Kearny Financial Corp. (NASDAQ: KRNY) (the "Company"), the holding
company of Kearny Federal Savings Bank (the "Bank"), today reported
net income for the quarter ended September 30, 2010 of $1,335,000,
or $0.02 per diluted share.
The results represent a decrease of $677,000 compared to net
income of $2,012,000, or $0.03 per diluted share, for the quarter
ended June 30, 2010. The decrease in net income between linked
quarters was primarily attributable to an increase in the provision
for loan losses and a decrease in non-interest income which were
partially offset by an increase in net interest income and a
decrease in non-interest expense. In total, these factors resulted
in an overall decrease in pre-tax income and the provision for
income taxes.
Net income for the quarter ended September 30, 2010 represented
an increase of $240,000 compared to net income of $1,095,000, or
$0.02 per diluted share, for the year ago quarter ended September
30, 2009. The increase in year-over-year quarterly net income
reflected increases in net interest income and non-interest income
partially offset by increases in the provision for loan loss and
non-interest expense. In total, these factors resulted in an
overall increase in pre-tax income and the provision for income
taxes.
Kearny Federal Savings Bank operates from its administrative
headquarters in Fairfield, New Jersey, and 27 retail branch offices
located in Bergen, Hudson, Passaic, Morris, Middlesex, Essex, Union
and Ocean Counties, New Jersey. At September 30, 2010, Kearny
Financial Corp. had total assets of $2.38 billion which included
net loans receivable of $988.4 million and total investment
securities, including mortgage-backed and non-mortgage-backed
securities, of $1.11 billion. As of that same date, deposits and
borrowings totaled $1.66 billion and $210.0 million, respectively,
while stockholders' equity totaled $484.0 million or 20.4% of total
assets.
The following is an overview of the Company's financial results
for the quarter ended September 30, 2010:
Net Interest Income
Net interest income during the quarter ended September 30, 2010
was $14.5 million, an increase of $169,000 compared to net interest
income of $14.4 million during the quarter ended June 30, 2010 and
an increase of $1.2 million compared to net interest income of
$13.3 million during the quarter ended September 30, 2009. The
Company's net interest margin decreased by two basis points to
2.73% for the quarter ended September 30, 2010 from 2.75% during
the prior linked quarter ended June 30, 2010. The net interest
margin decreased one basis point from 2.74% for the same quarter
one year earlier ended September 30, 2009.
The increase in net interest income between linked quarters
resulted from a decrease in interest expense that was partially
offset by a concurrent decrease in interest income. The decrease in
interest expense between linked quarters was primarily attributable
to a decline in the average cost of interest-bearing deposits. The
reduction in average cost reflected declines across all categories
of interest-bearing deposits including certificates of deposit as
well as savings and interest-bearing checking. The decline in the
cost of certificates of deposit continues to reflect the downward
repricing of the portfolio to current market levels despite
customers continuing to strive for higher yield by extending the
term of accounts at maturity. The reduction in the cost of
non-maturity deposits also reflects the effect of lower market
interest rates and resulting declines in rates paid on such
accounts by the Bank and other institutions in the marketplace.
These factors have outweighed the effect of the Bank continuing to
promote its "High Yield Checking" product which is designed to
attract core deposits in the form of customers' primary checking
accounts through interest rate and fee reimbursement incentives to
qualifying customers.
The decrease in interest income between linked quarters was
primarily attributable to a decline in the average yield of
interest-earning assets which was partially offset by an increase
in their average balance. The decline in average yield continued to
reflect the effect of lower market interest rates across most
categories of earning assets. However, the decline also reflected
an increase in the average balance of lower yielding
mortgage-backed securities which was partially offset by a
reduction in the average balance of comparatively higher yielding
loans.
The increase in net interest income between the year-over-year
quarters ended September 30, 2010 and September 30, 2009 resulted
from a decrease in interest expense that outpaced a concurrent
decrease in interest income. The decrease in interest expense
between the year-over-year quarters reflected the effects of the
decline in the overall average cost of interest-bearing deposits
partially offset by increases in each of their respective average
balances between comparative periods. The overall decline in the
average cost of interest-bearing deposits reflected reductions in
the cost of both certificates of deposit and savings accounts
reflecting the overall effects of lower market interest rates. By
contrast, the cost of interest-bearing checking accounts remained
stable between comparative quarters as the effects of lower market
interest rates were offset by the promotional pricing associated
with the Bank's "High Yield Checking" product.
The year-over-year decrease in interest income was attributable
to similar factors as those noted in the linked period comparison.
That is, the reduction in interest income reflected a reduction in
the overall average yield of interest-earning assets resulting from
declines in the average yields of most of its component categories.
