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Section 1: 10-Q (KRNY-Q2-20181231)

krny-10q_20181231.htm

 

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-37399

 

KEARNY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

Maryland

  

30-0870244

(State or other jurisdiction of
incorporation or organization)

  

(I.R.S. Employer
Identification Number)

 

 

 

120 Passaic Ave., Fairfield, New Jersey

  

07004

(Address of principal executive offices)

  

(Zip Code)

Registrant’s telephone number, including area code

973-244-4500

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 4, 2019.

$0.01 par value common stock — 93,101,725 shares outstanding

 

 

 

 

 


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1:

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition at December 31, 2018 (Unaudited) and June 30, 2018

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and Six Months Ended December 31, 2018 and December 31, 2017 (Unaudited)

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2018 and December 31, 2017 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended December 31, 2018 and December 31, 2017 (Unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2018 and December 31, 2017 (Unaudited)

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

Item 2:

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

49

 

 

 

 

 

Item 3:

 

Quantitative and Qualitative Disclosure About Market Risk

 

66

 

 

 

 

 

Item 4:

 

Controls and Procedures

 

71

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1:

 

Legal Proceedings

 

72

 

 

 

 

 

Item 1A:

 

Risk Factors

 

72

 

 

 

 

 

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

72

 

 

 

 

 

Item 3:

 

Defaults Upon Senior Securities

 

72

 

 

 

 

 

Item 4:

 

Mine Safety Disclosures

 

72

 

 

 

 

 

Item 5:

 

Other Information

 

72

 

 

 

 

 

Item 6:

 

Exhibits

 

73

 

 

 

 

 

SIGNATURES

 

74

 

 

 

 


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data)

 

December 31,

 

 

June 30,

 

 

2018

 

 

2018

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

$

24,361

 

 

$

26,199

 

Interest-bearing deposits in other banks

 

27,122

 

 

 

102,665

 

Cash and cash equivalents

 

51,483

 

 

 

128,864

 

Investment securities available for sale, at fair value

 

666,602

 

 

 

725,085

 

Investment securities held to maturity (fair value $592,151 and $579,499, respectively)

 

598,318

 

 

 

589,730

 

Loans held-for-sale

 

1,001

 

 

 

863

 

Loans receivable, including unaccreted yield adjustments of $(59,183) and $(66,567), respectively

 

4,753,392

 

 

 

4,501,348

 

Less: allowance for loan losses

 

(33,526

)

 

 

(30,865

)

Net loans receivable

 

4,719,866

 

 

 

4,470,483

 

Premises and equipment

 

58,414

 

 

 

56,240

 

Federal Home Loan Bank ("FHLB") of New York stock

 

64,514

 

 

 

59,004

 

Accrued interest receivable

 

19,435

 

 

 

18,510

 

Goodwill

 

210,895

 

 

 

210,895

 

Core deposit intangibles

 

5,743

 

 

 

6,295

 

Bank owned life insurance

 

253,009

 

 

 

249,816

 

Deferred income tax assets, net

 

24,692

 

 

 

23,754

 

Other real estate owned

 

508

 

 

 

725

 

Other assets

 

27,960

 

 

 

39,610

 

Total Assets

$

6,702,440

 

 

$

6,579,874

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest-bearing

$

305,392

 

 

$

311,938

 

Interest-bearing

 

3,868,042

 

 

 

3,761,666

 

Total deposits

 

4,173,434

 

 

 

4,073,604

 

Borrowings

 

1,310,547

 

 

 

1,198,646

 

Advance payments by borrowers for taxes

 

17,201

 

 

 

18,088

 

Other liabilities

 

17,997

 

 

 

20,788

 

Total Liabilities

 

5,519,179

 

 

 

5,311,126

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 100,000,000 shares authorized;

  none issued and outstanding

 

-

 

 

 

-

 

Common stock, $0.01 par value; 800,000,000 shares authorized;

  93,772,115 shares and 99,626,400 shares issued and outstanding, respectively

 

938

 

 

 

996

 

Paid-in capital

 

848,145

 

 

 

922,711

 

Retained earnings

 

356,993

 

 

 

359,096

 

Unearned employee stock ownership plan shares;

  3,261,335 shares and 3,361,684 shares, respectively

 

(31,617

)

 

 

(32,590

)

Accumulated other comprehensive income

 

8,802

 

 

 

18,535

 

Total Stockholders' Equity

 

1,183,261

 

 

 

1,268,748

 

Total Liabilities and Stockholders' Equity

$

6,702,440

 

 

$

6,579,874

 

 

See notes to unaudited consolidated financial statements.

 

- 1 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

49,015

 

 

$

30,610

 

 

$

96,452

 

 

$

61,083

 

Taxable investment securities

 

 

9,051

 

 

 

6,077

 

 

 

17,930

 

 

 

11,933

 

Tax-exempt investment securities

 

 

713

 

 

 

641

 

 

 

1,429

 

 

 

1,262

 

Other interest-earning assets

 

 

1,243

 

 

 

704

 

 

 

2,417

 

 

 

1,346

 

Total Interest Income

 

 

60,022

 

 

 

38,032

 

 

 

118,228

 

 

 

75,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

12,727

 

 

 

6,649

 

 

 

23,266

 

 

 

12,868

 

Borrowings

 

 

7,946

 

 

 

4,548

 

 

 

15,433

 

 

 

9,111

 

Total Interest Expense

 

 

20,673

 

 

 

11,197

 

 

 

38,699

 

 

 

21,979

 

Net Interest Income

 

 

39,349

 

 

 

26,835

 

 

 

79,529

 

 

 

53,645

 

Provision for Loan Losses

 

 

971

 

 

 

936

 

 

 

3,071

 

 

 

1,566

 

Net Interest Income after Provision for

  Loan Losses

 

 

38,378

 

 

 

25,899

 

 

 

76,458

 

 

 

52,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

1,258

 

 

 

1,409

 

 

 

2,431

 

 

 

2,670

 

Gain on sale of loans

 

 

101

 

 

 

200

 

 

 

233

 

 

 

531

 

Gain (loss) on sale and write down of other real estate owned

 

 

36

 

 

 

23

 

 

 

(14

)

 

 

(86

)

Income from bank owned life insurance

 

 

1,599

 

 

 

1,264

 

 

 

3,193

 

 

 

2,531

 

Electronic banking fees and charges

 

 

277

 

 

 

302

 

 

 

527

 

 

 

580

 

Miscellaneous

 

 

38

 

 

 

65

 

 

 

121

 

 

 

131

 

Total Non-Interest Income

 

 

3,309

 

 

 

3,263

 

 

 

6,491

 

 

 

6,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

15,699

 

 

 

12,852

 

 

 

31,341

 

 

 

25,645

 

Net occupancy expense of premises

 

 

2,761

 

 

 

2,122

 

 

 

5,497

 

 

 

4,103

 

Equipment and systems

 

 

3,377

 

 

 

2,193

 

 

 

6,303

 

 

 

4,383

 

Advertising and marketing

 

 

787

 

 

 

748

 

 

 

1,364

 

 

 

1,458

 

Federal deposit insurance premium

 

 

421

 

 

 

343

 

 

 

886

 

 

 

703

 

Directors' compensation

 

 

746

 

 

 

688

 

 

 

1,504

 

 

 

1,377

 

Merger-related expenses

 

 

-

 

 

 

1,193

 

 

 

-

 

 

 

1,193

 

Miscellaneous

 

 

3,479

 

 

 

2,625

 

 

 

6,832

 

 

 

5,188

 

Total Non-Interest Expense

 

 

27,270

 

 

 

22,764

 

 

 

53,727

 

 

 

44,050

 

Income before Income Taxes

 

 

14,417

 

 

 

6,398

 

 

 

29,222

 

 

 

14,386

 

Income tax expense

 

 

3,649

 

 

 

5,129

 

 

 

7,308

 

 

 

7,885

 

Net Income

 

$

10,768

 

 

$

1,269

 

 

$

21,914

 

 

$

6,501

 

 

See notes to unaudited consolidated financial statements.

 

- 2 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net Income per Common Share (EPS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.02

 

 

$

0.23

 

 

$

0.08

 

Diluted

 

$

0.12

 

 

$

0.02

 

 

$

0.23

 

 

$

0.08

 

Weighted Average Number of

  Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

92,434

 

 

 

77,174

 

 

 

93,780

 

 

 

78,411

 

Diluted

 

 

92,480

 

 

 

77,239

 

 

 

93,831

 

 

 

78,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends Declared Per Common Share

 

$

0.05

 

 

$

0.03

 

 

$

0.25

 

 

$

0.18

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 3 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

December 31,

 

 

December 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net Income

$

10,768

 

 

$

1,269

 

 

$

21,914

 

 

$

6,501

 

