SOURCE: Kearny Financial Corp.

May 03, 2007 14:15 ET

Kearny Financial Corp. Reports Third Quarter 2007 Operating Results

FAIRFIELD, NJ -- (MARKET WIRE) -- May 3, 2007 -- 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 March 31, 2007 of $242,000. The results represent a decrease of $305,000 compared to net income of $547,000 for the quarter ended December 31, 2006 and a decrease of $2.2 million compared to net income of $2.4 million for the quarter ended March 31, 2006. Net income for the nine months ended March 31, 2007 was $1.7 million, a decrease of $6.0 million from $7.7 million for the nine months ended March 31, 2006.

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 March 31, 2007, Kearny Financial Corp. had total assets, deposits and stockholders' equity of $2.01 billion, $1.47 billion and $473.6 million, respectively.

The following is an overview of the Company's financial results for the quarter ended March 31, 2007:

Net Interest Income

Net interest income during the quarter ended March 31, 2007 was $11.3 million, an increase of $70,000 or 0.6%, compared to net interest income of $11.2 million during the quarter ended December 31, 2006 and a decrease of $1.4 million or 11.0%, compared to net interest income of $12.7 million during the quarter ended March 31, 2006. The Bank's net interest margin for the quarter ended March 31, 2007 was 2.43%, compared to 2.39% for the quarter ended December 31, 2006 and 2.68% for the quarter ended March 31, 2006. The increase in net interest income between linked quarters resulted from a modest increase in interest income and no change in interest expense. The decrease in net interest income year-over-year resulted from a considerable increase in the Bank's cost of deposits partially offset by an increase in interest income.

Interest income increased $71,000 or 0.3%, to $24.2 million during the quarter ended March 31, 2007 compared to $24.1 million during the quarter ended December 31, 2006 and increased $1.7 million or 7.6%, compared to $22.5 million during the quarter ended March 31, 2006. Interest expense remained unchanged at $12.9 million between linked quarters and increased $3.1 million or 31.6%, year-over-year from $9.8 million for the quarter ended March 31, 2006.

Interest income from loans increased $583,000 to $11.7 million during the quarter ended March 31, 2007, compared to $11.1 million during the quarter ended December 31, 2006 and increased $2.6 million compared to $9.1 million during the quarter ended March 31, 2006. Management continued to focus on increasing the Bank's loan portfolio while reducing its dependence on securities to generate interest income. Loans receivable represented 43.8%, 41.2% and 34.6% of average interest-earning assets for the quarters ended March 31, 2007, December 31, 2006 and March 31, 2006, respectively. By comparison, the securities portfolio constituted 42.3%, 45.3% and 56.3% of average interest-earning assets for the quarters ended March 31, 2007, December 31, 2006 and March 31, 2006, respectively.

Interest income from mortgage-backed securities, securities and other interest-earning assets decreased $512,000 to $12.5 million during the quarter ended March 31, 2007, compared to $13.0 million during the quarter ended December 31, 2006 and decreased $848,000 from $13.3 million for the quarter ended March 31, 2006. The decrease between linked quarters was due to shrinkage in the portfolio as well as two fewer days in the current quarter compared to the prior quarter, which reduced interest income from cash equivalents. Year-over-year, the decrease resulted from a significant reduction in the securities portfolio. The Bank's yield on average interest-earning assets for the quarter ended March 31, 2007 was 5.22%, compared to 5.14% for the quarter ended December 31, 2006 and 4.75% for the quarter ended March 31, 2006.

Interest expense from deposits increased $54,000 to $12.2 million for the quarter ended March 31, 2007, from $12.1 million for the quarter ended December 31, 2006 compared to an increase of $3.4 million from $8.8 million for the quarter ended March 31, 2006. An accelerating increase in the Bank's cost of deposits year-over-year, slowed during the linked quarters as the intense competition on the pricing of certificates of deposit eased. More realistic pricing of deposits in the marketplace, commensurate with yields available on loans and securities in the current interest rate environment may begin to relieve pressure on the Bank's net interest margin. There were decreases in interest expense attributed to borrowings from the Federal Home Loan Bank of $53,000 and $251,000 between linked quarters and year-over-year, respectively, due primarily to the repayment of a $5.0 million advance during the prior quarter and overnight borrowings on the Bank's books during the first two months of the comparative quarter. There were no overnight borrowings during the current or linked quarters. The Bank's cost of average interest-bearing liabilities for the quarter ended March 31, 2007 was 3.52%, compared to 3.48% for the quarter ended December 31, 2006 and 2.63% for the quarter ended March 31, 2006.

