f10q_093012-0128.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, 2012
     
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  [X]  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 9, 2012.
     
$0.10 par value common stock  - 66,820,340 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, 2012 and June 30, 2012 (Unaudited)
 
1
     
 
Consolidated Statements of Income for the Three Months
   
 
Ended September 30, 2012 and September 30, 2011 (Unaudited)
 
2-3
     
 
Consolidated Statements of Comprehensive Income for the Three Months
   
 
Ended September 30, 2012 and September 30, 2011 (Unaudited)
 
4
     
 
Consolidated Statements of Changes in Stockholders’ Equity for the
   
 
Three Months Ended September 30, 2012 and September 30, 2011
 
5-6
 
(Unaudited)
   
     
 
Consolidated Statements of Cash Flows for the Three Months
 
7-8
 
Ended September 30, 2012 and September 30, 2011 (Unaudited)
   
     
 
Notes to Consolidated Financial Statements (Unaudited)
 
9-57
     
Item 2:    
Management’s Discussion and Analysis of
   
 
Financial Condition and Results of Operations
 
58-75
     
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,
 
   
2012
   
2012
 
Assets
           
             
Cash and amounts due from depository institutions
  $ 62,769     $ 38,028  
Interest-bearing deposits in other banks
    125,302       117,556  
                 
        Cash and Cash Equivalents
    188,071       155,584  
                 
Securities available for sale (amortized cost $14,475 and $14,613)
    12,705       12,602  
Securities held to maturity (estimated fair value $4,439 and $34,838)
    4,368       34,662  
Loans receivable, including unamortized yield adjustments of $(1,274) and $(1,654)
    1,287,831       1,284,236  
  Less allowance for loan losses
    (9,849 )     (10,117 )
                 
  Net Loans Receivable
    1,277,982       1,274,119  
                 
Mortgage-backed securities available for sale (amortized cost $1,158,455 and
   $1,188,373)
     1,207,231        1,230,104  
Mortgage-backed securities held to maturity (estimated fair value $1,095 and $1,159)
    1,027       1,090  
Premises and equipment
    38,118       38,677  
Federal Home Loan Bank of New York (“FHLB”) stock
    14,141       14,142  
Interest receivable
    8,278       8,395  
Goodwill
    108,591       108,591  
Bank owned life insurance
    49,501       48,615  
Other assets
    10,086       10,425  
 
               
        Total Assets
  $ 2,920,099     $ 2,937,006  
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 166,028     $ 165,118  
  Interest-bearing
    1,979,627       2,006,679  
                 
        Total Deposits
    2,145,655       2,171,797  
                 
Borrowings
    250,286       249,777  
Advance payments by borrowers for taxes
    6,027       5,974  
Deferred income tax liabilities, net
    9,917       7,276  
Other liabilities
    11,510       10,565  
                 
        Total Liabilities
    2,423,395       2,445,389  
                 
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; 66,870,140 and 66,936,040 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    215,582       215,539  
Retained earnings
    321,321       319,661  
Unearned Employee Stock Ownership Plan shares; 642,509 shares
               
  and 678,878 shares, respectively
    (6,425 )     (6,789 )
Treasury stock, at cost; 5,867,360 shares and 5,801,460 shares, respectively
    (68,311 )     (67,664 )
Accumulated other comprehensive income
    27,263       23,596  
                 
        Total Stockholders’ Equity
    496,704       491,617  
                 
        Total Liabilities and Stockholders’ Equity
  $ 2,920,099     $ 2,937,006  
See notes to consolidated financial statements.

 
-1-

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data, Unaudited)
 
   
Three Months Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Interest Income
           
    Loans
  $ 15,776     $ 16,468  
    Mortgage-backed securities
    7,003       7,982  
    Securities:
               
      Taxable
    226       492  
      Tax-exempt
    6       44  
    Other interest-earning assets
    195       195  
        Total Interest Income
    23,206       25,181  
                 
Interest Expense
               
    Deposits
    4,277       5,592  
    Borrowings
    2,054       2,042  
        Total Interest Expense
    6,331       7,634  
                 
