f10q_123112-0128.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
December 31, 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: February 8, 2013.
     
$0.10 par value common stock  -  66,751,340 shares outstanding

 
 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
 
INDEX

 
   
Page
   
Number
PART I - FINANCIAL INFORMATION
   
     
Item 1:
Financial Statements
   
     
 
Consolidated Statements of Financial Condition
   
 
at December 31, 2012 and June 30, 2012 (Unaudited)
 
1
     
 
Consolidated Statements of Income for the Three and Six Months
   
 
Ended December 31, 2012 and December 31, 2011 (Unaudited)
 
2-3
     
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months
   
 
Ended December 31, 2012 and December 31, 2011 (Unaudited)
 
4
     
 
Consolidated Statements of Changes in Stockholders’ Equity for the
   
 
Six Months Ended December 31, 2012 and December 31, 2011
 
5-6
 
(Unaudited)
   
     
 
Consolidated Statements of Cash Flows for the Six Months
 
7-8
 
Ended December 31, 2012 and December 31, 2011 (Unaudited)
   
     
 
Notes to Consolidated Financial Statements (Unaudited)
 
9-62
     
Item 2:
Management’s Discussion and Analysis of
   
 
Financial Condition and Results of Operations
 
63-87
     
Item 3:
Quantitative and Qualitative Disclosure About Market Risk
 
88-95
     
Item 4:
Controls and Procedures
 
96
     
     
PART II - OTHER INFORMATION
 
97-99
     
     
SIGNATURES
 
100
     


 
 

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Data)
   
December 31,
   
June 30,
 
   
2012
   
2012
 
    (Unaudited)        
Assets
           
             
Cash and amounts due from depository institutions
  $ 28,497     $ 38,028  
Interest-bearing deposits in other banks
    158,494       117,556  
                 
        Cash and Cash Equivalents
    186,991       155,584  
                 
Debt securities available for sale (amortized cost $14,202 and $14,613)
    12,761       12,602  
Debt securities held to maturity (fair value $147,306 and $34,838)
    147,225       34,662  
Loans receivable, including unamortized yield adjustments of $(1,240) and $(1,654)
    1,302,012       1,284,236  
  Less allowance for loan losses
    (10,594 )     (10,117 )
                 
  Net Loans Receivable
    1,291,418       1,274,119  
                 
Mortgage-backed securities available for sale (amortized cost $991,726 and $1,188,373)
     1,030,906        1,230,104  
Mortgage-backed securities held to maturity (fair value $1,010 and $1,159)
    941       1,090  
Premises and equipment
    37,813       38,677  
Federal Home Loan Bank of New York (“FHLB”) stock
    14,140       14,142  
Interest receivable
    7,876       8,395  
Goodwill
    108,591       108,591  
Bank owned life insurance
    49,894       48,615  
Other assets
    9,051       10,425  
 
               
        Total Assets
  $ 2,897,607     $ 2,937,006  
                 
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 167,400     $ 165,118  
  Interest-bearing
    1,973,065       2,006,679  
                 
        Total Deposits
    2,140,465       2,171,797  
                 
Borrowings
    242,145       249,777  
Advance payments by borrowers for taxes
    6,301       5,974  
Deferred income tax liabilities, net
    6,295       7,276  
Other liabilities
    10,614       10,565  
                 
        Total Liabilities
    2,405,820       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; 66,764,740 and 66,936,040 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    215,609       215,539  
Retained earnings
    322,498       319,661  
Unearned Employee Stock Ownership Plan shares; 606,141 shares
               
  and 678,878 shares, respectively
    (6,062 )     (6,789 )
Treasury stock, at cost; 5,972,760 shares and 5,801,460 shares, respectively
    (69,299 )     (67,664 )
Accumulated other comprehensive income
    21,767       23,596  
                 
        Total Stockholders’ Equity
    491,787       491,617  
                 
        Total Liabilities and Stockholders’ Equity
  $ 2,897,607     $ 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
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Interest Income
                       
