Kearny Financial Corp. Revises Second Quarter Fiscal 2024 Results

FAIRFIELD, N.J., Jan. 31, 2024 (GLOBE NEWSWIRE) -- Kearny Financial Corp. (NASDAQ GS: KRNY) (the “Company”), the holding company of Kearny Bank (the “Bank”), revised the Company’s earnings release for the quarter ended December 31, 2023 (the “Revised Earnings Release”), which was issued on January 25, 2024 (the “Original Earnings Release”), to adjust the timing of income recognition associated with a $4.8 million non-recurring increase in cash surrender value (the “enhancement fee”) associated with restructuring of its Bank-Owned Life Insurance (“BOLI”) portfolio that was originally recognized as non-interest income during the quarter.

During the quarter ended December 31, 2023, the Company recorded a $4.8 million non-recurring increase in BOLI cash surrender value and recognized the enhancement fee within non-interest income. Subsequent to the issuance of the Original Earnings Release, the Company continued to evaluate the matter and determined it was necessary to revise its accounting for the enhancement fee and derecognize the enhancement fee and the increase in BOLI cash surrender value initially recorded in the financial statements as of and for the quarter ended December 31, 2023. As a result, the $4.8 million enhancement fee will be recognized prospectively as non-interest income in future periods.

The impact to the Company’s income statement, as a result of this revision, was to increase the Company’s net loss for the quarter ended December 31, 2023 by $4.8 million, resulting in a net loss of $13.8 million, or $0.22 per diluted share.

Other than the $4.8 million revision discussed above, all of the financial results of the BOLI portfolio restructuring transaction remain the same as reported on January 25, 2024.

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 5.1%. As a result of this restructure, the Company recognized tax expense of $5.7 million and exchange charges of $573 thousand.

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 $77.0 million, or 1.0%, 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 $256.1 million at December 31, 2023, a decrease of $38.4 million, or 13.0%, 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 $20.0 million from the quarter ended September 30, 2023 to a loss of $16.0 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 decreased $504,000 to $1.2 million for the quarter ended December 31, 2023 from $1.7 million for the quarter ended September 30, 2023, due to non-recurring exchange charges 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 $0.12, or 0.9%, to $13.16 while tangible book value per share increased $0.08, or 0.8%, to $9.85. 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 8.26% 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.

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

Category: Earnings

Kearny Financial Corp.
Consolidated Balance Sheets
(Unaudited)

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_{⁽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.
⁽³⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}
 

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

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_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}
   

Kearny Financial Corp.
Average Balance Sheet Data
(Unaudited)

_________________________
_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}

Kearny Financial Corp.
Performance Ratio Highlights
(Unaudited)

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_{⁽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.
⁽⁶⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}

Kearny Financial Corp.
Consolidated Balance Sheets

_________________________
_{⁽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.
⁽³⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}
 

Kearny Financial Corp.
Supplemental Balance Sheet Highlights
(Unaudited)

Kearny Financial Corp.
Supplemental Balance Sheet Highlights
(Unaudited)

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_{⁽¹⁾ Uninsured deposits of Kearny Bank.
⁽²⁾ Uninsured deposits of Kearny Bank adjusted to exclude deposits of its wholly-owned subsidiary and holding company and collateralized deposits of state and local governments.}

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

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_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}

Kearny Financial Corp.
Average Balance Sheet Data
(Unaudited)

_________________________
_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}
  

Kearny Financial Corp.
Performance Ratio Highlights

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_{⁽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.
⁽⁶⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}


The following tables provide a reconciliation of certain financial measures calculated in accordance with Generally Accepted Accounting Principles (“GAAP”) (as reported) and non-GAAP measures. These non-GAAP measures provide additional information which allow readers to evaluate the ongoing performance of the Company. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.

Kearny Financial Corp.
Reconciliation of GAAP to Non-GAAP
(Unaudited)

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_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}

Kearny Financial Corp.
Reconciliation of GAAP to Non-GAAP
(Unaudited)

_________________________
_{⁽¹⁾ December 31, 2023 amounts include the impact of the revision previously mentioned in this earnings release.}