def14a_110311-0128.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.          )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
 
Check the appropriate box:

¨
Preliminary Proxy Statement
¨
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)
x
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material Pursuant to §240.14a-12

KEARNY FINANCIAL CORP.
(Name of Registrant as Specified in its Charter)

 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):
x
No fee required
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)   Title of each class of securities to which transaction applies:
 
(2)   Aggregate number of securities to which transaction applies:
 
(3)  Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing fee is calculated and state how it was determined):
 
(4)  Proposed maximum aggregate value of transaction:
 
(5)  Total fee paid:
 

¨
Fee paid previously with preliminary materials.

¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.


(1)  Amount previously paid:
 
(2)  Form, Schedule or Registration Statement No.:
 
(3)  Filing Party:
 
(4)  Date Filed:
 


 
 

 




 
September 30, 2011

 
 
Dear Fellow Shareholder:

You are cordially invited to attend the 2011 Annual Meeting of Shareholders of Kearny Financial Corp. to be held at our corporate headquarters located at 120 Passaic Avenue in Fairfield, New Jersey on Thursday, November 3, 2011 at 10:00 a.m., Eastern Time. The attached notice and proxy statement describe the formal business to be transacted at the meeting.
 
Whether or not you plan to attend the meeting, please sign and date the enclosed proxy card and return it in the accompanying postage-paid return envelope as quickly as possible. This will not prevent you from voting at the meeting in person, but will assure that your vote is counted if you are unable to attend.
 
On behalf of the Board of Directors and the officers and employees of Kearny Financial Corp. and its subsidiary Kearny Federal Savings Bank, I would like to take this opportunity to thank our shareholders for their continued support of Kearny Financial Corp. We look forward to seeing you at the meeting.




 
Sincerely
 

/s/ Craig L. Montanaro
 
 
Craig L. Montanaro
President and Chief Executive Officer







120 Passaic Avenue, Fairfield, NJ 07004
973-244-4500

 
 

 

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KEARNY FINANCIAL CORP.
120 Passaic Avenue
Fairfield, New Jersey 07004
(973) 244-4500



NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 



NOTICE IS HEREBY GIVEN that the 2011 Annual Meeting of Shareholders (the “Annual Meeting”) of Kearny Financial Corp. (the “Company”) will be held at the Company’s offices located at 120 Passaic Avenue, Fairfield, New Jersey on Thursday, November 3, 2011 at 10:00 a.m., Eastern Time. The Annual Meeting is for the purpose of considering and acting upon the following matters:

 
1.
To elect four directors;
 
 
2.
To approve a non-binding advisory resolution on executive compensation;

 
3.
To hold an advisory vote on the frequency of future advisory votes on executive compensation; and

 
4.
To ratify the appointment of ParenteBeard LLC (“ParenteBeard”) as the Company’s independent auditor for the fiscal year ending June 30, 2012.

Such other business as may properly come before the Annual Meeting or any adjournments thereof may also be acted upon. The Board of Directors is not aware of any other business to come before the Annual Meeting.

The Board of Directors of the Company has determined that the matters to be considered at the Annual Meeting, described in this Notice of Annual Meeting and the accompanying Proxy Statement, are in the best interest of the Company and its shareholders. For the reasons set forth in the Proxy Statement, the Board of Directors unanimously recommends a vote “FOR” each of its nominees, a vote “FOR” approval of the non-binding resolution on executive compensation, a vote for having advisory votes on executive compensation every THREE YEARS and a vote “FOR” the ratification of ParenteBeard as independent auditors.

Any action may be taken on any one of the foregoing proposals at the Annual Meeting on the date specified above, or on any date or dates to which, by original or later adjournment, the Annual Meeting may be adjourned. Pursuant to the Company’s Bylaws, the Board of Directors has fixed the close of business on September 6, 2011 as the record date for determination of the shareholders entitled to notice of and to vote at the Annual Meeting and any adjournments thereof.

Whether or not you plan to attend the Annual Meeting, you are requested to sign, date and return the accompanying proxy in the enclosed postage-paid envelope. You may revoke your proxy by filing a written revocation or a duly executed proxy bearing a later date with the Corporate Secretary. If you are present at the Annual Meeting, you may revoke your proxy and vote in person on each matter brought before the Annual Meeting. To obtain directions to attend the Annual Meeting and vote in person, please visit our website at http://www.snl.com/irweblinkx/corporateprofile.aspx?IID=4072225. However, if you are a shareholder whose shares are not registered in your own name, you will need additional documentation from your record holder to vote in person at the Annual Meeting.

 
BY ORDER OF THE BOARD OF DIRECTORS
 
 
/s/ Sharon Jones
 
 
Sharon Jones
Corporate Secretary
Fairfield, New Jersey
September 30, 2011
 
Important Notice Regarding Internet
Availability of Proxy Materials
For the Shareholder Meeting to be
Held on November 3, 2011
The Proxy Statement and Annual Report to
Shareholders are available at
http://www.snl.com/IRWebLinkX/GenPage.aspx?IID=4072225&gkp=203675


 
 

 


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KEARNY FINANCIAL CORP.
120 Passaic Avenue
Fairfield, New Jersey  07004


PROXY STATEMENT
FOR THE
2011 ANNUAL MEETING OF SHAREHOLDERS

 

GENERAL


This Proxy Statement is being furnished to the shareholders of Kearny Financial Corp. (the “Company”) in connection with the solicitation by the Board of Directors of proxies for use at the 2011 Annual Meeting of Shareholders, to be held at the Company’s offices located at 120 Passaic Avenue, Fairfield, New Jersey on Thursday, November 3, 2011 at 10:00 a.m., Eastern Time (the “Annual Meeting”). This Proxy Statement and the accompanying form of proxy are first being mailed to shareholders on or about September 30, 2011.
 

VOTING AND PROXY PROCEDURES

 
Who Can Vote at the Annual Meeting
 
You are only entitled to vote at the Annual Meeting if our records show that you held shares of our common stock, $.10 par value (the “Common Stock”), as of the close of business on September 6, 2011 (the “Record Date”). If your shares are held by a broker or other intermediary, you can only vote your shares in person at the Annual Meeting if you have a properly executed proxy from the record holder of your shares (or their designee). As of the Record Date, a total of 67,748,671 shares of Common Stock were outstanding.
 
