Kearny Financial Corp. - FORM 8-K - EX-99.1

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8-K - 8-K - Kearny Financial Corp.	d647957d8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

October 30, 2018

For further information contact:

Craig L. Montanaro, President and Chief Executive Officer, or

Keith Suchodolski, Executive Vice President and Chief Financial Officer

Kearny Financial Corp.

(973) 244-4500

KEARNY FINANCIAL CORP.

REPORTS FIRST QUARTER 2019 OPERATING RESULTS

Fairfield, New Jersey, October 30, 2018 – Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), today reported net income for the quarter ended September 30, 2018 of $11.1 million, or $0.12 per basic and diluted share. The results represent an increase of $3.4 million compared to net income of $7.7 million, or $0.08 per basic and diluted share, for the quarter ended June 30, 2018.

Craig L. Montanaro, President and Chief Executive Officer, commented, “We are pleased with how we have continued to build on our positive momentum from fiscal 2018 by executing on a number of strategic priorities during the quarter including the strong growth within our commercial mortgage loan portfolio and the ongoing integration of the Clifton Bancorp, Inc. (“CSBK”) acquisition which, subsequent to quarter end, culminated in the full system integration of CSBK’s banking products and services.”

Balance Sheet Highlights

•

The Company’s aggregate loan portfolio, excluding loans held for sale and the allowance for loan losses, increased by $159.2 million to $4.66 billion, or 70.0% of total assets, at September 30, 2018 from $4.50 billion, or 68.4% of total assets, at June 30, 2018. Commercial mortgage loans represented $152.6 million of this increase, totaling 69.0% of total loans at September 30, 2018.

•

The balance of cash and cash equivalents decreased by $84.4 million to $44.5 million at September 30, 2018 from $128.9 million at June 30, 2018. The decrease for the quarter ended September 30, 2018 reflected the reinvestment of excess cash balances into the loan portfolio. The Company generally seeks to limit the balance of cash and cash equivalents held to the levels needed to meet its day-to-day funding obligations and overall liquidity risk management objectives.

•

The Company’s total deposits decreased by $118.8 million to $3.95 billion at September 30, 2018, from $4.07 billion at June 30, 2018. The net decline in deposits primarily reflected a $210.8 million decrease in wholesale deposits attributable to the scheduled maturity and termination of the Company’s participation in Promontory Interfinancial Network’s (“Promontory”) Insured Network Deposits (“IND”) program. Partially offsetting this decrease was an increase of $92.0 million in other deposits comprising increases of $35.7 million and $56.3 million in retail and other wholesale deposits, respectively.

•

Total borrowings increased by $220.8 million to $1.42 billion at September 30, 2018, from $1.20 billion at June 30, 2018. The increase in borrowings for the quarter ended September 30, 2018 reflected an additional $200.0 million 90-day Federal Home Loan Bank (“FHLB”) term advance that was drawn to replace the maturing Promontory IND funding noted above coupled with an increase of $60.0 million in overnight borrowings drawn for liquidity management purposes. The Company had entered into a forward-starting interest rate swap contract in July 2016 to extend the effective duration of the new 90-day FHLB advance thereby effectively fixing its cost for a longer period of time. These increases were partially offset by decreases of $35.0 million in long-term FHLB advances resulting from the scheduled maturity of such advances coupled with a $4.9 million decrease in depositor sweep account balances representing normal day-to-day fluctuations in such balances.

Earnings Highlights

The noted balance sheet growth, reinvestment and reallocation achievements muted the adverse effects of the continuing increases in market interest rates and the flattening yield curve on the Company’s net interest margin:

•

The Company’s net interest income totaled $40.2 million for the quarter ended September 30, 2018 as compared to $40.6 million for the quarter ended June 30, 2018.

•

The Company’s net interest margin decreased four basis points to 2.68% for the quarter ended September 30, 2018 from 2.72% for the quarter ended June 30, 2018 while the net interest rate spread decreased by four basis points to 2.44% from 2.48% for those same comparative periods, respectively.

The Company’s mortgage banking, SBA lending and commercial mortgage lending strategies continued to supplement and diversify its sources of non-interest income:

•

Aggregate loan sale gains totaled $132,000 for the quarter ended September 30, 2018 compared to $127,000 for the quarter ended June 30, 2018. The modest increase in gains on sale reflected an increase in the average net gain recognized per loan sold that was partially offset by a decrease in the volume of such loans between comparative periods.

•

Fees and service charges remained stable, totaling $1.2 million for the quarters ended September 30, 2018 and June 30, 2018.

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 expense to average assets totaled 1.61% for the quarter ended September 30, 2018 compared to 1.90% for the prior quarter ended June 30, 2018. For those same comparative periods, the Company’s operating efficiency ratio decreased to 61.0% from 71.1%, respectively. The decrease in the Company’s non-interest expense ratio and efficiency ratio largely reflected the Company’s recognition of $5.1 million of non-recurring, merger-related charges during the quarter ended June 30, 2018.

Finally, the State of New Jersey enacted changes to its income tax laws that become effective on July 1, 2018. Such changes included provisions that imposed a surtax on Corporation Business Tax taxpayers whose allocated New Jersey net income exceeds $1.0 million. The surtax was imposed at an initial rate of 2.5% which became effective for the Company for its current tax year which began on July 1, 2018 and will continue through its next tax year beginning July 1, 2019. The surtax will decrease to 1.5% for the Company’s tax year beginning July 1, 2020 and will continue at that reduced rate through its tax year beginning July 1, 2021. The surtax will be discontinued for the Company’s tax year beginning on July 1, 2022.

