On this page of StockholderLetter.com we present the 9/15/2023 shareholder letter from Kearny Financial Corp. — ticker symbol KRNY. Reading current and past KRNY letters to shareholders can bring important insights into the investment thesis.
L E R B A I LONGEVIT Y T Y ILI .C OM M U N IT ANNUAL REPORT 2023 Y. AN NU AL REP ORT 2023
Economy When we started fiscal 2023, the Federal Reserve was in the midst of aggressively increasing interest rates to slow down consumer demand and mute job growth as well as the associated wage pressure. This resulted in slower GDP growth, and more importantly, the hopes of orchestrating a soft landing for the U.S. economy. Historically, monetary policy takes time to influence the economy, and in this postpandemic environment the effects are more difficult to measure. We did see a few sectors including manufacturing, real estate and technology experience economic slowdown. Successive moves resulted in a 550 basis point fed funds rate and the inversion of the yield curve. While sectors of the economy decelerated, core inflation remained too high from the Federal Reserve s perspective. As a result, the Federal Reserve continued to raise rates incrementally with the expectation that future economic data might reflect the possibility that inflation might decelerate. To add to the economic uncertainty, the financial services industry experienced an unintended consequence because of the liquidity pressure created by the Federal Reserve s aggressive monetary policy and the failure of three large regional financial institutions. The postmortem performed by the regulatory agencies on these institutions exposed large deposit TT LE Dear Fellow Shareholder, SH ER AR TO EH OLD ERS concentrations in speculative industries, and an over-reliance on uninsured deposits, as well as volatile funding and inadequate risk management monitoring and planning. The industry as a whole felt the reverberations with many regional institutions feeling the greatest effects, followed by community banks. We were fortunate during this period our staff worked diligently, reaching out to our clients to assure them that we were not involved in any of these speculative activities and did not have exposure to industries that created higher levels of risk, as these risks were conservatively quantified by the Kearny management team. For over 139 years, our philosophy remains focused on strength and stability with a fortress-like balance sheet supported by capital ratios that exceed the Well Capitalized classification according to regulatory guidelines, as well as a seasoned risk management team with years of experience. We had the foresight several years ago to adopt a deposit product that provides extended FDIC Insurance coverage to handle the most challenging financial conditions. Looking out over the horizon, we anticipate that the U.S. and global economies may experience some form of a slowdown followed by some monetary policy easing over the next 12 to 24 months, as inflation begins to get closer to more normalized pre-pandemic levels although it is always difficult to predict the economic future. Financial Performance In an effort to mitigate these challenging conditions, we completed a restructuring of the company s investment portfolio and added over $1 billion of derivative notional assets. Additionally, we made a number of targeted The Fairleigh Dickinson University (FDU) Florham Campus athletic program has received a $25,000 contribution from Kearny Bank. The funds, provided to the Madison, NJ-based university through the KearnyBank Foundation s education category of corporate giving, will be directed toward renovation of Ferguson Recreation Center. adjustments to our wholesale balance sheet to reduce risk and support future earnings. In conjunction with this balance sheet restructuring project, management embarked on a company-wide operating efficiency initiative to improve the company s cost structure through cost-reduction and cost-
containment. These initiatives included the optimization and reduction of vendor spending, the automation or outsourcing of routine activities and the re-alignment of the company s workforce. The result was an improvement in our non-interest expense to average assets ratio to 1.53% during fiscal 2023 from 1.73% of average assets during year-end fiscal 2022. Despite these efforts, the company earned net income of $40.8 million, or $0.63 per share for fiscal 2023, compared to $67.5 million, or $0.95 per share for fiscal 2022. Overall, it was a challenging operating environment with the inverted yield curve creating many obstacles from a lending and funding perspective. There were a few bright spots to note during fiscal 2023, as our investment services business turned a small profit of $242,000. It also helped support Technology/Workflow/Efficiency During fiscal 2023, we refocused our technology expansion efforts towards process improvement and workflow automation, utilizing tools such as robotic process automation. Utilizing these tools, our IT/Innovation teams worked with different business lines to identify manually intensive processes that, once automated, would result in improved workflow and greater efficiencies. For example, our loan servicing department worked collaboratively with these two teams during a pilot program to automate manual portions of their daily tasks. This resulted in improved processing time along with a reduction in workforce hours and, not surprisingly, improvements in client service response time. Additionally, our Anti-Money our relationship banking effort Laundering team utilized by growing additional non- similar tools during their pilot maturity deposits. Our private program to automate a client group had another portion of their client case strong year, reaching the development process, $217 million mark with which tends to be 489 clients despite labor-intensive. Each the added pressure of the pilot programs created by the March created improved 2023 bank failures efficiency to support within the regional our growth plans while banking space. limiting the number of additional headcount As a part of our in these and potentially ongoing capital other areas. management plan, we purchased 2,820,398 shares of our common stock at a cost of $27.4 million or $9.73 per diluted share during this fiscal year. Finally, our special Kearny Bank donated $5,000 in support of Beach Sweeps , while employee volunteers including those representing some of the bank s 13 Jersey Shore-area locations participated in the cleanup at Sandy Hook. assets team worked diligently this year, as the balance of our non-performing assets decreased by $36.6 million or 39.7% to $55.6 million, or 0.69% of total assets from $92.2 million, or 1.19% of total assets in fiscal year 2022. This was accomplished while maintaining an average annualized charge-off ratio of 0.01% for fiscal 2023 as compared to 0.07% for fiscal 2022. Historically, we have maintained a charge-off ratio of approximately 3 basis points on average over the last five years, which is one of the lowest ratios in the community bank sector. Turning toward loan originations, we completed the implementation of our commercial loan origination system as well as the implementation of our new construction loan management platform. The implementation of both of these platforms has moved us into the digital age and improved the workflow and processing times in these growing business lines. Lastly, we expect to launch our new online banking platform in mid-October of this coming fiscal year. I spent the last few weeks beta testing it with our digital banking and innovation teams, and I am confident that this platform will significantly improve our digital capabilities.
Community Impact One of the great benefits of being a community bank is that our strategic focus has always included elements of ESG, because they just made good business sense. As a local financial institution, we understand the importance of supporting the community we serve and promoting organizations whose work supports individuals in underserved communities. Our support ensures that these communities have the resources they need to grow and prosper. climate change. To better quantify these risks, we conduct an annual climate risk analysis. The analysis reviews the various risks posed to our retail branch network, regional corporate headquarters and loan portfolio as measured by the Federal Emergency Management Agency National Risk Index. Overall, our business continues to be exposed to only low to moderate risk of natural disaster. During 2023, we implemented an energy management system to monitor and reduce energy usage in our regional corporate headquarters. Transitioning to paperless processes utilizing digital technology is another way to help reduce our overall reliance on paper resources. Lastly, the move to more cloud-based technologies to reduce on-premises power consumption by our electronic equipment should continue to evolve over the coming years. Some of the ways we accomplish this mission are through grants from the KearnyBank Foundation to local non-profits in our markets to support educational initiatives, housing and other quality-of-life programs. Another example of this support includes the enhancement of our First Time Home Buyer program, which provided Finally, many years ago, we committed to over $26 million in loans to families that developing strong risk management, might not otherwise have had the audit and compliance practices focused opportunity to enjoy the American on stress testing capital, liquidity, Dream of home ownership. interest rate risk and credit to help Additionally, the Kearny Bank manage our risk exposure and to ChangeMakers program was recalibrate our risk appetite during launched in 2023 with the different business cycles. principles of supporting local women-owned businesses and providing services to help them succeed. As part of this effort, we As a fellow shareholder, I am partnered with