Voting by Proxy
 
The Board of Directors is sending you this Proxy Statement for the purpose of requesting that you allow your shares of Common Stock to be represented at the Annual Meeting by the persons named in the enclosed Proxy Card. All shares of Common Stock represented at the Annual Meeting by properly executed and dated proxies will be voted according to the instructions indicated on the Proxy Card. If you sign, date and return the Proxy Card without giving voting instructions, your shares will be voted as recommended by the Company’s Board of Directors. The Board of Directors recommends a vote “FOR” each of its nominees for director, a vote “FOR” approval of the non-binding resolution on executive compensation, a vote for having advisory votes on executive compensation every “THREE YEARS” and a vote “FOR” ratification of the appointment of ParenteBeard LLC as the Company’s independent auditor for the 2012 fiscal year.
 
If any matters not described in this Proxy Statement are properly presented at the Annual Meeting, the persons named in the Proxy Card will vote your shares as determined by a majority of the Board of Directors. If the Annual Meeting is postponed or adjourned, your Common Stock may be voted by the persons named in the Proxy Card on the new Annual Meeting dates as well, unless you have revoked your proxy. The Company does not know of any other matters to be presented at the Annual Meeting.
 

 
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You may revoke your proxy at any time before the vote is taken at the Annual Meeting. To revoke your proxy you must either advise the Company’s Secretary in writing before your Common Stock has been voted at the Annual Meeting, deliver a later-dated proxy, or attend the Annual Meeting and vote your shares in person. Attendance at the Annual Meeting will not in itself revoke your proxy.
 
If you hold your Common Stock in “street name,” you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. Your broker, bank or other nominee may allow you to deliver your voting instructions via the telephone or the Internet. Please see the instruction form provided by your broker, bank or other nominee that accompanies this Proxy Statement. If you wish to change your voting instructions after you have returned a voting instruction form to your broker, bank or other nominee, you must contact your broker, bank or other nominee.
 
Internet Access to Proxy Materials
 
Copies of this Proxy Statement and the 2011 Annual Report to Shareholders are available on the internet at http://www.snl.com/IRWebLinkX/GenPage.aspx?IID=4072225&gkp=203675.  Stockholders can elect to receive future proxy statements and annual reports over the Internet rather than in printed form.  Stockholders of record can make this election by calling toll free to 1-800-273-3406 or sending an e-mail to sjones@kearnyfederalsavings.net.  If you hold your shares in street name, please refer to the information provided by your broker, bank or other nominee for instructions on how to elect to access future proxy materials over the Internet.
 
Participants in the Kearny Federal Savings Bank Employee Stock Ownership Plan and Employees’ Savings and Profit Sharing Plan
 
If you are a participant in the Kearny Federal Savings Bank Employee Stock Ownership Plan (the “ESOP”) or hold Common Stock through the Kearny Federal Savings Bank Employees’ Savings and Profit Sharing Plan (the “401(k) Plan”), you will receive a voting instruction form from each plan that reflects all shares you may vote under these plans. Under the terms of the ESOP, all shares held by the ESOP are voted by the ESOP trustees, but each participant in the ESOP may direct the trustees on how to vote the shares of Common Stock allocated to his or her account. Unallocated shares and allocated shares for which no timely voting instructions are received will be voted by the ESOP trustees  as directed by the ESOP Committee consisting of the outside directors of the Board. Under the terms of the 401(k) Plan, you are entitled to direct the trustee how to vote the shares of Common Stock credited to your account in the 401(k) Plan. The 401(k) Plan trustee will vote all shares for which it does not receive timely instructions from participants at the direction of the Company’s Board of Directors or the Plan Committee of the Board. The deadline for returning your voting instruction form to the trustees of the ESOP and 401(k) Plan is October 28, 2011.
 
Vote Required
 
The Annual Meeting can only transact business if a majority of the outstanding shares of Common Stock entitled to vote is represented at the Annual Meeting. If you return a valid proxy or attend the Annual Meeting in person, your shares will be counted for purposes of determining whether there is a quorum even if you abstain or withhold your vote or do not vote your shares at the Annual Meeting. Broker non-votes will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not have discretionary voting power with respect to the agenda item and has not received voting instructions from the beneficial owner.
 
In voting on the election of directors, you may vote in favor of all nominees, withhold votes as to all nominees, or vote in favor of all nominees except nominees you specify as to which you withhold your
 

 
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vote. There is no cumulative voting in the election of directors. Directors must be elected by a plurality of the votes cast at the Annual Meeting. This means that the nominees receiving the greatest number of votes will be elected. Votes that are withheld and broker non-votes will have no effect on the outcome of the election.
 
In voting to approve the non-binding advisory vote on executive compensation, you may vote in favor of the proposal, against the proposal or abstain from voting. To be approved, this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting. Broker non-votes and abstentions will not be counted as votes cast and will have no effect on the voting on this proposal.
 
In the advisory vote on the frequency of advisory votes on executive compensation, you may vote  to have a non-binding advisory vote on executive compensation every one, two or three years or abstain from voting.  The number of years which receives a plurality of the vote cast will be considered the option approved by stockholders.  Broker non-votes and abstentions will not be counted as votes cast and will have no effect on the outcome of the voting on this proposal.
 
In voting to ratify the appointment of ParenteBeard LLC as independent auditors for the 2012 fiscal year, you may vote in favor of the proposal, against the proposal or abstain from voting. To be approved, this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting. Broker non-votes and abstentions will not be counted as votes cast on the proposal and therefore will have no effect on the outcome of the voting on this proposal.
 

PRINCIPAL HOLDERS OF OUR COMMON STOCK


The following table sets forth, as of the Record Date, certain information as to those persons who were known to be the beneficial owners of more than five percent (5%) of the Company’s outstanding shares of Common Stock and as to the shares of Common Stock beneficially owned by all executive officers and directors of the Company as a group.
 
