Kearny Financial Corp. (KRNY) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This discussion and analysis reflects Kearny Financial Corp.’s consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the business and financial information regarding Kearny Financial Corp. and the audited consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Our accounting policies are integral to understanding the results reported. We describe them in detail in Note 1 to our audited consolidated financial statements. In preparing the audited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the Consolidated Statements of Financial Condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses.

Allowance for Credit Losses. The determination of our allowance for credit losses on loans (“ACL”) is considered a critical accounting estimate by management because of the high degree of judgment involved in determining qualitative loss factors, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL. See Note 1 to our audited consolidated financial statements for a detailed discussion of our accounting policies and methodologies for establishing the ACL.

Management believes the following information may enable investors to better understand the changes in our ACL. Our ACL totaled $47.1 million and $58.2 million at June 30, 2022 and 2021, respectively. The $11.1 million decrease in our ACL was primarily driven by our collectively evaluated loans. The quantitative component of our ACL, which is largely based on the national unemployment rate forecast, decreased $10.2 million, which resulted from continued improvement in our economic forecast and a reduction in the expected life of various segments of the loan portfolio. The qualitative component of our ACL, which is largely based on management’s judgment of qualitative loss factors, increased $2.1 million.

Our ACL totaled $47.1 million at June 30, 2022 and the amount allocated to our collectively evaluated multi-family and nonresidential mortgage loans was $32.4 million, of which $28.2 million was attributable to qualitative loss factors. Changes in managements’ judgement of qualitative loss factors could result in a significant change to the ACL. As described in Note 1, qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the most severe loss periods identified in the historical loan charge-offs of a peer group of similar-sized regional banks. At June 30, 2022, the most severe historical loss rate for multi-family and nonresidential mortgages loans was 1.92%.

Management performed a hypothetical sensitivity analysis to understand the impact of a change in a key input on our ACL. At June 30, 2022, if the four-quarter national unemployment rate forecast had been 9% rather than an average of approximately 3.5%, our ACL would have been approximately $11.1 million higher. This sensitivity analysis includes the impact to both the quantitative and qualitative components of our ACL. Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others. This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management’s judgment of qualitative loss factors.

Our ACL on individually analyzed loans is determined on an individual basis using the present value of expected cash flows discounted using the loan’s effective interest rate or, for collateral-dependent loans, the fair value of the collateral, less estimated selling costs, as applicable. Our ACL on individually analyzed loans decreased $3.0 million, which resulted from charge-offs, a loan payoff and an increase in the fair value of collateral for collateral-dependent loans, partially offset by new individually analyzed loans.

39

Financial Overview

The following financial information and other data in this section are derived from our audited consolidated financial statements and should be read together therewith:

(1) Represents cash dividends declared divided by net income.

40

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

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

41

Comparison of Financial Condition at June 30, 2022 and June 30, 2021

Executive Summary. Total assets increased by $436.1 million, or 6.0%, to $7.72 billion at June 30, 2022 from $7.28 billion at June 30, 2021. The increase primarily reflected an increase in net loans receivable, partially offset by a decrease in investment securities.

Investment Securities. Investment securities available for sale decreased by $332.8 million to $1.34 billion at June 30, 2022 from $1.68 billion at June 30, 2021. This decrease was largely the result of principal repayments totaling $330.2 million, sales of $100.3 million and a $128.0 million decrease in the fair value of the portfolio to a net unrealized loss of $118.0 million, partially offset by purchases totaling $229.1 million.

Investment securities held to maturity increased by $80.2 million to $118.3 million at June 30, 2022 from $38.1 million at June 30, 2021. The increase was largely the result of purchases totaling $86.4 million, partially offset by principal repayments totaling $6.1 million.

Additional information regarding investment securities at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 4 to the audited consolidated financial statements.

