8-K: Kearny Financial Corp. Reports Net Loss Due to Goodwill Impairment, Declares Dividend

Kearny Financial Corp. announced a net loss for the quarter and fiscal year ended June 30, 2024, primarily due to a non-cash goodwill impairment, while also declaring a $0.11 per share cash dividend.

Summary

• Kearny Financial Corp. reported a GAAP net loss of $90.1 million, or $1.45 per diluted share, for the quarter ended June 30, 2024, primarily due to a $95.3 million non-cash goodwill impairment.
• Adjusted net income for the quarter, excluding the goodwill impairment and other non-recurring items, was $5.6 million, or $0.09 per diluted share.
• For the fiscal year ended June 30, 2024, the company reported a GAAP net loss of $86.7 million, or $1.39 per diluted share, compared to a net income of $40.8 million, or $0.63 per diluted share, for the previous fiscal year.
• Adjusted net income for the fiscal year was $28.2 million, or $0.45 per diluted share, compared to $50.6 million, or $0.78 per diluted share, for the prior year.
• The company's net interest margin decreased to 1.84% for the quarter and 1.94% for the year.
• Non-performing assets improved by $15.7 million, or 0.17% of assets, from June 30, 2023.
• Non-interest bearing deposits grew by $12.3 million, or 2.1%, quarter-over-quarter.
• Total assets decreased to $7.68 billion at June 30, 2024, a decrease of $381.4 million, or 4.7%, from June 30, 2023.
• Loans receivable totaled $5.73 billion at June 30, 2024, a decrease of $96.6 million, or 1.7%, from June 30, 2023.
• Deposits were $5.16 billion at June 30, 2024, a decrease of $471.1 million, or 8.4%, from June 30, 2023.
• The company declared a quarterly cash dividend of $0.11 per share, payable on August 26, 2024, to stockholders of record as of August 12, 2024.

Sentiment

Score: 4

Explanation: The document presents mixed results with a significant net loss due to a goodwill impairment, but also highlights positive aspects such as strong capital ratios and improving asset quality. The overall sentiment is cautiously negative due to the loss, but there are some positive indicators.

Positives

• Non-performing assets improved by $15.7 million, or 0.17% of assets, from June 30, 2023.
• Non-interest bearing deposits grew by $12.3 million, or 2.1%, quarter-over-quarter.
• The company anticipates a net interest margin inflection in the near-term.
• The company maintains a strong capital position with a Common Equity Tier 1 Capital Ratio of 14.79%.
• The company has available secured borrowing capacity of $1.82 billion.
• The performance of the commercial real estate and multifamily portfolios continues to be outstanding.

Negatives

• The company reported a GAAP net loss of $90.1 million for the quarter ended June 30, 2024.
• The net loss was primarily due to a non-cash goodwill impairment of $95.3 million.
• Net interest margin contracted to 1.84% for the quarter and 1.94% for the year.
• Total assets decreased by $381.4 million, or 4.7%, from June 30, 2023.
• Deposits decreased by $471.1 million, or 8.4%, from June 30, 2023.
• Net charge-offs totaled $3.5 million, or 0.25% of average loans, on an annualized basis, for the quarter ended June 30, 2024.

Risks

• The company is facing challenges due to the current interest rate environment, which has impacted bank stock prices and resulted in a goodwill impairment.
• The company experienced a decrease in net interest income due to increases in the cost of interest-bearing liabilities and decreases in the average balances of interest-earning assets.
• The company's loan portfolio is exposed to risks associated with commercial and industrial lending, as evidenced by a $3.3 million charge-off related to a borrower-specific event.
• The company's deposit base has decreased, which could impact funding and liquidity.
• The company's investment securities portfolio has experienced losses due to repositioning.

Future Outlook

The company anticipates a net interest margin inflection in the near-term, as its retail time deposit portfolio has repriced above 4.00% and non-maturity deposit disintermediation has meaningfully slowed.

Management Comments

• Goodwill impairment in no way affects our ongoing strategy or our ability to serve the banking needs of our clients, said Craig L. Montanaro, President & Chief Executive Officer.
• This impairment simply reflects the impact of the current interest rate environment on bank stock prices, including our own.
• Despite the challenging interest rate environment we have plenty of positive news to report this quarter, Mr. Montanaro said.
• We do not view this charge-off as a reflection of any broader weakness in our loan portfolio, but rather a borrower-specific event.

Industry Context

The goodwill impairment reflects a broader trend in the banking industry where rising interest rates have negatively impacted bank stock prices. The company's focus on commercial real estate and multifamily portfolios is consistent with many regional banks, but the company's strong credit performance is a differentiator.

Comparison to Industry Standards

• The company's net charge-offs to average total loans from 2006 to 2023 were 9 bps per year, compared to 50 bps for all commercial banks (US Banks not among the top 100), indicating a strong credit performance.
• The company's regulatory capital ratios are significantly in excess of regulatory well-capitalized standards, suggesting a strong capital position compared to peers.
• The company's tangible equity to tangible assets ratio of 8.43% is above the S&P U.S. Small Cap Banks Index average of 8.20% as of March 31, 2024.
• The company's Common Equity Tier 1 Capital Ratio of 14.79% is above the S&P U.S. Small Cap Banks Index average of 9.15% as of March 31, 2024.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the decrease in book value per share.
• Shareholders will receive a quarterly cash dividend of $0.11 per share.
• Employees may be impacted by the company's ongoing operating efficiency initiatives.
• Customers will continue to be served by the company's banking services.
• Creditors will be impacted by the company's financial performance and capital position.

Next Steps

• The company will continue to focus on deposit origination efforts, including digital channels.
• The company will monitor the performance of its commercial real estate and multifamily portfolios.
• The company will continue to pursue all available remedies against the borrower and guarantor related to the $3.3 million charge-off.

Key Dates

Keywords

financial results, goodwill impairment, net loss, net interest margin, non-performing assets, dividends, capital ratios, deposits, loans, asset quality