This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:
|
|
· |
statements of our goals, intentions and expectations; |
|
|
· |
statements regarding our business plans, prospects, growth and operating strategies; |
|
|
· |
statements regarding the quality of our loan and investment portfolios; and |
|
|
· |
estimates of our risks and future costs and benefits. |
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
|
|
· |
general economic conditions, either nationally or in our market areas, that are worse than expected; |
|
|
· |
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; |
|
|
· |
our ability to access cost-effective funding; |
|
|
· |
fluctuations in real estate values and both residential and commercial real estate market conditions; |
|
|
· |
demand for loans and deposits in our market area; |
|
|
· |
our ability to implement and changes in our business strategies; |
|
|
· |
competition among depository and other financial institutions; |
|
|
· |
inflation and changes in the interest rate environment that reduce our margins and yields, or reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets; |
|
|
· |
adverse changes in the securities markets; |
|
|
· |
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
|
|
· |
our ability to manage market risk, credit risk and operational risk in the current economic conditions; |
|
|
· |
our ability to enter new markets successfully and capitalize on growth opportunities; |
|
|
· |
our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
|
|
· |
changes in consumer spending, borrowing and savings habits; |
|
|
· |
changes in accounting policies and practices, as may be adopted by bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; |
|
|
· |
our ability to retain key employees; |
|
|
· |
technological changes; |
|
|
· |
significant increases in our loan losses; and |
|
|
· |
changes in the financial condition, results of operations or future prospects of issuers of securities that we own. |
2
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Kearny Financial Corp. (the “Company,” or “Kearny Financial”), is a Maryland corporation that was incorporated on September 2, 2014. Kearny Financial is the holding company for Kearny Bank (the “Bank”), a federally‑chartered stock savings bank.
On May 18, 2015, the Company completed its second-step conversion and stock offering through which it converted from the mutual holding company structure to a fully publicly held company. In conjunction with that transaction, the Company sold 71,750,000 shares of its common stock at $10.00 per share, resulting in gross proceeds of $717.5 million. The new shares issued included 3,612,500 shares sold to the Bank’s Employee Stock Ownership Plan (“ESOP”) with an aggregate value of $36.1 million based on the sales price of $10.00 per share. Concurrent with the closing of the transaction, the Company also issued an additional 500,000 shares of its common stock with an aggregate value of $5.0 million and contributed these shares with an additional $5.0 million in cash to the KearnyBank Foundation.
The Company recognized direct stock offering costs of $10.7 million in conjunction with the transaction which reduced the net proceeds credited to capital. After adjusting for transaction costs and the value of the shares issued to the Bank’s ESOP, the Company recognized a net increase in equity capital of $670.7 million, of which $353.4 million was contributed to the Bank by the Company as an additional investment in the Bank’s common equity. Approximately $34.5 million of new capital proceeds were funded through withdrawals of existing customer deposits previously held by the Bank.
Each outstanding share held by the public stockholders of Kearny Financial Corp., a federal corporation, immediately prior to the closing of the conversion and stock offering was converted into 1.3804 shares of the Company’s new common stock while the shares previously held by Kearny MHC, the former mutual holding company, were cancelled concurrent with the closing of the transaction.
At June 30, 2015, the Company had 93,528,092 shares outstanding, comprising 71,750,000 new shares sold in the stock offering, 500,000 new shares issued to the KearnyBank Foundation and 21,278,092 exchanged shares, as adjusted for the cash settlement of fractional shares. As a result of the completion of the second-step conversion and stock offering, all historical share and per share information has been revised to reflect the 1.3804-to-one exchange ratio.
The Company is a unitary savings and loan holding company, regulated by the Board of Governors of the Federal Reserve Bank (“FRB”) and conducts no significant business or operations of its own. The Bank’s deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation (“FDIC”) and the Bank is primarily regulated by the Office of the Comptroller of the Currency (“OCC”). References in this Annual Report on Form 10‑K to the Company or Kearny Financial generally refer to the Company and the Bank, unless the context indicates otherwise. References to “we”, “us”, or “our” refer to the Bank or Company, or both, as the context indicates.
The Company’s primary business is the ownership and operation of the Bank. The Bank is principally engaged in the business of attracting deposits from the general public in New Jersey and New York and using these deposits, together with other funds, to originate or purchase loans for its portfolio and invest in securities. Our loan portfolio is primarily comprised of loans collateralized by residential and commercial real estate augmented by secured and unsecured loans to businesses and consumers. We also maintain a portfolio of investment securities, primarily comprised of U.S. agency mortgage-backed securities, U.S. government and agency debentures, bank-qualified municipal obligations, corporate bonds, asset-backed securities and collateralized loan obligations. The Bank maintains a small balance of single issuer trust preferred securities and non-agency mortgage-backed securities which were acquired through the Company’s purchase of other institutions and does not actively purchase such securities.