Loans Held-for-Sale. Loans held-for-sale totaled $28.9 million at June 30, 2022 as compared to $16.5 million at June 30, 2021 and are reported separately from the balance of net loans receivable. Loans held-for-sale at June 30, 2022 included $21.7 million of non-accrual commercial loans. During the year ended June 30, 2022, $189.1 million of residential mortgage loans were sold, resulting in net gains on sale of $2.4 million.

Net Loans Receivable. Net loans receivable increased by $577.6 million, or 12.0%, to $5.37 billion at June 30, 2022 from $4.79 billion at June 30, 2021. Detail regarding the change in the loan portfolio is presented below:

Commercial loan origination volume for the year ended June 30, 2022 totaled $1.37 billion, which comprised $1.14 billion of commercial mortgage loan originations, $140.1 million of commercial business loan originations and construction loan disbursements of $86.4 million. Commercial loan originations for the period were augmented by the purchase of loans totaling $56.0 million.

One- to four-family residential mortgage loan origination volume, excluding loans held-for-sale, totaled $415.6 million for the year ended June 30, 2022 and was augmented by the purchase of loans totaling $67.4 million. Home equity loan and line of credit origination volume for the same period totaled $18.6 million.

42

Additional information about our loans at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 5 to the audited consolidated financial statements.

Nonperforming Loans and TDRs. Nonperforming loans decreased by $9.5 million to $70.3 million, or 1.30% of total loans, at June 30, 2022 from $79.8 million, or 1.64% of total loans, at June 30, 2021. The decrease in nonperforming loans was largely attributable to a decrease of $10.7 million in non-performing one- to four-family residential mortgage loans.

TDRs are loans where we have modified the contractual terms of the loan as a result of the financial condition of the borrower. Subsequent to their modification, TDRs are placed on non-accrual until such time as satisfactory payment performance has been demonstrated, at which time the loan may be returned to accrual status. At June 30, 2022, we had accruing TDRs totaling $8.7 million, an increase of $2.5 million from $6.2 million at June 30, 2021. At June 30, 2022, we had non-accrual TDRs totaling $13.5 million, an increase of $1.9 million from $11.6 million at June 30, 2021.

Based on Section 4013 of the CARES Act, the 2021 Consolidated Appropriations Act and related regulatory guidance promulgated by federal banking regulators, qualifying loan modifications made in response to the COVID-19 pandemic, including short-term payment deferrals, were not considered to be TDRs. We had no active payment deferrals that were not considered to be TDRs as of June 30, 2022. We had active payment deferrals that were not considered TDRs of $5.6 million at June 30, 2021.

Additional information about nonperforming loans and TDRs at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 5 to the audited consolidated financial statements.

Allowance for Credit Losses (“ACL”). At June 30, 2022, the ACL totaled $47.1 million, or 0.87% of total loans, reflecting a decrease of $11.1 million from $58.2 million, or 1.19% of total loans, at June 30, 2021. The decrease was largely attributable to a provision for credit losses reversal of $7.5 million, primarily driven by continued improvement in our economic forecast, a reduction in the expected life of various segments of the loan portfolio and a net reduction in reserves on loans individually evaluated for impairment. Also contributing to this decrease were net charge-offs of $3.6 million, of which $1.8 million had previously been individually reserved for within the ACL.

Additional information about the allowance for credit losses at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 1 and Note 6 to the audited 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, OREO and other assets, increased by $65.0 million to $756.2 million at June 30, 2022 from $691.2 million at June 30, 2021. The increase in other assets primarily reflected a $39.4 million increase in the fair value of our derivatives portfolio and a $20.0 million increase in net deferred income tax assets during the year ended June 30, 2022. The remaining change generally reflected normal operating fluctuations within these line items.

Deposits. Total deposits increased by $377.0 million, or 6.9%, to $5.86 billion at June 30, 2022 from $5.49 billion at June 30, 2021. The following table sets forth the distribution of, and changes in, deposits, by type, at the dates indicated:

Additional information about our deposits at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 10 to the audited consolidated financial statements.

