KRNY - Kearny Financial Corp. Announces Second Quarter Fiscal 2024 Results and Declaration of Cash Dividend | Benzinga

January, 25 2024 01:30 PM Kearny Financial

FAIRFIELD, N.J., Jan. 25, 2024 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the "Company"), the holding company of Kearny Bank (the "Bank"), reported a net loss for the quarter ended December 31, 2023 of $9.0 million, or $0.14 per diluted share, compared to net income of $9.8 million, or $0.16 per diluted share, for the quarter ended September 30, 2023. Earnings for the current quarter were adversely impacted by a number of non-recurring items, as discussed in further detail below.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.11 per share, payable on February 21, 2024, to stockholders of record as of February 7, 2024.

Craig L. Montanaro, President and Chief Executive Officer, commented, "This quarter we executed strategies, as described in further detail below, to enhance our balance sheet, liquidity position, risk profile and asset quality metrics. In addition, we have begun to see deposit pressures ease, while run-rate non-interest expense remains very well controlled. As we look ahead, we remain laser-focused on sustainable growth in core loan and deposit relationships, while continuing to further leverage our recently implemented, best-in-class, digital banking platform."

Strategic Actions Taken During the Quarter Ended December 31, 2023

Investment Securities Repositioning

As previously announced, the Company executed the sale of $122.2 million of its available-for-sale ("AFS") debt securities. The sale resulted in a pre-tax net loss of $18.1 million and had a nominal impact on tangible book value, as the loss was previously reflected in capital via accumulated other comprehensive loss. Proceeds from the sale were utilized to retire higher-cost wholesale funding and to reinvest in loans yielding approximately 7.0%.

Bank-Owned Life Insurance ("BOLI") Restructuring

The Company initiated a restructuring of its BOLI portfolio in which $103.4 million of policies yielding 2.1% were exchanged or surrendered and replaced with policies yielding 4.1%. As a result of this restructure, the Company recognized tax expense of $5.7 million and exchange charges of $573 thousand, partially offset by a non-recurring increase in cash surrender value of $4.8 million.

Resolution of Non-performing Assets ("NPAs")

At December 31, 2023, the Company was under contract to sell a $12.0 million Other Real Estate Owned ("OREO") asset that was subsequently sold in January 2024. Proceeds from the sale were immediately redeployed into interest earning assets and will improve forward-looking earnings thru the reduction of net OREO expenses, which totaled approximately $469 thousand for the quarter ended December 31, 2023.

In addition, the Company reclassified three non-performing commercial real estate loans to loans held-for-sale as a result of its intent to sell these assets in the near term. These loans are attributable to one borrower relationship and had a fair value of $9.7 million at December 31, 2023.

Hedging Activities

As part of the ongoing strategy to manage interest rate risk and support earnings, the Company added $500.0 million of derivative notional, comprised of $200.0 million of cash flow swaps and $300.0 million of interest rate floor spreads, all of which mature in two years or less. Collectively, these derivatives hedge a portion of the Company's wholesale funding position and mitigate the interest rate risk associated with a modest decrease in short-term interest rates.

Balance Sheet

Total assets were $7.90 billion at December 31, 2023, a decrease of $72.2 million, or 0.9%, from September 30, 2023.
Investment securities totaled $1.29 billion at December 31, 2023, a decrease of $73.2 million, or 5.4%, from September 30, 2023. The decrease for the quarter was largely driven by the sale of available-for-sale debt securities, as discussed above.
Loans receivable totaled $5.75 billion at December 31, 2023, an increase of $9.6 million, or 0.2%, from September 30, 2023.
BOLI totaled $260.9 million at December 31, 2023, a decrease of $33.6 million, or 11.4%, from September 30, 2023. The decrease for the quarter was largely attributable to the surrender of $43.2 million of BOLI policies, as discussed above, that did not settle until January 2024.
Deposits were $5.32 billion at December 31, 2023, a decrease of $114.5 million, or 2.1%, from September 30, 2023. Excluding a decrease of $154.5 million in brokered certificates of deposits, deposits increased $40.0 million, or 0.8%, from September 30, 2023.
The aggregate amount of uninsured deposits at the Bank was $1.81 billion at December 31, 2023. Excluding collateralized deposits of state and local governments and deposits of the Bank's wholly-owned subsidiary and holding company, the aggregate amount of uninsured deposits was $694.5 million, or 13.1% of total deposits.
Borrowings were $1.67 billion at December 31, 2023, an increase of $40.1 million, or 2.5%, from September 30, 2023.
At December 31, 2023, the Company maintained available secured borrowing capacity of $1.78 billion, of which $1.38 billion was immediately accessible via in-place collateral and $400.8 million represented the market value of unpledged securities.