 
 
Name and Address of Beneficial Owner
 
 
Amount and Nature of
of Beneficial Ownership (1)
 
Percent of Shares
of Common Stock
Outstanding (2)
 
           
Kearny MHC
120 Passaic Avenue
Fairfield, New Jersey 07004
 
50,916,250    
 
75.15%
 
           
All directors and executive officers as a
group (15 persons)
 
  3,921,625 (3)
 
5.79%
 
_______________
(1)
For purposes of this table, a person is deemed to be the beneficial owner of shares of Common Stock if he or she has or shares voting or investment power with respect to such shares or has a right to acquire beneficial ownership at any time within 60 days from the Record Date. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares. Except as otherwise noted, ownership is direct, and the named persons or group exercise sole voting and investment power over the shares of the Common Stock.
(2)
In calculating the percentage ownership of an individual or group, the number of shares outstanding is deemed to include any shares which the individual or group have the right to acquire through the exercise of options or otherwise within 60 days of the Record Date.

 
 
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(3)
Includes 2,375,585 shares which directors and executive officers have the right to acquire pursuant to options issued under the 2005 Stock Compensation and Incentive Plan, 110,329 shares held in the accounts of executive officers in the 401(k) Plan, and 114,192 shares allocated to the accounts of executive officers in the ESOP. Includes 3,000 shares pledged by directors and executive officers as security. Excludes 908,814 shares held by the ESOP which have not been allocated to participant accounts. The non-employee directors of the Bank serve as the ESOP trustees and vote such shares as directed by the ESOP Committee, subject to such trustees’ fiduciary duties.
 


PROPOSAL I – ELECTION OF DIRECTORS

 
The Company’s Bylaws provide that the Board of Directors shall be divided into three classes, as nearly equal in number as possible.  Each class serves for a three-year period, with approximately one-third of the directors standing for election each year. The Board of Directors currently consists of nine members. Three directors will be elected at the Annual Meeting to serve for a three-year term and until their successors have been elected and qualified.  In addition, Mr. Craig L. Montanaro, who was appointed to fill a vacancy on the Board after the last Annual Meeting, will stand for election to the class to which he was appointed.
 
Craig L. Montanaro has been nominated by the Board of Directors for election to a one-year term to expire in 2012, and Theodore J. Aanensen, Joseph P. Mazza and John F. Regan have been nominated by the Board of Directors for election to a three-year term to expire in 2014. Each of the nominees has consented to be named in the proxy statement and agreed to serve, if elected. It is intended that proxies solicited by the Board of Directors will, unless otherwise specified, be voted for the election of Messrs. Aanensen, Mazza, Regan and Montanaro. If any of the nominees are unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board of Directors may recommend. At this time, the Board of Directors knows of no reason why any of the nominees might be unavailable to serve.
 

 
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The following table sets forth for each nominee, continuing director and executive officer of the Company and the Bank: name, positions with the Company, age, year of first election or appointment, expiration of current term if a director, and beneficial ownership of the Common Stock as of the Record Date.
 
Name and Positions with Company
 
Age as of
June 30, 2011
 
Year First
Elected or
Appointed(1)
 
Current
Term to
Expire
 
Number
of Shares
Beneficially
Owned as of
Record Date(2)
 
                   
BOARD NOMINEE FOR TERM TO EXPIRE IN 2012
 
                   
Craig L. Montanaro
 
45
 
2010
 
2011
 
260,309 (3)
 
President and Chief Executive Officer, Director
                 
                   
BOARD NOMINEES FOR TERM TO EXPIRE IN 2014
 
                   
Theodore J. Aanensen
 
66
 
1986
 
2011
 
201,154 (4)
 
Director
                 
Joseph P. Mazza
 
67
 
1993
 
2011
 
242,616 (4)
 
Director
                 
John F. Regan
 
66
 
1999
 
2011
 
221,796 (4)
 
Director
                 
                   
DIRECTORS CONTINUING IN OFFICE
 
   
Leopold W. Montanaro
 
71
 
2003
 
2012
 
262,116 (4)
 
Director
                 
John N. Hopkins
 
64
 
1994
 
2012
 
900,382 (5)
 
Director
                 
John J. Mazur, Jr.
 
57
 
1996
 
2013
 
248,171 (4)
 
Chairman of the Board, Director
                 
Matthew T. McClane
 
74
 
1994
 
2013
 
199,118 (4)
 
Director
                 
John F. McGovern
 
50
 
1999
 
2013
 
253,875 (4)
 
Director
                 
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
 
   
William C. Ledgerwood
 
58
 
2002
 
N/A
 
232,018 (3)
 
Executive Vice President, Chief Operating Officer
                 
Albert E. Gossweiler
 
63
 
1999
 
N/A
 
258,524 (3)
 
Senior Vice President, Chief Investment Officer and Treasurer
                 
Eric B. Heyer
 
49
 
2010
 
N/A
 
         10,000
 
Senior Vice President, Chief Financial Officer
                 
Sharon Jones
 
57
 
2010
 
N/A
 
217,686 (3)
 
       Senior Vice President, Corporate Secretary
                 
Patrick M. Joyce
 
46
 
2002
 
N/A
 
184,412 (3)
 
Senior Vice President, Chief Lending Officer
                 
Erika K. Parisi
 
46
 
2002
 
N/A
 
229,448 (3)
 
Senior Vice President, Branch Administrator
                 
(footnotes on next page)

 
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_______________
(1)
Refers to the year the individual first became a director or officer of either the Company or the Bank. All current directors, except Leopold W. Montanaro and Craig L. Montanaro who joined the Board in 2003 and 2010, respectively, became directors of the Company on its incorporation in 2001.
(2)
Beneficial ownership includes shares of common stock held directly as well as shares held by spouses or minor children, in trust, and other indirect beneficial ownership. Includes 3,000 shares pledged by Craig L. Montanaro. Each director and executive officer, with the exception of Director John N. Hopkins who beneficially owns 1.33% of shares outstanding, beneficially owned less than 1.0% of shares outstanding.
(3)
Includes 140,000 shares which may be acquired pursuant to the exercise of options.
(4)
Includes 133,655 shares which may be acquired pursuant to the exercise of options.
(5)
Includes 600,000 shares which may be acquired pursuant to the exercise of options.