Collectively, the factors noted above resulted in an increase in net income for the quarter ended September 30, 2018 compared to the prior quarter ended June 30, 2018. The increase in net income had a favorable impact on the Company’s earnings-based performance ratios as highlighted below:

•

The Company’s return on average assets for the quarter ended September 30, 2018 totaled 0.68% compared to 0.47% for the prior quarter ended June 30, 2018.

•

The Company’s return on average equity for the quarter ended September 30, 2018 totaled 3.55% compared to 2.39% for the prior quarter ended June 30, 2018.

Asset Quality Highlights

•

Asset quality remained strong throughout the quarter ended September 30, 2018. The outstanding balance of nonperforming loans totaled $20.5 million, or 0.44% of total loans, at September 30, 2018 as compared to $16.9 million, or 0.37% of total loans, at June 30, 2018. The allowance for loan losses increased to $32.7 million at September 30, 2018 from $30.9 million at June 30, 2018, resulting in a “total loan coverage ratio”, representing the balance of the allowance for loan losses as a percentage of total loans, of 0.69% and 0.68%, respectively.

•

The Company recognized net charge offs totaling approximately $234,000 for the quarter ended September 30, 2018, reflecting an annualized net charge off rate of 0.02% on the average balance of total loans for the period. By comparison, the Company’s net charge offs totaled approximately $101,000 for the quarter ended June 30, 2018, reflecting an annualized net charge off rate of 0.01%.

•

The Company’s provision for loan losses increased by $1.4 million to $2.1 million for the quarter ended September 30, 2018 compared to $717,000 for the quarter ended June 30, 2018. The increase in provision expense was largely attributable to the effects of comparatively greater growth during the quarter ended September 30, 2018 in the performing portion of the loan portfolio that is collectively evaluated for impairment.

Capital Highlights

•

The Company maintained its regular quarterly cash dividend payable to stockholders of $0.04 per share declared and paid during the quarter September 30, 2018. Additionally, the Company declared a special cash dividend of $0.16 during the quarter ended September 30, 2018. The Company continues to evaluate its dividend policies and practices in relation to its capital management and shareholder value objectives.

•

During the quarter ended September 30, 2018, the Company repurchased 1,957,600 shares of its capital stock at a total cost of $26.9 million and at an average cost of $13.75 per share. Such shares were repurchased in conjunction with the Company’s third share repurchase program announced in May 2018, through which it authorized the repurchase of 10,238,557 shares, or 10% its outstanding shares. Through September 30, 2018, the Company repurchased a total of 4,653,060 shares, or 45.4% of the shares authorized for repurchase under this third program, at a total cost of $65.3 million and at an average cost of $14.03 per share.

•

The Company’s and Bank’s regulatory capital ratios at September 30, 2018 were well in excess of the levels required by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines.

The exhibits that follow this narrative begin with the presentation of the Linked-Quarter Comparative Financial Analysis that supports the discussion above by presenting the Company’s financial condition and operating results for the quarter ended September 30, 2018 compared to those for the prior linked-quarter ended June 30, 2018. This analysis is followed by a tabular Five-Quarter Financial Trend Analysis that presents similar financial information, together with other financial highlights and performance metrics, over a consecutive five quarter look-back period that is intended to reflect the Company’s financial performance and strategic achievements over this extended period of time. The exhibits conclude with the presentation of the Reconciliation of GAAP to Non-GAAP financial data included in this news release.

Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently

anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Linked-Quarter Comparative Financial Analysis


Summary Balance Sheet (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	At						Variance or Change			Variance or Change Pct.
	September 30,			June 30,
	2018			2018
Assets
Cash and cash equivalents	$	44,486		$	128,864		$	(84,378	)		-65.5	%
Securities available for sale		706,240			725,085			(18,845	)		-2.6	%
Securities held to maturity		602,838			589,730			13,108			2.2	%
Loans held-for-sale		1,503			863			640			74.2	%
Loans receivable, including yield adjustments		4,660,507			4,501,348			159,159			3.5	%
Less allowance for loan losses		(32,731	)		(30,865	)		(1,866	)		6.0	%

Net loans receivable		4,627,776			4,470,483			157,293			3.5	%
Premises and equipment		57,635			56,240			1,395			2.5	%
Federal Home Loan Bank stock		66,428			59,004			7,424			12.6	%
Accrued interest receivable		19,455			18,510			945			5.1	%
Goodwill		210,895			210,895			—			0.0	%
Core deposit intangible		6,018			6,295			(277	)		-4.4	%
Bank owned life insurance		251,410			249,816			1,594			0.6	%
Deferred income taxes, net		22,136			23,754			(1,618	)		-6.8	%
Other real estate owned		674			725			(51	)		-7.0	%
Other assets		38,717			39,610			(893	)		-2.3	%

Total assets	$	6,656,211		$	6,579,874		$	76,337			1.2	%

Liabilities
Deposits	$	3,954,821		$	4,073,604		$	(118,783	)		-2.9	%
Borrowings		1,419,424			1,198,646			220,778			18.4	%
Advance payments by borrowers for taxes		10,687			18,088			(7,401	)		-40.9	%
Other liabilities		35,198			20,788			14,410			69.3	%

Total liabilities		5,420,130			5,311,126			109,004			2.1	%
Stockholders’ Equity
Common stock		978			996			(18	)		-1.8	%
Paid-in capital		897,551			922,711			(25,160	)		-2.7	%
Retained earnings		350,838			359,096			(8,258	)		-2.3	%
Unearned ESOP shares		(32,104	)		(32,590	)		486			-1.5	%
Accumulated other comprehensive income, net		18,818			18,535			283			1.5	%

Total stockholders’ equity		1,236,081			1,268,748			(32,667	)		-2.6	%

Total liabilities and stockholders’ equity	$	6,656,211		$	6,579,874		$	76,337			1.2	%

Consolidated capital ratios
Equity to assets		18.57	%		19.28	%		-0.71	%
Tangible equity to tangible assets		15.83	%		16.53	%		-0.70	%
Share data
Outstanding shares		97,754			99,626			(1,872	)		-1.9	%
Equity per share	$	12.64		$	12.74		$	(0.10	)		-0.7	%
Tangible equity per share⁽¹⁾	$	10.43		$	10.56		$	(0.13	)		-1.2	%

⁽¹⁾	Tangible equity equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.