Earnings

Net Interest Income and Net Interest Margin

Net interest margin contracted 16 basis point to 1.94% for the quarter ended December 31, 2023. The decrease for the quarter was driven by an increase in the cost of interest-bearing liabilities and a decrease in the average balance of interest-earning assets, partially offset by a higher yield on interest-earning assets.
For the quarter ended December 31, 2023, net interest income decreased $3.3 million to $35.8 million from $39.2 million for the quarter ended September 30, 2023. Included in net interest income for the quarters ended December 31, 2023 and September 30, 2023, respectively, was purchase accounting accretion of $640,000 and $650,000, and loan prepayment penalty income of $185,000 and $267,000.

Non-Interest Income

For the quarter ended December 31, 2023, non-interest income decreased $15.2 million from the quarter ended September 30, 2023 to a loss of $11.2 million. The decrease was primarily attributable to a pre-tax loss of $18.1 million related to the investment securities portfolio repositioning, as discussed above.
Income from BOLI increased $4.3 million to $6.0 million for the quarter ended December 31, 2023 from $1.7 million for the quarter ended September 30, 2023. The increase was largely attributable to non-recurring income related to the BOLI restructure, as discussed above.
Included in other income for the quarter ended December 31, 2023 were non-recurring losses of $974,000 attributable to the write-down of one OREO property, as discussed above. No such losses were recorded during the quarter ended September 30, 2023. OREO income for the quarter ended December 31, 2023 was $182,000.

Non-Interest Expense

For the quarter ended December 31, 2023, non-interest expense remained flat at $29.8 million compared to the quarter ended September 30, 2023.
Included in other expenses for the quarter ended December 31, 2023 were OREO expenses totaling $651,000.

Income Taxes

Income tax expense totaled $1.8 million for the quarter ended December 31, 2023 compared to $3.3 million for the quarter ended September 30, 2023. The decrease in income tax expense was due to lower pre-tax income, primarily attributable to realized losses on the sale of securities, as discussed above, partially offset by $5.7 million of tax expense related to the surrender of BOLI policies, as discussed above.

Asset Quality

The balance of non-performing assets decreased $1.1 million to $49.8 million, or 0.63% of total assets, at December 31, 2023, from $50.9 million, or 0.64% of total assets, at September 30, 2023. Adjusting for the sale of the OREO asset completed in January 2024, the non-performing assets decrease to $37.8 million, or 0.48% of total assets.
Net charge-offs totaled $4.1 million, or 0.29% of average loans, on an annualized basis, for the quarter ended December 31, 2023, compared to $2.1 million, or 0.15% of average loans, on an annualized basis, for the quarter ended September 30, 2023. The charge-offs recorded during the quarter ended December 31, 2023 were primarily driven by the reclassification of three non-performing loans to held-for-sale status, reflecting the Company's intent to sell these assets, as discussed above. Of the $4.1 million of net charge-offs recorded during the quarter ended December 31, 2023, $1.7 million had previously been individually reserved for within the allowance for credit losses.
For the quarter ended December 31, 2023, the Company recorded a provision for credit losses of $2.1 million, compared to $245,000 for the quarter ended September 30, 2023. The provision for credit loss expense for the quarter ended December 31, 2023 was primarily attributable to charge-offs on the three commercial real estate loans, as discussed above.
The allowance for credit losses ("ACL") was $44.9 million, or 0.78% of total loans, at December 31, 2023, compared to $46.9 million, or 0.81% of total loans, at September 30, 2023. The decrease in the ACL was largely attributable to a reduction in reserves for individually evaluated loans, resulting from the charge-offs noted above.

