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Section 1: 10-Q (KRNY-Q3-20190331)

krny-10q_20190331.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 March 31, 2019

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: May 3, 2019.

$0.01 par value common stock — 90,541,977 shares outstanding

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common

 

KRNY

 

The NASDAQ Stock Market LLC

 


 

 

 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1:

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition at March 31, 2019 (Unaudited) and June 30, 2018

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and March 31, 2018 (Unaudited)

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

10

 

 

 

 

 

Item 2:

 

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

 

48

 

 

 

 

 

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)

 

 

March 31,

 

 

June 30,

 

 

2019

 

 

2018

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

$

15,943

 

 

$

26,199

 

Interest-bearing deposits in other banks

 

38,217

 

 

 

102,665

 

Cash and cash equivalents

 

54,160

 

 

 

128,864

 

Investment securities available for sale, at fair value

 

726,920

 

 

 

725,085

 

Investment securities held to maturity (fair value $592,814 and $579,499, respectively)

 

592,199

 

 

 

589,730

 

Loans held-for-sale

 

997

 

 

 

863

 

Loans receivable, including unaccreted yield adjustments of $(55,712) and $(66,567), respectively

 

4,659,804

 

 

 

4,501,348

 

Less: allowance for loan losses

 

(33,105

)

 

 

(30,865

)

Net loans receivable

 

4,626,699

 

 

 

4,470,483

 

Premises and equipment

 

58,274

 

 

 

56,240

 

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

 

64,288

 

 

 

59,004

 

Accrued interest receivable

 

20,326

 

 

 

18,510

 

Goodwill

 

210,895

 

 

 

210,895

 

Core deposit intangibles

 

5,470

 

 

 

6,295

 

Bank owned life insurance

 

254,569

 

 

 

249,816

 

Deferred income tax assets, net

 

24,182

 

 

 

23,754

 

Other real estate owned

 

209

 

 

 

725

 

Other assets

 

19,563

 

 

 

39,610

 

Total Assets

$

6,658,751

 

 

$

6,579,874

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest-bearing

$

303,713

 

 

$

311,938

 

Interest-bearing

 

3,833,860

 

 

 

3,761,666

 

Total deposits

 

4,137,573

 

 

 

4,073,604

 

Borrowings

 

1,326,216

 

 

 

1,198,646

 

Advance payments by borrowers for taxes

 

17,208

 

 

 

18,088

 

Other liabilities

 

19,643

 

 

 

20,788

 

Total Liabilities

 

5,500,640

 

 

 

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;

  91,495,132 shares and 99,626,400 shares issued and outstanding, respectively

 

915

 

 

 

996

 

Paid-in capital

 

817,675

 

 

 

922,711

 

Retained earnings

 

363,072

 

 

 

359,096

 

Unearned employee stock ownership plan shares;

  3,211,161 shares and 3,361,684 shares, respectively

 

(31,130

)

 

 

(32,590

)

Accumulated other comprehensive income

 

7,579

 

 

 

18,535

 

Total Stockholders' Equity

 

1,158,111

 

 

 

1,268,748

 

Total Liabilities and Stockholders' Equity

$

6,658,751

 

 

$

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

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

48,116

 

 

$

30,728

 

 

$

144,568

 

 

$

91,811

 

Taxable investment securities

 

 

9,511

 

 

 

6,450

 

 

 

27,441

 

 

 

18,383

 

Tax-exempt investment securities

 

 

710

 

 

 

652

 

 

 

2,139

 

 

 

1,914

 

Other interest-earning assets

 

 

1,320

 

 

 

715

 

 

 

3,737

 

 

 

2,061

 

Total Interest Income

 

 

59,657

 

 

 

38,545

 

 

 

177,885

 

 

 

114,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

14,114

 

 

 

7,026

 

 

 

37,380

 

 

 

19,894

 

Borrowings

 

 

6,905

 

 

 