Business Experience and Qualifications of Directors
 
The Board believes that the many years of service that our directors have had with the Company and the Bank or with other financial institutions is one of the directors’ most important qualifications for service on the Board.  This service has given them extensive knowledge of the banking business and the Company.  Furthermore, their service on Board committees, especially in areas of audit, compliance and compensation is critical to their ability to oversee the management of the Bank by our executive officers.  Service on the Board by the Chief Executive Officer (the “CEO”) is critical to aiding the outside directors to understand the crucial and complicated issues that are common in the banking business.  Each outside director brings special skills, experience and expertise to the Board as a result of their other business activities and associations.
 
The biographies of each of the nominees and continuing directors below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating Committee and the Board to determine that the person should serve as a director for the Company beginning in 2011.
 
Craig L. Montanaro was appointed President and Chief Executive Officer in April 2011.  Prior to that time, he served as President and Chief Operating Officer since April 2010. He previously performed the duties of Senior Vice President and Director of Strategic Planning for Kearny Federal Savings Bank and Kearny Financial Corp. from 2005 to March 2010 and from 2003 to 2004 served as Vice President and Regional Branch Administrator.  He is a 1988 graduate of Syracuse University earning a Bachelor’s Degree in finance and marketing and in 2000 received his MBA from Fairfield University. He also received a Graduate Degree in banking from the National School of Banking at Fairfield University.  Mr. Montanaro formerly employed by West Essex Bank as Senior Vice President and Chief Operating Officer, joined Kearny when that bank was acquired by Kearny Federal Savings Bank in 2003. West Essex Bank had employed him from 1988 until the completion of the merger with Kearny Federal Savings Bank. In addition to solid management and administrative skills, his knowledge and understanding of the financial, economic, social and regulatory environments make him a valuable asset to the Company, Bank and to the Board of Directors. Craig L. Montanaro is the son of Director Leopold W. Montanaro.

Theodore J. Aanensen is an owner and President of Aanensen’s, a luxury home remodeling and custom cabinetry company established in Kearny in 1951. A graduate of Upsala College in 1966, he has been President of Aanensen’s since 1982. He served as Chairman of the Board of Kearny Federal Savings Bank from January 19, 2000 through January 18, 2004 and as Chairman of the Board of Kearny Financial Corp. and Kearny MHC from March 30, 2001 through January 18, 2004. He currently serves on the Board of Directors of Kearny Federal Savings Bank, Kearny MHC and Kearny Financial Corp. With over 40 years of business experience, Mr. Aanensen has strong leadership, sales and customer assessment
 

 
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skills.  Mr. Aanensen has developed a broad understanding of the banking industry based on his service on the Board of Directors since 1986, strengthening the Board’s collective knowledge of the Company’s business and the policies and practices of the Board as its governing body.
 
Joseph P. Mazza is the sole owner of a dental practice in Rutherford, New Jersey since 1971.  A graduate of Seton Hall University and the University of Pennsylvania, he currently serves on the Board of Directors of Kearny Federal Savings Bank, Kearny MHC and Kearny Financial Corp.  He also serves on the Board of Directors of the Rutherford Senior Citizens Center (55 Kip).  Dr. Mazza has been active in both professional and charitable organizations and has over 40 years of business experience. He served in the U.S. Army from 1969 to 1971, both in the U.S. and in Vietnam, and then continued to serve in the U.S. Army Reserves as a Lieutenant Colonel through 1993. Dr. Mazza brings strong leadership and business management skills along with valuable experience relating to governance and ethical issues to the Board.
 
John F. Regan, now retired, was the majority shareholder and President of two automobile sales and service companies, DeMassi Pontiac, Buick and GMC, located in Riverdale, New Jersey and Regan Pontiac, Buick and GMC, located in Long Island City, New York since 1995. Both companies closed in March of 2009 and in July of 2009, both companies filed for bankruptcy. He currently serves on the Board of Directors of Kearny Federal Savings Bank, Kearny MHC and Kearny Financial Corp. Mr. Regan is a resident of New Jersey and his involvement in our local community brings knowledge of the local economy and business opportunities for the Bank. Mr. Regan, while operating his automobile business developed solid leadership and business management skills as well as a depth of knowledge in the areas of operational efficiency and effectiveness which are a valuable asset to the Board.
 
Leopold W. Montanaro is retired and was the Chairman, President and Chief Executive Officer of West Essex Bancorp, Inc. and West Essex Bank, located in Caldwell, New Jersey, until that bank was acquired by Kearny Financial Corp. on July 1, 2003. He was employed by West Essex Bank from 1972 until the completion of the merger with Kearny Federal Savings Bank. He serves as a director of Kearny Federal Savings Bank, Kearny Financial Corp. and Kearny MHC.  His past service as President of a financial institution, director on the Board of the Federal Home Loan Bank of New York, Chairman of the Board of Directors of the New Jersey Thrift and Bankers Association and his participation in our local community for 40 years brings special knowledge of the financial, economic and regulatory challenges the Company faces as well as knowledge of the local economy and business opportunities for the Bank.  He is the father of Craig L. Montanaro, President and Chief Executive Officer for Kearny Federal Savings Bank and Kearny Financial Corp.
 
John N. Hopkins retired March 31, 2011, as Chief Executive Officer of Kearny MHC, Kearny Financial Corp. and Kearny Federal Savings Bank after serving in that position since March 31, 2010.     Prior to March 31, 2010, he served as President and Chief Executive Officer of Kearny MHC, Kearny Financial Corp. and Kearny Federal Savings Bank, positions he had held since 2002 and had served the Bank as Executive Vice President from 1994 to 2002 and as Chief Financial Officer from 1994 to 1999. His career at the Bank began in 1975. Mr. Hopkins was elected to serve as a Director in 2002 and currently serves on the Boards of Directors of Kearny Federal Savings Bank, Kearny Financial Corp. and Kearny MHC. He is a graduate of Fairleigh Dickinson University. Active in professional and charitable organizations, he served on several committees of the New Jersey Bankers Association, the Board of Directors of TICIC, Inc.  a consortium that provides long term financing for affordable and senior housing in New Jersey, Chairman of the Board of Trustees of Clara Maass Medical Center and the Board of Directors of the Rutherford Senior Citizens Center (55 Kip Center).   His many years of service in the operations of the Bank and his past duties as Chief Executive Officer of the Company and the Bank bring a special knowledge of the financial, economic and regulatory challenges the Company faces and makes him well suited to counseling the Board on these matters.
 