        Net Interest Income
    16,875       17,547  
                 
Provision for Loan Losses
    339       1,065  
                 
        Net Interest Income after Provision
               
           for Loan Losses
    16,536       16,482  
                 
Non-Interest Income
               
    Fees and service charges
    629       626  
    Gain on sale of loans
    -       186  
    Loss on sale and write down of real
       estate owned
     (294 )      (36 )
    Income from bank owned life
      insurance
     383        190  
    Electronic banking fees and charges
    289       235  
    Miscellaneous
    193       75  
        Total Non-Interest Income
    1,200       1,276  
                 
Non-Interest Expenses
               
    Salaries and employee benefits
    8,812       8,161  
    Net occupancy expense of
               
      premises
    1,598       1,585  
    Equipment and systems
    1,977       1,969  
    Advertising and marketing
    286       301  
    Federal deposit insurance
               
      premium
    552       485  
    Directors’ compensation
    167       166  
    Miscellaneous
    1,881       1,772  
        Total Non-Interest Expenses
  $ 15,273     $ 14,439  

 
-2-

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(In Thousands, Except Per Share Data, Unaudited)
 
   
Three Months Ended
 
   
September 30,
 
   
2012
   
2011
 
             
      Income Before Income Taxes
  $ 2,463     $ 3,319  
                 
Income Taxes
    803       1,301  
                 
      Net Income
  $ 1,660     $ 2,018  
                 
Net Income per Common
               
  Share (EPS):
               
    Basic and Diluted
  $ 0.03     $ 0.03  
                 
Weighted Average Number of
               
  Common Shares Outstanding:
               
    Basic and Diluted
    66,256       66,961  
                 
Dividends Declared Per Common
               
   Share
  $ -     $ 0.05  
 
See notes to consolidated financial statements.

 
-3-

 
 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Unaudited)
 
 
   
Three Months Ended
 
   
September 30,
 
   
2012
   
2011
 
             
 Net Income
  $ 1,660     $ 2,018  
                 
Other Comprehensive Income:
               
                 
  Unrealized gain on securities
               
      available for sale, net of
               
      deferred income tax expense of
               
      2012 $2,934, 2011 $2,990
    4,353       4,332  
                 
  Benefit plans, net of  deferred
               
     income tax (benefit) expense of
               
     2012 $(473), 2011 $120
    (686 )     173  
                 
Total Other Comprehensive Income
    3,667       4,505  
                 
Total Comprehensive Income
  $ 5,327     $ 6,523  
                 
 
See notes to consolidated financial statements.
 
 
-4-

 
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2011
(In Thousands, Except Per Share Data, Unaudited)
 
                                       
Accumulated
       
                           
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  
                                                                 
Net income
    -       -       -       2,018       -       -       -       2,018  
                                                                 
Other comprehensive income,
                                                               
  net of income tax
    -       -       -       -       -       -       4,505       4,505  
                                                                 
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 CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended September 30, 2012
(In Thousands, Except Per Share Data, Unaudited)
 
                                       
Accumulated
       
                           
Unearned
         
Other
       
   
Common Stock
   
Paid-In
   
Retained
   
ESOP
   
Treasury
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Stock
   
Income
   
Total
 
                                                 
Balance - June 30, 2012
    66,936     $ 7,274     $ 215,539     $ 319,661     $ (6,789 )   $ (67,664 )   $ 23,596     $ 491,617  
                                                                 
 Net income
    -       -       -       1,660       -       -       -       1,660  
                                                                 
Other comprehensive income
                                                               
   net of income tax
    -       -       -       -       -       -       3,667       3,667  
                                                                 
ESOP shares committed to be released
                                                               
  (36 shares)
    -       -       (8 )     -       364       -       -       356  
                                                                 
Dividends contributed for payment of
                                                               
    ESOP loan
    -       -       (2 )     -       -       -       -       (2 )
                                                                 
Stock option expense
    -       -       11       -       -       -       -       11  
                                                                 
Treasury stock purchases
    (66 )     -       -       -       -       (647 )     -       (647 )
                                                                 
Restricted stock plan shares earned
                                                               
  (4 shares)
    -       -       42       -       -       -       -       42  
                                                                 
                                                                 
Balance - September 30, 2012
    66,870     $ 7,274     $ 215,582     $ 321,321     $ (6,425 )   $ (68,311 )   $ 27,263     $ 496,704  
 
See notes to consolidated financial statements. 
 
