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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒

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

 

For the quarterly period ended September 30, 2019

OR

 

☐

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

 

For the transition period from              to             

Commission File Number 001-37399

 

KEARNY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

Maryland

  

30-0870244

(State or other jurisdiction of
incorporation or organization)

  

(I.R.S. Employer
Identification Number)

 

 

 

120 Passaic Ave., Fairfield, New Jersey

  

07004

(Address of principal executive offices)

  

(Zip Code)

Registrant’s telephone number, including area code

973-244-4500

 

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

KRNY

 

The NASDAQ Stock Market LLC

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

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

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

 

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

 

 

Emerging growth company

☐

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

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

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

$0.01 par value common stock — 86,108,298 shares outstanding

 

 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

Number

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1:

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition at September 30, 2019 (Unaudited) and June 30, 2019

 

1

 

 

 

 

 

 

 

Consolidated Statements of Income for the Three Months Ended September 30, 2019 and September 30, 2018 (Unaudited)

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2019 and September 30, 2018 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2019 and September 30, 2018 (Unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2019 and September 30, 2018 (Unaudited)

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

Item 2:

 

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

 

45

 

 

 

 

 

Item 3:

 

Quantitative and Qualitative Disclosure About Market Risk

 

56

 

 

 

 

 

Item 4:

 

Controls and Procedures

 

59

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1:

 

Legal Proceedings

 

60

 

 

 

 

 

Item 1A:

 

Risk Factors

 

60

 

 

 

 

 

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

 

 

 

 

 

Item 3:

 

Defaults Upon Senior Securities

 

60

 

 

 

 

 

Item 4:

 

Mine Safety Disclosures

 

60

 

 

 

 

 

Item 5:

 

Other Information

 

60

 

 

 

 

 

Item 6:

 

Exhibits

 

61

 

 

 

 

 

SIGNATURES

 

62

 

 

 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data)

 

 

September 30,

 

 

June 30,

 

 

2019

 

 

2019

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

$

16,106

 

 

$

19,032

 

Interest-bearing deposits in other banks

 

113,199

 

 

 

19,903

 

Cash and cash equivalents

 

129,305

 

 

 

38,935

 

Investment securities available for sale, at fair value

 

1,231,691

 

 

 

714,263

 

Investment securities held to maturity (fair value $38,683 and $584,678, respectively)

 

37,888

 

 

 

576,652

 

Loans held-for-sale

 

10,495

 

 

 

12,267

 

Loans receivable, including unaccreted yield adjustments of $(48,982) and $(52,025), respectively

 

4,604,738

 

 

 

4,678,928

 

Less: allowance for loan losses

 

(32,432

)

 

 

(33,274

)

Net loans receivable

 

4,572,306

 

 

 

4,645,654

 

Premises and equipment

 

56,599

 

 

 

56,854

 

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

 

63,739

 

 

 

64,190

 

Accrued interest receivable

 

19,393

 

 

 

19,360

 

Goodwill

 

210,895

 

 

 

210,895

 

Core deposit intangibles

 

4,852

 

 

 

5,160

 

Bank owned life insurance

 

257,735

 

 

 

256,155

 

Deferred income tax assets, net

 

21,742

 

 

 

25,367

 

Other assets

 

24,366

 

 

 

9,077

 

Total Assets

$

6,641,006

 

 

$

6,634,829

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Non-interest-bearing

$

322,846

 

 

$

309,063

 

Interest-bearing

 

3,874,404

 

 

 

3,838,547

 

Total deposits

 

4,197,250

 

 

 

4,147,610

 

Borrowings

 

1,281,118

 

 

 

1,321,982

 

Advance payments by borrowers for taxes

 

16,102

 

 

 

16,887

 

Other liabilities

 

35,747

 

 

 

21,191

 

Total Liabilities

 

5,530,217

 

 

 

5,507,670

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

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

  none issued and outstanding

 

-

 

 

 

-

 

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

  86,786,298 shares and 89,125,655 shares issued and outstanding, respectively

 

868

 

 

 

891

 

Paid-in capital

 

758,385

 

 

 

787,394

 

Retained earnings

 

373,004

 

 

 

366,679

 

Unearned employee stock ownership plan shares;

  3,110,812 shares and 3,160,987 shares, respectively

 

(30,158

)

 

 

(30,644

)

Accumulated other comprehensive income

 

8,690

 

 

 

2,839

 

Total Stockholders' Equity

 

1,110,789

 

 

 

1,127,159

 

Total Liabilities and Stockholders' Equity

$

6,641,006

 

 

$

6,634,829

 

 

See notes to unaudited consolidated financial statements.

 

- 1 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2019

 

 

2018

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

$

48,600

 

 

$

47,437

 

Taxable investment securities

 

 

 

 

 

 

9,328

 

 

 

8,879

 

Tax-exempt investment securities

 

 

 

 

 

 

693

 

 

 

716

 

Other interest-earning assets

 

 

 

 

 

 

1,278

 

 

 

1,174

 

Total Interest Income

 

 

 

 

 

 

59,899

 

 

 

58,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

16,055

 

 

 

10,539

 

Borrowings

 

 

 

 

 

 

7,157

 

 

 

7,487

 

Total Interest Expense

 

 

 

 

 

 

23,212

 

 

 

18,026

 

Net Interest Income

 

 

 

 

 

 

36,687

 

 

 

40,180

 

(Reversal of) provision for loan losses

 

 

 

 

 

 

(782

)

 

 

2,100

 

Net Interest Income after (Reversal of) Provision

for Loan Losses

 

 

 

 

 

 

37,469

 

 

 

38,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

 

 

 

 

1,468

 

 

 

1,173

 

Loss on sale and call of securities

 

 

 

 

 

 

(14

)

 

 

-

 

Gain on sale of loans

 

 

 

 

 

 

605

 

 

 

132

 

Loss on sale and write down of other real estate

owned

 

 

 

 

 

 

-

 

 

 

(50

)

Income from bank owned life insurance

 

 

 

 

 

 

1,580

 

 

 

1,594

 

Electronic banking fees and charges

 

 

 

 

 

 

318

 

 

 

250

 

Miscellaneous

 

 

 

 

 

 

5

 

 

 

83

 

Total Non-Interest Income

 

 

 

 

 

 

3,962

 

 

 

3,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

 

 

 

 

15,777

 

 

 

15,642

 

Net occupancy expense of premises

 

 

 

 

 

 

2,969

 

 

 

2,736

 

Equipment and systems

 

 

 

 

 

 

3,089

 

 

 

2,926

 

Advertising and marketing

 

 

 

 

 

 

535

 

 

 

577

 

Federal deposit insurance premium

 

 

 

 

 

 

-

 

 

 

465

 

Directors' compensation

 

 

 

 

 

 

770

 

 

 

758

 

Miscellaneous

 

 

 

 

 

 

3,104

 

 

 

3,353

 

Total Non-Interest Expense

 

 

 

 

 

 

26,244

 

 

 

26,457

 

Income before Income Taxes

 

 

 

 

 

 

15,187

 

 

 

14,805

 

Income tax expense

 

 

 

 

 

 

3,817

 

 

 

3,659

 

Net Income

 

 

 

 

 

$

11,370

 

 

$

11,146

 

 

See notes to unaudited consolidated financial statements.

 

- 2 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2019

 

 

2018

 

Net Income per Common Share (EPS)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

$

0.13

 

 

$

0.12

 

Diluted

 

 

 

 

 

$

0.13

 

 

$

0.12

 

Weighted Average Number of

  Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

84,756

 

 

 

95,127

 

Diluted

 

 

 

 

 

 

84,793

 

 

 

95,181

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 3 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

Net Income

 

 

 

 

$

11,370

 

 

$

11,146

 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on securities available

  for sale

 

 

 

 

 

7,293

 

 

 

(653

)

Amortization of net unrealized loss on securities

  available for sale transferred to held to maturity

 

 

 

 

 

421

 

 

 

102

 

Net realized loss on securities available for sale

 

 

 

 

 

9

 

 

 

-

 

Fair value adjustments on derivatives

 

 

 

 

 

(2,207

)

 

 

856

 

Benefit plan adjustments

 

 

 

 

 

335

 

 

 

(22

)

Total Other Comprehensive Income

 

 

 

 

 

5,851

 

 

 

283

 

Total Comprehensive Income

 

 

 

 

$

17,221

 

 

$

11,429

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 4 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2018 and September 30, 2019

(In Thousands, Unaudited)

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - June 30, 2018

 

99,626

 

 

$

996

 

 

$

922,711

 

 

$

359,096

 

 

$

(32,590

)

 

$

18,535

 

 

$

1,268,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of change in

accounting principle for the

adoption of ASU 2017-08

 

-

 

 

 

-

 

 

 

-

 

 

 

(531

)

 

 

-

 

 

 

-

 

 

 

(531

)

Balance - July 1, 2018, as

adjusted for change in

accounting principle

 

99,626

 

 

 

996

 

 

 

922,711

 

 

 

358,565

 

 

 

(32,590

)

 

 

18,535

 

 

 

1,268,217

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

11,146

 

 

 

-

 

 

 

-

 

 

 

11,146

 

Other comprehensive income, net

  of income tax expense

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

283

 

 

 

283

 

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-

 

 

 

202

 

 

 

-

 

 

 

486

 

 

.

 

 

 

688

 

Stock option expense

 

-

 

 

 

-

 

 

 

500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

500

 

Share repurchases

 

(1,957

)

 

 

(19

)

 

 

(26,897

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,916

)

Issuance of shares under stock

benefit plans

 

85

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted stock plan shares

  earned (70 shares)

 

-

 

 

 

-

 

 

 

1,036

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,036

 

Cash dividends declared

  ($0.20 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,404

)

 

 

-

 

 

 

-

 

 

 

(19,404

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2018

 

97,754

 

 

$

978

 

 

$

897,551

 

 

$

350,307

 

 

$

(32,104

)

 

$

18,818

 

 

$

1,235,550

 

 

 

Common Stock

 

 

Paid-In

 

 

Retained

 

 

Unearned

ESOP

 

 

Accumulated

Other

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Income

 

 

Total

 

Balance - June 30, 2019

 

89,126

 

 

$

891

 

 

$

787,394

 

 

$

366,679

 

 

$

(30,644

)

 

$

2,839

 

 

$

1,127,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

11,370

 

 

 

-

 

 

 

-

 

 

 

11,370

 

Other comprehensive income, net

  of income tax

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,851

 

 

 

5,851

 

ESOP shares committed to be

  released (50 shares)

 

-

 

 

 

-

 

 

 

173

 

 

 

-

 

 

 

486

 

 

 

-

 

 

 

659

 

Stock option expense

 

-

 

 

 

-

 

 

 

451

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

451

 

Share repurchases

 

(2,326

)

 

 

(23

)

 

 

(30,559

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,582

)

Restricted stock plan shares

  earned (68 shares)

 

-

 

 

 

-

 

 

 

985

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

985

 

Cancellation of shares issued for

  restricted stock awards

 

(14

)

 

 

-

 

 

 

(59

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(59

)

Cash dividends declared

  ($0.06 per common share)

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,045

)

 

 

-

 

 

 

-

 

 

 

(5,045

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2019

 

86,786

 

 

$

868

 

 

$

758,385

 

 

$

373,004

 

 

$

(30,158

)

 

$

8,690

 

 

$

1,110,789

 

 

See notes to unaudited consolidated financial statements.

 

 

- 5 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

 

 

Three Months Ended

 

 

September 30,

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

$

11,370

 

 

$

11,146

 

Adjustment to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization of premises and equipment

 

1,126

 

 

 

1,017

 

Net accretion of premiums, discounts and loan fees and costs

 

(3,045

)

 

 

(2,651

)

Deferred income taxes and valuation allowance

 

1,365

 

 

 

1,006

 

Amortization of intangible assets

 

308

 

 

 

278

 

Amortization (accretion) of benefit plans’ unrecognized net gain

 

475

 

 

 

(47

)

(Reversal of) provision for loan losses

 

(782

)

 

 

2,100

 

Loss on write-down and sales of other real estate owned

 

-

 

 

 

50

 

Loans originated for sale

 

(56,826

)

 

 

(12,209

)

Proceeds from sale of mortgage loans held-for-sale

 

59,203

 

 

 

11,683

 

Gain on sale of mortgage loans held-for-sale, net

 

(605

)

 

 

(114

)

Realized loss on sale and call of investment securities available for sale

 

14

 

 

 

-

 

Proceeds from sale of SBA loans

 

-

 

 

 

215

 

Realized gain on sale of SBA loans

 

-

 

 

 

(18

)

Realized loss (gain) on disposition of premises and equipment

 

106

 

 

 

(6

)

Increase in cash surrender value of bank owned life insurance

 

(1,580

)

 

 

(1,594

)

ESOP, stock option plan and restricted stock plan expenses

 

2,095

 

 

 

2,224

 

Increase in interest receivable

 

(33

)

 

 

(945

)

(Increase) decrease in other assets

 

(16,714

)

 

 

2,737

 

(Decrease) increase in interest payable

 

(664

)

 

 

1,340

 

Increase (decrease) in other liabilities

 

15,135

 

 

 

(2,541

)

Net Cash Provided by Operating Activities

 

10,948

 

 

 

13,671

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

 

Investment securities available for sale

 

(8,198

)

 

 

-

 

Investment securities held to maturity

 

-

 

 

 

(38,376

)

Proceeds from:

 

 

 

 

 

 

 

Repayments/calls/maturities of investment securities available for sale

 

36,674

 

 

 

17,609

 

Repayments/calls/maturities of investment securities held to maturity

 

-

 

 

 

25,057

 

Sales of investment securities available for sale

 

3,646

 

 

 

-

 

Purchase of loans

 

(7,567

)

 

 

(21,412

)

Net decrease (increase) in loans receivable

 

84,804

 

 

 

(134,896

)

Purchase of cash flow hedges

 

(1,476

)

 

 

-

 

Additions to premises and equipment

 

(977

)

 

 

(2,423

)

Proceeds from cash settlement of premises and equipment

 

-

 

 

 

17

 

Purchase of FHLB stock

 

-

 

 

 

(9,000

)

Redemption of FHLB stock

 

451

 

 

 

1,576

 

Net Cash Provided by (Used in) Investing Activities

$

107,357

 

 

$

(161,848

)

 

See notes to unaudited consolidated financial statements.

- 6 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands, Unaudited)

 

 

Three Months Ended

 

 

September 30,

 

 

2019

 

 

2018

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

49,978

 

 

 

(118,143

)

Repayment of term FHLB advances

 

(835,030

)

 

 

(585,028

)

Proceeds from term FHLB advances

 

825,000

 

 

 

750,000

 

Net (decrease) increase in other short-term borrowings

 

(31,271

)

 

 

55,078

 

Net decrease in advance payments by borrowers for taxes

 

(785

)

 

 

(7,401

)

Repurchase and cancellation of common stock of Kearny Financial Corp.

 

(30,582

)

 

 

(26,916

)

Cancellation of shares repurchased on vesting to pay taxes

 

(59

)

 

 

-

 

Dividends paid

 

(5,186

)

 

 

(3,791

)

Net Cash (Used in) Provided by Financing Activities

 

(27,935

)

 

 

63,799

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

90,370

 

 

 

(84,378

)

Cash and Cash Equivalents - Beginning

 

38,935

 

 

 

128,864

 

Cash and Cash Equivalents - Ending

$

129,305

 

 

$

44,486

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flows Information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Income taxes, net of refunds

$

2,429

 

 

$

(241

)

Interest

$

23,876

 

 

$

16,686

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

In conjunction with the adoption of ASU 2019-04, as detailed in Note 6 to the unaudited

consolidated financial statements, the following qualifying held to maturity securities were

transferred to available for sale:

 

 

 

 

 

 

 

Debt securities transferred from held to maturity to available for sale

$

537,732

 

 

$

-

 

 

 

 

 

 

 

 

 

In conjunction with the adoption of ASU 2016-02, as detailed in Note 6 to the unaudited

consolidated financial statements, the following assets and liabilities were recognized:

 

 

 

 

 

 

 

Operating lease right-of-use assets

$

17,243

 

 

 

 

 

Operating lease liabilities

$

17,758

 

 

$

-

 

 

See notes to unaudited consolidated financial statements.

 

 

 

- 7 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1.     PRINCIPLES OF CONSOLIDATION

The unaudited consolidated financial statements include the accounts of Kearny Financial Corp. (the “Company”), its wholly-owned subsidiary, Kearny Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries, CJB Investment Corp. and KFS Financial Services, Inc. and its wholly-owned subsidiary, KFS Insurance Services, Inc. The Company conducts its business principally through the Bank. Management prepared the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), including the elimination of all significant inter-company accounts and transactions during consolidation.

 

 

2.     BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the unaudited consolidated financial statements have been included. The results of operations for the three-month period ended September 30, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period.

The data in the consolidated statement of financial condition for June 30, 2019 was derived from the Company’s 2019 Annual Report on Form 10-K. That data, along with the interim unaudited financial information presented in the consolidated statements of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s 2019 Annual Report on Form 10-K.

