f10q_033114-0128.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, 2014
     
OR
     
o
 
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 o
 
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 o
 
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 o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x
 
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: May 9, 2014.
     
$0.10 par value common stock  -  66,189,578 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, 2014 and June 30, 2013 (Unaudited)
 
1
     
 
Consolidated Statements of Income for the Three and Nine Months
   
 
Ended March 31, 2014 and March 31, 2013 (Unaudited)
 
2-3
     
 
Consolidated Statements of Comprehensive Income (Loss) for the Three and
   
 
Nine Months Ended March 31, 2014 and March 31, 2013 (Unaudited)
 
4
     
 
Consolidated Statements of Changes in Stockholders’ Equity for the
   
 
Nine Months Ended March 31, 2013 and March 31, 2014
 
5-6
 
(Unaudited)
   
     
 
Consolidated Statements of Cash Flows for the Nine Months
 
7-8
 
Ended March 31, 2014 and March 31, 2013  (Unaudited)
   
     
 
Notes to Consolidated Financial Statements (Unaudited)
 
9-69
     
Item 2:
Management’s Discussion and Analysis of
   
 
Financial Condition and Results of Operations
 
70-100
     
Item 3:
Quantitative and Qualitative Disclosure About Market Risk
 
101-108
     
Item 4:
Controls and Procedures
 
109
     
     
PART II - OTHER INFORMATION
 
110-113
     
     
SIGNATURES
 
114
     


 
 

 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Data)
    
March 31,
   
June 30,
 
   
2014
   
2013
 
Assets
 
(Unaudited)
       
             
Cash and amounts due from depository institutions
  $ 12,558     $ 13,102  
Interest-bearing deposits in other banks
    122,874       113,932  
                 
        Cash and Cash Equivalents
    135,432       127,034  
                 
Debt securities available for sale (amortized cost $358,407 and $305,283)
    353,917       300,122  
Debt securities held to maturity (fair value $207,335 and $202,328)
    212,391       210,015  
                 
Loans receivable, including unamortized yield adjustments of $(1,558) and $(847)
    1,651,287       1,360,871  
  Less allowance for loan losses
    (12,088 )     (10,896 )
                 
 Net Loans Receivable
    1,639,199       1,349,975  
                 
Mortgage-backed securities available for sale (amortized cost $646,807 and $782,866)
     642,508        780,652  
Mortgage-backed securities held to maturity (fair value $95,080 and $96,447)
    99,805       101,114  
Premises and equipment
    38,141       36,994  
Federal Home Loan Bank of New York (“FHLB”) stock
    24,438       15,666  
Accrued interest receivable
    8,915       8,028  
Goodwill
    108,591       108,591  
Bank owned life insurance
    88,162       86,084  
Deferred income tax assets, net
    11,327       9,782  
Other assets
    7,905       11,303  
 
               
        Total Assets
  $ 3,370,731     $ 3,145,360  
Liabilities and Stockholders’ Equity
               
                 
Liabilities
               
                 
Deposits:
               
  Non-interest-bearing
  $ 202,572     $ 190,964  
  Interest-bearing
    2,194,140       2,179,544  
                 
        Total Deposits
    2,396,712       2,370,508  
                 
Borrowings
    481,206       287,695  
Advance payments by borrowers for taxes
    8,809       7,840  
Other liabilities
    12,527       11,610  
                 
        Total Liabilities
    2,899,254       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; 66,150,682 and 66,500,740 shares outstanding, respectively
    7,274       7,274  
Paid-in capital
    216,049       215,722  
Retained earnings
    333,526       326,167  
Unearned Employee Stock Ownership Plan shares; 424,297 shares
               
  and 533,400 shares, respectively
    (4,243 )     (5,334 )
Treasury stock, at cost; 6,586,818 shares and 6,236,760 shares, respectively
    (75,588 )     (71,983 )
Accumulated other comprehensive loss
    (5,541 )     (4,139 )
                 
        Total Stockholders’ Equity
    471,477       467,707  
                 
        Total Liabilities and Stockholders’ Equity
  $ 3,370,731     $ 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
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Interest Income
                       