 
-6-

 

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
 
   
Three Months Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Cash Flows from Operating Activities:
           
    Net income
  $ 1,660     $ 2,018  
    Adjustments to reconcile net income to net cash provided by operating
               
      activities:
               
        Depreciation and amortization of premises and equipment
    653       642  
        Net amortization of premiums, discounts and loan fees and costs
    2,763       1,691  
        Deferred income taxes
    181       (268 )
        Amortization of intangible assets
    37       41  
        Amortization of benefit plans’ unrecognized net loss
    25       10  
        Provision for loan losses
    339       1,065  
        Loss on write-down and sales of real estate owned
    294       36  
        Realized gain on sale of loans
    -       (186 )
        Proceeds from sale of loans
    -       2,187  
        Realized gain on disposition of premises and equipment
    (100 )     -  
        Increase in cash surrender value of bank owned life insurance
    (383 )     (190 )
        ESOP, stock option plan and restricted stock plan expenses
    409       379  
       Decrease in interest receivable
    117       1,146  
       Decrease in other assets
    820       2,379  
       Increase (decrease) in interest payable
    22       (26 )
       (Decrease) increase in other liabilities
    (216 )     456  
                 
            Net Cash Provided by Operating Activities
    6,621       11,380  
                 
Cash Flows from Investing Activities:
               
    Proceeds from calls and maturities of securities available for sale
    -       25,544  
    Proceeds from repayments of securities available for sale
    134       288  
    Purchase of securities held to maturity
    (50 )     (70 )
    Proceeds from calls and maturities of securities held to maturity
    30,070       30,090  
    Proceeds from repayments of securities held to maturity
    260       205  
    Purchase of loans
    (4,144 )     (4,056 )
    Net (increase) decrease in loans receivable
    (1,647 )     25,784  
    Proceeds from sale of real estate owned
    996       -  
    Purchases of mortgage-backed securities available for sale
    (72,891 )     (78,902 )
    Principal repayments on mortgage-backed securities available for sale
    99,659       61,329  
    Principal repayments on mortgage-backed securities held to maturity
    66       57  
    Redemption of FHLB stock
    1       1  
    Purchase of bank owned life insurance
    (503 )     -  
    Proceeds from cash settlement of premises and equipment
    200       -  
    Additions to premises and equipment
    (194 )     (448 )
                 
            Net Cash Provided By Investing Activities
  $ 51,957     $ 59,822  
 
 

 
-7-

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands, Unaudited)
 
   
Three Months Ended
 
   
September 30,
 
   
2012
   
2011
 
             
Cash Flows from Financing Activities:
           
    Net decrease in deposits
  $ (26,041 )   $ (489 )
    Repayment of long-term FHLB advances
    (21 )     (19 )
    Increase in other short-term borrowings
    567       206  
    Increase (decrease) in advance payments by borrowers for taxes
    53       (14 )
    Dividends paid to stockholders of Kearny Financial Corp.
    -       (801 )
    Purchase of common stock of Kearny Financial Corp. for treasury
    (647 )     (2,571 )
    Dividends contributed for payment of ESOP loan
    (2 )     36  
                 
            Net Cash Used in Financing Activities
    (26,091 )     (3,652 )
                 
            Net Increase in Cash and Cash Equivalents
    32,487       67,550  
                 
Cash and Cash Equivalents – Beginning
    155,584       222,580  
                 
Cash and Cash Equivalents – Ending
  $ 188,071     $ 290,130  
                 
Supplemental Disclosures of Cash Flows Information:
               
    Cash paid during the year for:
               
        Income taxes, net of refunds
  $ 328     $ (866 )
                 
        Interest
  $ 6,309     $ 7,660  
                 
    Non-cash investing and financing activities:
               
        Acquisition of  real estate owned in settlement of loans
  $ 1,809     $ -  
                 
 
See notes to consolidated financial statements.
 

 
-8-

 

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 subsidiary, Kearny Federal Savings Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries, KFS Financial Services, Inc., KFS Investment Corp. and CJB Investment Corp. 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 (“GAAP”), 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 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, 2012, 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, 2012 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, income, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the 2012 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.

