Kearny Financial Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2023; balance-sheet comparisons are with June 30, 2022. The request metadata says “2022 Q3,” but the filing itself covers March 31, 2023.
Business context and financial results
Kearny Financial operates principally through Kearny Bank. Amounts below are in U.S. dollars; financial statement amounts are presented in millions unless otherwise noted.
| Metric | Three months ended March 31, 2023 | Nine months ended March 31, 2023 |
|---|---|---|
| Net interest income | $42.4 million | $135.7 million |
| Net income | $10.3 million | $28.8 million |
| Diluted EPS | $0.16 | $0.44 |
| Net interest margin | 2.20% | 2.42% |
| Provision for credit losses | $0.5 million | $2.8 million |
| Non-interest income | $1.6 million | Loss of $0.9 million |
| Non-interest expense | $30.4 million | $95.0 million |
- At March 31, total assets were $8.35 billion, net loans $5.92 billion, deposits $5.80 billion, borrowings $1.61 billion, and stockholders’ equity $866.2 million.
- Cash and cash equivalents were $194.6 million. Nine-month cash flows were $57.9 million provided by operations, $575.2 million used in investing, and $610.3 million provided by financing.
- The allowance for loan credit losses was $49.1 million, or 0.82% of loans. Nonperforming assets were $57.4 million, or 0.69% of assets, including $44.0 million of nonperforming loans and $13.4 million of other real estate owned.
- Bank regulatory capital ratios included total capital of 12.53%, common equity tier 1 of 11.87%, and Tier 1 leverage of 7.96%. The Bank exceeded the stated “well-capitalized” thresholds.
Changes versus comparable periods
- Quarterly net income declined from $17.7 million to $10.3 million; nine-month net income fell from $56.2 million to $28.8 million. Diluted EPS declined from $0.25 to $0.16 for the quarter and from $0.78 to $0.44 for the nine months.
- Quarterly net interest income decreased $5.4 million and nine-month net interest income decreased $10.3 million. Higher interest expense more than offset growth in interest income; net interest margin fell 69 basis points quarterly and 53 basis points year to date.
- Deposits decreased $58.9 million, while borrowings increased $710.4 million. Net loans grew $546.4 million, or 10.2%, led by multifamily lending.
- Nonperforming assets declined $34.8 million from June 30, 2022. The allowance for credit losses increased $2.1 million.
- Stockholders’ equity decreased $27.8 million, reflecting dividends, repurchases and other comprehensive loss, partly offset by earnings. AFS securities’ gross unrealized loss was $141.1 million; accumulated other comprehensive loss was $73.1 million.
Outlook, commentary, risks and unusual items
- The filing provides no quantified earnings or margin guidance. Management cautions that interim results are not necessarily indicative of full-year results and identifies interest rates, inflation, deposit flows, funding costs, loan demand and credit quality among key uncertainties.
- Management attributed margin pressure to higher market rates and increased funding costs. The federal funds target range rose from 0%–0.25% in March 2022 to 4.75%–5.00% in March 2023.
- The company recognized a $15.2 million loss on sales of AFS securities during the nine months as part of a wholesale portfolio restructuring; proceeds were reinvested in higher-yielding securities. It also recorded a $2.5 million loss on sale of a nonperforming commercial mortgage loan and a $2.9 million gain on sale of a former branch.
- Quarterly expense included $0.8 million of branch-consolidation costs. Nine-month FDIC insurance expense rose to $3.7 million, which management attributed largely to asset growth.
- Management reported $2.37 billion of available secured borrowing capacity, including $1.88 billion immediately accessible via in-place collateral and $493.2 million associated with unpledged securities. It also reported $895.0 million of access to unsecured overnight borrowing, of which $70.0 million was outstanding.
- The filing highlights risks from recent bank failures and depositor confidence, uninsured deposits, liquidity and funding access, rising-rate effects, and potential losses if securities or loans must be sold. Uninsured deposits were $1.68 billion; excluding specified collateralized and related-party deposits, they were $705.7 million, or 12.2% of total deposits.
- The Board declared a $0.11-per-share quarterly dividend on April 27, 2023, payable May 24, 2023. The company repurchased approximately 2.0 million shares for $21.1 million during the nine months.
Important facts for investors to verify
- Confirm current deposit composition, uninsured-deposit trends, deposit pricing and reliance on brokered or other higher-cost funding.
- Assess whether available borrowing capacity remains accessible under changing collateral values and market conditions.
- Monitor the effect of interest rates on net interest margin, deposit costs, securities values and the company’s interest-rate sensitivity scenarios.
- Review credit trends in the growing multifamily portfolio, foreclosures and other real estate owned, and the assumptions supporting the allowance for credit losses.
- Evaluate the securities restructuring loss and accumulated unrealized losses, including whether liquidity needs could require further asset sales.
The filing states that disclosure controls were effective, with no material change in internal control over financial reporting during the quarter. Legal proceedings were described as routine and immaterial; no other material contingencies are identified in the supplied filing text.