Kearny Financial Corp. — Form 10-Q Summary
Reporting-period note: The filing is for the quarter ended March 31, 2024 (the third quarter of fiscal 2024), not 2023 Q3 as stated in the request metadata. Comparisons below are with the quarter or nine-month period ended March 31, 2023, or with June 30, 2023 for balance-sheet data. Amounts are in U.S. dollars.
Business context and reporting period
Kearny Financial Corp. operates principally through Kearny Bank. This unaudited Form 10-Q reports results for the three and nine months ended March 31, 2024. The company is primarily a lender, with a loan portfolio weighted toward multifamily and other commercial real estate.
Financial performance and position
| Metric | Reported result |
|---|---|
| Assets | $7.84 billion at March 31, down $222.8 million from June 30, 2023. |
| Quarterly net income / diluted EPS | $7.4 million / $0.12, versus $10.3 million / $0.16 a year earlier. |
| Nine-month net income / diluted EPS | $3.4 million / $0.06, versus $28.8 million / $0.44 a year earlier. |
| Net interest income and margin | Quarter: $34.3 million and 1.89%, versus $42.4 million and 2.20%. Nine months: $109.3 million and 1.98%, versus $135.7 million and 2.42%. |
| Credit provision | $349,000 for the quarter and $2.7 million for nine months. The allowance for loan losses was $44.9 million, or 0.78% of loans, versus $48.7 million, or 0.83%, at June 30. |
| Loans and asset quality | Net loans were $5.71 billion, down $67.3 million. Nonperforming assets were $39.5 million, or 0.50% of assets, versus $55.6 million, or 0.69%, at June 30; the latest balance comprised nonperforming loans. |
| Deposits and borrowings | Deposits were $5.21 billion, down $420.1 million (7.5%). Borrowings were $1.72 billion, up $215.4 million. Uninsured deposits were $1.76 billion; excluding specified collateralized and related-party deposits, they were $718.0 million, or 13.8% of deposits. |
| Cash flows, nine months | Operating cash flow was $36.7 million; investing cash flow was positive $202.3 million; financing cash flow was negative $238.5 million. Cash and equivalents ended at $71.0 million. |
| Capital and liquidity | The Bank’s total risk-based capital ratio was 14.27%, and its Tier 1 leverage ratio was 8.35%. The company reported $1.81 billion of available secured borrowing capacity, including $1.47 billion immediately accessible through in-place collateral. |
Material changes and unusual items
- Net interest income fell as higher deposit and borrowing costs outweighed growth in interest income. For the quarter, interest expense rose $13.0 million year over year while interest income increased $4.9 million.
- Nine-month non-interest income included an $18.1 million loss on securities sales, following a portfolio repositioning; management said proceeds were used to repay higher-cost wholesale funding and reinvest in loans and securities. The repositioning contributed an after-tax loss of $12.9 million.
- The nine-month results also included an after-tax loss of $6.3 million related to a bank-owned life insurance (BOLI) restructure. A $5.7 million discrete tax cost from the restructure contributed to the 66.6% nine-month effective tax rate.
- Credit costs included $6.8 million of gross charge-offs for nine months, primarily associated with the sale of three related nonperforming commercial real estate loans. Nonperforming assets declined in part because those loans and the company’s sole other-real-estate-owned property were sold in January 2024.
- Operating expense declined year over year, including lower compensation, occupancy, and advertising costs; FDIC insurance premiums increased. BOLI income in the quarter benefited from a nonrecurring policy payment and the restructure.
- Stockholders’ equity was $849.1 million, down $20.2 million from June 30, reflecting dividends and repurchases partly offset by income and improved accumulated other comprehensive loss. The company completed its share repurchase plan in November 2023.
Outlook, commentary, risks, and contingencies
- The filing provides no specific earnings or financial guidance. Management cautions that results are subject to interest rates, deposit flows and funding costs, loan demand and credit quality, economic conditions, competition, and regulatory changes.
- Interest-rate sensitivity analysis estimated that an immediate 300-basis-point increase would reduce modeled one-year net interest income by 4.53% and economic value of equity by 37.80%. Management cautions that these are hypothetical model results, not forecasts.
- The portfolio has commercial real estate exposure. At March 31, five commercial mortgage loans with aggregate carrying values of $10.6 million and one residential mortgage loan were in foreclosure proceedings. Total loans past due were $41.8 million, compared with $30.5 million at June 30, 2023.
- The company reported $20.4 million of commitments to originate or purchase loans, plus $63.3 million of construction loans in process and $166.0 million of unused credit lines. Management notes that commitments may not be drawn in full.
- Management said there were no material changes to previously disclosed risk factors; disclosure controls were effective. Pending legal matters were described as routine and immaterial. A quarterly dividend of $0.11 per share was declared on April 25, 2024, payable May 22, 2024.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers fiscal Q3 2024, not 2023 Q3.
- Assess whether funding costs and deposit trends continue to pressure net interest margin, and how the mix of deposits, wholesale borrowings, and uninsured deposits evolves.
- Review commercial real estate delinquencies, foreclosure outcomes, charge-offs, and allowance adequacy, particularly given the increase in past-due loans.
- Separate recurring earnings from securities repositioning, BOLI restructuring, policy proceeds, and related tax effects; check whether expected benefits from repositioning offset its realized losses.
- Review liquidity availability and interest-rate sensitivity assumptions, including the company’s dependence on secured and wholesale funding.