Add
KRNY to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| KRNY > SEC Filings for KRNY > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Forward-Looking Statements
This Form 10-Q may include certain forward-looking statements based on current management expectations. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. The actual results of the Company could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities. Additional potential factors include changes in interest rates, deposit flows, cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios of the Bank. Other factors that could cause future results to vary from current management expectations include changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. Further description of the risks and uncertainties to the business are included in the Company's other filings with the Securities and Exchange Commission.
Comparison of Financial Condition at September 30, 2009 and June 30, 2009
General. Total assets increased $39.7 million to $2.16 billion at September 30, 2009 from $2.12 billion at June 30, 2009. The increase in total assets was due primarily to an increase in non-mortgage-backed securities, mortgage-backed securities and net loans partially offset by a decrease in cash and cash equivalents.
Cash and Cash Equivalents. Cash and cash equivalents, which consist primarily of interest-earning deposits in other banks, decreased $89.9 million to $121.6 million at September 30, 2009 from $211.5 million at June 30, 2009. The reported reduction in short term, liquid assets reflects, in part, the reinvestment of a portion of the Company's excess liquidity during the current quarter into investment securities which is discussed below in greater detail under the heading of Liquidity and Capital Resources.
At September 30, 2009, the remaining balance of interest-bearing deposits primarily included funds on deposit with a money center bank and the FHLB of New York. Management routinely transfers funds between the two depository institutions to maximize the return on the funds, with the former pricing off of 30-day Libor and the latter off of the federal funds rate.
Securities Available for Sale. Non-mortgage-backed securities classified as available for sale increased by $1.6 million to $29.6 million at September 30, 2009 from $28.0 million at June 30, 2009. The increase in the portfolio was attributable to an increase in the fair value of the portfolio partially offset by principal repayments. At September 30, 2009, the available for sale non-mortgage-backed securities portfolio consisted of $4.4 million of SBA pass-through certificates, $19.1 million of municipal bonds and $6.1 million of single issuer trust preferred securities with amortized costs of $4.5 million, $18.2 million and $8.8 million, respectively. The net unrealized loss for this portfolio was reduced to $1.9 million at September 30, 2009 from $3.6 million as of June 30, 2009. Based on its evaluation,
Securities Held to Maturity. Non-mortgage-backed securities classified as held to maturity increased to $50.0 million at September 30, 2009 from $-0- at June 30, 2009 resulting from the Company's purchase of agency debentures during the current quarter. The purchase of these securities during the quarter deployed a portion of the Company's excess liquidity that had accumulated for the reasons noted earlier.
Loans Receivable. Loans receivable, net of unamortized premiums, deferred costs and the allowance for loan losses, increased $13.4 million to $1.05 billion at September 30, 2009 from $1.04 billion at June 30, 2009. The increase in net loans receivable was primarily attributable to net increases in the balances of residential mortgage loans, commercial loans and construction loans partially offset by a decline in the balance of other loans.
Residential mortgage loans, in aggregate, increased by $1.8 million to $816.6 million at September 30, 2009 from $814.8 million at June 30, 2009. The components of the aggregate increase included growth in one-to-four family first mortgage loans of $4.3 million to $693.6 million at September 30, 2009 partially offset by decreases in home equity loans and home equity lines of credit of $2.0 million and $535,000, respectively, whose ending balances at September 30, 2009 were $111.4 million and $11.6 million, respectively. The nominal increase in the balance of residential mortgage loans reflects management's continued adherence to its disciplined pricing policy coupled with the effects of diminished loan demand in the marketplace arising from challenging economic conditions and diminished real estate values which have adversely impacted residential real estate purchase and refinancing activity. In total, residential mortgage loan origination volume for the three months ended September 30, 2009 was $39.9 million reflecting originations of one-to-four family first mortgage loans of $28.3 million and aggregate originations of home equity loans and home equity lines of credit of $11.6 million.