Non-interest Income

Non-interest income attributed to fees, service charges and miscellaneous income decreased $40,000 or 6.5%, to $580,000 for the quarter ended March 31, 2007 compared to $620,000 for the quarter ended December 31, 2006. The decrease in non-interest income between linked quarters resulted from lower fees and service charges from operations and the Bank's retail branch network, partially offset by an increase in miscellaneous income. Management plans to introduce an overdraft privilege program for the Bank's retail customers in May 2007 as a way of increasing fee income. Non-interest income for the quarter ended March 31, 2007 decreased $12,000 or 2.0%, to $580,000 compared to $592,000 for the quarter ended March 31, 2006 due to lower fees and service charges from operations and the Bank's retail branch network, partially offset by an increase in miscellaneous income year-over-year.

There was a loss on sale of securities during the quarter ended March 31, 2007 of $97,000 compared to gains of $152,000 and $937,000 recorded during the quarters ended December 31, 2006 and March 31, 2006, respectively.

Non-interest Expense

Non-interest expense increased $101,000 or 0.9%, to $11.3 million during the quarter ended March 31, 2007 compared to $11.2 million during the quarter ended December 31, 2006. Non-interest expense decreased $117,000 or 1.0% year-over-year, from $11.4 million during the quarter ended March 31, 2006.

During the quarter ended March 31, 2007 compared to the quarter ended December 31, 2006, salaries and employee benefits and net occupancy expense of premises increased $324,000 and $54,000, respectively. Advertising expense, directors' compensation and miscellaneous expense decreased $47,000, $17,000 and $213,000, respectively between linked quarters. The increase in salaries and employee benefits was due primarily to normal salary increases that took effect in January 2007. The decrease in miscellaneous expense was attributed primarily to decreases in legal expense of $124,000 and audit and accounting expense of $73,000. Legal expense had increased in the linked quarter due to ongoing evaluation and implementation of growth and diversification strategies relating to execution of the Company's business plan. Audit and accounting expense decreased due to lower costs associated with Sarbanes-Oxley Act compliance.

In a Form 8-K filed April 19, 2007, the Company reported that the Board of Directors of the Bank approved, effective July 1, 2007, "freezing" all future benefit accruals under the Kearny Federal Savings Bank Pension Plan, a non-contributory defined benefit pension plan. This action also includes "freezing" the benefit accruals under the Benefits Equalization Plan related to the defined benefit pension plan. These actions are intended to provide the Company with additional flexibility in managing the costs associated with the benefit plans while still preserving all retirement plan participants' earned and vested benefits.

The decrease in non-interest expense during the quarter ended March 31, 2007 compared to the quarter ended March 31, 2006 resulted primarily from decreases in equipment expense, directors' compensation and miscellaneous expense of $76,000, $87,000 and $132,000, respectively. Those decreases were partially offset by higher salaries and employee benefits, net occupancy expense of premises and advertising expense of $106,000, $59,000 and $9,000, respectively.

Loans and Asset Quality

Loans receivable, net of deferred fees and costs and the allowance for loan losses, increased $24.0 million, or 3.0%, to $817.7 million at March 31, 2007 from $793.7 million at December 31, 2006. Total loans increased to $822.0 million at March 31, 2007 from $798.1 million at December 31, 2006. There were increases of $21.0 million in one-to-four family first mortgage loans and $1.4 million in multi-family mortgages. Home equity loans and home equity lines of credit increased $2.0 million and $460,000, respectively. All other loan categories decreased in the aggregate $951,000, with commercial loans reporting the largest decrease at $797,000.

The provision for loan losses decreased $18,000 to $101,000 during the quarter ended March 31, 2007, as compared to $119,000 during the quarter ended December 31, 2006. The provisions during both quarters resulted primarily from growth in the loan portfolio. Asset quality continued to be strong as non-performing loans were $1.1 million or 0.13% of total loans at March 31, 2007; though not as good as the $639,000 or 0.08% of total loans reported at December 31, 2006. The allowance for loan losses as a percentage of total loans outstanding was 0.71% at March 31, 2007 and 0.72% at December 31, 2006, reflecting allowance balances of $5.9 million and $5.8 million, respectively. The linked quarter included a recovery of $27,000.

