Business Context and Reporting Period
Kearny Financial Corp. (KRNY) is a Maryland corporation and the holding company for Kearny Bank, a New Jersey-chartered savings bank. The company operates 40 branch offices primarily in New Jersey and New York. This Form 10-K covers the fiscal year ended June 30, 2026. The company's strategy focuses on expanding commercial banking relationships, growing core deposits, leveraging technology, and maintaining strong capital and liquidity.
Key Financial Metrics
| Metric | 2026 | 2025 |
|---|---|---|
| Total Assets | $7.68 billion | $7.74 billion |
| Total Loans (Gross) | $5.88 billion | $5.81 billion |
| Total Deposits | $5.71 billion | $5.68 billion |
| Net Interest Income | $155.3 million | $134.9 million |
| Net Income | $36.3 million | $26.1 million |
| Diluted EPS | $0.57 | $0.42 |
| Net Interest Margin | 2.18% | 1.88% |
| Return on Average Assets | 0.48% | 0.34% |
| Return on Average Equity | 4.80% | 3.49% |
| Allowance for Credit Losses (ACL) | $45.5 million (0.77% of loans) | $46.2 million (0.79% of loans) |
| Nonperforming Assets | $53.4 million (0.70% of assets) | $45.6 million (0.59% of assets) |
| Stockholders' Equity | $766.7 million | $746.0 million |
Material Changes vs. Prior Period
- Profitability: Net income increased by $10.2 million (39%) to $36.3 million, driven by a $20.3 million increase in net interest income and a $3.8 million increase in non-interest income.
- Net Interest Margin (NIM): NIM expanded 30 basis points to 2.18%, attributed to higher loan yields and lower costs on interest-bearing liabilities, partially offset by lower yields on investment securities.
- Loan Portfolio: Total loans increased by $64.0 million. Growth was seen in Commercial & Industrial (C&I) loans (+$85.2 million) and Construction loans (+$85.5 million), while Multi-family mortgage loans decreased by $209.8 million due to repayments.
- Asset Quality: Nonperforming assets increased by $7.8 million to $53.4 million, primarily due to two foreclosed properties ($5.5 million) transferred to Other Real Estate Owned (OREO). Net charge-offs were $2.4 million (0.04% of average loans), an increase from $1.1 million (0.02%) in the prior year.
- Investment Securities: The portfolio decreased by $62.0 million to $1.07 billion. Unrealized losses on available-for-sale securities improved by $15.6 million to $96.5 million.
- Deposits: Total deposits grew $34.4 million. Notably, non-interest-bearing deposits increased by $206.0 million, while interest-bearing deposits decreased by $171.6 million, reflecting a successful repricing strategy.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management continues to focus on expanding commercial banking relationships and deepening core deposit relationships to reduce reliance on higher-cost funding. The company maintains a "well-capitalized" status under regulatory guidelines.
- Unusual Items:
- Non-recurring Gains: Non-interest income included $1.8 million in pre-tax gains from the sale of properties held for sale.
- Non-recurring Expenses: Non-interest expenses included $950,000 in severance charges, $250,000 in branch consolidation costs, and $242,000 in professional fees related to a strategic partnership.
- Tax Provision: Income tax expense increased due to higher pre-tax income and the establishment of a $1.6 million valuation allowance against a deferred tax asset related to legacy stock-based compensation.
- Risks:
- Interest Rate Risk: Significant exposure to changes in market rates; a portion of the loan portfolio is scheduled to reset or mature in fiscal 2027, potentially increasing borrower costs and default risk.
- Commercial Real Estate (CRE) Concentration: Non-owner occupied CRE loans equaled 515% of total risk-based capital, though the portfolio balance has decreased over the prior 36 months.
- Wholesale Funding: Reliance on wholesale funding (24.8% of total assets) creates liquidity risk if funding is not replaceable or costs rise significantly.
- Cybersecurity: Ongoing risks related to cyber-attacks and third-party vendor failures.
Key Facts for Investor Verification
- CRE Exposure: Verify the specific composition and performance of the multi-family and nonresidential mortgage portfolios, which comprise nearly 60% of total loans.
- Loan Repricing: Assess the impact of loans originated in 2021-2022 resetting to higher rates in fiscal 2027 on borrower creditworthiness.
- Deposit Stability: Monitor the sustainability of the shift to non-interest-bearing deposits and the reliance on brokered CDs ($757.2 million).
- Asset Quality Trends: Track the resolution of the two new OREO properties and the trend in nonperforming multi-family loans.
- Capital Ratios: Confirm continued compliance with "well-capitalized" status (Total Capital Ratio: 14.38%; Tier 1 Leverage Ratio: 8.83%).