f10q_033113-0128.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
March 31, 2013
     
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: May 8, 2013.
     
$0.10 par value common stock  -  66,581,540 shares outstanding
 
 
 
 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX



   
Page
   
Number
PART I - FINANCIAL INFORMATION
   
     
Item 1:
    Financial Statements
   
     
 
    Consolidated Statements of Financial Condition
   
 
    at March 31, 2013 and June 30, 2012 (Unaudited)
 
1
     
 
    Consolidated Statements of Income for the Three and Nine Months
   
 
    Ended March 31, 2013 and March 31, 2012 (Unaudited)
 
2-3
     
 
    Consolidated Statements of Comprehensive (Loss) Income for the Three and
   
 
    Nine Months Ended March 31, 2013 and March 31, 2012 (Unaudited)
 
4
     
 
    Consolidated Statements of Changes in Stockholders’ Equity for the
   
 
     Nine Months Ended March 31, 2013 and March 31, 2012
 
5-6
 
    (Unaudited)
   
     
  
    Consolidated Statements of Cash Flows for the Nine Months
 
7-8
 
    Ended March 31, 2013 and March 31, 2012  (Unaudited)
   
     
 
    Notes to Consolidated Financial Statements (Unaudited)
 
9-65
     
Item 2:
    Management’s Discussion and Analysis of
   
 
    Financial Condition and Results of Operations
 
66-91
     
Item 3:
    Quantitative and Qualitative Disclosure About Market Risk
 
92-99
     
Item 4:
    Controls and Procedures
 
100
     
     
PART II - OTHER INFORMATION
 
101-104
     
     
SIGNATURES
 
105
     


 
 

 

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

   
March 31,
   
June 30,
 
   
2013
   
2012
 
Assets
 
(Unaudited)
       
             
Cash and amounts due from depository institutions
  $ 12,717     $ 38,028  
Interest-bearing deposits in other banks
    197,182       117,556  
                 
        Cash and Cash Equivalents
    209,899       155,584  
                 
Debt securities available for sale (amortized cost $139,577 and $14,613)
    137,778       12,602  
Debt securities held to maturity (fair value $146,686 and $34,838)
    146,892       34,662  
Loans receivable, including unamortized yield adjustments of $(943) and $(1,654)
    1,340,965       1,284,236  
  Less allowance for loan losses
    (10,758 )     (10,117 )
                 
  Net Loans Receivable
    1,330,207       1,274,119  
                 
Mortgage-backed securities available for sale (amortized cost $757,910 and $1,188,373)
     782,279        1,230,104  
Mortgage-backed securities held to maturity (fair value $942 and $1,159)
    881       1,090  
Premises and equipment
    37,427       38,677  
Federal Home Loan Bank of New York (“FHLB”) stock
    11,214       14,142  
Interest receivable
    7,549       8,395  
Goodwill
    108,591       108,591  
Bank owned life insurance
    85,379       48,615  
Other assets
    8,453       10,425  
 
               
        Total Assets
  $ 2,866,549     $ 2,937,006  
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 179,257     $ 165,118  
  Interest-bearing
    1,973,744       2,006,679  
                 
        Total Deposits
    2,153,001       2,171,797  
                 
Borrowings
    183,206       249,777  
Advance payments by borrowers for taxes
    7,772       5,974  
Deferred income tax liabilities, net
    116       7,276  
Other liabilities
    38,726       10,565  
                 
        Total Liabilities
    2,382,821       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; 66,647,840 and 66,936,040 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    215,668       215,539  
Retained earnings
    324,242       319,661  
Unearned Employee Stock Ownership Plan shares; 569,772 shares
               
  and 678,878 shares, respectively
    (5,698 )     (6,789 )
Treasury stock, at cost; 6,089,660 shares and 5,801,460 shares, respectively
    (70,497 )     (67,664 )
Accumulated other comprehensive income
    12,739       23,596  
                 
        Total Stockholders’ Equity
    483,728       491,617  
                 
        Total Liabilities and Stockholders’ Equity
  $ 2,866,549     $ 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
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Interest Income
                       
