Kearny Financial(US:KRNY)2025-01-30 13:45Executive Summary & Financial Highlights Kearny Financial Corp. reported increased net income and EPS for Q2 FY2025, with management highlighting robust deposit growth and expanding net interest margin Second Quarter Fiscal 2025 Performance Overview Kearny Financial Corp. reported an increase in net income and earnings per share for the quarter ended December 31, 2024, compared to the previous quarter. The Board of Directors also declared a quarterly cash dividend Key Financial Performance (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :--------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | Net Income | $6.6 million | $6.1 million | $0.5 million | 8.2% | | Basic EPS | $0.11 | $0.10 | $0.01 | 10.0% | | Diluted EPS | $0.10 | $0.10 | $0.00 | 0.0% | | Quarterly Cash Dividend per Share | $0.11 | $0.11 | $0.00 | 0.0% | - The Company's Board of Directors declared a quarterly cash dividend of $0.11 per share, payable on February 26, 2025, to stockholders of record as of February 12, 20252 Management Commentary President and CEO Craig L. Montanaro noted the early stages of growth in net interest income and expansion of net interest margin. He highlighted robust deposit growth of 3.7% quarter-over-quarter, which allowed for a reduction in outstanding borrowings and a 9 basis point decrease in the cost of funds. Montanaro anticipates continued positive deposit trends and reinvestment of low-coupon cash flows to serve as future earnings tailwinds - Net interest income and net interest margin showed early stages of growth3 - Deposits grew by 3.7% from September 30, 2024, driven by branch network, digital channels, and commercial lending relationships3 - Outstanding borrowings were reduced, and the cost of funds decreased by nine basis points quarter-over-quarter3 - Positive deposit trends and reinvestment of low-coupon cash flows from loan and securities portfolios are expected to be earnings tailwinds in coming quarters3 Balance Sheet Review The company's balance sheet reflects a slight asset decrease, significant deposit growth enabling borrowing reduction, and stable asset quality with a shift in funding composition Key Balance Sheet Changes (QoQ) The Company's total assets experienced a slight decrease, while deposits saw significant growth, enabling a substantial reduction in borrowings. Loans receivable showed a minor increase, and available secured borrowing capacity improved Key Balance Sheet Changes (QoQ) | Metric | Dec 31, 2024 | Sep 30, 2024 | Change | Change Pct. | | :-------------------------------- | :----------- | :----------- | :------- | :---------- | | Total assets | $7.73 billion | $7.77 billion | $(41.0) million | -0.5% | | Investment securities | $1.15 billion | $1.21 billion | $(57.5) million | -4.8% | | Loans receivable | $5.79 billion | $5.78 billion | $7.5 million | 0.1% | | Deposits | $5.67 billion | $5.47 billion | $200.5 million | 3.7% | | Borrowings | $1.26 billion | $1.48 billion | $(220.9) million | -14.9% | | Available secured borrowing capacity | $2.32 billion | $2.06 billion | $256.0 million | 12.4% | - The increase in deposits was primarily driven by increases in interest and non-interest bearing demand deposits ($142.1 million) and consumer savings deposits ($60.6 million)5 - The decrease in borrowings reflected reductions in Federal Home Loan Bank ("FHLB") and other borrowings5 Consolidated Balance Sheets (QoQ) The consolidated balance sheet provides a detailed quarter-over-quarter comparison of assets, liabilities, and stockholders' equity, highlighting specific changes in various accounts such as cash, securities, loans, deposits, and borrowings Consolidated Balance Sheets (QoQ) | (Dollars and Shares in Thousands, Except Per Share Data) | December 31, 2024 | September 30, 2024 | Variance or Change | Variance or Change Pct. | | :------------------------------------------------------- | :---------------- | :----------------- | :----------------- | :---------------------- | | Assets | | | | | | Cash and cash equivalents | $141,554 | $155,574 | $(14,020) | -9.0 % | | Securities available for sale | 1,018,279 | 1,070,811 | (52,532) | -4.9 % | | Securities held to maturity | 127,266 | 132,256 | (4,990) | -3.8 % | | Loans held-for-sale | 5,695 | 8,866 | (3,171) | -35.8 % | | Loans receivable | 5,791,758 | 5,784,246 | 7,512 | 0.1 % | | Less: allowance for credit losses on loans | (44,457) | (44,923) | (466) | -1.0 % | | Net loans receivable | 5,747,301 | 5,739,323 | 7,978 | 0.1 % | | Premises and equipment | 45,127 | 45,189 | (62) | -0.1 % | | Federal Home Loan Bank stock | 64,443 | 57,706 | 6,737 | 11.7 % | | Accrued interest receivable | 27,772 | 29,467 | (1,695) | -5.8 % | | Goodwill | 113,525 | 113,525 | — | — % | | Core deposit intangible | 1,679 | 1,805 | (126) | -7.0 % | | Bank owned life insurance | 301,339 | 300,186 | 1,153 | 0.4 % | | Deferred income taxes, net | 53,325 | 50,131 | 3,194 | 6.4 % | | Other assets | 84,080 | 67,540 | 16,540 | 24.5 % | | Total assets | $7,731,385 | $7,772,379 | $(40,994) | -0.5 % | | Liabilities | | | | | | Deposits: | | | | | | Non-interest-bearing | $601,510 | $592,099 | $9,411 | 1.6 % | | Interest-bearing | 5,069,550 | 4,878,413 | 191,137 | 3.9 % | | Total deposits | 5,671,060 | 5,470,512 | 200,548 | 3.7 % | | Borrowings | 1,258,949 | 1,479,888 | (220,939) | -14.9 % | | Advance payments by borrowers for taxes | 17,986 | 17,824 | 162 | 0.9 % | | Other liabilities | 38,537 | 52,618 | (14,081) | -26.8 % | | Total liabilities | 6,986,532 | 7,020,842 | (34,310) | -0.5 % | | Stockholders' Equity | | | | | | Common stock | 646 | 646 | — | — % | | Paid-in capital | 494,092 | 493,523 | 569 | 0.1 % | | Retained earnings | 342,155 | 342,522 | (367) | -0.1 % | | Unearned ESOP shares | (19,943) | (20,430) | 487 | 2.4 % | | Accumulated other comprehensive loss | (72,097) | (64,724) | (7,373) | -11.4 % | | Total stockholders' equity | 744,853 | 751,537 | (6,684) | -0.9 % | | Total liabilities and stockholders' equity | $7,731,385 | $7,772,379 | $(40,994) | -0.5 % | | Consolidated capital ratios | | | | | | Equity to assets | 9.63 % | 9.67 % | -0.04 % | | | (1) Tangible equity to tangible assets | 8.27 % | 8.31 % | -0.04 % | | | Share data | | | | | | Outstanding shares | 64,580 | 64,580 | — | — % | | Book value per share | $11.53 | $11.64 | $(0.11) | -0.9 % | | (2) Tangible book value per share | $9.75 | $9.85 | $(0.10) | -1.0 % | Five-Quarter Balance Sheet Trends This section provides a five-quarter historical view of the consolidated balance sheet, illustrating trends in assets, liabilities, and stockholders' equity from December 2023 to December 2024 Consolidated Balance Sheets (Five-Quarter Trend) | (Dollars and Shares in Thousands, Except Per Share Data) | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :------------------------------------------------------- | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Assets | | | | | | | Cash and cash equivalents | $141,554 | $155,574 | $63,864 | $71,027 | $73,860 | | Securities available for sale | 1,018,279 | 1,070,811 | 1,072,833 | 1,098,655 | 1,144,175 | | Securities held to maturity | 127,266 | 132,256 | 135,742 | 139,643 | 141,959 | | Loans held-for-sale | 5,695 | 8,866 | 6,036 | 4,117 | 14,030 | | Loans receivable | 5,791,758 | 5,784,246 | 5,732,787 | 5,758,336 | 5,745,629 | | Less: allowance for credit losses on loans | (44,457) | (44,923) | (44,939) | (44,930) | (44,867) | | Net loans receivable | 5,747,301 | 5,739,323 | 5,687,848 | 5,713,406 | 5,700,762 | | Premises and equipment | 45,127 | 45,189 | 44,940 | 45,053 | 45,928 | | Federal Home Loan Bank stock | 64,443 | 57,706 | 80,300 | 81,347 | 83,372 | | Accrued interest receivable | 27,772 | 29,467 | 29,521 | 31,065 | 30,258 | | Goodwill | 113,525 | 113,525 | 113,525 | 210,895 | 210,895 | | Core deposit intangible | 1,679 | 1,805 | 1,931 | 2,057 | 2,189 | | Bank owned life insurance | 301,339 | 300,186 | 297,874 | 296,493 | 256,064 | | Deferred income taxes, net | 53,325 | 50,131 | 50,339 | 47,225 | 46,116 | | Other real estate owned | — | — | — | — | 11,982 | | Other assets | 84,080 | 67,540 | 98,708 | 100,989 | 136,242 | | Total assets | $7,731,385 | $7,772,379 | $7,683,461| $7,841,972 | $7,897,832 | | Liabilities | | | | | | | Deposits: | | | | | | | Non-interest-bearing | $601,510 | $592,099 | $598,366 | $586,089 | $584,130 | | Interest-bearing | 5,069,550 | 4,878,413 | 4,559,757 | 4,622,961 | 4,735,500 | | Total deposits | 5,671,060 | 5,470,512 | 5,158,123 | 5,209,050 | 5,319,630 | | Borrowings | 1,258,949 | 1,479,888 | 1,709,789 | 1,722,178 | 1,667,055 | | Advance payments by borrowers for taxes | 17,986 | 17,824 | 17,409 | 17,387 | 16,742 | | Other liabilities | 38,537 | 52,618 | 44,569 | 44,279 | 46,427 | | Total liabilities | 6,986,532 | 7,020,842 | 6,929,890 | 6,992,894 | 7,049,854 | | Stockholders' Equity | | | | | | | Common stock | 646 | 646 | 644 | 644 | 645 | | Paid-in capital | 494,092 | 493,523 | 493,680 | 493,187 | 493,297 | | Retained earnings | 342,155 | 342,522 | 343,326 | 440,308 | 439,755 | | Unearned ESOP shares | (19,943) | (20,430) | (20,916) | (21,402) | (21,889) | | Accumulated