 

 

3.     NET INCOME PER COMMON SHARE (“EPS”)

Basic EPS is based on the weighted average number of common shares actually outstanding including both vested and unvested restricted stock awards adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per

Share

Amount

 

 

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

$

11,370

 

 

 

 

 

 

 

 

 

Basic earnings per share, income

  available to common stockholders

 

 

 

 

 

 

 

$

11,370

 

 

 

84,756

 

 

$

0.13

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,370

 

 

 

84,793

 

 

$

0.13

 

- 8 -

 

 

 

 

 

Three Months Ended

 

 

 

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per

Share

Amount

 

 

 

 

 

(In Thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

$

11,146

 

 

 

 

 

 

 

 

 

Basic earnings per share, income

  available to common stockholders

 

 

 

 

 

 

 

$

11,146

 

 

 

95,127

 

 

$

0.12

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,146

 

 

 

95,181

 

 

$

0.12

 

 

Stock options for 3,245,000 and 3,270,000 shares of common stock were not considered in computing diluted earnings per share at September 30, 2019 and September 30, 2018, respectively, because they were considered anti-dilutive.

 

 

4.     SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 2019, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date this document was filed.

 

 

5.    ACQUISITION OF CLIFTON BANCORP INC.

On April 2, 2018, the Company completed its acquisition of Clifton Bancorp Inc. (“Clifton”), the parent company of Clifton Savings Bank, a federally chartered stock savings bank.  In conjunction with the acquisition, the Company acquired assets with aggregate fair values totaling $1.61 billion including loans and securities with fair values of $1.12 billion and $326.9 million, respectively.  The Company assumed liabilities with aggregate fair values totaling $1.38 billion in conjunction with the Clifton acquisition including deposits and borrowings with fair values of $949.8 million and $414.1 million, respectively.

Merger consideration associated with the acquisition totaled $333.9 million and primarily comprised 25.4 million shares of the Company’s common stock valued at $330.7 million that were issued to Clifton stockholders to reflect an exchange of 1.191 of Company shares for each outstanding share of Clifton common stock at the time of closing.  Merger consideration also included $3.2 million in cash distributed to eligible holders of outstanding options to purchase Clifton stock as well as cash distributed to Clifton stockholders for the settlement of fractional shares.  The amount by which merger consideration exceeds the fair value of net assets acquired resulted in the Company’s recognition of $102.3 million in goodwill associated with the Clifton acquisition.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible were recorded at their fair values as of April 2, 2018 based on management’s best estimate using the information available as of the merger date.  The application of the acquisition method of accounting resulted in the recognition of goodwill of $102.3 million and a core deposit intangible of $6.4 million.  Accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through April 2, 2019, in the measurement period in which the adjustment amounts are determined.  The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the year ended June 30, 2019, the Company completed all tax returns related to the operation of the combined entities through June 30, 2018 and determined that there were no material adjustments to the balance of income taxes or goodwill associated with the Clifton acquisition.

- 9 -

 

6.     RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (“CECL”) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. An allowance will be established for loans that have been acquired in a business combination that currently do not have an allowance.  As of September 30, 2019, approximately $1.04 billion of acquired loans do not have an allowance.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.  For public business entities that are SEC filers and not smaller reporting companies, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of July 1, 2020 (i.e. modified retrospective approach).  The Company has selected a third party firm to assist in the development of a CECL program, and has selected a software model to assist in the calculation of the allowance for loan losses in preparation for the change to the expected loss model. The Company is continuing its evaluation of this ASU including the potential impact on its consolidated financial statements.  The extent of change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time.  Upon adoption, any impact to the allowance for credit losses, currently allowance for loan and lease losses, will have an offsetting impact on retained earnings, and be net of tax.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies subsequent measurement of goodwill by eliminating Step 2 of the impairment test while retaining the option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. For public entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment testing dates beginning after January 1, 2017. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief”.  ASU 2019-05 provides transition relief by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3.  The election must be applied on an instrument-by-instrument basis and is not available for either available for sale or held to maturity debt securities. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings net of tax, as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings.  The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

- 10 -

Adoption of New Accounting Standards

Effective July 1, 2019, the Company implemented ASU No. 2016-02, “Leases (Topic 842)” (modified by ASU 2018-01 – Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842) and ASU 2018-20 – Leases (Topic 842) Narrow – Scope Improvements for Lessors).  ASU 2016-02 requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current GAAP.  Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP.  For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities.  The Company has made this accounting policy election. Effective with the adoption on July 1, 2019, the Company recognized a “right-of-use-asset” and a “lease liability” for its operating leases and has elected to apply practical expedients pertaining to the ASU. The Company applied the following three practical expediencies, which must be elected as a package and applied consistently to all of our leases: (i) the Company did not have to reassess whether any expired leases or existing contracts are, or contain, a lease; (ii) the Company did not have to reassess the lease classifications for any expired or existing leases.  Accordingly, Topic 840 operating leases became Topic 842 operating leases; and (iii) the Company did not have to reassess initial; direct costs for any existing leases. The Company applied a modified retrospective transition approach for the applicable leases.  ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts rather than elect the practical expedient to account for the components as a single lease component.  The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (July 1, 2019) and will not restate comparative periods. Upon adoption of ASU 2016-02, the Company recorded a right-of-use asset of approximately $17.2 million and a lease liability of approximately $17.8 million.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the use of the OIS Rate based on SOFR as a benchmark interest rate for purposes of applying hedge accounting under Topic 815. This is the fifth U.S. benchmark interest rate eligible for use in hedge accounting in addition to interest rates on direct Treasury obligations of the U.S. Government, the London Interbank Offered Rate swap rate, and the OIS Rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate.  The amendments in this ASU are required to be adopted concurrently with the amendments in ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, for entities that have not adopted that guidance.  For public entities that have previously adopted ASU 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period if an entity already has adopted ASU 2017-12.  The Company early adopted ASU 2017-12 on July 1, 2017.  The amendments in ASU 2018-16 should be applied on a prospective basis for qualifying new or re-designated hedging relationships entered into on or after the date of adoption.  The Company adopted ASU 2018-16 on July 1, 2019, and its adoption did not have a significant impact on the Company’s audited consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 amends certain aspects of accounting for credit losses, hedging activities, and financial instruments addressed by ASUs 2016-13, 2016-01, and 2017-12, respectively. Significant amendments to ASU 2016-13 relate to the measurement of accrued interest, transfers between classifications or categories for loans and debt securities and including recoveries when estimating the allowance for credit losses. For Topic 825, the codification improvements to ASU 2016-01 provide scope clarification for Subtopics 320-10, Investments-Debt and Equity Securities-Overall, and 321-10, Investments-Equity Securities-Overall, held to maturity debt securities fair value disclosures, and re-measurement of equity securities at historical exchange rates.  Significant amendments to ASU 2017-12 amends the guidance related to partial-term fair value hedges of interest rate risk, disclosure of fair value hedge basis adjustments, and scope for not-for-profit entities. ASU 2019-04 clarifies that an entity that reclassifies debt securities from the held to maturity category to available for sale as part of its transition would not (1) call in to question its held to maturity assertion for other securities held at the entity’s most recent reporting date, (2) be required to actually designate any reclassified security in a last-of-layer hedge, or (3) be restricted from selling any reclassified security.  The Company adopted ASU 2019-04 on July 1, 2019. As part of the adoption, the Company reclassified $537.7 million of investment securities held to maturity to investment securities available for sale. The Company did not reclassify investment securities from held to maturity to available for sale upon the original adoption of the amendments in ASU 2017-12. Entities electing to reclassify investment securities upon adoption of the amendments in this update are required to reflect the reclassification as of the beginning of the first annual period beginning after the issuance of ASU 2019-04 (July 1, 2019).

 

 

- 11 -

7.     SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses and fair values of debt and mortgage-backed securities available for sale at September 30, 2019 and June 30, 2019 and stratification by contractual maturity of debt securities available for sale at September 30, 2019 are presented below as of the dates indicated.  As of July 1, 2019, the Company adopted ASU 2019-04 and reclassified $537.7 million of securities held to maturity to securities available for sale.  See Note 6, Recent Accounting Pronouncements, for further details regarding the adoption of ASU 2019-04.

 

 

September 30, 2019

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

(In Thousands)

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

680

 

 

$

14

 

 

$

-

 

 

$

694

 

Obligations of state and political subdivisions

 

89,447

 

 

 

1,605

 

 

 

2

 

 

 

91,050

 

Asset-backed securities

 

180,689

 

 

 

911

 

 

 

532

 

 

 

181,068

 

Collateralized loan obligations

 

199,394

 

 

 

130

 

 

 

975

 

 

 

198,549

 

Corporate bonds

 

190,996

 

 

 

1,136

 

 

 

891

 

 

 

191,241

 

Trust preferred securities

 

3,967

 

 

 

-

 

 

 

192

 

 

 

3,775

 

Total debt securities

 

665,173

 

 

 

3,796

 

 

 

2,592

 

 

 

666,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations (1)

 

63,117

 

 

 

677

 

 

 

209

 

 

 

63,585

 

Residential pass-through securities (1)

 

200,399

 

 

 

3,135

 

 

 

676

 

 

 

202,858

 

Commercial pass-through securities (1)

 

290,848

 

 

 

8,022

 

 

 

8

 

 

 

298,862

 

Non-agency securities

 

9

 

 

 

-

 

 

 

-

 

 

 

9

 

Total mortgage-backed securities

 

554,373

 

 

 

11,834

 

 

 

893

 

 

 

565,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

$

1,219,546

 

 

$

15,630

 

 

$

3,485

 

 

$

1,231,691

 

 

(1)

Government-sponsored enterprises.

 

 

September 30, 2019

 

 

Amortized

Cost

 

 

Fair

Value

 

 

(In Thousands)

 

Debt securities available for sale:

 

 

 

 

 

 

 

Due in one year or less

$

28,024

 

 

$

28,113

 

Due after one year through five years

 

119,032

 

 

 

118,420

 

Due after five years through ten years

 

171,822

 

 

 

173,997

 

Due after ten years

 

346,295

 

 

 

345,847

 

Total

$

665,173

 

 

$

666,377

 

 

 

 

 

 

 

 

 

- 12 -

 

 

June 30, 2019

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

(In Thousands)

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

3,642

 

 

$

40

 

 

$

4

 

 

$

3,678

 

Obligations of state and political subdivisions

 

26,628

 

 

 

323

 

 

 

-

 

 

 

26,951

 

Asset-backed securities

 

178,168

 

 

 

1,465

 

 

 

320

 

 

 

179,313

 

Collateralized loan obligations

 

209,453

 

 

 

254

 

 

 

1,096

 

 

 

208,611

 

Corporate bonds

 

122,929

 

 

 

121

 

 

 

1,026

 

 

 

122,024

 

Trust preferred securities

 

3,967

 

 

 

-

 

 

 

211

 

 

 

3,756

 

Total debt securities

 

544,787

 

 

 

2,203

 

 

 

2,657

 

 

 

544,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations (1)

 

21,469

 

 

 

70

 

 

 

149

 

 

 

21,390

 

Residential pass-through securities (1)

 

44,611

 

 

 

156

 

 

 

464

 

 

 

44,303

 

Commercial pass-through securities (1)

 

101,421

 

 

 

2,816

 

 

 

-

 

 

 

104,237

 

Total mortgage-backed securities

 

167,501

 

 

 

3,042

 

 

 

613

 

 

 

169,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities available for sale

$

712,288

 

 

$

5,245

 

 

$

3,270

 

 

$

714,263

 

 

(1)

Government-sponsored enterprises.

Sales of securities available for sale were as follows for the periods presented below:

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

(In Thousands)

 

Available for sale securities sold:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sales of securities

 

 

 

 

$

3,646

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

 

 

$

12

 

 

$

-

 

Gross realized losses

 

 

 

 

 

(28

)

 

 

-

 

Net loss on sales of securities

 

 

 

 

$

(16

)

 

$

-

 

 

Securities available for sale pledged for borrowings at the FHLB and other institutions, and securities pledged for public funds and other purposes, were as follows as of the dates presented below:

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

 

 

 

2019

 

 

2019

 

 

 

 

 

 

(In Thousands)

 

Available for sale securities pledged:

 

 

 

 

 

 

 

 

 

 

 

Pledged for borrowings at the FHLB of New York

 

 

 

 

$

158,679

 

 

$

24,099

 

Pledged to secure public funds on deposit

 

 

 

 

 

6,898

 

 

 

-

 

Pledged for potential borrowings at the Federal

Reserve Bank of New York

 

 

 

 

 

107,316

 

 

 

43,623

 

Pledged for collateral for depositor sweep accounts

 

 

 

 

 

8,265

 

 

 

1,322

 

Total available for sale securities pledged

 

 

 

 

$

281,158

 

 

$

69,044

 

 

 

- 13 -

8.     SECURITIES HELD TO MATURITY

The amortized cost, gross unrecognized gains and losses and fair values of debt and mortgage-backed securities held to maturity at September 30, 2019 and June 30, 2019 and stratification by contractual maturity of debt securities held to maturity at September 30, 2019 are presented below:

 

 

September 30, 2019

 

 

Amortized

Cost

 

 

Gross

Unrecognized

Gains

 

 

Gross

Unrecognized

Losses

 

 

Fair

Value

 

 

(In Thousands)

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

$

37,888

 

 

$

802

 

 

$

7

 

 

$

38,683

 

Total debt securities

$

37,888

 

 

$

802

 

 

$

7

 

 

$

38,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

$

37,888

 

 

$

802

 

 

$

7

 

 

$

38,683

 

 

 

 

 

 

September 30, 2019

 

 

Amortized

Cost

 

 

Fair

Value

 

 

(In Thousands)

 

Debt securities held to maturity:

 

 

 

 

 

 

 

Due in one year or less

$

6,155

 

 

$

6,159

 

Due after one year through five years

 

19,931

 

 

 

20,203

 

Due after five years through ten years

 

11,802

 

 

 

12,321

 

Total

$

37,888

 

 

$

38,683

 

 

- 14 -

 

 

June 30, 2019

 

 

Amortized

Cost

 

 

Gross

Unrecognized

Gains

 

 

Gross

Unrecognized

Losses

 

 

Fair

Value

 

 

(In Thousands)

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political subdivisions

$

104,086

 

 

$

1,787

 

 

$

16

 

 

$

105,857

 

Corporate bonds

 

63,086

 

 

 

914

 

 

 

-

 

 

 

64,000

 

Total debt securities

 

167,172

 

 

 

2,701

 

 

 

16

 

 

 

169,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations (1)

 

46,370

 

 

 

568

 

 

 

168

 

 

 

46,770

 

Residential pass-through securities (1)

 

166,283

 

 

 

1,961

 

 

 

518

 

 

 

167,726

 

Commercial pass-through securities (1)

 

196,816

 

 

 

3,504

 

 

 

6

 

 

 

200,314

 

Non-agency securities

 

11

 

 

 

-

 

 

 

-

 

 

 

11

 

Total mortgage-backed securities

 

409,480

 

 

 

6,033

 

 

 

692

 

 

 

414,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities held to maturity

$

576,652

 

 

$

8,734

 

 

$

708

 

 

$

584,678

 

 

(1)

Government-sponsored enterprises.

 

There were no sales of securities held to maturity during the three months ended September 30, 2019 and September 30, 2018.

Securities held to maturity pledged for borrowings at the FHLB and other institutions, and securities pledged for public funds and other purposes, were as follows as of the dates presented below:

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

 

 

 

2019

 

 

2019

 

 

 

 

 

 

(In Thousands)

 

Held to maturity securities pledged:

 

 

 

 

 

 

 

 

 

 

 

Pledged for borrowings at the FHLB of New York

 

 

 

 

$

-

 

 

$

136,696

 

Pledged to secure public funds on deposit

 

 

 

 

 

-

 

 

 

7,023

 

Pledged for potential borrowings at the Federal

Reserve Bank of New York

 

 

 

 

 

37,888

 

 

 

103,419

 

Pledged for collateral for depositor sweep accounts

 

 

 

 

 

-

 

 

 

12,884

 

Total held to maturity securities pledged

 

 

 

 

$

37,888

 

 

$

260,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 15 -

9.     IMPAIRMENT OF SECURITIES

The following two tables summarize the fair values, gross unrealized and unrecognized losses and the number of securities impaired within the available for sale and held to maturity portfolios at September 30, 2019 and June 30, 2019. The gross unrealized and unrecognized losses, presented by security type, represent temporary impairments of value within each portfolio as of the dates presented. Temporary impairments within the available for sale portfolio have been recognized through other comprehensive loss as reductions in stockholders’ equity on a tax-effected basis.

The tables are followed by a discussion that summarizes the Company’s rationale for recognizing impairments, where applicable, as temporary versus those identified as other-than-temporary. Such rationale is presented by investment type and generally applies consistently to both the available for sale and held to maturity portfolios, except where specifically noted.

