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EX-32 - EXHIBIT 32 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Kearny Financial Corp.ex-32.htm
EX-31 - EXHIBIT 31 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Kearny Financial Corp.ex-31.htm
EX-11 - EXHIBIT 11 -STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE - Kearny Financial Corp.ex-11.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
____________________________

FORM 10-Q
(Mark One)
     
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   
EXCHANGE ACT OF 1934
     
For the quarterly
period ended

September 30, 2011
     
OR
     
   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   
EXCHANGE ACT OF 1934
     
For the transition period from
 
to
 
     
Commission File Number  000-51093
     
KEARNY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
     
     
UNITED STATES
 
22-3803741
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification Number)
     
120 Passaic Ave., Fairfield, New Jersey
 
07004-3510
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone number,
including area code
973-244-4500
     
     
      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  [X]  No [  ]
 
      Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  [  ]  No [  ]
 
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [  ]
Accelerated filer [X]
Non-accelerated filer [  ]
Smaller reporting company [  ]
 
      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes [  ] No  [X]
 
      The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 4, 2011.
     
$0.10 par value common stock  -  67,296,871 shares outstanding

 
 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX



   
Page
   
Number
PART I - FINANCIAL INFORMATION
   
     
  Item 1:
Financial Statements
   
     
 
Consolidated Statements of Financial Condition
   
 
at September 30, 2011 and June 30, 2011 (Unaudited)
 
1
     
 
Consolidated Statements of Operations for the Three Months
   
 
Ended September 30, 2011 and September 30, 2010 (Unaudited)
 
2-3
     
 
Consolidated Statements of Changes in Stockholders’ Equity for the Three
   
 
Months Ended September 30, 2011 and September 30, 2010 (Unaudited)
 
4-5
     
 
Consolidated Statements of Cash Flows for the Three
   
 
Months Ended September 30, 2011 and September 30, 2010 (Unaudited)
 
6-7
     
 
Notes to Consolidated Financial Statements (Unaudited)
 
8-54
     
  Item 2:
Management’s Discussion and Analysis of
   
 
Financial Condition and Results of Operations
 
55-75
     
  Item 3:
Quantitative and Qualitative Disclosure About Market Risk
 
76-83
     
  Item 4:
Controls and Procedures
 
84
     
     
PART II - OTHER INFORMATION
 
85-87
     
     
SIGNATURES
 
88
     


 
 

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Data, Unaudited)
   
September 30,
   
June 30,
 
   
2011
   
2011
 
Assets
           
             
Cash and amounts due from depository institutions
  $ 58,934     $ 47,332  
Interest-bearing deposits in other banks
    231,196       175,248  
                 
    Cash and Cash Equivalents
    290,130       222,580  
                 
Securities available for sale (amortized cost $20,284 and $46,145)
    17,871       44,673  
Securities held to maturity (estimated fair value $76,820 and $107,052)
    76,218       106,467  
Loans receivable, including unamortized yield adjustments of $(917) and $(1,021)
    1,243,841       1,268,351  
  Less allowance for loan losses
    (12,040 )     (11,767 )
                 
  Net Loans Receivable
    1,231,801       1,256,584  
                 
Mortgage-backed securities available for sale (amortized cost $1,047,989 and $1,032,407)
     1,084,093        1,060,247  
Mortgage-backed securities held to maturity (estimated fair value $1,381 and $1,416)
    1,291       1,345  
Premises and equipment
    39,362       39,556  
Federal Home Loan Bank of New York (“FHLB”) stock
    13,559       13,560  
Interest receivable
    8,594       9,740  
Goodwill
    108,591       108,591  
Bank owned life insurance
    24,660       24,470  
Other assets
    13,867       16,323  
 
               
    Total Assets
  $ 2,910,037     $ 2,904,136  
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 141,423     $ 143,087  
  Interest-bearing
    2,007,183       2,006,266  
                 
