Kearny Financial(KRNY) - 2025 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's analysis Item 1. Financial Statements This section presents Kearny Financial Corp.'s unaudited consolidated financial statements and detailed notes Consolidated Statements of Financial Condition This statement details assets, liabilities, and equity, showing increased total assets and deposits | Date | Amount (in Thousands) | | :--- | :--- | | March 31, 2025 | $7,733,141 | | June 30, 2024 | $7,683,461 | | Date | Amount (in Thousands) | | :--- | :--- | | March 31, 2025 | $6,985,028 | | June 30, 2024 | $6,929,890 | | Date | Amount (in Thousands) | | :--- | :--- | | March 31, 2025 | $748,113 | | June 30, 2024 | $753,571 | - Key Asset Changes (March 31, 2025 vs. June 30, 2024): - Cash and cash equivalents: Increased from $63.9 million to $126.1 million[10] - Net loans receivable: Increased from $5.69 billion to $5.80 billion[10] - Investment securities available for sale: Decreased from $1.07 billion to $1.00 billion[10] - Key Liability Changes (March 31, 2025 vs. June 30, 2024): - Total deposits: Increased from $5.16 billion to $5.71 billion[10] - Borrowings: Decreased from $1.71 billion to $1.21 billion[10] Consolidated Statements of Income This statement presents financial performance, showing increased nine-month net income Net Income (Three Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $6,648 | | 2024 | $7,397 | Net Income (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $19,306 | | 2024 | $3,412 | Basic EPS (Three Months Ended March 31): | Year | EPS | | :--- | :--- | | 2025 | $0.11 | | 2024 | $0.12 | Basic EPS (Nine Months Ended March 31): | Year | EPS | | :--- | :--- | | 2025 | $0.31 | | 2024 | $0.06 | Total Non-Interest Income (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $14,061 | | 2024 | $(7,799) | Consolidated Statements of Comprehensive Income This statement details net income and other comprehensive income components, showing an increase Total Comprehensive Income (Three Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $9,617 | | 2024 | $7,568 | Total Comprehensive Income (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $13,341 | | 2024 | $9,209 | Net unrealized gain (loss) on securities available for sale (Three Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $9,701 | | 2024 | $(6,449) | Fair value adjustments on derivatives (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $(18,881) | | 2024 | $(10,206) | Consolidated Statements of Changes in Stockholders' Equity This statement illustrates changes in stockholders' equity, showing a slight decrease for the nine-month period - Total Stockholders' Equity (March 31, 2025): $748.1 million[18] - Total Stockholders' Equity (June 30, 2024): $753.6 million[18] - Cash dividends declared (Nine Months Ended March 31, 2025): $(20.7) million[18] - Net income (Nine Months Ended March 31, 2025): $19.3 million[18] - Other comprehensive loss, net of income tax (Nine Months Ended March 31, 2025): $(6.0) million[18] Consolidated Statements of Cash Flows This statement categorizes cash movements, showing a significant net increase from financing activities Net Cash Provided by Operating Activities (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $16,683 | | 2024 | $36,713 | Net Cash Provided by Investing Activities (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $10,824 | | 2024 | $202,278 | Net Cash Provided by (Used in) Financing Activities (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $34,724 | | 2024 | $(238,479) | Net Increase in Cash and Cash Equivalents (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $62,231 | | 2024 | $512 | Cash and Cash Equivalents - Ending (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $126,095 | | 2024 | $71,027 | Notes to Consolidated Financial Statements These notes provide detailed disclosures for financial statements, covering policies, events, and instruments Note 1. Summary of Significant Accounting Policies This note outlines consolidation principles and presentation basis, confirming GAAP adherence - The unaudited consolidated financial statements include Kearny Financial Corp., its wholly-owned subsidiary Kearny Bank, and the Bank's wholly-owned subsidiaries[25] - Statements are prepared in conformity with GAAP and instructions for Form 10-Q, with all necessary adjustments included[26] - No material changes to the Company's significant accounting policies since June 30, 2024[28] Note 