Kearny Financial(KRNY) - 2021 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents Kearny Financial Corp.'s unaudited consolidated financial information, including statements, management's analysis, market risk, and controls Item 1: Financial Statements This section presents Kearny Financial Corp.'s unaudited consolidated financial statements as of December 31, 2020, detailing financial condition, income, and cash flows Consolidated Statements of Financial Condition This section presents consolidated financial condition, detailing asset, liability, and equity changes between December 31, 2020, and June 30, 2020 - Total assets increased to $7.34 billion at December 31, 2020, from $6.76 billion at June 30, 2020, driven by growth in net loans receivable and investment securities[9] - Total deposits grew significantly to $5.31 billion from $4.43 billion, while borrowings decreased from $1.17 billion to $865.7 million over the same period[9] Consolidated Statements of Financial Condition (Unaudited) | (In Thousands) | Dec 31, 2020 | Jun 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $129,694 | $180,967 | | Investment securities available for sale | $1,695,893 | $1,385,703 | | Net loans receivable | $4,765,248 | $4,461,070 | | Goodwill | $210,895 | $210,895 | | Total Assets | $7,335,153 | $6,758,175 | | Liabilities & Stockholders' Equity | | | | Total deposits | $5,312,613 | $4,430,282 | | Borrowings | $865,651 | $1,173,165 | | Total Liabilities | $6,242,812 | $5,673,998 | | Total Stockholders' Equity | $1,092,341 | $1,084,177 | Consolidated Statements of Income This section details consolidated income statements, comparing financial performance for the three and six-month periods ended December 31, 2020 and 2019 - Net income for the three months ended December 31, 2020, was $16.9 million, a significant increase from $10.7 million in the same period of 2019; for the six-month period, net income rose to $28.3 million from $22.0 million year-over-year[11] - The growth in net income was driven by a $10.0 million increase in Net Interest Income for the quarter, resulting from a substantial decrease in interest expense on deposits and borrowings[11] Key Income Statement Data (Unaudited, In Thousands) | | Three Months Ended Dec 31, | Six Months Ended Dec 31, | | :--- | :--- | :--- | | | 2020 | 2019 | 2020 | 2019 | | Net Interest Income | $44,553 | $34,607 | $88,715 | $71,294 | | Total Non-Interest Income | $7,154 | $4,554 | $14,887 | $8,516 | | Total Non-Interest Expense | $30,510 | $26,427 | $64,083 | $52,671 | | Net Income | $16,948 | $10,652 | $28,327 | $22,022 | | Diluted EPS | $0.20 | $0.13 | $0.33 | $0.26 | Notes to Consolidated Financial Statements This section provides detailed notes explaining accounting policies, significant events, and specific financial data within the consolidated statements - On July 1, 2020, the Company adopted the new CECL accounting standard (ASU 2016-13), resulting in a $20.2 million increase to the allowance for credit losses and a $14.2 million reduction to stockholders' equity, net of tax[35][63] - The Company completed its acquisition of MSB Financial Corp. on July 10, 2020, resulting in a bargain purchase gain of $3.1 million; the transaction involved distributing approximately $9.8 million in cash and 5.85 million shares of company stock[52][54] - As of December 31, 2020, the company had 37 non-TDR modified loans totaling $33.2 million due to COVID-19 and the CARES Act[85][86][87] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operating results, analyzing COVID-19 and MSB acquisition impacts, liquidity, capital, and share repurchases Impact of COVID-19 This section outlines operational adjustments, loan programs, and financial relief measures implemented by the company due to COVID-19 - The company adapted operations due to COVID-19 by transitioning most non-branch personnel to remote work and implementing safety measures, with all branches fully operational by December 31, 2020[175][176] - Under the Paycheck Protection Program (PPP), the company held 72 loans with outstanding balances of $39.2 million as of December 31, 2020, including acquired MSB loans[179] - As of December 31, 2020, the company granted loan modifications (deferrals) under the CARES Act to 37 loans totaling $33.2 million, representing 0.68% of total loans[187][188] Comparison of Financial Condition at December 31, 2020 and June 30, 2020 This section compares the company's financial condition, including assets, liabilities, and equity, between December 31, 2020, and June 30, 2020 - Total assets grew by $577.0 million to $7.34 billion, partly due to the MSB acquisition, driven by increases in investment securities (+$310.2 million) and net loans receivable (+$304.2 million)[189][190][193] - Total deposits increased by $882.3 million, reflecting $460.2 million from the MSB acquisition and $422.1 million in organic