 
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John J. Mazur, Jr. is the sole owner and President/Chief Executive Officer of Elegant Desserts, a wholesale bakery located in Lyndhurst, New Jersey, that sells gourmet cakes locally and nationally. A 1976 graduate of Villanova University, he opened this business in 1994. From 1976 to 2003, he was also a partner and general manager of Mazur’s Bakery, in Lyndhurst, New Jersey, a family owned business that operated from 1936 until 2003 when it was sold. He became Chairman of the Board of Directors of Kearny MHC, Kearny Financial Corp. and Kearny Federal Savings Bank in January 2004.  Mr. Mazur is a resident of New Jersey and serves on the Board of the Meadowlands Chamber of Commerce as well as serving as Chairman of the Council of Regents for Felician College.  Mr. Mazur brings strong marketing and sales skills to the Board as well as a wide range of experience in business management and employee relations.
 
Matthew T. McClane  retired in 2002 as President and Chief Executive Officer of Kearny Federal Savings Bank after serving in that position since 1994 and as President and Chief Executive Officer of Kearny MHC and Kearny Financial Corp. after serving in those positions since 2001.  After graduating from St. Peter’s College and serving in the U.S. Army Reserves, he began his career with Kearny Federal Savings Bank in December of 1967.  His many years of service included a wide range of responsibility for operations and human resources at the Bank, which together with his past duties as Chief Executive Officer of the Company and the Bank bring a special insight and knowledge of personnel challenges along with financial, economic and regulatory challenges the Company faces. This acute insight and knowledge makes him well suited to educating the Board on these matters. He currently serves on the Board of Directors of Kearny Federal Savings Bank, Kearny MHC and Kearny Financial Corp. and remains active in the Community as a member, past President and current Secretary of the Optimist Club of Kearny, New Jersey.
 
John F. McGovern has worked as a self-employed Certified Public Accountant (CPA) and Certified Financial Planner (CFP) since 1984 and holds the designation of Personal Financial Specialist (PFS) from the American Institute of Certified Public Accountants. Since 2001, he has been a federally registered investment advisor. Mr. McGovern is also the owner of McGovern Monuments, Inc. a monument sales and lettering company located in North Arlington, New Jersey that has been family owned and operated since 1924. He currently serves on the Board of Directors of Kearny Federal Savings Bank, Kearny MHC and Kearny Financial Corp. Mr. McGovern, as a CPA/PFS, and CFP, has strong risk assessment, financial reporting and internal control expertise as well as extensive knowledge of accounting and regulatory issues.  He has the qualifications to be designated as an audit committee financial expert under the SEC rules and regulations. Through his considerable experience as a CPA/PFS and CFP, Mr. McGovern provides an essential understanding of public accounting and financial matters to the Board. As a resident of New Jersey, he is involved in local and community organizations including the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public. 
 
Business Background of Our Executive Officers Who Are Not Directors
 
The business experience for the past five years of each of the Company’s executive officers is set forth below.  Unless otherwise indicated, the executive officer has held his or her position for the past five years.
 
William C. Ledgerwood was appointed Executive Vice President and Chief Operating Officer in April 2011 and previously served as Executive Vice President and Chief Financial Officer since April 2010. He became Senior Vice President and Chief Financial Officer of Kearny Federal Savings Bank and Kearny Financial Corp. in December 2006. He served as Senior Vice President, Treasurer and Chief Accounting Officer of Kearny Federal Savings Bank and Kearny Financial Corp. from 2002 through 2006 and has been employed by the Bank since 1998. Prior to joining Kearny Federal Savings Bank he was the

 
8

 

Chief Financial Officer for The Jersey Bank for Savings, which opened as a de novo stock bank in 1989 and was acquired by Interchange Bank in 1998.

Albert E. Gossweiler became Senior Vice President, Chief Investment Officer and Treasurer of Kearny Federal Savings Bank and Kearny Financial Corp. in December 2006. Previously he had served as Senior Vice President and Chief Financial Officer of Kearny Federal Savings Bank since 1999 and of Kearny Financial Corp. upon its formation in 2001. He was previously employed by South Bergen Savings Bank and joined Kearny when such bank was acquired by Kearny Federal Savings Bank in 1999. He was employed by South Bergen Savings Bank from 1981 until the completion of the merger with Kearny Federal Savings Bank.
 
Eric B. Heyer was appointed Senior Vice President and Chief Financial Officer effective April 1, 2011 after having served as First Vice President and Chief Accounting Officer of the Company since October 2009 and of Kearny Federal Savings Bank since July 2009.  Mr. Heyer had previously served as Senior Vice President, Treasurer and Chief Financial Officer of American Bancorp of New Jersey, Inc. from 1997 until its acquisition by Investors Bancorp in May 2009.
 
Sharon Jones is the Corporate Secretary of Kearny MHC, Kearny Financial Corp. and Kearny Federal Savings Bank.  Appointed to the office of Corporate Secretary in 1994, she became a Vice President in 1997 and a Senior Vice President in 2002. Beginning her career at Kearny Federal Savings Bank in 1972 as a loan originator, she served as Asst. Vice President of Lending from 1982 to 1994 and also served as Director of Human Resources from 1994 to 2004.
 
Patrick M. Joyce became the Senior Vice President and Chief Lending Officer of Kearny Federal Savings Bank in 2002 and was previously Vice President of loan originations from 1999 to 2002. He was formerly employed by South Bergen Savings Bank as an Assistant Corporate Secretary and as a loan originator starting in 1989. He joined Kearny when South Bergen Savings Bank was acquired by Kearny Federal Savings Bank in 1999 and was employed by such bank from 1985 until the completion of the merger with Kearny Federal Savings Bank.
 