2. Subsequent Events This note details subsequent events, including a declared quarterly cash dividend of $0.11 per share - On April 23, 2025, the Company declared a quarterly cash dividend of $0.11 per share[29] - The dividend is payable on May 21, 2025, to stockholders of record as of May 7, 2025[29] Note 3. Recent Accounting Pronouncements This note discusses recent ASUs, with most not materially impacting financials, but one is under evaluation - ASU 2023-07 (Segment Reporting): Not expected to have a material effect as the Company has one reportable segment[30] - ASU 2023-09 (Income Taxes): Not expected to have a material effect[31] - ASU 2024-01 (Compensation-Stock Compensation): Not expected to have an impact[32] - ASU 2024-03 (Expense Disaggregation Disclosures): The Company is currently evaluating the impact[33] Note 4. Securities This note details the securities portfolio, with AFS securities at $1.00 billion fair value and HTM at $124.9 million Total Securities Available for Sale (March 31, 2025): | Metric | Amount (in Thousands) | | :--- | :--- | | Amortized Cost | $1,116,087 | | Gross Unrealized Gains | $2,230 | | Gross Unrealized Losses | $114,924 | | Fair Value | $1,003,393 | Total Securities Held to Maturity (March 31, 2025): | Metric | Amount (in Thousands) | | :--- | :--- | | Amortized Cost | $124,859 | | Gross Unrecognized Gains | $47 | | Gross Unrecognized Losses | $14,056 | | Fair Value | $110,850 | - Securities Pledged (March 31, 2025): $888.0 million[42] - Management believes unrealized losses on securities are due to market interest rates and credit spreads, not changes in credit quality[43] - No allowance for credit losses was recorded for available for sale or held to maturity securities at March 31, 2025[43][45] Note 5. Loans Receivable This note details the loan portfolio, which increased to $5.85 billion, with nonperforming loans decreasing - Total Loans (March 31, 2025): $5.85 billion[47] Loan Portfolio Composition (March 31, 2025): | Loan Type | Amount (in Thousands) | | :--- | :--- | | Multi-family mortgage | $2,733,406 | | Nonresidential mortgage | $988,074 | | Commercial business | $140,224 | | Construction | $174,722 | | One- to four-family residential mortgage | $1,761,465 | | Home equity loans | $49,699 | | Other consumer | $2,859 | - Total Past Due Loans (March 31, 2025): $40.9 million[49] - Total Nonperforming Loans (March 31, 2025): $37.7 million[51] - Loan Modifications (Nine Months Ended March 31, 2025): Totaled $34.0 million, primarily multi-family mortgages ($33.8 million)[53] - Mortgage Loans in Foreclosure (March 31, 2025): One residential mortgage loan with a carrying value of $558.1 thousand and five commercial mortgage loans with aggregate carrying values totaling $15.1 million[67] Note 6. Allowance for Credit Losses This note details the ACL on loans, which decreased slightly to $44.5 million, driven by lower loss rates - Total Allowance for Credit Losses on Loans (March 31, 2025): $44.5 million[69] - Total Allowance for Credit Losses on Loans (June 30, 2024): $44.9 million[70] Provision for credit losses (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $581 | | 2024 | $2,699 | - The decrease in ACL was primarily due to a decrease in the quantitative reserve on one- to four-family residential mortgage loans due to lower assumed loss rates and a decrease in individually analyzed reserves on nonresidential mortgage loans[74] - Allowance for Credit Losses on Off Balance Sheet Commitments (March 31, 2025): $990 thousand[75] Note 7. Deposits This note breaks down deposits by type, showing a significant increase to $5.71 billion - Total Deposits (March 31, 2025): $5.71 billion[76] - Total Deposits (June 30, 2024): $5.16 billion[76] Deposit Composition (March 31, 2025): | Deposit Type | Amount (in Thousands) | | :--- | :--- | | Non-interest-bearing demand | $587,118 | | Interest-bearing demand | $2,410,925 | | Savings | $758,239 | | Certificates of deposits | $1,951,066 | Note 8. Borrowings This note details borrowings, which decreased to $1.21 billion due to reduced FHLB advances - Total Borrowings (March 31, 2025): $1.21 billion[77] - Total Borrowings (June 30, 2024): $1.71 billion[77] - FHLB advances (March 31, 2025): $1.03 billion[77] - Federal Reserve Bank Term Funding Program ("BTFP") borrowings (March 31, 2025): $0[77] - FHLB advances and overnight line of credit borrowings were collateralized by FHLB capital stock and mortgage loans totaling approximately $3.29 