Summary Income Statement (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	For the three months ended						Variance or Change			Variance or Change Pct.
	September 30,			June 30,
	2018			2018
Interest income
Loans	$	47,437		$	46,615		$	822			1.8	%
Taxable investment securities		8,879			8,670			209			2.4	%
Tax-exempt investment securities		716			702			14			2.0	%
Other interest-earning assets		1,174			1,275			(101	)		-7.9	%

Total Interest Income		58,206			57,262			944			1.6	%
Interest expense
Deposits		10,539			9,755			784			8.0	%
Borrowings		7,487			6,916			571			8.3	%

Total interest expense		18,026			16,671			1,355			8.1	%

Net interest income		40,180			40,591			(411	)		-1.0	%
Provision for loan losses		2,100			717			1,383			192.9	%

Net interest income after provision for loan losses		38,080			39,874			(1,794	)		-4.5	%

Non-interest income
Fees and service charges		1,173			1,205			(32	)		-2.7	%
Gain on sale and call of securities		—			9			(9	)		-100.0	%
Gain on sale of loans		132			127			5			3.9	%
(Loss) gain on sale of real estate owned		(50	)		60			(110	)		-183.3	%
Income from bank owned life insurance		1,594			1,604			(10	)		-0.6	%
Electronic banking fees and charges		250			278			(28	)		-10.1	%
Miscellaneous		83			75			8			10.7	%

Total non-interest income		3,182			3,358			(176	)		-5.2	%
Non-interest expense
Salaries and employee benefits		15,642			15,353			289			1.9	%
Net occupancy expense of premises		2,736			2,716			20			0.7	%
Equipment and systems		2,926			2,776			150			5.4	%
Advertising and marketing		577			757			(180	)		-23.8	%
Federal deposit insurance premium		465			463			2			0.4	%
Directors’ compensation		758			754			4			0.5	%
Merger-related expenses		—			5,149			(5,149	)		-100.0	%
Miscellaneous		3,353			3,289			64			1.9	%

Total non-interest expense		26,457			31,257			(4,800	)		-15.4	%

Income before income taxes		14,805			11,975			2,830			23.6	%
Income taxes		3,659			4,257			(598	)		-14.0	%

Net income	$	11,146		$	7,718		$	3,428			44.4	%

Net income per common share (EPS)
Basic	$	0.12		$	0.08		$	0.04
Diluted	$	0.12		$	0.08		$	0.04
Dividends declared ⁽¹⁾
Cash dividends declared per common share	$	0.20		$	0.04		$	0.16
Cash dividends declared	$	19,404		$	3,892		$	15,512
Dividend payout ratio		174.1	%		50.4	%		123.7	%
Weighted average number of common shares outstanding
Basic		95,127			98,046			(2,919	)
Diluted		95,181			98,100			(2,919	)

⁽¹⁾	Dividends declared during the quarter ended September 30, 2018 include a $0.16 special dividend representing a supplemental distribution of net income to stockholders from the fiscal year ended June 30, 2018.


Average Balance Sheet Data (Dollars in Thousands, Unaudited)	For the three months ended						Variance or Change			Variance or Change Pct.
	September 30,			June 30,
	2018			2018
Assets
Interest-earning assets:
Loans receivable, including loans held for sale	$	4,562,375		$	4,507,336		$	55,039			1.2	%
Taxable investment securities		1,180,655			1,192,066			(11,411	)		-1.0	%
Tax-exempt investment securities		136,056			134,683			1,373			1.0	%
Other interest-earning assets		112,629			142,591			(29,962	)		-21.0	%

Total interest-earning assets		5,991,715			5,976,676			15,039			0.3	%
Non-interest-earning assets		596,006			586,976			9,030			1.5	%

Total assets	$	6,587,721		$	6,563,652		$	24,069			0.4	%

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	788,148		$	1,004,445		$	(216,297	)		-21.5	%
Savings and club		747,743			724,430			23,313			3.2	%
Certificates of deposit		2,046,997			1,983,372			63,625			3.2	%

Total interest-bearing deposits		3,582,888			3,712,247			(129,359	)		-3.5	%
Borrowings:
Federal Home Loan Bank Advances		1,350,113			1,179,147			170,966			14.5	%
Other borrowings		40,981			34,636			6,345			18.3	%

Total borrowings		1,391,094			1,213,783			177,311			14.6	%

Total interest-bearing liabilities		4,973,982			4,926,030			47,952			1.0	%
Non-interest-bearing liabilities:
Non-interest-bearing deposits		314,114			305,763			8,351			2.7	%
Other non-interest-bearing liabilities		43,533			39,340			4,193			10.7	%

Total non-interest-bearing liabilities		357,647			345,103			12,544			3.6	%

Total liabilities		5,331,629			5,271,133			60,496			1.1	%
Stockholders’ equity		1,256,092			1,292,519			(36,427	)		-2.8	%

Total liabilities and stockholders’ equity	$	6,587,721		$	6,563,652		$	24,069			0.4	%