other comprehensive loss | (72,097) | (64,724) | (63,163) | (63,659) | (63,830) | | Total stockholders' equity | 744,853 | 751,537 | 753,571 | 849,078 | 847,978 | | Total liabilities and stockholders' equity | $7,731,385 | $7,772,379 | $7,683,461| $7,841,972 | $7,897,832 | | Consolidated capital ratios | | | | | | | Equity to assets | 9.63 % | 9.67 % | 9.81 % | 10.83 % | 10.74 % | | (1) Tangible equity to tangible assets | 8.27 % | 8.31 % | 8.43 % | 8.34 % | 8.26 % | | Share data | | | | | | | Outstanding shares | 64,580 | 64,580 | 64,434 | 64,437 | 64,445 | | Book value per share | $11.53 | $11.64 | $11.70 | $13.18 | $13.16 | | (2) Tangible book value per share | $9.75 | $9.85 | $9.90 | $9.87 | $9.85 | Loan Portfolio Composition The loan portfolio composition shows a slight increase in total loans, with multi-family mortgages being the primary driver of commercial loan growth, while construction loans decreased Loan Portfolio Composition (Five-Quarter Trend) | (Dollars in Thousands) | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :--------------------- | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Commercial loans: | | | | | | | Multi-family mortgage | $2,722,623 | $2,646,187 | $2,645,851 | $2,645,195 | $2,651,274 | | Nonresidential mortgage| 950,194 | 950,771 | 948,075 | 965,539 | 947,287 | | Commercial business | 135,740 | 145,984 | 142,747 | 147,326 | 144,134 | | Construction | 176,704 | 227,327 | 209,237 | 229,457 | 221,933 | | Total commercial loans | 3,985,261 | 3,970,269 | 3,945,910 | 3,987,517 | 3,964,628 | | One- to four-family residential mortgage | 1,765,160 | 1,768,230 | 1,756,051 | 1,741,644 | 1,746,065 | | Consumer loans: | | | | | | | Home equity loans | 47,101 | 44,741 | 44,104 | 42,731 | 43,517 | | Other consumer | 2,778 | 2,965 | 2,685 | 3,198 | 2,728 | | Total consumer loans | 49,879 | 47,706 | 46,789 | 45,929 | 46,245 | | Total loans, excluding yield adjustments | 5,800,300 | 5,786,205 | 5,748,750 | 5,775,090 | 5,756,938 | | Unaccreted yield adjustments | (8,542) | (1,959) | (15,963) | (16,754) | (11,309) | | Loans receivable, net of yield adjustments | 5,791,758 | 5,784,246 | 5,732,787 | 5,758,336 | 5,745,629 | | Less: allowance for credit losses on loans | (44,457) | (44,923) | (44,939) | (44,930) | (44,867) | | Net loans receivable | $5,747,301 | $5,739,323 | $5,687,848 | $5,713,406 | $5,700,762 | Asset Quality Trends Asset quality metrics show a decrease in total nonperforming assets and nonperforming loans quarter-over-quarter, although classified loans increased. The allowance for credit losses to total loans remained stable Asset Quality (Five-Quarter Trend) | (Dollars in Thousands) | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :--------------------- | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Nonperforming assets: | | | | | | | Accruing loans - 90 days and over past due | $— | $— | $— | $— | $— | | Nonaccrual loans | 37,697 | 39,854 | 39,882 | 39,546 | 28,089 | | Total nonperforming loans | 37,697 | 39,854 | 39,882 | 39,546 | 28,089 | | Nonaccrual loans held-for-sale | — | — | — | — | 9,700 | | Other real estate owned | — | — | — | — | 11,982 | | Total nonperforming assets | $37,697 | $39,854 | $39,882 | $39,546 | $49,771 | | Nonperforming loans (% total loans) | 0.65 % | 0.69 % | 0.70 % | 0.69 % | 0.49 % | | Nonperforming assets (% total assets) | 0.49 % | 0.51 % | 0.52 % | 0.50 % | 0.63 % | | Classified loans | $132,216 | $119,534 | $118,700 | $115,772 | $94,676 | | Allowance for credit losses on loans (ACL): | | | | | | | ACL to total loans | 0.77 % | 0.78 % | 0.78 % | 0.78 % | 0.78 % | | ACL to nonperforming loans | 117.93 % | 112.72 % | 112.68 % | 113.61 % | 159.73 % | | Net charge-offs | $573 | $124 | $3,518 | $286 | $4,110 | | Average net charge-off rate (annualized) | 0.04 % | 0.01 % | 0.25 % | 0.02 % | 0.29 % | Funding Composition The funding composition shows a notable increase in total deposits, particularly in interest-bearing demand and brokered CDs, while total borrowings decreased significantly. Deposits now represent a larger percentage of total funding Funding Composition (Five-Quarter Trend) | (Dollars in Thousands) | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :--------------------- | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Deposits: | | | | | | | Non-interest-bearing deposits | $601,510 | $592,099 | $598,367 | $586,089 | $584,130 | | Interest-bearing demand | 2,380,408 | 2,247,685 | 2,308,915 | 2,349,032 | 2,347,262 | | Savings | 742,266 | 681,709 | 643,481 | 630,456 | 646,182 | | Certificates of deposit (retail) | 1,194,865 | 1,215,746 | 1,199,127 | 1,235,261 | 1,283,676 | | Certificates of deposit (brokered and listing service) | 752,011 | 733,273 | 408,234 | 408,212 | 458,380 | | Interest-bearing deposits | 5,069,550 | 4,878,413 | 4,559,757 | 4,622,961 | 4,735,500 | | Total deposits | 5,671,060 | 5,470,512 | 5,158,124 | 5,209,050 | 5,319,630 | | Borrowings: | | | | | | | Federal Home Loan Bank advances | 1,028,949 | 1,209,888 | 1,534,789 | 1,457,178 | 1,432,055 | | Overnight borrowings | 230,000 | 270,000 | 175,000 | 265,000 | 235,000 | | Total borrowings | 1,258,949 | 1,479,888 | 1,709,789 | 1,722,178 | 1,667,055 | | Total funding | $6,930,009 | $6,950,400 | $6,867,913 | $6,931,228 | $6,986,685 | | Loans as a % of deposits | 101.4 % | 105.1 % | 110.4 % | 109.8 % | 107.4 % | | Deposits as a % of total funding | 81.8 % | 78.7 % | 75.1 % | 75.2 % | 76.1 % | | Borrowings as a % of total funding | 18.2 % | 21.3 % | 24.9 % | 24.8 % | 23.9 % | | Uninsured deposits (reported) | $1,935,607 | $1,799,726 | $1,772,623 | $1,760,740 | $1,813,122 | | Uninsured deposits (adjusted) | $797,721 | $773,375 | $764,447 | $718,026 | $694,510 | Earnings Performance The company's earnings improved quarter-over-quarter, driven by increased net interest income and non-interest income, coupled with reduced non-interest expenses Net Interest Income and Margin Net interest income increased slightly, and net interest margin expanded by two basis points, primarily driven by the replacement of higher-cost borrowings with lower-cost deposits and broad decreases in deposit rates Net Interest Income and Margin (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :------------------ | :----------------------- | :----------------------- | :----- | :---------- | | Net Interest Income | $32.6 million | $32.4 million | $0.2 million | 0.5% | | Net Interest Margin | 1.82% | 1.80% | 0.02% | 1.1% | - The increase in net interest margin was driven by replacing borrowings with relatively lower cost deposits and broad-based decreases in deposit rates, partially offset by higher costs and average balances of brokered certificates of deposit and reduced average balances and yields on interest-earning assets11 Non-Interest Income Non-interest income increased quarter-over-quarter, primarily due to a larger gain on the sale of loans held-for-sale and an increase in electronic banking fees and charges Non-Interest Income (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :-------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | Total Non-Interest Income | $4.9 million | $4.6 million | $0.247 million | 5.3% | | Gain on sale of loans held-for-sale | $304,000 | $200,000 | $104,000 | 52.0% | | Electronic banking fees and charges | $493,000 | $391,000 | $102,000 | 26.1% | Non-Interest Expense Non-interest expense decreased quarter-over-quarter, primarily driven by a reduction in other expenses, partially offset by a slight increase in salary and benefits expense Non-Interest Expense (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :-------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | Total Non-Interest Expense | $29.6 million | $29.8 million | $(0.225) million | -0.8% | | Other expense | $3.084 million | $3.364 million | $(0.280) million | -8.3% | | Salaries and employee benefits | $17.579 million | $17.498 million | $0.081 million | 0.5% | - The decrease in other expense was primarily due to a reversal of $116,000 for credit losses related to off-balance sheet commitments, compared to a provision of $274,000 in the prior period11 - Salary and benefits expense increased due to the absence of a non-recurring decrease in stock-based compensation recorded in the prior comparative period, partially offset by a decrease in payroll taxes11 Income Taxes Income tax expense increased for the quarter, reflecting higher pre-tax income, which also led to a slight increase in the effective tax rate Income Taxes (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :------------------ | :----------------------- | :----------------------- | :----- | :---------- | | Income Tax Expense | $1.3 million | $1.1 million | $0.2 million | 15.2% | | Effective Tax Rate | 16.0% | 15.1% | 0.9% | 6.0% | Consolidated Statements of Income (QoQ) The consolidated statements of income show a quarter-over-quarter increase in net income, driven by higher net interest income and non-interest income, coupled with a decrease in non-interest expense Consolidated Statements of Income (QoQ) | (Dollars and Shares in Thousands, Except Per Share Data) | December 31, 2024 | September 30, 