    Total Deposits
    2,148,606       2,149,353  
                 
Borrowings
    247,791       247,642  
Advance payments by borrowers for taxes
    5,780       5,794  
Deferred income tax liabilities, net
    4,511       1,669  
Other liabilities
    11,894       11,804  
                 
    Total Liabilities
    2,418,582       2,416,262  
                 
Stockholders’ Equity
               
                 
Preferred stock $0.10 par value, 25,000,000 shares authorized; none issued
               
  and outstanding
    -       -  
Common stock $0.10 par value, 75,000,000 shares authorized; 72,737,500 shares
               
  issued; 67,560,871 and 67,851,077 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    215,309       215,258  
Retained earnings
    318,586       317,354  
Unearned Employee Stock Ownership Plan shares; 787,989 shares
               
  and 824,352 shares, respectively
    (7,880 )     (8,244 )
Treasury stock, at cost; 5,176,629 shares and 4,886,423 shares, respectively
    (61,771 )     (59,200 )
Accumulated other comprehensive income
    19,937       15,432  
                 
    Total Stockholders’ Equity
    491,455       487,874  
                 
    Total Liabilities and Stockholders’ Equity
  $ 2,910,037     $ 2,904,136  
See notes to consolidated financial statements.
 
- 1 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data, Unaudited)

   
Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Interest Income
           
  Loans
  $ 16,468     $ 13.801  
  Mortgage-backed securities
    7,982       7,398  
  Securities:
               
    Taxable
    492       1,408  
    Tax-exempt
    44       157  
  Other interest-earning assets
    195       179  
     Total Interest Income
    25,181       22,943  
                 
Interest Expense
               
  Deposits
    5,592       6,323  
  Borrowings
    2,042       2,075  
     Total Interest Expense
    7,634       8,398  
                 
     Net Interest Income
    17,547       14,545  
                 
Provision for Loan Losses
    1,065       1,251  
                 
     Net Interest Income after Provision
               
       for Loan Losses
    16,482       13,294  
                 
Non-Interest Income
               
  Fees and service charges
    626       342  
  Gain on sale of loans
    186       -  
  Income from bank owned life insurance
     190        163  
  Electronic banking fees and charges
    235       114  
  Loss from REO operations
    (154 )     (14 )
  Miscellaneous
    35       26  
     Total Non-Interest Income
    1,118       631  
                 
Non-Interest Expenses
               
  Salaries and employee benefits
    8,161       6,953  
  Net occupancy expense of
               
   premises
    1,585       1,049  
  Equipment and systems
    1,969       1,177  
  Advertising and marketing
    301       246  
  Federal deposit insurance
               
   premium
    485       447  
  Directors’ compensation
    166       558  
  Merger-related expenses
    -       40  
  Miscellaneous
    1,614       1,174  
     Total Non-Interest Expenses
  $ 14,281     $ 11,644  

 
- 2 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(In Thousands, Except Per Share Data, Unaudited)

   
Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
             
    Income Before Income Taxes
  $ 3,319     $ 2,281  
                 
Income Taxes
    1,301       946  
                 
    Net Income
  $ 2,018     $ 1,335  
                 
Net Income per Common
               
  Share (EPS):
               
  Basic and Diluted
  $ 0.03     $ 0.02  
                 
Weighted Average Number of
               
  Common Shares Outstanding:
               
  Basic and Diluted
    66,961       67,219  
                 
Dividends Declared Per Common
               
  Share
  $ 0.05     $ 0.05  

See notes to consolidated financial statements.