    Loans
  $ 15,445     $ 15,809     $ 46,386     $ 48,493  
    Mortgage-backed securities
    5,532       8,242       18,697       24,157  
    Securities:
                               
      Taxable
    436       270       936       1,096  
      Tax-exempt
    26       8       38       63  
    Other interest-earning assets
    205       205       595       582  
        Total Interest Income
    21,644       24,534       66,652       74,391  
                                 
Interest Expense
                               
    Deposits
    3,400       4,853       11,450       15,668  
    Borrowings
    1,898       2,011       5,987       6,088  
        Total Interest Expense
    5,298       6,864       17,437       21,756  
                                 
        Net Interest Income
    16,346       17,670       49,215       52,635  
                                 
Provision for Loan Losses
    1,407       1,257       3,139       3,645  
                                 
        Net Interest Income after Provision
                               
           for Loan Losses
    14,939       16,413       46,076       48,990  
                                 
Non-Interest Income
                               
    Fees and service charges
    605       594       1,851       1,859  
    Gain on sale of loans
    545       217       545       526  
    Gain (loss) on sale of securities
    9,075       -       10,172       (5 )
    Loss on sale and write down of real
       estate owned
     (8 )      (1,215 )      (541 )      (3,271 )
    Income from bank owned life
      insurance
     485        186        1,261        560  
    Electronic banking fees and charges
    261       224       835       695  
    Miscellaneous
    107       376       432       532  
        Total Non-Interest Income
    11,070       382       14,555       896  
                                 
Non-Interest Expenses
                               
    Salaries and employee benefits
    8,977       8,538       26,580       25,082  
    Net occupancy expense of
                               
      premises
    1,777       1,685       5,030       4,866  
    Equipment and systems
    1,879       1,686       5,752       5,429  
    Advertising and marketing
    224       220       785       842  
    Federal deposit insurance
                               
      premium
    535       569       1,636       1,551  
    Directors’ compensation
    171       168       513       491  
    Debt extinguishment expense
    8,688       -       8,688       -  
    Miscellaneous
    1,691       1,895       5,422       5,630  
        Total Non-Interest Expenses
  $ 23,942     $ 14,761     $ 54,406     $ 43,891  

 
- 2 -

 

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

   
Three Months Ended
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2013
   
2012
   
2013
   
2012
 
                         
      Income Before Income Taxes
  $ 2,067     $ 2,034     $ 6,225     $ 5,995  
                                 
Income Taxes
    323       642       1,644       2,115  
                                 
      Net Income
  $ 1,744     $ 1,392     $ 4,581     $ 3,880  
                                 
Net Income per Common
                               
  Share (EPS):
                               
    Basic and Diluted
  $ 0.03     $ 0.02     $ 0.07     $ 0.06  
                                 
Weighted Average Number of
                               
  Common Shares Outstanding:
                               
    Basic and Diluted
    66,141       66,243       66,195       66,571  
                                 
Dividends Declared Per Common
                               
   Share
  $ -     $ 0.05     $ -     $ 0.15  
 
See notes to consolidated financial statements.

 
- 3 -

 
 

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


    
Three Months Ended
 
Nine Months Ended
   
March 31,
 
March 31,
   
2013
   
2012
 
2013
   
2012
                     
 Net Income
$
          1,744
 
$
           1,392
$
          4,581
 
$
          3,880
                     
Other Comprehensive (Loss) Income:
                   
                     
  Realized gain on securities
 
 
   
 
 
 
   
 
      available for sale, net of
                   
      deferred income tax expense of
                   
      2013 $3,721, $4,173 and
                   
      2012 $ - , $ -
 
        (5,355
)  
                 -
 
        (6,006
 
                 -
                     
  Unrealized (loss) gain on securities
 
 
   
 
 
 
   
 
      available for sale, net of deferred
                   
      income tax (benefit) expense of
                   
      2013 $(2,405), $(2,776) and,
                   
      2012 $2, $2,631
 
        (3,688
 
               31
 
        (4,195
 
          3,859
                     
  Benefit plans, net of  deferred
 
 
   
 
 
 
   
 
     income tax expense (benefit) of
                   
      2013 $10, $(454) and,
                   
      2012 $4, $128
 
               15
   
                 6
 
            (656
 
             185
                     
Total Other Comprehensive (Loss)
    Income
 
 
(9,028
 
)
 
 
 
37
 
 
(10,857
 
)
 
 
4,044
                     
Total Comprehensive (Loss) Income
$
        (7,284
$
          1,429
$
        (6,276
$
          7,924
                     

See notes to consolidated financial statements.
 
