SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 OR 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 2005
---------------------------------------------
- or -
[X] Transition Report pursuant to section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------- --------
Commission Number: 0-51093
Kearny Financial Corp.
----------------------
(Exact name of Registrant as specified in its Charter)
United States 22-3803741
--------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
120 Passaic Avenue, Fairfield, New Jersey 07004
----------------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (973) 244-4500
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
---------------------------------------
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] YES [X] NO
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant on December 31, 2004 was $0.
As of September 26, 2005 there were issued and outstanding 72,737,500 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement for the 2005 Annual Meeting of
Stockholders. (Part III)
EXPLANATORY NOTE: REASON FOR AMENDMENT
--------------------------------------
Kearny Financial Corp. (the "Company") is filing this amendment to its
Annual Report on Form 10-K for the year ended June 30, 2005 in order to revise
its presentation of net income per common share. There have been no changes to
previously reported total net income for any period. Only share and per share
amounts are being restated.
The effective date of the Company's initial public offering (the "IPO")
was February 23, 2005, and a total of 72,737,500 shares were issued. The 10,000
shares issued to the mutual holding company, Kearny MHC (the "MHC"), in
connection with the mutual holding company reorganization completed in 2001 were
"replaced" with 50,916,250 shares, representing 70% of the total shares issued
in the IPO. The remaining 30% of the shares issued, totaling 21,821,250 shares,
were sold in the IPO to the public.
In the Company's Form 10-K for the year ended June 30, 2005 previously
filed with the Securities and Exchange Commission ("SEC"), the presentation of
basic and diluted net income per share assumed the effective date of the
transaction was July 1, 2004. Additionally, basic and diluted net income per
share for fiscal 2004, 2003, 2002 and 2001 were not retroactively adjusted to
reflect that 70% of the shares issued in the IPO were a replacement for the
10,000 shares held by the MHC before the IPO.
At the request of the staff of the SEC, the Company is restating its
share and per share computations for the five years ended June 30, 2005. The
share and per share data for the year ended June 30, 2005 has been restated
based on a weighted average number of shares outstanding beginning on February
23, 2005, the date the Company's initial public offering was completed.
Additionally, the share and per share data for the four fiscal years ended June
30, 2004 has been restated to reflect the replacement of the MHC's shares in
connection with the IPO.
Item 6. Selected Financial Data
--------------------------------
The following financial information and other data in this section for
the years ended June 30, 2005, 2004 and 2003 is derived from the Company's
audited consolidated financial statements and should be read together with the
consolidated financial statements and the notes thereto contained in this Annual
Report on Form 10-K. The information at and for the year ended June 30, 2001 is
derived from unaudited consolidated financial statements of the Company. The
Company acquired Pulaski Bancorp, Inc. in October 2002 and West Essex Bancorp,
Inc. in July 2003. For an explanation of the accounting treatment of the
acquisitions, see Note 2 to the consolidated financial statements.
-1-
For the Year Ended June 30,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
(In Thousands, Except Per Share Data)
Per Share Data:
Net income per share - basic (as restated)........ $ 0.33 $ 0.25 $ 0.08 $ 0.32 $ 0.28
Net income per share - diluted (as restated)...... $ 0.33 $ 0.25 $ 0.08 $ 0.32 $ 0.28
Weighted average number of common
Shares outstanding - basic (as restated)...... 57,963 50,916 50,916 50,916 50,916
Weighted average number of common
Shares outstanding - diluted (as restated).... 57,963 50,916 50,916 50,916 50,916
Cash dividends per share (1)...................... $ -- $ -- $ 0.02 $ 0.02 $ 0.02
_____________________
(1) Cash dividends paid per share represents the aggregate of dividends paid by
Kearny Financial Corp., West Essex Bancorp, Inc., and Pulaski Bancorp, Inc.
to the minority stockholders of West Essex Bancorp, Inc. and Pulaski
Bancorp, Inc. divided by the outstanding shares of Kearny Financial Corp.
common stock.
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
The Company's financial statements are contained in this amended Annual
Report on Form 10-K immediately following Item 15.
Item 15. Exhibits and Financial Statement Schedules
----------------------------------------------------
(1) The following financial statements and the independent auditors' report
appear in this Annual Report on Form 10-K immediately after this Item 15:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of June 30, 2005 and 2004
Consolidated Statements of Income for the Years Ended June 30, 2005, 2004 and 2003
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
June 30, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the Years Ended June 30, 2005, 2004
and 2003
Notes to Consolidated Financial Statements
(2) All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements or
the notes thereto.
(3) The following exhibits are filed as part of this report:
11 Statement regarding computation of earnings per share
23 Consent of Beard Miller Company LLP
-2-
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
JUNE 30, 2005
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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TABLE OF CONTENTS
PAGE NO.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm F-1
Consolidated Statements of Financial Condition F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
BEARD MILLER COMPANY LLP
--------------------------------------------
Certified Public Accountants and Consultants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Kearny Financial Corp. and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of Kearny Financial Corp. (the "Company") and Subsidiaries as of June
30, 2005 and 2004, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 2005. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in
the second preceding paragraph present fairly, in all material respects, the
consolidated financial position of Kearny Financial Corp. and Subsidiaries as of
June 30, 2005 and 2004, and the consolidated results of their operations and
cash flows for each of the years in the three-year period ended June 30, 2005,
in conformity with accounting principles generally accepted in the United States
of America.
/s/Beard Miller Company LLP
Pine Brook, New Jersey
July 29, 2005
F-1
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
---------------------------
2005 2004
------------- ------------
(In Thousands, Except Share
and Per Share Data)
ASSETS
Cash and amounts due from depository institutions $ 16,683 $ 21,008
Interest-bearing deposits in other banks 123,182 18,480
------------ -----------
Cash and Cash Equivalents 139,865 39,488
Securities available for sale 33,591 41,564
Investment securities held to maturity 470,098 435,870
Loans receivable, including net deferred loan costs 2005 $815; 2004 $758 563,434 510,938
Less allowance for loan losses (5,416) (5,144)
------------ -----------
Net Loans Receivable 558,018 505,794
Mortgage-backed securities held to maturity 758,121 771,353
Premises and equipment 34,977 26,649
Federal Home Loan Bank of New York stock ("FHLB") 11,361 11,392
Interest receivable 10,430 9,861
Goodwill 82,263 82,263
Other assets 8,281 12,284
------------ -----------
Total Assets $ 2,107,005 $ 1,936,518
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 56,142 $ 55,377
Interest bearing 1,472,635 1,482,133
------------ -----------
Total Deposits 1,528,777 1,537,510
Advances from FHLB 61,687 94,234
Advance payments by borrowers for taxes 4,627 4,224
Other liabilities 6,432 7,045
------------ -----------
Total Liabilities 1,601,523 1,643,013
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.10 par value; 25,000,000 shares authorized; non-issued and
outstanding - -
Common stock, $0.10 par value; 75,000,000 shares authorized; 2005 72,737,500 shares
and 2004 10,000 shares issued and outstanding 7,274 1
Paid-in capital 207,838 499
Retained earnings - substantially restricted 301,857 282,959
Unearned Employee Stock Ownership Plan shares (16,972) -
Accumulated other comprehensive income 5,485 10,046
------------ -----------
Total Stockholders' Equity 505,482 293,505
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 2,107,005 $ 1,936,518
=============== ===============
See notes to consolidated financial statements.
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F-2
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30,
----------------------------------------------------
2005 2004 2003
---------- ---------- ----------
(In Thousands, Except Per Share Data)
INTEREST INCOME
Loans $29,311 $28,919 $36,673
Mortgage-backed securities 33,954 33,980 47,764
Investment and available for sale securities 16,536 14,426 9,133
Other interest-earning assets 2,640 1,329 2,922
---------- --------- --------
Total Interest Income 82,441 78,654 96,492
---------- --------- --------
INTEREST EXPENSE
Deposits 26,532 28,082 39,908
Borrowings 3,890 4,018 4,787
---------- --------- --------
Total Interest Expense 30,422 32,100 44,695
---------- --------- --------
Net Interest Income 52,019 46,554 51,797
PROVISION FOR LOAN LOSSES 68 - -
---------- --------- --------
Net Interest Income after Provision for Loan Losses 51,951 46,554 51,797
---------- --------- --------
NON-INTEREST INCOME
Fees and service charges 712 681 1,002
Gain on sale of available for sale securities 7,705 - -
Miscellaneous 1,086 879 845
---------- --------- --------
Total Non-Interest Income 9,503 1,560 1,847
---------- --------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 20,790 16,522 16,962
Net occupancy expense of premises 3,163 2,523 2,376
Equipment 3,931 3,453 3,142
Advertising 1,176 861 861
Federal insurance premium 554 587 620
Amortization of intangible assets 636 636 636
Directors' fees 886 827 818
Merger related expenses - 592 14,921
Miscellaneous 3,726 3,471 4,016
---------- --------- --------
Total Non-Interest Expenses 34,862 29,472 44,352
---------- --------- --------
Income before Income Taxes 26,592 18,642 9,292
INCOME TAXES 7,694 5,745 5,237
---------- --------- --------
Net Income $18,898 $12,897 $ 4,055
========== ========= ========
NET INCOME PER COMMON SHARE
Basic (As restated) $0.33 $0.25 $0.08
========== ========= ========
Diluted (As restated) $0.33 $0.25 $0.08
========== ========= ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic (As restated) 57,963 50,916 50,916
========== ========== ========
Diluted (As restated) 57,963 50,916 50,916
========== ========== ========
See notes to consolidated financial statements.