 

 

September 30, 2019

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Number of Securities

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

(Dollars in Thousands)

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political

  subdivisions

$

1,337

 

 

$

1

 

 

$

770

 

 

$

1

 

 

$

5

 

 

$

2,107

 

 

$

2

 

Asset-backed securities

 

78,370

 

 

 

506

 

 

 

4,965

 

 

 

26

 

 

 

8

 

 

 

83,335

 

 

 

532

 

Collateralized loan obligations

 

64,013

 

 

 

121

 

 

 

116,021

 

 

 

854

 

 

 

17

 

 

 

180,034

 

 

 

975

 

Corporate bonds

 

24,929

 

 

 

71

 

 

 

72,155

 

 

 

820

 

 

 

12

 

 

 

97,084

 

 

 

891

 

Trust preferred securities

 

-

 

 

 

-

 

 

 

2,775

 

 

 

192

 

 

 

2

 

 

 

2,775

 

 

 

192

 

Collateralized mortgage

obligations

 

2,621

 

 

 

19

 

 

 

14,840

 

 

 

190

 

 

 

8

 

 

 

17,461

 

 

 

209

 

Residential pass-through

securities

 

29,411

 

 

 

157

 

 

 

52,334

 

 

 

519

 

 

 

34

 

 

 

81,745

 

 

 

676

 

Commercial pass-through

securities

 

-

 

 

 

-

 

 

 

1,135

 

 

 

8

 

 

 

1

 

 

 

1,135

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

200,681

 

 

$

875

 

 

$

264,995

 

 

$

2,610

 

 

 

87

 

 

$

465,676

 

 

$

3,485

 

 

 

June 30, 2019

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Number of Securities

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

(Dollars in Thousands)

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

-

 

 

$

-

 

 

$

1,122

 

 

$

4

 

 

 

5

 

 

$

1,122

 

 

$

4

 

Asset-backed securities

 

40,211

 

 

 

262

 

 

 

4,934

 

 

 

58

 

 

 

4

 

 

 

45,145

 

 

 

320

 

Collateralized loan obligations

 

44,061

 

 

 

75

 

 

 

115,914

 

 

 

1,021

 

 

 

15

 

 

 

159,975

 

 

 

1,096

 

Corporate bonds

 

47,486

 

 

 

509

 

 

 

44,462

 

 

 

517

 

 

 

11

 

 

 

91,948

 

 

 

1,026

 

Trust preferred securities

 

-

 

 

 

-

 

 

 

2,756

 

 

 

211

 

 

 

2

 

 

 

2,756

 

 

 

211

 

Collateralized mortgage

obligations

 

-

 

 

 

-

 

 

 

16,369

 

 

 

149

 

 

 

4

 

 

 

16,369

 

 

 

149

 

Residential pass-through

securities

 

-

 

 

 

-

 

 

 

33,519

 

 

 

464

 

 

 

6

 

 

 

33,519

 

 

 

464

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

131,758

 

 

$

846

 

 

$

219,076

 

 

$

2,424

 

 

 

47

 

 

$

350,834

 

 

$

3,270

 

 

 

- 16 -

 

September 30, 2019

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair

Value

 

 

Unrecognized Losses

 

 

Fair

Value

 

 

Unrecognized Losses

 

 

Number of Securities

 

 

Fair

Value

 

 

Unrecognized

Losses

 

 

(Dollars in Thousands)

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political

  subdivisions

$

2,975

 

 

$

6

 

 

$

470

 

 

$

1

 

 

 

10

 

 

$

3,445

 

 

$

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

2,975

 

 

$

6

 

 

$

470

 

 

$

1

 

 

 

10

 

 

$

3,445

 

 

$

7

 

 

 

 

June 30, 2019

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

 

Fair

Value

 

 

Unrecognized Losses

 

 

Fair

Value

 

 

Unrecognized Losses

 

 

Number of Securities

 

 

Fair

Value

 

 

Unrecognized

Losses

 

 

(Dollars in Thousands)

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political

  subdivisions

$

274

 

 

$

1

 

 

$

7,149

 

 

$

15

 

 

 

19

 

 

$

7,423

 

 

$

16

 

Collateralized mortgage

obligations

 

-

 

 

 

-

 

 

 

9,347

 

 

 

168

 

 

 

5

 

 

 

9,347

 

 

 

168

 

Residential pass-through

securities

 

438

 

 

 

1

 

 

 

76,848

 

 

 

517

 

 

 

70

 

 

 

77,286

 

 

 

518

 

Commercial pass-through

securities

 

-

 

 

 

-

 

 

 

1,852

 

 

 

6

 

 

 

2

 

 

 

1,852

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

712

 

 

$

2

 

 

$

95,196

 

 

$

706

 

 

 

96

 

 

$

95,908

 

 

$

708

 

 

In general, if the fair value of a debt security is less than its amortized cost basis at the time of evaluation, the security is impaired and the impairment is to be evaluated to determine if it is other than temporary.  The Company evaluates the impaired securities in its portfolio for possible other than temporary impairment (“OTTI”) on at least a quarterly basis.  The following represents the circumstances under which an impaired security is determined to be other-than-temporarily impaired: (i) when the Company intends to sell the impaired debt security; (ii) when the Company more likely than not will be required to sell the impaired debt security before recovery of its amortized cost; or (iii) when an impaired debt security does not meet either of the two conditions above, but the Company does not expect to recover the entire amortized cost of the security.

In the first two circumstances noted above, the amount of OTTI to be recognized in earnings is the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date.  In the third circumstance, however, the OTTI is to be separated into the amount representing the credit loss from the amount related to all other factors.  The credit loss component is to be recognized in earnings while the non-credit loss component is to be recognized in other comprehensive income.  In these cases, OTTI is generally predicated on an adverse change in cash flows versus those expected at the time of purchase.  The absence of an adverse change in expected cash flows generally indicates that a security’s impairment is related to other non-credit loss factors and is thereby generally not recognized as OTTI.

The Company considers a variety of factors when determining whether a credit loss exists for an impaired security including, but not limited to (i) the length of time and the extent to which the fair value has been less than the amortized cost basis; (ii) adverse conditions specifically related to the security, an industry, or a geographic area; (iii) the historical and implied volatility of the fair value of the security; (iv) the payment structure of the debt security; (v) actual or expected failure of the issuer of the security to make scheduled interest or principal payments; (vi) changes to the rating of the security by external rating agencies; and (vii) recoveries or additional declines in fair value subsequent to the balance sheet date.  The Company regularly monitors the historical cash flows and financial strength of all issuers and/or guarantors to confirm that security impairment, where applicable, is not due to an actual or expected adverse change in security cash flows that would result in the recognition of credit-related OTTI.

- 17 -

The unrealized and unrecognized losses on the Company’s securities are due to the combined effects of several market-related factors including, most notably, changes in market interest rates and changing market conditions which affect the supply and demand for such securities.  Those market conditions may fluctuate over time resulting in certain securities being impaired for periods in excess of 12 months.  However, the longevity of such impairment is not necessarily reflective of an expectation for an adverse change in cash flows signifying a credit loss.  Consequently, the impairments of value resulting directly from these changing market conditions are considered non-credit related and temporary in nature.

The Company has the stated ability and intent to hold until forecasted recovery those securities so designated at September 30, 2019 and does not intend to sell the temporarily impaired available for sale securities prior to the recovery of their fair value to a level equal to or greater than the Company’s amortized cost.  Furthermore, the Company has concluded that the possibility of being required to sell the securities prior to their anticipated recovery is unlikely.  In light of the factors noted above, the Company does not consider its balance of securities with unrealized and unrecognized losses at September 30, 2019 and June 30, 2019, to be other-than-temporarily impaired as of those dates.

 

 

10.     LOANS RECEIVABLE

 

The following table sets forth the composition of the Company’s loan portfolio at September 30, 2019 and June 30, 2019:

 

 

September 30,

 

 

June 30,

 

 

2019

 

 

2019

 

 

(In Thousands)

 

One- to four-family residential mortgage

$

1,319,750

 

 

$

1,344,044

 

 

 

 

 

 

 

 

 

Commercial mortgage:

 

 

 

 

 

 

 

Multi-family

 

1,922,968

 

 

 

1,946,391

 

Nonresidential

 

1,230,963

 

 

 

1,258,869

 

Total commercial mortgage

 

3,153,931

 

 

 

3,205,260

 

 

 

 

 

 

 

 

 

Construction

 

14,637

 

 

 

13,907

 

 

 

 

 

 

 

 

 

Commercial business

 

66,889

 

 

 

65,763

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

Home equity loans and lines of credit

 

93,304

 

 

 

96,165

 

Passbook or certificate

 

3,530

 

 

 

3,732

 

Other

 

1,679

 

 

 

2,082

 

Total consumer

 

98,513

 

 

 

101,979

 

 

 

 

 

 

 

 

 

Total loans

 

4,653,720

 

 

 

4,730,953

 

 

 

 

 

 

 

 

 

Unaccreted yield adjustments including net premiums and discounts

on purchased and acquired loans and net deferred  fees and costs on

loans originated

 

(48,982

)

 

 

(52,025

)

 

 

 

 

 

 

 

 

Total loans receivable, net of yield adjustments

$

4,604,738

 

 

$

4,678,928

 

 

 

- 18 -

11.     LOAN QUALITY AND ALLOWANCE FOR LOAN LOSSES

Residential Mortgage Loans in Foreclosure. We may obtain physical possession of one- to four-family real estate collateralizing a residential mortgage loan via foreclosure or through an in-substance repossession.  As of September 30, 2019, we held no single-family properties that were acquired through foreclosures on residential mortgage loans.  As of that same date, we held 10 residential mortgage loans with aggregate carrying values totaling $2.1 million which were in the process of foreclosure.

As of June 30, 2019, we held no single-family properties that were acquired through foreclosures on residential mortgage loans.  As of that same date, we held 11 residential mortgage loans with aggregate carrying values totaling $2.1 million which were in the process of foreclosure.

 

Loan Quality. The following tables present the balance of the allowance for loan losses at September 30, 2019 and June 30, 2019 based upon the calculation methodology as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates as well as the activity in the allowance for loan losses for the three months ended September 30, 2019 and September 30, 2018. Unless otherwise noted, the balance of loans reported in the tables below excludes yield adjustments and the allowance for loan loss.

 

Allowance for Loan Losses

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Balance of allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated

  credit quality

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Loans individually

  evaluated for impairment

 

34

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

42

 

Loans collectively

  evaluated for impairment

 

3,273

 

 

 

16,702

 

 

 

9,371

 

 

 

140

 

 

 

2,285

 

 

 

478

 

 

 

141

 

 

 

32,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

$

3,307

 

 

$

16,702

 

 

$

9,371

 

 

$

140

 

 

$

2,293

 

 

$

478

 

 

$

141

 

 

$

32,432

 

 

 

Balance of Loans Receivable

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Balance of loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated

  credit quality

$

82

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

235

 

 

$

-

 

 

$

-

 

 

$

317

 

Loans individually

  evaluated for impairment

 

11,119

 

 

 

3,061

 

 

 

8,750

 

 

 

-

 

 

 

3,083

 

 

 

1,476

 

 

 

-

 

 

 

27,489

 

Loans collectively

  evaluated for impairment

 

1,308,549

 

 

 

1,919,907

 

 

 

1,222,213

 

 

 

14,637

 

 

 

63,571

 

 

 

91,828

 

 

 

5,209

 

 

 

4,625,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,319,750

 

 

$

1,922,968

 

 

$

1,230,963

 

 

$

14,637

 

 

$

66,889

 

 

$

93,304

 

 

$

5,209

 

 

$

4,653,720

 

Unaccreted yield

  adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,982

)

Loans receivable, net of

   yield adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,604,738

 

 

 

- 19 -

 

Allowance for Loan Losses

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Balance of allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated

  credit quality

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Loans individually

  evaluated for impairment

 

31

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31

 

Loans collectively

  evaluated for impairment

 

3,346

 

 

 

16,959

 

 

 

9,672

 

 

 

136

 

 

 

2,467

 

 

 

491

 

 

 

172

 

 

 

33,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

$

3,377

 

 

$

16,959

 

 

$

9,672

 

 

$

136

 

 

$

2,467

 

 

$

491

 

 

$

172

 

 

$

33,274

 

 

 

Balance of Loans Receivable

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Balance of loans receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans acquired with deteriorated

  credit quality

$

84

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

242

 

 

$

-

 

 

$

-

 

 

 

326

 

Loans individually

  evaluated for impairment

 

12,545

 

 

 

70

 

 

 

8,900

 

 

 

-

 

 

 

1,213

 

 

 

1,531

 

 

 

-

 

 

 

24,259

 

Loans collectively

  evaluated for impairment

 

1,331,415

 

 

 

1,946,321

 

 

 

1,249,969

 

 

 

13,907

 

 

 

64,308

 

 

 

94,634

 

 

 

5,814

 

 

 

4,706,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,344,044

 

 

$

1,946,391

 

 

$

1,258,869

 

 

$

13,907

 

 

$

65,763

 

 

$

96,165

 

 

$

5,814

 

 

$

4,730,953

 

Unaccreted yield

  adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,025

)

Loans receivable, net of

   yield adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,678,928

 

 

- 20 -

 

 

 

Allowance for Loan Losses

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Changes in the allowance for loan

  losses for the three months ended

  September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2019:

$

3,377

 

 

$

16,959

 

 

$

9,672

 

 

$

136

 

 

$

2,467

 

 

$

491

 

 

$

172

 

 

$

33,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total charge offs

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(64

)

 

 

(64

)

Total recoveries

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

4

 

Total provisions

 

(70

)

 

 

(257

)

 

 

(301

)

 

 

4

 

 

 

(174

)

 

 

(13

)

 

 

29

 

 

 

(782

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

$

3,307

 

 

$

16,702

 

 

$

9,371

 

 

$

140

 

 

$

2,293

 

 

$

478

 

 

$

141

 

 

$

32,432

 

 

 

 

Allowance for Loan Losses

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Changes in the allowance for loan

  losses for the three months ended

  September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2018:

$

2,479

 

 

$

14,946

 

 

$

9,787

 

 

$

258

 

 

$

2,552

 

 

$

430

 

 

$

413

 

 

$

30,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total charge offs

 

(82

)

 

 

-

 

 

 

(54

)

 

 

-

 

 

 

(19

)

 

 

-

 

 

 

(107

)

 

 

(262

)

Total recoveries

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

27

 

 

 

28

 

Total provisions

 

197

 

 

 

1,371

 

 

 

211

 

 

 

35

 

 

 

270

 

 

 

4

 

 

 

12

 

 

 

2,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total allowance for loan losses

$

2,594

 

 

$

16,317

 

 

$

9,945

 

 

$

293

 

 

$

2,803

 

 

$

434

 

 

$

345

 

 

$

32,731

 

 

 

 

 

- 21 -

The following tables present key indicators of credit quality regarding the Company’s loan portfolio based upon loan classification and contractual payment status at September 30, 2019 and June 30, 2019 based upon the methodology for identifying and reporting such loans as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

 

Credit-Rating Classification of Loans Receivable

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Non-classified

$

1,305,660

 

 

$

1,918,799

 

 

$

1,221,692

 

 

$

14,637

 

 

$

60,105

 

 

$

91,649

 

 

$

5,174

 

 

$

4,617,716

 

Classified:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special Mention

 

509

 

 

 

1,108

 

 

 

-

 

 

 

-

 

 

 

2,896

 

 

 

166

 

 

 

16

 

 

 

4,695

 

Substandard

 

13,581

 

 

 

3,061

 

 

 

9,271

 

 

 

-

 

 

 

3,888

 

 

 

1,489

 

 

 

17

 

 

 

31,307

 

Doubtful

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

2

 

Loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total classified loans

 

14,090

 

 

 

4,169

 

 

 

9,271

 

 

 

-

 

 

 

6,784

 

 

 

1,655

 

 

 

35

 

 

 

36,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,319,750

 

 

$

1,922,968

 

 

$

1,230,963

 

 

$

14,637

 

 

$

66,889

 

 

$

93,304

 

 

$

5,209

 

 

$

4,653,720

 

 

 

 

Credit-Rating Classification of Loans Receivable

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Non-classified

$

1,328,811

 

 

$

1,945,205

 

 

$

1,249,438

 

 

$

13,907

 

 

$

59,768

 

 

$

94,544

 

 

$

5,776

 

 

$

4,697,449

 

Classified:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special Mention

 

629

 

 

 

1,116

 

 

 

-

 

 

 

-

 

 

 

3,894

 

 

 

28

 

 

 

14

 

 

 

5,681

 

Substandard

 

14,604

 

 

 

70

 

 

 

9,431

 

 

 

-

 

 

 

2,101

 

 

 

1,593

 

 

 

23

 

 

 

27,822

 

Doubtful

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

1

 

Loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total classified loans

 

15,233

 

 

 

1,186

 

 

 

9,431

 

 

 

-

 

 

 

5,995

 

 

 

1,621

 

 

 

38

 

 

 

33,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,344,044

 

 

$

1,946,391

 

 

$

1,258,869

 

 

$

13,907

 

 

$

65,763

 

 

$

96,165

 

 

$

5,814

 

 

$

4,730,953

 

 

 

- 22 -

 

Contractual Payment Status of Loans Receivable

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Current

$

1,313,195

 

 

$

1,919,907

 

 

$

1,214,524

 

 

$

14,501

 

 

$

66,749

 

 

$

93,121

 

 

$

5,160

 

 

$

4,627,157

 

Past due:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59 days

 

2,721

 

 

 

3,061

 

 

 

14,462

 

 

 

-

 

 

 

49

 

 

 

-

 

 

 

19

 

 

 

20,312

 

60-89 days

 

470

 

 

 

-

 

 

 

-

 

 

 

136

 

 

 

68

 

 

 

-

 

 

 

15

 

 

 

689

 

90 days and over

 

3,364

 

 

 

-

 

 

 

1,977

 

 

 

-

 

 

 

23

 

 

 

183

 

 

 

15

 

 

 

5,562

 

Total past due

 

6,555

 

 

 

3,061

 

 

 

16,439

 

 

 

136

 

 

 

140

 

 

 

183

 

 

 

49

 

 

 

26,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,319,750

 

 

$

1,922,968

 

 

$

1,230,963

 

 

$

14,637

 

 

$

66,889

 

 

$

93,304

 

 

$

5,209

 

 

$

4,653,720

 

 

 

Contractual Payment Status of Loans Receivable

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Current

$

1,338,347

 

 

$

1,946,391

 

 

$

1,256,892

 

 

$

13,907

 

 

$

65,668

 

 

$

95,793

 

 

$

5,754

 

 

$

4,722,752

 

Past due:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59 days

 

1,680

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

95

 

 

 

197

 

 

 

25

 

 

 

1,997

 

60-89 days

 

473

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36

 

 

 

13

 

 

 

522

 

90 days and over

 

3,544

 

 

 

-

 

 

 

1,977

 

 

 

-

 

 

 

-

 

 

 

139

 

 

 

22

 

 

 

5,682

 

Total past due

 

5,697

 

 

 

-

 

 

 

1,977

 

 

 

-

 

 

 

95

 

 

 

372

 

 

 

60

 

 

 

8,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,344,044

 

 

$

1,946,391

 

 

$

1,258,869

 

 

$

13,907

 

 

$

65,763

 

 

$

96,165

 

 

$

5,814

 

 

$

4,730,953

 

 

- 23 -

The following tables present information relating to the Company’s nonperforming and impaired loans at September 30, 2019 and June 30, 2019 based upon the methodology for identifying and reporting such loans as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. Loans reported as 90 days and over past due accruing in the table immediately below are also reported in the preceding contractual payment status table under the heading 90 days and over past due.