 

 
- 4 -

 
 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended March 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, 2011
    67,851     $ 7,274     $ 215,258     $ 317,354     $ (8,244 )   $ (59,200 )   $ 15,432     $ 487,874  
                                                                 
Net income
    -       -       -       3,880       -       -       -       3,880  
                                                                 
Other comprehensive income, net of income tax
    -       -       -       -       -       -       4,044       4,044  
                                                                 
ESOP shares committed to be released (108 shares)
    -       -       (67 )     -       1,092       -       -       1,025  
                                                                 
Dividends contributed for payment of ESOP loan
    -       -       118       -       -       -       -       118  
                                                                 
Stock option expense
    -       -       31       -       -       -       -       31  
                                                                 
Treasury stock purchases
    (879 )     -       -       -       -       (8,130 )     -       (8,130 )
                                                                 
Restricted stock plan shares earned (12 shares)
    -       -       126       -       -       -       -       126  
                                                                 
Cash dividends declared ($0.15/ public share)
    -       -       -       (2,321 )     -       -       -       (2,321 )
                                                                 
Cash dividend to Kearny MHC
    -       -       -       (450 )     -       -       -       (450 )
                                                                 
Balance - March 31, 2012
    66,972     $ 7,274     $ 215,466     $ 318,463     $ (7,152 )   $ (67,330 )   $ 19,476     $ 486,197  
 
 
See notes to consolidated financial statements.


 
 
- 5 -

 
 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended March 31, 2013
(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
    -       -       -       4,581       -       -       -       4,581  
                                                                 
Other comprehensive loss, net of income tax
    -       -       -       -       -       -       (10,857 )     (10,857 )
                                                                 
ESOP shares committed to be released (108 shares)
    -       -       (26 )     -       1,091       -       -       1,065  
                                                                 
Dividends contributed for payment of ESOP loan
    -       -       (2 )     -       -       -       -       (2 )
                                                                 
Stock option expense
    -       -       31       -       -       -       -       31  
                                                                 
Treasury stock purchases
    (288 )     -       -       -       -       (2,833 )     -       (2,833 )
                                                                 
Restricted stock plan shares earned (12 shares)
    -       -       126       -       -       -       -       126  
                                                                 
Balance - March 31, 2013
    66,648     $ 7,274     $ 215,668     $ 324,242     $ (5,698 )   $ (70,497 )   $ 12,739     $ 483,728  

See notes to consolidated financial statements.
 
 
 
- 6 -

 

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

   
Nine Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Cash Flows from Operating Activities:
           
    Net income
  $ 4,581     $ 3,880  
    Adjustments to reconcile net income to net cash provided by operating
               
      activities:
               
        Depreciation and amortization of premises and equipment
    1,964       1,993  
        Net amortization of premiums, discounts and loan fees and costs
    7,887       6,447  
        Deferred income taxes
    241       511  
        Amortization of intangible assets
    105       118  
        Amortization of benefit plans’ unrecognized net loss
    75       30  
        Provision for loan losses
    3,139       3,645  
        Loss on write-down and sales of real estate owned
    541       3,271  
        Realized gain on sale of loans
    (545 )     (526 )
        Proceeds from sale of loans
    5,193       5,872  
        Realized sale gain on mortgage-backed securities available for sale
    (10,178 )     -  
        Realized sale loss on mortgage-backed securities held to maturity
    6       5  
        Realized loss on debt extinguishment
    8,688       -  
        Realized gain on disposition of premises and equipment
    (100 )     (1 )
        Increase in cash surrender value of bank owned life insurance
    (1,261 )     (560 )
        ESOP, stock option plan and restricted stock plan expenses
    1,222       1,182  
        Decrease in interest receivable
    846       966  
        Decrease in other assets
    1,313       718  
        Decrease in interest payable
    (260 )     (32 )
        Decrease in other liabilities
    (276 )     (446 )
                 
