,486,009
Consolidated capital ratios
Equity to assets			22.81	%		24.31	%		24.75	%		25.50	%		25.96	%
Tangible equity to tangible assets			21.02	%		22.47	%		22.89	%		23.65	%		24.12	%
Share data
Outstanding shares (period end)			87,256			89,176			89,076			91,822			93,528
Equity per share		$	12.54		$	12.50		$	12.57		$	12.50		$	12.45
Tangible equity per share (1)		$	11.29		$	11.28		$	11.34		$	11.31		$	11.29
(1) Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets.
Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Cash and cash equivalents
Cash and due from depository institutions		$	17,429		$	17,541		$	18,829		$	21,328		$	20,372
Interest-bearing deposits in other banks			153,162			19,491			53,764			177,872			94,584
Total cash and cash equivalents		$	170,591		$	37,032		$	72,593		$	199,200		$	114,956
Securities available for sale
Debt securities:
U.S. agency securities		$	5,622		$	5,809		$	6,172		$	6,440		$	6,724
Municipal and state obligations			27,259			27,090			28,259			28,398			28,066
Asset-backed securities			150,805			121,445			84,065			82,625			84,396
Collateralized loan obligations			104,811			98,447			128,047			127,374			124,941
Corporate bonds			141,134			138,564			137,976			137,404			136,678
Trust preferred securities			8,248			8,101			7,968			7,669			7,263
Debt securities available for sale			437,879			399,456			392,487			389,910			388,068
Mortgage-backed securities:
Collateralized mortgage obligations			31,941			52,333			57,170			60,577			63,744
Residential pass-through securities			136,926			211,258			231,052			214,526			225,469
Commercial pass-through securities			8,202			8,234			8,442			8,524			8,506
Mortgage-backed securities			177,069			271,825			296,664			283,627			297,719
Total securities available for sale		$	614,948		$	671,281		$	689,151		$	673,537		$	685,787
Securities held to maturity
Debt securities:
U.S. agency securities		$	35,000		$	34,999		$	59,995		$	84,992		$	84,990
Municipal and state obligations			91,038			87,682			82,087			82,179			82,154
Subordinated debt			15,000			15,000			-			-			-
Debt securities held to maturity			141,038			137,681			142,082			167,171			167,144
Mortgage-backed securities:
Collateralized mortgage obligations			19,193			20,543			21,699			23,081			24,561
Residential pass-through securities			186,248			200,402			211,930			223,632			234,595
Commercial pass-through securities			155,508			159,193			162,608			163,402			166,130
Mortgage-backed securities			360,949			380,138			396,237			410,115			425,286
Total securities held to maturity		$	501,987		$	517,819		$	538,319		$	577,286		$	592,430
Total securities		$	1,116,935		$	1,189,100		$	1,227,470		$	1,250,823		$	1,278,217
Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Loan portfolio composition:
Residential first mortgage loans		$	566,665		$	562,466		$	584,156		$	605,203		$	620,867
Home equity loans and lines of credit			82,412			83,305			85,799			89,566			90,610
Residential mortgage loans			649,077			645,771			669,955			694,769			711,477
Multifamily mortgage loans			1,371,339			1,295,207			1,142,908			1,040,293			1,044,180
Nonresidential and mixed use mortgage loans			995,782			932,616			916,769			820,673			837,758
Commercial mortgage loans			2,367,121			2,227,823			2,059,677			1,860,966			1,881,938
Commercial business loans			83,754			75,640			87,333			88,207			95,131
Construction loans			1,494			927			2,059			2,038			3,734
Account loans			2,860			2,980			3,012			3,349			3,313
Other consumer loans			15,313			17,501			19,870			22,052			21,642
Consumer loans			18,173			20,481			22,882			25,401			24,955
Total loans, excluding yield adjs			3,119,619			2,970,642			2,841,906			2,671,381			2,717,235
Unamortized yield adjustments			3,009			3,289			3,699			2,606			2,834
Loans receivable, including yield adjs			3,122,628			2,973,931			2,845,605			2,673,987			2,720,069