 

Performance Status of Loans Receivable

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Performing

$

1,311,214

 

 

$

1,919,907

 

 

$

1,222,213

 

 

$

14,637

 

 

$

66,327

 

 

$

92,447

 

 

$

5,194

 

 

$

4,631,939

 

Nonperforming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days and over past due accruing

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15

 

 

 

15

 

Nonaccrual

 

8,536

 

 

 

3,061

 

 

 

8,750

 

 

 

-

 

 

 

562

 

 

 

857

 

 

 

-

 

 

 

21,766

 

Total nonperforming

 

8,536

 

 

 

3,061

 

 

 

8,750

 

 

 

-

 

 

 

562

 

 

 

857

 

 

 

15

 

 

 

21,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,319,750

 

 

$

1,922,968

 

 

$

1,230,963

 

 

$

14,637

 

 

$

66,889

 

 

$

93,304

 

 

$

5,209

 

 

$

4,653,720

 

 

 

Performance Status of Loans Receivable

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Performing

$

1,334,101

 

 

$

1,946,321

 

 

$

1,249,969

 

 

$

13,907

 

 

$

65,294

 

 

$

95,299

 

 

$

5,792

 

 

$

4,710,683

 

Nonperforming:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 days and over past due accruing

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22

 

 

 

22

 

Nonaccrual

 

9,943

 

 

 

70

 

 

 

8,900

 

 

 

-

 

 

 

469

 

 

 

866

 

 

 

-

 

 

 

20,248

 

Total nonperforming

 

9,943

 

 

 

70

 

 

 

8,900

 

 

 

-

 

 

 

469

 

 

 

866

 

 

 

22

 

 

 

20,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,344,044

 

 

$

1,946,391

 

 

$

1,258,869

 

 

$

13,907

 

 

$

65,763

 

 

$

96,165

 

 

$

5,814

 

 

$

4,730,953

 

 

 

 

- 24 -

Impairment Status of Loans Receivable

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Carrying value of impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-impaired loans

$

1,308,549

 

 

$

1,919,907

 

 

$

1,222,213

 

 

$

14,637

 

 

$

63,571

 

 

$

91,828

 

 

$

5,209

 

 

$

4,625,914

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with no allowance

  for impairment

 

10,382

 

 

 

3,061

 

 

 

8,750

 

 

 

-

 

 

 

3,297

 

 

 

1,476

 

 

 

-

 

 

 

26,966

 

Impaired loans with allowance

  for impairment:

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded investment

 

819

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

21

 

 

 

-

 

 

 

-

 

 

 

840

 

Allowance for impairment

 

(34

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

(42

)

Balance of impaired loans net

  of allowance for impairment

 

785

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

798

 

Total impaired loans, excluding

  allowance for impairment:

 

11,201

 

 

 

3,061

 

 

 

8,750

 

 

 

-

 

 

 

3,318

 

 

 

1,476

 

 

 

-

 

 

 

27,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,319,750

 

 

$

1,922,968

 

 

$

1,230,963

 

 

$

14,637

 

 

$

66,889

 

 

$

93,304

 

 

$

5,209

 

 

$

4,653,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance

  of impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans

$

13,565

 

 

$

3,544

 

 

$

10,146

 

 

$

73

 

 

$

6,270

 

 

$

1,846

 

 

$

-

 

 

$

35,444

 

 

 

 

Impairment Status of Loans Receivable

 

At June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

Carrying value of impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-impaired loans

$

1,331,415

 

 

$

1,946,321

 

 

$

1,249,969

 

 

$

13,907

 

 

$

64,308

 

 

$

94,634

 

 

$

5,814

 

 

$

4,706,368

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with no allowance

  for impairment

 

12,266

 

 

 

70

 

 

 

8,900

 

 

 

-

 

 

 

1,455

 

 

 

1,531

 

 

 

-

 

 

 

24,222

 

Impaired loans with allowance

  for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded investment

 

363

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

363

 

Allowance for impairment

 

(31

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31

)

Balance of impaired loans net

  of allowance for impairment

 

332

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

332

 

Total impaired loans, excluding

  allowance for impairment:

 

12,629

 

 

 

70

 

 

 

8,900

 

 

 

-

 

 

 

1,455

 

 

 

1,531

 

 

 

-

 

 

 

24,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

$

1,344,044

 

 

$

1,946,391

 

 

$

1,258,869

 

 

$

13,907

 

 

$

65,763

 

 

$

96,165

 

 

$

5,814

 

 

$

4,730,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid principal balance

  of impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired loans

$

14,985

 

 

$

779

 

 

$

10,200

 

 

$

73

 

 

$

3,987

 

 

$

1,924

 

 

$

-

 

 

$

31,948

 

 

- 25 -

 

Impairment Status of Loans Receivable

 

Three Months Ended September 30, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(In Thousands)

 

For the three months ended

  September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance of impaired loans

$

11,770

 

 

$

800

 

 

$

8,823

 

 

$

-

 

 

$

1,951

 

 

$

1,549

 

 

$

-

 

 

$

24,893

 

Interest earned on impaired loans

$

35

 

 

$

28

 

 

$

-

 

 

$

-

 

 

$

51

 

 

$

8

 

 

$

-

 

 

$

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

  September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average balance of impaired loans

$

12,224

 

 

$

108

 

 

$

7,234

 

 

$

-

 

 

$

2,364

 

 

$

1,578

 

 

$

-

 

 

$

23,508

 

Interest earned on impaired loans

$

32

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3

 

 

$

9

 

 

$

-

 

 

$

44

 

- 26 -

The following table presents information regarding the restructuring of the Company’s troubled debts during the three months ended September 30, 2019 and September 30, 2018, and any defaults during those periods of troubled debt restructurings (“TDRs”) that were restructured within 12 months of the date of default.  

  

Troubled Debt Restructurings of Loans Receivable

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(Dollars in Thousands)

 

Troubled debt restructuring activity

  for the three months ended

  September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

1

 

 

 

-

 

 

 

6

 

Pre-modification outstanding

  recorded investment

$

1,002

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

1,775

 

 

$

82

 

 

$

-

 

 

$

2,859

 

Post-modification outstanding

  recorded investment

 

938

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,829

 

 

 

81

 

 

 

-

 

 

 

2,848

 

Reserves included in and charge offs

against the allowance for loan loss

recognized at modification

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructuring defaults

  for the three months ended

  September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding recorded investment

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

Troubled Debt Restructurings of Loans Receivable

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

Mortgage

 

 

Multi-Family Mortgage

 

 

Non-

Residential

Mortgage

 

 

Construction

 

 

Commercial

Business

 

 

Home

Equity

Loans

 

 

Other

Consumer

 

 

Total

 

 

(Dollars in Thousands)

 

Troubled debt restructuring activity

  for the three months ended

  September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

7

 

Pre-modification outstanding

  recorded investment

$

271

 

 

$

-

 

 

$

2,957

 

 

$

-

 

 

$

1,450

 

 

$

-

 

 

$

-

 

 

$

4,678

 

Post-modification outstanding

  recorded investment

 

270

 

 

 

-

 

 

 

2,955

 

 

 

-

 

 

 

1,451

 

 

 

-

 

 

 

-

 

 

 

4,676

 

Reserves included in and charge offs

against the allowance for loan loss

recognized at modification

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled debt restructuring defaults

  for the three months ended

  September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of loans

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding recorded investment

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

- 27 -

The manner in which the terms of a loan are modified through a troubled debt restructuring generally includes one or more of the following changes to the loan’s repayment terms:

 

•

Interest Rate Reduction: Temporary or permanent reduction of the interest rate charged against the outstanding balance of the loan.

 

•

Capitalization of Prior Past Dues: Capitalization of prior amounts due to the outstanding balance of the loan.

 

•

Extension of Maturity or Balloon Date: Extending the term of the loan past its original balloon or maturity date.

 

•

Deferral of Principal Payments: Temporary deferral of the principal portion of a loan payment.

 

•

Payment Recalculation and Re-amortization: Recalculation of the recurring payment obligation and resulting loan amortization/repayment schedule based on the loan’s modified terms.

 

12.     LEASES

The Company adopted ASU 2016-02, “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842 on July 1, 2019. Topic 842 requires lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. At September 30, 2019, operating lease right-of-use assets of $16.4 million and operating lease liabilities of $16.9 million were included in other assets and other liabilities, respectively, on our Consolidated Statements of Financial Condition. The calculated amount of the right-of-use asset and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The discount rate used in determining the lease liability for each individual lease was the Company’s incremental borrowing rate at the time of adoption of ASU 2016-02, on a collateralized basis, over a similar term.

For the three months ended September 30, 2019, the weighted average remaining lease term for operating leases was 8.71 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.58%.  

The Company has elected to account for lease and non-lease components separately since such amounts are readily determinable under the Company’s lease contracts.  Total operating lease costs were $1.1 million for the three months ended September 30, 2019.  Net rent expense for the three months ended September 30, 2018, prior to the adoption of ASU 2016-02 was $757,000.

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the three months ended September 30, 2019.  At September 30, 2019, the Company had no leases that had not yet commenced.

 

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability at September 30, 2019 is as follows:

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

 

 

 

 

(In Thousands)

 

Less than one year

 

 

 

 

$

2,327

 

After one year but within two years

 

 

 

 

 

2,864

 

After two years but within three years

 

 

 

 

 

2,575

 

After three years but within four years

 

 

 

 

 

2,132

 

After four years but within five years

 

 

 

 

 

1,513

 

Greater than five years

 

 

 

 

 

7,786

 

Total undiscounted cash flows

 

 

 

 

 

19,197

 

Less: discount on cash flows

 

 

 

 

 

(2,261

)

Total lease liability

 

 

 

 

$

16,936

 

 

- 28 -

13.     DEPOSITS

Deposits are summarized as follows:

 

 

September 30,

 

 

June 30,

 

 

2019

 

 

 

2019

 

 

(In Thousands)

 

Non-interest-bearing demand

$

322,846

 

 

$

309,063

 

Interest-bearing demand

 

931,188

 

 

 

843,432

 

Savings and club

 

800,514

 

 

 

790,658

 

Certificates of deposits

 

2,142,702

 

 

 

2,204,457

 

Total deposits

$

4,197,250

 

 

$

4,147,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.     BORROWINGS

Fixed rate advances from the FHLB of New York mature as follows:

 

 

September 30, 2019

 

 

June 30, 2019

 

 

 

Balance

 

 

Weighted

Average

Interest Rate

 

 

Balance

 

 

Weighted

Average

Interest Rate

 

 

 

(Dollars in Thousands)

By remaining period to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

$

875,300

 

 

 

2.22

 

%

$

873,400

 

 

 

2.49

 

%

One to two years

 

67,117

 

 

 

1.89

 

 

 

64,046

 

 

 

1.87

 

 

Two to three years

 

47,700

 

 

 

2.63

 

 

 

62,700

 

 

 

2.46

 

 

Three to four years

 

155,000

 

 

 

3.00

 

 

 

155,000

 

 

 

3.00

 

 

Four to five years

 

22,500

 

 

 

2.63

 

 

 

22,500

 

 

 

2.63

 

 

Greater than five years

 

110,000

 

 

 

2.69

 

 

 

110,000

 

 

 

2.69

 

 

Total advances

 

1,277,617

 

 

 

2.36

 

%

 

1,287,646

 

 

 

2.54

 

%

Unamortized fair value adjustments

 

(3,999

)

 

 

 

 

 

 

(4,435

)

 

 

 

 

 

Total advances, net of

  fair value adjustments

$

1,273,618

 

 

 

 

 

 

$

1,283,211

 

 

 

 

 

 

 

At September 30, 2019, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.01 billion and $158.7 million, respectively. At June 30, 2019, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.04 billion and $160.8 million, respectively.

Borrowings at September 30, 2019 and June 30, 2019 also included overnight borrowings in the form of depositor sweep accounts totaling $7.5 million and $8.8 million, respectively. Borrowings at June 30, 2019 also included other overnight borrowings totaling $30.0 million, while there were no such borrowings at September 30, 2019.

 

- 29 -

15.     DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to specific wholesale funding positions.

 

Fair Values of Derivative Instruments on the Statement of Financial Condition

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Statement of Financial Condition as of September 30, 2019 and June 30, 2019:

 

 

September 30, 2019

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

 

(In Thousands)

 

Derivatives designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

Other assets

 

$

1,012

 

 

Other liabilities

 

$

369

 

Interest rate caps

Other assets

 

 

1,418

 

 

Other liabilities

 

 

-

 

Total

 

 

$

2,430

 

 

 

 

$

369

 

 

 

June 30, 2019

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

 

(In Thousands)

 

Derivatives designated as hedging

   instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

Other assets

 

$

3,856

 

 

Other liabilities

 

$

140

 

Total

 

 

$

3,856

 

 

 

 

$

140

 

 

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using derivatives are primarily to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps and caps as part of its interest rate risk management strategy.  These interest rate products are designated as cash flow hedges.  As of September 30, 2019, the Company had a total of 15 interest rate swaps and caps with a total notional amount of $1.0 billion hedging rolling three-month fixed-rate borrowings.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in other comprehensive income, net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate wholesale funding positions.  During the three months ended September 30, 2019, the Company had $1.4 million of reclassifications to interest expense.  During the next twelve months, the Company estimates that $1.2 million will be reclassified as a reduction in interest expense.

- 30 -

The tables below present the pre-tax effects of the Company’s derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2019 and 2018:

 

 

Three Months Ended September 30, 2019

 

 

Amount of Gain

(Loss) Recognized

in OCI on

Derivatives

 

 

Location of Gain

(Loss) Reclassified

from Accumulated

OCI into Income

 

Amount of Gain

(Loss) Reclassified

from Accumulated

OCI into Income

 

 

(In Thousands)

 

Derivatives in cash flow

   hedging relationships:

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

(1,702

)

 

Interest expense

 

$

1,371

 

Interest rate caps

 

(57

)

 

Interest expense

 

 

-

 

Total

$

(1,759

)

 

 

 

$

1,371

 

 

 

 

Three Months Ended September 30, 2018

 

 

Amount of Gain

(Loss) Recognized

in OCI on

Derivatives

 

 

Location of Gain

(Loss) Reclassified

from Accumulated

OCI into Income

 

Amount of Gain

(Loss) Reclassified

from Accumulated

OCI into Income

 

 

(In Thousands)

 

Derivatives in cash flow

   hedging relationships:

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

3,079

 

 

Interest expense

 

$

1,236

 

Total

$

3,079

 

 

 

 

$

1,236

 

 

 

 

Offsetting Derivatives

 

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Statements of Financial Condition as of September 30, 2019 and June 30, 2019, respectively. The net amounts presented for derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Statements of Financial Condition.

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

2,716

 

 

$

(1,704

)

 

$

1,012

 

 

$

-

 

 

$

-

 

 

$

1,012

 

Interest rate caps

 

1,418

 

 

 

-

 

 

 

1,418

 

 

 

-

 

 

 

-

 

 

 

1,418

 

Total

$

4,134

 

 

$

(1,704

)

 

$

2,430

 

 

$

-

 

 

$

-

 

 

$

2,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Posted

 

 

Net Amount

 

 

(In Thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

2,073

 

 

$

(1,704

)

 

$

369

 

 

$

-

 

 

$

(150

)

 

$

219

 

Total

$

2,073

 

 

$

(1,704

)

 

$

369

 

 

$

-

 

 

$

(150

)

 

$

219

 

 

 

- 31 -

 

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

5,334

 

 

$

(1,478

)

 

$

3,856

 

 

$

-

 

 

$

-

 

 

$

3,856

 

Total

$

5,334

 

 

$

(1,478

)

 

$

3,856

 

 

$

-

 

 

$

-

 

 

$

3,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Posted

 

 

Net Amount

 

 

(In Thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

1,618

 

 

$

(1,478

)

 

$

140

 

 

$

-

 

 

$

-

 

 

$

140

 

Total

$

1,618

 

 

$

(1,478

)

 

$

140

 

 

$

-

 

 

$

-

 

 

$

140

 

 

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.  The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.