Other Comprehensive (Loss) Income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available

  for sale

 

(1,863

)

 

 

(1,208

)

 

 

(2,517

)

 

 

(60

)

Amortization of net unrealized loss on securities

  available for sale transferred to held to maturity

 

28

 

 

 

44

 

 

 

130

 

 

 

61

 

Fair value adjustments on derivatives

 

(8,189

)

 

 

4,429

 

 

 

(7,332

)

 

 

5,403

 

Benefit plan adjustments

 

8

 

 

 

7

 

 

 

(14

)

 

 

(36

)

Total Other Comprehensive (Loss) Income

 

(10,016

)

 

 

3,272

 

 

 

(9,733

)

 

 

5,368

 

Total Comprehensive Income

$

752

 

 

$

4,541

 

 

$

12,181

 

 

$

11,869

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 4 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three and Six Months Ended December 31, 2017

(In Thousands, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - September 30, 2017

 

81,548

 

 

$

815

 

 

$

690,204

 

 

$

354,123

 

 

$

(34,049

)

 

$

3,140

 

 

$

1,014,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

1,269

 

 

 

-

 

 

 

-

 

 

 

1,269

 

Other comprehensive income, net

  of income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,272

 

 

 

3,272

 

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-

 

 

 

258

 

 

 

-

 

 

 

486

 

 

.

 

 

 

744

 

Stock option exercise

 

10

 

 

 

-

 

 

 

102

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

102

 

Stock option expense

 

-

 

 

 

-

 

 

 

523

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

523

 

Share repurchases

 

(1,944

)

 

 

(19

)

 

 

(28,813

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,832

)

Restricted stock plan shares

  earned (73 shares)

 

-

 

 

 

-

 

 

 

1,096

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,096

 

Cancellation of shares issued for

  restricted stock awards

 

(87

)

 

 

(1

)

 

 

(1,277

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,278

)

Cash dividends declared

  ($0.03 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,856

)

 

 

-

 

 

 

-

 

 

 

(1,856

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2017

 

79,527

 

 

$

795

 

 

$

662,093

 

 

$

353,536

 

 

$

(33,563

)

 

$

6,412

 

 

$

989,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - June 30, 2017

 

84,351

 

 

$

844

 

 

$

728,790

 

 

$

361,039

 

 

$

(34,536

)

 

$

1,044

 

 

$

1,057,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

6,501

 

 

 

-

 

 

 

-

 

 

 

6,501

 

Other comprehensive income, net

  of income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,368

 

 

 

5,368

 

ESOP shares committed to be

  released (100 shares)

 

-

 

 

 

-

 

 

 

503

 

 

 

-

 

 

 

973

 

 

 

-

 

 

 

1,476

 

Stock option exercise

 

10

 

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102

 

Stock option expense

 

-

 

 

 

-

 

 

 

1,045

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,045

 

Share repurchases

 

(4,747

)

 

 

(48

)

 

 

(69,266

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(69,314

)

Restricted stock plan shares

  earned (146 shares)

 

-

 

 

 

-

 

 

 

2,196

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,196

 

Cancellation of shares issued for

  restricted stock awards

 

(87

)

 

 

(1

)

 

 

(1,277

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,278

)

Cash dividends declared

  ($0.18 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,004

)

 

 

-

 

 

 

-

 

 

 

(14,004

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2017

 

79,527

 

 

$

795

 

 

$

662,093

 

 

$

353,536

 

 

$

(33,563

)

 

$

6,412

 

 

$

989,273

 

 

See notes to unaudited consolidated financial statements.

- 5 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended December 31, 2018

(In Thousands, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - September 30, 2018

 

97,754

 

 

$

978

 

 

$

897,551

 

 

$

350,838

 

 

$

(32,104

)

 

$

18,818

 

 

$

1,236,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of change in

accounting principle for the

adoption of ASU 2017-08

 

-

 

 

 

-

 

 

 

-

 

 

 

(531

)

 

 

-

 

 

 

-

 

 

 

(531

)

Balance - October 1, 2018, as

adjusted for change in accounting principle

 

97,754

 

 

 

978

 

 

 

897,551

 

 

 

350,307

 

 

 

(32,104

)

 

 

18,818

 

 

 

1,235,550

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

10,768

 

 

 

-

 

 

 

-

 

 

 

10,768

 

Other comprehensive loss, net

  of income tax benefit

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,016

)

 

 

(10,016

)

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-

 

 

 

164

 

 

 

-