Commercial loans, in aggregate, increased by $11.4 million to $223.6 million at September 30, 2009 from $212.2 million at June 30, 2009. The components of the aggregate increase included growth in nonresidential mortgage loans and business loans of $12.0 million and $403,000, respectively, whose ending balances at September 30, 2009 were $183.8 million and $15.2 million, respectively. Partially offsetting these increases was a decline in multi-family mortgage loans of $990,000 to $24.6 million at September 30, 2009. The net growth in commercial loans reflects the Company's long-term expanded strategic emphasis in commercial lending coupled with a continuing favorable pricing environment for these loans. In total, commercial loan origination volume for the three months ended September 30, 2009 was $14.9 million reflecting originations of nonresidential and multi-family mortgage loans of $13.7 million and originations of business loans of $1.2 million.
The outstanding balance of construction loans, net of loans-in-process, increased by $1.1 million to $14.4 million at September 30, 2009. The net increase in construction loans resulted from additional disbursements on construction loans less repayments on such loans. Construction loan originations for the three months ended September 30, 2009 totaled $4.1 million.
Finally, other loans, primarily comprising account loans and deposit account overdraft lines of credit, decreased $100,000 to $4.4 million at September 30, 2009. Other loan originations for the three months ended September 30, 2009 totaled $374,000.
The balance of the allowance for loan losses increased by $376,000 to $6.8 million or 0.64% of total loans at September 30, 2009 from $6.4 million or 0.62% of total loans at June 30, 2009. As of those
The increase in nonperforming loans included an increase in the balance of loans 90 days or more past due and still accruing of $7.3 million to $12.3 million at September 30, 2009 from $5.0 million at June 30, 2009. For those same comparative dates, the corresponding number of loans 90 days or more past due and still accruing increased by 19 to 31 loans from 12 loans. Loans reported as 90 days or more past due and still accruing at September 30, 2009 include 21 residential mortgage loans totaling $9.8 million, two construction loans totaling $1.9 million, two secured business loans totaling $553,000 and six consumer loans totaling $18,000.
The 21 residential mortgage loans totaling $9.8 million reported as 90 days or more past due and still accruing represent residential mortgage loans secured by New Jersey properties that were purchased from a nationwide mortgage loan originator and continue to be serviced by that organization. In accordance with our agreement, the servicer advances scheduled principal and interest payments to the Bank when such payments are not made by the borrower. The timely receipt of principal and interest from the servicer ensures the continued accrual status of the Bank's loan. However, the delinquency status reported for these nonperforming loans reflects the borrower's actual delinquency irrespective of the Bank's receipt of advances which will be recouped by the servicer from the Bank in the event the borrower does not reinstate the loan. Based upon updated collateral valuations, the Bank has established specific valuation allowances totaling $1.5 million for the identified impairment attributable to 17 of these 21 loans at September 30, 2009. The remaining 10 loans reported as 90 days or more past due and still accruing totaling $2.5 million are in various stages of collection, workout or foreclosure with no estimated impairments requiring specific valuation allowances based upon the Company's evaluation at September 30, 2009.
The net increase in nonperforming loans attributable to loans 90 days or more past due and still accruing was partially offset by a $531,000 decrease in the balance of nonaccrual loans to $7.6 million at September 30, 2009 from $8.1 million at June 30, 2009. For those same comparative dates, the corresponding number of nonaccrual loans increased by four to 25 loans from 21 loans. Nonaccrual loans at September 30, 2009 include 15 residential mortgage loans totaling $1.9 million, three construction loans totaling $714,000, three multi-family loans totaling $604,000, two nonresidential mortgage loans totaling $4.4 million, one secured business loan totaling $9,600 and one consumer loan totaling $2,500.