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F-3
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2005, 2004, and 2003
Retained Accumulated
Common Stock Earnings - Unearned Other
--------------- Paid-In Substantially Unearned Incentive Treasury Comprehensive
Shares Amount Capital Restricted ESOP Shares Plan Shares Stock Income Total
------ ------ ------- ---------- ----------- ----------- ----- ------ -----
(In Thousands)
BALANCE - JUNE 30, 2002 13 $ 1 $27,906 $272,983 $ (811) $(419) $(6,249) $ 9,043 $302,454
--------
Comprehensive income:
Net income - - - 4,055 - - - - 4,055
Unrealized loss
on securities
available for
sale, net of
deferred income
tax benefit of $743 - - - - - - - (1,272) (1,272)
--------
Total Comprehensive
Income 2,783
--------
ESOP shares
committed to be
released - - 459 - 148 - - - 607
Incentive Plan
shares earned - - - - - 182 - - 182
Treasury stock
reissued - - (20) - - - 365 - 345
Cash dividends
declared - - - (986) - - - - (986)
Acquisition of Pulaski
Bancorp, Inc. (1) - (9,850) (2,082) - 44 1,601 - (10,287)
Permanent tax benefit
related to stock
options - - 571 - - - - - 571
------ ------- ------------ ------------- ------------ ---------- ------------ ------------- --------
BALANCE - JUNE 30, 2003 12 1 19,066 273,970 (663) (193) (4,283) 7,771 295,669
--------
Comprehensive income:
Net income - - - 12,897 - - - - 12,897
Unrealized gain
on securities
available for
sale, net of
deferred income
tax expense
of $1,296 - - - - - - - 2,275 2,275
--------
Total Comprehensive
Income 15,172
--------
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F-4
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
Years Ended June 30, 2005, 2004, and 2003
Retained Accumulated
Common Stock Earnings - Unearned Other
--------------- Paid-In Substantially Unearned Incentive Treasury Comprehensive
Shares Amount Capital Restricted ESOP Shares Plan Shares Stock Income Total
------ ------ -------- ------------- ----------- ----------- -------- ------------- ---------
(In Thousands)
Acquisition of West Essex
Bancorp, Inc. (2) $ - $(18,567) $ (3,908) $ 663 $193 $ 4,283 $ - $(17,336)
---- ------ -------- -------- ------ ---- ------- ------- --------
BALANCE - JUNE 30, 2004 10 1 499 282,959 - - - 10,046 293,505
--------
Comprehensive income:
Net income - - - 18,898 - - - - 18,898
Realized gain
on securities
available for
sale, net of
income tax
of $2,697 - - - - - - - (5,008) (5,008)
Unrealized gain
on securities
available for
sale, net of
deferred income
tax expense of $240 - - - - - - - 447 447
--------
Total Comprehensive
Income 14,337
--------
Initial capitalization
from establishment
of mutual
holding company (10) (1) 1 - - - - - -
Proceeds from common
stock offering 72,738 7,274 207,293 - (17,457) - - - 197,110
ESOP shares committed
to be released - - 45 - 485 - - - 530
------- ------- ----------- -------- -------- ------ ---- ----------- --------
BALANCE - JUNE 30, 2005 72,738 $ 7,274 $207,838 $301,857 $(16,972) $ - $ - $5,485 $505,482
======= ======= =========== ======== ======== ====== ==== =========== ========
See notes to consolidated financial statements.
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F-5
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
------------------------------------------------
2005 2004 2003
--------- --------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,898 $ 12,897 $ 4,055
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of premises and equipment 1,549 1,314 1,279
Net amortization of premiums, discounts and loan fees
and costs 1,035 2,679 2,260
Deferred income taxes 343 556 (734)
Amortization of intangible assets 636 636 636
Provision for loan losses 68 - -
Realized gains on sale of securities available for sale (7,705) - -
(Increase) decrease in interest receivable (569) (1,381) 977
(Increase) decrease in other assets 3,861 (17) (1,461)
(Decrease) in interest payable (57) (376) (375)
Increase (decrease) in other liabilities 1,045 (1,705) 1,944
ESOP expenses 530 - 789
--------- --------- --------
Net Cash Provided by Operating Activities 19,634 14,603 9,370
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (202) (152) (180)
Proceeds from sale of securities available for sale 8,866 - -
Purchases of investment securities held to maturity (54,387) (263,187) (261,813)
Proceeds from calls and maturities of investment securities
held to maturity 15,387 111,189 108,705
Proceeds from repayments of investment securities held to maturity 4,797 3,612 73,154
Purchase of loans (1,515) (15,024) (5,687)
Proceeds from sale of student loans - - 338
Net (increase) decrease in loans receivable (50,913) 16,922 86,934
Purchases of mortgage-backed securities held to maturity (163,607) (425,124) (154,799)
Principal repayments on mortgage-backed securities held to
maturity 175,911 334,016 371,915
Additions to premises and equipment (9,877) (8,079) (3,714)
Redemption of FHLB stock 31 2,395 1,954)
Cash paid for acquisition of minority interest in Pulaski
Bancorp, Inc. - - (26,433)
Cash paid for acquisition of minority interest in West Essex
Bancorp, Inc. - - (67,853)
--------- --------- --------
Net Cash Provided by (Used in) Investing Activities (75,509) (243,432) 122,521
--------- --------- --------
See notes to consolidated financial statements.
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F-6
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30,
--------------------------------------------------
2005 2004 2003
--------- --------- --------
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (8,714) $(75,836) $134,221
Repayment of FHLB advances (2,547) (11,515) (36,331)
Net change in short-term borrowings from FHLB (30,000) 30,000 -
Increase (decrease) in advance payments by borrowers for taxes 403 11 (445)
Proceeds from issuance of common stock of West Essex
Bancorp, Inc. - - 345
Proceeds from issuance of common stock of Kearny
Financial Corp. 197,110 - -
Dividends paid to minority stockholders of West Essex
Bancorp, Inc. and Pulaski Bancorp, Inc. - - (1,054)
--------- -------- --------
Net Cash Provided by (Used in) Financing Activities 156,252 (57,340) 96,736
--------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 100,377 (286,169) 228,627
CASH AND CASH EQUIVALENTS - BEGINNING 39,488 325,657 97,030
--------- -------- --------
CASH AND CASH EQUIVALENTS - ENDING $139,865 $ 39,488 $325,657
======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year for:
Income taxes, net of refunds $ 2,090 $ 5,956 $ 6,931
======== ========= ========
Interest $ 30,479 $ 32,476 $ 45,061
======== ========= ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Minority interest in consolidated subsidiaries $ - $ 17,336 $ -
======== ========= ========
Goodwill - West Essex acquisition $ - $ 50,517 $ -
======== ========= ========
Deposit for acquisition of West Essex Bancorp, Inc. $ - $ (67,853) $ -
======== ========= ========
See notes to consolidated financial statements.
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F-7
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, Kearny Federal Savings Bank (the "Bank") and
Kearny Financial Securities, Inc., and the Bank's wholly-owned
subsidiaries, KFS Financial Services, Inc. and Kearny Federal Investment
Corp., and have been prepared in conformity with accounting principles
generally accepted in the United States of America. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the consolidated statements of
financial condition and revenues and expenses for the periods then ended.
Actual results could differ significantly from those estimates. A material
estimate that is particularly susceptible to significant change relates to
the determination of the allowance for loan losses. Management believes
that the allowance for loan losses represents its best estimate of losses
known and inherent in the loan portfolio that are both probable and
reasonable to estimate. While management uses available information to
recognize losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions in the
market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them at
the time of their examination.
Business of the Company and Subsidiaries
The Company's primary business is the ownership and operation of the Bank.
The Bank is principally engaged in the business of attracting deposits from
the general public at its 25 locations in New Jersey and using these
deposits, together with other funds, to invest in securities and to make
loans collateralized by residential and commercial real estate and, to a
lesser extent, consumer loans. The Company's other subsidiary, Kearny
Financial Securities, Inc., was organized in April 2005 under Delaware law
as a Delaware Investment Company primarily to hold investment and
mortgage-backed securities. The Bank's subsidiary, Kearny Federal
Investment Corp. was organized in July 2004 under New Jersey law as a New
Jersey Investment Company primarily to hold investment and mortgage-backed
securities.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks, all with
original maturities of three months or less.
Securities
Investments in debt securities that we have the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and
reported at amortized cost. Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with
unrealized holding gains and losses included in earnings. Debt and equity
securities not classified as trading securities or as held-to-maturity
securities are classified as available for sale securities and reported at
fair value, with unrealized holding gains or losses, net of deferred income
taxes, reported in the accumulated other comprehensive income component of
stockholders' equity.
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F-8
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (Continued)
Individual securities are considered impaired when fair value is less than
amortized cost. Management evaluates on a monthly basis whether any
securities are other-than-temporarily impaired. In making this
determination, we consider the extent and duration for the impairment, the
nature and financial health of the issuer, other factors relevant to
specific securities, and our ability and intent to hold securities for a
period of time sufficient to allow for any anticipated recovery in market
value. If a security is determined to be other-than-temporarily impaired,
an impairment loss is charged to operations.
Premiums and discounts on all securities are amortized/accreted to maturity
by use of the level-yield method. Gain or loss on sales of securities is
based on the specific identification method.
Concentration of Risk
The Bank's lending activity is concentrated in loans secured by real estate
located primarily in the State of New Jersey.
Loans Receivable
Loans receivable are stated at unpaid principal balances plus net deferred
loan origination costs and discounts less the allowance for loan losses.
Loan origination fees and certain direct loan origination costs are
deferred and amortized, using the level-yield method, as an adjustment of
yield over the contractual lives of the related loans. Unearned discounts
are accreted by use of the level-yield method over the contractual lives of
the related loans.
Recognition of interest by the accrual method is generally discontinued
when interest or principal payments are ninety days or more in arrears on a
contractual basis, or when other factors indicate that the collection of
such amounts is doubtful. At the time a loan is placed on nonaccrual
status, an allowance for uncollected interest is recorded in the current
period for previously accrued and uncollected interest. Interest on such
loans, if appropriate, is recognized as income when payments are received.