Securities

The amortized cost of mortgage-backed securities available for sale decreased by $1.2 million or 0.2% to $668.6 million at March 31, 2007, from $669.8 million at December 31, 2006, with principal repayments and interest used to fund loan originations during the quarter.

The amortized cost of securities available for sale, decreased by $25.7 million or 22.0%, to $91.3 million at March 31, 2007 compared to $117.0 million at December 31, 2006. During the quarter, management continued to liquidate the municipal bond portfolio selling bonds with a par value of $25.7 million, recording a loss of $97,000. During the linked 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 the portfolio's yield continues to be substantially below market.

Cash and Cash Equivalents

Cash and cash equivalents, consisting primarily of interest-bearing deposits in other banks, decreased $8.4 million or 2.9% to $277.5 million at March 31, 2007, from $285.9 million at December 31, 2006. To the extent that the Bank does not need the funds for loan originations, management expects to maintain liquidity at an elevated level as long as the Treasury yield curve remains inverted or flat in order to take advantage of the high short term interest rates resulting from the current yield curve.

Deposits

Deposits decreased $13.4 million or 0.9% to $1.47 billion at March 31, 2007, from $1.48 billion at December 31, 2006. During the quarter, interest-bearing demand deposits grew, particularly tiered money market deposit accounts and non-interest-bearing demand accounts, which increased $8.5 million and $705,000, respectively. Certificates of deposit and savings deposits decreased $17.7 million and $4.8 million, respectively. Beginning in the quarter ending June 30, 2007, certificates of deposit with expensive promotional interest rates begin to mature. Management expects to retain a significant percentage of the maturing accounts due to the expectation of more realistic deposit pricing in the marketplace. However, the Bank's current substantial liquidity position should help management deal with any deposit attrition.

Federal Home Loan Bank Advances

Federal Home Loan Bank advances decreased $155,000 or 0.3% to $55.6 million at March 31, 2007, from $55.8 million at December 31, 2006. The reduction in borrowings resulted from scheduled principal payments on amortizing advances.

Capital Management

During the quarter ended March 31, 2007, stockholders' equity increased $2.3 million or 0.5%, to $473.6 million from $471.3 million at December 31, 2006. The increase was primarily the result of a $1.8 million increase in accumulated other comprehensive income plus net income recorded in the quarter, the release of $549,000 of unearned Employee Stock Ownership Plan shares and $825,000 of restricted stock plan shares and an adjustment to equity of $498,000 for expensing stock options. The increase in stockholders' equity was partially offset by an increase in treasury stock due to the purchase of 52,500 shares of Company common stock at a cost of $771,000 and a cash dividend declared for payment to minority shareholders in the quarter ending June 30, 2007. In January 2007, with regulatory approval, the Bank paid a $15.0 million cash dividend to the Company.

The Bank's ratio of tangible equity to tangible assets was 18.83% at March 31, 2007. The Tier 1 capital ratio was 43.80%, 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.

KEARNY FINANCIAL CORP.
FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data, Unaudited)


                                      March 31,   December 31,
                                         2007         2006
                                     ------------ ------------
Balance Sheet Data:
Assets                               $  2,007,739 $  2,018,030
Net loans receivable                      817,698      793,663
Mortgage-backed securities available
 for sale                                 663,487      661,898
Securities available for sale              90,882      116,468
Cash and cash equivalents                 277,485      285,919
Goodwill                                   82,263       82,263
Deposits                                1,466,706    1,480,074
Federal Home Loan Bank advances            55,646       55,801
Total stockholders' equity                473,587      471,281


                                           For the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Summary of Operations:
Interest income                      $    24,158  $    24,087  $    22,456
Interest expense                          12,904       12,903        9,764
                                     -----------  -----------  -----------
Net interest income                       11,254       11,184       12,692
Provision for loan losses                    101          119          106
                                     -----------  -----------  -----------
Net interest income after provision
 for loan losses                          11,153       11,065       12,586
Non-interest income, excluding gain
 (loss) on sale of securities                580          620          592
Gain (loss) on sale of securities            (97)         152          937
Non-interest expense                      11,302       11,201       11,419
                                     -----------  -----------  -----------
Income before taxes                          334          636        2,696
Provision for income taxes                    92           89          250
                                     -----------  -----------  -----------
Net income                           $       242  $       547  $     2,446
                                     ===========  ===========  ===========