Average interest-earning assets to average interest-bearing liabilities		120.46	%		121.33	%		-0.87	%		-0.7	%


Performance Ratio Highlights	For the three months ended						Variance or Change
	September 30,			June 30,
	2018			2018
Average yield on interest-earning assets:
Loans receivable, including loans held for sale		4.16	%		4.14	%		0.02	%
Taxable investment securities		3.01	%		2.91	%		0.10	%
Tax-exempt investment securities ⁽¹⁾		2.10	%		2.09	%		0.01	%
Other interest-earning assets		4.17	%		3.58	%		0.59	%

Total interest-earning assets		3.89	%		3.83	%		0.06	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand		0.86	%		0.89	%		-0.03	%
Savings and club		0.41	%		0.29	%		0.12	%
Certificates of deposit		1.58	%		1.41	%		0.17	%

Total interest-bearing deposits		1.18	%		1.05	%		0.13	%
Borrowings:
Federal Home Loan Bank Advances		2.19	%		2.34	%		-0.15	%
Other borrowings		0.94	%		0.34	%		0.60	%

Total borrowings		2.15	%		2.28	%		-0.13	%

Total interest-bearing liabilities		1.45	%		1.35	%		0.10	%
Interest rate spread⁽²⁾		2.44	%		2.48	%		-0.04	%
Net interest margin⁽³⁾		2.68	%		2.72	%		-0.04	%
Non-interest income to average assets (annualized)		0.19	%		0.20	%		-0.01	%
Non-interest expense to average assets (annualized)		1.61	%		1.90	%		-0.30	%
Efficiency ratio⁽⁴⁾		61.01	%		71.12	%		-10.11	%
Return on average assets (annualized)		0.68	%		0.47	%		0.21	%
Return on average equity (annualized)		3.55	%		2.39	%		1.16	%

⁽¹⁾	The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.

⁽²⁾	Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.

⁽³⁾	Net interest income divided by average interest-earning assets.

⁽⁴⁾	Non-interest expense divided by the sum of net interest income and non-interest income.

Five-Quarter Financial Trend Analysis


Summary Balance Sheet (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	At
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Assets
Cash and cash equivalents	$	44,486		$	128,864		$	38,283		$	50,685		$	38,823
Securities available for sale		706,240			725,085			684,771			637,671			636,600
Securities held to maturity		602,838			589,730			459,380			471,452			482,926
Loans held-for-sale		1,503			863			2,377			3,490			3,808
Loans receivable, including yield adjustments		4,660,507			4,501,348			3,351,369			3,291,516			3,260,328
Less allowance for loan losses		(32,731	)		(30,865	)		(30,248	)		(30,066	)		(29,445	)

Net loans receivable		4,627,776			4,470,483			3,321,121			3,261,450			3,230,883
Premises and equipment		57,635			56,240			42,856			41,829			40,132
Federal Home Loan Bank stock		66,428			59,004			39,112			39,113			39,115
Accrued interest receivable		19,455			18,510			13,926			13,524			13,268
Goodwill		210,895			210,895			108,591			108,591			108,591
Core deposit intangible		6,018			6,295			206			233			261
Bank owned life insurance		251,410			249,816			184,981			183,754			182,489
Deferred income taxes, net		22,136			23,754			3,898			6,941			13,230
Other real estate owned		674			725			1,094			1,693			2,424
Other assets		38,717			39,610			33,104			23,421			15,600

Total assets	$	6,656,211		$	6,579,874		$	4,933,700		$	4,843,847		$	4,808,150

Liabilities
Deposits	$	3,954,821		$	4,073,604		$	3,067,102		$	3,033,231		$	2,952,887
Borrowings		1,419,424			1,198,646			852,009			798,864			808,554
Advance payments by borrowers for taxes		10,687			18,088			8,969			8,511			9,787
Other liabilities		35,198			20,788			14,419			13,968			22,689

Total liabilities		5,420,130			5,311,126			3,942,499			3,854,574			3,793,917
Stockholders’ Equity
Common stock		978			996			788			795			815
Paid-in capital		897,551			922,711			653,045			662,093			690,204
Retained earnings		350,838			359,096			355,270			353,536			354,123
Unearned ESOP shares		(32,104	)		(32,590	)		(33,076	)		(33,563	)		(34,049	)
Accumulated other comprehensive income, net		18,818			18,535			15,174			6,412			3,140

Total stockholders’ equity		1,236,081			1,268,748			991,201			989,273			1,014,233

Total liabilities and stockholders’ equity	$	6,656,211		$	6,579,874		$	4,933,700		$	4,843,847		$	4,808,150

Consolidated capital ratios
Equity to assets		18.57	%		19.28	%		20.09	%		20.42	%		21.09	%
Tangible equity to tangible assets		15.83	%		16.53	%		18.29	%		18.59	%		19.27	%
Share data
Outstanding shares		97,754			99,626			78,765			79,527			81,548
Equity per share	$	12.64		$	12.74		$	12.58		$	12.44		$	12.44
Tangible equity per share⁽¹⁾	$	10.43		$	10.56		$	11.20		$	11.07		$	11.10

⁽¹⁾	Tangible equity equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.


Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	September 30,		June 30,		March 31,		December 31,		September 30,
	2018		2018		2018		2017		2017
Cash and cash equivalents
Cash and due from depository institutions	$	21,973	$	26,199	$	18,229	$	17,899	$	17,972
Interest-bearing deposits in other banks		22,513		102,665		20,054		32,786		20,851

Total cash and cash equivalents	$	44,486	$	128,864	$	38,283	$	50,685	$	38,823
Securities available for sale
Debt securities:
U.S. agency securities	$	4,070	$	4,411	$	4,667	$	4,810	$	5,063
Municipal and state obligations		25,907		26,088		26,733		27,428		27,725
Asset-backed securities		182,390		182,620		182,066		169,484		163,615
Collateralized loan obligations		215,569		226,066		178,342		133,341		128,383
Corporate bonds		147,811		147,594		142,202		142,397		142,489
Trust preferred securities		3,794		3,783		8,485		8,494		8,544

Debt securities available for sale		579,541		590,562		542,495		485,954		475,819
Mortgage-backed securities:
Collateralized mortgage obligations		23,097		24,292		25,601		27,187		28,790
Residential pass-through securities		95,795		102,359		108,736		116,496		123,868
Commercial pass-through securities		7,807		7,872		7,939		8,034		8,123

Mortgage-backed securities		126,699		134,523		142,276		151,717		160,781

Total securities available for sale	$	706,240	$	725,085	$	684,771	$	637,671	$	636,600
Securities held to maturity
Debt securities:
U.S. agency securities	$	—	$	—	$	—	$	—	$	35,000
Municipal and state obligations		109,061		109,483		98,011		100,671		95,954
Subordinated debt		46,275		46,294		30,000		25,000		15,000

Debt securities held to maturity		155,336		155,777		128,011		125,671		145,954
Mortgage-backed securities:
Collateralized mortgage obligations		54,130		56,886		34,309		35,861		16,600
Residential pass-through securities		190,812		200,622		151,605		160,487		169,257
Commercial pass-through securities		202,560		176,445		145,455		149,433		151,115

Mortgage-backed securities		447,502		433,953		331,369		345,781		336,972

Total securities held to maturity	$	602,838	$	589,730	$	459,380	$	471,452	$	482,926

Total securities	$	1,309,078	$	1,314,815	$	1,144,151	$	1,109,123	$	1,119,526


Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Loan portfolio composition:
Residential first mortgage loans	$	1,303,249		$	1,297,453		$	563,807		$	574,322		$	559,593
Home equity loans and lines of credit		93,473			90,761			79,522			80,961			80,746

Residential mortgage loans		1,396,722			1,388,214			643,329			655,283			640,339
Multifamily mortgage loans		1,898,831			1,758,584			1,471,573			1,438,386			1,427,840
Nonresidential and mixed use mortgage loans		1,315,279			1,302,961			1,113,385			1,069,254			1,085,983

Commercial mortgage loans		3,214,110			3,061,545			2,584,958			2,507,640			2,513,823
Commercial business loans		78,317			85,825			88,216			92,442			81,676
Construction loans		26,581			23,271			22,963			22,205			8,320
Account loans		3,133			3,283			3,038			2,996			2,800
Other consumer loans		4,427			5,777			7,186			8,951			10,988

Consumer loans		7,560			9,060			10,224			11,947			13,788

Total loans, excluding yield adjustments		4,723,290			4,567,915			3,349,690			3,289,517			3,257,946
Unamortized yield adjustments		(62,783	)		(66,567	)		1,679			1,999			2,382

Loans receivable, including yield adjustments		4,660,507			4,501,348			3,351,369			3,291,516			3,260,328
Less allowance for loan losses		(32,731	)		(30,865	)		(30,248	)		(30,066	)		(29,445	)

Net loans receivable	$	4,627,776		$	4,470,483		$	3,321,121		$	3,261,450		$	3,230,883
Loan portfolio allocation:
Residential first mortgage loans		27.6	%		28.4	%		16.8	%		17.5	%		17.2	%
Home equity loans and lines of credit		2.0	%		2.0	%		2.4	%		2.5	%		2.5	%

Residential mortgage loans		29.6	%		30.4	%		19.2	%		20.0	%		19.7	%
Multifamily mortgage loans		40.2	%		38.5	%		43.9	%		43.7	%		43.8	%
Nonresidential and mixed use mortgage loans		27.8	%		28.5	%		33.2	%		32.5	%		33.3	%

Commercial mortgage loans		68.0	%		67.0	%		77.1	%		76.2	%		77.1	%
Commercial business loans		1.6	%		1.9	%		2.6	%		2.8	%		2.5	%
Construction loans		0.6	%		0.5	%		0.7	%		0.7	%		0.3	%
Account loans		0.1	%		0.1	%		0.1	%		0.1	%		0.1	%
Other consumer loans		0.1	%		0.1	%		0.3	%		0.2	%		0.3	%

Consumer loans		0.2	%		0.2	%		0.4	%		0.3	%		0.4	%

Total loans, excluding yield adjustments		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Asset quality:
Nonperforming assets:
Accruing loans > 90 days past due	$	19		$	60		$	45		$	31		$	105
Nonaccrual loans		20,473			16,799			14,190			16,315			18,006

Total nonperforming loans		20,492			16,859			14,235			16,346			18,111
Other real estate owned		674			725			1,094			1,693			2,424

Total nonperforming assets	$	21,166		$	17,584		$	15,329		$	18,039		$	20,535
Nonperforming loans (% total loans)		0.44	%		0.37	%		0.42	%		0.50	%		0.56	%
Nonperforming assets (% total assets)		0.32	%		0.27	%		0.31	%		0.37	%		0.43	%
Allowance for loan losses (ALLL):
ALLL to total loans		0.69	%		0.68	%		0.90	%		0.91	%		0.90	%
ALLL to nonperforming loans		159.73	%		183.08	%		212.49	%		183.93	%		162.58	%
Net charge offs	$	234		$	101		$	241		$	315		$	471
Average net charge off rate (annualized)		0.02	%		0.01	%		0.03	%		0.04	%		0.06	%