    Loans
  $ 16,892     $ 15,445     $ 49,217     $ 46,386  
    Mortgage-backed securities
    4,987       5,532       16,046       18,697  
    Securities:
                               
      Taxable
    1,308       436       3,807       936  
      Tax-exempt
    460       26       1,374       38  
    Other interest-earning assets
    309       205       745       595  
        Total Interest Income
    23,956       21,644       71,189       66,652  
                                 
Interest Expense
                               
    Deposits
    3,599       3,400       10,825       11,450  
    Borrowings
    1,876       1,898       5,212       5,987  
        Total Interest Expense
    5,475       5,298       16,037       17,437  
                                 
        Net Interest Income
    18,481       16,346       55,152       49,215  
                                 
Provision for Loan Losses
    880       1,407       2,607       3,139  
                                 
        Net Interest Income after Provision
                               
           for Loan Losses
    17,601       14,939       52,545       46,076  
                                 
Non-Interest Income
                               
    Fees and service charges
    513       605       1,834       1,851  
    Gain on sale of loans
    27       545       80       545  
    Gain on sale of securities
    830       9,075       1,056       10,172  
    Loss on sale and write down of real estate owned
     (71 )      (8 )      (70 )      (541 )
    Income from bank owned life insurance
     668        485        2,077        1,261  
    Electronic banking fees and charges
    237       261       877       835  
    Miscellaneous
    181       107       321       432  
        Total Non-Interest Income
    2,385       11,070       6,175       14,555  
                                 
Non-Interest Expenses
                               
    Salaries and employee benefits
    9,098       8,977       26,774       26,580  
    Net occupancy expense of premises
    2,106       1,777       5,375       5,030  
    Equipment and systems
    3,168       1,879       7,097       5,752  
    Advertising and marketing
    332       224       891       785  
    Federal deposit insurance premium
    582       535       1,712       1,636  
    Directors’ compensation
    173       171       517       513  
    Merger-related expenses
    190       -       190       -  
    Debt extinguishment expense
    -       8,688       -       8,688  
    Miscellaneous
    1,866       1,691       5,798       5,422  
        Total Non-Interest Expenses
  $ 17,515     $ 23,942     $ 48,354     $ 54,406  

 
- 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,
 
   
2014
   
2013
   
2014
   
2013
 
                         
      Income Before Income Taxes
  $ 2,471     $ 2,067     $ 10,366     $ 6,225  
                                 
Income Taxes
    685       323       3,007       1,644  
                                 
      Net Income
  $ 1,786     $ 1,744     $ 7,359     $ 4,581  
                                 
Net Income per Common
                               
  Share (EPS):
                               
    Basic
  $ 0.03     $ 0.03     $ 0.11     $ 0.07  
    Diluted
  $ 0.03     $ 0.03     $ 0.11     $ 0.07  
                                 
Weighted Average Number of
                               
  Common Shares Outstanding:
                               
    Basic
    65,684       66,141       65,797       66,195  
    Diluted
    65,782       66,141       65,829       66,195  
                                 
Dividends Declared Per Common
                               
   Share
  $ -     $ -     $ -     $ -  

See notes to unaudited consolidated financial statements.

 
- 3 -

 

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


    
Three Months Ended
 
Nine Months Ended
   
March 31,
 
March 31,
   
2014
 
2013
 
2014
 
2013
                 
 Net Income
$
          1,786
$
          1,744
$
          7,359
$
          4,581
                 
Other Comprehensive Income (Loss):
               
                 
  Net realized gain on securities
 
 
 
 
 
 
 
 
      available for sale, net of
               
      income tax expense of
               
      2014 $340, $433 and
               
      2013 $3,721, $4,173
 
(490)
 
         (5,355)
 
            (623)
 
        (6,006)
                 
  Net unrealized gain (loss) on
      securities available for sale,
 
 
 
 
 
 
   
      net of deferred income tax
      expense (benefit) of:
               
      2014 $3,231, $(571) and
               
      2013 $(2,405), $(2,776)
 