growth, while borrowings decreased by $307.5 million[205][206] - The Allowance for Credit Losses (ACL) increased by $26.1 million to $63.4 million, primarily due to CECL adoption (+$19.6 million) and establishing ACL for acquired MSB loans (+$9.0 million)[201] - Stockholders' equity increased by $8.2 million to $1.09 billion, driven by $45.1 million in stock issued for MSB acquisition and $28.3 million in net income, offset by $45.7 million in share repurchases, $13.6 million in dividends, and a $14.2 million CECL adjustment[209] Comparison of Operating Results This section compares operating results for the three and six-month periods ended December 31, 2020 and 2019, focusing on net income and interest income Quarterly Operating Results Comparison (Q2 FY21 vs Q2 FY20) | (In Millions) | Q2 FY21 (Ended Dec 31, 2020) | Q2 FY20 (Ended Dec 31, 2019) | Change | | :--- | :--- | :--- | :--- | | Net Income | $16.9 | $10.7 | +$6.2 | | Diluted EPS | $0.20 | $0.13 | +$0.07 | | Net Interest Income | $44.6 | $34.6 | +$10.0 | | Net Interest Margin | 2.64% | 2.29% | +35 bps | Six-Month Operating Results Comparison | (In Millions) | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Net Income | $28.3 | $22.0 | +$6.3 | | Diluted EPS | $0.33 | $0.26 | +$0.07 | | Net Interest Income | $88.7 | $71.3 | +$17.4 | | Net Interest Margin | 2.65% | 2.36% | +29 bps | - The increase in net interest income for both periods was primarily driven by a significant reduction in interest expense on deposits and borrowings, offsetting a decrease in interest-earning asset yield[217][243] - Non-interest income for the six-month period increased by $6.4 million, largely due to a $3.1 million bargain purchase gain from the MSB acquisition and a $3.0 million increase in gains on loan sales[252][254][255] Liquidity and Capital Resources This section details the company's liquidity position, including cash, securities, and borrowing capacity, alongside its regulatory capital compliance - As of December 31, 2020, the company maintained a strong liquidity position with $129.7 million in cash, $1.70 billion in available-for-sale securities, and significant borrowing capacity from FHLB of New York ($1.75 billion) and FRB ($292.0 million)[271] - The company and its bank subsidiary exceeded all regulatory capital requirements to be considered well-capitalized as of December 31, 2020[276] Company Capital Ratios at December 31, 2020 | Capital Ratio | Actual | Required for Adequacy | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 20.96% | 8.00% | | Tier 1 capital (to risk-weighted assets) | 20.05% | 6.00% | | Common equity tier 1 capital | 20.05% | 4.50% | | Tier 1 capital (to adjusted total assets) | 12.38% | 4.00% | Item 3: Quantitative and Qualitative Disclosure About Market Risk The company manages interest rate risk through its ALM program, with NII and EVE sensitivity analysis indicating moderate risk, especially to falling rates Economic Value of Equity (EVE) Sensitivity Analysis at Dec 31, 2020 | Change in Interest Rates | % Change in EVE | | :--- | :--- | | +300 bps | (3)% | | +200 bps | +1% | | +100 bps | +3% | | -100 bps | (12)% | Net Interest Income (NII) Sensitivity Analysis at Dec 31, 2020 | Change in Interest Rates | % Change in NII (One Year) | | :--- | :--- | | +300 bps | (5.28)% | | +200 bps | (2.57)% | | +100 bps | (0.12)% | | -100 bps | (2.38)% | Item 4: Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[293] - There were no material changes to the company's internal control over financial reporting during the quarter[294] PART II—OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, and a list of exhibits Item 1: Legal Proceedings As of December 31, 2020, the company reported no material pending legal proceedings beyond routine business matters - The company reports no material pending legal proceedings outside of the ordinary course of business[297] Item 1A: Risk Factors No material changes to previously disclosed risk factors were reported for the quarter ended December 31, 2020 - No material changes to previously disclosed risk factors were reported for the quarter[298] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4.5 million shares at $10.14 average during the quarter under its fourth and fifth plans, with a sixth plan authorized in January 2021 Issuer Purchases of Equity Securities (Quarter Ended Dec 31, 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2020 | - | $- | | November 2020 | 2,172,758 | $9.74 | | December 2020 | 2,335,931 | $10.51 | | Total | 4,508,689 | $10.14 | - On October 19, 2020, the company resumed its fourth stock repurchase plan and announced a new fifth plan; a sixth plan to repurchase up to 5% of outstanding stock was authorized on January 22, 2021[300][301] Item 6: Exhibits This section lists exhibits filed as part of the Form 10-Q report, including corporate documents, certifications, and financial data in Inline XBRL