2024 | Variance or Change | Variance or Change Pct. | | :------------------------------------------------------- | :---------------- | :----------------- | :----------------- | :---------------------- | | Interest income | | | | | | Loans | $65,408 | $66,331 | $(923) | -1.4 % | | Taxable investment securities | 13,803 | 14,384 | (581) | -4.0 % | | Tax-exempt investment securities | 59 | 71 | (12) | -16.9 % | | Other interest-earning assets | 2,215 | 2,466 | (251) | -10.2 % | | Total interest income | 81,485 | 83,252 | (1,767) | -2.1 % | | Interest expense | | | | | | Deposits | 36,721 | 35,018 | 1,703 | 4.9 % | | Borrowings | 12,152 | 15,788 | (3,636) | -23.0 % | | Total interest expense | 48,873 | 50,806 | (1,933) | -3.8 % | | Net interest income | 32,612 | 32,446 | 166 | 0.5 % | | Provision for credit losses | 107 | 108 | (1) | -0.9 % | | Net interest income after provision for credit losses| 32,505 | 32,338 | 167 | 0.5 % | | Non-interest income | | | | | | Fees and service charges | 627 | 635 | (8) | -1.3 % | | Gain on sale of loans | 304 | 200 | 104 | 52.0 % | | Income from bank owned life insurance | 2,619 | 2,567 | 52 | 2.0 % | | Electronic banking fees and charges | 493 | 391 | 102 | 26.1 % | | Other income | 830 | 833 | (3) | -0.4 % | | Total non-interest income | 4,873 | 4,626 | 247 | 5.3 % | | Non-interest expense | | | | | | Salaries and employee benefits | 17,579 | 17,498 | 81 | 0.5 % | | Net occupancy expense of premises | 2,831 | 2,798 | 33 | 1.2 % | | Equipment and systems | 3,892 | 3,860 | 32 | 0.8 % | | Advertising and marketing | 311 | 342 | (31) | -9.1 % | | Federal deposit insurance premium | 1,503 | 1,563 | (60) | -3.8 % | | Directors' compensation | 361 | 361 | — | — % | | Other expense | 3,084 | 3,364 | (280) | -8.3 % | | Total non-interest expense | 29,561 | 29,786 | (225) | -0.8 % | | Income before income taxes | 7,817 | 7,178 | 639 | 8.9 % | | Income taxes | 1,251 | 1,086 | 165 | 15.2 % | | Net income | $6,566 | $6,092 | $474 | 7.8 % | | Net income per common share (EPS) | | | | | | Basic | $0.11 | $0.10 | $0.01 | | | Diluted | $0.10 | $0.10 | $— | | | Dividends declared | | | | | | Cash dividends declared per common share | $0.11 | $0.11 | $— | | | Cash dividends declared | $6,933 | $6,896 | $37 | | | Dividend payout ratio | 105.6 % | 113.2 % | -7.6 % | | | Weighted average number of common shares outstanding | | | | | | Basic | 62,443 | 62,389 | 54 | | | Diluted | 62,576 | 62,420 | 156 | | Five-Quarter Income Statement Trends This section presents a five-quarter trend analysis of the consolidated statements of income, providing a historical perspective on interest income, interest expense, non-interest income, non-interest expense, and net income Consolidated Statements of Income (Loss) (Five-Quarter Trend) | (Dollars and Shares in Thousands, Except Per Share Data) | December 31, 2024 | September 30, 2024 | Three Months Ended June 30, 2024 | March 31, 2024 | December 31, 2023 | | :------------------------------------------------------- | :---------------- | :----------------- | :------------------------------- | :------------- | :---------------- | | Interest income | | | | | | | Loans | $65,408 | $66,331 | $65,819 | $64,035 | $63,384 | | Taxable investment securities | 13,803 | 14,384 | 14,802 | 15,490 | 16,756 | | Tax-exempt investment securities | 59 | 71 | 80 | 85 | 84 | | Other interest-earning assets | 2,215 | 2,466 | 2,289 | 2,475 | 2,401 | | Total interest income | 81,485 | 83,252 | 82,990 | 82,085 | 82,625 | | Interest expense | | | | | | | Deposits | 36,721 | 35,018 | 32,187 | 32,320 | 30,340 | | Borrowings | 12,152 | 15,788 | 17,527 | 15,446 | 16,446 | | Total interest expense | 48,873 | 50,806 | 49,714 | 47,766 | 46,786 | | Net interest income | 32,612 | 32,446 | 33,276 | 34,319 | 35,839 | | Provision for credit losses | 107 | 108 | 3,527 | 349 | 2,105 | | Net interest income after provision for credit losses| 32,505 | 32,338 | 29,749 | 33,970 | 33,734 | | Non-interest income | | | | | | | Fees and service charges | 627 | 635 | 580 | 657 | 624 | | Loss on sale and call of securities | — | — | — | — | (18,135) | | Gain (loss) on sale of loans | 304 | 200 | 111 | (712) | 104 | | Loss on sale of other real estate owned | — | — | — | — | (974) | | Income from bank owned life insurance | 2,619 | 2,567 | 3,209 | 3,039 | 1,162 | | Electronic banking fees and charges | 493 | 391 | 1,130 | 464 | 396 | | Other income | 830 | 833 | 776 | 755 | 811 | | Total non-interest income | 4,873 | 4,626 | 5,806 | 4,203 | (16,012) | | Non-interest expense | | | | | | | Salaries and employee benefits | 17,579 | 17,498 | 17,266 | 16,911 | 17,282 | | Net occupancy expense of premises | 2,831 | 2,798 | 2,738 | 2,863 | 2,674 | | Equipment and systems | 3,892 | 3,860 | 3,785 | 3,823 | 3,814 | | Advertising and marketing | 311 | 342 | 480 | 387 | 301 | | Federal deposit insurance premium | 1,503 | 1,563 | 1,532 | 1,429 | 1,495 | | Directors' compensation | 361 | 361 | 360 | 360 | 393 | | Goodwill impairment | — | — | 97,370 | — | — | | Other expense | 3,084 | 3,364 | 3,020 | 3,286 | 3,808 | | Total non-interest expense | 29,561 | 29,786 | 126,551 | 29,059 | 29,767 | | Income (loss) before income taxes | 7,817 | 7,178 | (90,996) | 9,114 | (12,045) | | Income taxes | 1,251 | 1,086 | (917) | 1,717 | 1,782 | | Net income (loss) | $6,566 | $6,092 | $(90,079) | $7,397 | $(13,827) | | Net income (loss) per common share (EPS) | | | | | | | Basic | $0.11 | $0.10 | $(1.45) | $0.12 | $(0.22) | | Diluted | $0.10 | $0.10 | $(1.45) | $0.12 | $(0.22) | | Dividends declared | | | | | | | Cash dividends declared per common share | $0.11 | $0.11 | $0.11 | $0.11 | $0.11 | | Cash dividends declared | $6,933 | $6,896 | $6,903 | $6,844 | $6,882 | | Dividend payout ratio | 105.6 % | 113.2 % | -7.7 % | 92.5 % | -49.8 % | | Weighted average number of common shares outstanding | | | | | | | Basic | 62,443 | 62,389 | 62,254 | 62,205 | 62,299 | | Diluted | 62,576 | 62,420 | 62,254 | 62,211 | 62,299 | Asset Quality The company's asset quality improved with a decrease in non-performing assets, though net charge-offs increased, while the allowance for credit losses remained stable Non-Performing Assets and Net Charge-offs Non-performing assets decreased both in absolute terms and as a percentage of total assets. However, net charge-offs increased significantly quarter-over-quarter, though they had been individually reserved for Non-Performing Assets and Net Charge-offs (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :-------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | Non-performing assets | $37.7 million | $39.9 million | $(2.2) million | -5.5% | | Non-performing assets (% of total assets) | 0.49% | 0.51% | -0.02% | -3.9% | | Net charge-offs | $573,000 | $124,000 | $449,000 | 362.1% | | Net charge-off rate (annualized) | 0.04% | 0.01% | 0.03% | 300.0% | - The net charge-offs recorded for the quarter ended December 31, 2024, had previously been individually reserved for within the allowance for credit losses ("ACL")11 Allowance for Credit Losses The allowance for credit losses (ACL) slightly decreased, primarily due to a reduction in reserves for individually evaluated loans resulting from charge-offs. The provision for credit losses remained stable, driven by loan growth Allowance for Credit Losses (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :-------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | ACL | $44.5 million | $44.9 million | $(0.4) million | -1.0% | | ACL (% of total loans) | 0.77% | 0.78% | -0.01% | -1.3% | | Provision for credit losses | $107,000 | $108,000 | $(1,000) | -0.9% | - The decrease in the ACL was largely attributable to a reduction in reserves for individually evaluated loans, resulting from the charge-offs11 - The provision for credit loss expense for the quarter was primarily driven by loan growth11 Capital Position The company's book value and tangible book value per share decreased due to increased accumulated other comprehensive loss, yet regulatory capital ratios remained strong Capital Ratios and Book Value Book value and tangible book value per share decreased due to a larger accumulated other comprehensive loss, primarily from a decline in the fair value of available-for-sale securities. Despite this, the Company and Bank maintained regulatory capital ratios in excess of 'well-capitalized' levels Capital Metrics (QoQ) | Metric | Q2 FY2025 (Dec 31, 2024) | Q1 FY2025 (Sep 30, 2024) | Change | Change Pct. | | :-------------------------- | :----------------------- | :----------------------- | :----- | :---------- | | Book value per share | $11.53 | $11.64 | $(0.11) | -0.9% | | Tangible book value per share | $9.75 | $9.85 | $(0.10) | -1.0% | | Tangible equity to tangible assets ratio | 8.27% | 8.31% | -0.04% | -0.5% | - Decreases in book value and tangible book value per share were driven by a $7.4 million larger accumulated other comprehensive loss, primarily due to a decrease in the fair value of available-for-sale securities, partially offset by an increase in the fair value of derivatives1112 - At December 31, 2024, total stockholders' equity included after-tax net unrealized