    Loans
  $ 15,165     $ 16,216     $ 30,941     $ 32,684  
    Mortgage-backed securities
    6,162       7,933       13,165       15,915  
    Securities:
                               
      Taxable
    274       334       500       826  
      Tax-exempt
    6       11       12       55  
    Other interest-earning assets
    195       182       390       377  
        Total Interest Income
    21,802       24,676       45,008       49,857  
                                 
Interest Expense
                               
    Deposits
    3,773       5,223       8,050       10,815  
    Borrowings
    2,035       2,035       4,089       4,077  
        Total Interest Expense
    5,808       7,258       12,139       14,892  
                                 
        Net Interest Income
    15,994       17,418       32,869       34,965  
                                 
Provision for Loan Losses
    1,393       1,323       1,732       2,388  
                                 
        Net Interest Income after Provision
                               
           for Loan Losses
    14,601       16,095       31,137       32,577  
                                 
Non-Interest Income
                               
    Fees and service charges
    617       639       1,246       1,265  
    Gain on sale of loans
    -       123       -       309  
    Gain (loss) on sale of securities
    1,097       (5 )     1,097       (5 )
    Loss on sale and write down of real
       estate owned
     (239 )      (2,020 )      (533 )      (2,056 )
    Income from bank owned life
      insurance
     393        185        776        375  
    Electronic banking fees and charges
    285       236       574       471  
    Miscellaneous
    132       81       325       156  
        Total Non-Interest Income (Loss)
    2,285       (761 )     3,485       515  
                                 
Non-Interest Expenses
                               
    Salaries and employee benefits
    8,791       8,383       17,603       16,544  
    Net occupancy expense of
                               
      premises
    1,655       1,596       3,253       3,181  
    Equipment and systems
    1,896       1,774       3,873       3,743  
    Advertising and marketing
    275       321       561       622  
    Federal deposit insurance
                               
      premium
    549       496       1,101       981  
    Directors’ compensation
    175       158       342       324  
    Miscellaneous
    1,850       1,964       3,731       3,736  
        Total Non-Interest Expenses
  $ 15,191     $ 14,692     $ 30,464     $ 29,131  

 
- 2 -

 

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

    
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
      Income Before Income Taxes
  $ 1,695     $ 642     $ 4,158     $ 3,961  
                                 
Income Taxes
    518       172       1,321       1,473  
                                 
      Net Income
  $ 1,177     $ 470     $ 2,837     $ 2,488  
                                 
Net Income per Common
                               
  Share (EPS):
                               
    Basic and Diluted
  $ 0.02     $ 0.01     $ 0.04     $ 0.04  
                                 
Weighted Average Number of
                               
  Common Shares Outstanding:
                               
    Basic and Diluted
    66,188       66,498       66,222       66,733  
                                 
Dividends Declared Per Common
                               
   Share
  $ -     $ 0.05     $ -     $ 0.10  

See notes to consolidated financial statements.

 
- 3 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands, Unaudited)

 

    
Three Months Ended
   
Six Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income
  $ 1,177     $ 470     $ 2,837     $ 2,488  
                                 
Other Comprehensive Income (Loss):
                               
                                 
                                 
Realized gain on securities available for sale, net of deferred income
                               
  tax expense of 2012 $(452), $(452) and 2011 $ -, $ -
    (651     -       (651     -  
                                 
Unrealized gain (loss) on securities available for sale, net of deferred income
                               
  tax (benefit) expense of 2012 $(3,305), $(371) and, 2011 $(361), $2,629
    (4,860     (504     (507     3,828  
                                 
Benefit plans, net of deferred income tax (benefit) expense of 
                               
  2012 $10, $(464) and, 2011 $4, $124
    15       6       (671     179  
                                 
Total Other Comprehensive Income (Loss)     (5,946     (498      (1,829     4,007  
                                 
Total Comprehensive Income (Loss)   (4,319   (28   1,008     6,495  
 
See notes to consolidated financial statements.