billion at March 31, 2025[79] Note 9. Derivative Instruments and Hedging Activities This note details derivative instruments used for interest rate risk management, with asset derivatives' fair value decreasing - Fair Value of Asset Derivatives (March 31, 2025): $23.4 million[82] - Fair Value of Asset Derivatives (June 30, 2024): $54.4 million[82] - Fair Value of Liability Derivatives (March 31, 2025): $3.9 million[82] - As of March 31, 2025, the Company had 16 interest rate swaps, caps, and collars with a notional amount of $1.83 billion hedging specific wholesale funding, and five interest rate floors with a notional amount of $550.0 million hedging floating-rate available for sale securities[83] - For cash flow hedges on wholesale funding, an estimated $14.2 million will be reclassified as a reduction in interest expense in the next twelve months[85] - As of March 31, 2025, the Company had five interest rate swaps with a notional amount of $775.0 million hedging fixed-rate residential mortgage loans[88] Note 10. Benefit Plans This note outlines benefit plan expenses and details the granting of restricted stock units Net periodic benefit cost (Three Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $66 | | 2024 | $75 | Net periodic benefit cost (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $183 | | 2024 | $221 | - During the nine months ended March 31, 2025, the Company granted 380,007 restricted stock units (RSUs), consisting of 278,530 service-based RSUs and 101,477 performance-based RSUs[96] Note 11. Income Taxes This note reconciles income taxes, showing a decreased effective tax rate due to lower pre-tax income Total Income Tax Expense (Three Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $1,200 | | 2024 | $1,717 | Total Income Tax Expense (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $3,537 | | 2024 | $6,808 | Effective Income Tax Rate (Three Months Ended March 31): | Year | Rate | | :--- | :--- | | 2025 | 15.29% | | 2024 | 18.84% | Effective Income Tax Rate (Nine Months Ended March 31): | Year | Rate | | :--- | :--- | | 2025 | 15.48% | | 2024 | 66.61% | Note 12. Fair Value of Financial Instruments This note explains fair value estimation for financial instruments, categorizing inputs and presenting measurements - Total Securities Available for Sale (March 31, 2025): $1.00 billion (Level 2)[103] - Interest Rate Contracts (Assets, March 31, 2025): $23.4 million (Level 2)[103] - Collateral Dependent Loans (March 31, 2025): $7.8 million (Level 3)[106] - At March 31, 2025, collateral dependent loans valued using Level 3 inputs comprised loans with principal balances totaling $7.8 million and a valuation allowance of $8 thousand[109] - The fair value of collateral dependent loans is generally determined based on an independent appraisal of the underlying collateral, adjusted for estimated selling costs[107][108] Note 13. Comprehensive Income (Loss) This note details AOCL components, which increased to $(69.1) million, driven by derivative fair value adjustments - Total Accumulated Other Comprehensive Loss (March 31, 2025): $(69.1) million[118] - Total Accumulated Other Comprehensive Loss (June 30, 2024): $(63.2) million[118] - Net unrealized loss on securities available for sale (March 31, 2025): $(80.1) million (net of tax)[118] - Fair value adjustments on derivatives (March 31, 2025): $10.7 million (net of tax)[118] Total Other Comprehensive Income (Loss) (Nine Months Ended March 31): | Year | Amount (in Thousands) | | :--- | :--- | | 2025 | $(5,965) | | 2024 | $5,797 | Note 14. Net Income Per Common Share ("EPS") This note presents basic and diluted EPS calculations, showing a significant increase in diluted EPS Basic EPS (Nine Months Ended March 31): | Year | EPS | | :--- | :--- | | 2025 | $0.31 | | 2024 | $0.06 | Diluted EPS (Nine Months Ended March 31): | Year | EPS | | :--- | :--- | | 2025 | $0.31 | | 2024 | $0.06 | - Weighted average number of common shares outstanding - diluted (Nine Months Ended March 31, 2025): 62,705 thousand[120] - Stock options for 2,751,902 shares and 444,202 RSUs were anti-dilutive for the nine months ended March 31, 2025[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and operating results, covering policies and performance Forward-Looking Statements This section contains cautionary statements about forward-looking information, noting potential material differences - Forward-looking statements are based on current management expectations and may differ materially from actual results[123] - Factors influencing actual results include general economic and geopolitical conditions, legislative and regulatory changes, interest rates, inflation, and competition[123] - The Company disclaims any obligation to publicly release revisions to forward-looking statements[123] Critical Accounting Policies This section highlights critical accounting policies requiring significant judgment, with no material changes - Accounting policies requiring significant judgment or discretion are considered critical[124] - No material changes to critical accounting policies since June 30, 2024[124] Comparison of Financial Condition at March 31, 2025 and June 30, 2024 Total assets increased by $49.7 million to $7.73 billion, while deposits rose and borrowings fell - Total Assets: Increased $49.7 million to $7.73 billion at March 31, 2025, from $7.68 billion at June 30, 2024[125] - Investment Securities Available for Sale: Decreased $69.4 million to $1.00 billion, due to principal repayments of $146.8 million, partially offset by purchases of $58.9 million and an $18.0 million increase in fair value[126] - Net Loans Receivable: Increased $113.9 million, or 2.0%, to $5.80 billion[129] - Total Deposits: Increased $549.2 million, or 10.6%, to $5.71 billion, driven by a reallocation from FHLB advances into brokered certificates of deposits and growth in deposits from branch network and digital channels[138] - Borrowings: Decreased $495.8 million to $1.21 billion, primarily reflecting a decrease in FHLB and other borrowings[139] - Stockholders' Equity: Decreased $5.5 million to $748.1 million, largely reflected cash dividends of $20.7 million and an other comprehensive loss of $6.0 million, partially offset by net income of $19.3 million[142] Comparison of Operating Results for the Quarter Ended March 31, 2025 and March 31, 2024 Quarterly net income decreased to $6.6 million ($0.11 diluted EPS) due to higher non-interest expense - Net Income (Q1 2025): $6.6 million, or $0.11 per diluted share[144] - Net Income (Q1 2024): $7.4 million, or $0.12 per diluted share[144] - Net Interest Income: Decreased by $277 thousand to $34.0 million[145] - Net Interest Margin: Increased one basis point to 1.90%[146] - Non-Interest Income: Increased $359 thousand to $4.6 million, with a gain on sale of loans of $112 thousand compared to a loss of $712 thousand in the prior year period[154][155] - Non-Interest Expense: Increased $1.3 million to $30.4 million, driven by higher salaries and employee benefits ($789 thousand), net occupancy expense ($212 thousand), equipment and systems ($98 thousand), and advertising and marketing ($222 thousand)[157][158][159] - Provision for Income Taxes: Decreased $517 thousand to $1.2 million, reflecting a lower level of pre-tax income[160] Comparison of Operating Results for the Nine Months Ended March 31, 2025 and March 31, 2024 Nine-month net income significantly increased to $19.3 million ($0.31 diluted EPS) due to higher non-interest income - Net Income (9M 2025): $19.3 million, or $0.31 per diluted share[161] - Net Income (9M 2024): $3.4 million, or $0.06 per diluted share[161] - Net Interest Income: Decreased by $10.2 million to $99.1 million[162] - Net Interest Margin: Decreased 14 basis points to 1.84%[163] - Non-Interest Income: Increased $21.9 million to $14.1 million, primarily due to the absence of an $18.1 million loss on sale of securities in the prior year and improved income from bank owned life insurance[170][171][174] - Provision for Credit Losses: Decreased $2.1 million to $581 thousand[169] - Non-Interest Expense: Increased $1.1 million to $89.7 million, driven by higher salaries and employee benefits ($823 thousand), net occupancy expense ($409 thousand), equipment and systems ($235 thousand), and advertising and marketing ($346 thousand)[176][177] - Provision for Income Taxes: Decreased $3.3 million to $3.5 million, reflecting the absence of $5.7 million of discrete tax cost associated with the BOLI restructure in the prior year period[179][180] Liquidity and Capital Resources The company maintains strong liquidity with $126.1 million cash and $1.00 billion AFS securities, exceeding capital requirements - Liquidity (March 31, 2025): $126.1 million of short-term cash and cash equivalents and $1.00 billion of investment securities available for sale[183] - Available Secured Borrowing Capacity (March 31, 2025): $2.34 billion from the Federal Reserve discount window and