f10q_093013-0128.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, 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: November 8, 2013.
     
$0.10 par value common stock - 66,226,540 shares outstanding
 

 
 

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX



   
Page
   
Number
PART I - FINANCIAL INFORMATION
   
     
Item 1:
 
Financial Statements
   
     
   
Consolidated Statements of Financial Condition
   
   
at September 30, 2013 and June 30, 2013 (Unaudited)
 
1
     
   
Consolidated Statements of Income for the Three Months
   
   
Ended September 30, 2013 and September 30, 2012 (Unaudited)
 
2-3
     
   
Consolidated Statements of Comprehensive Income for the Three
   
   
Months Ended September 30, 2013 and September 30, 2012 (Unaudited)
 
4
     
   
Consolidated Statements of Changes in Stockholders’ Equity for the
   
   
Three Months Ended September 30, 2013 and September 30, 2012
 
5-6
   
(Unaudited)
   
     
   
Consolidated Statements of Cash Flows for the Three Months
 
7-8
   
Ended September 30, 2013 and September 30, 2012 (Unaudited)
   
     
   
Notes to Consolidated Financial Statements (Unaudited)
 
9-64
     
Item 2:
 
Management’s Discussion and Analysis of
   
   
Financial Condition and Results of Operations
 
65-84
     
Item 3:
 
Quantitative and Qualitative Disclosure About Market Risk
 
85-93
     
Item 4:
 
Controls and Procedures
 
94
     
     
PART II - OTHER INFORMATION
 
95-97
     
     
SIGNATURES
 
98
     


 
 

 

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

   
September 30,
   
June 30,
 
   
2013
   
2013
 
Assets
 
(Unaudited)
       
             
Cash and amounts due from depository institutions
  $ 12,159     $ 13,102  
Interest-bearing deposits in other banks
    106,027       113,932  
                 
        Cash and Cash Equivalents
    118,186       127,034  
                 
Debt securities available for sale (amortized cost $307,213 and $305,283)
    300,544       300,122  
Debt securities held to maturity (fair value $204,185 and $202,328)
    210,943       210,015  
Loans receivable, including unamortized yield adjustments of $(1,980) and $(847)
    1,485,644       1,360,871  
  Less allowance for loan losses
    (11,406 )     (10,896 )
                 
  Net Loans Receivable
    1,474,238       1,349,975  
                 
Mortgage-backed securities available for sale (amortized cost $751,445 and
   $782,866)
     752,216        780,652  
Mortgage-backed securities held to maturity (fair value $96,078 and $96,447)
    100,674       101,114  
Premises and equipment
    36,911       36,994  
Federal Home Loan Bank of New York (“FHLB”) stock
    21,515       15,666  
Interest receivable
    8,508       8,028  
Goodwill
    108,591       108,591  
Bank owned life insurance
    86,786       86,084  
Deferred income tax assets, net
    10,469       9,782  
Other assets
    8,189       11,303  
 
               
        Total Assets
  $ 3,237,770     $ 3,145,360  
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 193,469     $ 190,964  
  Interest-bearing
    2,137,800       2,179,544  
                 
        Total Deposits
    2,331,269       2,370,508  
                 
Borrowings
    417,118       287,695  
Advance payments by borrowers for taxes
    8,319       7,840  
Other liabilities
    11,805       11,610  
                 
        Total Liabilities
    2,768,511       2,677,653  
                 
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; 66,380,740 and 66,500,740 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    215,783       215,722  
Retained earnings
    328,753       326,167  
Unearned Employee Stock Ownership Plan shares; 497,034 shares
               
  and 533,400 shares, respectively
    (4,970 )     (5,334 )
Treasury stock, at cost; 6,356,760 shares and 6,236,760 shares, respectively
    (73,194 )     (71,983 )
Accumulated other comprehensive loss
    (4,387 )     (4,139 )
                 
        Total Stockholders’ Equity
    469,259       467,707  
                 
        Total Liabilities and Stockholders’ Equity
  $ 3,237,770     $ 3,145,360  
 
See notes to unaudited 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,
     
   
2013
   
2012
     
                 
Interest Income
               
    Loans
  $ 15,816     $ 15,776      
    Mortgage-backed securities
    5,554       7,003      
    Securities:
                   
      Taxable
    1,278       226      
      Tax-exempt
    454       6      
    Other interest-earning assets
    198       195      
        Total Interest Income
    23,300       23,206      
                     