Less allowance for loan losses			(27,614	)		(26,060	)		(25,003	)		(24,229	)		(23,010	)
Net loans receivable		$	3,095,014		$	2,947,871		$	2,820,602		$	2,649,758		$	2,697,059
Loan portfolio allocation:
Residential first mortgage loans			18.2	%		18.9	%		20.6	%		22.7	%		22.8	%
Home equity loans and lines of credit			2.6	%		2.8	%		3.0	%		3.4	%		3.3	%
Residential mortgage loans			20.8	%		21.7	%		23.6	%		26.0	%		26.2	%
Multifamily mortgage loans			44.0	%		43.6	%		40.2	%		38.9	%		38.4	%
Nonresidential and mixed use mortgage loans			31.9	%		31.4	%		32.3	%		30.7	%		30.8	%
Commercial mortgage loans			75.9	%		75.0	%		72.5	%		69.7	%		69.3	%
Commercial business loans			2.7	%		2.5	%		3.1	%		3.3	%		3.5	%
Construction loans			0.0	%		0.0	%		0.1	%		0.1	%		0.1	%
Account loans			0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Other consumer loans			0.5	%		0.6	%		0.7	%		0.8	%		0.8	%
Consumer loans			0.6	%		0.7	%		0.8	%		1.0	%		0.9	%
Total loans, excluding yield adjs			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Asset quality:
Nonperforming assets:
Accruing loans > 90 days past due		$	65		$	92		$	77		$	38		$	-
Nonaccrual loans			20,950			21,473			21,768			21,017			28,275
Total Nonperforming loans			21,015			21,565			21,845			21,055			28,275
Other real estate owned			1,668			2,037			1,356			826			1,475
Total Nonperforming assets		$	22,683		$	23,602		$	23,201		$	21,881		$	29,750
Nonperforming loans (% total loans)			0.67	%		0.72	%		0.77	%		0.79	%		1.04	%
Nonperforming assets (% total assets)			0.47	%		0.51	%		0.51	%		0.49	%		0.66	%
Allowance for loan losses (ALLL):
ALLL to total loans			0.88	%		0.88	%		0.88	%		0.91	%		0.85	%
ALLL to nonperforming loans			131.40	%		120.84	%		114.46	%		115.07	%		81.38	%
Net charge offs		$	254		$	198		$	354		$	827		$	93
Average net charge off rate (annualized)			0.03	%		0.03	%		0.05	%		0.12	%		0.01	%
Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Funding by type:
Deposits
Non-interest-bearing deposits		$	255,939		$	240,367		$	251,141		$	238,751		$	226,700
Interest-bearing demand			798,203			768,556			750,126			732,633			717,603
Savings and club			524,002			519,257			514,909			516,023			520,826
Certificates of deposit			1,275,119			1,217,837			1,217,784			1,207,426			1,195,644
Interest-bearing deposits			2,597,324			2,505,650			2,482,819			2,456,082			2,434,073
Total deposits			2,853,263			2,746,017			2,733,960			2,694,833			2,660,773
Borrowings:
Federal Home Loan Bank advances			775,719			665,742			600,765			578,788			585,317
Depositor sweep accounts			49,541			36,107			32,624			35,635			33,003
Total borrowings			825,260			701,849			633,389			614,423			618,320
Total funding		$	3,678,523		$	3,447,866		$	3,367,349		$	3,309,256		$	3,279,093
Loans as a % of deposits			108.5	%		107.6	%		103.3	%		98.5	%		101.4	%
Deposits as a % of total funding			77.6	%		79.6	%		81.2	%		81.4	%		81.1	%
Borrowings as a % of total funding			22.4	%		20.4	%		18.8	%		18.6	%		18.9	%
Funding by source:
Retail funding
Non-interest-bearing deposits		$	255,939		$	240,367		$	251,141		$	238,751		$	226,700
Interest-bearing demand			568,865			544,487			527,511			508,528			493,831
Savings and club			524,002			519,257			514,909			516,023			520,826
Certificates of deposit			1,152,025			1,113,073			1,119,922			1,109,203			1,097,414
Total retail deposits			2,500,831			2,417,184			2,413,483			2,372,505			2,338,771
Depositor sweep accounts			49,541			36,107			32,624			35,635			33,003
Total retail funding			2,550,372			2,453,291			2,446,107			2,408,140			2,371,774
Wholesale funding:
Interest-bearing demand		$	229,338		$	224,069		$	222,615		$	224,105		$	223,772
Certificates of deposit (listing service)			101,432			96,516			89,608			89,857			89,857
Certificates of deposit (brokered)			21,662			8,248			8,254			8,366			8,373