As required under the enforceable master netting arrangement with its derivatives counterparties, at September 30, 2019, the Company posted financial collateral of $150,000 that was not included as offsetting amount.

In addition to the derivative instruments noted above, the Company’s pipeline of loans held for sale at September 30, 2019 and June 30, 2019, included $65.9 million and $46.2 million, respectively, of in process loans whose terms included interest rate locks to borrowers, which are considered free-standing derivative instruments whose fair values are not material to our financial condition or results of operations.

 

- 32 -

16.     BENEFIT PLANS

Components of Net Periodic Expense

The following table sets forth the aggregate net periodic benefit expense for the Bank’s Benefit Equalization Plan, Postretirement Welfare Plan, Directors’ Consultation and Retirement Plan and Atlas Bank Retirement Income Plan:

 

 

 

 

Three Months Ended

 

 

Affected Line Item in the Consolidated

 

 

 

September 30,

 

 

Statements of Income

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

Service cost

 

 

 

 

$

20

 

 

$

14

 

 

Salaries and employee benefits

Interest cost

 

 

 

 

 

81

 

 

 

94

 

 

Miscellaneous non-interest  expense

Amortization of unrecognized loss

 

 

 

 

 

5

 

 

 

11

 

 

Miscellaneous non-interest  expense

Expected return on assets

 

 

 

 

 

(28

)

 

 

(28

)

 

Miscellaneous non-interest  expense

Net periodic benefit cost

 

 

 

 

$

78

 

 

$

91

 

 

 

 

 

 

 

 

17.     INCOME TAXES

The following table presents a reconciliation between the reported income taxes for the periods presented and the income taxes which would be computed by applying the federal income tax rate of 21% to income for the three months ended September 30, 2019 and September 30, 2018.

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

(Dollars in Thousands)

 

Income before income taxes

 

 

 

 

$

15,187

 

 

$

14,805

 

Statutory federal tax rate

 

 

 

 

 

21

%

 

 

21

%

Federal income tax expense at statutory rate

 

 

 

 

$

3,189

 

 

$

3,109

 

(Reduction) increases in income taxes resulting from:

 

 

 

 

 

 

 

 

 

 

 

Tax exempt interest

 

 

 

 

 

(144

)

 

 

(149

)

State tax, net of federal tax effect

 

 

 

 

 

1,241

 

 

 

1,205

 

Incentive stock option compensation expense

 

 

 

 

 

17

 

 

 

28

 

Income from bank-owned life insurance

 

 

 

 

 

(333

)

 

 

(289

)

Other items, net

 

 

 

 

 

(153

)

 

 

652

 

Impact of deferred tax rate adjustment

 

 

 

 

 

-

 

 

 

(897

)

Total income tax expense

 

 

 

 

$

3,817

 

 

$

3,659

 

Effective income tax rate

 

 

 

 

 

25.13

%

 

 

24.71

%

 

- 33 -

The tax effects of existing temporary differences that give rise to deferred income tax assets and liabilities are as follows:

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

 

 

 

2019

 

 

 

2019

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

Deferred income tax assets:

 

 

 

 

 

 

 

 

 

 

 

Purchase accounting

 

 

 

 

$

14,243

 

 

$

15,137

 

Accumulated other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Defined benefit plans

 

 

 

 

 

179

 

 

 

319

 

Unrealized loss on securities available for sale

  transferred to held to maturity

 

 

 

 

 

-

 

 

 

175

 

Allowance for loan losses

 

 

 

 

 

9,617

 

 

 

9,831

 

Benefit plans

 

 

 

 

 

2,319

 

 

 

2,280

 

Compensation

 

 

 

 

 

413

 

 

 

1,246

 

Stock-based compensation

 

 

 

 

 

2,230

 

 

 

1,973

 

Uncollected interest

 

 

 

 

 

1,186

 

 

 

1,070

 

Depreciation

 

 

 

 

 

427

 

 

 

-

 

Charitable contribution carryover

 

 

 

 

 

-

 

 

 

186

 

Net operating loss carryover

 

 

 

 

 

690

 

 

 

919

 

Capital loss carryforward

 

 

 

 

 

832

 

 

 

814

 

Other items

 

 

 

 

 

563

 

 

 

587

 

 

 

 

 

 

 

32,699

 

 

 

34,537

 

Valuation allowance

 

 

 

 

 

(1,263

)

 

 

(1,258

)

 

 

 

 

 

 

31,436

 

 

 

33,279

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deferred loan fees and costs

 

 

 

 

 

1,446

 

 

 

1,584

 

Accumulated other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

171

 

 

 

1,094

 

Unrealized gain on securities available for sale

 

 

 

 

 

3,441

 

 

 

573

 

Goodwill

 

 

 

 

 

4,625

 

 

 

4,608

 

Other items

 

 

 

 

 

11

 

 

 

53

 

 

 

 

 

 

 

9,694

 

 

 

7,912

 

Net deferred income tax asset

 

 

 

 

$

21,742

 

 

$

25,367

 

 

- 34 -

 

18.     FAIR VALUE OF FINANCIAL INSTRUMENTS

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments”. This guidance amends existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the guidance effective July 1, 2018.  Upon adoption, the fair value of the Company’s loan portfolio is now presented using an exit price method.

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: 

 

 

Level 1:

  

Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

 

Level 2:

  

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from, or corroborated by, market data by correlation or other means.

 

 

Level 3:

  

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

 

Assets Measured on a Recurring Basis:

The following methods and significant assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at September 30, 2019 and June 30, 2019:

Investment Securities Available for Sale

The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.  From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.

The Company held one trust preferred security whose fair value of $1.0 million at September 30, 2019 was determined using Level 3 inputs.  For the periods ended September 30, 2019 and June 30, 2019, management has been unable to obtain a market quote for this security.  Consequently, the security’s fair value as reported at September 30, 2019 and June 30, 2019, is based upon the present value of expected future cash flows assuming the security continues to meet all of its payment obligations and utilizing a discount rate based upon the security’s contractual interest rate.

Derivatives

The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate caps and swaps. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis and extensions of the Black-Scholes model. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.  

- 35 -

 

Those assets measured at fair value on a recurring basis are summarized below:

 

 

September 30, 2019

 

 

Quoted

Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

-

 

 

$

694

 

 

$

-

 

 

$

694

 

Obligations of state and political subdivisions

 

-

 

 

 

91,050

 

 

 

-

 

 

 

91,050

 

Asset-backed securities

 

-

 

 

 

181,068

 

 

 

-

 

 

 

181,068

 

Collateralized loan obligations

 

-

 

 

 

198,549

 

 

 

-

 

 

 

198,549

 

Corporate bonds

 

-

 

 

 

191,241

 

 

 

-

 

 

 

191,241

 

Trust preferred securities

 

-

 

 

 

2,775

 

 

 

1,000

 

 

 

3,775

 

Total debt securities

 

-

 

 

 

665,377

 

 

 

1,000

 

 

 

666,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

-

 

 

 

63,594

 

 

 

-

 

 

 

63,594

 

Residential pass-through securities

 

-

 

 

 

202,858

 

 

 

-

 

 

 

202,858

 

Commercial pass-through securities

 

-

 

 

 

298,862

 

 

 

-

 

 

 

298,862

 

Total mortgage-backed securities

 

-

 

 

 

565,314

 

 

 

-

 

 

 

565,314

 

Total securities available for sale

$

-

 

 

$

1,230,691

 

 

$

1,000

 

 

$

1,231,691

 

Interest rate swaps and caps

 

-

 

 

 

2,430

 

 

 

-

 

 

 

2,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

-

 

 

$

1,233,121

 

 

$

1,000

 

 

$

1,234,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

-

 

 

$

369

 

 

$

-

 

 

$

369

 

Total liabilities

$

-

 

 

$

369

 

 

$

-

 

 

$

369

 

 

 

- 36 -

 

June 30, 2019

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. agency securities

$

-

 

 

$

3,678

 

 

$

-

 

 

$

3,678

 

Obligations of state and political subdivisions

 

-

 

 

 

26,951

 

 

 

-

 

 

 

26,951

 

Asset-backed securities

 

-

 

 

 

179,313

 

 

 

-

 

 

 

179,313

 

Collateralized loan obligations

 

-

 

 

 

208,611

 

 

 

-

 

 

 

208,611

 

Corporate bonds

 

-

 

 

 

122,024

 

 

 

-

 

 

 

122,024

 

Trust preferred securities

 

-

 

 

 

2,756

 

 

 

1,000

 

 

 

3,756

 

Total debt securities

 

-

 

 

 

543,333

 

 

 

1,000

 

 

 

544,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

-

 

 

 

21,390

 

 

 

-

 

 

 

21,390

 

Residential pass-through securities

 

-

 

 

 

44,303

 

 

 

-

 

 

 

44,303

 

Commercial pass-through securities

 

-

 

 

 

104,237

 

 

 

-

 

 

 

104,237

 

Total mortgage-backed securities

 

-

 

 

 

169,930

 

 

 

-

 

 

 

169,930

 

Total securities available for sale

 

-

 

 

 

713,263

 

 

 

1,000

 

 

 

714,263

 

Interest rate swaps

 

-

 

 

 

3,856

 

 

 

-

 

 

 

3,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

-

 

 

$

717,119

 

 

$

1,000

 

 

$

718,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

-

 

 

$

140

 

 

$

-

 

 

$

140

 

Total liabilities

$

-

 

 

$

140

 

 

$

-

 

 

$

140

 

 

In addition to the financial instruments noted above, at September 30, 2019 and June 30, 2019, the Company’s pipeline of loans held for sale included $65.9 million and $46.2 million, respectively, of in process loans whose terms included interest rate locks to borrowers which are considered free-standing derivative instruments whose fair values are not material to our financial condition or results of operations.  Given the short-term nature of the commitments and their immateriality to the statements of condition and operations, the Company assumes no change in the fair value of these derivative instruments during their outstanding period.

Assets Measured on a Non-Recurring Basis:

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis at September 30, 2019 and June 30, 2019:

Impaired Loans

An impaired loan is evaluated and valued at the time the loan is identified as impaired at the lower of cost or fair value. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Fair value is measured based on the value of the collateral securing the loan and is classified at a Level 3 in the fair value hierarchy. Once a loan is identified as individually impaired, management measures impairment in accordance with the FASB’s guidance on accounting by creditors for impairment of a loan with the fair value estimated using the fair value of the collateral reduced by estimated disposal costs.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

 

- 37 -

Other Real Estate Owned  

Other real estate owned (“OREO”) is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience.  When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions.

 

Those assets measured at fair value on a non-recurring basis are summarized below:

 

 

September 30, 2019

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

(In Thousands)

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

$

-

 

 

$

-

 

 

$

3,157

 

 

$

3,157

 

Non-residential mortgage

 

-

 

 

 

-

 

 

 

791

 

 

 

791

 

Commercial business

 

-

 

 

 

-

 

 

 

27

 

 

 

27

 

Total

$

-

 

 

$

-

 

 

$

3,975

 

 

$

3,975

 

 

 

June 30, 2019

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

(In Thousands)

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

$

-

 

 

$

-

 

 

$

3,071

 

 

$

3,071

 

Non-residential mortgage

 

-

 

 

 

-

 

 

 

791

 

 

 

791

 

Commercial business

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

Total

$

-

 

 

$

-

 

 

$

3,878

 

 

$

3,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 38 -

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value:

 

 

September 30, 2019

 

 

Fair

Value

 

 

Valuation

Techniques

 

Unobservable

Input

 

Range

 

Weighted

Average

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

$

3,157

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

6% - 8%

 

 

7.29

%

Non-residential mortgage

 

791

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

10% - 11%

 

 

10.52

%

Commercial business

 

27

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

8% - 9%

 

 

8.91

%

Total

$

3,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

Fair

Value

 

 

Valuation

Techniques

 

Unobservable

Input

 

Range

 

Weighted

Average

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

$

3,071

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

6% - 8%

 

 

7.03

%

Non-residential mortgage

 

791

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

10% - 11%

 

 

10.08

%

Commercial business

 

16

 

 

Market valuation of

underlying collateral

(1)

Adjustments to reflect current

conditions/selling costs

(2)

9% - 10%

 

 

9.36

%

Total

$

3,878

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The fair value of impaired loans is generally determined based on an independent appraisal of the fair value of a loan’s underlying collateral.

(2)

The fair value basis of impaired loans is adjusted to reflect management’s estimates of selling costs including, but not necessarily limited to, real estate brokerage commissions and title transfer fees.

 

At September 30, 2019, impaired loans valued using Level 3 inputs comprised loans with principal balances totaling $4.0 million and valuation allowances of $42,000 reflecting fair values of $4.0 million. By comparison, at June 30, 2019, impaired loans valued using Level 3 inputs comprised loans with principal balances totaling $3.9 million and valuation allowances of $31,000 reflecting fair values of $3.9 million.

Once a loan is foreclosed, the fair value of the other real estate owned continues to be evaluated based upon the fair value of the repossessed real estate originally securing the loan.  At September 30, 2019 and June 30, 2019, the Company held no other real estate owned whose carrying value was written down utilizing Level 3 inputs.

 

- 39 -

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and June 30, 2019:

 

 

September 30, 2019

 

 

Carrying

Amount

 

 

Fair

Value

 

 

Quoted

Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

(In Thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

129,305

 

 

$

129,305

 

 

$

129,305

 

 

$

-

 

 

$

-

 

Investment securities available for sale

 

1,231,691

 

 

 

1,231,691

 

 

 

-

 

 

 

1,230,691

 

 

 

1,000

 

Investment securities held to maturity

 

37,888

 

 

 

38,683

 

 

 

-

 

 

 

38,683

 

 

 

-

 

Loans held-for-sale

 

10,495

 

 

 

10,700

 

 

 

-

 

 

 

10,700

 

 

 

-

 

Net loans receivable

 

4,572,306

 

 

 

4,533,681

 

 

 

-

 

 

 

-

 

 

 

4,533,681

 

FHLB Stock

 

63,739

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Interest receivable

 

19,393

 

 

 

19,393

 

 

 

23

 

 

 

5,357

 

 

 

14,013

 

Interest rate swaps and caps

 

2,430

 

 

 

2,430

 

 

 

-

 

 

 

2,430

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

4,197,250

 

 

 

4,205,384

 

 

 

2,054,548

 

 

 

-

 

 

 

2,150,836

 

Borrowings

 

1,281,118

 

 

 

1,296,639

 

 

 

-

 

 

 

-

 

 

 

1,296,639

 

Interest payable on deposits

 

2,720

 

 

 

2,720

 

 

 

366

 

 

 

-

 

 

 

2,354

 

Interest payable on borrowings

 

3,621

 

 

 

3,621

 

 

 

-

 

 

 

-

 

 

 

3,621

 

Interest rate swaps

 

369

 

 

 

369

 

 

 

-

 

 

 

369

 

 

 

-

 

 

 

 

June 30, 2019

 

 

Carrying

Amount

 

 

Fair

Value

 

 

Quoted

Prices

in Active

Markets for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

(In Thousands)

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

38,935

 

 

$

38,935

 

 

$

38,935

 

 

$

-

 

 

$

-

 

Investment securities available for sale

 

714,263

 

 

 

714,263

 

 

 

-

 

 

 

713,263

 

 

 

1,000

 

Investment securities held to maturity

 

576,652

 

 

 

584,678

 

 

 

-

 

 

 

584,678

 

 

 

-

 

Loans held-for-sale

 

12,267

 

 

 

12,501

 

 

 

-

 

 

 

12,501

 

 

 

-

 

Net loans receivable

 

4,645,654

 

 

 

4,630,853

 

 

 

-

 

 

 

-

 

 

 

4,630,853

 

FHLB Stock

 

64,190

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Interest receivable

 

19,360

 

 

 

19,360

 

 

 

11

 

 

 

5,278

 

 

 

14,071

 

Interest rate swaps

 

3,856

 

 

 

3,856

 

 

 

 

 

 

 

3,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

4,147,610

 

 

 

4,152,558

 

 

 

1,943,154

 

 

 

-

 

 

 

2,209,404

 

Borrowings

 

1,321,982

 

 

 

1,337,560

 

 

 

-

 

 

 

-

 

 

 

1,337,560

 

Interest payable on deposits

 

3,106

 

 

 

3,106

 

 

 

367

 

 

 

-

 

 

 

2,739

 

Interest payable on borrowings

 

3,899

 

 

 

3,899

 

 

 

-

 

 

 

-

 

 

 

3,899

 

Interest rate swaps

 

140

 

 

 

140

 

 

 

-

 

 

 

140

 

 

 

-

 

 

- 40 -

Commitments. The fair value of commitments to fund credit lines and originate or participate in loans held in portfolio or loans held for sale is estimated using fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, including those relating to loans held for sale that are considered derivative instruments for financial statement reporting purposes, the fair value also considers the difference between current levels of interest and the committed rates. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.