Interest Expense
                   
    Deposits
    3,632       4,277      
    Borrowings
    1,472       2,054      
        Total Interest Expense
    5,104       6,331      
                     
        Net Interest Income
    18,196       16,875      
                     
Provision for Loan Losses
    1,168       339      
                     
        Net Interest Income after Provision
                   
           for Loan Losses
    17,028       16,536      
                     
Non-Interest Income
                   
    Fees and service charges
    691       629      
    Gain on sale of loans
    53       -      
    Gain (loss) on sale and write down of
      real estate owned
     1        (294 )    
    Income from bank owned life
      insurance
     702        383      
    Electronic banking fees and charges
    344       289      
    Miscellaneous
    70       193      
        Total Non-Interest Income
    1,861       1,200      
                     
Non-Interest Expenses
                   
    Salaries and employee benefits
    8,953       8,812      
    Net occupancy expense of
                   
      premises
    1,662       1,598      
    Equipment and systems
    1,874       1,977      
    Advertising and marketing
    251       286      
    Federal deposit insurance
                   
      premium
    512       552      
    Directors’ compensation
    172       167      
    Miscellaneous
    1,858       1,881      
        Total Non-Interest Expenses
  $ 15,282     $ 15,273      

 
-2-

 

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

   
Three Months Ended
     
   
September 30,
     
   
2013
   
2012
     
                 
      Income Before Income Taxes
  $ 3,607     $ 2,463      
                     
Income Taxes
    1,021       803      
                     
      Net Income
  $ 2,586     $ 1,660      
                     
Net Income per Common
                   
  Share (EPS):
                   
    Basic and Diluted
  $ 0.04     $ 0.03      
                     
Weighted Average Number of
                   
  Common Shares Outstanding:
                   
    Basic and Diluted
    65,936       66,256      
                     
Dividends Declared Per Common
                   
   Share
  $ -     $ -      

See notes to unaudited consolidated financial statements.

 
-3-

 

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


   
Three Months Ended
 
   
September 30,
 
   
2013
   
2012
 
             
Net Income
  $ 2,586     $ 1,660  
                 
Other Comprehensive (Loss) Income:
               
                 
Unrealized gain on securities
               
    available for sale, net of deferred
               
    income tax expense of:
               
    2013 $534; 2012 $2,934     943       4,353  
                 
Fair value adjustments on
               
    derivatives, net of deferred
               
    income tax benefit of:
               
    2013 ($1,155) ; 2012 $ -     (1,672 )     -  
                 
Benefit plans, net of deferred
               
    income tax expense (benefit) of:
               
    2013 $333; 2012 ($473)     481       (686 )
                 
Total Other Comprehensive (Loss) Income
     (248 )      3,667  
                 
Total Comprehensive Income
  $ 2,338     $ 5,327
 
                   

See notes to unaudited consolidated financial statements.
 

 
-4-

 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
Three Months Ended September 30, 2012
 
(In Thousands, 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 unaudited consolidated financial statements.
 

 
-5-

 
 

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
Three Months Ended September 30, 2013
 
(In Thousands, Unaudited)
 
                                       
Accumulated
       
                           
Unearned
         
Other
       
   
Common Stock
   
Paid-In
   
Retained
   
ESOP
   
Treasury
   
Comprehensive
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Shares
   
Stock
   
Loss
   
Total
 
                                                 
Balance - June 30, 2013
    66,501     $ 7,274     $ 215,722     $ 326,167     $ (5,334 )   $ (71,983 )   $ (4,139 )   $ 467,707  
                                                                 
  Net income
    -       -       -       2,586       -       -       -       2,586  
                                                                 
Other comprehensive loss,
                                                               
   net of income tax
    -       -       -       -       -       -       (248 )     (248 )
                                                                 
ESOP shares committed
                                                               
    to be released (36 shares)
    -       -       9       -       364       -       -       373  
                                                                 
Stock option expense
    -       -       10       -       -       -       -       10  
                                                                 
Treasury stock purchases
    (120 )     -       -       -       -       (1,211 )     -       (1,211 )
                                                                 
Restricted stock plan shares
                                                               
   earned  (4 shares)
    -       -       42       -       -       -       -       42  
                                                                 
                                                                 
Balance - September 30, 2013
    66,381     $ 7,274     $ 215,783     $ 328,753     $ (4,970 )   $ (73,194 )   $ (4,387 )   $ 469,259  
 
See notes to unaudited consolidated financial statements.