 
- 3 -

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2010
(In Thousands, Except Per Share Data, Unaudited)


                           
Unearned
         
Other
       
   
Common Stock
   
Paid-In
   
Retained
   
ESOP
   
Treasury
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Stock
   
Income
   
Total
 
                                                 
Balance - June 30, 2010
    68,344     $ 7,274     $ 213,529     $ 312,844     $ (9,698 )   $ (54,738 )   $ 16,715     $ 485,926  
                                                                 
Comprehensive income:
                                                               
  Net income
    -       -       -       1,335       -       -       -       1,335  
                                                                 
  Unrealized loss on securities
                                                               
    available for sale, net of
                                                               
    deferred income tax                                                                 
    benefit of $531
    -       -       -       -       -       -       (769 )     (769 )
                                                                 
  Benefit plans, net of deferred
                                                               
    income tax benefit of $10
    -       -       -       -       -       -       (15 )     (15 )
                                                                 
   Total Comprehensive income
                                                            551  
                                                                 
ESOP shares committed to be
                                                               
   released (36 shares)
    -       -       (37 )     -       363       -       -       326  
                                                                 
Dividends contributed for
                                                               
    payment of ESOP loan
    -       -       32       -       -       -       -       32  
                                                                 
Stock option expense
    -       -       477       -       -       -       -       477  
                                                                 
Treasury stock purchases
    (369 )     -       -       -       -       (3,316 )     -       (3,316 )
                                                                 
Restricted stock plan shares
                                                               
   earned (63 shares)
    -       -       771       -       -       -       -       771  
                                                                 
Tax effect from stock based
                                                               
  compensation
    -       -       5       -       -       -       -       5  
                                                                 
Cash dividends declared
  ($0.05/ public share)
    -       -       -       (800 )     -       -       -       (800 )
Balance - September 30, 2010
    67,975     $ 7,274     $ 214,777     $ 313,379     $ (9,335 )   $ (58,054 )   $ 15,931     $ 483,972  
                                                                 

See notes to consolidated financial statements. 
 
- 4 -

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2011
(In Thousands, Except Per Share Data, Unaudited)


                           
Unearned
         
Other
       
   
Common Stock
   
Paid-In
   
Retained
   
ESOP
   
Treasury
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Stock
   
Income
   
Total
 
                                                 
Balance - June 30, 2011
    67,851     $ 7,274     $ 215,258     $ 317,354     $ (8,244 )   $ (59,200 )   $ 15,432     $ 487,874  
                                                                 
Comprehensive income:
                                                               
  Net income
    -       -       -       2,018       -       -       -       2,018  
                                                                 
  Unrealized gain on securities
                                                               
    available for sale, net of                                                                
    deferred income tax
                                                               
    expense of $2,990
    -       -       -       -       -       -       4,332       4,332  
                                                                 
  Benefit plans, net of deferred
                                                               
    income tax expense of $120
    -       -       -       -       -       -       173       173  
                                                                 
   Total Comprehensive income
                                                            6,523  
                                                                 
ESOP shares committed to be
                                                               
  released (36 shares)
    -       -       (38 )     -       364       -       -       326  
                                                                 
Dividends contributed for
                                                               
    payment of ESOP loan
    -       -       36       -       -       -       -       36  
                                                                 
Stock option expense
    -       -       11       -       -       -       -       11  
                                                                 
Treasury stock purchases
    (290 )     -       -       -       -       (2,571 )     -       (2,571 )
                                                                 
Restricted stock plan shares
                                                               
  earned (4 shares)
    -       -       42       -       -       -       -       42  
                                                                 
Cash dividends declared
  ($0.05/ public share)
    -       -       -       (786 )     -       -       -       (786 )
                                                                 
Balance - September 30, 2011
    67,561     $ 7,274     $ 215,309     $ 318,586     $ (7,880 )   $ (61,771 )   $ 19,937     $ 491,455  
                                                                 
 
See notes to consolidated financial statements. 
 