Capital

During the quarter ended December 31, 2023, the Company repurchased 687,140 shares of common stock at a cost of $4.7 million, or $6.88 per share.
On November 7, 2023, the Company announced the completion of its ninth stock repurchase plan which authorized the repurchase of 4,000,000 shares. Such shares were repurchased at a cost of $34.9 million, or $8.74 per share.
For the quarter ended December 31, 2023, book value per share increased $0.19, or 1.5%, to $13.23 while tangible book value per share increased $0.16, or 1.6%, to $9.93. These increases were largely driven by a decrease in accumulated other comprehensive loss.
At December 31, 2023, total stockholders' equity included after-tax net unrealized losses on securities available for sale of $88.6 million, partially offset by after-tax unrealized gains on derivatives of $24.6 million. After-tax net unrecognized losses on securities held to maturity of $10.0 million were not reflected in total stockholders' equity.
At December 31, 2023, the Company's tangible equity to tangible assets ratio equaled 8.32% and the regulatory capital ratios of both the Company and the Bank were in excess of the levels required by federal banking regulators to be classified as "well-capitalized" under regulatory guidelines.

This earnings release should be read in conjunction with Kearny Financial Corp.'s Q2 2024 Investor Presentation, a copy of which is available through the Investor Relations link located at the bottom of the page of our website at www.kearnybank.com and via a Current Report on Form 8-K on the website of the Securities and Exchange Commission at www.sec.gov.

Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Category: Earnings

For further information contact:
Craig L. Montanaro, President and Chief Executive Officer, or
Keith Suchodolski, Senior Executive Vice President and Chief Financial Officer
Kearny Financial Corp.
(973) 244-4500

Linked-Quarter Comparative Financial Analysis

Kearny Financial Corp. Consolidated Balance Sheets (Unaudited)



(Dollars and Shares in Thousands, Except Per Share Data)
December 31, 2023
September 30, 2023
Variance or Change
Variance or Change Pct.

Assets





Cash and cash equivalents
$
73,860

$
57,219

$
16,641

29.1
%
Securities available for sale

1,144,175


1,215,633


(71,458
)
-5.9
%
Securities held to maturity

141,959


143,730


(1,771
)
-1.2
%
Loans held-for-sale

14,030


3,934


10,096

256.6
%
Loans receivable

5,745,629


5,736,049


9,580

0.2
%
Less: allowance for credit losses on loans

(44,867
)

(46,872
)

(2,005
)
-4.3
%
Net loans receivable

5,700,762


5,689,177


11,585

0.2
%
Premises and equipment

45,928


46,868


(940
)
-2.0
%
Federal Home Loan Bank stock

83,372


81,509


1,863

2.3
%
Accrued interest receivable

30,258


29,766


492

1.7
%
Goodwill

210,895


210,895


—

—
%
Core deposit intangible

2,189


2,323


(134
)
-5.8
%
Bank owned life insurance

260,869


294,491


(33,622
)
-11.4
%
Deferred income taxes, net

46,116


56,500


(10,384
)
-18.4
%
Other real estate owned

11,982


12,956


(974
)
-7.5
%
Other assets

136,242


129,865


6,377

4.9
%
Total assets
$
7,902,637

$
7,974,866

$
(72,229
)
-0.9
%






Liabilities





Deposits:





Non-interest-bearing
$
584,130

$
595,141

$
(11,011
)
-1.9
%
Interest-bearing

4,735,500


4,839,027


(103,527
)
-2.1
%
Total deposits

5,319,630


5,434,168


(114,538
)
-2.1
%
Borrowings

1,667,055


1,626,933


40,122

2.5
%
Advance payments by borrowers for taxes

16,742


16,907


(165
)
-1.0
%
Other liabilities

46,427


47,324


(897
)
-1.9
%
Total liabilities

7,049,854


7,125,332


(75,478
)
-1.1
%






Stockholders' Equity





Common stock

645


652


(7
)
-1.1
%
Paid-in capital

493,296


497,269


(3,973
)
-0.8
%
Retained earnings

444,561


460,464


(15,903
)
-3.5
%
Unearned ESOP shares

(21,889
)

(22,375
)

486

2.2
%
Accumulated other comprehensive loss

(63,830
)

(86,476
)

