Home Global News News Buzz: Kearny Financial Corp. (NASDAQ:KRNY)

News Buzz: Kearny Financial Corp. (NASDAQ:KRNY)

50
0
SHARE

Kearny Financial Corp. (NASDAQ: KRNY), the holding company of Kearny Bank, today declared net income for the quarter ended December 31, 2017, of $1.30M, or $0.020 per basic and diluted share.

The results represent a decline in net income of $3.90M compared to net income of $5.20M, or $0.070 per basic and diluted share, for the quarter ended September 30, 2017.

The Act permanently reduced the Company’s federal income tax rate from 35.00% to 21.00% while also including other provisions that altered the deductibility of certain recurring costs recognized by the Company.

While, collectively, the provisions of the Act are expected to benefit the Company’s future earnings, it resulted in a $3.50M net diminution in the carrying value of the Company’s deferred income tax assets and liabilities with an equal and offsetting charge to income tax cost throughout the 3-months ended December 31, 2017.

The $3.50M charge to income tax cost resulted from a $4.90M charge to reflect the reduced carrying value of the Company’s net deferred tax asset attributable to timing differences in the recognition of certain income and cost items for financial statement reporting purposes versus that recognized for income tax reporting purposes.

That charge was partially offset by a $1.40M reduction in the net deferred income tax liability primarily attributable to the net unrealized gains and losses on the Company’s interest rate derivatives and available for sale securities portfolios.

The net charge of $3.50M attributable to the changes in the carrying value of deferred income tax items was partially offset by a $769,000.00 diminution in current-year income tax cost attributable to the noted diminution 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 condensed to 28.00%, reflecting effective statutory rates of 35.00% and 21.00% for the 1st-and 2nd-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 condensed to 21.0%.

As noted above, the decline in net income between linked periods also reflects the Company’s recognition of $1.20M of merger-related costs related to its proposed acquisition of CSBK. The Company estimates that net income was adversely impacted by about $1.00M for merger-related costs recognized throughout the 3-months ended December 31, 2017, due to their limited income tax deductibility.

The proposed CSBK acquisition was announced on November 1, 2017, whereby the Company entered into a definitive agreement pursuant to which it will acquire CSBK in an all-stock transaction.  Under the terms of the agreement, each outstanding share of CSBK common stock will be exchanged for 1.1910 shares of KRNY common stock.

Excluding the impacts on net income arising from federal income tax reform and merger-related costs discussed above, the Company’s net income would have been $5.00M or $0.060 per basic and diluted share for the 3-months ended December 31, 2017.