 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:
 
 
 
-9-

 
 
 
Three Months Ended
 
 
September 30. 2012
 
 
Income
 
Shares
 
Per Share
 
 
(Numerator)
 
(Denominator)
 
Amount
 
 
(In Thousands, Except Per Share Data)
 
                   
Net income
  $ 1,660              
Basic earnings per share,
                   
     income available to
                   
     common stockholders
  $ 1,660       66,256     $ 0.03  
Effect of dilutive securities:
                       
     Stock options
    -       -          
                         
    $ 1,660       66,256     $ 0.03  
 
 
 
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  
 
 
During the three months ended September 30, 2012 and September 30, 2011, the average number of options which were considered anti-dilutive totaled approximately 3,193,000 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, 2012, 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 and identified the following noteworthy event:
 
At the end of October, a severe hurricane swept through New Jersey and caused significant damage in our market area.  Due to the weather and power outages, we were forced to close all our offices for several days and some of branches were closed for more than one week.  None of our offices were significantly damaged as a result of the storm and all locations resumed normal operations by November 13, 2012.  However, we are still in the process of assessing the impact of the hurricane on our borrowers and the properties and other collateral securing their loans.  It is foreseeable that business disruptions and storm damage may make it difficult for some borrowers to service their loans in a timely manner.  Such factors may result in an increase in the level of nonperforming loans while adversely impacting earnings
 

 
-10-

 

through potential reductions in interest income and additional provisions to the allowance for loans losses.  Additionally, the disruption of business may adversely impact our loan origination volume for the quarter ending December 31, 2012.
 
5.  RECENT ACCOUNTING PRONOUNCEMENTS
 
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 three 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 within those years, 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 implementation of the new pronouncement did not have a material impact on the Company’s consolidated financial position or results of operations.
 
In September 2011, the FASB issued Accounting Standards Update 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 adoption is permitted. 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 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05. In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration. The requirement in ASU 2011-05, Presentation of Comprehensive Income, for the presentation of a combined statement of comprehensive income or separate, but consecutive, statements of net income and other comprehensive income is still effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 for public companies.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
 
6.  STOCK REPURCHASE PLANS
 
On March 23, 2012, the Company announced that the Board of Directors authorized a stock repurchase plan to acquire up to 802,780 shares, or 5% of the Company’s outstanding stock held by persons other than Kearny MHC.  Through September 30, 2012 the Company has repurchased a total of 101,700 shares in accordance with this repurchase plan at a total cost of $981,000 and at an average cost per share of $9.64.
 
 
-11-

 

7.  SECURITIES AVAILABLE FOR SALE
 
The amortized cost, gross unrealized gains and losses and estimated fair values of securities available for sale at September 30, 2012 and June 30, 2012 and stratification by contractual maturity of such securities at September 30, 2012 are presented below:
 
   
At September 30, 2012
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Carrying Value
 
   
(In Thousands)
 
Securities available for sale:
                       
  Debt securities:
                       
    Trust preferred securities
  $ 8,873     $ -     $ 1,925     $ 6,948  
    U.S. agency securities
    5,602       156       1       5,757  
                                 
          Total debt securities
    14,475       156       1,926       12,705  
                                 
Mortgage-backed securities:
                               
  Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    2,295       30       -       2,325  
                                 
          Total collateralized mortgage
                               
            obligations
    2,295       30       -       2,325  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
      Association
    10,414       912       16       11,310  
    Federal Home Loan Mortgage
                               
      Corporation
    443,061       15,452       17       458,496  
    Federal National Mortgage Association
    702,685       32,427       12       735,100  
                                 
         Total mortgage pass-through securities
    1,156,160       48,791       45       1,204,906  
                                 
         Total mortgage-backed
            securities
    1,158,455       48,821       45       1,207,231  
 
Total securities available for sale
  $ 1,172,930     $ 48,977     $ 1,971     $ 1,219,936  
 
 
   
At September 30, 2012
 
   
Amortized Cost
   
Carrying Value
 
   
(In Thousands)
 
Debt securities available for sale:
           
    Due in one year or less
  $ -     $ -  
    Due after one year through five years
    -       -  
    Due after five years through ten years
    398       399  
    Due after ten years
    14,077       12,306  
                 