 
 
-6-

 


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

   
Three Months Ended
 
   
September 30,
 
   
2013
   
2012
 
             
Cash Flows from Operating Activities:
           
    Net income
  $ 2,586     $ 1,660  
    Adjustments to reconcile net income to net cash provided by operating
               
      activities:
               
        Depreciation and amortization of premises and equipment
    622       653  
        Net amortization of premiums, discounts and loan fees and costs
    985       2,763  
        Deferred income taxes
    (400 )     181  
        Amortization of intangible assets
    33       37  
        Amortization of benefit plans’ unrecognized net loss
    11       25  
        Provision for loan losses
    1,168       339  
        (Gain) loss on write-down and sales of real estate owned
    (1 )     294  
        Realized gain on sale of loans
    (53 )     -  
        Proceeds from sale of loans
    496       -  
        Realized gain on disposition of premises and equipment
    -       (100 )
        Increase in cash surrender value of bank owned life insurance
    (702 )     (383 )
        ESOP, stock option plan and restricted stock plan expenses
    425       409  
        (Increase) decrease in interest receivable
    (480 )     117  
        Decrease in other assets
    135       820  
        Increase in interest payable
    70       22  
        Increase (decrease) in other liabilities
    983       (216 )
                 
            Net Cash Provided by Operating Activities
    5,878       6,621  
                 
Cash Flows from Investing Activities:
               
    Purchase of debt securities available for sale
    (1,895 )     -  
    Proceeds from repayments of debt securities available for sale
    45       134  
    Purchase of debt securities held to maturity
    (1,195 )     (50 )
    Proceeds from calls and maturities of debt securities held to maturity
    50       30,070  
    Proceeds from repayments of debt securities held to maturity
    173       260  
    Purchase of loans
    (56,319 )     (4,144 )
    Net increase in loans receivable
    (69,777 )     (1,647 )
    Proceeds from sale of real estate owned
    403       996  
    Purchases of mortgage-backed securities available for sale
    (10,647 )     (72,891 )
    Principal repayments on mortgage-backed securities available for sale
    40,969       99,659  
    Principal repayments on mortgage-backed securities held to maturity
    420       66  
    Purchase of FHLB stock
    (10,260 )     -  
    Redemption of FHLB stock
    4,411       1  
    Purchase of bank owned life insurance
    -       (503 )
    Proceeds from cash settlement of premises and equipment
    -       200  
    Additions to premises and equipment
    (539 )     (194 )
                 
            Net Cash (Used in) Provided by Investing Activities
  $ (104,161 )   $ 51,957  


 
-7-

 

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

   
Three Months Ended
 
   
September 30,
 
   
2013
   
2012
 
             
Cash Flows from Financing Activities:
           
    Net decrease in deposits
  $ (39,261 )   $ (26,041 )
    Repayment of term FHLB advances
    (100,021 )     (21 )
    Proceeds from term FHLB advances
    175,000       -  
    Net change in overnight borrowings
    55,000       -  
    (Decrease) increase in other short-term borrowings
    (551 )     567  
    Increase in advance payments by borrowers for taxes
    479       53  
    Purchase of common stock of Kearny Financial Corp. for treasury
    (1,211 )     (647 )
    Dividends contributed for payment of ESOP loan
    -       (2 )
                 
            Net Cash Provided by (Used in) Financing Activities
    89,435       (26,091 )
                 
            Net (Decrease) Increase in Cash and Cash Equivalents
    (8,848 )     32,487  
                 
Cash and Cash Equivalents – Beginning
    127,034       155,584  
                 
Cash and Cash Equivalents – Ending
  $ 118,186     $ 188,071  
                 
Supplemental Disclosures of Cash Flows Information:
               
    Cash paid during the year for:
               
        Income taxes, net of refunds
  $ 250     $ 328  
                 
        Interest
  $ 5,034     $ 6,309  
                 
    Non-cash investing and financing activities:
               
        Acquisition of  real estate owned in settlement of loans
  $ 282     $ 1,809  
                 

See notes to unaudited 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 Investment Corp., CJB Investment Corp. and KFS Financial Services, Inc. and its wholly-owned subsidiary KFS Insurance Services, Inc.  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 period ended September 30, 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, 2013 was derived from the Company’s 2013 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 2013 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
   