43

Borrowings. The balance of borrowings increased by $215.5 million, or 31.4%, to $901.3 million at June 30, 2022 from $685.9 million at June 30, 2021 which included overnight borrowings totaling $250.0 million and $20.0 million at June 30, 2022 and 2021, respectively. Partially offsetting the increase in overnight borrowings was the repayment of maturing FHLB advances totaling $15.0 million.

Additional information about our borrowings at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 11 to the audited consolidated financial statements.

Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities, decreased by $7.3 million to $62.3 million at June 30, 2022 from $69.6 million at June 30, 2021. The change in other liabilities largely reflected the payment of a $12.5 million loan participation liability which was outstanding at June 30, 2021. The remaining change generally reflected normal operating fluctuations within these line items.

Additional information about our derivatives portfolio at June 30, 2022 is presented under “Item 1. Business” of this Annual Report on Form 10-K, as well as in Note 12 to the audited consolidated financial statements.

Stockholders’ Equity. Stockholders’ equity decreased by $148.9 million to $894.0 million at June 30, 2022 from $1.04 billion at June 30, 2021. The decrease in stockholders’ equity during the year ended June 30, 2022 largely reflected share repurchases totaling $129.5 million and dividends totaling $30.5 million. In addition, accumulated other comprehensive (loss) income decreased $61.9 million due primarily to a decline in the fair value of our available for sale securities, partially offset by an increase in the fair value of our derivatives portfolio. These decreases were partially offset by net income of $67.5 million.

Book value per share decreased by $0.19 to $13.02 at June 30, 2022 while tangible book value per share decreased by $0.59 to $9.90 at June 30, 2022.

On September 20, 2021, we announced the completion of our seventh stock repurchase plan. On September 22, 2021, we announced the authorization of our eighth stock repurchase plan to repurchase up to 7,602,021, or 10% of the shares then outstanding.

During the year ended June 30, 2022, we repurchased a total of 10,221,525 shares of our common stock in conjunction with our seventh and eighth repurchase plans. Such shares were repurchased at a total cost of $129.5 million and at an average cost of $12.67 per share.

Including shares repurchased prior to July 1, 2021, the shares repurchased under our seventh repurchase plan were repurchased at a total cost of $50.5 million and at an average cost of $12.43 per share.

Included in the shares repurchased during the year ended June 30, 2022 were 7,276,876 shares that we repurchased pursuant to our eighth repurchase program at a cost of $93.2 million and at an average cost of $12.80 per share which represented 95.7% of the total shares authorized to be repurchased.

Comparison of Operating Results for the Years Ended June 30, 2022 and June 30, 2021

Net Income. Net income for the year ended June 30, 2022 was $67.5 million, or $0.95 per diluted share, an increase of 6.8% from $63.2 million, or $0.77 per diluted share for the year ended June 30, 2021. The increase in net income reflected an increase in net interest income and decreases in the provision for credit losses and non-interest expense, partially offset by a decrease in non-interest income and an increase in income tax expense.

Net Interest Income. Effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented reflect this reclassification.

Net interest income increased by $8.4 million to $196.6 million for the year ended June 30, 2022. The increase between the comparative periods resulted from a decrease of $20.2 million in interest expense, partially offset by a decrease of $11.8 million in interest income. Included in net interest income for the years ended June 30, 2022 and 2021, respectively, was purchase accounting accretion of $9.0 million and $16.6 million and loan prepayment penalty income of $5.4 million and $3.7 million.

Net interest margin increased 14 basis points to 2.94% for the year ended June 30, 2022, from 2.80% for the year ended June 30, 2021. The increase reflected decreases in the cost and average balance of interest-bearing liabilities, partially offset by a decrease in the yield on interest-earning assets.

44

Details surrounding the composition of, and changes to, net interest income are presented in the table below which 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.

(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 credit 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 $624.7 million, $518.1 million and $334.5 million for the years ended June 30, 2022, 2021 and 2020, 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.