A loan is returned to accrual status when interest or principal payments
are no longer ninety days or more in arrears on a contractual basis and
factors indicating doubtful collectibilty no longer exist.
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F-9
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Loan Losses
An allowance for loan losses is maintained at a level that represents
management's best estimate of losses known and inherent in the loan
portfolio that are both probable and reasonable to estimate. The allowance
is decreased by loan charge-offs, increased by subsequent recoveries of
loans previously charged off, and then adjusted, via either a charge or
credit to operations, to an amount determined by management to be
necessary. Loans or portions thereof, are charged off when, after
collection efforts are exhausted, they are determined to be uncollectible.
Management of the Bank, in determining the allowance for loan losses,
considers the losses inherent in its loan portfolio and changes in the
nature and volume inherent in its loan activities, along with the general
economic and real estate market conditions. The Bank utilizes a two tier
approach: (1) identification of impaired loans and establishment of
specific loss allowances on such loans; and (2) establishment of general
valuation allowances on the remainder of its loan portfolio. The Bank
maintains a loan review system which allows for a periodic review of its
loan portfolio and the early identification of potential impaired loans.
Such system takes into consideration, among other things, delinquency
status, size of loans, type of collateral and financial condition of the
borrowers. Specific loan loss allowances are established for identified
loans based on a review of such information and/or appraisals of the
underlying collateral. General loan losses are based upon a combination of
factors including, but not limited to, actual loan loss experience,
composition of the loan portfolio, current economic conditions and
management's judgment. Although management believes that specific and
general loan losses are established in accordance with management's best
estimate, actual losses are dependent upon future events and, as such,
further additions to the level of loan loss allowances may be necessary.
A loan evaluated for impairment is deemed to be impaired when, based on
current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. All loans identified as impaired are evaluated independently.
The Bank does not aggregate such loans for evaluation purposes. Payments
received on impaired loans are applied first to interest receivable and
then to principal.
Premises and Equipment
Land is carried at cost. Buildings and improvements, furnishings and
equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed on the straight-line method over the
following estimated useful lives:
Years
------------------
Building and improvements 10 - 50
Furnishings and equipment 4 - 20
Leasehold improvements Shorter of useful
lives or 10
Construction in progress primarily represents facilities under construction
for future use in our business and includes all costs to acquire land and
construct buildings, as well as capitalized interest during the
construction period. Interest is capitalized at the Bank's average cost of
interest-bearing liabilities.
Significant renewals and betterments are charged to the property and
equipment account. Maintenance and repairs are charged to operations in the
year incurred. Rental income is netted against occupancy costs in the
consolidated statements of income.
--------------------------------------------------------------------------------
F-10
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangible Assets
Goodwill and other intangible assets principally represent the excess cost
over the fair value of the net assets of the institutions acquired in
purchase transactions. Goodwill is evaluated annually by reporting unit and
an impairment loss recorded if indicated. The impairment test is performed
in two phases. The first step of the goodwill impairment test compares the
fair value of the reporting unit with its carrying amount, including
goodwill. If the fair value of the reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired; however,
if the carrying amount of the reporting unit exceeds its fair value, an
additional procedure must be performed. That additional procedure compares
the implied fair value of the reporting unit's goodwill (as defined in SFAS
No. 142), with the carrying amount of that goodwill. An impairment loss is
recorded to the extent that the carrying amount of goodwill exceeds its
implied fair value. Fair value is determined by a combination of the
Comparable Transaction and Discounted Cash Flow approaches. No impairment
charges were required to be recorded in the years ended June 30, 2005, 2004
or 2003. If an impairment loss is determined to exist in the future, such
loss will be reflected as an expense in the consolidated statements of
income in the period in which the impairment loss is determined. Separate
intangible assets, including core deposit intangibles that are not deemed
to have indefinite lives, continue to be amortized over their useful lives,
which is estimated to be ten years.
Income Taxes
The Company and its subsidiaries file consolidated federal income tax
returns. Income taxes are allocated based on the contribution of income to
the consolidated income tax returns. Separate state income tax returns are
filed.
Federal and state income taxes have been provided on the basis of the
reported income. The amounts reflected on our tax returns differ from these
provisions due principally to temporary differences in the reporting of
certain items for financial reporting and income tax reporting purposes.
Deferred income taxes are recorded to recognize such temporary differences.
Interest Rate Risk
The Bank is principally engaged in the business of attracting deposits from
the general public and using these deposits, together with other funds, to
purchase securities and to make loans secured by real estate. The potential
for interest-rate risk exists as a result of the generally shorter duration
of interest-sensitive liabilities compared to the generally longer duration
of interest-sensitive assets. In a rising rate environment, liabilities
will reprice faster than assets, thereby reducing net interest income. For
this reason, management regularly monitors the maturity structure of the
Bank's assets and liabilities in order to measure its level of
interest-rate risk and to plan for future volatility.
Net Income per Common Share
Net income per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted net
income per common share did not differ from basic net income per common
share as there were no contracts or securities exercisable or which could
be converted into common stock. The calculation of basic and diluted net
income per common share excludes Kearny Federal Savings Bank Employee Stock
Ownership Plan (the "ESOP") shares that have not been previously allocated
to participants or have not been committed to be released for allocation to
participants. The 10,000 shares issued to Kearny MHC in connection with the
Company's reorganization in 2001 were "replaced" with 70% of the shares
issued in the Company's initial public offering. This transaction is
analogous to a stock split or significant stock dividend, therefore, net
income per common share for those shares have been retroactively restated
for all periods presented. See Note 3 to Consolidated Financial Statements.
--------------------------------------------------------------------------------
F-11
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification
Certain amounts as of and for the years ended June 30, 2004 and 2003 have
been reclassified to conform to the current year's presentation.
NOTE 2 - BUSINESS COMBINATIONS
On January 10, 2002, the Company and the Bank, entered into a merger agreement
with Pulaski Bancorp, Inc. ("Pulaski") and its subsidiary, Pulaski Savings Bank
(PSB). On October 18, 2002, the Company purchased Pulaski's common stock held by
public stockholders for $32.90 per share, in cash. The purchase of minority
interest shares was recorded as the acquisition of the noncontrolling interests
of a subsidiary utilizing the purchase method of accounting and the immediately
following mergers of the Company and Pulaski, and the Bank and PSB, were
recorded as a combination of entities under common control. The amount paid to
minority shareholders of Pulaski in excess of their interest in Pulaski amounted
to $16,146,000, which was recorded as goodwill.
On September 11, 2002, the Company and the Bank entered into a merger agreement
with West Essex Bancorp, Inc. (West Essex), West Essex Savings Bank (WESB) and
its 100% owned subsidiaries. On July 1, 2003, the Company purchased West Essex's
common stock held by public stockholders for $35.10 per share, in cash. (The
purchase price was transferred to a third party escrow agent as of June 30,
2003.) The purchase of minority interest shares was recorded as the acquisition
of the noncontrolling interests of a subsidiary utilizing the purchase method of
accounting and the immediately following merger of the Company and West Essex,
and the Bank and WESB, were recorded as a combination of entities under common
control. The amount paid to minority shareholders of West Essex in excess of
their interest in West Essex amounted to $50,517,000, which was recorded as
goodwill.
Merger related expenses include the following:
Years Ended June 30,
-----------------------------------
2005 2004 2003
---------- ------- --------
(In Thousands)
Legal, professional, filing fees and other expenses $ - $ 592 $ 2,670
Payments for terminated employment contracts and stock-based
compensation plans for officers - - 10,657
Stock option payment to directors - - 1,594
--------- ------- --------
$ - $ 592 $ 14,921
========= ======= ========
In addition, compensation expense for the year ended June 30, 2003, included
approximately $1,464,000 and $607,000 in pension and ESOP expense, respectively,
of West Essex Bancorp, Inc.
--------------------------------------------------------------------------------
F-12
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - STOCK OFFERING
On June 7, 2004, the Board of Directors of the Company and the Bank adopted a
plan of stock issuance pursuant to which the Company subsequently sold common
stock representing a minority ownership of the estimated pro forma market value
of the Company to eligible depositors of the Bank. On February 23, 2005, the
Company completed the minority stock offering in which it sold 21,821,250
shares, valued at $10.00 per share, representing 30% of its outstanding common
stock. Kearny MHC (the "MHC") owns the remaining 70% of the outstanding common
stock, or 50,916,250 shares. The MHC is a federally-chartered mutual holding
company organized on March 30, 2001, and is subject to regulation by the Office
of Thrift Supervision. So long as the MHC is in existence, it will continue to
own a majority of the outstanding common stock of the Company. The Office of
Thrift Supervision also regulates the Company and the Bank.
Following the sale of common stock, all depositors who had membership or
liquidation rights with respect to the Bank as of the effective date of the
transaction continue to have such rights solely with respect to the MHC as long
as they continue to hold deposit accounts with the Bank. In addition, all
persons who become depositors of the Bank subsequent to the date of the
transaction have such membership and liquidation rights with respect to the
holding company. Borrowers of the Bank as of the date of the transaction have
the same membership rights in the holding company that they had in the Bank
immediately prior to the date of the transaction as long as their borrowings
remain outstanding.
The minority stock offering resulted in net proceeds of $214.6 million, after
expenses of $3.6 million. The Company used 50% of the net proceeds to make a
capital contribution to the Bank. The Company also provided a term loan to the
Bank's Employee Stock Ownership Plan (the "ESOP") to enable it to purchase
1,745,700 shares of the Company's common stock for the plan.