Per Share Data:
Net income per share - basic         $      0.00  $      0.01  $      0.03
Net income per share - diluted       $      0.00  $      0.01  $      0.03
Weighted average number of common
 shares outstanding - basic               69,012       69,258       70,918
Weighted average number of common
 shares outstanding - diluted             69,293       69,753       71,034

Per Share Data:
Cash dividends per share (1)         $      0.05  $      0.05  $      0.05
Dividend payout ratio (2)                 396.69%      164.72%       40.60%

(1) Represents dividends declared per common share.
(2) Represents dividends declared per common share divided by net income.




                                           At the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Per Share Data:
Closing price as reported by NASDAQ  $     14.38  $     16.06  $     13.73
Book Value                           $      6.61  $      6.58  $      6.76
Tangible Book Value                  $      5.46  $      5.42  $      5.62


                                          For the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Performance Ratios:
Return on average assets                    0.05%        0.11%        0.48%
Return on average equity                    0.21%        0.46%        1.98%
Net interest rate spread (1)                1.70%        1.65%        2.11%
Net interest margin (2)                     2.43%        2.39%        2.68%
Average interest-earning assets to
 average interest-bearing
 liabilities                              126.23%      126.61%      127.54%
Efficiency ratio (Net of gain on
 sale of securities)                       95.50%       94.89%       85.96%
Non-interest expense to average
 assets                                     2.25%        2.21%        2.23%

(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
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Asset Quality Ratios:(1)
Non-performing loans to total loans         0.13%        0.08%        0.21%
Non-performing assets to total
 assets                                     0.06%        0.04%        0.07%
Net charge-offs to average loans
 outstanding                                0.00%        0.00%        0.00%
Allowance for loan losses to total
 loans                                      0.71%        0.72%        0.85%
Allowance for loan losses to
 non-performing loans                     553.50%      900.63%      406.11%

(1) Asset quality ratios are period end ratios unless otherwise noted.


                                        At or for the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Capital Ratios:
Average equity to average assets           23.44%       23.42%       24.16%
Equity to assets at period end             23.59%       23.35%       24.32%
Tangible equity to tangible assets
 at period end                             20.45%       20.29%       21.51%






                                          For the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Average Balances:
Loans receivable                     $   811,445  $   772,089  $   655,033
Mortgage-backed securities available
 for sale                                669,988      675,301      713,637
Securities available for sale            112,785      173,556      351,926
Other interest-earning assets            258,371      254,313      171,484
                                     -----------  -----------  -----------
   Total interest earning assets       1,852,589    1,875,259    1,892,080
Non-interest-earning assets              154,985      154,691      154,383
                                     -----------  -----------  -----------
   Total assets                      $ 2,007,574  $ 2,029,950  $ 2,046,463
                                     ===========  ===========  ===========

Interest-bearing deposits            $ 1,411,882  $ 1,422,895  $ 1,407,379
FHLB advances                             55,698       58,189       76,095
                                     -----------  -----------  -----------
   Total interest-bearing liabilities  1,467,580    1,481,084    1,483,474
Non-interest-bearing liabilities          69,425       73,514       68,532
Stockholders' equity                     470,569      475,352      494,457
                                     -----------  -----------  -----------
   Total liabilities and
    stockholders' equity             $ 2,007,574  $ 2,029,950  $ 2,046,463
                                     ===========  ===========  ===========


                                          For the Three Months Ended
                                     -------------------------------------
                                      March 31,   December 31,  March 31,
                                        2007         2006         2006
                                     -----------  -----------  -----------
Spread and Margin Analysis:
Average yield on:
  Loans receivable                          5.75%        5.74%        5.56%
  Mortgage-backed securities
   available for sale                       4.83%        4.78%        4.63%
  Securities available for sale             4.17%        4.07%        3.67%
  Other interest-earning assets             5.00%        4.98%        4.35%
Average cost of:
  Interest-bearing deposits                 3.44%        3.40%        2.49%
  FHLB advances                             5.41%        5.55%        5.28%
Net interest rate spread                    1.70%        1.65%        2.11%
Net interest margin                         2.43%        2.39%        2.68%
Average interest-earning assets to
 average interest-bearing liabilities     126.23%      126.61%      127.54%