Similarly, the impact on interest income attributable to the
decline in average yields was partially offset by an increase in
the overall average balance of interest-earning assets. However,
the components of that growth between year-over-year quarters was
mainly due to an increase in the average balance of lower yielding
mortgage-backed and non-mortgage-backed securities while the
average balance of comparatively higher yielding loans declined.
The decline in interest income between year-over-year quarters also
reflected an increase in the average balance of
non-interest-earning assets during the more recent comparative
period.
More specifically, total interest income decreased $70,000 to
$22.9 million during the quarter ended September 30, 2010 compared
to $23.0 million during the quarter ended June 30, 2010 while
decreasing $213,000 compared to $23.2 million during the quarter
ended September 30, 2009.
Interest income from loans decreased $260,000 to $13.8 million
during the quarter ended September 30, 2010 compared to $14.1
million during the quarter ended June 30, 2010. By comparison,
interest income on loans decreased $1.1 million during the quarter
ended September 30, 2010 compared to $14.9 million during the
quarter ended September 30, 2009. The decrease in interest income
on loans between both sets of comparative periods resulted from
decreases in both their average balance and average yield. During
the quarter ended September 30, 2010, average loans receivable were
$1.006 billion with an average yield of 5.49%. By comparison,
during the quarters ended June 30, 2010 and September 30, 2009,
average loans receivable were $1.008 billion and $1.051 billion,
respectively, with average yields of 5.58% and 5.67%,
respectively.
The Bank continued to experience a reduction in the aggregate
outstanding balance of residential first mortgages, home equity
loans and home equity lines of credit, whose combined average
outstanding balances declined $2.3 million to $767.7 million during
the quarter ended September 30, 2010 due to the combined effects of
significantly reduced levels of financing associated with real
estate purchases and a highly competitive market for refinancing of
existing credits. By contrast, the average balance of commercial
loans, including non-residential mortgages, multi-family mortgages
and commercial business loans increased by $1.1 million in
aggregate to $219.7 million over the same period.
Interest income from mortgage-backed securities increased
$341,000 to $7.4 million during the quarter ended September 30,
2010 from $7.1 million during the quarter ended June 30, 2010 while
decreasing $431,000 from $7.8 million during the quarter ended
September 30, 2009. The increase in interest income between linked
periods was attributable to comparative increases in the average
balance of mortgage-backed securities that were partially offset by
declines in their average yield. By contrast, the decrease in
interest income between year-over-year periods was attributable to
the decline in average yield on mortgage-backed securities which
outweighed the effects of comparatively higher average balances
during the more recent period. During the quarter ended September
30, 2010, average mortgage-backed securities, excluding net
unrealized gains, were $737.4 million with an average yield of
4.01%. By comparison, during the quarters ended June 30, 2010 and
September 30, 2009, the average balances of mortgage-backed
securities were $659.1 million and $655.8 million, respectively,
with average yields of 4.28% and 4.78%, respectively.
The average yield on mortgage-backed securities has been
decreasing due primarily to the repayment of higher coupon mortgage
loans in the pools underlying the securities coupled with the
effect of the Bank reinvesting incoming cash flows into securities
whose comparatively lower yields reflect the overall decline in
market interest rates.
Interest income from non-mortgage-backed securities decreased
$163,000 to $1.6 million during the quarter ended September 30,
2010 compared to $1.7 million during the quarter ended June 30,
2010 and increased $1.3 million from $218,000 during the quarter
ended September 30, 2009. The decrease in interest income between
the linked periods resulted from a decrease in the average balance
of non-mortgage-backed securities coupled with a decline in their
average yields. By contrast, the increase in interest on
non-mortgage-backed securities between year-over-year periods
resulted from an increase in their average balance that was
partially offset by a decline in their average yield. During the
quarter ended September 30, 2010, average non-mortgage-backed
securities totaled $275.7 million with an average yield of 2.27%.
By comparison, during the quarters ended June 30, 2010 and
September 30, 2009, the average balances of non-mortgage-backed
securities totaled $288.2 million and $32.2 million, respectively,
with average yields of 2.40% and 2.71%, respectively.
Interest income from other interest-earning assets, comprised
primarily of interest-earning cash and cash equivalents and FHLB
stock, increased $12,000 to $179,000 during the quarter ended
September 30, 2010 compared to $167,000 during the quarter ended
June 30, 2010 and decreased $51,000 from $230,000 for the quarter
ended September 30, 2009. The increase in interest income between
linked periods resulted from an increase in the average yield on
other interest-earning assets that was partially offset by a
decline in their average balance. By contrast, the decline in
interest income between year-over-year periods reflected an
increase in the average yield on other interest-earning assets that
was more than offset by a decline in their average balance. During
the quarter ended September 30, 2010, the average balance of other
interest-earning assets totaled $115.0 million with an average
yield of 0.62%. By comparison, during the quarters ended June 30,
2010 and September 30, 2009, the average balances of other
interest-earning assets totaled $133.4 million and $196.9 million,
respectively, with average yields of 0.50% and 0.47%,
respectively.