- 5 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)

    
Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Cash Flows from Operating Activities:
           
  Net income
  $ 2,018     $ 1,335  
  Adjustments to reconcile net income to net cash provided by operating activities:
               
    Depreciation and amortization of premises and equipment
    642       440  
    Net amortization of premiums, discounts and loan fees and costs
    1,691       468  
    Deferred income taxes
    (268 )     (756 )
    Amortization of intangible assets
    41       -  
    Amortization of benefit plans’ unrecognized net loss
    10       17  
    Provision for loan losses
    1,065       1,251  
    Loss on write-down of real estate owned
    36       14  
    Realized gain on sale of loans
    (186 )     -  
    Proceeds from sale of loans
    2,187       -  
    Increase in cash surrender value of bank owned life insurance
    (190 )     (163 )
    ESOP, stock option plan and restricted stock plan expenses
    379       1,574  
    Decrease in interest receivable
    1,146       40  
    Decrease in other assets
    2,379       213  
    Decrease in interest payable
    (26 )     (3 )
    Increase in other liabilities
    456       208  
                 
      Net Cash Provided by Operating Activities
    11,380       4,638  
                 
Cash Flows from Investing Activities:
               
  Proceeds from calls and maturities of securities held for sale
    25,544       -  
  Proceeds from repayments of securities available for sale
    288       518  
  Purchase of securities held to maturity
    (70 )     (64,975 )
  Proceeds from calls and maturities of securities held to maturity
    30,090       90,000  
  Proceeds from repayments of securities held to maturity
    205       -  
  Purchase of loans
    (4,056 )     (1,437 )
  Net decrease in loans receivable
    25,784       16,461  
  Purchases of mortgage-backed securities available for sale
    (78,902 )     (186,437 )
  Principal repayments on mortgage-backed securities available for sale
    61,329       43,732  
  Principal repayments on mortgage-backed securities held to maturity
    57       82  
  Redemption of FHLB stock
    1       -  
  Additions to premises and equipment
    (448 )     (305 )
                 
       Net Cash Provided by (Used in) Investing Activities
  $ 59,822     $ (102,361 )
 
 
 
- 6 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands, Unaudited)

    
Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Cash Flows from Financing Activities:
           
  Net (decrease) increase in deposits
  $ (489 )   $ 39,842  
  Repayment of long-term FHLB advances
    (19 )     -  
  Increase in other short-term borrowings
    206       -  
  Decrease in advance payments by borrowers for taxes
    (14 )     (361 )
  Dividends paid to stockholders of Kearny Financial Corp.
    (801 )     (817 )
  Purchase of common stock of Kearny Financial Corp. for treasury
    (2,571 )     (3,316 )
  Dividends contributed for payment of ESOP loan
    36       32  
  Tax effect from stock based compensation
    -       5  
                 
     Net Cash (Used in) Provided by Financing Activities
    (3,652 )     35,385  
                 
     Net Increase (Decrease) in Cash and Cash Equivalents
    67,550       (62,338 )
                 
Cash and Cash Equivalents – Beginning
    222,580       181,422  
                 
Cash and Cash Equivalents – Ending
  $ 290,130     $ 119,084  
                 
Supplemental Disclosures of Cash Flows Information:
               
  Cash paid during the year for:
               
    Income taxes, net of refunds
  $ (866 )   $ 2,104  
                 
    Interest
  $ 7,660     $ 8,401  
                 
  Non-cash investing and financing activities:
               
    Acquisition of  real estate owned in settlement of loans
  $ -     $ 449  
                 

See notes to consolidated financial statements.


 
- 7 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1.  PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Kearny Financial Corp. (the “Company”), its wholly-owned subsidiaries, Kearny Federal Savings Bank (the “Bank”) and Kearny Financial Securities, Inc., and the Bank’s wholly-owned subsidiaries, KFS Financial Services, Inc., KFS Investment Corp. and CJB Investment Corp. and its wholly owned subsidiary, Central Delaware Investment Corp.  Kearny Financial Securities, Inc. and Central Delaware Investment Corp. were each dissolved during the quarter ended September 30, 2011.  The Company conducts its business principally through the Bank.  Management prepared the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, including the elimination of all significant inter-company accounts and transactions during consolidation.

2.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, income, changes in stockholders’ equity and cash flows in conformity with generally accepted accounting principles (“GAAP”).  However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included.  The results of operations for the three month period ended September 30, 2011, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period.