 
- 4 -

 
 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended December 31, 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
    -       -       -       2,488       -       -       -       2,488  
                                                                 
Other comprehensive income,
                                                               
  net of income tax
    -       -       -       -       -       -       4,007       4,007  
                                                                 
ESOP shares committed to be released
                                                               
  (72 shares)
    -       -       (55 )     -       728       -       -       673  
                                                                 
Dividends contributed for payment of
                                                               
   ESOP loan
    -       -       73       -       -       -       -       73  
                                                                 
Stock option expense
    -       -       21       -       -       -       -       21  
                                                                 
Treasury stock purchases
    (771 )     -       -       -       -       (7,094 )     -       (7,094 )
                                                                 
Restricted stock plan shares earned
                                                               
  (8 shares)
    -       -       84       -       -       -       -       84  
                                                                 
Cash dividends declared ($0.10/ public share)
    -       -       -       (1,556 )     -       -       -       (1,556 )
                                                                 
Balance - December 31, 2011
    67,080     $ 7,274     $ 215,381     $ 318,286     $ (7,516 )   $ (66,294 )   $ 19,439     $ 486,570  
                                                                 

See notes to consolidated financial statements.

 
- 5 -

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended December 31, 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
    -       -       -       2,837       -       -       -       2,837  
                                                                 
Other comprehensive income,
                                                               
  net of income tax
    -       -       -       -       -       -       (1,829 )     (1,829 )
                                                                 
ESOP shares committed to be released
                                                               
  (36 shares)
    -       -       (33 )     -       727       -       -       694  
                                                                 
Dividends contributed for payment of
                                                               
   ESOP loan
    -       -       (2 )     -       -       -       -       (2 )
                                                                 
Stock option expense
    -       -       21       -       -       -       -       21  
                                                                 
Treasury stock purchases
    (171 )     -       -       -       -       (1,635 )     -       (1,635 )
                                                                 
Restricted stock plan shares earned
                                                               
  (4 shares)
    -       -       84       -       -       -       -       84  
                                                                 
                                                                 
Balance - December 31, 2012
    66,765     $ 7,274     $ 215,609     $ 322,498     $ (6,062 )   $ (69,299 )   $ 21,767     $ 491,787  
                                                                 
 
See notes to consolidated financial statements.
 
 
- 6 -

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

    
Six Months Ended
 
   
December 31,
 
   
2012
   
2011
 
             
Cash Flows from Operating Activities:
           
    Net income
  $ 2,837     $ 2,488  
    Adjustments to reconcile net income to net cash provided by operating
               
      activities:
               
        Depreciation and amortization of premises and equipment
    1,307       1,310  
        Net amortization of premiums, discounts and loan fees and costs
    5,759       4,086  
        Deferred income taxes
    304       365  
        Amortization of intangible assets
    72       81  
        Amortization of benefit plans’ unrecognized net loss
    50       20  
        Provision for loan losses
    1,732       2,388  
        Loss on write-down and sales of real estate owned
    533       2,056  
        Realized gain on sale of loans
    -       (309 )
        Proceeds from sale of loans
    -       3,551  
        Realized sale gain on mortgage-backed securities available for sale
    (1,103 )     -  
        Realized sale loss on mortgage-backed securities held to maturity
    6       5  
        Realized gain on disposition of premises and equipment
    (100 )     (3 )
        Increase in cash surrender value of bank owned life insurance
    (776 )     (375 )
        ESOP, stock option plan and restricted stock plan expenses
    799       778  
        Decrease in interest receivable
    519       979  
        Decrease (increase) in other assets
    685       (437 )
        Increase (decrease) in interest payable
    14       (24 )
        Decrease in other liabilities
    (1,047 )     (430 )
                 