Total interest expense decreased $239,000 to $8.4 million during
the quarter ended September 30, 2010 compared to $8.6 million
during the quarter ended June 30, 2010 while decreasing $1.5
million compared to $9.9 million during the quarter ended September
30, 2009.
Interest expense attributed to deposits decreased $262,000 to
$6.3 million during the quarter ended September 30, 2010 from $6.6
million during the quarter ended June 30, 2010 and decreased $1.5
million compared to $7.8 million during the quarter ended September
30, 2009. The decrease in interest expense between both sets of
comparative quarters reflected declines in the average cost of
interest-bearing deposits that were partially offset by increases
in their average balance. For the quarter ended September 30, 2010,
the average balance of interest-bearing deposits increased to $1.59
billion from $1.53 billion for the quarter ended June 30, 2010
while their average cost declined to 1.59% from 1.72% for those
same comparative periods. As noted earlier, the decrease in the
overall cost of interest-bearing deposits for the linked quarters
reflects a continuing decline in the cost of certificates of
deposit as well as non-maturity deposits -- including both savings
and interest-bearing checking accounts -- with the latter
continuing to reflect the Bank's promotion of its "High Yield
Checking" product.
Similarly, the average balance and average cost of
interest-bearing deposits for the earlier comparative quarter ended
September 30, 2009 totaled $1.39 billion and 2.25%, respectively.
As discussed above, the overall decline in the cost of
interest-bearing deposits between the year-over-year comparative
quarters also reflects decreases in the cost of certificates of
deposit and savings accounts while the cost of interest-bearing
checking accounts remained stable as the effects of lower market
interest rates were offset by the effects of the promotional
pricing relating to the Bank's "High Yield Checking" product.
Finally, interest expense attributed to Federal Home Loan Bank
("FHLB") advances increased $23,000 to $2.1 million for the quarter
ended September 30, 2010 compared to the prior quarter ended June
30, 2010 while remaining unchanged from the quarter ended September
30, 2009. During both linked quarters ended September 30, 2010 and
June 30, 2010, the average balance of FHLB advances was $210.0
million with average costs of 3.95% and 3.91%, respectively. The
average balance and average cost of FHLB advances were unchanged
from the quarter ended September 30, 2009 at $210.0 million and
3.95%, respectively.
Provision for Loan Losses
The provision for loan losses totaled $1.3 million during the
quarter ended September 30, 2010 compared to a provision of
$262,000 for the linked quarter ended June 30, 2010 and a provision
of $858,000 for the quarter ended September 30, 2009. The provision
in the current period reflected required net increases to the
allowance for additional specific losses on several impaired
mortgage loans on residential properties located in New Jersey as
well as one out-of-state residential mortgage loan. All 1-4 family
residential mortgage loans with specific losses recognized during
the quarter were originated by other lending institutions,
including Countrywide Home Loans, Inc. ("Countrywide"), and
purchased by the Bank during prior years. The provision also
reflected net increases to balances of general valuation allowances
attributable to the application of historical and environmental
loss factors to the remaining non-impaired portion of the loan
portfolio in accordance with the Company's allowance for loan loss
calculation methodology. Further discussion of the allowance for
loan losses is presented in the Loans and Credit Quality section
below.
Non-interest Income
Non-interest income attributed to fees, service charges and
miscellaneous income, including real estate owned ("REO")
operations, decreased $13,000 to $631,000 during the quarter ended
September 30, 2010 from $644,000 during the quarter ended June 30,
2010 while increasing $13,000 from $618,000 during the quarter
ended September 30, 2009. The decrease in non- interest income
between linked quarters reflected an increase in the net expenses
recognized through REO operations and the absence in the current
period of REO sale gains recognized during the earlier comparative
quarter. The decline in non-interest income between linked quarters
also reflected a decline in deposit and branch-related fees and
charges. These decreases to non-interest income were partially
offset by increases in income from bank owned life insurance
attributable to a greater average balance of the underlying
policies' cash surrender values during the more recent quarter.
The comparative increase in non-interest income between
year-over-year quarters reflected an increase in income from bank
owned life insurance. However, that increase was only partially
offset by the comparative increase in net expenses recognized
through REO operations and net declines in deposit and
branch-related fees and charges.
Finally, non-interest income for the current quarter ended
September 30, 2010 reflected the absence of certain investment
security-related activities that had been reported during the
earlier comparative quarters. For example, the prior linked quarter
ended June 30, 2010 reflected net gains totaling $509,000 on the
sale of mortgage-backed securities for which no such income was
recorded during the current quarter. Similarly, the quarter ended
September 30, 2009 reflected net other-than-temporary impairment
charges totaling $98,000 for which no such expense was recorded
during current quarter ended September 30, 2010.