The data in the consolidated statements of financial condition for June 30, 2011 was derived from the Company’s annual report on Form 10-K.  That data, along with the interim financial information presented in the consolidated statements of financial condition, operations, changes in stockholders’ equity and cash flows should be read in conjunction with the 2011 consolidated financial statements, including the notes thereto included in the Company’s annual report on Form 10-K.

3.  NET INCOME PER COMMON SHARE (“EPS”)

Basic EPS is based on the weighted average number of common shares actually outstanding including restricted stock awards (see following paragraph) adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method.  Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.

The Financial Accounting Standards Board (“FASB”) has issued guidance on determining whether instruments granted in share-based payment transactions are participating securities.  This guidance clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders.  Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied.
 
 
- 8 -

 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

 
Three Months Ended
 
 
September 30, 2011
 
 
Income
 
Shares
 
Per Share
 
 
(Numerator)
 
(Denominator)
 
Amount
 
 
(In Thousands, Except Per Share Data)
 
                   
Net income
  $ 2,018              
Basic earnings per share,
                   
     income available to
                   
     common stockholders
  $ 2,018       66,961     $ 0.03  
Effect of dilutive securities:
                       
     Stock options
    -       -          
                         
    $ 2,018       66,961     $ 0.03  


 
Three Months Ended
 
 
September 30, 2010
 
 
Income
 
Shares
 
Per Share
 
 
(Numerator)
 
(Denominator)
 
Amount
 
 
(In Thousands, Except Per Share Data)
 
                   
Net income
  $ 1,335              
Basic earnings per share,
                   
     income available to
                   
     common stockholders
  $ 1,335       67,219     $ 0.02  
Effect of dilutive securities:
                       
     Stock options
    -       -          
                         
    $ 1,335       67,219     $ 0.02  
 
   
During the three months ended September 30, 2011 and September 30, 2010, the average number of options which were considered anti-dilutive totaled approximately 3,226,000 and 3,233,000, respectively.
 
4.  SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 2011, for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date this document was filed.

5.  RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued guidance concerning fair value measurement and disclosures.  The guidance mandates additional disclosure requiring that a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers while also requiring that in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).  The guidance clarifies existing fair value disclosure requirements such that a
 
- 9 -


reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position.
 
A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.  Moreover, a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.  This guidance also includes conforming amendments regarding employers' disclosures about postretirement benefit plan assets.  The conforming amendments change the terminology from “major categories” of assets to “classes” of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The implementation of the new pronouncement did not have a material impact on the Company’s consolidated financial position or results of operations.

In December 2010, the FASB issued amended guidance concerning goodwill impairment testing.  The amended guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and related examples, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  These amendments eliminate an entity’s ability to assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairments may be reported sooner than under current practice.

For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.  Upon adoption of the amendments, an entity with reporting units that have carrying amounts that are zero or negative is required to assess whether it is more likely than not that the reporting units’ goodwill is impaired. If the entity determines that it is more likely than not that the goodwill of one or more of its reporting units is impaired, the entity should perform Step 2 of the goodwill impairment test for those reporting unit(s). Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings as required by existing guidance.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
 
In January 2011, the FASB issued amendments that temporarily delay the effective date of the disclosures about troubled debt restructurings that are required in conjunction with a prior update relating to public entities. Under the existing effective date in that prior update, public-entity creditors would have
 
 
 
- 10 -

 
 
provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The delay was intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring.  In April 2011, the FASB has issued an Update to clarify the accounting principles applied to loan modifications.  The Update clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than a focus on specific criteria, such as the effective interest rate test, to determine a concession. The Update goes on to provide guidance on specific types of modifications such as changes in the interest rate of the borrowing, and insignificant delays in payments, as well as guidance on the creditor’s evaluation of whether or not a debtor is experiencing financial difficulties. For public entities, the amendments in the Update, including providing disclosure in regard to troubled debt restructuring, are effective for the first interim or annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.   The implementation of the new pronouncement did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2011, the FASB issued Accounting Standards Update 2011-03 which clarifies the accounting principles applied to repurchase agreements, as set forth by FASB ASC Topic 860, Transfers and Servicing. This ASU, entitled Reconsideration of Effective Control for Repurchase Agreements, amends one of three criteria used to determine whether or not a transfer of assets may be treated as a sale by the transferor. Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This ASU eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This ASU is effective for interim and annual reporting periods beginning on or after December 31, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date.  Early adoption is not permitted.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
 