            Net Cash Provided by Operating Activities
    23,181       27,073  
                 
Cash Flows from Investing Activities:
               
    Purchase of debt securities available for sale
    (97,788 )     -  
    Proceeds from calls and maturities of debt securities available for sale
    -       30,598  
    Proceeds from repayments of debt securities available for sale
    444       650  
    Purchase of debt securities held to maturity
    (144,784 )     (1,775 )
    Proceeds from calls and maturities of debt securities held to maturity
    32,023       72,760  
    Proceeds from repayments of debt securities held to maturity
    518       717  
    Purchase of loans
    (9,655 )     (54,460 )
    Net (increase) decrease in loans receivable
    (56,119 )     49,454  
    Proceeds from sale of real estate owned
    2,389       224  
    Purchases of mortgage-backed securities available for sale
    (262,266 )     (455,370 )
    Principal repayments on mortgage-backed securities available for sale
    284,197       225,944  
    Principal repayments on mortgage-backed securities held to maturity
    198       159  
    Proceeds from sale of  mortgage-backed securities held to maturity
    15       27  
    Proceeds from sale of  mortgage-backed securities available for sale
    409,840       -  
    Purchase of FHLB stock
    (1,170 )     (1,800 )
    Redemption of FHLB stock
    4,098       1,802  
    Purchase of bank owned life insurance
    (35,503 )     -  
    Proceeds from cash settlement of premises and equipment
    200       3  
    Additions to premises and equipment
    (814 )     (1,495 )
                 
            Net Cash Provided by (Used in) Investing Activities
  $ 125,823     $ (132,562 )


 
- 7 -

 

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

   
Nine Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Cash Flows from Financing Activities:
           
    Net (decrease) increase in deposits
  $ (18,604 )   $ 5,525  
    Repayment of long-term FHLB advances
    (73,752 )     (59 )
    (Decrease) increase in other short-term borrowings
    (1,296 )     177  
    Increase (decrease) in advance payments by borrowers for taxes
    1,798       (233 )
    Dividends paid to stockholders of Kearny Financial Corp.
    -       (2,357 )
    Purchase of common stock of Kearny Financial Corp. for treasury
    (2,833 )     (8,130 )
    Dividends contributed for payment of ESOP loan
    (2 )     118  
                 
            Net Cash Used in Financing Activities
    (94,689 )     (4,959 )
                 
            Net Increase (Decrease) in Cash and Cash Equivalents
    54,315       (110,448 )
                 
Cash and Cash Equivalents – Beginning
    155,584       222,580  
                 
Cash and Cash Equivalents – Ending
  $ 209,899     $ 112,132  
                 
Supplemental Disclosures of Cash Flows Information:
               
    Cash paid during the year for:
               
        Income taxes, net of refunds
  $ 1,019     $ 1,836  
                 
        Interest
  $ 17,697     $ 21,788  
                 
    Non-cash investing and financing activities:
               
        Acquisition of  real estate owned in settlement of loans
  $ 2,375     $ 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 nine-month periods ended March 31, 2013, 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 statement 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
   
Nine Months Ended
 
 
March 31, 2013
   
March 31, 2013
 
 
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
  $ 1,744                 $ 4,581              
Basic earnings per share,
                                       
     income available to
                                       
     common stockholders
  $ 1,744       66,141     $ 0.03     $ 4,581       66,195     $ 0.07  
Effect of dilutive securities:
                                               
     Stock options
    -       -               -       -          
                                                 
    $ 1,744       66,141     $ 0.03     $ 4,591       66,195     $ 0.07  


 
Three Months Ended
   
Nine Months Ended
 
 
March 31, 2012
   
March 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
  $ 1,392                 $ 3,880              
Basic earnings per share,
                                       
     income available to
                                       
     common stockholders
  $ 1,392       66,243     $ 0.02     $ 3,880       66,571     $ 0.06  
Effect of dilutive securities:
                                               
     Stock options
    -       -               -       -          
                                                 
    $ 1,392       66,243     $ 0.02     $ 3,880       66,571     $ 0.06  

During the three and nine months ended March 31, 2013, the average number of options which were considered anti-dilutive totaled approximately 3,193,000.   During the three and nine months ended March 31, 2012, the average number of options which were considered anti-dilutive totaled approximately 3,233,000 and 3,229,000, respectively.