Rutgers University sure that we share the same to develop a specific curriculum disappointment with the economic Kearny Bank employees volunteering for to educate us further on gender environment and the overall change a local Habitat for Humanity chapter. socialization and to give us a better in market valuations that occurred in the understanding of some of the dynamics financial service sector as bank valuations behind women s progress in business. This have declined significantly over the last 12 knowledge has helped our program ambassadors months. These are the times when I am reminded by my develop networking and workshop opportunities with fellow predecessor that patience and staying the course in terms female entrepreneurs, business owners, visionaries and of our strategy will ultimately pay off. We have an excellent creatives to help these leaders grow and succeed. management team and dedicated employees that have successfully navigated challenging environments before, such As I have mentioned in past letters, people are our most valuable as the Dot.com bubble, 2008 Financial Crisis and the Pandemic. resource. They are also the fuel that powers the engine of our When the shape of the yield curve improves, our earnings business. In 2023, we appointed a Director of Diversity, Equity growth should accelerate, and we will all be rewarded for our and Inclusion to help create a more powerful and dynamic patience. In closing, I would like to thank our board of directors, employee base. This individual will create and implement management team, staff and our faithful shareholders for the strategies to increase the representation and retention of support and belief in our mission during these challenging times. under-represented segments of our workforce by developing programs and partnerships with community groups to enhance Sincerely, the available pool of diverse candidates. Our aim is to ensure that our workforce reflects the communities we serve, that our employees feel valued and that we provide opportunities for Closing/Future them so they can reach their maximum potential. Turning to the environment, we are committed to managing the impact associated with our operations and the risks created by Craig L. Montanaro President & CEO Kearny Financial Corp. Kearny Bank
 • shareholder letter icon 9/15/2023 Letter Continued (Full PDF)
 • stockholder letter icon 9/6/2024 KRNY Stockholder Letter
 • stockholder letter icon 9/10/2025 KRNY Stockholder Letter
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KRNY 9/15/2023 Shareholder/Stockholder Letter Transcript:

L
E
R
B
A
I
LONGEVIT
Y
T
Y
ILI
.C
OM
M
U
N
IT
ANNUAL REPORT 2023
Y.
AN
NU
AL
REP
ORT 2023

Economy
When we started fiscal 2023, the Federal Reserve was in
the midst of aggressively increasing interest rates to slow
down consumer demand and mute job growth as well as
the associated wage pressure. This resulted in slower GDP
growth, and more importantly, the hopes of orchestrating
a soft landing for the U.S. economy. Historically, monetary
policy takes time to influence the economy, and in this postpandemic environment the effects are more difficult to
measure. We did see a few sectors including manufacturing,
real estate and technology experience economic slowdown.
Successive moves resulted in a 550 basis point fed funds
rate and the inversion of the yield curve. While sectors of
the economy decelerated, core inflation remained too
high from the Federal Reserve   s perspective. As a result,
the Federal Reserve continued to raise rates incrementally
with the expectation that future economic data might reflect
the possibility that inflation might decelerate. To add to
the economic uncertainty, the financial services industry
experienced an unintended consequence because of the
liquidity pressure created by the Federal Reserve   s aggressive
monetary policy and the failure of three large regional financial
institutions. The postmortem performed by the regulatory
agencies on these institutions exposed large deposit
TT
LE
Dear Fellow Shareholder,
SH
ER
AR
TO
EH
OLD
ERS
concentrations in speculative industries, and an over-reliance
on uninsured deposits, as well as volatile funding
and inadequate risk management monitoring and planning.
The industry as a whole felt the reverberations with many
regional institutions feeling the greatest effects, followed by
community banks. We were fortunate during this period    
our staff worked diligently, reaching out to our clients to
assure them that we were not involved in any of these
speculative activities and did not have exposure to industries
that created higher levels of risk, as these risks were
conservatively quantified by the Kearny management team.
For over 139 years, our philosophy remains focused on
strength and stability with a fortress-like balance sheet
supported by capital ratios that exceed the    Well Capitalized   
classification according to regulatory guidelines, as well as a
seasoned risk management team with years of experience.