45

The following table reflects the dollar amount of changes in interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated. Each category reflects the: (1) changes in volume (changes in volume multiplied by old rate); (2) changes in rate (changes in rate multiplied by old volume); and (3) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each.

Provision for Credit Losses. The provision for credit losses decreased by $6.4 million to a provision for credit losses reversal of $7.5 million for the year ended June 30, 2022, compared to a provision for credit losses reversal of $1.1 million for the year ended June 30, 2021. The provision for credit losses reversal for the year ended June 30, 2022 was largely attributable to continued improvement in our economic forecast, a reduction in the expected life of various segments of the loan portfolio and a net reduction of $3.0 million in reserves on individually evaluated loans. By comparison, the provision for credit losses reversal for the year ended June 30, 2021 was largely attributable to a release of reserves within certain loan segments, reflecting the improving credit risk outlook for those asset classes in the reasonable and supportable forecast, partially offset by an increase of $6.6 million in reserves on individually evaluated loans and $5.1 million of provision expense on non-PCD loans acquired in connection with the acquisition of MSB.

Additional information regarding the allowance for credit losses and the associated provisions recognized during the year ended June 30, 2022 is presented under “Item 1, Business” on this Annual Report on Form 10-K as well as in Note 1 and Note 6 to the audited consolidated financial statements as well as the Comparison of Financial Condition at June 30, 2022.

Non-Interest Income. Non-interest income decreased by $7.1 million to $13.9 million for the year ended June 30, 2022.

Fees and service charges increased by $683,000 to $2.6 million for the year ended June 30, 2022. The increase primarily reflected increases in various loan-related and deposit-related fees and charges.

Loss on sale and call of securities was $559,000 during the year ended June 30, 2022 compared to a net gain of $767,000 recorded during the earlier comparative period.

Gain on sale of loans decreased by $3.0 million to $2.5 million for the year ended June 30, 2022. The decrease in gain on sale of loans reflected a decrease in the volume of loans sold between comparative periods coupled with a lower average gain per loan.

Bargain purchase gain of $3.1 million was recognized in the earlier comparative period in conjunction with the MSB acquisition. There was no such gain recorded in the current period.

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

46

Non-Interest Expense. Non-interest expense decreased by $177,000 to $125.7 million for the year ended June 30, 2022. Included in non-interest expense for the years ended June 30, 2022 and 2021 were various non-recurring items as described below.

Salaries and employee benefits expense increased by $7.5 million to $76.3 million for the year ended June 30, 2022. This increase was largely due to the impact of staff additions, annual merit increases, an increase in incentive payments tied to loan origination volume, and increases in benefit plan expense, including employee medical, post-retirement plan and ESOP expense. These increases were partially offset by a decrease in stock-based compensation expense.

Net occupancy expense of premises increased by $1.4 million to $14.1 million for the year ended June 30, 2022. This increase was primarily due to non-recurring expenses of $1.3 million related to the consolidation of three retail branch locations, $250,000 related to facility repairs made in connection with damage incurred during Tropical Storm Ida and $187,000 related to the closure of a leased office facility acquired in conjunction with the MSB acquisition.

Equipment and systems expense increased by $1.0 million to $15.9 million for the year ended June 30, 2022. This increase was largely attributable to a non-recurring expense of $800,000 from the early termination of a contract with a service provider.

Director compensation decreased by $861,000 to $2.1 million for the year ended June 30, 2022. This decrease primarily reflected a decline in director-related stock-based compensation expense.

Merger-related expenses, associated with our acquisition of MSB, were $4.3 million for the year ended June 30, 2021. There were no such expenses recorded in the current period.

Debt extinguishment expenses, resulting from the pre-payment of FHLB advances, totaled $796,000 for the year ended June 30, 2021. There were no such expenses recorded in the current period.