4.  SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2013, 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 certain transactions executed in conjunction with the balance sheet restructuring described in Note 5 below as subsequent events requiring disclosure.

5. RESTRUCTURING TRANSACTION

During the two month period ended April 30, 2013, the Company successfully completed a series of balance sheet restructuring transactions that are expected to result in improvements in the financial
 
 
- 10 -

 
 
position and expected operating results of the Company and the Bank.  The Company expects such improvements to be reflected in an expanded net interest margin resulting in an immediate improvement in net interest income and earnings.

Through these restructuring transactions, the Company reduced its concentration in agency mortgage-backed securities (“MBS”) in favor of other investment sectors within the portfolio.  As a result, the Company reduced its exposure to residential mortgage prepayment and extension risk while enhancing the overall yield of the investment portfolio and providing some additional protection to earnings against potential movements in market interest rates.  Gains recognized through the sale of MBS enabled the Company to fully offset the costs of prepaying a portion of its high-rate Federal Home Loan Bank (“FHLB”) advances.  Additionally, the Company modified the terms of its remaining high-rate FHLB advances to a lower interest rate while extending the duration of the modified funding to better protect against potential increases in interest rates in the future.

As discussed below, the restructuring was initiated by the Company in March 2013 and completed during April 2013.  Consequently, only a portion of the applicable transactions were completed by the close of the Company’s third quarter ended March 31, 2013, with the remaining transactions being reflected in the Company’s financial results for the quarter and fiscal-year ending June 30, 2013.

Key features and characteristics of the restructuring transactions are as follows:

·
During March 2013, the Company sold agency MBS totaling approximately $330.0 million with a weighted average book yield of 1.78% resulting in a one-time gain on sale totaling approximately $9.1 million;

·
During March 2013, a portion of the proceeds from the noted MBS sales were used to prepay $60.0 million of fixed-rate FHLB advances at a weighted average rate of 3.99% resulting in a one-time expense of $8.7 million largely attributable to the prepayment penalties paid to the FHLB to extinguish the debt; and

·
During March and April 2013, the Company reinvested the remaining proceeds from the noted MBS sales into a diversified mix of high-quality securities with an aggregate tax-effective yield modestly exceeding that of the MBS sold.  Such securities primarily included:

o  
Fixed-rate, bank-qualified municipal obligations;
o  
Floating-rate corporate bonds issued by financial companies;
o  
Floating-rate, asset-backed securities comprising education loans with 97% U.S. government guarantees;
o  
Fixed-rate agency commercial MBS secured by multifamily mortgage loans; and
o  
Fixed-rate agency collateralized mortgage obligations (“CMO”).

·
During April 2013, the Company modified the terms of its remaining $145.0 million of “putable” FHLB advances with a weighted average cost of 3.68% and weighted average remaining maturity of approximately 4.5 years.  Such advances were currently subject to the FHLB’s quarterly “put” option enabling it to demand repayment in full in the event of an increase in interest rates.  The terms of the modified advances extended their “non-putable” period to five years with a final stated maturity of ten years while reducing their average interest rate by 0.64% to 3.04%.  The Bank did not explicitly pay a prepayment penalty to the FHLB to modify the terms of these advances.  Rather, the interest paid by
 
 
 
- 11 -

 

 

 
the Company to the FHLB under the modified terms reflects an above market rate through which the FHLB will recover the economic value of the foregone prepayment penalty.  Because the difference between the present value of the cash flows of the pre-modified and post-modified advances is less than 10%, the modifications were effected at no immediate cost to the Company, in accordance with applicable accounting requirements.
 