NOTE 4 - SECURITIES AVAILABLE FOR SALE
June 30, 2005
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Common stock $ 128 $8,423 $ - $ 8,551
Mutual funds 14,134 161 155 14,140
Trust preferred securities due after ten years 10,891 200 191 10,900
------- ------ ------ -------
$25,153 $8,784 $ 346 $33,591
======= ====== ====== =======
--------------------------------------------------------------------------------
F-13
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SECURITIES AVAILABLE FOR SALE (CONTINUED)
June 30, 2004
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Common stock $ 246 $15,648 $ - $15,894
Mutual funds 13,933 63 97 13,899
Trust preferred securities due after ten years 11,929 69 227 11,771
------- ------- ------- -------
$26,108 $15,780 $ 324 $41,564
======= ======= ======= =======
The age of unrealized losses and fair value of related securities available for
sale at June 30, 2005 and 2004 were as follows:
Less than 12 Months 12 Months or More Total
------------------- ------------------------- --------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------- ---------- -------- ----------- ---------- ------------
(In Thousands)
June 30, 2005:
Common stock $ - $ - $ - $ - $ - $ -
Mutual funds - - 7,201 155 7,201 155
Trust preferred
securities - - 5,210 191 5,210 191
------ ------ -------- ----- ------- ----
Total $ - $ - $12,411 $ 346 $12,411 $346
====== ====== ======= ===== ======= ====
June 30, 2004:
Common stock $ - $ - $ - $ - $ - $ -
Mutual funds - - 7,057 97 7,057 97
Trust preferred
securities - - 7,577 227 7,577 227
------ ------ ------- ----- ------- ----
Total $ - $ - $14,634 $ 324 $14,634 $324
====== ====== ======= ===== ======= ====
As of June 30, 2005 and 2004, management has concluded that the unrealized
losses are temporary in nature since they are primarily related to market
interest rates and not related to the underlying credit quality of the issuer of
the securities. Additionally, we have the intent and ability to hold these
investments for a time necessary to recover the amortized cost.
During the year ended June 30, 2005, proceeds from sales of securities available
for sale totaled $8,866,000 and resulted in gross gains of $7,705,000. There
were no sales of securities available for sale during the years ended June 30,
2004 and 2003.
--------------------------------------------------------------------------------
F-14
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY
June 30, 2005
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Government agencies:
Within one year $ 17,000 $ - $ 152 $ 16,848
After one year but within five years 235,019 4 4,065 230,958
After five years but within ten years 494 81 - 575
After ten years 12,956 - 112 12,844
-------- ------ ------ --------
265,469 85 4,329 261,225
-------- ------ ------ --------
Obligations of states and political subdivisions:
Within one year 4,202 11 3 4,210
After one year but within five years 16,139 216 78 16,277
After five years but within ten years 99,841 2,453 261 102,033
After ten years 84,447 1,327 298 85,476
-------- ------ ------ --------
204,629 4,007 640 207,996
-------- ------ ------ --------
$470,098 $4,092 $4,969 $469,221
======== ====== ====== ========
--------------------------------------------------------------------------------
F-15
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)
June 30, 2004
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Government agencies:
After one year but within five years $246,259 $ - $5,223 $241,036
After five years but within ten years 10,493 117 62 10,548
After ten years 17,649 11 104 17,556
-------- ------ ------- --------
274,401 128 5,389 269,140
-------- ------ ------- --------
Obligations of states and political subdivisions:
Within one year 5,386 33 - 5,419
After one year but within five years 13,606 369 54 13,921
After five years but within ten years 65,990 922 991 65,921
After ten years 76,487 394 2,507 74,374
-------- ------ ------ --------
161,469 1,718 3,552 159,635
-------- ------ ------ --------
$435,870 $1,846 $8,941 $428,775
======== ====== ====== ========
There were no sales of investment securities held to maturity during the years
ended June 30, 2005, 2004 and 2003. During the years ended June 30, 2005, 2004
and 2003, proceeds from calls of securities totaled $10,000,000, $111,189,000,
and $108,705,000, respectively, resulting in no gains or losses. At June 30,
2005, investment securities held to maturity with a carrying value of
$243,007,000 are callable within one year.
At June 30, 2005 and 2004, all obligations of states and political subdivisions
were guaranteed by insurance policies issued by various insurance companies.
The age of unrealized losses and fair value of related investment securities
held to maturity at June 30, 2005 and 2004 were as follows:
Less than 12 Months 12 Months or More Total
------------------- ------------------------- --------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------- ---------- -------- ----------- ---------- ------------
(In Thousands)
June 30, 2005:
Government agencies $ 754 $ 6 $254,116 $4,323 $254,870 $4,329
Obligations of states
and political subdivisions 19,469 221 32,923 419 52,392 640
------- ---- -------- ------ -------- ------
Total $20,223 $227 $287,039 $4,742 $307,262 $4,969
======= ==== ======== ====== ======== ======
--------------------------------------------------------------------------------
F-16
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)
Less than 12 Months 12 Months or More Total
------------------- ------------------------- --------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------- ---------- -------- ----------- ---------- ------------
(In Thousands)
June 30, 2004:
Government agencies $250,973 $5,285 $16,386 $104 $267,359 $5,389
Obligations of states
and political subdivisions 85,620 3,026 7,365 526 92,985 3,552
-------- ------ ------- ---- -------- ------
Total $336,593 $8,311 $23,751 $630 $360,344 $8,941
======== ====== ======= ==== ======== ======
As of June 30, 2005 and 2004, management has concluded that the unrealized
losses are temporary in nature since they are primarily related to market
interest rates and not related to the underlying credit quality of the issuers
of the securities. Additionally, we have the intent and ability to hold these
investments for the time necessary to recover the amortized cost.
NOTE 6 - LOANS RECEIVABLE
June 30,
-------------------------
2005 2004
-------- --------
(In Thousands)
Real estate mortgage $479,451 $441,667
-------- --------
Commercial business 2,930 5,161
-------- --------
Consumer:
Home equity loans 54,199 37,381
Home equity lines of credit 14,850 15,677
Passbook or certificate 2,831 2,746
Other 264 336
-------- --------
72,144 56,140
-------- --------
Construction 8,094 7,212
-------- --------
Total Loans 562,619 510,180
Deferred loan costs and fees, net 815 758
-------- --------
$563,434 $510,938
======== ========
--------------------------------------------------------------------------------
F-17
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LOANS RECEIVABLE (CONTINUED)
At June 30, 2005 and 2004, real estate mortgage loans included $382,766,000 and
$358,241,000, respectively, of loans secured by one-to-four-family residential
properties.
The Bank has granted loans to officers and directors of the Company and its
Subsidiaries and to their associates. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than normal risk of collectibility. As of June 30, 2005 and
2004 such loans totaled approximately $1,285,000 and $1,633,000, respectively.
During the year ended June 30, 2005, new loans to related parties totaled $-0-
and repayments totaled approximately $348,000.
The activity in the allowance for loan losses is as follows:
Years Ended June 30,
-------------------------------
2005 2004 2003
------- ------- -------
(In Thousands)
Balance - beginning $ 5,144 $ 5,180 $ 5,170
Provisions charged to operations 68 - -
Loans charged off (9) (36) -
Loans recovered 213 - 10
------- ------- -------
Balance - ending $ 5,416 $ 5,144 $ 5,180
======= ======= =======
At June 30, 2005 and 2004, nonaccrual loans for which the accrual of interest
had been discontinued totaled approximately $1,922,000 and $2,289,000,
respectively. Had these loans been performing in accordance with their original
terms, the interest income recognized for the years ended June 30, 2005, 2004
and 2003, would have been $162,000, $177,000, and $178,000, respectively.
Interest income recognized on such loans was $69,000, $118,000, and $102,000,
respectively.
Impaired loans and related amounts recorded in allowance for loan losses are
summarized as follows:
June 30,
--------------
2005 2004
---- ----
(In Thousands)
Recorded investment in impaired loans with recorded allowance $ - $256
Without recorded allowance - -
---- ----
Total Impaired Loans - 256
Related allowance for loan losses - 115
---- ----
Net Impaired Loans $ - $141
==== ====
$88,000, $-0-, and $-0- was received and recognized for these loans during the
years ended June 30, 2005, 2004 and 2003, respectively. The average balance of
impaired loans during the years ended June 30, 2005, 2004 and 2003 approximated
$235,000, $243,000, and $229,000, respectively.
--------------------------------------------------------------------------------
F-18
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - MORTGAGE-BACKED SECURITIES HELD TO MATURITY
June 30, 2005
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Government National Mortgage Association $ 63,399 $1,767 $ 196 $ 64,970
Federal Home Loan Mortgage Corporation 305,059 2,465 1,712 305,812
Federal National Mortgage Association 389,663 3,985 1,700 391,948
-------- ------ ------ --------
$758,121 $8,217 $3,608 $762,730
======== ====== ====== ========
June 30, 2004
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- ------ ------ --------
(In Thousands)
Government National Mortgage Association $ 94,499 $2,507 $1,487 $ 95,519
Federal Home Loan Mortgage Corporation 314,221 2,472 3,505 313,188
Federal National Mortgage Association 362,633 4,670 3,300 364,003
-------- ------ ------ --------
$771,353 $9,649 $8,292 $772,710
======== ====== ====== ========
Net premiums of approximately $3,613,000 and $3,565,000 at June 30, 2005 and
2004, respectively, are included in the carrying amounts of mortgage-backed
securities held to maturity.
There were no sales of mortgage-backed securities held to maturity during the
years ended June 30, 2005, 2004 and 2003. At June 30, 2005 and 2004, securities
with carrying value of approximately $426,000 and $906,000, respectively, was
pledged to secure public funds on deposit.
The age of unrealized losses and fair value of related mortgage-backed
securities held to maturity at June 30, 2005 and 2004 were as follows:
Less than 12 Months 12 Months or More Total
------------------- ------------------------- --------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------- ---------- -------- ----------- ---------- ------------
(In Thousands)
June 30, 2005:
Mortgage-backed
securities $143,550 $ 986 $230,786 $2,622 $374,336 $3,608
======== ====== ======== ====== ======== ======
June 30, 2004:
Mortgage-backed
securities $376,245 $7,977 $ 4,126 $ 315 $380,371 $8,292
======== ====== ========= ====== ======== ======
--------------------------------------------------------------------------------
F-19
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - MORTGAGE-BACKED SECURITIES HELD TO MATURITY (CONTINUED)
As of June 30, 2005 and 2004, management has concluded that the unrealized
losses are temporary in nature since they are primarily related to market
interest rates and not related to the underlying credit quality of the issuers
of the securities. Additionally, we have the intent and ability to hold these
investments for the time necessary to recover the amortized cost.