In June 2011, the FASB issued Accounting Standards Update 2011-05 which amends FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The ASU prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate, but consecutive, statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this ASU are effective for fiscal years and interim periods beginning after December 31, 2011 for public entities. As the two remaining options for presentation existed prior to the issuance of this ASU, early adoption is permitted. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In September, 2011, the FASB issued Accounting Standards Update (ASU) 2011-08, Testing Goodwill for Impairment. The purpose of this ASU is to simplify how entities test goodwill for impairment by adding a new first step to the preexisting goodwill impairment test under ASC Topic 350, Intangibles – Goodwill and other.  This amendment gives the entity the option to first assess a variety of qualitative factors such as economic conditions, cash flows, and competition to determine whether it was more likely than not that the fair value of goodwill has fallen below its carrying value. If the entity determines that it is not likely that the fair value has fallen below its carrying value, then the entity will not have to complete the original two-step test under Topic 350. The amendments in this ASU are effective for impairment tests performed for fiscal years beginning after December 15, 2011. Early
 
 
- 11 -

 
 
adoption is permitted. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In September, 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan. This ASU creates additional disclosures for employers participating in multiemployer pension plans to provide clarity with regard to the employer’s involvement in the plan, as well as the financial health of the plan itself. Participating employers will now be required to disclose plan names, contribution amounts, funded status, minimum contribution requirements, and other relevant plan information for all years presented on the statement of income. The ASU does not amend the accounting requirements for such contributions and liabilities, and as such will only impact the level of disclosure made with regard to the plan. For public companies, the amendments of this ASU are effective for annual periods for fiscal years ending after December 15, 2011. For nonpublic companies, the amendments are effective for annual periods for fiscal years ending after December 15, 2012. Early adoption by both public and nonpublic entities is permitted.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

6.  STOCK REPURCHASE PLANS
 
On August 17, 2011, the Company announced the completion of its stock repurchase plan originally announced on May 26, 2010 through which it repurchased a total of 889,506 shares at an average cost of $9.07 per share.  On that same day, the Company announced that the Board of Directors authorized a new stock repurchase plan to acquire up to 845,031 shares, or 5% of the Company’s outstanding stock held by persons other than Kearny MHC.  Through September 30, 2011 the Company has repurchased a total of 256,000 shares in accordance with this repurchase plan at a total cost of $2.3 million and at an average cost per share of $8.79.
 
7.  DIVIDEND WAIVER

During the three months ended September 30, 2011, Kearny MHC, the federally chartered mutual holding company of the Company waived its right, in accordance with the non-objection previously granted by the Federal Reserve Bank (“FRB”), to receive cash dividends of approximately $2.5 million declared on the 50,916,250 shares of Company common stock it owns.


 
- 12 -

 

8.  SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses and estimated fair values of securities at September 30, 2011 and June 30, 2011 and stratification by contractual maturity of securities at September 30, 2011 are presented below:
 
   
At September 30, 2011
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Carrying
Value
 
   
(In Thousands)
 
Securities:
                       
  Debt securities:
                       
    Trust preferred securities
  $ 8,865     $ -     $ 2,399     $ 6,466  
    U.S. agency securities
    6,361       -       15       6,346  
    Obligations of state and political
                               
     subdivisions
    5,058       1       -       5,059  
                                 
       Total securities
    20,284       1       2,414       17,871  
                                 
  Mortgage-backed securities:
                               
    Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    3,181       45       -       3,226  
                                 
       Total collateralized mortgage
                               
        obligations
    3,181       45       -       3,226  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
    Association
    12,125       1,031       20       13,136  
    Federal Home Loan Mortgage
                               