At September 30, 2009, two of the three nonaccrual multifamily mortgage loans totaling $483,000 represent nonperforming participations acquired through the Thrift Institutions Community Investment Corporation ("TICIC"), a subsidiary of the New Jersey Bankers Association. The Company has established specific valuation allowances in the full amount of the outstanding balances of these two loans based upon the expected losses associated with these loans. Additionally, the Company has established a specific valuation allowance of $33,000 for the impairment identified on one of the two nonaccrual nonresidential mortgage loans whose outstanding balance totaled $1.7 million at September 30, 2009. Finally, the Company has established a specific valuation allowance of $1,900 for the impairment identified on the one secured business loan totaling $9,600 that was reported as nonaccrual at September 30, 2009. The remaining 21 nonaccrual loans totaling $5.4 million are in various stages of collection, workout or foreclosure with no estimated losses requiring specific valuation allowances based upon the Company's evaluation at September 30, 2009.
In addition to the loans noted above, the Company has established additional specific valuation allowances of approximately $330,000 attributable to three impaired multifamily loans with aggregate outstanding principal balances of $3.6 million. While not nonperforming at September 30, 2009, the loans
Mortgage-backed Securities Available for Sale. Mortgage-backed securities available for sale, all of which are government agency pass-through certificates, increased $65.4 million to $749.2 million at September 30, 2009 from $683.8 million at June 30, 2009. The net increase resulted from the purchase of approximately $105.1 million of fixed rate, agency mortgage-backed securities that was partially offset by principal repayments, maturities and a nominal change in fair value during the quarter ended September 30, 2009. The purchase of the mortgage-backed securities during the quarter deployed a portion of the Company's excess liquidity that had accumulated for the reasons noted earlier. The net unrealized gain for this portfolio was $24.3 million as of September 30, 2009. Based on its evaluation, management has concluded that no other-than-temporary impairment is present within this segment of the investment portfolio at September 30, 2009. The purchase of the mortgage-backed securities during the quarter ended September 30, 2009 included approximately $4.6 million of issues eligible to meet the Community Reinvestment Act investment test during the reporting period. (For additional information refer to Note 10 to consolidated financial statements.)
Mortgage-backed Securities Held to Maturity. Mortgage-backed securities held to maturity decreased $510,000 to $3.8 million at September 30, 2009 from $4.3 million at June 30, 2009 due primarily to principal repayments and the recognition of an additional $295,000 of other-than-temporary impairment in the value of certain non-agency collateralized mortgage obligations in the portfolio. At September 30, 2009, an analysis of the non-agency collateralized mortgage obligations resulted in the conclusion that securities having an aggregate amortized cost, adjusted for prior impairment charges, of $754,000 were other-than-temporarily impaired by an additional $295,000. Of this impairment, $98,000 was determined to be credit-related, and therefore recognized through earnings, while $197,000 was determined to be noncredit-related and therefore recognized through other comprehensive income. At September 30, 2009, the Company's non-agency collateralized mortgage obligations have a total book value, net of other-than-temporary impairment charges, of $2.1 million and fair value of $1.9 million with the difference attributed to temporary impairments of value. The remainder of the held to maturity mortgage-backed securities portfolio comprises government agency mortgage pass-through securities and collateralized mortgage obligations that were not other-than-temporarily impaired based upon management's evaluation at September 30, 2009. (For additional information refer to Note 10 to consolidated financial statements.)
Other Assets. Noteworthy changes in the balances of other assets from June 30, 2009 to September 30, 2009 include increases in the balance of premises and equipment and bank owned life insurance. Premises and equipment increased $315,000 to $35.8 million during the three months ended September 30, 2009 due primarily to construction costs associated with a new retail branch in Pequannock, New Jersey. During that same period, the balance of bank owned life insurance increased $140,000, to $16.4 million resulting from an increase in the cash surrender value of the underlying insurance policies. By contrast, the balance of deferred income taxes was reduced from $1.4 million at June 30, 2009 to $-0- at September 30, 2009 reflecting a change in the Company's net deferred income tax position from a net deferred income tax asset to a net deferred income tax liability. The change was largely attributable to an increase in the tax-effected unrealized gains associated with the Company's available for sale investment securities portfolios from June 30, 2009 to September 30, 2009. A related increase in deferred income tax liabilities has also been recorded at September 30, 2009.