                                     For the Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Summary of Operations:
Interest income                      $    71,529  $    66,422
Interest expense                          37,403       28,429
                                     -----------  -----------
Net interest income                       34,126       37,993
Provision for loan losses                    378          245
                                     -----------  -----------
Net interest income after provision
 for loan losses                          33,748       37,748
Non-interest income, excluding gain
 on sale of securities                     1,768        1,716
Gain on sale of securities                    55        1,023
Non-interest expense                      33,599       30,935
                                     -----------  -----------
Income before taxes                        1,972        9,552
Provision for income taxes                   257        1,816
                                     -----------  -----------
Net income                           $     1,715  $     7,736
                                     ===========  ===========

Per Share Data:
Net income per share - basic         $      0.02  $      0.11
Net income per share - diluted       $      0.02  $      0.11
Weighted average number of common
 shares outstanding - basic               69,343       71,006
Weighted average number of common
 shares outstanding - diluted             69,664       71,051

Per Share Data:
Cash dividends per share (1)         $      0.15  $      0.19
Dividend payout ratio (2)                 162.62%       49.06%

(1) Represents dividends declared per common share.
(2) Represents dividends declared per common share divided by net income.



                                     For the Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Performance Ratios:
Return on average assets                    0.11%        0.50%
Return on average equity                    0.48%        2.07%
Net interest rate spread (1)                1.73%        2.10%
Net interest margin (2)                     2.45%        2.64%
Average interest-earning assets to
 average interest-bearing liabilities     126.87%      127.55%
Efficiency ratio (Net of gain on
 sale of securities)                       93.61%       77.90%
Non-interest expense to average
 assets                                     2.23%        1.99%

(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 Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Asset Quality Ratios:(1)
Non-performing loans to total loans         0.13%        0.21%
Non-performing assets to total
 assets                                     0.06%        0.07%
Net charge-offs to average loans
 outstanding                                0.00%        0.00%
Allowance for loan losses to total
 loans                                      0.71%        0.85%
Allowance for loan losses to
 non-performing loans                     553.50%      406.11%

(1) Asset quality ratios are period end ratios unless otherwise noted.


                                     For the Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Capital Ratios:
Average equity to average assets           23.53%       24.09%
Equity to assets at period end             23.59%       24.32%
Tangible equity to tangible assets
 at period end                             20.45%       21.51%


                                     For the Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Average Balances:
Loans receivable                     $   769,964  $   617,682
Mortgage-backed securities available
 for sale                                676,370      736,964
Securities available for sale            171,391      442,878
Other interest-earning assets            242,447      117,880
                                     -----------  -----------
   Total interest earning assets       1,860,172    1,915,404
Non-interest-earning assets              151,659      155,615
                                     -----------  -----------
   Total assets                      $ 2,011,831  $ 2,071,019
                                     ===========  ===========

Interest-bearing deposits            $ 1,407,851  $ 1,434,992
FHLB advances                             58,317       66,721
                                     -----------  -----------
   Total interest-bearing liabilities  1,466,168    1,501,713
Non-interest-bearing liabilities          72,366       70,385
Stockholders' equity                     473,297      498,921
                                     -----------  -----------
   Total liabilities and
    stockholders' equity             $ 2,011,831  $ 2,071,019
                                     ===========  ===========


                                     For the Nine Months Ended
                                     ------------------------
                                      March 31,    March 31,
                                        2007         2006
                                     -----------  -----------
Spread and Margin Analysis:
Average yield on:
  Loans receivable                          5.72%        5.56%
  Mortgage-backed securities
   available for sale                       4.77%        4.57%
  Securities available for sale             4.07%        3.59%
  Other interest-earning assets             4.99%        3.95%
Average cost of:
  Interest-bearing deposits                 3.31%        2.39%
  FHLB advances                             5.51%        5.46%
Net interest rate spread                    1.73%        2.10%
Net interest margin                         2.45%        2.64%
Average interest-earning assets to
 average interest-bearing liabilities     126.87%      127.55%

Contact Information

  • For further information contact:
    Craig Montanaro
    Senior Vice President,
    Director of Strategic Planning
    Kearny Financial Corp.
    (973) 244-4510