At June 30, 2015, net loans receivable comprised 49.3% of our total assets while investment securities, including mortgage‑backed and non-mortgage-backed securities, comprised 33.8% of our total assets. By comparison, at June 30, 2014, net loans receivable comprised 49.3 % of our total assets while securities comprised 38.7% of our total assets. A significant long term goal of our business plan is to reallocate our balance sheet to reflect a greater percentage of interest-earning assets to loans while, in turn, reducing the relative size of the securities portfolio. The composition and volume of loan originations and purchases during fiscal 2015 reflected that strategic focus as we increased our commercial loan origination and support staff and expanded relationships with loan participants and other external loan origination resources.
We operate from our administrative headquarters in Fairfield, New Jersey and had 42 branch offices as of June 30, 2015. Our internet address is www.kearnybank.com. Information on our website is not and should not be considered to be part of this report.
Our goal is to continue to evolve from a traditional thrift business model toward that of a full service, community bank, profitably deploying capital and enhancing earnings through a variety of balance sheet growth and diversification strategies. The key strategic initiatives of our business plan are presented below accompanied by an overview of our activities and achievements in support of those initiatives:
|
|
· |
Continue to Increase Commercial Mortgage Lending: Increase the outstanding balances of multi-family and nonresidential mortgage loans through all available channels, including retail/broker originations as well as individual and pooled loan purchases and participations. |
During fiscal 2015, we increased our commercial mortgage loan portfolio by 33.1%, or $325.3 million, to $1.31 billion at June 30, 2015 from $983.8 million at June 30, 2014. This increase reflected commercial mortgage loan originations and purchases in fiscal 2015 totaling $290.9 million and $136.1 million, respectively. At June 30, 2015, our commercial mortgage loan portfolio comprised 62.3% of total loans compared to 56.4% of total loans at June 30, 2014.
We plan to continue to increase our portfolio of commercial mortgage loans by expanding loan acquisition volume through all available channels, including retail and broker originations, as well as individual and pooled loan purchases and participations. Additionally, we intend to continue to expand our commercial lending infrastructure and resources, which will be supported by new product and pricing strategies designed to increase origination volume in a very competitive marketplace.
|
|
· |
Continue to Increase Commercial Business Lending: Increase the outstanding balances of non-real estate secured and unsecured business loans through all available channels and expand those business relationships. |
We plan to continue to focus our efforts on expanding our commercial non-real estate secured and unsecured business lending activities through all available channels. During fiscal 2015, our commercial business loans increased by $32.2 million, to $99.5 million at June 30, 2015 compared to $67.3 million at June 30, 2014. We anticipate this loan segment to increase in the future. In addition, we will attempt to expand our relationships with these borrowers to include commercial deposits and other products, with the goal of increasing our non-interest income.
During fiscal 2015, we continued to augment our commercial business lending resources including hiring a senior Small Business Administration (“SBA”) lending officer dedicated to that function as well as hiring additional administrative resources to support an anticipated increase in SBA lending volume. Additionally, we augmented our retail commercial business lending strategies during fiscal 2015 with additional resources and strategies focused on the acquisition of commercial and industrial (“C&I”) loans through wholesale channels.
Through these strategies, we anticipate an increase in the level of non-interest income through greater gains on sale of SBA loan originations and other business loan-related fee income. Moreover, the expanded business lending strategies are expected to be undertaken within a larger set of strategic initiatives designed to promote other business banking services intended to increase commercial deposit balances and services.
|
|
· |
Modestly Increase Residential Mortgage Lending: Modestly increase the outstanding balance of our one- to four-family first mortgage portfolio while stabilizing the balance of home equity loans and home equity lines of credit. Allow segment to continue to decline as a percentage of total loans and earning assets. |
We plan to modestly increase our portfolio of one- to four-family first mortgages while stabilizing the balance of home equity loans and home equity lines of credit and maintaining our conservative underwriting standards. During fiscal 2015, our portfolio of such loans increased by $3.8 million to $684.0 million or 32.5% of total loans from $680.2 million or 39.0% of total loans at June 30, 2014. We originated and purchased $78.2 million and $55.9 million, respectively, of one- to four-family first mortgage loans during the year ended June 30, 2015 compared to $78.2 million and $22.4 million, respectively, during the year ended June 30, 2014.
The overall stability in the outstanding balance of the residential mortgage loan portfolio and, more significantly, its decline as a percentage of total loans, continues to reflect our decreased strategic focus on residential mortgage lending. We anticipate that this segment of our loan portfolio will continue to decline as a percentage of total loans and earning assets as other loan categories grow.