     
September 30, 2013
   
     
Income
 
Shares
 
Per Share
   
     
(Numerator)
 
(Denominator)
 
Amount
   
     
(In Thousands, Except Per Share Data)
   
                         
   
Net income
  $ 2,586                
   
Basic earnings per share,
                     
   
     income available to
                     
   
     common stockholders
  $ 2,586       65,936     $ 0.04    
   
Effect of dilutive securities:
                         
   
     Stock options
    -       -            
                               
        $ 2,586       65,936     $ 0.04    


     
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    

During the three months ended September 30, 2013 and 2012, the average number of options which were considered anti-dilutive totaled approximately 3,158,000 and 3,193,000, respectively.

4.  SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 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.


 
-10-

 

5.  RECENT ACCOUNTING PRONOUNCEMENTS

In January, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  In the past, the FASB issued ASU 2011-11 as the result of a joint project with the IASB to enhance and provide converged disclosures about financial and derivative instruments that are offset on the balance sheet or are subject to an enforceable master netting arrangement.  ASU 2011-11 did not change the conditions for when offsetting is appropriate in US GAAP.  However, those conditions differ under IFRS, which results in the single largest financial reporting difference for certain financial institutions.  As a result, ASU 2011-11 established new disclosures to reconcile US GAAP and IFRS primarily through the requirement to present information on both a “gross” and “net” basis in the footnotes.

After the issuance of ASU 2011-11, stakeholders informed the FASB that the scope of the new disclosures was unclear, particularly because many contracts contain standard commercial provisions that would equate to a master netting arrangement.  In order to clarify its intent and narrow the scope of the new disclosures, the Board issued ASU 2013-01.  It states that the disclosures established in ASU 2011-11 only apply to recognized derivative instruments accounted for in accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset on the balance sheet under ASC 210-20-45 or 815-10-45, or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset under ASC 210-20-45 or 815-10-45.

ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013 and interim periods within those years.  Retrospective application is required.  The new pronouncement did not have an impact on the Company’s consolidated financial statements.

On July 17, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.  The ASU allows the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes. In the past, only rates on U.S. Treasury obligations and LIBOR were permitted.  The ASU was issued as a result of changes in the marketplace that have occurred since the issuance of Statement 133, and more particularly, as a result of the 2008 financial crisis.  ASU 2013-10 is applicable to all entities that elect to apply hedge accounting of the benchmark interest rate under Topic 815, Derivatives and Hedging.  The ASU is effective July 17, 2013, but only for qualifying new or redesignated hedging relationships entered into on or after that date.  In other words, retrospective adoption is not available because it would be inconsistent with the requirement to prepare appropriate documentation at the inception of a hedge.  The new pronouncement did not have an impact on the Company’s 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, 2013 the Company has repurchased a total of 591,100 shares in accordance with this repurchase plan at a total cost of approximately $5,864,000 and at an average cost per share of $9.92.
 

 
-11-

 

7.  SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses and fair values of debt and mortgage-backed securities available for sale at September 30, 2013 and June 30, 2013 and stratification by contractual maturity of debt securities available for sale at September 30, 2013 are presented below:
 
   
At September 30, 2013
   
 
Amortized'
Cost
   
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
  Fair
Value
   
(In Thousands)
Securities available for sale:
 
                   
  Debt securities:
                   
                     
    U.S. agency securities
  $ 4,906     $ -   $ 3   $ 4,903
    Obligations of state and political subdivisions
    27,554       -     2,295     25,259
    Asset-backed securities
    25,404       -     1,147     24,257
    Collateralized loan obligations
    80,368       40     477     79,931
    Corporate bonds
    160,100       52     1,402     158,750
    Trust preferred securities
    8,881       -     1,437     7,444
                           
          Total debt securities
    307,213       92     6,761     300,544
                           
Mortgage-backed securities:
                         
                           
  Collateralized mortgage obligations:
                         
                           
    Federal Home Loan Mortgage Corporation
    9,651       -     501     9,150
    Federal National Mortgage Association
    54,869       22     3,056     51,835
                           
          Total collateralized mortgage obligations
    64,520       22     3,557     60,985
                           
  Mortgage pass-through securities:
                         
                           
   Residential pass-through securities:
                         