Erika K. Parisi has been the Senior Vice President and Branch Administrator of Kearny Federal Savings Bank since 2002 and was previously a Vice President and Branch Administrator from 1999 to 2002. She was formerly employed by South Bergen Savings Bank as a Vice President and Branch Administrator and joined Kearny when that bank was acquired by Kearny Federal Savings Bank in 1999. She had been employed by South Bergen Savings Bank from 1991 until the completion of the merger with Kearny Federal Savings Bank.
 

CORPORATE GOVERNANCE

 
Related Party Transactions
 
Since the beginning of the last fiscal year, no directors, officers or their immediate family members have had a direct or indirect material interest in any transactions in which the Company or any subsidiary was a participant involving an amount in excess of $120,000 (other than loans from the Bank).
 
The Bank makes loans to its officers, directors and employees in the ordinary course of business. Kearny Federal Savings Bank has adopted written policies governing these loans. In accordance with federal regulations, all such loans or extensions of credit must be made on substantially the same terms,
 

 
9

 

including interest rates and collateral, as those prevailing at the time for comparable transactions with persons not related to the lender and do not involve more than the normal risk of collectibility or present other unfavorable features. All such loans are approved in advance by the board of directors with any interested director abstaining. Loans to insiders are monitored on a monthly basis to ensure continued compliance with the Bank’s lending policies.
 
Code of Ethics
 
Kearny Financial Corp. and Kearny Federal Savings Bank have adopted a Code of Ethics, available in the Governance Documents section of the “Investor Relations” page of our website at www.kearnyfederalsavings.com, which applies to all directors, officers and employees of the Company and the Bank. It is expected that all directors, officers and employees act, in all matters, in accordance with the highest standards of personal and professional conduct in all aspects of their employment and association with the Company and the Bank, to comply with all applicable laws, rules and regulations and to adhere to all policies and procedures adopted by the Company and the Bank.
 
Director Independence
 
The Board of Directors has determined that Directors Aanensen, Mazza, Regan, Mazur, McClane and McGovern are independent directors within the meaning of the rules of The Nasdaq Stock Market.   In making this determination, the Board of Directors considered various deposit and loan relationships and past employment relationships that the independent directors have with the Bank but determined that, these relationships did not impair their independence.
 
Board Leadership Structure and Role in Risk Management
 
Under the Board of Directors’ current leadership structure, the offices of Chairman of the Board and Chief Executive Officer are held by separate individuals.  John J. Mazur, Jr. serves as Chairman of the Board of Directors.  Mr. Mazur is an independent director and does not serve in any executive capacity with the Company.  The Company’s Chief Executive Officer is Mr. Craig L. Montanaro.  Although the offices of Chairman of the Board and Chief Executive Officer are currently held by separate individuals, the Board of Directors has not made a determination that this is the appropriate leadership structure for the Board of Directors in all circumstances and reserves the right to combine these offices in the future if deemed appropriate under the circumstances.
 
The Board of Directors has general authority over the Company’s risk oversight function with authority delegated to various board committees to review risk management policies and practices in specific areas of the Company’s business.  The Audit Committee is primarily responsible for overseeing the Company’s risk management.  The Audit Committee works closely with officers involved in the risk management function including the internal audit staff who report directly to the Audit Committee.
 
Operation of the Board of Directors
 
During the fiscal year ended June 30, 2011, the boards of directors of Kearny MHC, Kearny Financial Corp. and Kearny Federal Savings Bank held seven, seven and fourteen meetings, respectively. No director attended fewer than 75% of the total meetings of the Board of Directors and committees on which he served during the year ended June 30, 2011. The Board maintains an Audit & Compliance Committee, a Budget Committee, an Executive Committee, an Interest Rate Risk Management Committee, an Asset Quality Committee, a Nominating Committee and a Compensation Committee, as well as a Governance Committee, a Planning & Marketing Committee, an Electronic Data Processing Committee and a Benefits Equalization Plan Administrative Committee. Also during the fiscal year ended June 30, 2011, all independent directors attended two executive sessions of Kearny Financial Corp.
 

 
10

 

Compensation Committee. This committee consists of Directors Aanensen (Chair), Mazur, Mazza and McClane.  Each member of the Compensation Committee is independent in accordance with the current listing standards of The Nasdaq Stock Market. The Board of Directors has adopted a written charter for the Compensation Committee which is available in the Governance Documents section of the “Investor Relations” page of our website at www.kearnyfederalsavings.com. The responsibilities of this committee include appraisal of the performance of officers, administration of management compensation plans and review of directors’ compensation. This committee reviews industry compensation surveys and reviews the recommendations of management on employee compensation matters. This committee meets as needed and met seven times during the year ended June 30, 2011.
 
Audit & Compliance Committee. This committee consists of Directors McGovern (Chair), Mazur, Mazza and Regan.  Each member of the Audit Committee is independent in accordance with the listing standards of The Nasdaq Stock Market, including those standards specifically applicable to audit committee members. The Board of Directors has determined that John F. McGovern is an audit committee financial expert within the meaning of the rules of the Securities and Exchange Commission.   This committee’s responsibilities include oversight of the internal audit and regulatory compliance activities and monitoring management and employee compliance with the Board’s audit policies and applicable laws and regulations. This committee is directly responsible for the appointment, compensation, retention and oversight of the work of the external auditors. The Board of Directors has adopted a written charter for the Audit Committee, which governs its composition, responsibilities and operation. A copy of this charter is available in the Governance Documents section of the “Investor Relations” page of our website at www.kearnyfederalsavings.com. This committee meets monthly and also periodically with the internal auditor, the compliance officer and the external auditors and met thirteen times during the year ended June 30, 2011.
 
Report of the Audit Committee. For the fiscal year ended June 30, 2011, the Audit Committee:  (i) reviewed and discussed the Company’s audited financial statements with management; (ii) discussed with the Company’s independent auditor, ParenteBeard LLC, all matters required to be discussed under Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and (iii) received the written disclosures and the letter from ParenteBeard as required by applicable requirements of the Public Company Accounting Oversight Board regarding ParenteBeard’s communications with the Audit Committee concerning independence and discussed with ParenteBeard its independence. Based on the foregoing review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

 
 
Audit Committee:
 
John F. McGovern (Chair),
 
     
John J. Mazur, Jr., Joseph P. Mazza, John F. Regan
 
Nominating Committee. This committee consists of Directors McGovern, McClane and Mazur and is responsible for the annual selection of nominees for election as directors. Each member of the Nominating Committee is independent in accordance with the listing standards of The Nasdaq Stock Market. This committee operates under a written charter, which governs its composition, responsibilities and operations. A copy of this charter is available in the Governance Documents section of the “Investor Relations” page of our website at www.kearnyfederalsavings.com. The committee meets as needed and met one time during the year ended June 30, 2011.
 