the FHLBNY without pledging additional collateral[183] - Outstanding Commitments to Originate and Purchase Loans (March 31, 2025): $37.0 million[184] Bank Capital Ratios (March 31, 2025): | Ratio | Actual | Minimum for Adequacy | Minimum for Well Capitalized | | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 14.41% | 8.00% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 13.57% | 6.00% | 8.00% | | Common equity tier 1 capital (to risk-weighted assets) | 13.57% | 4.50% | 6.50% | | Tier 1 capital (to adjusted total assets) | 8.65% | 4.00% | 5.00% | - The Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards[187] Off-Balance Sheet Arrangements The company uses off-balance sheet arrangements primarily for credit commitments, with no significant capital expenditures - No significant off-balance sheet commitments for capital expenditures as of March 31, 2025[189] - Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract[186] - Construction loans in process and unused lines of credit were $93.9 million and $164.8 million, respectively, at March 31, 2025[185] Recent Accounting Pronouncements This section refers to Note 3 for discussion on the impact of recent accounting pronouncements - Refer to Note 3 to the unaudited consolidated financial statements for a discussion of the expected impact of recently issued accounting pronouncements[190] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company manages interest rate risk via its ALM program, analyzing NII and EVE sensitivity to rate changes - Interest rate risk is a significant form of market risk managed through an Asset/Liability Management ("ALM") program[191] - Quantitative analysis measures the sensitivity of projected Net Interest Income (NII) over a one-year period and the Economic Value of Equity (EVE) to movements in interest rates[192][193] - EVE Sensitivity (March 31, 2025, 0 bps change): $635.4 million[195] - NII Sensitivity (March 31, 2025, 1 to 12 Months, 0 bps change): $158.8 million[195] - The model measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points[194] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2025[199] - No material changes in the Company's internal control over financial reporting occurred during the quarter ended March 31, 2025[200] PART II—OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Neither the Company nor the Bank were involved in material legal proceedings as of March 31, 2025 - Neither the Company nor the Bank were involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business[203] - Amounts involved in legal proceedings are in the aggregate believed by management to be immaterial to the financial condition of the Company and the Bank[203] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the Risk Factors previously disclosed under Item 1A of the Company's Annual Report on Form 10-K for the year ended June 30, 2024[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company did not repurchase any common stock shares during the three months ended March 31, 2025 - The Company did not repurchase any shares of its common stock during the three month period ended March 31, 2025[205] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the current reporting period - Not applicable[206] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the current reporting period - Not applicable[207] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the quarter - During the three months ended March 31, 2025, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement"[208] Item 6. Exhibits This section lists filed exhibits, including corporate documents, certifications, and XBRL financial statements - Exhibits include Articles of Incorporation, Amended and Restated Bylaws, and Form of Common Stock Certificate[209] - Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed[209] - The Consolidated Statements of Financial Condition, Income, Comprehensive Income, Changes in Stockholder's Equity, Cash Flows, and Notes to Consolidated Financial Statements are formatted in Inline XBRL[209] SIGNATURES The report is duly signed by the President and CEO, and Executive Vice President and CFO, on May 7, 2025 Signatures The report is signed by the President and CEO, and Executive Vice President and CFO, on May 7, 2025 - The report is signed by Craig L. Montanaro, President and Chief Executive Officer, and Sean Byrnes, Executive Vice President and Chief Financial Officer[213] - The signing date for the report is May 7, 2025[213]