Other expense decreased by $4.5 million to $12.8 million for the year ended June 30, 2022. This decrease was primarily attributable to a $1.8 million decrease in the provision for credit losses on unfunded commitments and a $1.5 million decrease in asset impairment charges. For the years ended June 30, 2022 and 2021, non-recurring asset impairment charges related to branch and administrative facility consolidation activity totaled $420,000 and $1.9 million, respectively.

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

Provision for Income Taxes. Provision for income taxes increased by $3.5 million to $24.8 million for the year ended June 30, 2022, from $21.3 million for the year ended June 30, 2021. The increase in income tax expense largely reflected a higher level of pre-tax net income, as compared to the prior period.

Effective tax rates for the years ended June 30, 2022 and 2021 were 26.9% and 25.2%, respectively. The effective tax rate for the prior comparative period was impacted by the effects of various non-recurring items recorded in conjunction with our acquisition of MSB, including non-deductible merger related expenses, which were partially offset by a non-taxable bargain purchase gain.

Comparison of Operating Results for the Years Ended June 30, 2021 and June 30, 2020

A comparison of our operating results for the years ended June 30, 2021 and June 30, 2020 can be found in our Annual Report on Form 10-K for the year ended June 30, 2021, filed with the SEC on August 27, 2021.

47

Liquidity and Commitments

Liquidity, represented by cash and cash equivalents, is a product of 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.

Liquidity, at June 30, 2022, included $101.6 million of short-term cash and equivalents supplemented by $1.34 billion of investment securities classified as available for sale which can readily be sold or pledged as collateral, if necessary. In addition, we have the capacity to borrow additional funds from the FHLB, Federal Reserve Bank or via unsecured overnight borrowings. As of June 30, 2022, we had the capacity to borrow additional funds totaling $2.04 billion and $303.9 million from the FHLB of New York and Federal Reserve Bank, respectively, without pledging additional collateral. As of that same date, we also had access to unsecured overnight borrowings with other financial institutions totaling $975.0 million, of which none was outstanding.

Deposits increased $377.0 million to $5.86 billion at June 30, 2022 from $5.49 billion at June 30, 2021. The increase in deposit balances reflected a $316.8 million increase in interest-bearing deposits coupled with a $60.2 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 or to replace maturing deposits. As of June 30, 2022, the Bank’s outstanding balance of FHLB advances, excluding fair value adjustments, totaled $652.5 million. As of the same date, we had $250.0 million outstanding via the Bank’s overnight line of credit with the FHLB.

The following table sets forth information concerning balances and interest rates on our short-term borrowings at and for the periods shown:

The following table discloses our contractual obligations and commitments as of June 30, 2022:

(1)
Represents amounts committed to customers.

In addition to the loan commitments noted above, the pipeline of loans held for sale included $20.3 million of in process loans whose terms included interest rate locks to borrowers that were paired with a 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.

48

In addition to the commitments noted above, we are party to standby letters of credit totaling approximately $130,000 at June 30, 2022 through which we guarantee certain specific business obligations of our commercial customers.

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.

At June 30, 2022, outstanding loan commitments relating to loans held in portfolio totaled $510.5 million compared to $512.2 million at June 30, 2021. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding our outstanding lending commitments at June 30, 2022, see Note 17 to the audited consolidated financial statements.

Capital

Consistent with our goals to operate as a sound and profitable financial organization, Kearny Financial and Kearny Bank actively seek to maintain our well capitalized status in accordance with regulatory standards. As of June 30, 2022, Kearny Financial and Kearny Bank exceeded all capital requirements of the federal banking regulators and were considered well capitalized.

The following table presents information regarding the Bank’s regulatory capital levels at June 30, 2022:

The following table presents information regarding the consolidated Company’s regulatory capital levels at June 30, 2022:

For additional information regarding regulatory capital at June 30, 2022, see Note 15 to the audited consolidated financial statements.

Impact of Inflation

The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.

49

The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.

Recent Accounting Pronouncements

For a discussion of the expected impact of recently issued accounting pronouncements that have yet to be adopted by us, please refer to Note 2 to the audited consolidated financial statements.