 6,263
 
         (3,688)
 
         213
 
        (4,195)
                 
  Net unrealized loss on
 
 
 
 
 
 
   
      derivatives, net of deferred
               
      income tax benefit of:
               
      2014 $(930), $(1,026) and
               
      2013 $ -, $ -
 
         (1,347)
 
                 -
 
         (1,487)
 
                 -
                 
  Benefit plans, net of  deferred
 
 
 
 
 
 
   
     income tax expense (benefit) of:
               
      2014 $3, $340 and
               
      2013 $10, $(454)
 
                7
 
               15
 
             495
 
            (656)
                 
Total Other Comprehensive
  Income (Loss)
 
 
4,433
 
 
(9,028)
 
 
 (1,402)
 
 
(10,857)
                 
Total Comprehensive Income (Loss)
$
        6,219
$
        (7,284)
$
           5,957
$
         (6,276)
                 

See notes to unaudited consolidated financial statements.

 
- 4 -

 

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.

 
 
- 5 -

 
 
 
 
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended March 31, 2014
(In Thousands, Except Per Share Data, 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
    -       -       -       7,359       -       -       -       7,359  
                                                                 
Other comprehensive income,
                                                               
  net of income tax
    -       -       -       -       -       -       (1,402 )     (1,402 )
                                                                 
ESOP shares committed to be released (108 shares)
    -       -       126       -       1,091       -       -       1,217  
                                                                 
Stock option expense
    -       -       30       -       -       -       -       30  
                                                                 
Treasury stock purchases
    (386 )     -       -       -       -       (4,020 )     -       (4,020 )
                                                                 
Treasury stock reissued
    36       -       45       -       -       415       -       460  
                                                                 
Restricted stock plan shares earned (12 shares)
    -       -       126       -       -       -       -       126  
                                                                 
                                                                 
Balance - March 31, 2014
    66,151     $ 7,274     $ 216,049     $ 333,526     $ (4,243 )   $ (75,588 )   $ (5,541 )   $ 471,477  
                                                                 
 
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,
 
   
2014
   
2013
 
             
Cash Flows from Operating Activities:
           
    Net income
  $ 7,359     $ 4,581  
    Adjustments to reconcile net income to net cash provided by operating
               
      activities:
               
        Depreciation and amortization of premises and equipment
    1,958       1,964  
        Net amortization of premiums, discounts and loan fees and costs
    2,273       7,887  
        Deferred income taxes
    146       241  
        Amortization of intangible assets
    93       105  
        Amortization of benefit plans’ unrecognized net loss
    32       75  
        Provision for loan losses
    2,607       3,139  
        Loss on write-down and sales of real estate owned
    70       541  
        Realized gain on sale of loans
    (80 )     (545 )
        Proceeds from sale of loans
    817       5,193  
        Realized loss on sale of debt securities available for sale
    1,294       -  
        Realized gain on sale of mortgage-backed securities available for sale
    (2,350 )     (10,178 )
        Realized loss on sale of mortgage-backed securities held to maturity
    -       6  
        Realized loss on debt extinguishment
    -       8,688  
        Realized gain on disposition of premises and equipment
    -       (100 )
        Increase in cash surrender value of bank owned life insurance
    (2,077 )     (1,261 )
        ESOP, stock option plan and restricted stock plan expenses
    1,373       1,222  
        (Increase) decrease in accrued interest receivable
    (887 )     846  
        Decrease in other assets
    345       1,313  
        Increase (decrease) in accrued interest payable
    71       (260 )
        Increase (decrease) in other liabilities
    1,760       (276 )
                 
            Net Cash Provided by Operating Activities
    14,804       23,181  
                 
Cash Flows from Investing Activities:
               