Non-interest Expense
Non-interest expense decreased by $65,000 to $11.6 million for
the quarter ended September 30, 2010 from $11.7 million for the
quarter ended June 30, 2010 but increased $627,000 from $11.0
million for the quarter ended September 30, 2009.
The $65,000 decrease in non-interest expense between linked
quarters was attributable, in part, to a decline in merger-related
expenses which decreased $333,000 to $40,000 for the quarter ended
September 30, 2010 compared to $373,000 for the quarter ended June
30, 2010. For both linked quarters, such expenses related to the
Company's acquisition of Central Jersey Bancorp (NASDAQ: CJBK). The
acquisition was announced on May 25, 2010, approved by the Office
of Thrift Supervision on October 20, 2010 and is expected to close
during the quarter ending December 31, 2010. The aggregate
merger-related expenses recorded during the linked quarters
included a portion of the professional service fees expected to be
paid relating to the transaction including, but not limited to,
investment banking, legal and due diligence consulting
services.
Partially offsetting the decrease in merger-related expenses
between linked quarters were comparative increases in salaries and
employee benefits, occupancy, equipment and systems expense and
deposit insurance expenses. The increase in compensation-related
expense was primarily attributable to increased actuarial costs of
pension plans coupled with lesser increases in employees' wages and
salaries. The increase in occupancy expense included increases in
property tax assessments by certain municipalities as well as
seasonal fluctuations in utility-related facility expenses. The
change in equipment and system expense reflects an increase in core
processing charges relating, in part, to development work in
support of the Bank's "High Yield Checking" product while the
increase in cost of FDIC deposit insurance primarily reflects the
continued growth in the Bank's balance of insurable deposits.
The net increase of $627,000 in year-over-year quarterly
non-interest expense was generally attributable to many of the same
factors as those affecting the linked period comparison. The
year-over-year increase in non-interest expenses reflects
merger-related expenditures during the current quarter for which no
such expense was recorded during the earlier comparative period.
Additionally, increases in salaries and employee benefits reflect
year-over-year increases in employees' wages and salaries as well
as comparative increases in actuarial pension costs and health
benefit expenses.
For those same comparative periods, the growth in occupancy
expense reflects increases in both property tax and depreciation
expense while the comparative growth in equipment and systems
expense primarily reflects increases in service provider expenses
associated with core processing, network administration as well as
data processing and support costs associated with the Bank's "High
Yield Checking" product which had not yet been implemented during
the earlier comparative quarter. Likewise, the increase in
advertising and marketing expense also reflects the absence of
promotional expenses for the "High Yield Checking" product during
the earlier comparative period. Finally, the increase in cost of
FDIC deposit insurance between year-over-year periods also reflects
the continued growth in the Bank's balance of insurable
deposits.
Partially offsetting the year-over-year increases in
non-interest expenses noted was an aggregate net decline in
miscellaneous expenses. The net decline primarily reflects
reductions in loan expenses and various general and administrative
expenses including correspondent bank charges that were partially
offset by increases in professional services expenses for legal and
accounting services.
Provision for Income Taxes
The provision for income taxes decreased by $600,000 to $946,000
for the quarter ended September 30, 2010 from $1.5 million for the
quarter ended June 30, 2010 and increased $143,000 from $803,000
for the quarter ended September 30, 2009. The variance in income
taxes between both sets of comparative quarters was primarily
attributable to the underlying differences in pre-tax income. The
Company's effective tax rates during the quarters ended September
30, 2010, June 30, 2010 and September 30, 2009 were 41.5%, 43.4%
and 42.3%, respectively.
Cash and Cash Equivalents
Cash and cash equivalents, which consist primarily of
interest-earning deposits in other banks, decreased by $62.3
million to $119.1 million at September 30, 2010 from $181.4 million
at June 30, 2010. The decrease in short term, liquid assets was
largely attributable to the redeployment of excess liquidity that
had accumulated from the combined effects of deposit growth and net
loan and non-mortgage-backed security repayments into
mortgage-backed securities during the quarter.
In accordance with the overall goals of its strategic business
plan, the Company may, at times, defer the reinvestment of excess
liquidity into the investment portfolio in favor of retaining
comparatively higher average balances of short term, liquid assets
as a funding source for future loan originations. Toward that end,
the Bank's pipeline of "in process" loans has generally increased
compared to one year earlier due, in part, to continued expansion
of the Bank's commercial loan origination staff. Moreover, the Bank
continues to evaluate various pricing strategies to expand the
origination of certain loan types in select markets.
Despite these efforts to bolster loan growth, incoming cash
flows from loan repayments have generally outpaced origination
volume. As noted earlier, the Bank continued to experience a
reduction in the aggregate outstanding balance of residential first
mortgages, home equity loans and home equity lines of credit during
the quarter ended September 30, 2010 due largely to the combined
effects of significantly reduced levels of residential real estate
purchase activity and a highly competitive market for the
refinancing of existing credits.