We had the foresight several years ago to adopt a deposit
product that provides extended FDIC Insurance coverage to
handle the most challenging financial conditions. Looking
out over the horizon, we anticipate that the U.S. and global
economies may experience some form of a slowdown
followed by some monetary policy easing over the next
12 to 24 months, as inflation begins to get closer to more
normalized pre-pandemic levels     although it is always
difficult to predict the economic future.
Financial Performance
In an effort to mitigate these challenging conditions,
we completed a restructuring of the company   s investment
portfolio and added over $1 billion of derivative notional
assets. Additionally, we made a number of targeted
The Fairleigh Dickinson University (FDU) Florham Campus athletic
program has received a $25,000 contribution from Kearny Bank.
The funds, provided to the Madison, NJ-based university
through the KearnyBank Foundation   s education
category of corporate giving, will be directed
toward renovation of Ferguson
Recreation Center.
adjustments to our wholesale balance sheet to reduce risk
and support future earnings. In conjunction with this balance
sheet restructuring project, management embarked on a
company-wide operating efficiency initiative to improve the
company   s cost structure through cost-reduction and cost-

containment. These initiatives included the optimization
and reduction of vendor spending, the automation or
outsourcing of routine activities and the re-alignment of the
company   s workforce. The result was an improvement in our
non-interest expense to average assets ratio to 1.53% during
fiscal 2023 from 1.73% of average assets during year-end fiscal
2022. Despite these efforts, the company earned net income
of $40.8 million, or $0.63 per share for fiscal 2023, compared
to $67.5 million, or $0.95 per share for fiscal 2022. Overall, it
was a challenging operating environment with the inverted
yield curve creating many obstacles from a lending and
funding perspective. There were a few bright spots
to note during fiscal 2023, as our investment
services business turned a small profit
of $242,000. It also helped support
Technology/Workflow/Efficiency
During fiscal 2023, we refocused our technology expansion
efforts towards process improvement and workflow
automation, utilizing tools such as robotic process
automation. Utilizing these tools, our IT/Innovation teams
worked with different business lines to identify manually
intensive processes that, once automated, would result in
improved workflow and greater efficiencies. For example,
our loan servicing department worked collaboratively
with these two teams during a pilot program to automate
manual portions of their daily tasks. This resulted in
improved processing time along with a reduction
in workforce hours and, not surprisingly,
improvements in client service response
time. Additionally, our Anti-Money
our relationship banking effort
Laundering team utilized
by growing additional non-
similar tools during their pilot
maturity deposits. Our private
program to automate a
client group had another
portion of their client case
strong year, reaching the
development process,
$217 million mark with
which tends to be
489 clients despite
labor-intensive. Each
the added pressure
of the pilot programs
created by the March
created improved
2023 bank failures
efficiency to support
within the regional
our growth plans while
banking space.
limiting the number of
additional headcount
As a part of our
in these and potentially
ongoing capital
other areas.
management plan,
we purchased 2,820,398
shares of our common stock
at a cost of $27.4 million or
$9.73 per diluted share during
this fiscal year. Finally, our special
Kearny Bank donated $5,000 in support of Beach Sweeps ,
while employee volunteers     including those representing
some of the bank   s 13 Jersey Shore-area locations    
participated in the cleanup
at Sandy Hook.
assets team worked diligently this year,
as the balance of our non-performing assets
decreased by $36.6 million or 39.7% to $55.6 million, or 0.69%
of total assets from $92.2 million, or 1.19% of total assets in
fiscal year 2022. This was accomplished while maintaining an
average annualized charge-off ratio of 0.01% for fiscal 2023
as compared to 0.07% for fiscal 2022. Historically, we have
maintained a charge-off ratio of approximately 3 basis points
on average over the last five years, which is one of the lowest
ratios in the community bank sector.