The Company does not pay fees to any third party to identify or evaluate or assist in identifying or evaluating potential nominees. The process for identifying and evaluating potential nominees of the Board includes soliciting recommendations from directors and officers of the Company and the Bank.
 

 
11

 

Additionally, the Board may consider persons recommended by shareholders of the Company in selecting nominees of the Board for election as directors. The manner of evaluation for all potential nominees is the same.
 
The charter states that the Committee will seek nominees with excellent decision-making ability, business experience, personal integrity and a favorable reputation, who are knowledgeable about the business activities and market areas in which the Company and its subsidiaries engage.   The Committee may consider diversity in market knowledge, background, experience, qualifications, and other factors as part of its evaluation of each candidate.
 
The Committee’s process for identifying and evaluating potential nominees will include soliciting recommendations from directors and officers of the Company and the Bank. Additionally, the Committee will consider persons recommended by shareholders of the Company in selecting the individuals the Committee recommends to the Board for selection as the Board’s nominees. The Committee will evaluate persons recommended by directors or officers of the Company or the Bank and persons recommended by shareholders in the same manner.
 
To be considered in the Committee’s selection of individuals the Committee recommends to the Board for selection as the Board’s nominees, recommendations from shareholders must be received by the Company in writing by at least 120 days prior to the date the proxy statement for the previous year’s annual meeting was first distributed to shareholders. Recommendations should identify the submitting shareholder, the person recommended for consideration and the reasons the submitting shareholder believes such person should be considered.
 
The Company’s Bylaws provide that any shareholder wishing to make a nomination for the election of directors or a proposal for new business at a meeting of shareholders must send written notice to the Secretary of the Company at least five days before the date of the annual meeting. The bylaws further provide that if a shareholder wishing to make a nomination or a proposal for new business does not follow the prescribed procedures, the proposal will not be considered until an adjourned, special, or annual meeting of the shareholders taking place thirty days or more thereafter. Management believes that it is in the best interests of the Company and its shareholders to provide enough time for management to disclose to shareholders information about any competing slate of director nominations. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations if management thinks it is in the best interest of shareholders generally. Similarly, adequate advance notice of shareholder proposals will give management time to study such proposals and to determine whether to recommend to the shareholders that such proposals be adopted.
 

COMPENSATION DISCUSSION AND ANALYSIS

 
Executive Summary
 
During the fiscal year ended June 30, 2011, the Company made a transition in its senior management ranks in accordance with the succession plans previously announced.  John N. Hopkins retired as our Chief Executive Office as of April 1, 2011 after a 36-year career with the Company and Kearny Federal Savings Bank.  As of April 1, 2011, Craig L. Montanaro serves the Company as our CEO and continues as its President and as a Director.  In addition, Eric B. Heyer was appointed as Senior Vice President and Chief Financial Officer, and William C. Ledgerwood has been promoted to Chief Operating Officer.  The other named executive officers are Albert E. Gossweiler, Senior Vice President, Chief Investment Officer and Treasurer and Patrick M. Joyce, Senior Vice President and Chief Lending Officer. In recognition of Mr. Heyer’s promotion as of April 1, 2011, we awarded him a salary increase, stock
 

 
12

 

options and restricted stock awards.  The compensation of the other named executive officers was last reviewed in December 2010.
 
During 2010, the Compensation Committee was also involved in reviewing the compensation and benefits programs of Central Jersey Bank, NA and establishing a transition program for the officers and employees of Central Jersey Bank who are as a result of the merger with the Company employees of Kearny Federal Savings Bank.
 
General Policy
 
The objective of the Company’s executive compensation program is to offer competitive short-term and long-term compensation opportunities that will attract, motivate and retain qualified and talented executives who will help facilitate improved financial performance and earnings growth with a focus on enhancing long-term value for the Company’s shareholders. The Company’s executive compensation program is intended to align the interests of its executive officers with shareholders by rewarding performance measured against the approved annual corporate budget, and by rewarding strong executive leadership and superior individual performance. Compensation levels for executives are established after considering factors that include, but are not limited to, the financial performance of the Company and competitive labor market conditions. Furthermore, qualitative factors such as overall job performance, individual leadership, teamwork, and community involvement are considered in compensation deliberations.
 
Components of Compensation
 
In establishing and evaluating executive compensation, the Compensation Committee concentrates on several fundamental pay components: base salary, bonus compensation, retirement income opportunity and long-term wealth accumulation through equity based compensation.
 
Base Salary: Salary levels for senior executives and other officers are reviewed by the Compensation Committee on an annual basis. Salary levels reflect an individual’s job responsibilities, career experience and job performance and the Compensation Committee’s analysis of competitive marketplace conditions for similar positions.
 
Bonus Compensation: We seek to reward the achievement of the Company’s and the Bank’s business objectives by providing bonus compensation to those individuals who play an instrumental role in defining and then achieving or exceeding specific previously determined organizational business objectives of the Company. Although the Compensation Committee’s decisions are discretionary, the general factors that are used to determine bonuses are:  (1) the actual Company performance achieved as detailed in the annual operating budget; (2) an individual’s contribution to the Company’s and the Bank’s achievement of its goals as detailed in its business plan and the annual operating budget since the executive’s last evaluation; and (3) the individual’s demonstrated capacity to adapt to changing business needs. No specific weightings of these factors were used to calculate bonuses. The Committee reviews the corporate performance following the end of the planning year as measured against the corporate budget approved by the Board for such year. The aggregate bonus pool accrued during the 2011 fiscal year was equal to 5% of total employee base compensation.  While the Committee considers actual corporate performance compared against its corporate budget, aggregate bonus compensation and individual bonus awards are not directly tied to that measure.
 
