Kearny Financial(US:KRNY)2020-08-28 20:02Loan Portfolio and Acquisitions - The company's loan portfolio grew to $4.50 billion as of June 30, 2020, up from $2.67 billion in June 2016, reflecting acquisitions and increased commercial loans [214]. - The company completed its acquisition of MSB and Millington Bank in July 2020, which may not yield the anticipated cost savings and benefits [210]. Financial Performance and Risks - The weighted average yield of the investment securities portfolio was 2.97%, compared to 4.09% for the loan portfolio, indicating a lower net interest margin [213]. - The allowance for loan losses was 0.82% of total loans as of June 30, 2020, and significant additions to this allowance could materially decrease net income [208]. - The company is subject to risks related to the COVID-19 pandemic, which may adversely affect its financial condition and results of operations [201]. - The Federal Reserve's target federal funds rate was lowered to 0.00% - 0.25% in March 2020, impacting the yield on assets and potentially reducing net interest margin [205]. - Changes in interest rates may affect the company's profitability, as liabilities may re-price faster than assets, impacting net interest spread [204]. - The profitability of new branches may take time to achieve, negatively impacting net income during the initial operating period [246]. Investment Securities and Market Conditions - As of June 30, 2020, 97.7% of the investment securities portfolio, totaling $1.39 billion, was classified as available for sale, affecting reported equity due to market conditions [213]. - The investment securities portfolio had a fair value of approximately $1.42 billion, with $10.7 million in gross unrealized losses and $34.7 million in gross unrealized gains as of June 30, 2020 [226]. Funding and Liquidity - Wholesale funding amounted to $1.23 billion, or about 18.3% of total assets as of June 30, 2020 [223]. - The company relies on wholesale funding, which may not be as stable as traditional retail funding sources, potentially affecting liquidity and operating results [224]. Operational and Cybersecurity Risks - The company faces significant operational risks due to the high volume of transactions and reliance on employee and system performance [234]. - Cybersecurity risks could negatively affect earnings, with an increase in the number and severity of cyber-attacks targeting financial institutions [241]. Competition and Market Environment - The company faces intense competition from financial services and technology companies, which may adversely affect its business and financial performance [247]. Interest Rate Risk Management - Interest rate risk is a significant form of business risk, impacting both earnings and capital due to changes in interest rates [355]. - The company's Asset/Liability Management (ALM) program is overseen by the Board of Directors to manage interest rate risk effectively [356]. - As of June 30, 2020, the Economic Value of Equity (EVE) increased by 1% to $961,579 thousand with a 300 basis points increase in interest rates [361]. - The EVE ratio as a percentage of the present value of assets was 15.57% under a 300 basis points increase scenario as of June 30, 2020 [361]. - The Net Interest Income (NII) decreased by 5.81% to $146,062 thousand with a 300 basis points increase in interest rates as of June 30, 2020 [363]. - The NII for a 0 basis points scenario was $155,072 thousand as of June 30, 2020, indicating no change [363]. - The company’s interest rate risk analysis includes various scenarios, measuring changes in interest rates up to 300 basis points [359]. - The EVE ratio sensitivity to interest rate changes reflects the institution's exposure to interest rate risk [358]. - Future interest rates and their effects on net interest income are unpredictable and based on numerous assumptions [363].