Supplemental Balance Sheet Highlights (Dollars in Thousands, Unaudited)	At
	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017
Funding by type:
Deposits
Non-interest-bearing deposits	$	308,631		$	311,938		$	270,217		$	275,065		$	279,263
Interest-bearing demand		786,069			1,000,989			871,425			879,385			855,822
Savings and club		743,289			744,039			515,805			517,400			519,037
Certificates of deposit		2,116,832			2,016,638			1,409,655			1,361,381			1,298,765

Interest-bearing deposits		3,646,190			3,761,666			2,796,885			2,758,166			2,673,624

Total deposits		3,954,821			4,073,604			3,067,102			3,033,231			2,952,887
Borrowings:
Federal Home Loan Bank advances		1,335,844			1,170,144			775,625			775,649			775,673
Overnight borrowings		60,000			—			42,000			—			—
Depositor sweep accounts		23,580			28,502			34,384			23,215			32,881

Total borrowings		1,419,424			1,198,646			852,009			798,864			808,554

Total funding	$	5,374,245		$	5,272,250		$	3,919,111		$	3,832,095		$	3,761,441

Loans as a % of deposits		117.1	%		109.8	%		108.4	%		107.6	%		109.5	%
Deposits as a % of total funding		73.6	%		77.3	%		78.3	%		79.2	%		78.5	%
Borrowings as a % of total funding		26.4	%		22.7	%		21.7	%		20.8	%		21.5	%
Funding by source:
Retail funding
Non-interest-bearing deposits	$	308,631		$	311,938		$	270,217		$	275,065		$	279,263
Interest-bearing demand		786,069			790,164			656,114			657,349			633,478
Savings and club		743,289			744,039			515,805			517,400			519,037
Certificates of deposit		1,871,903			1,828,039			1,247,900			1,210,428			1,175,329

Total retail deposits		3,709,892			3,674,180			2,690,036			2,660,242			2,607,107
Depositor sweep accounts		23,580			28,502			34,384			23,215			32,881

Total retail funding		3,733,472			3,702,682			2,724,420			2,683,457			2,639,988
Wholesale funding:
Interest-bearing demand	$	—		$	210,825		$	215,311		$	222,036		$	222,344
Certificates of deposit (listing service)		104,990			104,256			104,934			93,853			101,791
Certificates of deposit (brokered)		139,939			84,343			56,821			57,100			21,645

Total wholesale deposits		244,929			399,424			377,066			372,989			345,780
FHLB Advances		1,335,844			1,170,144			775,625			775,649			775,673
Overnight borrowings		60,000			—			42,000			—			—

Total wholesale funding		1,640,773			1,569,568			1,194,691			1,148,638			1,121,453

Total funding	$	5,374,245		$	5,272,250		$	3,919,111		$	3,832,095		$	3,761,441

Retail funding as a % of total funding		69.5	%		70.2	%		69.5	%		70.0	%		70.2	%
Wholesale funding as a % of total funding		30.5	%		29.8	%		30.5	%		30.0	%		29.8	%


Summary Income Statement (Dollars and Shares in Thousands, Except Per Share Data, Unaudited)	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Interest income
Loans	$	47,437		$	46,615		$	30,728		$	30,610		$	30,473
Taxable investment securities		8,879			8,670			6,450			6,077			5,856
Tax-exempt investment securities		716			702			652			641			621
Other interest-earning assets		1,174			1,275			715			704			642

Total interest income		58,206			57,262			38,545			38,032			37,592
Interest expense
Deposits		10,539			9,755			7,026			6,649			6,219
Borrowings		7,487			6,916			4,462			4,548			4,563

Total interest expense		18,026			16,671			11,488			11,197			10,782

Net interest income		40,180			40,591			27,057			26,835			26,810
Provision for loan losses		2,100			717			423			936			630

Net interest income after provision for loan losses		38,080			39,874			26,634			25,899			26,180

Non-interest income
Fees and service charges		1,173			1,205			1,537			1,409			1,261
Gain (loss) on sale and call of securities		—			9			(1	)		—			—
Gain on sale of loans		132			127			346			200			331
(Loss) gain on sale of real estate owned		(50	)		60			7			23			(109	)
Income from bank owned life insurance		1,594			1,604			1,227			1,264			1,267
Electronic banking fees and charges		250			278			243			302			278
Miscellaneous		83			75			189			65			66

Total non-interest income		3,182			3,358			3,548			3,263			3,094
Non-interest expense
Salaries and employee benefits		15,642			15,353			12,888			12,926			12,793
Net occupancy expense of premises		2,736			2,716			2,359			2,122			1,981
Equipment and systems		2,926			2,776			2,323			2,193			2,190
Advertising and marketing		577			757			745			748			710
Federal deposit insurance premium		465			463			350			343			360
Directors’ compensation		758			754			689			688			689
Merger-related expenses		—			5,149			401			1,193			—
Miscellaneous		3,353			3,289			2,788			2,551			2,563

Total non-interest expense		26,457			31,257			22,543			22,764			21,286

Income before income taxes		14,805			11,975			7,639			6,398			7,988
Income taxes		3,659			4,257			2,262			5,129			2,756

Net income	$	11,146		$	7,718		$	5,377		$	1,269		$	5,232

Net income per common share (EPS)
Basic	$	0.12		$	0.08		$	0.07		$	0.02		$	0.07
Diluted	$	0.12		$	0.08		$	0.07		$	0.02		$	0.07
Dividends declared^{(1) (2)}
Cash dividends declared per common share	$	0.20		$	0.04		$	0.03		$	0.03		$	0.15
Cash dividends declared	$	19,404		$	3,892		$	2,262		$	1,856		$	12,148
Dividend payout ratio		174.1	%		50.4	%		42.1	%		146.3	%		232.2	%
Weighted average number of common shares outstanding
Basic		95,127			98,046			75,492			77,174			79,649
Diluted		95,181			98,100			75,539			77,239			79,708

⁽¹⁾	Dividends declared during the quarter ended September 30, 2018 include a $0.16 special dividend representing a supplemental distribution of net income to stockholders from the fiscal year ended June 30, 2018.