                           
    Government National Mortgage Association
    5,552       329     1     5,880
    Federal Home Loan Mortgage Corporation
    273,963       5,690     3,887     275,766
    Federal National Mortgage Association
    313,258       10,146     3,718     319,686
                           
         Total residential pass-through securities
    592,773       16,165     7,606     601,332
                           
   Commercial pass-through securities:
                         
                           
    Federal Home Loan Mortgage Corporation
    106       2     -     108
    Federal National Mortgage Association
    94,046       2     4,257     89,791
                           
         Total commercial pass-through securities
    94,152       4     4,257     89,899
                           
           Total mortgage-backed securities
    751,445       16,191     15,420     752,216
 
Total securities available for sale
  $ 1,058,658     $ 16,283   $ 22,181   1,052,760

 
-12-

 


 
   
At September 30, 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
    23,910       23,828        
    Due after five years through ten years
    207,728       205,887        
    Due after ten years
    75,575       70,829        
          Total
  $ 307,213     $ 300,544        


   
At June 30, 2013
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
 Value
   
(In Thousands)
Securities available for sale:
                     
                       
  Debt securities:
                     
                       
    U.S. agency securities
  $ 4,955     $ 60     $ -     $   5,015  
    Obligations of state and political subdivisions
    27,560       -       2,253         25,307  
    Asset-backed securities
    25,417       1       620         24,798  
    Collateralized loan obligations
    78,366       190       70         78,486  
    Corporate bonds
    160,107       34       949         159,192  
    Trust preferred securities
    8,878       -       1,554         7,324  
                                   
          Total debt securities
    305,283       285       5,446         300,122  
                                   
Mortgage-backed securities:
                                 
                                   
  Collateralized mortgage obligations:
                                 
                                   
    Federal Home Loan Mortgage Corporation
    9,825       -       470         9,355  
    Federal National Mortgage Association
    56,158       24       3,055         53,127  
                                   
          Total collateralized mortgage obligations
    65,983       24       3,525         62,482  
                                   
  Mortgage pass-through securities:
                                 
                                   
   Residential pass-through securities:
                                 
                                   
    Government National Mortgage Association
    5,889       444       -         6,333  
    Federal Home Loan Mortgage Corporation
    290,133       4,827       4,600         290,360  
    Federal National Mortgage Association
    326,356       9,050       3,945         331,461  
                                   
         Total residential pass-through securities
    622,378       14,321       8,545         628,154  
                                   
   Commercial pass-through securities:
                                 
                                   
    Federal Home Loan Mortgage Corporation
    116       2       -         118  
    Federal National Mortgage Association
    94,389       3       4,494         88,898  
                                   
         Total commercial pass-through securities
    94,505       5       4,494         90,016  
                                   
           Total mortgage-backed securities
    782,866       14,350       16,564         780,652  
                                   
Total securities available for sale
  $ 1,088,149     $ 14,635     $ 22,010     $   1,080,774  
 
 
 
-13-

 

 
There were no sales of securities available for sale during the three months ended September 30, 2013 and September 30, 2012.  At September 30, 2013 and June 30, 2013, securities available for sale with carrying values of approximately $91.4 million and $99.4 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 $7.1 million and $4.4 million, respectively, were pledged to secure public funds on deposit.
 
The Company’s available for sale mortgage-backed securities are generally secured by both residential and commercial mortgage loans with original contractual maturities of ten to thirty years.  The effective lives of mortgage-backed 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 debt and mortgage-backed securities held to maturity at September 30, 2013 and June 30, 2013 and stratification by contractual maturity of debt securities held to maturity at September 30, 2013 are presented below:
 
   
At September 30, 2013
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
   
(In Thousands)
 
Securities held to maturity:
                       
                         
  Debt securities:
                       
                         
    U.S. agency securities
  $ 144,575     $ 12     $ 2,744     $ 141,843  
    Obligations of state and political subdivisions
    66,368       6       4,032       62,342  
                                 
          Total debt securities
    210,943       18       6,776       204,185  
                                 
Mortgage-backed securities:
                               
                                 
  Collateralized mortgage obligations:
                               
                                 
    Federal Home Loan Mortgage Corporation
    20       2       -       22  
    Federal National Mortgage Association
    317       28       -       345  
    Non-agency securities
    96       -       2       94  
                                 
          Total collateralized mortgage obligations
    433       30       2       461  
                                 
  Mortgage pass-through securities:
                               
                                 
   Residential pass-through securities: