FOR IMMEDIATE RELEASE
February 1, 2007
For further information contact:
Craig Montanaro
Senior Vice President,
Director of Strategic Planning
Kearny Financial Corp.
(973) 244-4510
KEARNY FINANCIAL CORP.
REPORTS SECOND QUARTER 2007 OPERATING RESULTS
Fairfield, New Jersey, February 1, 2007 - Kearny Financial Corp. (NASDAQ GSM:
KRNY) (the "Company"), the holding company of Kearny Federal Savings Bank (the
"Bank"), today reported net income for the quarter ended December 31, 2006 of
$547,000, or $0.01 per share. The results represent a decrease of $379,000
compared to net income of $926,000, or $0.01 per share, for the quarter ended
September 30, 2006 and a decrease of $1.8 million compared to net income of $2.3
million, or $0.03 per share, for the quarter ended December 31, 2005. Net income
for the six months ended December 31, 2006 was $1.5 million, or $0.02 per share,
a decrease of $3.8 million from $5.3 million, or $0.07 per share, for the six
months ended December 31, 2005.
Kearny Federal Savings Bank operates from its administrative headquarters in
Fairfield, New Jersey, and 26 retail branch offices located in Bergen, Hudson,
Passaic, Morris, Middlesex, Essex, Union and Ocean counties, New Jersey. At
December 31, 2006, Kearny Financial Corp. had total assets, deposits and
stockholders' equity of $2.02 billion, $1.48 billion and $471.3 million,
respectively.
The following is an overview of the Company's financial results for the quarter
ended December 31, 2006:
Net Interest Income
- -------------------
Net interest income during the quarter ended December 31, 2006 was $11.2
million, a decrease of $504,000, or 4.3%, compared to net interest income of
$11.7 million during the quarter ended September 30, 2006 and a decrease of $1.3
million, or 10.4%, compared to net interest income of $12.5 million during the
quarter ended December 31, 2005. The Bank's net interest margin for the quarter
ended December 31, 2006 was 2.39%, compared to 2.53% for the quarter ended
September 30, 2006 and 2.61% for the quarter ended December 31, 2005. The
decrease in net interest income between linked quarters and year-over-year
resulted primarily from a significant increase in the Bank's cost of deposits
partially offset by an increase in interest income.
Interest income increased $803,000, or 3.4%, to $24.1 million during the quarter
ended December 31, 2006 compared to $23.3 million during the quarter ended
September 30, 2006 and increased $2.1 million, or 9.5%, compared to $22.0
million during the quarter ended December 31, 2005. Interest expense increased
$1.3 million, or 11.2%, to $12.9 million for the quarter ended December 31, 2006
compared to $11.6 million for the quarter ended September 30, 2006 and increased
$3.4 million, or 35.8%, compared to $9.5 million for the quarter ended December
31, 2005.
Interest income from loans increased $764,000 to $11.1 million during the
quarter ended December 31, 2006, compared to $10.3 million during the quarter
ended September 30, 2006 and increased $2.6 million compared to $8.5 million
during the quarter ended December 31, 2005. The increases resulted from
continuing implementation of the Bank's business plan which calls for increasing
the loan portfolio while reducing the securities portfolio. The loan portfolio
constituted 41.0% of average interest-earning assets for the quarter ended
December 31, 2006, as compared to 39.1% and 32.0% for the quarters ended
September 30, 2006 and December 31, 2005, respectively. Meanwhile, the
securities portfolio constituted 45.4% of average interest-earning assets for
the quarter ended December 31, 2006, as compared to 49.3% and 64.3% for the
quarters ended September 30, 2006 and December 31, 2005, respectively. Interest
income from mortgage-backed securities, securities and other interest-earning
assets was unchanged at $13.0 million for the quarters ended December 31, 2006
and September 30, 2006 and decreased $439,000 from $13.5 million for the quarter
ended December 31, 2005. There was no change between linked quarters due to the
temporary redeployment of cash flows from the securities portfolio into cash
equivalents, which provided a better return due to the inverted Treasury yield
curve, while year-over-year; the decrease resulted from a significant reduction
in the securities portfolio. The Bank's average yield on average
interest-earning assets for the quarter ended December 31, 2006 was 5.15%,
compared to 5.04% for the quarter ended September 30, 2006 and 4.60% for the
quarter ended December 31, 2005.
Interest expense from deposits increased $1.4 million to $12.1 million for the
quarter ended December 31, 2006, from $10.7 million for the quarter ended
September 30, 2006 and increased $3.4 million from $8.7 million for the quarter
ended December 31, 2005. At various times during the year, management offered
promotional rates on selected certificate of deposit maturities and tiered money
market deposit accounts in an effort to retain and attract deposits. This
strategy had a significant effect on the Bank's cost of funds between linked
quarters and year-over-year. Midway through the quarter ended December 31, 2006,
management began to back away from this strategy in an attempt to mitigate
margin compression. There were decreases in interest expense attributed to
borrowings of $44,000 and $50,000 between linked quarters and year-over-year,
respectively, due primarily to the repayment of a Federal Home Loan Bank advance
during the current quarter. The Bank's average cost of average interest-bearing
liabilities for the quarter ended December 31, 2006 was 3.48%, compared to 3.20%
for the quarter ended September 30, 2006 and 2.54% for the quarter ended
December 31, 2005.
Non-interest Income
- -------------------
Non-interest income attributed to fees, service charges and miscellaneous income
increased $52,000, or 9.2%, to $620,000 for the quarter ended December 31, 2006
compared to $568,000 for the quarter ended September 30, 2006. The increase in
non-interest income between linked quarters resulted primarily from higher fees
and service charges from operations and the Bank's retail branch network.
Non-interest income was virtually unchanged compared to the same quarter a year
ago, with lower fees and service charges but higher miscellaneous income
year-over-year. Non-interest income for the quarter ended December 31, 2005
totaled $617,000 and included non-recurring loan prepayment fees of $73,000.
There was a gain on sale of securities during the quarter ended December 31,
2006 of $152,000 but no gain during the comparative quarters ended September 30,
2006 or December 31, 2005.
2
Non-interest Expense
- --------------------
Non-interest expense remained virtually unchanged at $11.2 million during the
quarter ended December 31, 2006 compared to $11.1 million during the quarter
ended September 30, 2006. Non-interest expense increased $1.1 million, or 10.9%,
compared to $10.1 million during the quarter ended December 31, 2005.
For the quarter ended December 31, 2006 compared to the quarter ended September
30, 2006, salaries and employee benefits and directors' compensation decreased
$68,000 and $96,000, respectively, while there was a nominal decrease in net
occupancy expense of premises of $17,000. Between linked quarters there was an
increase in miscellaneous expense and equipment expense of $246,000 and $24,000,
respectively, and a small increase in advertising expense of $16,000. Included
in miscellaneous expense were increases in both legal and professional and
consulting fees of $118,000 and $51,000, respectively, which were attributable
to ongoing evaluation and implementation of growth and diversification
strategies relating to execution of the Company's business plan.
The increase in non-interest expense during the quarter ended December 31, 2006
compared to the quarter ended December 31, 2005 resulted primarily from higher
salaries and employee benefits and nominal increases in net occupancy expense of
premises, equipment expense and advertising expense partially offset by a
decrease in directors' compensation and miscellaneous expense. Salaries and
employee benefits increased $986,000 with $653,000 attributed to stock
compensation plans approved by stockholders at the Company's annual meeting in
October 2005 and increases of $132,000 and $104,000 resulting from employee
stock ownership plan expense and pension plan expense, respectively.
Loans and Asset Quality
- -----------------------
Loans receivable, net of deferred fees and costs and the allowance for loan
losses, increased $50.4 million, or 6.8%, to $793.7 million at December 31, 2006
from $743.3 million at September 30, 2006. There were increases of $24.1 million
in one-to-four family first mortgage loans, $2.3 million in multi-family
mortgages, $21.9 million in nonresidential mortgages and $5.5 million in home
equity loans. Construction loans and commercial loans decreased $2.8 million and
$686,000, respectively, during the quarter.
The provision for loan losses decreased $39,000 to $119,000 during the quarter
ended December 31, 2006, as compared to $158,000 during the quarter ended
September 30, 2006. The provisions during both quarters resulted primarily from
growth in the loan portfolio; however, improved asset quality contributed to a
smaller provision during the quarter ended December 31, 2006. Total loans
increased to $798.1 million at December 31, 2006 from $748.0 million at
September 30, 2006. Asset quality continued to be strong as non-performing loans
were $639,000, or 0.08%, of total loans at December 31, 2006 as compared to $1.0
million, or 0.14%, of total loans at September 30, 2006. The allowance for loan
losses as a percentage of total loans outstanding was 0.72% at December 31, 2006
and 0.75% at September 30, 2006, reflecting allowance balances of $5.8 million
and $5.6 million, respectively. The increase in the allowance balance during the
current quarter included a recovery of $27,000.
3
Securities
- ----------
During the quarter ended December 31, 2006, management reclassified the Bank's
entire portfolio of mortgage-backed securities and other securities, changing
the entire portfolio from held to maturity to available for sale. In a Form 8-K
filed January 8, 2007, the Company disclosed that it will restate the financial
statements contained in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2006 and Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2006 and September 30, 2006 (collectively, the "Financial Statements")
to reflect the reclassification for those reporting periods.
The effect of this change is that the securities will be reported in the
Financial Statements at fair value instead of at amortized cost, which will
result in a change in the value of these assets that was previously reported at
March 31, 2006, June 30, 2006 and September 30, 2006. Carrying these securities
at fair value will impact accumulated other comprehensive income (loss), which
is a component of stockholders' equity. The adjustments to be made to the
Financial Statements are non-cash in nature and do not result in changes to the
income statements or previously reported total net income for any period.
Mortgage-backed securities, at amortized cost, decreased by $3.4 million, or
0.5%, to $669.8 million at December 31, 2006, from $673.2 million at September
30, 2006, due to principal repayments. Management redeployed cash flows from
monthly principal and interest payments to fund loan originations during the
quarter.
Securities, at amortized cost, decreased by $108.4 million, or 48.1%, to $117.0
million at December 31, 2006 compared to $225.4 million at September 30, 2006.
During the quarter, management sold municipal bonds with a par value of $105.9
million recording a gain of $152,000. A decline in pre-tax income reduces the
advantage of holding tax-exempt instruments and their yield was substantially
below market. There was also a call of a $2.0 million trust preferred security
during the quarter. Management redeployed cash flows from principal and interest
payments to fund loan originations during the quarter.
Deposits
- --------
Deposits increased $13.8 million, or 0.9%, to $1.48 billion at December 31,
2006, from $1.47 billion at September 30, 2006. During the quarter,
interest-bearing demand deposits, particularly tiered money market deposit
accounts, and certificates of deposit increased while there was a decrease in
savings deposits and non-interest-bearing demand deposits. Notwithstanding the
ongoing threat of loss of deposits to competitors, mid-way through the quarter
management backed off a strategy of offering promotional rates on selected
certificate of deposit maturities and tiered money market deposit accounts. The
challenge for management continues to be balancing the rate of attrition against
reducing the Bank's cost of deposits.
Federal Home Loan Bank Advances
- -------------------------------
Federal Home Loan Bank advances decreased $5.2 million, or 8.5%, to $55.8
million at December 31, 2006, from $61.0 million at September 30, 2006. The
reduction in borrowings resulted from the maturity of a $5.0 million advance and
scheduled principal payments on amortizing advances.
4
Capital Management
- ------------------
During the quarter ended December 31, 2006, stockholders' equity decreased $16.5
million, or 3.4%, to $471.3 million from $487.8 million at September 30, 2006.
The decrease was primarily the result of the stock repurchase program and
reclassification of the securities portfolio from held to maturity to available
for sale. The Company purchased approximately 808,000 shares at a cost of $13.1
million as treasury shares and there was a decrease of $5.4 million in
accumulated other comprehensive income (loss) due to reclassification of the
securities portfolio and realized gain. A cash dividend declared for payment in
the quarter ending March 31, 2007 also contributed to the decrease in
stockholders' equity. Partially offsetting the decrease was net income recorded
during the quarter, the release of unearned ESOP shares and restricted stock
plan shares and transactions resulting from the Company's stock option plan and
tax benefits recorded due to vesting of restricted stock.
The Company's ratio of tangible equity to tangible assets was 20.29% at December
31, 2006. The Tier 1 capital ratio was 47.94%, far in excess of the 6.00% level
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.