Deposits. Deposits increased $34.8 million to $1.46 billion at September 30, 2009 from $1.42 billion at June 30, 2009. Management continued to maintain disciplined pricing during the reporting period. Nevertheless, growth was reported across all categories of deposits. For the quarter ended September 30, 2009, interest-bearing demand deposits increased $10.8 million to $174.4 million, savings deposits increased $3.2 million to $304.8 million, certificates of deposit increased $16.4 million to $921.1
Advances from FHLB. The outstanding balance of FHLB advances was unchanged at $210 million at September 30, 2009 from June 30, 2009 reflecting the absence of new advances or maturities during the most recent quarter.
Stockholders' Equity. During the quarter ended September 30, 2009, stockholders' equity increased $5.3 million to $482.0 million from $476.7 million at June 30, 2009. The increase was primarily attributable to a $4.2 million increase in accumulated other comprehensive income due to the aggregate mark-to-market adjustment to the available for sale securities portfolios and benefit plan related adjustments to equity and net income during the quarter of $1.1 million. Also contributing to the increase was $402,000 of ESOP shares earned, $771,000 of restricted stock plan shares earned and an adjustment to equity of $476,000 for expensing stock options. Partially offsetting these increases to stockholders' equity was a $968,000 increase in treasury stock due to the purchase of 87,000 shares of the Company's common stock as well as an $852,000 cash dividend declared for payment to minority shareholders.
Comparison of Operating Results for the Three Months Ended September 30, 2009 and September 30, 2008
General. Net income for the three months ended September 30, 2009 was $1.1 million, or $0.02 per diluted share; a decrease of $641,000 compared to $1.7 million, or $0.03 per diluted share for the three months ended September 30, 2008. The decrease in net income between the comparative quarters resulted primarily from increases in the provision for loan loss and noninterest expense which were partly offset by an increase in noninterest income and, to a lesser extent, an increase net interest income. The net increase in noninterest income reflected a reduction in losses on investment securities partly offset by a reduction in other noninterest income. In total, these factors resulted in an overall decrease in pre-tax income and the provision for income taxes.
Net Interest Income. Net interest income for the three months ended September 30, 2009 was $13.3 million, an increase of $10,000 from $13.2 million for the three months ended September 30, 2008. The increase in net interest income between the comparative quarters resulted from a decrease in interest expense that outpaced the concurrent decrease in interest income. In general, the decrease in interest expense reflected a continued decline in the cost of deposits resulting primarily from the downward re-pricing of certificates of deposit while the decrease in interest income was primarily attributable to an increase in the average balance of lower yielding cash and cash equivalents in relation to other interest earning assets.
As a result of these factors, the Company's net interest rate spread increased 20 basis points to 2.32% for the three months ended September 30, 2009 from 2.12% during the for the three months ended September 30, 2008. The increase in the net interest rate spread reflected a decrease in the cost of interest bearing liabilities of 65 basis points from 3.12% to 2.47% which was partially offset by a decrease in the yield on earning assets of 45 basis points to 4.79% from 5.24% for the same comparative periods. A discussion of the factors contributing to the overall change in yield on earning assets and cost of interest-bearing liabilities is presented in the separate discussion and analysis of interest income and interest expense below.
Notwithstanding the increase in net interest income and net interest rate spread, the Company's net interest margin declined two basis points to 2.74% for the three months ended September 30, 2009 from 2.76% from the three months ended September 30, 2008. The decline in the net interest margin
The increase in noninterest-earning assets was primarily attributable to growth in the average balance of noninterest earning cash. The growth in the Company's short term, liquid assets, including noninterest-earning cash, had accumulated over several consecutive quarters due largely to retail deposit growth outpacing the Company's near-term ability to deploy such funds into high quality loans. As noted in greater detail below, a portion of such funds were reinvested into high quality investment securities late in the quarter ended September 30, 2009.
The Company may be required to record an additional significant noninterest-earning prepaid expense asset during the quarter ending December 31, 2009 if the FDIC requires the Bank to prepay its deposit insurance premiums through 2012 as proposed. (For additional information, see Liquidity and Capital Resources discussion below).
