Ever since Kearny Financial Corp. made its first acquisition in 1999, the New Jersey company has been working to transform itself from a plain-vanilla thrift into a full-fledged community bank.
The parent of the $1.9 billion-asset Kearny Federal Savings Bank has made progress only in fits and starts since buying 1st Bergen Bancorp of Wood-Ridge; nearly 70% of its interest-earning assets are still invested in mortgage-based and other securities.
But the 120-year-old mutual thrift is preparing to make its biggest break with the past. This month it applied with the Securities and Exchange Commission to sell a 30% stake to the public.
Though a date for the stock sale has not been set, Kearny says it could generate as much as $185.5 million. The company plans to use the proceeds to make more commercial loans, upgrade its online banking suite, open more branches, and look for bank as well as nonbank acquisitions.
Observers said Kearny — which operates 25 branches in northern and central New Jersey, some of the country’s most attractive markets — would have little difficulty getting investors.
“If I had an account there, I’d buy,” said Robert Kafafian, the president and chief executive of Kafafian Group Inc., a Parsippany, N.J., consulting firm. “The bigger a company is, the more appealing it is to investors. This is one that has some critical mass.”
Kearny’s SEC application came in the busiest year on record for so-called first-step conversions, in which a mutually owned company sells a minority interest to investors. There have already been eight this year, and another five are virtually certain to close before Dec. 31, according to Theodore P. Kovaleff, an analyst with Sky Capital LLC in New York, who follows mutual holding companies.
By contrast, there were 13 first-step conversions between 2000 and 2003.
Kearny is larger than any of the mutuals that have completed a conversion this year, and its stock sale would probably raise more money than they did. The company said it expects to reap at least $118.7 million and could get up to $185.5 million if investors bought every possible share.
Another New Jersey thrift, the $760.4 million-asset Clifton Savings Bank, completed the largest first-step conversion so far this year March 31, when it sold 12.6 million shares for $134 million.
Mr. Kovaleff expects Kearny to get close to $185.5 million and said it probably could collect more. The 30% it plans to sell is a significantly smaller stake than most companies offer, he said. Mutuals typically sell between 37% and 49% of their shares in first-step conversions; Clifton sold 41%.
John N. Hopkins, Kearny’s president and CEO, would not discuss the specifics of the offering, citing the SEC-imposed “quiet period.”
However, he did say that “many savings banks in New Jersey” are moving in the same direction as Kearny, to fill the gap left by the sale of many of the state’s large community and regional banks.
Since 1999, 35 New Jersey banks have been sold, including six commercial ones with more than $700 million of assets, according to Highline Data LLC. The most prominent was the $39.6 billion-asset Summit Bancorp, which FleetBoston Financial Corp. bought in 2001.
“There’s a niche here that used to be filled by” midsize commercial banks, Mr. Hopkins said. “We see a lot of small businesses that need to be taken care of.”
Kearny has already moved to fill that niche. This year it hired four commercial loan officers. After the stock sale it plans to make improvements to its online banking service to attract small-business customers, Mr. Hopkins said.
According to Mr. Kafafian, Kearny’s biggest challenge will not be attracting new commercial borrowers but deploying its capital fast enough to satisfy investors.
Even without the sale, Kearny is overcapitalized. It has an equity-to-assets ratio of 15.1%, and the offering would add up to $93 million of shareholder equity.
“The question is going to be, ‘Can they develop a strategic plan and implement it quickly enough to satisfy investors?’ ” Mr. Kafafian said.
Mr. Kovaleff said he was not concerned by Kearny’s oversized capital ratios, and he hinted that deals could play a major role in its post-offering course of action.
“Kearny hasn’t shied away from acquisitions in the past, so they know they can do it,” he said.
In addition to the $306 million-asset 1st Bergen, Kearny purchased the $235.2 million-asset Pulaski Bancorp Inc. of Springfield for $64.3 million in October 2002 and the $390 million-asset West Essex Bancorp of Caldwell for $72.2 million in June 2003. Both were thrifts.