NOTE 8 - PREMISES AND EQUIPMENT
June 30,
---------------------------
2005 2004
------- -------
(In Thousands)
Land $ 8,984 $ 5,689
Buildings and improvements 27,288 15,800
Leasehold improvements 490 422
Furnishings and equipment 9,455 7,203
Construction in progress 516 7,902
------- -------
46,733 37,016
Less accumulated depreciation and amortization 11,756 10,367
------- -------
$34,977 $26,649
======= =======
NOTE 9 - INTEREST RECEIVABLE
June 30,
---------------------------
2005 2004
------- -------
(In Thousands)
Loans $ 2,266 $2,116
Mortgage-backed securities 3,481 3,514
Investments 4,683 4,231
------- ------
$10,430 $9,861
======= ======
--------------------------------------------------------------------------------
F-20
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - GOODWILL AND OTHER INTANGIBLE ASSETS
Net assets of an institution acquired in a purchase transaction prior to July 1,
2001, were recorded at fair value at the date of acquisition. The Bank also has
finite-lived intangible assets, which are included in other assets, in the form
of core deposit intangibles. These intangibles are being amortized on the
straight line basis over their estimated useful lives of ten years.
Core Deposit
Goodwill Intangibles
-------- -----------
(In Thousands)
Balance at June 30, 2002 $15,600 $ 3,472
Pulaski Savings Bank acquisitions (see Note 2) 16,146 -
Amortization - (636)
------- -------
Balance at June 30, 2003 31,746 2,836
Amortization - (636)
West Essex Savings Bank acquisition (see Note 2) 50,517 -
------- -------
Balance at June 30, 2004 82,263 2,200
Amortization - (636)
------- -------
Balance at June 30, 2005 $82,263 $ 1,564
======= =======
The gross carrying amount of core deposit intangibles was $5,987,000 at both
June 30, 2005 and 2004, while accumulated amortization totaled $4,423,000 and
$3,787,000 at June 30, 2005 and 2004, respectively. Amortization is expected to
total $636,000 in each of the years ending June 30, 2006 and 2007, and $292,000
in the year ending June 30, 2008.
NOTE 11 - DEPOSITS
June 30,
-------------------------------------------------------------
2005 2004
--------------------------- ------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars In Thousands)
Non-interest bearing demand $ 56,142 - % $ 55,377 - %
Interest-bearing demand 99,308 0.78 103,648 0.75
Savings and club 450,211 1.12 481,466 1.00
Certificates of deposit 923,116 2.81 897,019 1.92
---------- ----------
$1,528,777 2.08 % $1,537,510 1.48 %
========== ==========
--------------------------------------------------------------------------------
F-21
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DEPOSITS (CONTINUED)
Certificates of deposit with balances of $100,000 or more at June 30, 2005 and
2004, totaled approximately $209,552,000 and $188,009,000, respectively.
Deposits in excess of $100,000 are not insured by the Federal Deposit Insurance
Corporation.
A summary of certificates of deposit by maturity follows:
June 30,
-----------------------------
2005 2004
-------- --------
(In Thousands)
One year or less $701,710 $709,940
After one to two years 148,557 128,837
After two to three years 43,275 31,624
After three years 29,574 26,618
-------- --------
$923,116 $897,019
======== ========
Interest expense on deposits consists of the following:
Years Ended June 30,
--------------------------------------------------
2005 2004 2003
------- ------- -------
(In Thousands)
Demand $ 752 $ 882 $ 1,074
Savings and clubs 5,422 5,508 6,604
Certificates of deposits 20,358 21,692 32,230
------- ------- -------
$26,532 $28,082 $39,908
======= ======= =======
NOTE 12 - ADVANCES FROM FHLB
June 30,
-------------------------------------------------------------
2005 2004
--------------------------- ------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars In Thousands)
Due in one year or less $ - - % $32,000 1.75 %
After one to five years 50,000 5.46 % 50,000 5.46 %
After five to ten years 10,000 5.40 % 10,000 5.40 %
Other borrowings, payable in monthly
installments through February 25,
2008 1,687 6.03 % 2,234 6.03 %
------- -------
$61,687 5.47 % $94,234 4.21 %
======= =======
--------------------------------------------------------------------------------
F-22
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ADVANCES FROM FHLB (CONTINUED)
At June 30, 2005, of the $60,000,000 in advances due after one through ten
years, $57,000,000 are callable, including $47,000,000 which are callable within
one year.
FHLB advances at June 30, 2005 and 2004, are collateralized by the FHLB capital
stock owned by the Bank and investment securities held to maturity with fair
values totaling approximately $74,583,000 and $126,810,000, respectively.
NOTE 13 - BENEFIT PLANS
Employee Stock Ownership Plan
Effective upon completion of the Company's initial public offering in
February 2005, the Bank established an Employee Stock Ownership Plan
("ESOP") for all eligible employees who complete a twelve-month period of
employment with the Bank, have attained the age of 21 and complete at least
1,000 hours of service in a plan year. The ESOP used $17,457,000 in
proceeds from a term loan obtained from the Company to purchase 1,745,700
shares of Company common stock. The term loan principal is payable over 144
equal installments through March 31, 2017. The interest rate on the term
loan is 5.50%. Each year, the Bank intends to make discretionary
contributions to the ESOP, which will be equal to principal and interest
payments required on the term loan. The ESOP may further pay down the loan
with dividends paid, if any, on the Company common stock owned by the ESOP.
Shares purchased with the loan proceeds provide collateral for the term
loan and are held in a suspense account for future allocations among
participants. Base compensation is the basis for allocation to
participants, of contributions to the ESOP and shares released from the
suspense account, as described by the Plan, in the year of allocation.
The ESOP is accounted for in accordance with Statement of Position 93-6,
"Accounting for Employee Stock Ownership Plans," which was issued by the
American Institute of Certified Public Accountants. Accordingly, ESOP
shares pledged as collateral were initially recorded as unearned ESOP
shares in the consolidated statements of financial condition. Thereafter,
on a monthly basis, 12,123 shares are committed to be released,
compensation expense is recorded equal to the number of shares committed to
be released times the monthly average market price of the shares, and the
committed shares become outstanding for basic net income per common share
computations. ESOP compensation expense was approximately $530,000 for the
year ended June 30, 2005.
At June 30, 2005, the ESOP shares were as follows:
Allocated shares -
Shares committed to be released 48,492
Unearned shares 1,697,208
-----------
Total ESOP Shares 1,745,700
===========
Fair value of unearned shares $20,027,054
===========
--------------------------------------------------------------------------------
F-23
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS
Thrift Plan
The Bank sponsors the Financial Institutions Thrift Plan (the "Plan"),
pursuant to Section 401(k) of the Internal Revenue Code, for all eligible
employees. Employees may elect to save up to 20% of their compensation. The
Bank will contribute a matching contribution up to 3% of the employee
annual compensation. The Plan expense amounted to approximately $281,000,
$264,000, and $183,000 for the years ended June 30, 2005, 2004 and 2003,
respectively.
Retirement Plan
The Bank has a non-contributory multiple-employer pension plan covering all
eligible employees. Significant actuarial assumptions include the projected
unit credit cost valuation method and an annual investment rate of 8.25%,
8.25%, and 8.25% for the years ended June 30, 2005, 2004 and 2003,
respectively. At the date of latest plan review, the net assets available
for plan benefits exceeded the actuarial present value of accumulated plan
benefits. Data for the actuarial present value of accumulated vested and
non-vested benefits is not determinable for this multiple-employer
retirement plan. During the years ended June 30, 2005, 2004 and 2003, total
pension plan expense and contributions to the plan were approximately
$2,538,000, $1,193,000, and $685,000, respectively.
Benefit Equalization Plan ("BEP")
The Bank has an unfunded non-qualified plan to compensate senior officers
of the Bank who participate in the Bank's qualified benefit plans for
certain benefits lost under such plans by reason of benefit limitations
imposed by Sections 415 and 401 of the Internal Revenue Code. There were
approximately $59,000 in contributions made to and benefits paid under the
BEP during each of the years ended June 30, 2005, 2004 and 2003.
The following table sets forth the BEP's funded status and components of
net periodic pension cost:
June 30,
-------------------------
2005 2004
------ ------
(In Thousands)
Change in benefit obligation:
Benefit obligation - beginning $1,831 $1,328
Service cost 42 24
Interest cost 135 98
Actuarial loss - 440
Benefit payments (59) (59)
------ ------
Benefit obligation - ending $1,949 $1,831
====== ======
Change in plan assets:
Fair value of assets - beginning $ - $ -
Actual return on plan assets - -
Settlements 59 59
Contributions (59) (59)
------ ------
Fair value of assets - ending $ - $ -
====== ======
--------------------------------------------------------------------------------
F-24
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Benefit Equalization Plan ("BEP") (Continued)
June 30,
-------------------
2005 2004
------- -------
(In Thousands)
Reconciliation of funded status:
Accumulated benefit obligation $(1,209) $ (985)
======= =======
Projected benefit obligation $(1,949) $(1,831)
Fair value of assets - -
------- -------
Funded status (1,949) (1,831)
Unrecognized prior service cost (58) (50)
Unrecognized net actuarial loss 913 1,035
------- -------
Accrued pension cost included in other liabilities $(1,094) $ (846)
======= =======
Value assumptions:
Discount rate 7.50% 7.50%
Salary increase rate 5.50% 5.50%
Years Ended June 30,
------------------------------------
2005 2004 2003
---- ---- ----
(In Thousands)
Net periodic pension expense:
Service cost $ 42 $ 24 $ 12
Interest cost 135 98 72
Amortization of unrecognized past service costs 8 8 8
Amortization of unrecognized net actuarial 122 77 38
------- ------- -------
$ 307 $ 207 $ 130
======= ======= =======
Valuation assumptions:
Discount rate 7.50% 7.50% 7.50%
Salary increase rate 5.50% 5.50% 5.50%
It is estimated that contributions of approximately $72,000 will be made
during the year ending June 30, 2006.