The overall decline in the balance of residential mortgages has
been partially offset by the increase in the aggregate balance of
commercial loans, including non-residential mortgages, multi-family
mortgages and commercial business loans was attributable, in part,
to the factors noted above. However, during the quarter ended
September 30, 2010, the utilization of liquidity to fund the net
growth in the commercial loan portfolio was significantly outpaced
by the incoming cash flows arising from net deposit growth,
security repayments and the overall decline in the residential loan
portfolio.
In light of the opportunity cost to near term earnings resulting
from the accumulation of short term, liquid assets, the Bank
redeployed a portion of its excess liquidity into mortgage-backed
securities during the quarter ended September 30, 2010. Management
will continue to monitor the opportunity cost to near term earnings
resulting from the accumulation of short term, liquid assets in
relation to the expected need for such liquidity to fund the
Company's strategic initiatives including the upcoming acquisition
of Central Jersey Bancorp which is expected to close during the
quarter ending December 31, 2010. The Company may continue to
redeploy a portion of its liquidity into higher yielding
investments based upon the timing and relative success of those
initiatives.
Loans and Credit Quality
The outstanding balance of loans receivable at September 30,
2010, excluding deferred fees and costs and the allowance for loan
losses, declined by $15.8 million to $997.4 million compared to
$1.01 billion at June 30, 2010. The overall decrease in the loan
portfolio during the current quarter included net declines in the
balance of one-to-four family mortgage loans, comprising
residential first mortgages, home equity loans and home equity
lines of credit, of $21.3 million and a net decrease in the balance
of construction loans of $2.3 million. Partially offsetting these
decreases was an increase in the aggregate balance of commercial
loans, including non-residential mortgages, multi-family mortgages
and commercial business loans, of $7.9 million. Aggregate declines
in the outstanding balance of consumer and other loans totaled
$84,000.
In general, the aggregate decline in the loan portfolio for the
quarter ended September 30, 2010 reflects the continuing diminished
level of loan demand resulting from a weak economy and declining
real estate values exacerbated by aggressive pricing for certain
loan products that are available in the marketplace to a reduced
number of qualified borrowers.
At September 30, 2010, non-performing assets totaled $25.4
million or 1.07% of total assets and comprised 62 nonperforming
loans totaling $24.8 million, or 2.49% of total loans, plus three
REO properties totaling $581,000. By comparison, at June 30, 2010
non-performing assets totaled $21.7 million or 0.93% of total
assets and comprised 54 nonperforming loans totaling $21.6 million,
or 2.13% of total loans, plus two REO properties totaling
$146,000.
The number and outstanding balance of loans reported as
nonperforming at September 30, 2010 include 47 one-to-four family
loans totaling $16.9 million, three construction loans totaling
$468,000, eight multi-family loans totaling $2.5 million, two
nonresidential mortgage loans totaling $2.7 million, and two
commercial business loans totaling $2.3 million.
One-to-four family loans reported as non-performing at September
30, 2010 include 31 mortgage loans totaling $14.1 million on
residential properties located in New Jersey originally acquired
from Countrywide. As of that date, the allowance for loan loss
includes valuation allowances totaling $3.1 million attributable to
specific impairments identified on the Countrywide nonperforming
loans. At September 30, 2010, the Bank owned a total of 164
residential mortgage loans with an aggregate outstanding balance of
$81.3 million that were originally acquired from Countrywide and
continue to be serviced by their acquirer, Bank of America through
its subsidiary, BAC Home Loans Servicing, LP. Of these loans, an
additional six loans totaling $2.4 million are 30-89 days past due
and are in various stages of collection.
The remaining 16 nonperforming one-to-four family mortgage with
an aggregate balance of $2.8 million were internally originated and
include a total of 11 first mortgages, four home equity loans and
one home equity line of credit. The Bank has identified no
impairments requiring the establishment of a specific valuation
allowance relating to these loans through September 30, 2010.
Construction loans reported as nonperforming at September 30,
2010 include two internally originated loans and one participation
acquired through the Thrift Institutions Community Investment
Corporation of New Jersey ("TICIC"), a subsidiary of the New Jersey
Bankers Association. As of that date, the allowance for loan loss
includes a specific valuation allowance totaling $105,000
attributable to the impairment identified on this TICIC
participation. The Bank has identified no impairments requiring the
establishment of a specific valuation allowance relating to the two
remaining internally originated, nonperforming construction
loans.
Seven of the eight multi-family loans totaling $2.0 million that
were reported as nonperforming at September 30, 2010 represent
participations acquired through TICIC while one internally
originated multi-family loan with a balance of $449,000 was
reported as nonperforming as of that date. The allowance for loan
loss includes specific valuation allowances totaling $1.5 million
attributable to impairments identified on the TICIC multi-family
loan participations.