    Purchase of debt securities available for sale
    (108,850 )     (97,788 )
    Proceeds from sale of  debt securities available for sale
    54,075       -  
    Proceeds from repayments of debt securities available for sale
    497       444  
    Purchase of debt securities held to maturity
    (4,315 )     (144,784 )
    Proceeds from calls and maturities of debt securities held to maturity
    1,468       32,023  
    Proceeds from repayments of debt securities held to maturity
    341       518  
    Purchase of loans
    (107,969 )     (9,655 )
    Net increase in loans receivable
    (185,209 )     (56,119 )
    Proceeds from sale of real estate owned
    1,219       2,389  
    Purchases of mortgage-backed securities available for sale
    (45,076 )     (262,266 )
    Principal repayments on mortgage-backed securities available for sale
    93,195       284,197  
    Principal repayments on mortgage-backed securities held to maturity
    1,247       198  
    Proceeds from sale of  mortgage-backed securities held to maturity
    -       15  
    Proceeds from sale of  mortgage-backed securities available for sale
    87,728       409,840  
    Purchase of FHLB stock
    (24,120 )     (1,170 )
    Redemption of FHLB stock
    15,348       4,098  
    Purchase of bank owned life insurance
    -       (35,503 )
    Proceeds from cash settlement of premises and equipment
    -       200  
    Additions to premises and equipment
    (3,105 )     (814 )
                 
            Net Cash (Used in) Provided by Investing Activities
  $ (223,526 )   $ 125,823  
 
 
- 7 -

 

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

    
Nine Months Ended
 
   
March 31,
 
   
2014
   
2013
 
             
Cash Flows from Financing Activities:
           
    Net increase (decrease) in deposits
  $ 26,187     $ (18,604 )
    Repayment of term FHLB advances
    (500,066 )     (73,752 )
    Proceeds from term FHLB advances
    700,000       -  
    Net change in overnight borrowings
    (5,000 )     -  
    Decrease in other short-term borrowings
    (1,410 )     (1,296 )
    Increase in advance payments by borrowers for taxes
    969       1,798  
    Purchase of common stock of Kearny Financial Corp. for treasury
    (4,020 )     (2,833 )
    Issuance of common stock of Kearny Financial Corp. from treasury
    460       -  
    Dividends contributed for payment of ESOP loan
    -       (2 )
                 
            Net Cash Provided by (Used in) Financing Activities
    217,120       (94,689 )
                 
            Net Increase in Cash and Cash Equivalents
    8,398       54,315  
                 
Cash and Cash Equivalents – Beginning
    127,034       155,584  
                 
Cash and Cash Equivalents – Ending
  $ 135,432     $ 209,899  
                 
Supplemental Disclosures of Cash Flows Information:
               
    Cash paid during the year for:
               
        Income taxes, net of refunds
  $ 5,522     $ 1,019  
                 
        Interest
  $ 15,966     $ 17,697  
                 
    Non-cash investing and financing activities:
               
        Acquisition of  real estate owned in settlement of loans
  $ 848     $ 2,375  
                 
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-and nine-month periods ended March 31, 2014, 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 (loss), 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
   
Nine Months Ended
 
 
March 31, 2014
   
March 31, 2014
 
 
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
  $ 1,786                 $ 7,359              
Basic earnings per share,
                                       
     income available to
                                       
     common stockholders
  $ 1,786       65,684     $ 0.03     $ 7,359       65,797     $ 0.11  
Effect of dilutive securities:
                                               
     Stock options
    -       98               -       32          
                                                 
    $ 1,786       65,782     $ 0.03     $ 7,359       65,829     $ 0.11  
 
 
 
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     $ 4,581       65,853     $ 0.07  

During the three and nine months ended March 31, 2014, the average number of options which were considered anti-dilutive totaled approximately 1,915,850 and 1,964,126, respectively.  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 and 3,193,000, respectively.

4.  RECENT MERGER-RELATED EVENTS

On January 30, 2014, the Company announced the execution of a merger agreement with Atlas Bank (“Atlas”) pursuant to which Atlas will merge with and into the Bank.  Atlas is headquartered in Brooklyn, New York and had approximately $116.2 million in total assets at March 31, 2014.  The acquisition will add Atlas’s branch offices located in Brooklyn and Staten Island, New York to Kearny’s 41 branch network located throughout northern and central New Jersey.  Atlas’s branch offices are expected to operate under the name, “Atlas Bank, a division of Kearny Federal Savings Bank,” for a period of at least one year following the merger.

