It does not give a compilation error because it is allowed by the Java Language Specification. However, it gives a warning message because including a return statement in the finally block is usually a bad idea.
What happens in your example is the following. The return statement in the try block is executed. However, the finally block must always be executed so it is executed after the catch block finishes. The return statement occurring there overwrites the result of the previous return statement, and so the method returns the second result.
Similarly a finally block usually should not throw an exception. That’s why the warning says that the finally block should complete normally, that is, without return or throwing an exception.