The two nonresidential mortgage loans reported as nonperforming
at September 30, 2010 represent internally originated loans for
which the Bank has identified no impairments requiring the
establishment of a specific valuation allowance as of that date.
The larger of the two loans has outstanding balance of $2.7 million
and is fully secured by a catering facility in Monmouth County, NJ
and remains in foreclosure at September 30, 2010.
Finally, the two commercial business loans reported as
nonperforming at September 30, 2010 also represent internally
originated loans for which the Bank has identified no impairments
requiring the establishment of a specific valuation allowance as of
that date. The larger of the two loans has an outstanding balance
of $2.2 million and is secured by land with approvals for
residential development. The loan was placed on nonaccrual at June
30, 2010 based upon its past due status. The borrower was
unsuccessful at selling the underlying property based on a contract
for the sale that was originally expected to close during the
current quarter. Consequently, collections efforts continue on the
loan at September 30, 2010.
In addition to impairments identified on the nonperforming loans
noted above, the allowance for loan loss also contains a specific
valuation allowance totaling $193,000 relating to one internally
originated, multi-family mortgage loan that is impaired, but is
reported as performing due to its accrual and payment status.
Charge offs, net of recoveries, against the allowance for loan
loss during the current quarter ended September 30, 2010 totaled
$435,000. The allowance for loan losses as a percentage of total
loans outstanding was 0.94% at September 30, 2010 compared with
0.84% at June 30, 2010 reflecting total allowances of $9.4 million
and $8.6 million, respectively. At September 30, 2010, the
allowance was comprised of $5.0 million of specific valuation
allowances attributable to identified impairments on individual
loans while the remaining $4.4 million represented general
valuation allowances based upon the historical and environmental
loss factors utilized by the Bank's allowance for loan loss
methodology. As of June 30, 2010, the specific and general
valuation allowances included in the allowance for loan loss
totaled $4.3 million and $4.3 million, respectively.
Securities and Mortgage-backed Securities
Mortgage-backed securities available for sale, all of which are
government agency pass-through certificates, increased $140.5
million to $844.0 million at September 30, 2010 from $703.5 million
at June 30, 2010. The net increase reflected security purchases
totaling $186.4 million which were partially offset by principal
repayments totaling approximately $43.7 million and a decline in
the unrealized gain within the portfolio of $1.7 million to $28.3
million at September 30, 2010 from $30.0 million at June 30, 2010.
Of the securities purchased, $4.4 million represent issues eligible
to meet the Community Reinvestment Act investment test. Based on
its evaluation, management concluded that no other-than-temporary
impairment was present within this segment of the investment
portfolio at September 30, 2010.
Mortgage-backed securities held to maturity decreased $75,000 to
$1.6 million at September 30, 2010 from $1.7 million at June 30,
2010 attributable to principal repayments during the quarter. At
September 30, 2010, the balance of mortgage-backed securities held
to maturity includes both pass-through certificates and
collateralized mortgage obligations ("CMOs"). As of that date, the
Company's portfolio of non-agency CMOs totaled 20 securities with a
total book value of approximately $299,000 while the remainder of
the held to maturity mortgage-backed securities portfolio was
comprised of government agency mortgage pass-through securities and
collateralized mortgage obligations. Based on its evaluation,
management concluded that no other-than-temporary impairment was
present within this segment of the investment portfolio at
September 30, 2010.
Non-mortgage-backed securities classified as available for sale
decreased by $115,000 to $29.4 million at September 30, 2010 from
$29.5 million at June 30, 2010. The change in the balance between
linked periods was primarily attributable to principal repayments
that were partially offset by an increase in the fair value of the
portfolio. The net unrealized loss for this portfolio was reduced
by $404,000 to $1.1 million at September 30, 2010 from $1.5 million
at June 30, 2010. Non-mortgage-backed securities classified as held
to maturity decreased by $25.0 million to $230.0 million at
September 30, 2010 from $255.0 million at June 30, 2010. The net
decrease in the portfolio during the quarter was attributable to
the full repayment at par of several fixed rate, agency debentures
that were called by the issuer prior to maturity and the
reinvestment of all but $25.0 million of those proceeds into
similar securities. Based on its evaluation, management has
concluded that no other-than-temporary impairment is present within
either segment of the non-mortgage backed securities portfolio at
September 30, 2010.
Deposits
Deposits increased $39.8 million to $1.66 billion at September
30, 2010 from $1.62 billion at June 30, 2010. Growth was reported
across all categories of interest-bearing deposits. For the quarter
ended September 30, 2010, interest-bearing demand deposits
increased $30.1 million to $286.3 million, savings deposits
increased $1.8 million to $336.0 million and certificates of
deposit increased $11.8 million to $991.4 million.
Non-interest-bearing demand deposits decreased $3.9 million to
$49.8 million during the current quarter.