22,646

26.2
%
Total stockholders' equity

852,783


849,534


3,249

0.4
%
Total liabilities and stockholders' equity
$
7,902,637

$
7,974,866

$
(72,229
)
-0.9
%






Consolidated capital ratios





Equity to assets

10.79
%

10.65
%

0.14
%


Tangible equity to tangible assets ⁽¹⁾

8.32
%

8.20
%

0.12
%








Share data





Outstanding shares

64,445


65,132


(687
)
-1.1
%
Book value per share
$
13.23

$
13.04

$
0.19

1.5
%
Tangible book value per share ⁽²⁾
$
9.93

$
9.77

$
0.16

1.6
%




(1)
Tangible equity equals total stockholders' equity reduced by goodwill and core deposit intangible assets. Tangible assets equals total assets reduced by goodwill and core deposit intangible assets.
(2)
Tangible book value equals total stockholders' equity reduced by goodwill and core deposit intangible assets.

Kearny Financial Corp. Consolidated Statements of Income (Loss) (Unaudited)

(Dollars and Shares in Thousands, Except Per Share Data)
Three Months Ended
Variance or Change
Variance or Change Pct.
December 31, 2023
September 30, 2023
Interest income




Loans
$
63,384

$
62,769

$
615

1.0
%
Taxable investment securities

16,756


16,265


491

3.0
%
Tax-exempt investment securities

84


87


(3
)
-3.4
%
Other interest-earning assets

2,401


2,047


354

17.3
%
Total interest income

82,625


81,168


1,457

1.8
%





Interest expense




Deposits

30,340


27,567


2,773

10.1
%
Borrowings

16,446


14,441


2,005

13.9
%
Total interest expense

46,786


42,008


4,778

11.4
%
Net interest income

35,839


39,160


(3,321
)
-8.5
%
Provision for credit losses

2,105


245


1,860

759.2
%
Net interest income after provision for credit losses

33,734


38,915


(5,181
)
-13.3
%





Non-interest income




Fees and service charges

624


748


(124
)
-16.6
%
Loss on sale and call of securities

(18,135
)

—


(18,135
)
—
%
Gain on sale of loans

104


215


(111
)
-51.6
%
Loss on sale of other real estate owned

(974
)

—


(974
)
—
%
Income from bank owned life insurance

5,967


1,666


4,301

258.2
%
Electronic banking fees and charges

396


367


29

7.9
%
Other income

812


1,014


(202
)
-19.9
%
Total non-interest income

(11,206
)

4,010


(15,216
)
-379.5
%





Non-interest expense




Salaries and employee benefits

17,282


17,761


(479
)
-2.7
%
Net occupancy expense of premises

2,674


2,758


(84
)
-3.0
%
Equipment and systems

3,814


3,801


13

0.3
%
Advertising and marketing

301


228


73

32.0
%
Federal deposit insurance premium

1,495


1,524


(29
)
-1.9
%
Directors' compensation

393


393


—

—
%
Other expense

3,808


3,309


499

15.1
%
Total non-interest expense

29,767


29,774


(7
)
—
%
(Loss) income before income taxes

(7,239
)

13,151


(20,390
)
-155.0
%
Income taxes

1,782


3,309


(1,527
)
-46.1
%
Net (loss) income
$
(9,021
)
$
9,842

$
(18,863
)
-191.7
%





Net (loss) income per common share (EPS)




Basic
$
(0.14
)
$
0.16

$
(0.30
)

Diluted
$
(0.14
)
$
0.16

$
(0.30
)






Dividends declared




Cash dividends declared per common share
$
0.11

$
0.11

$
—


Cash dividends declared
$
6,882

$
6,989

$
(107
)

Dividend payout ratio

-76.3
%

71.0
%

-147.3
%






Weighted average number of common shares outstanding




Basic

62,299


63,014


(715
)

Diluted

62,367


63,061


(694
)

Kearny Financial Corp. Average Balance Sheet Data (Unaudited)

(Dollars in Thousands)
Three Months Ended
Variance or Change
Variance or Change Pct.
December 31, 2023
September 30, 2023
Assets




Interest-earning assets:




Loans receivable, including loans held for sale
$
5,726,321

$
5,788,074

$
(61,753
)
-1.1
%
Taxable investment securities

1,509,165


1,516,393


(7,228
)
-0.5
%
Tax-exempt investment securities

15,025


15,483


(458
)
-3.0
%
Other interest-earning assets

139,740


130,829


8,911

6.8
%
Total interest-earning assets

7,390,251


7,450,779


(60,528
)
-0.8
%
Non-interest-earning assets

554,492


568,723


(14,231
)
-2.5
%
Total assets
$
7,944,743

$
8,019,502

$
(74,759
)
-0.9
%





Liabilities and Stockholders' Equity




Interest-bearing liabilities:




Deposits:




Interest-bearing demand
$
2,301,169

$
2,245,831

$
55,338

2.5
%
Savings

664,926


719,508


(54,582
)
-7.6
%
Certificates of deposit

1,824,316


1,968,512


(144,196
)
-7.3
%
Total interest-bearing deposits

4,790,411


4,933,851


(143,440
)
-2.9
%
Borrowings:




Federal Home Loan Bank advances

1,513,497


1,386,473


127,024

9.2
%
Other borrowings

142,283


158,098


(15,815
)
-10.0
%
Total borrowings

1,655,780


1,544,571


111,209

7.2
%
Total interest-bearing liabilities

6,446,191


6,478,422


(32,231
)
-0.5
%
Non-interest-bearing liabilities:




Non-interest-bearing deposits

597,294


612,251


(14,957
)
-2.4
%
Other non-interest-bearing liabilities

62,387


66,701


(4,314
)
-6.5
%
Total non-interest-bearing liabilities

659,681


678,952


(19,271
)
-2.8
%
Total liabilities

7,105,872


7,157,374


(51,502
)
-0.7
%
Stockholders' equity

838,871


862,128


(23,257
)
-2.7
%
Total liabilities and stockholders' equity
$
7,944,743

$
8,019,502

$
(74,759
)
-0.9
%





Average interest-earning assets to average interest-bearing liabilities

114.65
%

115.01
%

-0.36
%
-0.3
%

Kearny Financial Corp. Performance Ratio Highlights (Unaudited)


Three Months Ended
Variance or Change

December 31, 2023
September 30, 2023
Average yield on interest-earning assets:



Loans receivable, including loans held for sale
4.43
%
4.34
%
0.09
%
Taxable investment securities
4.44
%
4.29
%
0.15
%
Tax-exempt investment securities ⁽¹⁾
2.25
%
2.25
%
—
%
Other interest-earning assets
6.87
%
6.26
%
0.61
%
Total interest-earning assets
4.47
%
4.36
%
0.11
%




Average cost of interest-bearing liabilities:



Deposits:



Interest-bearing demand
2.91
%
2.58
%
0.33
%
Savings
0.44
%
0.47
%
-0.03
%
Certificates of deposit
2.82
%
2.49
%
0.33
%
Total interest-bearing deposits
2.53
%
2.23
%
0.30
%
Borrowings:



Federal Home Loan Bank advances
3.82
%
3.54
%
0.28
%
Other borrowings
5.65
%
5.46
%
0.19
%
Total borrowings
3.97
%
3.74
%
0.23
%
Total interest-bearing liabilities
2.90
%
2.59
%
0.31
%




Interest rate spread ⁽²⁾
1.57
%
1.77
%
-0.20
%
Net interest margin ⁽³⁾
1.94
%
2.10
%
-0.16
%




Non-interest income to average assets (annualized)
-0.56
%
0.20
%
-0.76
%
Non-interest expense to average assets (annualized)
1.50
%
1.49
%
0.01
%




Efficiency ratio ⁽⁴⁾
120.84
%
68.97
%
51.87
%




Return on average assets (annualized)
-0.45
%
0.49
%
-0.94
%
Return on average equity (annualized)
-4.30
%
4.57
%
-8.87
%
Return on average tangible equity (annualized) ⁽⁵⁾
-5.77
%
6.07
%
-11.84
%




(1)
The yield on tax-exempt investment securities has not been adjusted to reflect their tax-effective yield.
(2)
Interest income divided by average interest-earning assets less interest expense divided by average interest-bearing liabilities.
(3)
Net interest income divided by average interest-earning assets.
(4)
Non-interest expense divided by the sum of net interest income and non-interest income.
(5)
Average tangible equity equals total average stockholders' equity reduced by average goodwill and average core deposit intangible assets.

Full story available on Benzinga.com

Company Name:	Kearny Financial
Stock Symbol:	KRNY
Market:	NASDAQ
Website:	kearnybank.com

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