    Corporation
    357,257       11,654       30       368,881  
    Federal National Mortgage Association
    675,426       23,447       23       698,850  
                                 
       Total mortgage pass-through securities
    1,044,808       36,132       73       1,080,867  
                                 
       Total mortgage-backed securities
    1,047,989       36,177       73       1,084,093  
 
Total securities available for sale
  $ 1,068,273     $ 36,178     $ 2,487     $ 1,101,964  

 
   
At September 30, 2011
 
   
Amortized Cost
   
Carrying Value
 
   
(In Thousands)
 
Debt securities:
           
  Due in one year or less
  $ 5,058     $ 5,059  
  Due after one year through five years
    -       -  
  Due after five years through ten years
    62       62  
  Due after ten years
    15,164       12,750  
                 
    Total
  $ 20,284     $ 17,871  
 
 
- 13 -


 
   
At June 30, 2011
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Carrying
Value
 
   
(In Thousands)
 
Securities:
                       
  Debt securities:
                       
    Trust preferred securities
  $ 8,863     $ -     $ 1,416     $ 7,447  
    U.S. agency securities
    6,657       -       66       6,591  
    Obligations of state and political
                               
     subdivisions
    30,625       10       -       30,635  
                                 
       Total securities
    46,145       10       1,482       44,673  
                                 
  Mortgage-backed securities:
                               
    Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    3,437       28       -       3,465  
                                 
       Total collateralized mortgage
                               
        obligations
    3,437       28       -       3,465  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
    Association
    12,614       991       24       13,581  
    Federal Home Loan Mortgage
                               
    Corporation
    380,387       10,092       31       390,448  
    Federal National Mortgage Association
    635,969       17,175       391       652,753  
                                 
       Total mortgage pass-through securities
    1,028,970       28,258       446       1,056,782  
                                 
       Total mortgage-backed securities
    1,032,407       28,286       446       1,060,247  
 
Total securities available for sale
  $ 1,078,552     $ 28,296     $ 1,928     $ 1,104,920  

There were no sales of securities from the available for sale portfolio during the three months ended September 30, 2011 and September 30, 2010.  At September 30, 2011 and June 30, 2011, securities available for sale with carrying value of approximately $319.3 million and $317.8 million, respectively, were utilized as collateral for borrowings through the FHLB of New York.  As of those same dates, securities available for sale with carrying values of approximately $9.7 million and $10.6 million, respectively, were pledged to secure public funds on deposit.
 
The Company’s available for sale mortgage-backed securities are generally secured by residential mortgage loans with original contractual maturities of ten to thirty years.  However, the effective lives of those securities are generally shorter than their contractual maturities due to principal amortization and prepayment of the mortgage loans comprised within those securities.  Investors in mortgage pass-though securities generally share in the receipt of principal repayments on a pro-rata basis as paid by the borrowers.  By comparison, collateralized mortgage obligations generally represent individual tranches within a larger investment vehicle that is designed to distribute cash flows received on securitized mortgage loans to investors in a manner determined by the overall terms and structure of the investment vehicle and those applying to the individual tranches within that structure.

 
- 14 -

 

9.  SECURITIES HELD TO MATURITY

The amortized cost, gross unrealized gains and losses and estimated fair values of securities at September 30, 2011 and June 30, 2011 and stratification by contractual maturity of securities at September 30, 2011 are presented below:
 
    
At September 30, 2011
 
   
Carrying
Value
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair Value
 
   
(In Thousands)
 
Securities:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 73,229     $ 595     $ -     $ 73,824  
    Obligations of state and political
                               
     subdivisions
    2,989       7       -       2,996  
                                 
       Total securities
    76,218       602       -       76,820  
                                 
Mortgage-backed securities:
                               
                                 
  Collateralized mortgage obligations:
                               
    Federal Home Loan Mortgage
                               
     Corporation
    60       9       -       69  
    Federal National Mortgage Association
    592       83       -       675  
    Non-agency securities
    198       1       18       181