Total wholesale deposits			352,432			328,833			320,477			322,328			322,002
FHLB Advances			775,719			665,742			600,765			578,788			585,317
Total wholesale funding			1,128,151			994,575			921,242			901,116			907,319
Total funding		$	3,678,523		$	3,447,866		$	3,367,349		$	3,309,256		$	3,279,093
Retail funding as a % of total funding			69.3	%		71.2	%		72.6	%		72.8	%		72.3	%
Wholesale funding as a % of total funding			30.7	%		28.8	%		27.4	%		27.2	%		27.7	%
Summary Income Statement (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	For the three months ended
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Interest income
Loans		$	28,235		$	27,407		$	25,697		$	25,698		$	25,585
Mortgage-backed securities			3,222			3,779			3,937			4,032			4,296
Debt securities:
Taxable			2,488			2,146			2,040			1,990			1,988
Tax-exempt			582			562			551			551			551
Other interest-earning assets			481			421			581			496			462
Total Interest Income			35,008			34,315			32,806			32,767			32,882
Interest expense
Deposits			5,420			5,410			5,361			5,140			4,932
Borrowings			3,381			3,289			3,424			3,400			3,486
Total interest expense			8,801			8,699			8,785			8,540			8,418
Net interest income			26,207			25,616			24,021			24,227			24,464
Provision for loan losses			1,809			1,255			1,129			2,046			2,589
Net interest income after provision for   loan losses			24,398			24,361			22,892			22,181			21,875
Non-interest income
Fees and service charges			498			1,289			663			1,340			794
(Loss) gain on sale and call of securities			(22	)		21			-			-			-
Gain on sale of loans			245			459			300			132			156
(Loss) gain on sale of real estate owned			(106	)		12			(15	)		24			(48	)
Income from bank owned life insurance			1,279			1,321			1,319			1,374			1,390
Electronic banking fees and charges			240			270			283			284			244
Miscellaneous			119			74			79			57			77
Total non-interest income			2,253			3,446			2,629			3,211			2,613
Non-interest expense
Salaries and employee benefits			12,430			11,592			10,909			10,640			10,459
Net occupancy expense of premises			2,088			1,976			1,941			1,813			1,991
Equipment and systems			2,068			2,030			2,048			2,092			2,045
Advertising and marketing			753			387			549			490			539
Federal deposit insurance premium			338			339			305			687			684
Directors' compensation			689			379			225			224			225
Miscellaneous			2,668			2,670			2,683			1,732			2,710
Total non-interest expense			21,034			19,373			18,660			17,678			18,653
Income before income taxes			5,617			8,434			6,861			7,714			5,835
Income taxes			1,549			2,970			2,194			2,833			1,667
Net income		$	4,068		$	5,464		$	4,667		$	4,881		$	4,168
Net income per common share (EPS)
Basic		$	0.05		$	0.06		$	0.05		$	0.05		$	0.05
Diluted		$	0.05		$	0.06		$	0.05		$	0.05		$	0.05
Dividends declared
Cash dividends declared per common share		$	0.03		$	0.02		$	0.02		$	0.02		$	0.02
Cash dividends declared		$	2,525		$	1,687		$	1,710		$	1,792		$	1,793
Dividend payout ratio			62.1	%		30.9	%		36.6	%		36.7	%		43.0	%
Weighted average number of  common  shares outstanding
Basic			84,542			85,174			86,246			89,443			89,690
Diluted			84,624			85,258			86,304			89,481			89,724
Average Balance Sheet Data (Dollars in Thousands, Unaudited)	For the three months ended
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Assets
Interest-earning assets:
Loans receivable, including loans held for sale		$	3,029,151		$	2,899,794		$	2,697,096		$	2,682,755		$	2,564,753
Mortgage-backed securities			582,591			673,569			695,876			705,962			730,810
Debt securities:
Tax-exempt			116,479			112,221			109,625			109,691			109,798
Taxable			441,124			419,966			442,233			459,731			474,547
Total debt securities			557,603			532,187			551,858			569,422			584,345