Limitations. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no fair value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment, and advances from borrowers for taxes and insurance. In addition, the ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

 

 

19.     COMPREHENSIVE INCOME

The components of accumulated other comprehensive income included in stockholders’ equity at September 30, 2019 and June 30, 2019 are as follows:

 

 

September 30,

 

 

June 30,

 

 

2019

 

 

2019

 

 

(In Thousands)

 

Net unrealized gain on securities available for sale

$

12,145

 

 

$

1,975

 

Tax effect

 

(3,441

)

 

 

(573

)

Net of tax amount

 

8,704

 

 

 

1,402

 

 

 

 

 

 

 

 

 

Net unrealized loss on securities available for sale

  transferred to held to maturity

 

-

 

 

 

(596

)

Tax effect

 

-

 

 

 

175

 

Net of tax amount

 

-

 

 

 

(421

)

 

 

 

 

 

 

 

 

Fair value adjustments on derivatives

 

586

 

 

 

3,716

 

Tax effect

 

(171

)

 

 

(1,094

)

Net of tax amount

 

415

 

 

 

2,622

 

 

 

 

 

 

 

 

 

Benefit plan adjustments

 

(608

)

 

 

(1,083

)

Tax effect

 

179

 

 

 

319

 

Net of tax amount

 

(429

)

 

 

(764

)

 

 

 

 

 

 

 

 

Total accumulated other comprehensive income

$

8,690

 

 

$

2,839

 

 

 

- 41 -

 

Other comprehensive income and related tax effects for the three months ended September 30, 2019 and September 30, 2018 are presented in the following table:

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

(In Thousands)

 

Net unrealized holding gain (loss) on securities

  available for sale

 

 

 

 

$

10,157

 

 

$

(1,027

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net unrealized holding loss on

  securities available for sale transferred to held

  to maturity (1)

 

 

 

 

 

596

 

 

 

127

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized loss on securities available for sale

 

 

 

 

 

13

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value adjustments on derivatives

 

 

 

 

 

(3,130

)

 

 

1,843

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit plans:

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

 

 

5

 

 

 

11

 

Net actuarial loss (2)

 

 

 

 

 

470

 

 

 

(59

)

Net change in benefit plan accrued expense

 

 

 

 

 

475

 

 

 

(48

)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before taxes

 

 

 

 

 

8,111

 

 

 

895

 

Tax effect (3)

 

 

 

 

 

(2,260

)

 

 

(612

)

Total other comprehensive income

 

 

 

 

$

5,851

 

 

$

283

 

 

(1)

Represents amounts reclassified out of accumulated other comprehensive income and included in interest income on taxable securities.

(2)

Represents amounts reclassified out of accumulated other comprehensive income and included in the computation of net periodic pension expense.  See Note 16 – Benefit Plans for additional information.

(3)

The amounts included in income taxes for items reclassified out of accumulated other comprehensive income totaled $144 for the three months ended September 30, 2019 and $(26) for the three months ended September 30, 2018.

 

 

- 42 -

20.     REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, "ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company’s revenues come from interest income and other sources, including loans, leases, securities, and derivatives that are outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include deposit service charges on deposits, interchange income, and the sale of OREO.

The Company, using a modified retrospective transition approach, determined that there was no cumulative effect adjustment to retained earnings as a result of adopting the new standard, nor did the standard have a material impact on our consolidated financial statements including the timing or amounts of revenue recognized.

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s sources of non-interest income for the three months ended September 30, 2019 and 2018.  Sources of revenue outside the scope of ASC 606 are noted as such.

 

 

 

 

Three Months Ended

 

 

 

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

(In Thousands)

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

Deposit-related fees and charges

 

 

 

 

$

476

 

 

$

375

 

Loan-related fees and charges (1)

 

 

 

 

 

992

 

 

 

798

 

Loss on sale and call of securities (1)

 

 

 

 

 

(14

)

 

 

-

 

Gain on sale of loans (1)

 

 

 

 

 

605

 

 

 

132

 

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

 

 

 

 

 

-

 

 

 

(50

)

Income from bank owned life insurance (1)

 

 

 

 

 

1,580

 

 

 

1,594

 

Electronic banking fees and charges (interchange income)

 

 

 

 

 

318

 

 

 

250

 

Miscellaneous (1)

 

 

 

 

 

5

 

 

 

83

 

Total non-interest income

 

 

 

 

$

3,962

 

 

$

3,182

 

 

(1)

Not within the scope of ASC 606.

A description of the Company’s revenue streams accounted for under ASC 606 is as follows:

Service Charges on Deposit Accounts

The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

- 43 -

Gains/Losses on Sales of OREO

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. Gain/Losses on the sales of OREO falls within the scope of ASC 606, if the Company finances the transaction.  Under ASC 606, if the Company finances the sale of OREO to the buyer, the Company is required to assess whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Generally, the Company does not finance the sale of OREO properties.

Interchange Income

The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsourced technology solution.

 

 

- 44 -

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

This report on Form 10-Q may include certain forward-looking statements based on current management expectations. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may”, “will”, “believe”, “expect”, “estimate”, “anticipate”, “continue”, or similar terms or variations on those terms, or the negative of those terms. The actual results of the Company could differ materially from those management expectations.  Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities and failure to integrate or profitably operate acquired businesses. Additional potential factors include changes in interest rates, deposit flows, cost of funds, demand for loan products and financial services, competition and changes in the quality or composition of loan and investment portfolios of the Company. Other factors that could cause future results to vary from current management expectations include changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices. Further description of the risks and uncertainties to the business are included in the Company’s other filings with the Securities and Exchange Commission.

Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

Comparison of Financial Condition at September 30, 2019 and June 30, 2019

Executive Summary. Total assets increased by $6.2 million to $6.64 billion at September 30, 2019 from $6.63 billion at June 30, 2019.  The net increase in total assets primarily reflected increases in cash and cash equivalents and other assets that were partially offset by decreases in the balances of net loans receivable and investment securities.  The net increase in total assets was largely funded by increases in deposits and other liabilities that was partially offset by decreases in borrowings and stockholders’ equity.

Cash and Cash Equivalents. Cash and cash equivalents, which consist primarily of interest-earning and non-interest-earning deposits in other banks, increased by $90.4 million to $129.3 million at September 30, 2019 from $38.9 million at June 30, 2019.  The increase in the balance of cash and cash equivalents at September 30, 2019 largely reflected the effects of a temporary accumulation of short-term liquid assets arising from operating fluctuations in our short-term liquidity.

Investment Securities Available for Sale. Investment securities classified as available for sale increased by $517.4 million to $1.23 billion at September 30, 2019 from $714.3 million at June 30, 2019.  The net increase in the portfolio largely reflected the adoption of ASU 2019-04 on July 1, 2019, upon which the Company reclassified $537.7 million of investment securities from held to maturity to available for sale. In addition, the net increase in the portfolio reflected security purchases totaling $8.2 million during the three months ended September 30, 2019 and a $10.2 million increase in the fair value of the portfolio to a net unrealized gain of $12.2 million at September 30, 2019 from a net unrealized gain of $2.0 million at June 30, 2019.  The net increase in the portfolio was partially offset by security sales totaling $3.7 million and $35.0 million in cash repayment of principal, net of premium amortization and discount accretion.

 

Based on its evaluation, management has concluded that no other-than-temporary impairment was present within the available for sale segment of the investment portfolio as of September 30, 2019 or June 30, 2019.  Additional information regarding securities available for sale as of those dates is presented in Note 7 and Note 9 to the unaudited consolidated financial statements.

Investment Securities Held to Maturity. Investment securities classified as held to maturity decreased by $538.8 million to $37.9 million at September 30, 2019 from $576.7 million at June 30, 2019.  The decrease in held to maturity securities largely reflected the adoption of ASU 2019-04, as noted above. The decrease in the portfolio also reflected cash repayment of principal, net of discount accretion and premium amortization, totaling $1.1 million for the three months ended September 30, 2019.

Based on its evaluation, management has concluded that no other-than-temporary impairment was present within the held to maturity segment of the investment portfolio as of September 30, 2019.  Additional information regarding securities held to maturity as of those dates is presented in Note 8 and Note 9 to the unaudited consolidated financial statements.

- 45 -

 

Loans Held-for-Sale. Our residential lending team continues to support strategies focused on the origination of residential mortgage loans designated for sale into the secondary market, which has enabled us to augment our sources of non-interest income through the recognition of loan sale gains.  During the three months ended September 30, 2019, we sold $58.6 million of residential mortgage loans resulting in net sale gains totaling $605,000.  Loans held for sale totaled $10.5 million at September 30, 2019 compared to $12.3 at June 30, 2019 and are reported separately from the balance of net loans receivable as of those dates.

Loans Receivable.  Loans receivable, net of unamortized premiums, deferred costs and the allowance for loan losses, decreased by $73.3 million to $4.57 billion at September 30, 2019 from $4.65 billion at June 30, 2019.  The decrease in net loans receivable was primarily attributable to loan repayment and prepayment activity outpacing new loan origination and purchase volume during the three months ended September 30, 2019.

Residential mortgage loans held in portfolio, including home equity loans and lines of credit, decreased by $27.2 million to $1.41 billion at September 30, 2019 from $1.44 billion at June 30, 2019. The decrease reflected a decrease in the balance of one- to four-family first mortgage loans of $24.3 million to $1.32 billion at September 30, 2019 from $1.34 billion at June 30, 2019 and a decrease of $2.9 million in the balance of home equity loans and lines of credit to $93.3 million at September 30, 2019 from $96.2 million at June 30, 2019.  

Residential mortgage loan origination volume for the three months ended September 30, 2019, excluding loans held-for-sale, totaled $37.1 million, comprising $32.6 million of one- to four-family first mortgage loan originations and $4.5 million of home equity loan and line of credit originations.  Residential mortgage loan originations for the period were augmented with the purchase of one- to four-family first mortgage loans totaling $1.2 million.

Commercial loans, including multi-family and nonresidential commercial mortgage loans, commercial business loans and construction loans, decreased by $49.5 million to $3.24 billion at September 30, 2019 from $3.28 billion at June 30, 2019. The components of the aggregate decrease included a decrease in commercial mortgage loans totaling $51.3 million partially offset by an increase in the outstanding balance of commercial business loans and construction loans totaling $1.1 million and $730,000, respectively. The increase in the balance of commercial business loans and construction loans was primarily attributable to new loan origination and purchase volume outpacing loan repayments.  The outstanding balance, as of September 30, 2019, of commercial mortgage loans, commercial business loans and construction loans, totaled $3.15 billion, $66.9 million and $14.6 million, respectively.

Commercial loan origination volume for the three months ended September 30, 2019 totaled $36.6 million, which comprised $25.2 million of commercial mortgage loan originations augmented by $10.7 million of commercial business loan originations and construction loan disbursements totaling $732,000 during the period.  Commercial loan originations were augmented with the funding of purchased loans totaling $6.3 million during the three months ended September 30, 2019.

Additional information about the Company’s loans at September 30, 2019 is presented in Note 10 to the unaudited consolidated financial statements.

Nonperforming Loans.  Nonperforming loans increased by $1.5 million to $21.8 million, or 0.47% of total loans at September 30, 2019, from $20.3 million, or 0.43% of total loans at June 30, 2019.  Nonperforming loans generally include those loans reported as 90 days and over past due while still accruing and loans reported as nonaccrual with such balances totaling $15,000 and $21.8 million, respectively, at September 30, 2019.  

Additional information about the Company’s nonperforming loans at September 30, 2019 is presented in Note 11 to the unaudited consolidated financial statements.

Allowance for Loan Losses. During the three months ended September 30, 2019, the balance of the allowance for loan losses (“ALLL”) decreased by $842,000 to $32.4 million at September 30, 2019 from $33.3 million, at June 30, 2019, resulting in an ALLL to total loans ratio of 0.70% for both comparative periods. The decrease resulted from a loan loss provision reversal of $782,000 during the three months ended September 30, 2019 coupled with charge-offs, net of recoveries, totaling $60,000 during that same period.

The portion of the allowance for loan losses attributable to loans individually evaluated for impairment increased by $11,000 to $42,000 at September 30, 2019 from $31,000 at June 30, 2019.  This balance reflected an allowance for impairment on $840,000 of impaired loans while an additional $27.0 million of impaired loans had no allowance.  By comparison, the balance at June 30, 2019 reflected an allowance for impairment on $363,000 of impaired loans while an additional $24.2 million of impaired loans had no allowance for impairment.

- 46 -

 

The portion of the allowance for loan losses attributable to loans collectively evaluated for impairment decreased by $853,000 to $32.4 million at September 30, 2019 from $33.2 million at June 30, 2019.  This decrease was attributable to changes in a combination of historical and environmental loss factors.  With regard to historical loss factors, our loan portfolio experienced an annualized net charge-off rate of 0.01% for the three months ended September 30, 2019, a decrease of one basis point from the 0.02% rate for the year ended June 30, 2019.  The annual average net charge off rate for June 30, 2019 had previously decreased by one basis point from 0.03% for the prior year ended June 30, 2018.  The effect of the net change in historical loss factors resulted in a decrease in the applicable portion of the allowance attributable to these factors of approximately $303,000 to $1.8 million from $2.1 million at June 30, 2019.  

With regard to environmental loss factors, the Company made minor adjustments to such factors during the three months ended September 30, 2019 resulting in a $549,000 decrease in the portion of the allowance for loan losses attributable to environmental loss factors to $30.6 million at September 30, 2019 from $31.1 million at June 30, 2019.  This decrease was largely attributable to the decrease in the balance of the unimpaired portion of the loan portfolio coupled with the noted adjustments to environmental loss factors.

The calculation of probable incurred losses within a loan portfolio and the resulting allowance for loan losses is subject to estimates and assumptions that are susceptible to significant revisions as more information becomes available and as events or conditions effecting individual borrowers and the marketplace as a whole change over time.  Future additions to the allowance for loan losses may be necessary if economic and market conditions deteriorate in the future from those currently prevalent in the marketplace.  In addition, our banking regulators, as an integral part of their examination process, periodically review our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate.  The regulators may require the allowance for loan losses to be increased based on their review of information available at the time of the examination, which may negatively affect our earnings.  Finally, changes in accounting standards promulgated by the Financial Accounting Standards Board, such as those discussed in Note 6 to the unaudited consolidated financial statements regarding the use of a current expected credit loss (“CECL”) model to calculate credit losses, may require increases in the allowance for loan losses upon adoption of the applicable accounting standard.

Additional information about the allowance for loan losses at September 30, 2019 is presented in Note 11 to the unaudited consolidated financial statements.

Other Assets. The aggregate balance of other assets, including premises and equipment, FHLB stock, interest receivable, goodwill, core deposit intangibles, bank owned life insurance, deferred income taxes, other real estate owned and other assets, increased by $12.2 million to $659.3 million at September 30, 2019 from $647.1 million at June 30, 2019.  

The increase in other assets primarily reflected the adoption of a new accounting standard that requires leases to be recognized on our Consolidated Statements of Condition as a right of use asset and lease liability. Our operating lease right of use asset totaled approximately $16.4 million as of September 30, 2019.  The remaining increases and decreases in other assets for the three months ended September 30, 2019 generally reflected normal operating fluctuations in their respective balances.

Additional information about the Company’s operating lease right of use asset at September 30, 2019 is presented in Note 12 to the unaudited consolidated financial statements.

Deposits. Total deposits increased by $49.6 million to $4.20 billion at September 30, 2019 from $4.15 billion at June 30, 2019.  The net increase in deposit balances reflected a $13.8 million increase in non-interest-bearing deposits coupled with a $35.8 million increase in interest-bearing deposits.  The increase in interest-bearing deposits reflected increases in interest-bearing checking accounts and savings accounts totaling $87.8 million and $9.8 million, respectively, which were partially offset by a decrease in the balance of certificates of deposits totaling $61.8 million.

The net increase in deposit balances for the three months ended September 30, 2019 was comprised of changes in the balances of retail deposits as well as non-retail deposits acquired through various wholesale channels. Retail deposits increased by $125.0 million to $3.97 billion at September 30, 2019 from $3.85 billion at June 30, 2019.  The increase in retail deposits was partially offset by a decrease in wholesale deposits of $75.3 million to $226.6 million at September 30, 2019 from $301.9 million at June 30, 2019.

The balance of wholesale deposits, as of September 30, 2019, included $169.0 million of brokered certificates of deposit and $57.5 million of listing service time deposits.

Additional information about the Company’s deposits at September 30, 2019 is presented in Note 13 to the unaudited consolidated financial statements.

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Borrowings. The balance of borrowings decreased by $40.9 million to $1.28 billion at September 30, 2019 from $1.32 billion at June 30, 2019. The decrease in borrowings primarily reflected the maturity of $10.0 million of long-term FHLB advances, a $30.0 million decrease in overnight borrowings and a $1.3 million decrease in depositor sweep account balances.

Additional information about the Company’s borrowings at September 30, 2019 is presented in Note 14 to the unaudited consolidated financial statements.

Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities, increased by $13.7 million to $51.8 million at September 30, 2019 from $38.1 million at June 30, 2019. The increase in other liabilities primarily reflected the adoption of a new accounting standard that requires leases to be recognized on our Consolidated Statements of Condition as a right of use asset and lease liability, as noted above.  Our operating lease liability totaled approximately $16.9 million as of September 30, 2019.  The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities generally reflected normal operating fluctuations during the period.

Additional information about the Company’s operating lease liability at September 30, 2019 is presented in Note 12 to the unaudited consolidated financial statements.

Stockholders’ Equity.  Stockholders’ equity decreased by $16.4 million to $1.11 billion at September 30, 2019 from $1.13 billion at June 30, 2019.  The decrease in stockholders’ equity largely reflected the impact of our share repurchases during the first three months of fiscal 2020.  In March 2019 we announced our fourth share repurchase program through which we authorized the repurchase of 9,218,324 shares, or 10%, of our outstanding shares as of that date.

During the three months ended September 30, 2019, we repurchased 2,326,051 shares of our common stock at a total cost of $30.6 million and an average cost of $13.15 per share. The shares of common stock repurchased during the period represented 25.2% of the total shares to be repurchased under our fourth share repurchase program. Cumulatively, the Company has repurchased a total of 5,407,794 shares or, 58.7% of the shares to be repurchased under its fourth share repurchase program at a total cost of $71.9 million and at an average cost of $13.30 per share. The cumulative cost of our repurchased shares directly reduced the balance of stockholders’ equity at September 30, 2019.

The net decrease in stockholders’ equity was partially offset by net income of $11.4 million for the three months ended September 30, 2019 from which we declared and paid regular quarterly cash dividends totaling $0.06 per share. Cash dividends declared and paid during the three months ended September 30, 2019 reduced stockholders’ equity by $5.0 million.

The change in stockholders’ equity also reflected a $5.9 million increase in accumulated other comprehensive income, due primarily to changes in the fair value of the interest rate derivatives portfolio and available for sale securities portfolio, and a $486,000 increase in unearned ESOP shares reflecting shares earned by plan participants during the three months ended September 30, 2019.

 

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Analysis of Net Interest Income

Net interest income represents the difference between income we earn on our interest-earning assets and the expense we pay on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities.

Average Balance Sheet and Yields. The following table reflects the components of the average balance sheet and of net interest income for the periods indicated. We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented with daily balances used to derive average balances.  No tax equivalent adjustments have been made to yield or costs.  Non-accrual loans were included in the calculation of average balances, however interest receivable on these loans has been fully reserved for and therefore not included in interest income. The yields and costs set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense and exclude the impact of prepayment penalties, which are recorded to non-interest income.

 

 

For the Three Months Ended September 30,

 

2019

 

2018

 

Average

Balance

 

 

Interest

 

 

Average

Yield/

Cost

 

Average

Balance

 

 

Interest

 

 

Average

Yield/

Cost

 

(Dollars in Thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (1)

$

4,656,192

 

 

$

48,600

 

 

 

4.18

 

%

 

$

4,562,375

 

 

$

47,437

 

 

 

4.16

 

%

Taxable investment securities (2)

 

1,147,698

 

 

 

9,328

 

 

 

3.25

 

 

 

 

1,180,655

 

 

 

8,879

 

 

 

3.01

 

 

Tax-exempt securities (2)

 

129,339

 

 

 

693

 

 

 

2.14

 

 

 

 

136,056

 

 

 

716

 

 

 

2.10

 

 

Other interest-earning assets (3)

 

125,114

 

 

 

1,278

 

 

 

4.09

 

 

 

 

112,629

 

 

 

1,174

 

 

 

4.17

 

 

Total interest-earning assets

 

6,058,343

 

 

 

59,899

 

 

 

3.95

 

 

 

 

5,991,715

 

 

 

58,206

 

 

 

3.89

 

 

Non-interest-earning assets

 

585,826

 

 

 

 

 

 

 

 

 

 

 

 

596,006

 

 

 

 

 

 

 

 

 

 

Total assets

$

6,644,169

 

 

 

 

 

 

 

 

 

 

 

$

6,587,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

$

883,843

 

 

$

2,880

 

 

 

1.30

 

 

 

$

788,148

 

 

$

1,685

 

 

 

0.86

 

 

Savings and club

 

799,181

 

 

 

1,530

 

 

 

0.77

 

 

 

 

747,743

 

 

 

775

 

 

 

0.41

 

 

Certificates of deposit

 

2,179,333

 

 

 

11,645

 

 

 

2.14

 

 

 

 

2,046,997

 

 

 

8,079

 

 

 

1.58

 

 

Total interest-bearing deposits

 

3,862,357

 

 

 

16,055

 

 

 

1.66

 

 

 

 

3,582,888

 

 

 

10,539

 

 

 

1.18

 

 

Borrowings

 

1,287,157

 

 

 

7,157

 

 

 

2.22

 

 

 

 

1,391,094

 

 

 

7,487

 

 

 

2.15

 

 

Total interest-bearing liabilities

 

5,149,514

 

 

 

23,212

 

 

 

1.80

 

 

 

 

4,973,982

 

 

 

18,026

 

 

 

1.45

 

 

Non-interest-bearing liabilities (4)

 

380,719

 

 

 

 

 

 

 

 

 

 

 

 

357,647

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

5,530,233

 

 

 

 

 

 

 

 

 

 

 

 

5,331,629

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

1,113,936

 

 

 

 

 

 

 

 

 

 

 

 

1,256,092

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders'

  equity

$

6,644,169

 

 

 

 

 

 

 

 

 

 

 

$

6,587,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

36,687

 

 

 

 

 

 

 

 

 

 

 

$

40,180

 

 

 

 

 

 

Interest rate spread (5)

 

 

 

 

 

 

 

 

 

2.15

 

%

 

 

 

 

 

 

 

 

 

 

2.44

 

%

Net interest margin (6)

 

 

 

 

 

 

 

 

 

2.42

 

%

 

 

 

 

 

 

 

 

 

 

2.68

 

%

Ratio of interest-earning assets

  to interest-bearing liabilities

 

1.18

 

X

 

 

 

 

 

 

 

 

 

 

1.20

 

X

 

 

 

 

 

 

 

 

 

(1)

Loans held-for-sale and non-accruing loans have been included in loans receivable and the effect of such inclusion was not material. Allowance for loan losses has been included in non-interest-earning assets.

(2)

Fair value adjustments have been excluded in the balances of interest-earning assets.

(3)

Includes interest-bearing deposits at other banks and FHLB of New York capital stock.

(4)

Includes average balances of non-interest-bearing deposits of $320,641,000 and $314,114,000, for the three months ended September 30, 2019, and 2018, respectively.

(5)

Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(6)

Net interest margin represents net interest income as a percentage of average interest-earning assets.

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Comparison of Operating Results for the Three Months Ended September 30, 2019 and September 30, 2018

Net Income.  Net income for the three months ended September 30, 2019 was $11.4 million, or $0.13 per diluted share; an increase of $224,000 from $11.1 million, or $0.12 per diluted share, for the three months ended September 30, 2018. The increase in net income reflected an increase in non-interest income, a decrease in the provision for loan losses and a decrease in non-interest expense that were partially offset by a decrease in net interest income, as detailed above.  Collectively, these factors contributed to an overall increase in pre-tax income and a corresponding increase in the provision for income taxes.  

Net income for the quarter ended September 30, 2019 was impacted by a non-recurring increase of $567,000 in non-interest expense and a non-recurring decrease of $106,000 in non-interest income which were recognized in conjunction with the Company’s previously announced branch consolidations.  

Net Interest Income.  Net interest income for the three months ended September 30, 2019 was $36.7 million, a decrease of $3.5 million from $40.2 million for the three months ended September 30, 2018.  The decrease between the comparative periods resulted from an increase of $5.2 million in interest expense that was partially offset by an increase of $1.7 million in interest income.

Net interest rate spread declined by 29 basis points to 2.15% for the three months ended September 30, 2019 from 2.44% for the three months ended September 30, 2018. The decrease in the net interest rate spread reflected a 35 basis points increase in the average cost of interest-bearing liabilities to 1.80% from 1.45% partially offset by a six basis points increase in the average yield on interest-earning assets to 3.95% from 3.89%.

The factors resulting in the decrease in our net interest rate spread also affected our net interest margin.  In total, our net interest margin decreased 26 basis points to 2.42% for the three months ended September 30, 2019 from 2.68% for the three months ended September 30, 2018.

Interest Income.  Interest income increased $1.7 million to $59.9 million for the three months ended September 30, 2019 from $58.2 million for the three months ended September 30, 2018. The increase in interest income partly reflected a $66.6 million increase in the average balance of interest-earning assets coupled with a six basis point increase in their yield to 3.95% from 3.89%.

Interest income from loans increased $1.2 million to $48.6 million for the three months ended September 30, 2019 from $47.4 million for the three months ended September 30, 2018.  The average balance of loans increased by $93.8 million to $4.66 billion for the three months ended September 30, 2019 from $4.56 billion for the three months ended September 30, 2018.  The average yield on loans increased by two basis points to 4.18% for the three months ended September 30, 2019 from 4.16% for the three months ended September 30, 2018.  

The increase in interest income on interest-earning assets, excluding loans, was primarily due to the increase in interest income on taxable investment securities.  The weighted average yield on taxable investment securities increased by 24 basis points to 3.25% for the three months ended September 30, 2019 from 3.01% for the three months ended September 30, 2018.  The increase in the weighted average yield on taxable investment securities was primarily attributable to an increase in the yield on our investments in floating rate securities. The weighted average yield on other interest earning assets decreased by eight basis points to 4.09% for the three months ended September 30, 2019 from 4.17% for the three months ended September 30, 2018.  The decrease in the weighted average yield on other interest-earning assets was primarily due to a decrease in the yield on the balances of our interest-bearing deposits at other banks and FHLB stock holdings.

Interest Expense.  Total interest expense increased by $5.2 million to $23.2 million for the three months ended September 30, 2019 from $18.0 million for the three months ended September 30, 2018.  The increase in interest expense partly reflected a $175.5 million increase in the average balance of interest-bearing liabilities to $5.15 billion for the three months ended September 30, 2019 from $4.97 billion for the three months ended September 30, 2018 while also reflecting a 35 basis point increase in the average cost of interest-bearing liabilities to 1.80% from 1.45% for those same comparative periods, respectively.

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Interest expense attributed to deposits increased by $5.6 million to $16.1 million for the three months ended September 30, 2019 from $10.5 million for the three months ended September 30, 2018. The increase in interest expense was attributable to increases in the average balance and average cost of interest-bearing deposits.  The average balance of interest-bearing deposits increased by $279.5 million to $3.86 billion for the three months ended September 30, 2019 from $3.58 billion for the three months ended September 30, 2018.  The average cost of interest-bearing deposits increased by 48 basis points to 1.66% for the three months ended September 30, 2019 from 1.18% for the three months ended September 30, 2018.

Interest expense attributed to borrowings decreased by $330,000 to $7.2 million for the three months ended September 30, 2019 from $7.5 million for the three months ended September 30, 2018.  The decrease in interest expense partly reflected a $103.9 million decrease in the average balance of borrowings to $1.29 billion for the three months ended September 30, 2019, from $1.39 billion for the three months ended September 30, 2018 while also reflecting a seven basis point increase in the average cost of borrowings to 2.22% from 2.15% for those same comparative periods, respectively.

The decrease in the average balance of borrowings primarily reflected a $73.0 million decrease in the average balance of FHLB advances to $1.28 billion for the three months ended September 30, 2019 from $1.35 billion for the three months ended September 30, 2018. For those same comparative periods, the average cost of FHLB advances increased by five basis points to 2.24% from 2.19%.  The increase in the average balance of borrowings also included a $31.0 million decrease in the average balance of depositor sweep accounts and overnight borrowings, to $10.0 million for the three months ended September 30, 2019 from $41.0 million for the three months ended September 30, 2018. The average cost of depositor sweep accounts and overnight borrowings decreased by 28 basis points to 0.66% from 0.94% between the same comparative periods.

Provision for Loan Losses.  The provision for loan losses decreased by $2.9 million to a provision reversal of $782,000 for the three months ended September 30, 2019 from a provision expense of $2.1 million for the three months ended September 30, 2018.  The decrease was attributable to a lower provision on non-impaired loans collectively evaluated for impairment partially offset by an increase in the provision attributable to loans individually evaluated for impairment.  Regarding the provision on non-impaired loans, the net decrease in provision expense largely reflected the effects of a decrease in the outstanding balance of the loan portfolio that was collectively evaluated for impairment during the quarter ended September 30, 2019, compared to a net increase in that portion of the portfolio for the quarter ended September 30, 2018.

Additional information regarding the allowance for loan losses and the associated provisions recognized during the three months ended September 30, 2019 is presented in Note 11 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at September 30, 2019 and June 30, 2019.  

Non-Interest Income.  Non-interest income increased by $780,000 to $4.0 million for the three months ended September 30, 2019 from $3.2 million for the three months ended September 30, 2018, reflecting the effects of several offsetting factors.

Fees and service charges increased by $295,000 to $1.5 million for the three months ended September 30, 2019 from $1.2 million for the three months ended September 30, 2018.  The increase primarily reflected an increase in loan-related fees attributable to an increase in loan prepayments.

Gain on sale of loans increased by $473,000 to $605,000 for the three months ended September 30, 2019 from $132,000 for the three months ended September 30, 2018.  The increase in loan sale gains primarily reflected an increase in the volume of loans originated and sold between comparative periods.

Miscellaneous non-interest income decreased by $78,000 to $5,000 for the three months ended September 30, 2019 from $83,000 for the three months ended September 30, 2018.  The decrease primarily reflected $106,000 of non-recurring losses on asset disposals recognized in conjunction with the Company’s previously announced branch consolidations, noted above.

We recognized a net loss of $14,000 on the sale and call of securities during the three months ended September 30, 2019 while there were no such transactions recorded during the earlier comparative period.

The Company incurred no losses related to the write down and sale of other real estate owned (“OREO”) during the three months ended September 30, 2019 compared to a net loss totaling $50,000 during the earlier comparative period.  

The remaining changes in the other components of non-interest income between comparative periods generally reflected normal operating fluctuations within those line items.

- 51 -

 

Non-Interest Expenses.  Non-interest expense decreased by $213,000 to $26.2 million for the three months ended September 30, 2019 from $26.5 million for the three months ended September 30, 2018.  The decrease in non-interest expense primarily included a decrease of $465,000 in FDIC insurance expense partially offset by the impact of non-recurring branch consolidation expenses totaling $567,000, as noted above.

Salaries and employee benefits expense increased by $135,000 to $15.8 million for the three months ended September 30, 2019 from $15.6 million for the three months ended September 30, 2018.  The increase generally reflected annual increases in wages and salaries for fiscal 2020 coupled with the cost of staffing additions within certain lending, business development, risk management and operational support functions.  The increase in salaries and employee benefits expense also reflected increases in commissions, employee severance, employee health insurance and payroll taxes.  These increases were partially offset by decreases in incentive compensation, bonus, employee retirement, ESOP and stock benefit plan expenses.

Net occupancy expense of premises increased by $233,000 to $3.0 million for the three months ended September 30, 2019 from $2.7 million for the three months ended September 30, 2018.  The increase in premises occupancy expense was largely attributable to $187,000 of lease termination costs in conjunction with branch consolidations, as noted above. The increase in premises occupancy expense also reflected an increase in facility lease expenses arising from costs associated with forthcoming branch additions and relocations, coupled with increases in property taxes and depreciation expenses partially offset by decreases in facility repairs and maintenance expenses relating to existing administrative and branch facilities.

Equipment and systems expense increased by $163,000 to $3.1 million for the three months ended September 30, 2019 from $2.9 million for the three months ended September 30, 2018.  The increase in equipment and systems expense was partly attributable to increases in service provider expenses supporting core processing and electronic banking delivery channels as well as increases in internal information technology infrastructure costs.

Advertising and marketing expense decreased by $42,000 to $535,000 for the three months ended September 30, 2019 from $577,000 for the three months ended September 30, 2018.  The decrease in advertising and marketing expense largely reflected changes in advertising expenses across a variety of advertising formats including outdoor and electronic media reflecting normal fluctuations in the timing of certain advertising campaigns supporting our loan and deposit growth initiatives.

For the three months ended September 30, 2019, the Company recorded no expense associated with FDIC insurance premiums compared to $465,000 for the three months ended September 30, 2018. No expense was recorded in the current period as a result of the FDIC’s Deposit Insurance Fund Reserve Ratio having reached a pre-established threshold defined by federal regulation.  Upon reaching this threshold qualifying banks with total consolidated assets of less than $10 billion were awarded assessment credits to be utilized towards their FDIC insurance premiums.

Directors’ compensation expense increased by $12,000 to $770,000 for the three months ended September 30, 2019 from $758,000 for the three months ended September 30, 2018.  The increase in expense primarily reflected an increase in director-related expenses associated to stock based compensation.

Miscellaneous expense decreased by $249,000 to $3.1 million for the three months ended September 30, 2019 from $3.4 million for the three months ended September 30, 2018. The decrease in miscellaneous expense primarily reflected decreases in consulting expense, education expense and OREO expense. The decreases in miscellaneous expense were offset by increases in loan expense and bad debt expense.  