 
- 10 -

 
Under the terms of the merger agreement, depositors of Atlas will become depositors of the Bank and will have the same rights and privileges in Kearny MHC, the mutual holding company parent of the Company, as if their accounts had been established at the Bank on the date they were originally established at Atlas.  As part of the transaction, the Company will issue additional shares of its common stock to Kearny MHC in an amount equal to the fair value of Atlas as determined by an independent appraiser.  These shares are expected to be issued immediately prior to the completion of the merger.

The transaction is expected to close during the fourth fiscal quarter ending June 30, 2014 or the subsequent quarter ending September 30, 2014 subject to certain conditions, including approval by Atlas’s depositors and customary regulatory approvals.

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.
 
In July 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.
 
 
- 11 -

 
 
In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-04, ReceivablesTroubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The purpose of the ASU is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently evaluating the impact of adopting this ASU 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.  The Company completed that share repurchase plan during the quarter ended December 31, 2013 at a total cost of approximately $8,088,000 and at an average cost per share of $10.07.
 
On December 2, 2013, the Company announced that the Board of Directors authorized a subsequent stock repurchase plan to acquire up to 762,640 shares, or 5% of the Company’s outstanding stock held by persons other than Kearny MHC.  Through March 31, 2014, the Company has repurchased a total of 54,600 shares in accordance with this repurchase plan at a total cost of approximately $586,000 and at an average cost per share of $10.73.
 

 
- 12 -

 

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 March 31, 2014 and June 30, 2013 and stratification by contractual maturity of debt securities available for sale at March 31, 2014 are presented below:
 
   
At March 31, 2014
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
 Value
 
   
(In Thousands)
 
Securities available for sale:
                       
                         
  Debt securities:
                       
                         
    U.S. agency securities
  $ 4,419     $ 32     $ 3     $ 4,448  
    Obligations of state and political subdivisions
    27,543       -       1,411       26,132  
    Asset-backed securities
    87,465       553       1,195       86,823  
    Collateralized loan obligations
    70,009       2       313       69,698  
    Corporate bonds
    160,086       227       1,037       159,276  
    Trust preferred securities
    8,885       -       1,345       7,540  
          Total debt securities
    358,407       814       5,304       353,917  
Mortgage-backed securities:
                               
                                 
  Collateralized mortgage obligations:
                               
                                 
    Federal Home Loan Mortgage Corporation
    31,801       -       616       31,185  
    Federal National Mortgage Association
    52,172       13       1,593       50,592  
          Total collateralized mortgage obligations
    83,973       13       2,209       81,777  
  Mortgage pass-through securities:
                               
                                 
   Residential pass-through securities:
                               
                                 
    Government National Mortgage Association
    4,985       284       -       5,269  
    Federal Home Loan Mortgage Corporation
    215,951       3,583       3,753       215,781  
    Federal National Mortgage Association
    257,041       6,236       4,414       258,863  
         Total residential pass-through securities
    477,977       10,103       8,167       479,913  
                                 
   Commercial pass-through securities:
                               
                                 
    Federal Home Loan Mortgage Corporation
    79       1       -       80  
    Federal National Mortgage Association
    84,778       2       4,042       80,738  
         Total commercial pass-through securities
    84,857       3       4,042       80,818  
           Total mortgage-backed securities
    646,807       10,119       14,418       642,508  
Total securities available for sale
  $ 1,005,214     $ 10,933     $ 19,722     $ 996,425  

 
- 13 -

 


 
    
At March 31, 2014
 
   
Amortized
Cost
   
Fair
 Value
 
   
(In Thousands)
 
Debt securities available for sale:
           
                 
    Due in one year or less
  $ -     $ -  
    Due after one year through five years
    20,065       20,052  
    Due after five years through ten years
    167,121       166,087  
    Due after ten years
    171,221       167,778  
          Total
  $ 358,407     $ 353,917  


   
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       89,898  
         Total commercial pass-through securities
    94,505       5       4,494       90,016  
                                 
           Total mortgage-backed securities