losses on securities available for sale of $89.8 million, partially offset by after-tax unrealized gains on derivatives of $17.4 million15 - The Company and the Bank's regulatory capital ratios were in excess of the levels required by federal banking regulators to be classified as 'well-capitalized'15 Performance Ratios The company's performance ratios indicate improved operational efficiency and profitability, with expanded net interest margin and enhanced returns on assets and equity Key Performance Ratios (QoQ) Key performance ratios show an expansion in net interest margin and interest rate spread, alongside improvements in the efficiency ratio and returns on average assets and equity, reflecting improved operational performance Performance Ratio Highlights (QoQ) | Metric | Dec 31, 2024 | Sep 30, 2024 | Variance or Change | | :------------------------------------------ | :----------- | :----------- | :----------------- | | Average yield on interest-earning assets: | | | | | Loans receivable, including loans held for sale | 4.54 % | 4.61 % | -0.07 % | | Taxable investment securities | 4.29 % | 4.38 % | -0.09 % | | (1) Tax-exempt investment securities | 2.42 % | 2.32 % | 0.10 % | | Other interest-earning assets | 7.62 % | 7.47 % | 0.15 % | | Total interest-earning assets | 4.54 % | 4.61 % | -0.07 % | | Average cost of interest-bearing liabilities: | | | | | Deposits: | | | | | Interest-bearing demand | 2.96 % | 3.13 % | -0.17 % | | Savings | 1.29 % | 1.05 % | 0.24 % | | Certificates of deposit (retail) | 4.06 % | 4.12 % | -0.06 % | | Certificates of deposit (brokered and listing service) | 2.71 % | 2.18 % | 0.53 % | | Total interest-bearing deposits | 2.95 % | 2.98 % | -0.03 % | | Borrowings: | | | | | Federal Home Loan Bank advances | 3.78 % | 3.82 % | -0.04 % | | Other borrowings | 4.88 % | 5.28 % | -0.40 % | | Total borrowings | 3.91 % | 4.04 % | -0.13 % | | Total interest-bearing liabilities | 3.15 % | 3.24 % | -0.09 % | | (2) Interest rate spread | 1.39 % | 1.37 % | 0.02 % | | (3) Net interest margin | 1.82 % | 1.80 % | 0.02 % | | Non-interest income to average assets (annualized) | 0.26 % | 0.24 % | 0.02 % | | Non-interest expense to average assets (annualized) | 1.55 % | 1.55 % | — % | | (4) Efficiency ratio | 78.86 % | 80.35 % | -1.49 % | | Return on average assets (annualized) | 0.34 % | 0.32 % | 0.02 % | | Return on average equity (annualized) | 3.51 % | 3.25 % | 0.26 % | | (5) Return on average tangible equity (annualized) | 4.21 % | 3.89 % | 0.32 % | Five-Quarter Performance Ratio Trends This section provides a five-quarter trend analysis of key performance ratios, including average yields on assets, average costs of liabilities, interest rate spread, net interest margin, efficiency ratio, and returns on assets and equity, offering a broader historical perspective Performance Ratio Highlights (Five-Quarter Trend) | Metric | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Average yield on interest-earning assets: | | | | | | | Loans receivable, including loans held-for-sale | 4.54 % | 4.61 % | 4.58 % | 4.45 % | 4.43 % | | Taxable investment securities | 4.29 % | 4.38 % | 4.41 % | 4.48 % | 4.44 % | | (1) Tax-exempt investment securities | 2.42 % | 2.32 % | 2.32 % | 2.32 % | 2.25 % | | Other interest-earning assets | 7.62 % | 7.47 % | 7.14 % | 7.91 % | 6.87 % | | Total interest-earning assets | 4.54 % | 4.61 % | 4.59 % | 4.51 % | 4.47 % | | Average cost of interest-bearing liabilities: | | | | | | | Deposits: | | | | | | | Interest-bearing demand | 2.96 % | 3.13 % | 3.06 % | 3.08 % | 2.91 % | | Savings | 1.29 % | 1.05 % | 0.63 % | 0.46 % | 0.44 % | | Certificates of deposit (retail) | 4.06 % | 4.12 % | 3.95 % | 3.52 % | 3.06 % | | Certificates of deposit (brokered and listing service) | 2.71 % | 2.18 % | 1.59 % | 1.97 % | 2.24 % | | Total interest-bearing deposits | 2.95 % | 2.98 % | 2.83 % | 2.74 % | 2.53 % | | Borrowings: | | | | | | | Federal Home Loan Bank advances | 3.78 % | 3.82 % | 3.86 % | 3.55 % | 3.82 % | | Other borrowings | 4.88 % | 5.28 % | 5.24 % | 5.22 % | 5.65 % | | Total borrowings | 3.91 % | 4.04 % | 4.04 % | 3.77 % | 3.97 % | | Total interest-bearing liabilities | 3.15 % | 3.24 % | 3.16 % | 3.00 % | 2.90 % | | (2) Interest rate spread | 1.39 % | 1.37 % | 1.43 % | 1.51 % | 1.57 % | | (3) Net interest margin | 1.82 % | 1.80 % | 1.84 % | 1.89 % | 1.94 % | | Non-interest income to average assets (annualized) | 0.26 % | 0.24 % | 0.30 % | 0.21 % | -0.81 % | | Non-interest expense to average assets (annualized) | 1.55 % | 1.55 % | 6.58 % | 1.48 % | 1.50 % | | (4) Efficiency ratio | 