--------------------------------------------------------------------------------
F-25
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Benefit Equalization Plan ("BEP") (Continued)
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
2006 $ 72,000
2007 79,000
2008 93,000
2009 99,000
2010-2014 688,000
Postretirement Welfare Plan
The Bank has a postretirement group term life insurance plan covering all
eligible employees. The benefits are based on age and years of service. The
plan is unfunded. During the years ended June 30, 2005, 2004 and 2003,
contributions and benefits paid totaled $7,000, $6,000, and $5,000,
respectively. The following table sets forth the accrued accumulated
postretirement benefit obligation and the net periodic postretirement
benefit cost:
June 30,
---------------------
2005 2004
------ ------
(In Thousands)
Change in benefit obligation:
Benefit obligation - beginning $ 409 $ 378
Service cost 20 18
Interest cost 27 22
Actuarial (gain) loss 2 (3)
Premiums/claims paid (7) (6)
Plan amendment - -
----- -----
Benefit obligation - ending $ 451 $ 409
===== =====
Change in plan assets:
Fair value of assets - beginning $ - $ -
Actual return on plan assets - -
Premiums/claims paid 7 6
Contributions (7) (6)
----- -----
Fair value of assets - ending $ - $ -
===== =====
--------------------------------------------------------------------------------
F-26
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Postretirement Welfare Plan (Continued)
June 30,
----------------
2005 2004
---- ----
(In Thousands)
Reconciliation of funded status:
Accumulated benefit obligation $(451) $(409)
Fair value of assets - -
----- -----
Funded status (451) (409)
Unrecognized net actuarial loss (7) (9)
Unrecognized prior service cost 63 74
----- -----
Accrued postretirement benefit cost included
in other liabilities $(395) $(344)
===== =====
Value assumptions:
Discount rate 5.63% 6.63%
Salary increase rate 3.00% 4.00%
Years Ended June 30,
-----------------------------
2005 2004 2003
---- ---- ----
(In Thousands)
Net periodic postretirement benefit cost:
Service cost $ 20 $ 18 $ 12
Interest cost 27 22 19
Amortization of unrecognized net actuarial
gain - - -
Amortization of unrecognized past service
liability 11 9 4
----- ----- -----
$ 58 $ 49 $ 35
===== ===== =====
Valuation assumptions:
Discount rate 6.63% 5.75% 7.00%
Salary increase rate 4.00% 3.25% 4.25%
--------------------------------------------------------------------------------
F-27
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Postretirement Welfare Plan (Continued)
It is estimated that contributions of approximately $8,000 will be made
during the year ending June 30, 2006.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
2006 $ 8,000
2007 8,000
2008 7,000
2009 10,000
2010 12,000
2011-2015 69,000
Directors' Consultation and Retirement Plan ("DCRP")
The Bank has an unfunded retirement plan for non-employee directors. The
benefits are payable based on term of service as a director. During the
years ended June 30, 2005, 2004 and 2003, contributions and benefits paid
totaled $89,000, $89,000, and $51,000, respectively.
The following table sets forth the DCRP's funded status and components of
net periodic cost:
June 30,
-------------------------
2005 2004
--------- --------
(In Thousands)
Change in benefit obligation:
Projected benefit obligation - beginning $ 1,561 $ 1,487
Service cost 86 78
Interest cost 99 83
Actuarial loss 157 2
Annuity payments (89) (89)
Plan amendments 335 -
------- -------
Projected benefit obligation - ending $ 2,149 $ 1,561
======= =======
Change in plan assets:
Fair value of assets - beginning $ - $ -
Actual return on plan assets - -
Settlements 89 89
Contributions (89) (89)
------- -------
Fair value of assets - ending $ - $ -
======= =======
--------------------------------------------------------------------------------
F-28
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Directors' Consultation and Retirement Plan ("DCRP") (Continued)
June 30,
--------------------
2005 2004
------- -------
(In Thousands)
Reconciliation of funded status:
Accumulated benefit obligation $(1,879) $(1,361)
======= =======
Projected benefit obligation $(2,149) $(1,561)
Fair value of assets - -
------- -------
Fund status (2,149) (1,561)
Unrecognized transition obligation 175 219
Unrealized net actuarial (gain) loss 150 (7)
Unrecognized prior service cost 643 341
------- -------
Accrued cost included in other liabilities $(1,181) $(1,008)
======= =======
Value assumptions:
Discount rate 5.63% 6.63%
Fee increase rate 3.00% 4.00%
Years Ended June 30,
---------------------------------
2005 2004 2003
------ ------ ------
(In Thousands)
Net periodic plan cost:
Service cost $ 86 $ 78 $ 56
Interest cost 99 83 78
Amortization of unrecognized transition
obligation 44 44 44
Amortization of unrecognized net actuarial
gain - - (2)
Amortization of unrecognized past service
liability 33 33 24
------ ------ ------
$ 262 $ 238 $ 200
====== ====== ======
Valuation assumptions:
Discount rate 6.63% 5.75% 7.00%
Fee increase rate 4.00% 3.25% 4.25%
It is estimated that contributions of approximately $157,000 will be made during
the year ending June 30, 2006.
--------------------------------------------------------------------------------
F-29
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - BENEFIT PLANS (CONTINUED)
Directors' Consultation and Retirement Plan ("DCRP") (Continued)
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
2006 $157,000
2007 168,000
2008 178,000
2009 187,000
2010 194,000
2011-2015 976,000
NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Office of Thrift Supervision (the "OTS") imposes various restrictions or
requirements on the ability of savings institutions to make capital
distributions, including cash dividends. A savings institution that is a
subsidiary of a savings and loan holding company, such as the Bank, must file an
application or a notice with the OTS at least thirty days before making a
capital distribution. A savings institution must file an application for prior
approval of a capital distribution if: (i) it is not eligible for expedited
treatment under the applications processing rules of the OTS; (ii) the total
amount of all capital distributions, including the proposed capital
distribution, for the applicable calendar year would exceed an amount equal to
the savings institution's net income for that year to date plus the
institution's retained net income for the preceding two years; (iii) it would
not adequately be capitalized after the capital distribution; or (iv) the
distribution would violate an agreement with the OTS or applicable regulations.
As a result of the dividend paid by the Bank to the Company in connection with
the acquisition of West Essex and its subsidiaries, it is likely that the Bank
will be required to file an application, rather than a notice, for any planned
capital distributions.
The Bank is subject to various regulatory capital requirements administered by
Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain of-balance-sheet items as accumulated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weighting, and other factors.
The OTS may disapprove a notice or deny an application for a capital
distribution if: (i) the savings institution would be undercapitalized following
the capital distribution; (ii) the proposed capital distribution raises safety
and soundness concerns; or (iii) the capital distribution would violate a
prohibition contained in any statute, regulation or agreement. The capital
distributions by Kearny Financial Corp., as a savings and loan holding company,
will not be subject to the OTS capital distribution rules.
--------------------------------------------------------------------------------
F-30
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per accepted principles generally
accepted in the United States of America ("GAAP") and regulatory capital and
information as to the Bank's capital levels at the dates presented:
June 30,
-----------------------------
2005 2004
-------- --------
(In Thousands)
GAAP capital:
Consolidated capital $505,482 $293,505
Less: Unconsolidated capital of the Company (109,653) (1,520)
-------- --------
Bank capital 395,829 291,985
Less: Unrealized gain on securities (5,485) (10,008)
Goodwill (82,263) (82,263)
Intangible assets (1,564) (2,200)
-------- --------
Core and tangible capital 306,517 197,514
Add: General valuation allowance 5,416 5,029
Unrealized gain on equity securities 3,467 7,026
-------- --------
Total regulatory capital $315,400 $209,569
======== ========
To be Well
Capitalized under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
As of June 30, 2005:
Total capital (to risk-weighted
assets) $315,400 45.19% $=>55,833 =>8.00% $=>69,791 =>10.00%
Tier 1 capital (to risk-weighted
assets) 306,517 43.92 - - =>41,875 => 6.00
Core (Tier 1) capital (to adjusted
total assets 306,517 15.94 =>57,672 =>3.00 =>96,119 => 5.00
Tangible capital (to adjusted total
assets) 306,517 15.94 =>28,836 =>1.50 - -
As of June 30, 2004:
Total capital (to risk-weighted
assets) $209,569 32.56% $=>51,490 =>8.00% $=>64,362 =>10.00%
Tier 1 capital (to risk-weighted
assets) 197,514 30.69 - - =>38,617 => 6.00
Core (Tier 1) capital (to adjusted
total assets 197,514 10.76 =>55,068 =>3.00 =>91,780 => 5.00
Tangible capital (to adjusted total
assets) 197,514 10.76 =>27,534 =>1.50 - -
--------------------------------------------------------------------------------
F-31
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (CONTINUED)
On January 3, 2005, the most recent notification from the OTS, the Bank was
categorized as well capitalized as of September 30, 2004, under the regulatory
framework for prompt corrective action. There are no conditions existing or
events which have occurred since notification that management believes have
changed the Bank's category.
NOTE 15 - INCOME TAXES
The Bank qualifies as a savings institution under the provisions of the Internal
Revenue Code (the "IRC"). Retained earnings at June 30, 2005, includes
approximately $30.5 million of bad debt allowance, pursuant to the IRC, for
which income taxes have not been provided. If such amount is used for purposes
other than or to absorb bad debts, including distributions in liquidation, it
will be subject to income tax at the then current rate.