          Total
  $ 14,475     $ 12,705  
 
 
 
-12-

 
 
   
At June 30, 2012
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Carrying Value
 
   
(In Thousands)
 
Securities available for sale:
                       
  Debt securities:
                       
    Trust preferred securities
  $ 8,871     $ -     $ 2,158     $ 6,713  
    U.S. agency securities
    5,742       148       1       5,889  
                                 
          Total debt securities
    14,613       148       2,159       12,602  
                                 
Mortgage-backed securities:
                               
  Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    2,493       30       -       2,523  
                                 
          Total collateralized mortgage
                               
            obligations
    2,493       30       -       2,523  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
      Association
    10,804       903       17       11,690  
    Federal Home Loan Mortgage
                               
      Corporation
    447,173       13,357       21       460,509  
    Federal National Mortgage Association
    727,903       27,512       33       755,382  
                                 
         Total mortgage pass-through securities
    1,185,880       41,772       71       1,227,581  
                                 
         Total mortgage-backed
            securities
    1,188,373       41,802       71       1,230,104  
 
Total securities available for sale
  $ 1,202,986     $ 41,950     $ 2,230     $ 1,242,706  
 
There were no sales of securities from the available for sale portfolio during the three months ended September 30, 2012 and September 30, 2011.  At September 30, 2012 and June 30, 2012, securities available for sale with carrying values of approximately $269.5 million and $292.8 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 $6.5 million and $7.2 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.
 

 
-13-

 

8.  SECURITIES HELD TO MATURITY
 
The amortized cost, gross unrealized gains and losses and estimated fair values of securities held to maturity at September 30, 2012 and June 30, 2012 and stratification by contractual maturity of such securities at September 30, 2012 are presented below:
 
   
September 30, 2012
 
   
Carrying Value
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
   
(In Thousands)
 
Securities held to maturity:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 2,152     $ 69     $ -     $ 2,221  
    Obligations of state and political
                               
      subdivisions
    2,216       2       -       2,218  
                                 
          Total debt securities
    4,368       71       -       4,439  
                                 
Mortgage-backed securities:
                               
  Collateralized mortgage obligations:
                               
    Federal Home Loan Mortgage
                               
      Corporation
    36       5       -       41  
    Federal National Mortgage Association
    470       56       -       526  
    Non-agency securities
    141       1       12       130  
                                 
          Total collateralized mortgage
                               
            obligations
    647       62       12       697  
                                 
  Mortgage pass-through securities:
                               
    Federal Home Loan Mortgage
                               
      Corporation
    113       6       -       119  
    Federal National Mortgage Association
    267       12       -       279  
                                 
          Total mortgage pass-through securities
    380       18       -       398  
                                 
          Total mortgage-backed
                               
            securities
    1,027       80       12       1,095  
                                 
          Total securities held to maturity
  $ 5,395     $ 151     $ 12     $ 5,534  
 
 
   
At September 30, 2012
 
   
Carrying Value
   
Fair Value
 
   
(In Thousands)
 
Debt securities held to maturity:
           
    Due in one year or less
  $ 2,216     $ 2,218  
    Due after one year through five years
    2,152       2,221  
    Due after five years through ten years
    -       -  
    Due after ten years
    -       -  
                 
          Total
  $ 4,368     $ 4,439  
 
 
 
-14-

 
 
   
At June 30, 2012
 
   
Carrying Value
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
   
(In Thousands)
 
Securities held to maturity:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 32,426     $ 172     $ -     $ 32,598  
    Obligations of state and political
                               
      subdivisions
    2,236       4       -       2,240  
                                 
          Total debt securities
    34,662       176       -       34,838  
                                 
Mortgage-backed securities:
                               
                                 
  Collateralized mortgage obligations:
                               
    Federal Home Loan Mortgage
                               
      Corporation
    38       5       -       43  
    Federal National Mortgage Association
    511       62       -       573  
    Non-agency securities
    146       -       13       133  
                                 
          Total collateralized mortgage
                               
            obligations
    695       67       13       749  
                                 
  Mortgage pass-through securities:
                               
    Federal Home Loan Mortgage
                               
      Corporation
    120       5       -       125  
    Federal National Mortgage Association
    275       10       -       285