Overview

The Company continued to execute strategies throughout the 2nd-quarter of fiscal 2018 intended to raise and diversify its balance sheet while increasing its core earnings and prudently managing capital to promote long-term growth in investor value.  These strategies resulted in numerous incremental balance sheet development 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, inclined by $31.20M to $3.290 billion, or 68.00% of total assets, at December 31, 2017, from $3.260 billion, or 67.80% of total assets, at September 30, 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 construction loans increasing by $13.90M to $22.20M at December 31, 2017 while the outstanding balance of commercial business loans inclined by $10.80M to $92.40M for that similar period.
  • For those similar comparative periods, the balance of commercial mortgage loans remained stable at $2.510 billion.  The overall stability in the balance of commercial mortgage loans reflected an accelerated pace of loan prepayments that offset the growth in loans arising from new loan origination volume.
  • The Company continues to perform strategies designed to incline the origination volume of commercial mortgage loans to compensate for the noted incline in prepayments.  Toward that end, the Company’s pipeline of commercial mortgage loans in the underwriting process inclined throughout the quarter ended December 31, 2017.
  • The outstanding balance of residential mortgage loans held in the portfolio, including home equity loans and lines of credit, inclined by $15.00M to $655.30M at December 31, 2017, from $640.30M at September 30, 2017.
  • The incline largely reflected loan purchases of about $22.20M throughout the 3-months ended December 31, 2017, that were intended to augment the development in the loan portfolio and partially offset the effects of the incline in prepayments noted above.
  • Nonperforming loans declined by $1.80M to $16.30M, or 0.50% of total loans, at December 31, 2017, from $18.10M, or 0.560% of total loans, at September 30, 2017.
  • The allowance for loan losses inclined to $30.10M at December 31, 2017, from $29.40M at September 30, 2017, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a%age of total loans, of 0.910% and 0.9%, respectively.
  • The “nonperforming loan coverage ratio”, representing the balance of the allowance for loan losses as a%age of nonperforming loans, inclined to 184.00% at December 31, 2017, from 162.60% at September 30, 2017.
  • The Company’s securities portfolio declined by $10.40M to $1.110 billion, or 22.90% of total assets, at December 31, 2017, from $1.120 billion, or 23.30% of total assets, at September 30, 2017.  The net decline in the securities portfolio partly reflected normal principal repayments arising from amortization and maturities of securities.
  • A portion of the security repayments was used to fund the growth in loans while the remainder was reinvested into uncapped, floating-rate securities, tax-advantaged municipal securities, mortgage-backed securities and subordinated debt issued by two community banks located in New Jersey and eastern Pennsylvania.  The decline in the securities portfolio also reflected a $2.00M decline in the fair value of the available for sale securities portfolio throughout the period.
  • The balance of cash and cash equivalents inclined by $11.90M to $50.70M at December 31, 2017, from $38.80M on September 30, 2017.  The incline largely reflected day-to-day operating fluctuations in the Company’s balance of cash and cash equivalents.
  • Notwithstanding the noted incline in the comparative period-end balances, 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 remained stable at $82.50M for the quarter ended December 31, 2017, compared to $79.90M for the quarter ended September 30, 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 inclined by $80.50M to $3.030 billion at December 31, 2017, from $2.95 billion at September 30, 2017.
  • The net growth in deposits included an $84.70M incline in interest-bearing deposits that was partially offset by a $4.20M decline in non-interest-bearing deposits.
  • The growth in interest-bearing deposits largely reflected the continuing effects of product, pricing and marketing strategies enacted throughout fiscal 2017.  The decline in non-interest-bearing deposits largely reflected day-to-day operating fluctuations in such balances.
  • Notwithstanding the noted decline in the comparative period-end balances, the average balance of non-interest-bearing deposits inclined by $2.40M between comparative periods.
  • Total borrowings declined by $9.70M to $798.90M at December 31, 2017, from $808.6M at September 30, 2017.
  • The decline in borrowings largely reflected a $9.70M decline in depositor sweep account balances representing normal day-to-day fluctuations in such balances.
  • The Company’s stockholders’ equity declined by $25.00M to $989.30M at December 31, 2017, from $1.010 billion at September 30, 2017.  The decline largely reflected the effects of the Company’s share repurchases and cash dividends paid to stockholders throughout the period.
  • The decline in stockholders’ equity was partially offset by net income earned throughout the period coupled with a net incline in accumulated other comprehensive income reflecting an incline in the fair value of the Company’s derivatives portfolio, which was partially offset by a decline in the fair value of the Company’s available for sale securities portfolio.
  • At December 31, 2017, the Company’s total consolidated equity to assets ratio was 20.420% while the Bank’s total consolidated equity to assets ratio was 17.680%.
  • The Company’s and Bank’s capital ratios at December 31, 2017, 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 incline in market interest rates and a flattening yield curve on the Company’s net interest margin:

  • The Company’s net interest income was $26.80M for the quarters ended December 31, 2017, and September 30, 2017, reflecting an incline of $25,000.00 between comparative periods.
  • The Company’s net interest margin inclined by one basis point to 2.410% for the quarter ended December 31, 2017, from 2.40% for the quarter ended September 30, 2017, while the net interest rate spread also inclined by one basis point to 2.140% from 2.130% for those similar 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 $315,000.00, reflecting an annualized charge-off rate of 0.040% on the average balance of total loans for the quarter ended December 31, 2017.
  • By comparison, the Company’s net charge-offs totaled approximately $471,000.00 for the quarter ended September 30, 2017, reflecting a net charge-off rate of 0.060%.
  • The Company’s provision for loan losses inclined by $306,000.00 to $936,000.00 for the quarter ended December 31, 2017, compared to $630,000.00 for the quarter ended September 30, 2017.
  • The incline in the provision was partly attributable to the comparatively greater level of growth throughout the quarter ended December 31, 2017, in the performing portion of the loan portfolio that is collectively evaluated for impairment using historical and environmental loss factors.  Such growth was concentrated in specific segments of the loan portfolio whose estimated credit losses for ALLL calculation purposes are based on comparatively higher loss factors compared to other segments of the portfolio.
  • The effects of the greater level of growth in the portfolio were partially offset by the decline in net charge-offs between the two comparative periods, as discussed above.  The incline in the provision also reflected updates to historical and environmental loss factors throughout the period.

The strategies executed by the Company throughout the quarter ended December 31, 2017, continued to strengthen and diversify its sources of non-interest income, as highlighted below:

  • Gains on sale of residential mortgage loans totaled $200,000.00 for the quarter ended December 31, 2017, compared to $213,000.00 for the quarter ended September 30, 2017.
  • The modest decline in sale gains reflected a decline in the volume of loans originated and sold that was partially offset by an incline in the average net gain recognized per loan sold between comparative periods.  There were no SBA loans originated and sold throughout the 3-months ended December 31, 2017.

In addition to the items noted above, fees and service charges inclined by $148,000.00 to $1.40M for the quarter ended December 31, 2017, from $1.30M for the quarter ended September 30, 2017.  The incline was largely attributable to an incline 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 cost to average assets totaled 1.890% for the quarter ended December 31, 2017, compared to 1.770% for the prior quarter ended September 30, 2017.  For those similar comparative periods, the Company’s operating efficiency ratio inclined to 75.60% from 71.20%, respectively.
  • As noted earlier, the inclines in these ratios reflect the recognition of $1.20M in non-recurring merger-related costs throughout the 3-months ended December 31, 2017, for which no such costs were recognized throughout the earlier comparative quarter.
  • Excluding the impact of merger-related costs, the Company’s non-interest cost to average assets and efficiency ratios would have been 1.790% and 71.70%, respectively, for the 3-months ended December 31, 2017.

Collectively, the factors noted above contributed to the decline in net income for the quarter ended December 31, 2017, compared to the prior quarter ended September 30, 2017.  The decline in net income had an unfavorable impact on the Company’s earnings-based performance ratios as highlighted below:

  • The Company’s return on average assets for the quarter ended December 31, 2017, totaled 0.110% compared to 0.430% for the prior quarter ended September 30, 2017.
  • Excluding the impacts on net income arising from federal income tax reform and merger-related costs discussed above, the Company’s return on average assets would have been 0.420% for the 3-months ended December 31, 2017.
  • The Company’s return on average equity for the quarter ended December 31, 2017, totaled 0.510% compared to 2.0% for the prior quarter ended September 30, 2017.
  • Excluding the impacts on net income arising from federal income tax reform and merger-related costs discussed above, the Company’s return on average equity would have been 2.0% for the 3-months ended December 31, 2017.

The Company continued to execute key capital management strategies throughout the 2nd-quarter of fiscal 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 throughout the quarter ended December 31, 2017.
  • In May 2017, the Company announced its 2nd-share repurchase program through which it authorized the repurchase of 8,559,084.00 shares, or 10.00%, of the Company’s outstanding shares.
  • Throughout the quarter ended December 31, 2017, the Company repurchased a total of 1,943,840.00 of its shares at an average cost of $14.830 per share.
  • Through December 31, 2017, the Company has repurchased a total of 5,986,840.00 shares, or 69.90% of the number of shares authorized under the current program, at a total cost of $87.00M and at an average cost of $14.540 per share.

 

Loading...

Amit Gola is Newspaper Head and Photographer. He is always motivated and passionate for his work and always try to give his best. He always try to learn new things.