Turning toward loan
originations, we completed
the implementation of our
commercial loan origination
system as well as the implementation
of our new construction loan management
platform. The implementation of both of
these platforms has moved us into the digital age and
improved the workflow and processing times in these
growing business lines. Lastly, we expect to launch our
new online banking platform in mid-October of this coming
fiscal year. I spent the last few weeks beta testing it with
our digital banking and innovation teams, and I am
confident that this platform will significantly improve
our digital capabilities.

Community Impact
One of the great benefits of being a community bank is that our
strategic focus has always included elements of ESG, because they
just made good business sense. As a local financial institution, we
understand the importance of supporting the community we serve
and promoting organizations whose work supports individuals
in underserved communities. Our support ensures that these
communities have the resources they need to grow and prosper.
climate change. To better quantify these risks, we conduct an
annual climate risk analysis. The analysis reviews the various
risks posed to our retail branch network, regional corporate
headquarters and loan portfolio as measured by the Federal
Emergency Management Agency National Risk Index. Overall,
our business continues to be exposed to only low to moderate
risk of natural disaster. During 2023, we implemented an energy
management system to monitor and reduce energy usage in
our regional corporate headquarters. Transitioning to paperless
processes utilizing digital technology is another way to help
reduce our overall reliance on paper resources. Lastly, the move
to more cloud-based technologies to reduce on-premises power
consumption by our electronic equipment should continue
to evolve over the coming years.
Some of the ways we accomplish this mission are through
grants from the KearnyBank Foundation to local non-profits
in our markets to support educational initiatives, housing and
other quality-of-life programs. Another example of this
support includes the enhancement of our First
Time Home Buyer program, which provided
Finally, many years ago, we committed to
over $26 million in loans to families that
developing strong risk management,
might not otherwise have had the
audit and compliance practices focused
opportunity to enjoy the American
on stress testing capital, liquidity,
Dream of home ownership.
interest rate risk and credit to help
Additionally, the Kearny Bank
manage our risk exposure and to
ChangeMakers program was
recalibrate our risk appetite during
launched in 2023 with the
different business cycles.
principles of supporting local
women-owned businesses and
providing services to help them
succeed. As part of this effort, we
As a fellow shareholder, I am
partnered with Rutgers University
sure that we share the same
to develop a specific curriculum
disappointment with the economic
Kearny Bank employees volunteering for
to educate us further on gender
environment and the overall change
a local Habitat for Humanity chapter.
socialization and to give us a better
in market valuations that occurred in the
understanding of some of the dynamics
financial service sector as bank valuations
behind women   s progress in business. This
have declined significantly over the last 12
knowledge has helped our program ambassadors
months. These are the times when I am reminded by my
develop networking and workshop opportunities with fellow
predecessor that patience and staying the course in terms
female entrepreneurs, business owners, visionaries and
of our strategy will ultimately pay off. We have an excellent
creatives to help these leaders grow and succeed.
management team and dedicated employees that have
successfully navigated challenging environments before, such
As I have mentioned in past letters, people are our most valuable
as the Dot.com bubble, 2008 Financial Crisis and the Pandemic.
resource. They are also the fuel that powers the engine of our
When the shape of the yield curve improves, our earnings
business. In 2023, we appointed a Director of Diversity, Equity
growth should accelerate, and we will all be rewarded for our
and Inclusion to help create a more powerful and dynamic
patience. In closing, I would like to thank our board of directors,
employee base. This individual will create and implement
management team, staff and our faithful shareholders for the
strategies to increase the representation and retention of
support and belief in our mission during these challenging times.
under-represented segments of our workforce by developing
programs and partnerships with community groups to enhance
Sincerely,
the available pool of diverse candidates. Our aim is to ensure
that our workforce reflects the communities we serve, that our
employees feel valued and that we provide opportunities for
Closing/Future
them so they can reach their maximum potential.
Turning to the environment, we are committed to managing the
impact associated with our operations and the risks created by
Craig L. Montanaro
President & CEO
Kearny Financial Corp.
Kearny Bank


shareholder letter icon 9/15/2023 Letter Continued (Full PDF)
 

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