Other interest-earning assets			61,336			71,072			204,621			191,129			135,872
Total interest-earning assets			4,230,681			4,176,622			4,149,451			4,149,268			4,015,780
Non-interest-earning assets			352,419			351,458			359,514			352,841			356,578
Total assets		$	4,583,100		$	4,528,080		$	4,508,965		$	4,502,109		$	4,372,358
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand		$	756,520		$	761,765		$	748,516		$	726,327		$	725,070
Savings and club			520,572			518,225			515,615			519,055			515,762
Certificates of deposit			1,242,757			1,224,592			1,215,081			1,200,874			1,177,147
Total interest-bearing deposits			2,519,849			2,504,582			2,479,212			2,446,256			2,417,979
Borrowings:
Federal Home Loan Bank Advances			643,504			594,238			577,305			585,085			585,329
Other borrowings			44,940			35,273			33,530			32,183			32,598
Total borrowings			688,444			629,511			610,835			617,268			617,927
Total interest-bearing liabilities			3,208,293			3,134,093			3,090,047			3,063,524			3,035,906
Non-interest-bearing liabilities:
Non-interest-bearing deposits			246,449			245,928			243,964			232,698			217,841
Other non-interest-bearing liabilities			25,028			31,781			47,092			41,577			41,480
Total non-interest-bearing liabilities			271,477			277,709			291,056			274,275			259,321
Total liabilities			3,479,770			3,411,802			3,381,103			3,337,799			3,295,227
Stockholders' equity			1,103,330			1,116,278			1,127,862			1,164,310			1,167,131
Total liabilities and stockholders' equity		$	4,583,100		$	4,528,080		$	4,508,965		$	4,502,109		$	4,462,358
Average interest-earning assets to average  interest-bearing liabilities			131.87	%		133.26	%		134.28	%		135.44	%		135.24	%
Performance Ratio Highlights	For the three months ended
	March 31,				December 31,			September 30,			June 30,			March 31,
		2017				2016			2016			2016			2016
Average yield on interest-earning assets:
Loans receivable, including loans held for sale			3.73	%		3.78	%		3.81	%		3.83	%		3.85	%
Mortgage-backed securities			2.21	%		2.24	%		2.26	%		2.28	%		2.35	%
Debt securities:
Tax-exempt			2.00	%		2.00	%		2.01	%		2.01	%		2.01	%
Taxable			2.26	%		2.04	%		1.85	%		1.73	%		1.68	%
Total debt securities			2.20	%		2.04	%		1.88	%		1.79	%		1.74	%
Other interest-earning assets			3.13	%		2.37	%		1.14	%		1.04	%		1.36	%
Total interest-earning assets			3.31	%		3.29	%		3.16	%		3.16	%		3.20	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand			0.65	%		0.62	%		0.63	%		0.62	%		0.60	%
Savings and club			0.12	%		0.12	%		0.15	%		0.16	%		0.16	%
Certificates of deposit			1.30	%		1.33	%		1.31	%		1.27	%		1.23	%
Total interest-bearing deposits			0.86	%		0.86	%		0.87	%		0.84	%		0.82	%
Borrowings:
Federal Home Loan Bank Advances			2.08	%		2.20	%		2.35	%		2.30	%		2.35	%
Other borrowings			0.35	%		0.29	%		0.42	%		0.50	%		0.51	%
Total borrowings			1.96	%		2.09	%		2.24	%		2.20	%		2.26	%
Total interest-bearing liabilities			1.10	%		1.11	%		1.14	%		1.12	%		1.11	%
Interest rate spread (1)			2.21	%		2.18	%		2.02	%		2.04	%		2.09	%
Net interest margin (2)			2.48	%		2.45	%		2.32	%		2.34	%		2.38	%
Non-interest income to average assets  (annualized)			0.20	%		0.30	%		0.23	%		0.29	%		0.23	%
Non-interest expense to average assets  (annualized)			1.84	%		1.71	%		1.66	%		1.57	%		1.67	%
Efficiency ratio (3)			73.91	%		66.66	%		70.02	%		64.43	%		68.89	%
Return on average assets (annualized)			0.36	%		0.48	%		0.41	%		0.43	%		0.37	%
Return on average equity (annualized)			1.47	%		1.96	%		1.66	%		1.68	%		1.43	%
(1) Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
(3) Non-interest expense divided by the sum of net interest income and non-interest income.

 

For further information contact:
Craig L. Montanaro, President and Chief Executive Officer, or
Eric B. Heyer, Executive Vice President and Chief Financial Officer
Kearny Financial Corp.
(973) 244-4500