            Net Cash Provided by Operating Activities
    11,591       16,529  
                 
Cash Flows from Investing Activities:
               
    Proceeds from calls and maturities of debt securities available for sale
    -       30,088  
    Proceeds from repayments of debt securities available for sale
    389       590  
    Purchase of debt securities held to maturity
    (144,163 )     (1,068 )
    Proceeds from calls and maturities of debt securities held to maturity
    31,068       61,522  
    Proceeds from repayments of debt securities held to maturity
    518       458  
    Purchase of loans
    (8,085 )     (27,907 )
    Net (increase) decrease in loans receivable
    (12,834 )     58,011  
    Proceeds from sale of real estate owned
    2,249       224  
    Purchases of mortgage-backed securities available for sale
    (79,603 )     (311,817 )
    Principal repayments on mortgage-backed securities available for sale
    200,267       149,045  
    Principal repayments on mortgage-backed securities held to maturity
    134       110  
    Proceeds from sale of  mortgage-backed securities held to maturity
    15       27  
    Proceeds from sale of  mortgage-backed securities available for sale
    70,739       -  
    Purchase of FHLB stock
    (1,125 )     -  
    Redemption of FHLB stock
    1,127       2  
    Purchase of bank owned life insurance
    (503 )     -  
    Proceeds from cash settlement of premises and equipment
    200       3  
    Additions to premises and equipment
    (543 )     (1,293 )
                 
            Net Cash Provided by (Used in) Investing Activities
  $ 59,850     $ (42,005 )



 
- 7 -

 

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

   
Six Months Ended
 
   
December 31,
 
   
2012
   
2011
 
             
Cash Flows from Financing Activities:
           
    Net decrease in deposits
  $ (31,167 )   $ (31,739 )
    Repayment of long-term FHLB advances
    (42 )     (39 )
    Decrease in other short-term borrowings
    (7,515 )     (9,516 )
    Increase (decrease) in advance payments by borrowers for taxes
    327       (570 )
    Dividends paid to stockholders of Kearny Financial Corp.
    -       (1,587 )
    Purchase of common stock of Kearny Financial Corp. for treasury
    (1,635 )     (7,094 )
    Dividends contributed for payment of ESOP loan
    (2 )     73  
                 
            Net Cash Used in Financing Activities
    (40,034 )     (50,472 )
                 
            Net Increase (Decrease) in Cash and Cash Equivalents
    31,407       (75,948 )
                 
Cash and Cash Equivalents – Beginning
    155,584       222,580  
                 
Cash and Cash Equivalents – Ending
  $ 186,991     $ 146,632  
                 
Supplemental Disclosures of Cash Flows Information:
               
    Cash paid during the year for:
               
        Income taxes, net of refunds
  $ 714     $ 2,027  
                 
        Interest
  $ 12,125     $ 14,916  
                 
    Non-cash investing and financing activities:
               
        Acquisition of  real estate owned in settlement of loans
  $ 2,164     $ 1,157  
                 
See notes to consolidated financial statements.

 
- 8 -

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
1.  PRINCIPLES OF CONSOLIDATION

The unaudited 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 unaudited 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, comprehensive 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 unaudited consolidated financial statements have been included.  The results of operations for the three-month and six-month periods ended December 31, 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 2012 annual report on Form 10-K.  That data, along with the interim unaudited 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 audited consolidated financial statements, including the notes thereto included in the Company’s 2012 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.

