Kearny Financial Corp. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2022. Financial statements are unaudited. Kearny conducts its business principally through Kearny Bank.
Key financial metrics
| Metric | Three months ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 |
|---|---|---|
| Net interest income | $44.8 million | $93.3 million |
| Net interest margin | 2.38% | 2.53% |
| Net income | $2.0 million | $18.5 million |
| Diluted earnings per share | $0.03 | $0.28 |
| Provision for credit losses | $1.7 million | $2.3 million |
| Non-interest income | $(8.5) million | $(2.6) million |
| Non-interest expense | $32.7 million | $64.6 million |
At December 31, 2022, total assets were $8.29 billion, up $569.4 million from June 30, 2022. Net loans were $5.94 billion, total deposits $5.97 billion, borrowings $1.38 billion, and stockholders’ equity $872.6 million. Cash and cash equivalents were $75.7 million.
For the six-month period, operating activities provided $36.1 million of cash; investing activities used $624.7 million; and financing activities provided $562.7 million. Cash and equivalents decreased $26.0 million to $75.7 million.
The allowance for credit losses was $48.9 million, or 0.81% of total loans, versus $47.1 million, or 0.87%, at June 30. Nonperforming assets were $62.6 million, or 0.76% of assets, compared with $92.2 million, or 1.19%. The Bank’s regulatory capital ratios included 12.09% total capital to risk-weighted assets and 8.00% Tier 1 capital to adjusted assets; it met the stated well-capitalized thresholds.
Material changes versus comparable periods
- Quarterly net income fell to $2.0 million from $18.8 million a year earlier; six-month net income declined to $18.5 million from $38.5 million. The quarterly result was heavily affected by a $15.2 million realized securities-sale loss.
- Quarterly net interest income decreased $3.9 million year over year, while net interest margin declined 58 basis points to 2.38%. For the six months, net interest income fell $5.0 million and margin declined 45 basis points to 2.53%. Management attributed pressure to higher funding costs as market rates rose.
- Loans grew $564.5 million, or 10.5%, from June 30, led by multifamily mortgages, which increased $442.6 million. Deposits rose $109.1 million; borrowings increased $482.2 million to fund balance-sheet growth.
- Available-for-sale securities declined $57.7 million in carrying value. The company sold $120.4 million of securities as part of a wholesale restructuring and reinvested the proceeds in higher-yielding securities. The portfolio had $150.9 million of gross unrealized losses at period end; management attributed these to interest rates and credit spreads, not credit deterioration.
- Stockholders’ equity decreased $21.4 million, reflecting share repurchases, dividends and other comprehensive loss, partly offset by earnings. Book value per share was $12.95 and tangible book value per share $9.78.
Management commentary, outlook and risks
- Management said the quarterly securities sale was part of a wholesale restructuring and the company was not required to sell the securities. It cited reinvestment at higher yields as the purpose of the transaction.
- Quarterly results also included a $2.9 million non-recurring gain from selling a former branch, non-recurring severance costs related to workforce realignment, and a very low 1.66% effective tax rate following a year-to-date tax-rate adjustment associated with the securities loss.
- Interest-rate risk remains material. The company’s model estimated that a parallel 300-basis-point increase would reduce economic value of equity by 20.84% and first-year net interest income by 4.97%; these are scenario estimates, not forecasts. Management cautioned that actual results may differ because of rate movements, deposit behavior, prepayments and other assumptions.
- Liquidity sources included $75.7 million of cash, $1.29 billion of available-for-sale securities, stated additional borrowing capacity of $1.68 billion from the FHLB and $307.2 million from the Federal Reserve, plus $995.0 million of unsecured overnight borrowing access, none outstanding at period end.
- Credit and real-estate items to monitor include $40.5 million of nonperforming loans, $13.4 million of other real estate owned, and $9.3 million of commercial mortgage loans in foreclosure. A $13.0 million nonresidential property was acquired through foreclosure during the quarter.
- No earnings or balance-sheet guidance was provided in the filing. The company declared a quarterly dividend of $0.11 per share on January 26, 2023, payable February 22, 2023. Management reported no material changes to previously disclosed risk factors; forward-looking results remain subject to economic, interest-rate, deposit-flow and credit risks.
Important facts for investors to verify
- Whether the higher-yield reinvestment of securities-sale proceeds offsets the realized loss and increased funding costs over time.
- Deposit pricing, mix and retention, and the company’s reliance on FHLB and other borrowings as funding costs rise.
- Multifamily and commercial real-estate loan performance, foreclosure progress, and potential changes to nonperforming assets and credit-loss reserves.
- Realized versus unrealized securities losses, and any further effects on earnings, accumulated other comprehensive loss and tangible book value.
- Actual performance relative to the filing’s interest-rate sensitivity scenarios, which depend on assumptions and are not forecasts.
- Progress under the authorization to repurchase up to 4.0 million shares, alongside capital needs and the declared dividend.