4,462

 

 

 

22,338

 

 

 

13,573

 

Total Interest Expense

 

 

21,019

 

 

 

11,488

 

 

 

59,718

 

 

 

33,467

 

Net Interest Income

 

 

38,638

 

 

 

27,057

 

 

 

118,167

 

 

 

80,702

 

(Reversal of) provision for loan losses

 

 

(179

)

 

 

423

 

 

 

2,892

 

 

 

1,989

 

Net Interest Income after (Reversal of) Provision

for Loan Losses

 

 

38,817

 

 

 

26,634

 

 

 

115,275

 

 

 

78,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

1,674

 

 

 

1,537

 

 

 

4,105

 

 

 

4,207

 

Loss on sale and call of securities

 

 

(182

)

 

 

(1

)

 

 

(182

)

 

 

(1

)

Gain on sale of loans

 

 

151

 

 

 

346

 

 

 

384

 

 

 

877

 

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

 

 

(6

)

 

 

7

 

 

 

(20

)

 

 

(79

)

Income from bank owned life insurance

 

 

1,560

 

 

 

1,227

 

 

 

4,753

 

 

 

3,758

 

Electronic banking fees and charges

 

 

253

 

 

 

243

 

 

 

780

 

 

 

823

 

Miscellaneous

 

 

226

 

 

 

189

 

 

 

347

 

 

 

320

 

Total Non-Interest Income

 

 

3,676

 

 

 

3,548

 

 

 

10,167

 

 

 

9,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

15,350

 

 

 

12,814

 

 

 

46,691

 

 

 

38,458

 

Net occupancy expense of premises

 

 

2,979

 

 

 

2,359

 

 

 

8,476

 

 

 

6,462

 

Equipment and systems

 

 

3,053

 

 

 

2,323

 

 

 

9,356

 

 

 

6,706

 

Advertising and marketing

 

 

739

 

 

 

745

 

 

 

2,103

 

 

 

2,203

 

Federal deposit insurance premium

 

 

455

 

 

 

350

 

 

 

1,341

 

 

 

1,053

 

Directors' compensation

 

 

770

 

 

 

689

 

 

 

2,274

 

 

 

2,066

 

Merger-related expenses

 

 

-

 

 

 

401

 

 

 

-

 

 

 

1,594

 

Miscellaneous

 

 

3,425

 

 

 

2,862

 

 

 

10,257

 

 

 

8,051

 

Total Non-Interest Expense

 

 

26,771

 

 

 

22,543

 

 

 

80,498

 

 

 

66,593

 

Income before Income Taxes

 

 

15,722

 

 

 

7,639

 

 

 

44,944

 

 

 

22,025

 

Income tax expense

 

 

4,305

 

 

 

2,262

 

 

 

11,613

 

 

 

10,147

 

Net Income

 

$

11,417

 

 

$

5,377

 

 

$

33,331

 

 

$

11,878

 

 

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

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Income per Common Share (EPS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.07

 

 

$

0.36

 

 

$

0.15

 

Diluted

 

$

0.13

 

 

$

0.07

 

 

$

0.36

 

 

$

0.15

 

Weighted Average Number of

  Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

89,488

 

 

 

75,492

 

 

 

92,370

 

 

 

77,452

 

Diluted

 

 

89,532

 

 

 

75,539

 

 

 

92,419

 

 

 

77,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends Declared Per Common Share

 

$

0.06

 

 

$

0.03

 

 

$

0.31

 

 

$

0.21

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 3 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Income

$

11,417

 

 

$

5,377

 

 

$

33,331

 

 

$

11,878

 

Other Comprehensive (Loss) Income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on securities available

  for sale

 

3,637

 

 

 

(1,510

)

 

 

1,121

 

 

 

(1,569

)

Amortization of net unrealized loss on securities

  available for sale transferred to held to maturity

 

38

 

 

 

23

 

 

 

168

 