78.86 % | 80.35 % | 323.81 % | 75.43 % | 150.13 % | | Return on average assets (annualized) | 0.34 % | 0.32 % | -4.68 % | 0.38 % | -0.70 % | | Return on average equity (annualized) | 3.51 % | 3.25 % | -47.97 % | 3.50 % | -6.59 % | | Return on average tangible equity (annualized) | (5) 4.21 % | 3.89 % | 3.33 % | 4.68 % | -8.84 % | Average Balance Sheet Data The average balance sheet data shows a slight decrease in total assets, with a shift from borrowings to increased interest-bearing deposits Average Balance Sheet (QoQ) The average balance sheet data for the quarter shows a slight decrease in total average assets and interest-earning assets, while total interest-bearing deposits increased, and total borrowings decreased Average Balance Sheet Data (QoQ) | (Dollars in Thousands) | December 31, 2024 | September 30, 2024 | Variance or Change | Variance or Change Pct. | | :--------------------- | :---------------- | :----------------- | :----------------- | :---------------------- | | Assets | | | | | | Interest-earning assets: | | | | | | Loans receivable, including loans held for sale | $5,762,053 | $5,761,593 | $460 | — % | | Taxable investment securities | 1,285,800 | 1,314,945 | (29,145) | -2.2 % | | Tax-exempt investment securities | 9,711 | 12,244 | (2,533) | -20.7 % | | Other interest-earning assets | 116,354 | 131,981 | (15,627) | -11.8 % | | Total interest-earning assets | 7,173,918 | 7,220,763 | (46,845) | -0.6 % | | Non-interest-earning assets | 459,982 | 467,670 | (7,688) | -1.6 % | | Total assets | $7,633,900 | $7,688,433 | $(54,533) | -0.7 % | | Liabilities and Stockholders' Equity | | | | | | Interest-bearing liabilities: | | | | | | Deposits: | | | | | | Interest-bearing demand | $2,314,378 | $2,282,608 | $31,770 | 1.4 % | | Savings | 711,801 | 668,240 | 43,561 | 6.5 % | | Certificates of deposit (retail) | 1,211,985 | 1,203,770 | 8,215 | 0.7 % | | Certificates of deposit (brokered and listing service) | 735,736 | 551,819 | 183,917 | 33.3 % | | Total interest-bearing deposits | 4,973,900 | 4,706,437 | 267,463 | 5.7 % | | Borrowings: | | | | | | Federal Home Loan Bank advances | 1,085,455 | 1,325,583 | (240,128) | -18.1 % | | Other borrowings | 156,522 | 237,011 | (80,489) | -34.0 % | | Total borrowings | 1,241,977 | 1,562,594 | (320,617) | -20.5 % | | Total interest-bearing liabilities | 6,215,877 | 6,269,031 | (53,154) | -0.8 % | | Non-interest-bearing liabilities: | | | | | | Non-interest-bearing deposits | 604,915 | 599,095 | 5,820 | 1.0 % | | Other non-interest-bearing liabilities | 65,258 | 69,629 | (4,371) | -6.3 % | | Total non-interest-bearing liabilities | 670,173 | 668,724 | 1,449 | 0.2 % | | Total liabilities | 6,886,050 | 6,937,755 | (51,705) | -0.7 % | | Stockholders' equity | 747,850 | 750,678 | (2,828) | -0.4 % | | Total liabilities and stockholders' equity | $7,633,900 | $7,688,433 | $(54,533) | -0.7 % | | Average interest-earning assets to average interest-bearing liabilities | 115.41 % | 115.18 % | 0.23 % | 0.2 % | Five-Quarter Average Balance Sheet Trends This section provides a five-quarter trend analysis of average balance sheet data, detailing the movements in average interest-earning assets, non-interest-earning assets, interest-bearing liabilities, and non-interest-bearing liabilities Average Balance Sheet Data (Five-Quarter Trend) | (Dollars in Thousands) | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | | :--------------------- | :---------------- | :----------------- | :------------ | :------------- | :---------------- | | Assets | | | | | | | Interest-earning assets: | | | | | | | Loans receivable, including loans held-for-sale | $5,762,053 | $5,761,593 | $5,743,008 | $5,752,477 | $5,726,321 | | Taxable investment securities | 1,285,800 | 1,314,945 | 1,343,541 | 1,382,064 | 1,509,165 | | Tax-exempt investment securities | 9,711 | 12,244 | 13,737 | 14,614 | 15,025 | | Other interest-earning assets | 116,354 | 131,981 | 128,257 | 125,155 | 139,740 | | Total interest-earning assets | 7,173,918 | 7,220,763 | 7,228,543 | 7,274,310 | 7,390,251 | | Non-interest-earning assets | 459,982 | 467,670 | 466,537 | 577,411 | 554,335 | | Total assets | $7,633,900 | $7,688,433 | $7,695,080| $7,851,721 | $7,944,586 | | Liabilities and Stockholders' Equity | | | | | | | Interest-bearing liabilities: | | | | | | | Deposits: | | | | | | | Interest-bearing demand | $2,314,378 | $2,282,608 | $2,310,521 | $2,378,831 | $2,301,169 | | Savings | 711,801 | 668,240 | 631,622 | 635,226 | 664,926 | | Certificates of deposit (retail) | 1,211,985 | 1,203,770 | 1,208,101 | 1,257,362 | 1,292,837 | | C