The components of income taxes are as follows:
Years Ended June 30,
------------------------------
2005 2004 2003
------- ------- -------
(In Thousands)
Current tax expense:
Federal income $ 6,125 $ 3,600 $ 3,319
State income 1,226 1,589 2,652
------- ------- -------
7,351 5,189 5,971
------- ------- -------
Deferred tax (benefit):
Federal income 325 470 (72)
State income 18 86 (662)
------- ------- -------
343 556 (734)
------- ------- -------
$ 7,694 $ 5,745 $ 5,237
======= ======= =======
--------------------------------------------------------------------------------
F-32
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES (CONTINUED)
The following table presents reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 35% to income before income taxes:
Years Ended June 30,
---------------------------------
2005 2004 2003
(In Thousands)
Federal income tax expense $ 9,307 $ 6,525 $ 3,252
Increases (reductions) in income taxes resulting from:
Tax exempt interest (2,223) (1,780) (1,301)
New Jersey state tax, net of federal income
tax effect 809 1,106 1,314
Compensation in excess of limit - - 1,548
Nondeductible merger expenses - 207 934
Tax benefit on disqualified distribution - - (610)
Other items, net (199) (313) 100
------- ------- -------
Total income tax expense $ 7,694 $ 5,745 $ 5,237
======= ======= =======
Effective income tax rate 28.93% 30.82% 56.36%
======= ======= =======
The effective income tax rate represents total income tax expense divided by
income before income taxes.
The tax effects of existing temporary differences that give rise to deferred
income tax assets and liabilities are as follows:
June 30,
-----------------
2005 2004
------- -------
(In Thousands)
Deferred income tax assets:
Allowance for loan losses $ 2,212 $ 2,108
Goodwill 453 998
Benefit plans 1,184 1,069
Compensation 167 -
Other 61 71
------- -------
4,077 4,246
------- -------
Deferred income tax liabilities:
Unrealized gain on available for sale securities 2,953 5,410
Depreciation 541 377
Other 89 79
------- -------
3,583 5,866
------- -------
Net deferred income tax (liabilities) assets $ 494 $(1,620)
======= =======
--------------------------------------------------------------------------------
F-33
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS
The Bank has non-cancellable operating leases for branch offices. Rental
expenses paid during the years ended June 30, 2005, 2004 and 2003, were
approximately $327,000, $343,000, and $352,000, respectively. Future minimum
rental commitments are as follows:
Year Ended June 30:
2006 $ 314,000
2007 271,000
2008 240,000
2009 203,000
2010 187,000
Thereafter 825,000
----------
$2,040,000
==========
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. The Bank's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
The outstanding loan commitments are as follows:
June 30,
-----------------------
2005 2004
------- -------
(In Thousands)
Mortgage loans $30,594 $23,678
Home equity loans 3,089 4,027
Commercial lines of credit - 265
Construction loans 2,300 4,483
Purchase of participations - 607
Construction loans in process 6,489 5,278
Undisbursed funds from approved lines of credit 27,707 23,817
------- -------
$70,179 $62,155
======= =======
At June 30, 2005, the outstanding mortgage loan commitments include $23,673,000
for fixed rate loans with interest rates ranging from 4.50% to 6.75% and
$6,921,000 for adjustable rate loans with an initial rate ranging from 4.00% to
6.13%. Home equity loan commitments include $2,979,000 of fixed rate loans with
interest rates ranging from 4.38% to 7.00% and $110,000 for adjustable rate
loans with an initial rate of 5.50%. Construction loan commitments are for loans
with interest rates ranging from 1.00% to 1.50% above the prime rate published
in the Wall Street Journal. Undisbursed funds from approved lines of credit are
adjustable rate loans with interest rates ranging from 1.00% below to 2.00%
above the prime rate published in the Wall Street Journal.
--------------------------------------------------------------------------------
F-34
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - COMMITMENTS (CONTINUED)
At June 30, 2004, the outstanding mortgage loan commitments include $22,980,000
for fixed rate loans with interest rates ranging from 4.38% to 6.50% and
$1,698,000 for adjustable rate loans with an initial rate ranging from 3.88% to
6.38%. Home equity loan commitments include $3,019,000 for fixed rate loans with
interest rates ranging from 4.63% to 6.25% and $949,000 for adjustable rate
loans with an initial rate of 4.00%. Commercial lines of credit commitments are
for loans with interest rates ranging from 0.50% to 1.00% above the prime rate
published in the Wall Street Journal. Construction loan commitments are for
loans with interest rates ranging from 1.00% to 1.50% above the prime rate
published in the Wall Street Journal. Commitments to purchase participations are
for loans at a fixed rate, set at the funding date, ranging from 1.35% to 1.36%
above the Federal Home Loan Bank of New York CIP advance rate for ten year or 15
year advances. Undisbursed funds from approved lines of credit are adjustable
rate loans with interest rates ranging from 1.00% below to 2.00% above the prime
rate published in the Wall Street Journal.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty.
The Bank has established an overnight line of credit and companion (DRA)
commitment, each in the amount of $50,000,000, with the Federal Home Loan Bank
of New York, which expire on December 15, 2005. As of June 30, 2005, no funds
were drawn against these credit lines.
At June 30, 2005, the Bank has commitments for building improvements in the
amount of $927,000. In addition, the Bank also has, in the normal course of
business, commitments for servicers and supplies. Management does not anticipate
losses on any of these transactions.
The Company and subsidiaries are also party to litigation which arises primarily
in the ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material adverse effect on the
consolidated financial position of the Company.
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and Cash Equivalents and Interest Receivable
The carrying amounts for cash and cash equivalents and interest receivable
approximate fair value because they mature in three months or less.
Securities Available for Sale, Investment Securities Held to Maturity and
Mortgage-Backed Securities Held to Maturity
The fair values for securities available for sale, investment securities
held to maturity and mortgage-backed securities held to maturity are based
on quoted market prices when available. If quoted market prices are not
available, fair value is estimated using quoted market prices for similar
securities.
--------------------------------------------------------------------------------
F-35
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans Receivable
The fair value of loans receivable is estimated by discounting the future
cash flows, using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities, of such loans.
Deposits
The fair value of demand, savings and club accounts is equal to the amount
payable on demand at the reporting date. The fair value of certificates of
deposit is estimated using rates currently offered for deposits of similar
remaining maturities. The fair value estimates do not include the benefit
that results from the low-cost funding provided by deposit liabilities
compared to the cost of borrowing funds in the market.
Advances from FHLB
Fair value is estimated using rates currently offered for advances of
similar remaining maturities.
Commitments
The fair value of commitments to fund credit lines and originate or
participate in loans is estimated using fees currently charged to enter
into similar agreements taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed rate loans commitments, fair value also considers the difference
between current levels of interest and the committed rates. The carrying
value, represented by the net deferred fee arising from the unrecognized
commitment, and the fair value, determined by discounting the remaining
contractual fee over the term of the commitment using fees currently
charged to enter into similar agreements with similar credit risk, are not
considered material for disclosure. The contractual amounts of unfunded
commitments are presented in Note 16.
The carrying amounts and estimated fair values of financial instruments
are as follows:
June 30,
------------------------------------------------------------------
2005 2004
------------------------------- ---------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In Thousands)
Financial assets:
Cash and cash equivalents $ 139,865 $ 139,865 $ 39,488 $ 39,488
Securities available for sale 33,591 33,591 41,564 41,564
Investment securities held to maturity 470,098 469,221 435,870 428,775
Loans receivable 558,018 550,655 505,794 510,437
Mortgage-backed securities held to maturity 758,121 762,730 771,353 772,710
Interest receivable 10,430 10,430 9,861 9,861
Financial liabilities:
Deposits 1,528,777 1,528,203 1,537,510 1,540,029
Advances from FHLB 61,687 63,814 94,234 95,217
--------------------------------------------------------------------------------
F-36
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Limitations
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire holdings of a particular financial
instrument. Because no market value exists for a significant portion of the
financial instrument, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instrument and other factors. These
estimates are subjective in nature, involve uncertainties and matters of
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The fair value estimates are based on existing on-and-of balance sheet
financial instruments without attempting the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are
not considered financial assets and liabilities include premises and
equipment, and advances from borrowers for taxes and insurance. In
addition, the ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and
have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets
for many of the financial instruments. This lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these
estimated fair values.
NOTE 18 - PARENT ONLY FINANCIAL INFORMATION
Kearny Financial Corp. operates its wholly owned subsidiaries, Kearny Financial
Securities, Inc. and Kearny Federal Savings Bank and its wholly-owned
subsidiaries. The consolidated earnings of the subsidiaries are recognized by
the Company using equity method of accounting. Accordingly, the consolidated
earnings of the subsidiaries are recorded as increase in the Company's
investment in the subsidiaries. The following are the condensed financial
statements for Kearny Financial Corp. (Parent Company only) as June 30, 2005 and
2004, and for each of the years in the three-year period ended June 30, 2005.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
June 30,
-------------------------
2005 2004
-------- --------
(In Thousands)
ASSETS
Cash and amounts due from depository institutions $ 92,305 $ 1,234
Securities available for sale - 1,104
ESOP loan receivable 17,198 -
Accrued interest receivable 79 3
Investment in subsidiaries 395,831 291,985
Other assets 241 283
-------- --------
$505,654 $294,609
======== ========
--------------------------------------------------------------------------------
F-37
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
June 30,
------------------------------
2005 2004
---------- ----------
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to subsidiaries $ 105 $ 1,104
Other liabilities 67 -
Stockholders' equity (A) 505,482 293,505
---------- ----------
$505,654 $294,609
======== ========
(A) At June 30, 2005, the Company was 70% owned by Kearny MHC, a Mutual Holding
Company. At June 30, 2004, the Company was wholly-owned by Kearny MHC.