Provision for Income Taxes.  The provision for income taxes increased by $158,000 to $3.8 million for the three months ended September 30, 2019 from $3.7 million for the three months ended September 30, 2018.  The variance in income tax expense primarily reflected the underlying differences in the level of the taxable portion of pre-tax income between comparative periods.

Our effective tax rates for the three month periods ended September 30, 2019 and September 30, 2018 were 25.1% and 24.7% which, in relation to statutory income tax rates, reflected the effects of recurring sources of tax-favored income included in pre-tax income.  

 

- 52 -

 

Liquidity and Capital Resources

Our liquidity, represented by cash and cash equivalents, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, borrowings, cash flows from investment securities and loans receivable and funds provided from operations. While scheduled payments from the amortization and maturity of loans and investment securities are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and prepayments on loans and securities.

The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe operation. The balance of our cash and cash equivalents increased by $90.4 million to $129.3 million at September 30, 2019 from $38.9 million at June 30, 2019.  The balance of cash and cash equivalents at September 30, 2019 reflected the temporary effects of an accumulation of short-term liquid assets arising from operating fluctuations in our short-term liquidity.  Short-term investments qualifying as liquid assets are supplemented by our portfolio of securities classified as available for sale whose balances at September 30, 2019 included $1.23 billion of investment securities that can readily be sold if necessary.

At September 30, 2019, the Company had outstanding commitments to originate and purchase loans totaling approximately $35.8 million while such commitments totaled $27.7 million at June 30, 2019.  As of those same dates, the Company’s pipeline of loans held for sale included $65.9 million and $46.2 million of loans in process whose terms included interest rate locks to borrowers that were paired with a non-binding, best-efforts, commitment to sell the loan to a buyer at a fixed price and within a predetermined timeframe after the sale commitment is established.

Construction loans in process and unused lines of credit were $3.1 million and $76.9 million, respectively, at September 30, 2019 compared to $3.9 million and $78.5 million, respectively, at June 30, 2019. The Company is also subject to the contingent liabilities resulting from letters of credit whose outstanding balances totaled $559,000 and $612,000 at September 30, 2019 and June 30, 2019, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Deposits increased $49.6 million to $4.20 billion at September 30, 2019 from $4.15 billion at June 30, 2019.  The net increase in deposit balances reflected a $35.8 million increase in interest-bearing deposits coupled with a $13.8 million increase in non-interest-bearing deposits.  Borrowings from the FHLB of New York and other sources are generally available to supplement the Bank’s liquidity position and, to the extent that maturing deposits do not remain with us, management may replace such funds with borrowings.  As of September 30, 2019, the Bank’s outstanding balance of FHLB advances, excluding fair value adjustments, totaled $1.28 billion.  In addition to FHLB advances, we have other borrowings totaling $7.5 million at September 30, 2019 representing collateralized overnight sweep account balances linked to customer demand deposits.

We have the capacity to borrow additional funds from the FHLB, through a line of credit or by taking short-term or long-term advances. Such borrowings are an option available to management if funding needs change or to modify the effective duration of liabilities. As of September 30, 2019, the Bank’s borrowing potential at the FHLB of New York was $1.29 billion without pledging additional collateral.  We also have the capacity to borrow additional funds, on an unsecured basis, via lines of credit we have established with a variety of other financial institutions.  As of September 30, 2019, the available borrowing capacity under those lines of credit totaled $655.0 million.

Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of September 30, 2019, the Company and the Bank exceeded all capital requirements of federal banking regulators.

- 53 -

 

The following table sets forth the Bank’s capital position at September 30, 2019 and June 30, 2019, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

 

 

At September 30, 2019

 

Actual

 

 

For Capital

Adequacy Purposes

 

 

To Be Well Capitalized

Under Prompt

Corrective Action

Provisions

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in Thousands)

Total capital (to risk-weighted assets)

$

793,818

 

 

 

20.17

 

%

$

314,811

 

 

 

8.00

 

%

$

393,514

 

 

 

10.00

 

%

Tier 1 capital (to risk-weighted assets)

 

761,386

 

 

 

19.35

 

%

 

236,108

 

 

 

6.00

 

%

 

314,811

 

 

 

8.00

 

%

Common equity tier 1 capital (to risk-weighted assets)

 

761,386

 

 

 

19.35

 

%

 

177,081

 

 

 

4.50

 

%

 

255,784

 

 

 

6.50

 

%

Tier 1 capital (to adjusted total assets)

 

761,386

 

 

 

11.88

 

%

 

256,290

 

 

 

4.00

 

%

 

320,363

 

 

 

5.00

 

%

  

 

At June 30, 2019

 

Actual

 

 

For Capital

Adequacy Purposes

 

 

To Be Well Capitalized

Under Prompt

Corrective Action

Provisions

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in Thousands)

Total capital (to risk-weighted assets)

$

787,219

 

 

 

19.50

 

%

$

322,974

 

 

 

8.00

 

%

$

403,718

 

 

 

10.00

 

%

Tier 1 capital (to risk-weighted assets)

 

753,945

 

 

 

18.68

 

%

 

242,231

 

 

 

6.00

 

%

 

322,974

 

 

 

8.00

 

%

Common equity tier 1 capital (to risk-weighted assets)

 

753,945

 

 

 

18.68

 

%

 

181,673

 

 

 

4.50

 

%

 

262,417

 

 

 

6.50

 

%

Tier 1 capital (to adjusted total assets)

 

753,945

 

 

 

11.78

 

%

 

256,116

 

 

 

4.00

 

%

 

320,145

 

 

 

5.00

 

%

 

 

The following table sets forth the Company’s capital position at September 30, 2019 and June 30, 2019, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

 

 

At September 30, 2019

 

Actual

 

 

For Capital

Adequacy Purposes

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in Thousands)

Total capital (to risk-weighted assets)

$

918,776

 

 

 

23.25

 

%

$

316,092

 

 

 

8.00

 

%

Tier 1 capital (to risk-weighted assets)

 

886,344

 

 

 

22.43

 

%

 

237,069

 

 

 

6.00

 

%

Common equity tier 1 capital (to risk-weighted assets)

 

886,344

 

 

 

22.43

 

%

 

177,802

 

 

 

4.50

 

%

Tier 1 capital (to adjusted total assets)

 

886,344

 

 

 

13.79

 

%

 

257,058

 

 

 

4.00

 

%

 

 

At June 30, 2019

 

Actual

 

 

For Capital

Adequacy Purposes

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in Thousands)

Total capital (to risk-weighted assets)

$

941,319

 

 

 

23.22

 

%

$

324,246

 

 

 

8.00

 

%

Tier 1 capital (to risk-weighted assets)

 

908,045

 

 

 

22.40

 

%

 

243,184

 

 

 

6.00

 

%

Common equity tier 1 capital (to risk-weighted assets)

 

908,045

 

 

 

22.40

 

%

 

182,388

 

 

 

4.50

 

%

Tier 1 capital (to adjusted total assets)

 

908,045

 

 

 

14.14

 

%

 

256,856

 

 

 

4.00

 

%

 

- 54 -

 

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies proposed a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 9% that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements noted above.  A “qualifying community bank” with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized.”  The rule has been adopted in final form and the framework will first be available for use in the Bank’s March 31, 2020 Call Report.

Off-Balance Sheet Arrangements

In the normal course of our business of investing in loans and securities we are a party to financial instruments with off-balance-sheet risk.  These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to extend credit to meet the financing needs of our customers. We had no significant off-balance sheet commitments for capital expenditures as of September 30, 2019.

Recent Accounting Pronouncements

For a discussion of the expected impact of recently issued accounting pronouncements that have yet to be adopted by the Company, please refer to Note 6 to the unaudited consolidated financial statements.

 

 

 

- 55 -

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The majority of our assets and liabilities are sensitive to changes in interest rates. Consequently, interest rate risk is a significant form of business risk that we must manage.  Interest rate risk is generally defined in regulatory nomenclature as the risk to earnings or capital arising from the movement of interest rates and arises from several risk factors including re-pricing risk, basis risk, yield curve risk and option risk.

We maintain an Asset/Liability Management (“ALM”) program in order manage our interest rate risk. The program is overseen by the Board of Directors through its Interest Rate Risk Management Committee.  The Board of Directors has assigned the responsibility for the operational aspects of the ALM program to our Asset/Liability Management Committee (“ALCO”).  The ALCO is a management committee comprising the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer, Chief Banking Officer, Chief Risk Officer and Treasurer/Chief Investment Officer. Additional members of our management team may be asked to participate on the ALCO, as appropriate.

The quantitative analysis that we conduct measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income (“NII”) that we recognize.  Movements in market interest rates, and the effect of such movements on the risk factors noted above, significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities.  Our internal interest rate risk analysis calculates the sensitivity of our projected NII over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are appropriately adjusted for each rate scenario.

With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our Economic Value of Equity (“EVE”) ratio to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet instruments.  EVE attempts to quantify our economic value using a discounted cash flow methodology while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution’s sensitivity to interest rate risk.

For both earnings and capital at risk our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates. The relatively low level of interest rates prevalent at September 30, 2019 and June 30, 2019 precluded the modeling of certain falling rate scenarios.

The following tables present the results of our internal EVE analysis as of September 30, 2019 and June 30, 2019, respectively.

 

 

 

September 30, 2019

 

 

Economic Value of

Equity ("EVE")

 

EVE as a % of

Present Value of Assets

Change in

Interest Rates

 

$ Amount

of EVE

 

 

$ Change

in EVE

 

 

% Change

in EVE

 

EVE Ratio

 

Change in

EVE Ratio

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

+300 bps

 

 

725,838

 

 

 

(113,861

)

 

 

(14

)

%

 

 

12.23

 

%

 

 

(84

)

bps

+200 bps

 

 

769,092

 

 

 

(70,607

)

 

 

(8

)

%

 

 

12.62

 

%

 

 

(45

)

bps

+100 bps

 

 

812,241

 

 

 

(27,458

)

 

 

(3

)

%

 

 

12.97

 

%

 

 

(10

)

bps

0 bps

 

 

839,699

 

 

-

 

 

-

 

 

 

 

13.07

 

%

 

-

 

 

-100 bps

 

 

809,661

 

 

 

(30,038

)

 

 

(4

)

%

 

 

12.37

 

%

 

 

(70

)

bps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 56 -

 

 

 

 

June 30, 2019

 

 

Economic Value of

Equity ("EVE")

 

EVE as a % of

Present Value of Assets

Change in

Interest Rates

 

$ Amount

of EVE

 

 

$ Change

in EVE

 

 

% Change

in EVE

 

EVE Ratio

 

Change in

EVE Ratio

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

+300 bps

 

 

733,887

 

 

 

(172,135

)

 

 

(19

)

%

 

 

12.44

 

%

 

 

(168

)

bps

+200 bps

 

 

795,855

 

 

 

(110,167

)

 

 

(12

)

%

 

 

13.12

 

%

 

 

(100

)

bps

+100 bps

 

 

859,686

 

 

 

(46,336

)

 

 

(5

)

%

 

 

13.77

 

%

 

 

(35

)

bps

0 bps

 

 

906,022

 

 

-

 

 

-

 

 

 

 

14.12

 

%

 

-

 

 

-100 bps

 

 

892,775

 

 

 

(13,247

)

 

 

(1

)

%

 

 

13.63

 

%

 

 

(49

)

bps

-200 bps

 

 

800,049

 

 

 

(105,973

)

 

 

(12

)

%

 

12.11

 

%

 

 

(201

)

bps

 

As illustrated in the tables above, the dollar amount of EVE and the EVE ratios declined between comparative periods across all scenarios modeled while the sensitivity of those measures to movements in interest rates also generally decreased.

There are numerous internal and external factors that may contribute to changes in our EVE ratio and its sensitivity.  Changes in the composition and allocation of our balance sheet, or utilization of off balance sheet instruments such as derivatives, can significantly alter the exposure to interest rate risk as quantified by the changes in the EVE sensitivity measures.  Changes to certain external factors, most notably changes in the level of market interest rates and overall shape of the yield curve, can also alter the projected cash flows of our interest-earning assets and interest-costing liabilities and the associated present values thereof.

The following tables present the results of our internal NII analysis as of September 30, 2019 and June 30, 2019, respectively.

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

Net Interest

Income ("NII")

Change in

Interest Rates

 

Balance Sheet

Composition

 

Measurement

Period

 

$ Amount

of NII

 

 

$ Change

in NII

 

 

% Change

in NII

 

 

 

 

 

 

(Dollars In Thousands)

 

 

 

 

 

 

+300 bps

 

Static

 

One Year

 

$

134,576

 

 

$

(12,739

)

 

 

(8.65

)

%

+200 bps

 

Static

 

One Year

 

 

138,795

 

 

 

(8,520

)

 

 

(5.78

)

 

+100 bps

 

Static

 

One Year

 

 

143,678

 

 

 

(3,637

)

 

 

(2.47

)

 

0 bps

 

Static

 

One Year

 

 

147,315

 

 

 

-

 

 

 

-

 

 

-100 bps

 

Static

 

One Year

 

 

148,329

 

 

 

1,014

 

 

 

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

 

 

 

 

Net Interest

Income ("NII")

Change in

Interest Rates

 

Balance Sheet

Composition

 

Measurement

Period

 

$ Amount

of NII

 

 

$ Change

in NII

 

 

% Change

in NII

 

 

 

 

 

 

(Dollars In Thousands)

 

 

 

 

 

 

+300 bps

 

Static

 

One Year

 

$

131,190

 

 

$

(16,118

)

 

 

(10.94

)

%

+200 bps

 

Static

 

One Year

 

 

136,883

 

 

 

(10,425

)

 

 

(7.08

)

 

+100 bps

 

Static

 

One Year

 

 

143,007

 

 

 

(4,301

)

 

 

(2.92

)

 

0 bps

 

Static

 

One Year

 

 

147,308

 

 

 

-

 

 

 

-

 

 

-100 bps

 

Static

 

One Year

 

 

148,011

 

 

 

703

 

 

 

0.48

 

 

-200 bps

 

Static

 

One Year

 

 

146,927

 

 

 

(381

)

 

 

(0.26

)

 

 

As illustrated in the tables above the findings of our NII-based analysis generally reflect a decrease between June 30, 2019 and September 30, 2019 in NII-based interest rate risk exposure in all scenarios modeled.

- 57 -

 

Notwithstanding the rate change scenarios presented in the EVE and NII-based analyses above, future interest rates and their effect on net interest income are not predictable.  Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments and deposit run-offs and should not be relied upon as indicative of actual results.  Certain shortcomings are inherent in this type of computation.  Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react at different times and in different degrees to changes in market interest rates.  The interest rate on certain types of assets and liabilities, such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates.  Certain assets, such as adjustable-rate mortgages, generally have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in the analyses set forth above.  Additionally, an increase in credit risk may result as the ability of borrowers to service their debt may decrease in the event of an interest rate increase.

 

 

- 58 -

 

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this Report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2019, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

- 59 -

 

PART II

ITEM 1.

At September 30, 2019, neither the Company nor the Bank were involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company and the Bank.

ITEM 1A.

Risk Factors

There have been no material changes to the Risk Factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, previously filed with the Securities and Exchange Commission.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

The following table reports information regarding repurchases of the Company’s common stock during the quarter ended September 30, 2019.

 

Period

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced Plans

or Programs (1)

 

 

Maximum

Number of Shares

that May Yet Be

Purchased Under

the  Plans or

Programs

 

July 1-31, 2019

 

 

817,176

 

 

$

13.57

 

 

 

817,176

 

 

 

5,319,405

 

August 1-31, 2019

 

 

861,375

 

 

$

12.86

 

 

 

861,375

 

 

 

4,458,030

 

September 1-30, 2019

 

 

647,500

 

 

$

13.00

 

 

 

647,500

 

 

 

3,810,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2,326,051

 

 

$

13.15

 

 

 

2,326,051

 

 

 

3,810,530

 

 

 

(1)

On March 13, 2019, the Company announced the authorization of a fourth repurchase plan for up to 9,218,324 shares or 10% of shares then outstanding.  This plan has no expiration date.  The plan commenced upon the completion of the third stock repurchase plan, which was announced on April 27, 2018, and authorized the purchase of up to 10,238,557 shares or 10% of shares then outstanding.

ITEM 3.

Defaults Upon Senior Securities

Not applicable.

ITEM 4.

Mine Safety Disclosures

Not applicable.

ITEM 5.

Other Information

None.

- 60 -

 

 ITEM 6.

Exhibits

The following Exhibits are filed as part of this report:

 

3.1

 

Articles of Incorporation of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)

3.2

 

Bylaws of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)

4

 

Form of Common Stock Certificate of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

 

The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

101.INS

 

Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

KEARNY FINANCIAL CORP.

 

 

 

Date: November 8, 2019

By:

  /s/ Craig L. Montanaro

 

 

  Craig L. Montanaro

 

 

  President and Chief Executive Officer

 

 

  (Duly authorized officer and Principal Executive Officer)

 

 

 

Date: November 8, 2019

By:

  /s/ Keith Suchodolski

 

 

  Keith Suchodolski

 

 

  Executive Vice President and

 

 

  Chief Financial Officer

 

 

  (Principal Financial and Accounting Officer)

 

 

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