⁽²⁾	Dividends declared during the quarter ended September 30, 2017 include a $0.12 special dividend representing a supplemental distribution of net income to stockholders from the fiscal year ended June 30, 2017.


Average Balance Sheet Data (Dollars in Thousands, Unaudited)	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Assets
Interest-earning assets:
Loans receivable, including loans held for sale	$	4,562,375		$	4,507,336		$	3,293,664		$	3,255,862		$	3,257,465
Taxable investment securities		1,180,655			1,192,066			1,003,600			996,397			1,001,183
Tax-exempt investment securities		136,056			134,683			127,605			126,214			122,685
Other interest-earning assets		112,629			142,591			67,770			82,539			79,920

Total interest-earning assets		5,991,715			5,976,676			4,492,639			4,461,012			4,461,253
Non-interest-earning assets		596,006			586,976			369,299			364,015			361,259

Total assets	$	6,587,721		$	6,563,652		$	4,861,938		$	4,825,027		$	4,822,512

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	788,148		$	1,004,445		$	870,762		$	854,142		$	858,039
Savings and club		747,743			724,430			513,948			518,513			522,686
Certificates of deposit		2,046,997			1,983,372			1,385,151			1,336,466			1,284,847

Total interest-bearing deposits		3,582,888			3,712,247			2,769,861			2,709,121			2,665,572
Borrowings:
Federal Home Loan Bank Advances		1,350,113			1,179,147			777,721			777,460			778,104
Other borrowings		40,981			34,636			33,529			30,606			32,041

Total borrowings		1,391,094			1,213,783			811,250			808,066			810,145

Total interest-bearing liabilities		4,973,982			4,926,030			3,581,111			3,517,187			3,475,717
Non-interest-bearing liabilities:
Non-interest-bearing deposits		314,114			305,763			267,152			277,236			274,858
Other non-interest-bearing liabilities		43,533			39,340			24,953			25,777			31,070

Total non-interest-bearing liabilities		357,647			345,103			292,105			303,013			305,928

Total liabilities		5,331,629			5,271,133			3,873,216			3,820,200			3,781,645
Stockholders’ equity		1,256,092			1,292,519			988,722			1,004,827			1,040,867

Total liabilities and stockholders’ equity	$	6,587,721		$	6,563,652		$	4,861,938		$	4,825,027		$	4,822,512

Average interest-earning assets to average interest-bearing liabilities		120.46	%		121.33	%		125.45	%		126.83	%		128.35	%


Performance Ratio Highlights	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Average yield on interest-earning assets:
Loans receivable, including loans held for sale		4.16	%		4.14	%		3.73	%		3.76	%		3.74	%
Taxable investment securities		3.01	%		2.91	%		2.57	%		2.44	%		2.34	%
Tax-exempt investment securities ⁽¹⁾		2.10	%		2.09	%		2.04	%		2.03	%		2.03	%
Other interest-earning assets		4.17	%		3.58	%		4.22	%		3.42	%		3.21	%

Total interest-earning assets		3.89	%		3.83	%		3.43	%		3.41	%		3.37	%
Average cost of interest-bearing liabilities:
Deposits:
Interest-bearing demand		0.86	%		0.89	%		0.84	%		0.80	%		0.76	%
Savings and club		0.41	%		0.29	%		0.12	%		0.12	%		0.12	%
Certificates of deposit		1.58	%		1.41	%		1.46	%		1.43	%		1.38	%

Total interest-bearing deposits		1.18	%		1.05	%		1.01	%		0.98	%		0.93	%
Borrowings:
Federal Home Loan Bank Advances		2.19	%		2.34	%		2.27	%		2.33	%		2.33	%
Other borrowings		0.94	%		0.34	%		0.56	%		0.27	%		0.27	%

Total borrowings		2.15	%		2.28	%		2.20	%		2.25	%		2.25	%

Total interest-bearing liabilities		1.45	%		1.35	%		1.28	%		1.27	%		1.24	%
Interest rate spread⁽²⁾		2.44	%		2.48	%		2.15	%		2.14	%		2.13	%
Net interest margin⁽³⁾		2.68	%		2.72	%		2.41	%		2.41	%		2.40	%
Non-interest income to average assets (annualized)		0.19	%		0.20	%		0.29	%		0.27	%		0.26	%
Non-interest expense to average assets (annualized)		1.61	%		1.90	%		1.85	%		1.89	%		1.77	%
Efficiency ratio⁽⁴⁾		61.01	%		71.12	%		73.66	%		75.63	%		71.18	%
Return on average assets (annualized)		0.68	%		0.47	%		0.44	%		0.11	%		0.43	%
Return on average equity (annualized)		3.55	%		2.39	%		2.18	%		0.51	%		2.01	%

⁽¹⁾	The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.

⁽²⁾	Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.

⁽³⁾	Net interest income divided by average interest-earning assets.

⁽⁴⁾	Non-interest expense divided by the sum of net interest income and non-interest income.

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide additional information which allow readers to evaluate the ongoing performance of the Company. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included below. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.


