Kearny Financial Corp. 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.
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.
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.
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. 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.
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.
·
Decrease the Securities Portfolio while Maintaining Sector Diversity: Reinvest
cash flows from securities into loans while maintaining the diverse composition
and allocation of the investment portfolio to enhance earnings and reduce exposure
to long term interest rate risk. Reduce concentration in agency one- to four-family
residential pass-through mortgage-backed securities.
In recent years, we have diversified the composition and allocation of our investment
portfolio into new asset sectors, including asset-backed securities, corporate
bonds, municipal obligations, collateralized loan obligations and commercial
mortgage-backed securities (“MBS”) while reducing our concentration
in traditional residential MBS. Several of the added sectors include floating
rate securities that reduce the level of interest rate risk (“IRR”)
embedded in our securities portfolio. We expect to utilize a significant portion
of incoming cash flows from the securities portfolio to fund a portion of our
expected loan growth while continuing to maintain the diversity of sectors represented
in the portfolio as its overall balance declines as a percentage of earning
assets over time.
·
Maintain Strong Asset Quality: Maintain high asset quality through our conservative
underwriting standards and our prompt attention to potential problem loans.
We continue to emphasize and maintain strong asset quality as we grow and diversify
our loan portfolio.
·
Expand Funding Through Retail Deposits: Expand our funding through retail deposit
growth within existing branch network with greatest emphasis on growth in non-maturity/non-interest-bearing
deposits.
At June 30, 2015, we have a total of 42 branches comprising 40 branches located
in northern and central New Jersey with two additional branches located in Brooklyn
and Staten Island, New York. We plan to selectively evaluate branch network
expansion opportunities, with a particular focus on limited branch expansion
in Brooklyn and Staten Island. We will also continue to evaluate additional
de novo branch opportunities to contiguously expand our existing New Jersey
branch network with an emphasis on “fill-ins” between our northern
and central New Jersey locations.
Notwithstanding the opportunities presented by de novo branching, we expect
to place greater strategic emphasis on leveraging the opportunities to increase
market share and expand the depth and breadth of customer relationships within
our existing branch system. We continue to develop and deploy strategies to
promote the “relationship banking” business model throughout our
branch network with an emphasis on expanding business customer relationships
linked to business lending initiatives.
·
Mergers and Acquisitions: Actively seeking out franchise expansion opportunities
such as the acquisition of other financial institutions or branches.
As a complement to the “organic” growth strategies, we continue
to actively seek out opportunities to deploy capital, diversify our balance
sheet mix, enter new markets and enhance earnings through mergers and acquisitions
with other financial institutions.
In addition to potential acquisitions of financial institutions or their branches,
we may explore additional opportunities for acquisitions or strategic partnerships
to broaden our product and service offerings in the future.
Improve Operating Efficiency: Procure and implement various information technologies
designed to support our strategic initiatives while improving operating efficiency
and reducing cost.
In conjunction with our strategic efforts to improve operating efficiency and
control operating expenses, while expanding and enhancing product and service
offerings, we completed the conversion of our primary core processing and related
customer-facing systems to Fiserv, Inc. platforms during fiscal 2014. Additional
Fiserv technologies were deployed during fiscal 2015 with additional technology-based
initiatives targeted for deployment in fiscal 2016.
We consider the noted enhancements to our information technology infrastructure
to be one of several strategies to be deployed to control growth in non-interest
expenses and improve our overall operating efficiency. In further support of
those objectives, we have engaged the services of a third-party consultant to
assist us in thoroughly reviewing and analyzing our current operating practices,
policies and procedures and the effectiveness with which our supporting infrastructure,
including our human resources and systems, are organized, deployed and utilized
to achieve our strategic goals and objectives. This first phase of the consulting
engagement will be conducted during the first two quarters of fiscal 2016.
In conjunction with our strategic efforts to evolve from a traditional thrift
to a full-service community bank, our lending strategies have placed increasing
emphasis on the origination of commercial loans while diminishing the emphasis
on one- to four-family mortgage lending. The year-to-year trends in the composition
and allocation of our loan portfolio, as reported in the table below, highlight
those changes in business strategy. In particular, the outstanding balance of
our commercial mortgages, including loans secured by multi-family, mixed-use
and nonresidential properties, have significantly increased from both a dollar
amount and percentage of portfolio basis over the past several years.
0.36% 
6.24 %