As noted earlier, the growth in interest-bearing checking
accounts continues to reflect the promotion of the Bank's "High
Yield Checking" product which is designed to attract core deposits
in the form of customers' primary checking accounts through
interest rate and fee reimbursement incentives to qualifying
customers. The explicit increase in interest expense associated
with the "High Yield Checking" product is expected to be partially
offset by an associated increase in transaction fee income.
Depositors have generally been lengthening the maturities of
their time deposits, particularly by transferring maturing
certificates of deposit to accounts with new maturities of greater
than 12 months to improve yield. Certificates of deposit with
maturities of greater than 12 months increased by $42.5 million to
$305.7 million at September 30, 2010 from $263.2 million at June
30, 2010 with such balances representing 30.8% and 26.9% of total
certificates of deposit at the close of each period,
respectively.
Federal Home Loan Bank Advances
As a result of the Bank's strong liquidity position, there were
no additional borrowings drawn during the quarter ended September
30, 2010. Moreover, no borrowings matured during those same
periods. Consequently, the balance of FHLB advances remained
unchanged at $210.0 million at September 30, 2010 and June 30,
2010.
Stockholders' Equity and Capital Management
During the quarter ended September 30, 2010, stockholders'
equity decreased $1.9 million to $484.0 million from $485.9 million
at June 30, 2010. The decrease was attributable, in part, to a $3.3
million increase in treasury stock resulting from the repurchase of
368,800 shares of the Company's common stock as well as an $800,000
cash dividend to minority shareholders. Partially offsetting these
factors was quarterly net income of $1.3 million, increases to
paid-in-capital totaling $1.2 million attributable primarily to
benefit plan related adjustments and $363,000 of ESOP shares
earned. The change in stockholders' equity also reflects a $784,000
decline in accumulated other comprehensive income resulting
primarily from reductions in the unrealized gain on the available
for sale securities portfolios.
At September 30, 2010, the Company's total equity to asset ratio
was 20.4% while the equity to assets ratio of the Bank was 19.6%.
As of that same date, the Bank's ratio of tangible equity to
tangible assets was 16.2% while its Tier 1 (Core) Capital and Total
(Risk-based) Capital to risk- weighted assets ratios were 37.6% and
38.1%, respectively, far in excess of the 6.0% and 10.0% levels,
respectively, required by the Office of Thrift Supervision to be
classified "well-capitalized" under regulatory guidelines.
Statements contained in this news release that are not
historical facts are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ materially
from those currently anticipated due to a number of factors, which
include, but are not limited to factors discussed in documents
filed by Kearny Financial Corp. with the Securities and Exchange
Commission from time to time. The Company does not undertake and
specifically disclaims any obligation to update any forward-looking
statement, whether written or oral, that may be made from time to
time by or on behalf of the Company.
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Data, Unaudited)
At
--------------------------
September 30, June 30,
2010 2010
------------ ------------
Selected Balance Sheet Data:
Assets $ 2,376,272 $ 2,339,813
Cash and cash equivalents 119,084 181,422
Securities available for sale 29,382 29,497
Securities held to maturity 229,976 255,000
Allowance for loan losses (9,377) (8,561)
Net loans receivable 988,367 1,005,152
Mortgage-backed securities available for sale 844,042 703,455
Mortgage-backed securities held to maturity 1,625 1,700
Goodwill 82,263 82,263
Deposits 1,663,388 1,623,562
Federal Home Loan Bank advances 210,000 210,000
Total stockholders' equity 483,972 485,926
Consolidated Capital Ratios:
Equity to assets at period end 20.37% 20.77%
Tangible equity to tangible assets at period
end (1) 17.02% 17.36%
Share Data:
Outstanding shares (in thousands) 67,975 68,344
Closing price as reported by NASDAQ $ 8.83 $ 9.16
Book value per share $ 7.12 $ 7.11
Tangible book value per share (1) $ 5.68 $ 5.66
Asset Quality Ratios:
Non-performing loans to total loans 2.49% 2.13%
Non-performing assets to total assets 1.07% 0.93%
Allowance for loan losses to total loans 0.94% 0.84%
Allowance for loan losses to non-performing
loans 37.76% 39.70%
(1) Tangible equity equals total stockholders' equity reduced by goodwill,
core deposit intangible assets and accumulated other comprehensive
income.