CONDENSED STATEMENTS OF INCOME
Years Ended June 30,
--------------------------------
2005 2004 2003
-------- -------- ----------
(In Thousands)
Net interest income $ 1,723 $ 110 $ 86
Gain on sale of available for sale securities 71 - -
Equity in undistributed earnings of subsidiaries 17,988 13,442 5,256
-------- -------- --------
19,782 13,552 5,342
-------- -------- --------
Directors' fees 125 67 32
Merger expense - 592 1,176
Other expenses 126 - 74
-------- -------- --------
251 659 1,282
-------- -------- --------
Income before Income Taxes 19,531 12,893 4,060
Income Tax Expense (Benefit) 633 (4) 5
-------- -------- --------
Net income $ 18,898 $ 12,897 $ 4,055
======== ======== ========
--------------------------------------------------------------------------------
F-38
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended June 30,
-----------------------------------
2005 2004 2003
--------- --------- ---------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,898 $ 12,897 $ 4,055
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Equity in undistributed earnings of the
subsidiaries (17,988) (13,442) 89,030
Amortization of premiums - 2 4
Realized gain on sale of securities available
for sale (71) - -
(Increase) decrease in accrued interest
receivable (76) - 40
Decrease in intercompany receivable - - 961
Other assets 63 394 (79)
Other liabilities (932) 16 953
Minority interest in consolidated subsidiaries - - 789
--------- --------- ---------
Net Cash Provided by (Used in) Operating
Activities (106) (133) 95,753
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Pulaski minority interest - - (26,433)
Deposit for acquisition of West Essex minority
interest - - (67,853)
Proceeds from sale of securities available
for sale 1,115 - -
Loan to ESOP (17,457) - -
Repayment of loan to ESOP 259 - -
Capital contributions to subsidiaries (107,307) - -
--------- --------- ---------
Net Cash Used in Investing Activities (123,390) - (94,286)
--------- --------- ---------
--------------------------------------------------------------------------------
F-39
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended June 30,
------------------------------
2005 2004 2003
-------- -------- -------
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock of
West Essex Bancorp, Inc. $ - $ - $ 345
Proceeds from issuance of common stock of
Kearny Financial Corp. 214,567 - -
Dividends paid to minority stockholders o)
West Essex Bancorp, Inc. and Pulaski
Bancorp, Inc. - - (1,054
-------- -------- --------
Net Cash Provided by (Used in) Financin)
Activities 214,567 - (709
-------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents 91,071 (133) 758
CASH AND CASH EQUIVALENTS - BEGINNING 1,234 1,367 609
-------- -------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 92,305 $ 1,234 $ 1,367
======== ======== ========
SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS
Minority interest in consolidated subsidi$ries - $ 17,336 $ -
======== ======== ========
Goodwill - West Essex acquisition $ - $ 50,517 $ -
======== ======== ========
Deposit for acquisition of West Essex $ - $(67,853) $ -
======== ======== ========
--------------------------------------------------------------------------------
F-40
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Payments: In December 2004, the FASB issued SFAS No.
123 (revised), "Share-Based Payment." SFAS No. 123 (revised) replaces SFAS No.
123 and supersedes APB Opinion No. 25. SFAS No. 123 (revised) requires
compensation costs related to share-based payment transactions to be recognized
in the financial statements over the period that an employee provides service in
exchange for the award. Public companies are required to adopt the new standard
using a modified prospective method and may elect to restate prior periods using
the modified retrospective method. Under the modified prospective method,
companies are required to record compensation cost for new and modified awards
over the related vesting period of such awards prospectively and record
compensation cost prospectively for the unvested portion at the date of
adoption, of previously issued and outstanding awards over the remaining vesting
period of such awards. No change to prior periods presented is permitted under
the modified prospective method. Under the modified retrospective method,
companies record compensation costs for prior periods retroactively through
restatement of such periods using the exact pro forma amounts disclosed in the
companies' footnotes. Also, in the period of adoption and after, companies
record compensation cost based on the modified prospective method.
On April 14, 2005, the Securities and Exchange Commission (the "SEC") adopted a
new rule that amends the compliance dates for SFAS No. 123 (revised). Under the
new rule, we are required to adopt SFAS No. 123 (revised) in the first annual
period beginning after June 15, 2005. Early application of SFAS No. 123
(revised) is encouraged, but not required. Accordingly, we are required to
record compensation expense for all new awards granted and any awards modified
after July 1, 2006. In addition, the transition rules under SFAS No. 123
(revised) will require that, for all awards outstanding at July 1, 2006, for
which the requisite service has not yet been rendered, compensation cost be
recorded as such service is rendered after July 1, 2006.
The pronouncement related to stock-based payments will not have any effect on
our existing historical consolidated financial statements as we do not presently
have stock-based compensation plans and as restatements of previously reported
periods will not be required.
Accounting For Variable Interest Entities: In December 2003, the FASB issued a
revision to Interpretation 46, "Consolidation of Variable Interest Entities,"
which established standards for identifying a variable interest entity ("VIE")
and for determining under what circumstances a VIE should be consolidated with
its primary beneficiary. Application of this interpretation is required in
financial statements of public entities that have interests in special-purpose
entities for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of VIE is
required in financial statements for periods ending after March 15, 2004. Small
business issuers must apply this interpretation to all other types of VIE at the
end of the first reporting period ending after December 15, 2004. The adoption
of this interpretation has not had and is not expected to have a material effect
on our financial position or results of operations.
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity: In May 2003, the FASB issued SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how a company classifies and
measures certain financial instruments with characteristics of both liabilities
and equity as well as their classification in the company's statement of
financial position. It requires that the company classify a financial instrument
that is within its scope as a liability when that instrument embodies an
obligation of the issuer. SFAS No. 150 did not have any impact on our
consolidated financial statements.
--------------------------------------------------------------------------------
F-41
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities: On
April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. With a number of exemptions, SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on our consolidated financial statements.
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others: In November 2002, the FASB issued
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). FIN 45 requires a guarantor entity, at the inception of a guarantee
covered by the measurement provisions of the interpretation, to record a
liability for the fair value of the obligation undertaken in issuing the
guarantee. In addition, FIN 45 elaborates on previously existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. We do not have any financial letters of credit at June 30,
2005 or at December 31, 2004.
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a condensed summary of quarterly results of operations for the
years ended June 30, 2005 and 2004:
Year Ended June 30, 2005
-------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(In Thousands, Except Per Share Data)
Interest income $19,907 $19,832 $21,078 $21,624
Interest expense 7,103 7,174 7,764 8,381
------- ------- ------- -------
Net Interest Income 12,804 12,658 13,314 13,243
Provision for loan losses 151 (34) (110) 61
------- ------- ------- -------
Net Interest Income after Provision for
Loan Losses 12,653 12,692 13,424 13,182
Noninterest income 494 410 492 8,107
Noninterest expenses 7,789 8,767 8,811 9,495
------- ------- ------- -------
Income before Income Taxes 5,358 4,335 5,105 11,794
Income taxes 1,562 1,143 1,279 3,710
------- ------- ------- -------
Net Income $ 3,796 $ 3,192 $ 3,826 $ 8,084
======= ======= ======= =======
Net income per common share:
Basic (As restated) $ 0.07 $ 0.06 $ 0.06 $ 0.11
======= ======= ======= =======
Diluted (As restated) $ 0.07 $ 0.06 $ 0.06 $ 0.11
======= ======= ======= =======
--------------------------------------------------------------------------------
F-42
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
Year Ended June 30, 2004
-----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(In Thousands, Except Per Share Data)
Interest income $19,656 $19,664 $19,780 $19,554
Interest expense 9,158 8,198 7,597 7,147
------- ------- ------- -------
Net Interest Income 10,498 11,466 12,183 12,407
Provision for loan losses - - - -
------- ------- ------- -------
Net Interest Income after Provision for
Loan Losses 10,498 11,466 12,183 12,407
Noninterest income 438 355 403 364
Noninterest expenses 7,743 7,093 7,310 7,326
------- ------- ------- -------
Income before Income Taxes 3,193 4,728 5,276 5,445
Income taxes 958 1,418 1,583 1,786
------- ------- ------- -------
Net Income $ 2,235 $ 3,310 $ 3,693 $ 3,659
======= ======= ======= =======
Net income per common share:
Basic (As restated) $ 0.04 $ 0.07 $ 0.07 $ 0.07
======= ======= ======= =======
Diluted (As restated) $ 0.04 $ 0.07 $ 0.07 $ 0.07
======= ======= ======= =======
F-43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KEARNY FINANCIAL CORP.
Dated: May 15, 2006 By: /s/John N. Hopkins
-------------------------------------
John N. Hopkins
President and Chief Executive Officer
(Duly Authorized Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on May 15, 2006 on
behalf of the Registrant and in the capacities indicated.
By: /s/John N. Hopkins By: /s/Albert E. Gossweiler
------------------------------------- -------------------------------
John N. Hopkins Albert E. Gossweiler
President and Chief Executive Officer Senior Vice President and Chief
(Principal Executive Officer) Financial Officer
(Principal Financial Officer)
By: /s/William C. Ledgerwood By: /s/Theodore J. Aanensen
------------------------------------- -------------------------------
William C. Ledgerwood Theodore J. Aanensen
Senior Vice President, Treasurer and Director
Chief Accounting Officer
(Principal Accounting Officer)
By: /s/John J. Mazur Jr. By: /s/Joseph P. Mazza
------------------------------------- -------------------------------
John J. Mazur Jr. Joseph P. Mazza
Chairman Director
By: /s/Matthew T. McClane By: /s/John F. McGovern
------------------------------------- -------------------------------
Matthew T. McClane John F. McGovern
Director Director
By: /s/Leopold W. Montanaro By: /s/John F. Regan
------------------------------------- -------------------------------
Leopold W. Montanaro John F. Regan
Director Director
By: /s/Henry S. Parow
-------------------------------------
Henry S. Parow
Director