5
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
December 31, September 30,
2006 2006
---- ----
Balance Sheet Data:
Assets $ 2,018,030 $ 2,027,697
Net loans receivable 793,663 743,336
Mortgage-backed securities available for sale 661,898 -
Mortgage-backed securities held to maturity - 673,219
Securities available for sale 116,468 18,509
Securities held to maturity - 206,732
Cash and cash equivalents 285,919 229,755
Goodwill 82,263 82,263
Deposits 1,480,074 1,466,289
Federal Home Loan Bank advances 55,801 60,954
Total stockholders' equity 471,281 487,757
For the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Summary of Operations:
Interest income $ 24,087 $ 23,284 $ 21,995
Interest expense 12,903 11,596 9,507
---------------- ------------- -------------
Net interest income 11,184 11,688 12,488
Provision for loan losses 119 158 64
---------------- ------------- -------------
Net interest income after provision for loan losses 11,065 11,530 12,424
Non-interest income (Excluding gain on sale of securities) 620 568 617
Gain on sale of securities 152 0 0
Non-interest expense 11,201 11,096 10,138
---------------- ------------- -------------
Income before taxes 636 1,002 2,903
Provision for income taxes 89 76 577
---------------- ------------- -------------
Net income $ 547 $ 926 $ 2,326
================ ============= =============
Per Share Data:
Net income per share - basic $0.01 $0.01 $0.03
Net income per share - diluted $0.01 $0.01 $0.03
Weighted average number of common shares
outstanding - basic 69,258 69,751 71,046
Weighted average number of common shares
outstanding - diluted 69,753 70,097 71,063
Per Share Data:
Cash dividends per share (1) $0.05 $0.05 $0.05
Dividend payout ratio (2) 164.72% 100.22% 42.78%
(1) Represents dividends declared per common share.
(2) Represents dividends declared per common share divided by net income.
6
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
At the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Per Share Data:
Market Price $16.06 $15.18 $12.20
Book Value $6.58 $6.73 $6.98
Tangible Book Value $5.42 $5.59 $5.83
For the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Performance Ratios:
Return on average assets 0.11% 0.18% 0.45%
Return on average equity 0.45% 0.76% 1.84%
Net interest rate spread (1) 1.67% 1.84% 2.06%
Net interest margin (2) 2.39% 2.53% 2.61%
Average interest-earning assets to average
interest-bearing liabilities 126.21% 127.38% 127.69%
Efficiency ratio (net of gain on sale of securities) 94.90% 90.54% 77.36%
Non-interest expense to average assets 2.20% 2.20% 1.96%
(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.
At or for the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Asset Quality Ratios:(1)
Non-performing loans to total loans 0.08% 0.14% 0.20%
Non-performing assets to total assets 0.04% 0.06% 0.07%
Net charge-offs to average loans outstanding 0.00% 0.00% 0.00%
Allowance for loan losses to total loans 0.72% 0.75% 0.88%
Allowance for loan losses to non-performing loans 900.63% 547.75% 447.54%
(1) Asset quality ratios are period end ratios unless otherwise noted.
At or for the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Capital Ratios:
Average equity to average assets 23.64% 24.32% 24.40%
Equity to assets at period end 23.33% 24.05% 24.55%
Tangible equity to tangible assets at period end 20.29% 20.82% 21.18%
7
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
For the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Average Balances:
Net loans receivable $ 766,449 $ 721,782 $ 611,195
Mortgage-backed securities available for sale 675,131 - -
Mortgage-backed securities held to maturity - 683,681 739,275
Securities held to maturity and securities
available for sale 173,412 226,356 488,455
Other interest-earning assets 254,313 215,002 71,924
----------------- -------------- --------------
Total interest earning assets 1,869,305 1,846,821 1,910,849
Non-interest-earning assets 166,558 166,869 162,453
----------------- -------------- --------------
Total assets $ 2,035,863 $ 2,013,690 $ 2,073,302
================= ============== ==============
Interest-bearing deposits $ 1,422,895 $ 1,388,863 $ 1,434,979
FHLB advances 58,189 61,006 61,451
----------------- -------------- --------------
Total interest-bearing liabilities 1,481,084 1,449,869 1,496,430
Non-interest-bearing liabilities 73,514 74,096 70,888
Stockholders' equity 481,265 489,725 505,984
----------------- -------------- --------------
Total liabilities and stockholders' equity $ 2,035,863 $ 2,013,690 $ 2,073,302
================= ============== ==============
For the Three Months Ended
---------------------------------------------------------
December 31, September 30, December 31,