Reconciliation of GAAP to Non-GAAP (Dollars in Thousands, Except Per Share Data, Unaudited)	For the three months ended
	September 30,		June 30,			March 31,			December 31,			September 30,
	2018		2018			2018			2017			2017
Adjusted Net Income
Net income (GAAP)	$	11,146	$	7,718		$	5,377		$	1,269		$	5,232
Effect to adjust for:
Merger-related expenses		—		5,149			401			1,193			—
Income tax benefit from merger-related expenses		—		(1,451	)		(22	)		(165	)		—
Income tax expense for write-down of net deferred tax asset		—		—			—			4,867			—
Income tax benefit for write-down of net deferred tax liability		—		—			—			(1,381	)		—
Income tax benefit for reduction in current year income tax rate (from 35% to 28%)		—		—			—			(769	)		—

Adjusted net income (non-GAAP)	$	11,146	$	11,416		$	5,756		$	5,014		$	5,232

Adjusted Net Income per Common Share (EPS)
Net income per common share Basic (GAAP)	$	0.12	$	0.08		$	0.07		$	0.02		$	0.07
Effect to adjust for:
Merger-related expenses		—		0.05			0.01			0.02			—
Income tax benefit from merger-related expenses		—		(0.01	)		—			(0.01	)		—
Income tax expense for write-down of net deferred tax asset		—		—			—			0.06			—
Income tax benefit for write-down of net deferred tax liability		—		—			—			(0.02	)		—
Income tax benefit for reduction in current year income tax rate (from 35% to 28%)		—		—			—			(0.01	)		—

Adjusted net income per common share Basic (non-GAAP)	$	0.12	$	0.12		$	0.08		$	0.06		$	0.07

Adjusted Net Income per Common Share (EPS)
Net income per common share Diluted (GAAP)	$	0.12	$	0.08		$	0.07		$	0.02		$	0.07
Effect to adjust for:
Merger-related expenses		—		0.05			0.01			0.02			—
Income tax benefit from merger-related expenses		—		(0.01	)		—			(0.01	)		—
Income tax expense for write-down of net deferred tax asset		—		—			—			0.06			—
Income tax benefit for write-down of net deferred tax liability		—		—			—			(0.02	)		—
Income tax benefit for reduction in current year income tax rate (from 35% to 28%)		—		—			—			(0.01	)		—

Adjusted net income per common share Diluted (non-GAAP)	$	0.12	$	0.12		$	0.08		$	0.06		$	0.07


Reconciliation of GAAP to Non-GAAP (Unaudited)	For the three months ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2018			2018			2018			2017			2017
Adjusted Non-Interest Expense
Non-interest expense (GAAP)		26,457			31,257			22,543			22,764			21,286
Effect to adjust for:
Merger-related expenses		—			(5,149	)		(401	)		(1,193	)		—

Adjusted non-interest expense (non-GAAP)		26,457			26,108			22,142			21,571			21,286

Adjusted Non-Interest Expense Ratio
Non-interest expense to average assets (GAAP)		1.61	%		1.90	%		1.85	%		1.89	%		1.77	%
Effect to adjust for:
Merger-related expenses		0.00	%		-0.31	%		-0.03	%		-0.10	%		0.00	%

Adjusted non-interest expense ratio (non-GAAP)		1.61	%		1.59	%		1.82	%		1.79	%		1.77	%

Adjusted Efficiency Ratio
Non-interest expense / (Net interest income + non-interest income) (GAAP)		61.0	%		71.1	%		73.7	%		75.6	%		71.2	%
Effect to adjust for:
Merger-related expenses		0.0	%		-11.7	%		-1.3	%		-3.9	%		0.0	%

Adjusted efficiency ratio (non-GAAP)		61.0	%		59.4	%		72.4	%		71.7	%		71.2	%

Adjusted Return on Average Assets
Return on average assets (GAAP)		0.68	%		0.47	%		0.44	%		0.11	%		0.43	%
Effect to adjust for:
Merger-related expenses		0.00	%		0.31	%		0.03	%		0.09	%		0.00	%
Income tax benefit from merger-related expenses		0.00	%		-0.09	%		0.00	%		-0.01	%		0.00	%
Income tax expense for write-down of net deferred tax asset		0.00	%		0.00	%		0.00	%		0.40	%		0.00	%
Income tax benefit for write-down of net deferred tax liability		0.00	%		0.00	%		0.00	%		-0.11	%		0.00	%
Income tax benefit for reduction in current year income tax rate (from 35% to 28%)		0.00	%		0.00	%		0.00	%		-0.06	%		0.00	%

Adjusted return on average assets (non-GAAP)		0.68	%		0.69	%		0.47	%		0.42	%		0.43	%

Adjusted Return on Average Equity
Return on average equity (GAAP)		3.55	%		2.39	%		2.18	%		0.51	%		2.01	%
Effect to adjust for:
Merger-related expenses		0.00	%		1.59	%		0.16	%		0.48	%		0.00	%
Income tax benefit from merger-related expenses		0.00	%		-0.45	%		-0.01	%		-0.07	%		0.00	%
Income tax expense for write-down of net deferred tax asset		0.00	%		0.00	%		0.00	%		1.94	%		0.00	%
Income tax benefit for write-down of net deferred tax liability		0.00	%		0.00	%		0.00	%		-0.55	%		0.00	%
Income tax benefit for reduction in current year income tax rate (from 35% to 28%)		0.00	%		0.00	%		0.00	%		-0.31	%		0.00	%

Adjusted return on average equity (non-GAAP)		3.55	%		3.53	%		2.33	%		2.00	%		2.01	%

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