(Dollars in Thousands, Except Per Share Data, Unaudited)
For the Three Months Ended
-------------------------------------
September 30, June 30, September 30,
2010 2010 2009
----------- ----------- -----------
Summary of Operations:
Interest income $ 22,943 $ 23,013 $ 23,156
Interest expense 8,398 8,637 9,903
----------- ----------- -----------
Net interest income 14,545 14,376 13,253
Provision for loan losses 1,251 262 858
----------- ----------- -----------
Net interest income after provision
for loan losses 13,294 14,114 12,395
Non-interest income, excl
gain/(loss) on securities 631 644 618
Gain/(loss) on securities 0 509 (98)
Non-interest expense 11,644 11,709 11,017
----------- ----------- -----------
Income before taxes 2,281 3,558 1,898
Provision for income taxes 946 1,546 803
----------- ----------- -----------
Net income $ 1,335 $ 2,012 $ 1,095
=========== =========== ===========
Per Share Data:
Net income per share - basic $ 0.02 $ 0.03 $ 0.02
Net income per share - diluted $ 0.02 $ 0.03 $ 0.02
Weighted average number of common
Shares outstanding - basic (in
thousands) 67,219 67,711 68,074
Weighted average number of common
Shares outstanding - diluted (in
thousands) 67,219 67,711 68,074
Cash dividends per share (1) $ 0.05 $ 0.05 $ 0.05
Dividend payout ratio (2) 59.9% 40.6% 77.81%
(1) Represents dividends declared per common share.
(2) Represents dividends declared, excluding dividends waived by
Kearny MHC, divided by net income.
For the Three Months Ended
-------------------------------------
September 30, June 30, September 30,
2010 2010 2009
----------- ----------- -----------
Average Balances:
Loans receivable $ 1,005,826 $ 1,007,957 $ 1,050,538
Mortgage-backed securities:
Mortgage pass-through securities 736,229 655,668 651,135
Collateralized mortgage obligations 1,159 3,426 4,626
----------- ----------- -----------
Total mortgage-backed securities 737,388 659,094 655,761
Non-mortgage-backed securities:
Tax exempt securities 18,125 18,125 18,167
Taxable securities 257,533 270,082 13,996
----------- ----------- -----------
Total non-mortgage-backed
securities 275,658 288,207 32,163
Other interest-earning assets 115,037 133,407 196,865
----------- ----------- -----------
Total interest earning
assets 2,133,909 2,088,665 1,935,327
Non-interest-earning assets 223,336 210,500 217,270
----------- ----------- -----------
Total assets $ 2,357,245 $ 2,299,165 $ 2,152,597
=========== =========== ===========
Interest-bearing deposits
Interest-bearing checking $ 273,524 $ 237,401 $ 171,051
Savings and clubs 336,377 329,606 304,237
Certificates of deposit 976,816 963,825 917,429
----------- ----------- -----------
Total interest-bearing deposits 1,586,717 1,530,832 1,392,717
Federal Home Loan Bank advances 210,000 210,000 210,000
----------- ----------- -----------
Total interest-bearing
liabilities 1,796,717 1,740,832 1,602,717
Non-interest-bearing liabilities 76,504 77,525 74,215
Stockholders' equity 484,024 480,808 475,665
----------- ----------- -----------
Total liabilities and
stockholders' equity $ 2,357,245 $ 2,299,165 $ 2,152,597
=========== =========== ===========
Average interest-earning assets to
average interest-bearing liabilities 118.77% 119.98% 120.75%
For the Three Months Ended
-------------------------------------
September 30, June 30, September 30,
2010 2010 2009
----------- ----------- -----------
Performance ratios:
Yield on average:
Loans receivable 5.49% 5.58% 5.67%
Mortgage-backed securities 4.01% 4.28% 4.78%
Non-mortgage-backed securities:
Tax exempt securities 3.47% 3.47% 3.48%
Taxable securities 2.19% 2.33% 1.70%
----------- ----------- -----------
Total non-mortgage-backed
securities 2.27% 2.40% 2.71%
Other interest-earning assets 0.62% 0.50% 0.47%
----------- ----------- -----------
Total interest-earning assets 4.30% 4.41% 4.79%
Cost of average:
Interest-bearing checking 1.13% 1.25% 1.13%
Savings and clubs 0.87% 1.02% 1.04%
Certificates of deposit 1.97% 2.08% 2.86%
----------- ----------- -----------
Interest-bearing deposits 1.59% 1.72% 2.25%
Federal Home Loan Bank advances 3.95% 3.91% 3.95%
----------- ----------- -----------
Total interest-bearing
liabilities 1.87% 1.98% 2.47%
Net interest rate spread (1) 2.43% 2.43% 2.32%
Net interest margin (2) 2.73% 2.75% 2.74%
Non-interest income to average
assets 0.11% 0.20% 0.10%
Non-interest expense to average
assets 1.98% 2.04% 2.05%
Efficiency ratio 76.73% 75.40% 79.99%
Return on average assets 0.23% 0.35% 0.20%
Return on average equity 1.10% 1.67% 0.92%
(1) Interest income divided by average interest-earning assets less
interest expense divided by average interest-bearing liabilities.
(2) Net interest income divided by average interest-earning assets.
For further information contact: Craig Montanaro President &
Chief Operating Officer Kearny Financial Corp. (973) 244-4510
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