Interest Income. Total interest income decreased $2.0 million to $23.2 million for the three months ended September 30, 2009 from $25.2 million for the three months ended September 30, 2008. The decrease in interest income reflected a decrease in the average yield on earning assets which declined 45 basis points to 4.79% for the three months ended September 30, 2009 from 5.24% for the three months ended September 30, 2008. The decrease in the average yield was partially offset by an increase in the average balance of interest-earning assets which increased $16.0 million to $1.94 billion from $1.92 billion for the same comparative periods.
Interest income from loans decreased $223,000 to $14.9 million for the three months ended September 30, 2009 from $15.1 million for the three months ended September 30, 2008. The decrease in interest income primarily reflected a decrease in the average yield on loans which declined eight basis points to 5.67% for the three months ended September 30, 2009 from 5.75% for the three months ended September 30, 2008. The reduction in the overall yield on the Company's loan portfolio continues to reflect the effect of lower market interest rates which generally provides "rate reduction" refinancing incentive to borrowers while also contributing to the downward re-pricing of adjustable rate loans.
A $221,000 decline in the average balance of loans receivable to $1.05 billion at September 30, 2009 contributed nominally to the overall decline in interest income on loans. However, within the reported decline in the average balance of loans, the Company reported a $28.2 million reduction in the average balance of residential mortgage loans to $814.7 million for the three months ended September 30, 2009 from $842.9 million for the three months ended September 30, 2008. The Company's residential mortgages generally comprise one-to-four family first mortgage loans, home equity loans and home equity lines of credit. The decline reflected the continued diminished residential loan demand prevalent in the marketplace coupled with the Company's disciplined pricing for such loans.
By contrast, the Company reported a net increase of $28.1 million in the average balance of commercial loans to $217.5 million from $189.4 million for those same comparative periods. The increase reflected the Company's long-term expanded strategic emphasis in commercial lending coupled with a continuing favorable pricing environment for these loans. Because the Company's commercial
Interest income from mortgage-backed securities decreased $1.3 million to $7.8 million for the three months ended September 30, 2009 from $9.1 million for the three months ended September 30, 2009. The decrease in interest income reflected the combined effects of a decrease in the average yield on mortgage-backed securities and a decline in their average balance. The average yield on mortgage-backed securities declined 30 basis points to 4.78% for the three months ended September 30, 2009 from 5.08% for the three months ended September 30, 2008 while the average balance of the securities decreased $63.1 million to $655.8 million from $718.9 million for those same comparative periods.
The reduction in the overall yield of the mortgage-backed securities portfolio is attributable to many of the same factors affecting the yield on the Company's loan portfolio. That is, lower market interest rates have continued to provide a "rate reduction" refinancing incentive to mortgagors resulting in the pay off of comparatively higher rate mortgage loans underlying the Company's mortgage-backed securities. Simultaneously, lower market interest rates have resulted in the downward re-pricing of loans underlying the Company's adjustable rate mortgage-backed securities. The reduction in the average balance of mortgage-backed securities reflects the reduced level of security purchases described earlier regarding the accumulation of short term liquid assets in lieu of investment security purchases during prior quarters.
Interest income from non-mortgage-backed securities decreased $67,000 to $218,000 for the three months ended September 30, 2009 from $285,000 for the three months ended September 30, 2008. The decrease in interest income reflected the combined effects of a decrease in the average yield on non-mortgage-backed securities and a decline in their average balance. The average yield on non-mortgage-backed securities declined 17 basis points to 2.71% for the three months ended September 30, 2009 from 2.88% for the three months ended September 30, 2008 while the average balance of the securities decreased $7.5 million to $32.2 million from $39.7 million for those same comparative periods.
The decrease in the average balance of non-mortgage backed securities was primarily attributable to a $7.4 million decline in the average balance of taxable securities to $14.0 million during the quarter ended September 30, 2009 from $21.4 million for the three months ended September 30, 2009. For those same comparative periods, the average balance of tax-exempt securities was substantially unchanged at $18.2 million. Similarly, the decrease in the average . . .
|
|