2006 2006 2005
---- ---- ----
Spread and Margin Analysis:
Average yield on:
Net loans receivable 5.78% 5.71% 5.59%
Mortgage-backed securities available for sale 4.78% - -
Mortgage-backed securities held to maturity - 4.69% 4.55%
Securities held to maturity and securities
available for sale 4.08% 4.04% 3.54%
Other interest-earning assets 4.98% 4.96% 3.92%
Average cost of:
Interest-bearing deposits 3.40% 3.09% 2.41%
FHLB advances 5.55% 5.58% 5.58%
Net interest rate spread 1.67% 1.84% 2.06%
Net interest margin 2.39% 2.53% 2.61%
Average interest-earning assets to average
interest-bearing liabilities 126.21% 127.38% 127.69%
8
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
For the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Summary of Operations:
Interest income $ 47,371 $ 43,966
Interest expense 24,499 18,665
----------------- --------------
Net interest income 22,872 25,301
Provision for loan losses 277 139
----------------- --------------
Net interest income after provision for loan losses 22,595 25,162
Non-interest income (Excluding gain on sale of securities) 1,188 1,124
Gain on sale of securities 152 86
Non-interest expense 22,297 19,516
----------------- --------------
Income before taxes 1,638 6,856
Provision for income taxes 165 1,566
----------------- --------------
Net income $ 1,473 $ 5,290
================= ==============
Per Share Data:
Net income per share - basic $0.02 $0.07
Net income per share - diluted $0.02 $0.07
Weighted average number of common shares
outstanding - basic 69,505 71,049
Weighted average number of common shares
outstanding - diluted 69,901 71,058
Per Share Data:
Cash dividends per share (1) $0.10 $0.14
Dividend payout ratio (2) 124.17% 52.97%
(1) Represents dividends declared per common share.
(2) Represents dividends declared per common share divided by net income.
9
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
For the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Performance Ratios:
Return on average assets 0.15% 0.51%
Return on average equity 0.61% 2.09%
Net interest rate spread (1) 1.76% 2.09%
Net interest margin (2) 2.46% 2.62%
Average interest-earning assets to average
interest-bearing liabilities 126.79% 127.70%
Efficiency ratio (net of gain on sale of securities) 92.67% 73.85%
Non-interest expense to average assets 2.20% 1.87%
(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 the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Asset Quality Ratios:(1)
Non-performing loans to total loans 0.08% 0.20%
Non-performing assets to total assets 0.04% 0.07%
Net charge-offs to average loans outstanding 0.00% 0.00%
Allowance for loan losses to total loans 0.72% 0.88%
Allowance for loan losses to non-performing loans 900.63% 447.54%
(1) Asset quality ratios are period end ratios unless otherwise noted.
For the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Capital Ratios:
Average equity to average assets 23.98% 24.22%
Equity to assets at period end 23.33% 24.55%
Tangible equity to tangible assets at period end 20.29% 21.18%
10
KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)
For the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Average Balances:
Net loans receivable $ 744,116 $ 593,973
Mortgage-backed securities available for sale 679,406 -
Mortgage-backed securities held to maturity - 748,374
Securities held to maturity and securities
available for sale 199,884 495,102
Other interest-earning assets 234,657 91,660
----------------- --------------
Total interest earning assets 1,858,063 1,929,109
Non-interest-earning assets 166,713 158,444
----------------- --------------
Total assets $ 2,024,776 $ 2,087,553
================= ==============
Interest-bearing deposits $ 1,405,879 $ 1,448,498
FHLB advances 59,598 62,136
----------------- --------------
Total interest-bearing liabilities 1,465,477 1,510,634
Non-interest-bearing liabilities 73,805 71,321
Stockholders' equity 485,494 505,598
----------------- --------------
Total liabilities and stockholders' equity $ 2,024,776 $ 2,087,553
================= ==============
For the Six Months Ended
-------------------------------------
December 31, December 31,
2006 2005
---- ----
Spread and Margin Analysis:
Average yield on:
Net loans receivable 5.75% 5.61%
Mortgage-backed securities available for sale 4.74% -
Mortgage-backed securities held to maturity - 4.54%
Securities held to maturity and securities
available for sale 4.05% 3.51%
Other interest-earning assets 4.97% 3.55%
Average cost of:
Interest-bearing deposits 3.25% 2.34%
FHLB advances 5.56% 5.56%
Net interest rate spread 1.76% 2.09%
Net interest margin 2.46% 2.62%
Average interest-earning assets to average
interest-bearing liabilities 126.79% 127.70%
11