Kearny Financial Corp. — Form 10-Q Summary
Business context and reporting period: Kearny Financial Corp. operates principally through Kearny Bank. This filing covers the three months ended September 30, 2023, the company’s fiscal first quarter of fiscal 2024. Income and cash-flow comparisons are with the three months ended September 30, 2022; balance-sheet comparisons are with June 30, 2023. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Quarter / period-end result | Comparable period or change |
|---|---|---|
| Interest income | $81.2 million | Up from $64.4 million |
| Net interest income | $39.2 million | Down from $48.5 million |
| Net interest margin | 2.10% | Down 59 basis points from 2.69% |
| Net income / diluted EPS | $9.8 million / $0.16 | Down from $16.5 million / $0.25 |
| Net cash from operating activities | $12.3 million | Compared with $20.7 million |
| Total assets | $7.97 billion | Down $89.9 million from June 30 |
| Net loans | $5.69 billion | Down $91.5 million from June 30 |
| Deposits | $5.43 billion | Down $195.0 million from June 30 |
| Borrowings | $1.63 billion | Up $120.1 million from June 30 |
| Stockholders’ equity | $849.5 million | Down $19.8 million from June 30 |
Interest expense rose to $42.0 million from $15.9 million, reflecting higher deposit and borrowing costs. The company reported a $245,000 provision for credit losses, versus $670,000 in the prior-year quarter. Total non-interest income was $4.0 million, down from $5.9 million; non-interest expense was $29.8 million, down from $32.0 million.
Cash and cash equivalents were $57.2 million at quarter-end. Net cash used in financing activities was $90.3 million, including the net deposit outflow, dividends and share repurchases; investing activities provided $64.7 million, principally reflecting a net decrease in loans. The Bank reported regulatory capital ratios above the stated “well-capitalized” thresholds, including a 13.97% total risk-based capital ratio and an 8.29% leverage ratio.
Material changes and credit position
- The decline in deposits was partly offset by increased FHLB advances. Deposits fell 3.5%; borrowings rose 8.0% from June 30.
- Net loans fell 1.6%, mainly because multi-family and nonresidential mortgage balances declined. Commercial loans represented about $4.03 billion of the $5.76 billion gross loan portfolio.
- Nonperforming assets decreased to $50.9 million, or 0.64% of assets, from $55.6 million, or 0.69%. Nonperforming loans were $37.9 million; other real estate owned was $13.0 million.
- The allowance for credit losses was $46.9 million, or 0.81% of loans, versus $48.7 million, or 0.83%, at June 30. The quarter included $2.2 million of gross charge-offs, largely on previously reserved loans.
- Accumulated other comprehensive loss widened to $86.5 million from $69.5 million, largely reflecting a $17.0 million after-tax comprehensive loss. Available-for-sale securities had $185.8 million of gross unrealized losses; management attributed these to interest rates and credit spreads, and recorded no securities credit-loss allowance.
Outlook, commentary, risks and unusual items
The filing provides no quantified earnings, margin or balance-sheet guidance. Management identifies interest rates, deposit flows and funding costs, loan demand and credit quality, inflation, competition, regulatory changes, and broader economic conditions as factors that could affect results. Its interest-rate modeling shows that an immediate 300-basis-point increase would reduce modeled one-year net interest income by 11.68% and economic value of equity by 34.75%; management cautions that these scenarios depend on assumptions and are not forecasts.
Liquidity sources included $57.2 million in cash and equivalents, $1.22 billion in available-for-sale securities, additional secured borrowing capacity, and $990.0 million of available unsecured overnight borrowing capacity, none of which was outstanding at quarter-end. The company reported $1.73 billion in uninsured deposits; excluding specified collateralized and affiliate deposits, uninsured deposits were $683.3 million, or 12.6% of deposits. These funding sources and exposures merit monitoring alongside the quarter’s deposit runoff.
Net interest income also benefited from $9.5 million reclassified from accumulated derivative gains as a reduction in interest expense; the company estimated another $33.5 million would be reclassified as a reduction over the next 12 months. A $2.0 million nonrecurring life-insurance payment in the prior-year quarter contributed to the year-over-year decrease in bank-owned life-insurance income. Lower personnel expense reflected an 8% year-over-year headcount reduction and prior workforce realignment. The company repurchased 817,607 shares for $6.5 million and declared a subsequent quarterly dividend of $0.11 per share, payable November 22, 2023. It reported no material changes to previously disclosed risk factors, no material pending litigation, and effective disclosure controls.
Important facts for investors to verify
- Whether deposit outflows continue and how the company’s funding mix, borrowing costs and available liquidity evolve.
- Whether net interest margin stabilizes as asset yields and deposit and wholesale funding costs change.
- Credit performance in the multi-family and nonresidential portfolios, including foreclosure activity, criticized loans, charge-offs and allowance adequacy.
- The sensitivity of tangible book value and capital to further changes in interest rates and available-for-sale securities values.
- Execution of the remaining share repurchase authorization and the sustainability of dividends amid earnings and funding pressures.