Given the effects of the restructuring, the Company continues to maintain high levels of on-balance sheet liquidity while the sensitivity of its Economic Value of Equity (“EVE”) to movements in interest rates - a key measure of long-term exposure to interest rate risk – remains substantially unchanged.  Moreover, the Company is evaluating additional opportunities to utilize capital through effective deployment of wholesale growth and diversification strategies designed to improve earnings further while prudently managing its exposure to interest rate, credit and liquidity risk.

6.  RECENT ACCOUNTING PRONOUNCEMENTS
 
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Updated (“ASU”) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This ASU is intended to improve the reporting of reclassifications out of accumulated other comprehensive income.  The ASU requires an entity to report, either on the face of the statement where net income is presented or in the notes to the financial statements, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional details about those amounts.  The amendments in this ASU are effective prospectively for reporting periods beginning after December 15, 2012.  The Company adopted this ASU on January 1, 2013 by including the required disclosures in the notes included on the consolidated statements of comprehensive income.  The adoption of ASU 2013-02 did not have an impact on the Company’s financial condition, results of operations or cash flows.

7.  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 March 31, 2013 the Company has repurchased a total of 324,000 shares in accordance with this repurchase plan at a total cost of approximately $3,167,000 and at an average cost per share of $9.78.
 

 
- 12 -

 

7.  SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at March 31, 2013 and June 30, 2012 and stratification by contractual maturity of such securities at March 31, 2013 are presented below:
 
   
At March 31, 2013
 
   
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair
 Value
 
   
(In Thousands)
 
Securities available for sale:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 5,266     $ 157     $ -     $ 5,423  
    Obligations of state and political
                               
      subdivisions
    55,212       28       354       54,886  
    Asset-backed securities
    10,199       1       -       10,200  
    Corporate bonds
    60,023       46       142       59,927  
    Trust preferred securities
    8,877       -       1,535       7,342  
                                 
          Total debt securities
    139,577       232       2,031       137,778  
                                 
Mortgage-backed securities:
                               
  Collateralized mortgage obligations:
                               
    Federal National Mortgage Association
    16,769       176       -       16,945  
                                 
          Total collateralized mortgage
                               
            obligations
    16,769       176       -       16,945  
                                 
  Mortgage pass-through securities:
                               
    Government National Mortgage
                               
      Association
    6,170       665       -       6,835  
    Federal Home Loan Mortgage
                               
      Corporation
    279,818       8,166       42       287,942  
    Federal National Mortgage Association
    455,153       15,646       242       470,557  
                                 
         Total mortgage pass-through securities
     741,141        24,477        284        765,334  
                                 
         Total mortgage-backed
            securities
     757,910        24,653        284        782,279  
 
Total securities available for sale
  $ 897,487     $ 24,885     $ 2,315     $ 920,057
 
 
   
 
At March 31, 2013
                 
   
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
    66,962       66,876                  
    Due after ten years
    72,615       70,902                  
          Total
  $ 139,577     $ 137,778                  
 
 
 
- 13 -

 
 

 
   
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 nine months ended March 31, 2013, proceeds from sales of securities available for sale totaled $409.8 million and resulted in gross gains of $10,314,000 and gross losses of $135,000.  There were no sales of securities available for sale during the nine months ended March 31, 2012.  At March 31, 2013 and June 30, 2012, securities available for sale with carrying values of approximately $111.3 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 $5.1 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-through 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 -

 
 
8.  SECURITIES HELD TO MATURITY

The amortized cost, gross unrealized gains and losses and fair values of securities held to maturity at March 31, 2013 and June 30, 2012 and stratification by contractual maturity of such securities at March 31, 2013 are presented below:
 
   
March 31, 2013
 
   
Amortized
Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
   
(In Thousands)
 
Securities held to maturity:
                       
  Debt securities:
                       
    U.S. agency securities
  $ 144,963     $ 20     $ 227     $ 144,756  
    Obligations of state and political
                               
      subdivisions
    1,929       1       -       1,930  
                                 
          Total debt securities
    146,892       21       227       146,686