 

 

84

 

Net realized loss on securities available for sale

 

128

 

 

 

-

 

 

 

128

 

 

 

-

 

Fair value adjustments on derivatives

 

(5,034

)

 

 

8,859

 

 

 

(12,366

)

 

 

14,262

 

Benefit plan adjustments

 

8

 

 

 

9

 

 

 

(7

)

 

 

(28

)

Total Other Comprehensive (Loss) Income

 

(1,223

)

 

 

7,381

 

 

 

(10,956

)

 

 

12,749

 

Total Comprehensive Income

$

10,194

 

 

$

12,758

 

 

$

22,375

 

 

$

24,627

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 4 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three and Nine Months Ended March 31, 2018

(In Thousands, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - December 31, 2017

 

79,527

 

 

$

795

 

 

$

662,093

 

 

$

353,536

 

 

$

(33,563

)

 

$

6,412

 

 

$

989,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

5,377

 

 

 

-

 

 

 

-

 

 

 

5,377

 

Other comprehensive income, net

  of income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,381

 

 

 

7,381

 

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-

 

 

 

189

 

 

 

-

 

 

 

487

 

 

.

 

 

 

676

 

Stock option expense

 

-

 

 

 

-

 

 

 

505

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

505

 

Share repurchases

 

(759

)

 

 

(7

)

 

 

(10,813

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,820

)

Restricted stock plan shares

  earned (71 shares)

 

-

 

 

 

-

 

 

 

1,071

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,071

 

Cancellation of shares issued for

  restricted stock awards

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reclassification of stranded tax

effects from Accumulated

Other Comprehensive Income

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,381

)

 

 

-

 

 

 

1,381

 

 

 

-

 

Cash dividends declared

  ($0.03 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,262

)

 

 

-

 

 

 

-

 

 

 

(2,262

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - March 31, 2018

 

78,765

 

 

$

788

 

 

$

653,045

 

 

$

355,270

 

 

$

(33,076

)

 

$

15,174

 

 

$

991,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

 

 

 

-

 

 

 

-

 

 

 

11,878

 

 

 

-

 

 

 

-

 

 

 

11,878

 

Other comprehensive income, net

  of income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,749

 

 

 

12,749

 

ESOP shares committed to be

  released (150 shares)

 

-

 

 

 

-

 

 

 

692

 

 

 

-

 

 

 

1,460

 

 

 

-

 

 

 

2,152

 

Stock option exercise

 

10

 

 

 

-

 

 

 

102

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

102

 

Stock option expense

 

-

 

 

 

-

 

 

 

1,550

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,550

 

Share repurchases

 

(5,506

)

 

 

(55

)

 

 

(80,079

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(80,134

)

Restricted stock plan shares

  earned (217 shares)

 

-

 

 

 

-

 

 

 

3,267

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,267

 

Cancellation of shares issued for

  restricted stock awards

 

(90

)

 

 

(1

)

 

 

(1,277

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,278

)

Reclassification of stranded tax

effects from Accumulated

Other Comprehensive Income

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,381

)

 

 

-

 

 

 

1,381

 

 

 

-

 

Cash dividends declared

  ($0.21 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,266

)

 

 

-

 

 

 

-

 

 

 

(16,266

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - March 31, 2018

 

78,765

 

 

$

788

 

 

$

653,045

 

 

$

355,270

 

 

$

(33,076

)

 

$

15,174

 

 

$

991,201

 

 

See notes to unaudited consolidated financial statements.

- 5 -


 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2019

(In Thousands, Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - December 31, 2018

 

93,772

 

 

$

938

 

 

$

848,145

 

 

$

356,993

 

 

$

(31,617

)

 

$

8,802

 

 

$

1,183,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

11,417

 

 

 

-

 

 

 

-

 

 

 

11,417

 

Other comprehensive loss, net

  of income tax benefit

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,223

)

 

 

(1,223

)

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-