Kearny Financial Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended June 30, 2023; comparisons are primarily with the year ended June 30, 2022. Although the request metadata says “2022 Q4,” this filing reports a full fiscal year, not a standalone quarter. Kearny Financial is the holding company for Kearny Bank, a New Jersey-chartered community bank operating 43 branches in New Jersey and New York.
Financial results and condition
| Metric | FY2023 / June 30, 2023 | Prior comparable period |
|---|---|---|
| Net income / diluted EPS | $40.8 million / $0.63 | $67.5 million / $0.95 |
| Net interest income | $175.9 million | $196.6 million |
| Net interest margin | 2.34% | 2.94% |
| Provision for credit losses | $2.5 million expense | $7.5 million reversal |
| Noninterest income | $2.8 million | $13.9 million |
| Noninterest expense | $123.8 million | $125.7 million |
| Operating cash flow | $69.5 million | $81.3 million |
- Net income fell 39.6%. Higher interest expense more than offset increased interest income; deposit and borrowing costs rose amid sharp Federal Reserve rate increases. The efficiency ratio increased to 69.28% from 59.71%, although noninterest expense to average assets improved to 1.53% from 1.73%.
- Total assets increased 4.5% to $8.06 billion. Net loans grew 7.6% to $5.78 billion, led by multi-family mortgages; deposits declined 4.0% to $5.63 billion. Borrowings rose 67.2% to $1.51 billion, including $1.28 billion of FHLB advances.
- Cash and equivalents were $70.5 million. Available-for-sale securities totaled $1.23 billion and were available to sell or pledge; management also reported additional borrowing capacity from the FHLB, Federal Reserve and unsecured overnight facilities.
- Stockholders’ equity was $869.3 million, down from $894.0 million. The Bank’s Tier 1 leverage ratio was 8.15%; the Company’s was 9.07%. Both exceeded applicable regulatory capital requirements, and the Bank was categorized as well capitalized.
- Nonperforming loans declined to $42.6 million, or 0.73% of loans, from $70.3 million, or 1.30%. The allowance for credit losses was $48.7 million, 0.83% of loans; net charge-offs were $810,000, or 0.01% of average loans.
- Cash decreased $31.1 million over the year. Investing cash outflow was $417.9 million, including net loan growth; financing cash inflow was $317.3 million.
Material changes and unusual items
- Interest expense increased $88.2 million, while interest income increased $67.5 million. Net interest margin contracted 60 basis points to 2.34%.
- Noninterest income included a $15.2 million loss on securities sales, primarily from a wholesale balance-sheet restructuring; sale proceeds were reinvested in higher-yielding securities. A nonperforming commercial mortgage sale also contributed a $2.5 million loss. The year included a $2.9 million gain from selling a former branch location and $8.6 million of bank-owned life insurance income, including policy payouts.
- Available-for-sale securities had a $156.1 million net unrealized loss at year-end, compared with $118.0 million a year earlier. Management attributed losses to interest rates and credit spreads rather than credit deterioration and recorded no securities credit-loss allowance. Accumulated other comprehensive loss was $69.5 million.
- Deposits declined while wholesale funding increased. Uninsured deposits were $1.77 billion; excluding specified collateralized public funds and related-party deposits, uninsured deposits were $710.4 million, or 12.6% of deposits. Certificates of deposit maturing within one year totaled $1.90 billion.
- Commercial real estate exposure is concentrated: non-owner-occupied CRE loans, including multi-family and construction, equaled 553% of Bank risk-based capital. The portfolio grew 31% over the prior 36 months, below the 50% growth element of the cited supervisory screening criteria.
- The company repurchased 2.82 million shares for $27.4 million and declared $0.44 per share in cash dividends. Total stockholders’ equity also reflected $13.7 million of other comprehensive loss.
Outlook, risks and contingencies
- The filing provides no quantified earnings or balance-sheet guidance. Management plans to accelerate its digital strategy in fiscal 2024, including adoption of a cloud-based digital banking platform, and continue efficiency initiatives, vendor-spend optimization and branch-network evaluation.
- Management identifies funding costs and availability, deposit retention, interest-rate and yield-curve movements, securities valuation, local economic conditions, and credit performance as material risks. Rising rates may pressure margins, reduce loan demand and depress the fair value of securities.
- Real estate lending is concentrated in New Jersey and New York; commercial real estate, multi-family, construction and commercial business lending carry risks tied to property values, borrower cash flows and regional conditions. The allowance depends on forecast assumptions and management judgments; the filing presents sensitivity analysis but does not predict an actual loss outcome.
- Other stated risks include competition, cybersecurity and third-party service-provider failures, regulatory changes, inflation, and potential volatility in uninsured or large-balance deposits. The company reported no litigation expected to have a material effect on operations or income.
- A goodwill impairment test prompted by declines in bank stock prices found fair value above carrying value; no impairment was recorded. A hypothetical 5% impairment of goodwill would reduce pretax income by approximately $10.5 million.
- The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. The audit highlighted the allowance’s qualitative factors and goodwill impairment assessment as critical audit matters.
Important facts for investors to verify
- How deposit retention, renewal pricing and the $1.90 billion of near-term certificate maturities affect funding costs and liquidity.
- How the $1.28 billion of FHLB advances and other wholesale funding evolve, and whether stated contingent borrowing capacity remains available under stress.
- Whether the $156.1 million unrealized AFS loss, securities portfolio cash flows and any future asset sales affect capital, reported equity or earnings.
- Trends in multi-family and other CRE credit quality, including the 553% concentration measure, nonperforming loans and the assumptions supporting the $48.7 million allowance.
- Whether margin, earnings and efficiency improve as the company implements its fiscal 2024 technology and operating initiatives; the filing supplies no numeric forecast.