 
 
- 9 -

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

 
Three Months Ended
   
Six Months Ended
 
 
December 31, 2012
   
December 31, 2012
 
 
Income
 
Shares
 
Per Share
   
Income
 
Shares
 
Per Share
 
 
(Numerator)
 
(Denominator)
 
Amount
   
(Numerator)
 
(Denominator)
 
Amount
 
 
(In Thousands, Except Per Share Data)
   
(In Thousands, Except Per Share Data)
 
                                     
Net income
  $ 1,177                 $ 2,837              
Basic earnings per share,
                                       
     income available to
                                       
     common stockholders
  $ 1,177       66,188     $ 0.02     $ 2,837       66,222     $ 0.04  
Effect of dilutive securities:
                                               
     Stock options
    -       -               -       -          
                                                 
    $ 1,177       66,188     $ 0.02     $ 2,837       66,222     $ 0.04  


 
Three Months Ended
   
Six Months Ended
 
 
December 31, 2011
   
December 31, 2011
 
 
Income
 
Shares
 
Per Share
   
Income
 
Shares
 
Per Share
 
 
(Numerator)
 
(Denominator)
 
Amount
   
(Numerator)
 
(Denominator)
 
Amount
 
 
(In Thousands, Except Per Share Data)
   
(In Thousands, Except Per Share Data)
 
                                     
Net income
  $ 470                 $ 2,488              
Basic earnings per share,
                                       
     income available to
                                       
     common stockholders
  $ 470       66,498     $ 0.01     $ 2,488       66,733     $ 0.04  
Effect of dilutive securities:
                                               
     Stock options
    -       -               -       -          
                                                 
    $ 470       66,498     $ 0.01     $ 2,488       66,733     $ 0.04  

During the three and six months ended December 31, 2012, the average number of options which were considered anti-dilutive totaled approximately 3,193,000.  During the three and six months ended December 31, 2011, the average number of options which were considered anti-dilutive totaled approximately 3,233,000.

4.  SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 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.
 
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
 
 
- 10 -

 

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 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 December 31, 2012 the Company has repurchased a total of 207,100 shares in accordance with this repurchase plan at a total cost of approximately $1,969,000 and at an average cost per share of $9.51.
 
 
- 11 -

 
7.  SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at December 31, 2012 and June 30, 2012 and stratification by contractual maturity of such securities at December 31, 2012 are presented below:
 
   
At December 31, 2012
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In Thousands)
 
Securities available for sale:
                       
  Debt securities:
                       
    Trust preferred securities
  $ 8,875     $ -     $ 1,608     $ 7,267  
    U.S. agency securities
    5,327       168       1       5,494  
                                 
          Total debt securities
    14,202       168       1,609       12,761  
                                 
Mortgage-backed securities:
                               
  Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    2,100       41       -       2,141  
                                 
          Total collateralized mortgage
                               
            obligations
    2,100       41       -       2,141  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
      Association
    9,959       780       18       10,721  
    Federal Home Loan Mortgage
                               
      Corporation
    361,929       11,985       16       373,898  
    Federal National Mortgage Association
    617,738       26,456       48       644,146  
                                 
         Total mortgage pass-through securities
    989,626       39,221       82       1,028,765  
                                 
         Total mortgage-backed
            securities
    991,726       39,262       82       1,030,906  
 
Total securities available for sale
  $ 1,005,928     $ 39,430     $ 1,691     $ 1,043,667  

 
   
At December 31, 2012
 
   
Amortized
Cost
   
Fair 
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
    323       324  
    Due after ten years
    13,879       12,437  
                 
          Total
  $ 14,202     $ 12,761  


 
- 12 -

 

   
At June 30, 2012
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair 
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  

During the six months ended December 31, 2012, proceeds from sales of securities available for sale totaled $70.7 million and resulted in gross gains of $1,150,000 and gross losses of $47,000.  There were no sales of securities available for sale during the six months ended December 31, 2011.  At December 31, 2012 and June 30, 2012, securities available for sale with carrying values of approximately $257.5 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 $5.8 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 fair values of securities held to maturity at December 31, 2012 and June 30, 2012 and stratification by contractual maturity of such securities at December 31, 2012 are presented below:
 
   
December 31, 2012
 
   
Amortized 
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In Thousands)
 
Securities held to maturity:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 145,210     $ 99     $ 21     $ 145,288  
    Obligations of state and political