Retirement Income Opportunity: Another component of the executive compensation strategy of the Company and the Bank is retirement income opportunity. Presently, such retirement income opportunity involves the Bank’s defined benefit pension plan, the Benefits Equalization Plan related to the defined benefit plan (each of which have been frozen as of July 1, 2007 so that future service or salary
 

 
13

 

changes will not increase retirement benefits), the Bank’s 401(k) plan and the Bank’s Employee Stock Ownership Plan (“ESOP”) and related ESOP Benefits Equalization Plan. Such retirement income programs provide a significant inducement for long-term retention of high-performing executives.
 
Equity Based Compensation: The Company’s shareholders approved the Company’s Stock Compensation and Incentive Plan in 2005. Through this plan, senior executives and other officers may be awarded stock options and restricted stock awards that will offer them the possibility of future compensation opportunity depending on the executive’s continued employment with the Company and the Bank and the long-term price appreciation of the Company’s common stock. During the fiscal year, ended June 30, 2006, awards were made to the Company’s chief executive officer and other executive officers. A determination related to such award of stock options and stock awards was made by the Committee after reviewing the Company’s other compensation programs for its executive officers and the stock compensation awards made by other financial institutions having completed a stock offering of at least $50 million within the prior three years.  Additional awards have been made from time to time to reflect job promotions or recruitment of newly hired executives.
 
The long-term value of these equity awards is reviewed annually by the Compensation Committee in conjunction with the value of the other components of compensation in order to evaluate the overall value of each compensation component to senior executive and other officers. Although the stock options previously awarded to the executive officers do not currently represent a significant component of the overall compensation program, it is anticipated that such options will provide a meaningful compensation opportunity in the longer term in conjunction with long-term increases in shareholder value as measured by anticipated future appreciation in the market value of the Company’s stock. Therefore, it is anticipated that such equity awards will provide the senior executive and other officers with long term performance and retention incentives consistent with the Company’s objective of enhancing long-term value for the Company’s shareholders.
 
Other Important Components of the Compensation Program: In addition to these components of the compensation program, the Company also maintains employment agreements, including change in control severance protection for the executive officers, insurance programs and other benefit programs, and perquisites and other personal benefits, all consistent with industry practices in our market areas.  All of these components of the compensation program are intended to maintain a competitive compensation program necessary to reward our executive officers for achieving our corporate goals and objectives and to provide the necessary job security and protections so that they may focus on achieving improved financial performance for the Company and its shareholders and to permit us to recruit new professional staff from time to time as necessary. Compensation payable to the executive officers related to any change in control transaction of the Company is anticipated to be tax-deductible payments in accordance with Section 280G of the Internal Revenue Code.
 
Administration of Compensation Program
 
The Compensation Committee of the Company is responsible for the administration of the compensation program for the Chief Executive Officer and the other executive officers. The Compensation Committee meets periodically throughout the fiscal year, including November of each year to determine annual salary adjustments, cash bonus and any equity awards for senior executive and other officers. The Company does not have a formal policy addressing each specific type of compensation. The Committee does consider a variety of factors as it evaluates compensation for each officer, including:
 
 
*
Overall company financial performance as compared to budget and prior year’s performance;
 
 
 
 
14

 
 
 
 
*
Bank regulatory compliance and examination results;
 
 
*
Bank performance metrics compared to other financial services companies in our market area, including return on assets, return on equity, level of non-performing loans and efficiency ratio;
 
 
*
The individual achievements of each officer in their respective areas of responsibility; and
 
 
*
The market competitiveness of the Company’s compensation and benefits programs applicable to its executive management.
 
The Compensation Committee does not assign a specific weight to any given factor, and no factor has more specific weight than another factor considered.  Annual salary increases are generally made in amounts deemed necessary to maintain the competitiveness of the salary structure. Absent a material increase in duties performed by an executive or a significant change in the economic or competitive environment, salaries are not increased materially from year to year.
 
Mr. Hopkins, serving as the CEO, met with the Compensation Committee to discuss the performance evaluations of each of the executive officers, excluding himself, and presented his recommendations. Mr. Hopkins is not present for any discussion involving his personal compensation. 
 
The Compensation Committee awards specific bonus amounts for each executive officer after reviewing the Company’s most recently completed fiscal year results and individual performance. The Company has never been required to materially adjust or restate its reported earnings, and it does not have a policy regarding the adjustment or recovery of bonuses in such an event.  Under the Dodd-Frank Act, a policy of recoupment of incentive compensation will be required for institutions above $1 billion in asset size.  The Company will be implementing such a recoupment policy in the future to comply with such requirements following issuance of final regulations by our Federal banking regulators.
 
The Board of Directors believes that equity-based compensation is important in aligning the interests of management with those of shareholders and has established the Kearny Federal Savings Bank ESOP and the Company’s 2005 Stock Compensation and Incentive Plan to help facilitate this objective. Although each of the executive officers has a substantial personal investment in the Company’s Common Stock, the Board of Directors does not have any formal equity ownership requirements or guidelines for its executive officers or directors.
 
Committee Review of Executive Compensation
 
In making its recommendations regarding executive compensation at calendar year-end 2010, the Compensation Committee considered various factors, including the financial condition and performance of the Company compared to the Company’s operating budget, the current economic conditions and interest rate environment, and the executive officer’s efforts to generate revenues and implement cost reduction strategies. The Compensation Committee also considers the individual performance of the executive officers, attainment of strategic business initiatives and regulatory compliance. The Compensation Committee has considered the potential risks that the incentive compensation programs may expose the Company to, and the established policies, controls and procedures of the Company and the Bank that exist to protect against such risks to the Company (See Compensation Risk Assessment).
 
The Committee utilizes publicly available information to gather information related to compensation practices for executive officers of financial services companies in order to determine market competitive levels of compensation as well as reviewing internal pay levels within the executive
 

 
15

 

group.  The Committee’s review of such information includes an analysis of the compensation practices for executive officers of financial services companies with assets of between $1.2 billion and $4.1 billion located in New Jersey and in the adjacent states of New York and Pennsylvania within approximately 100 miles of Fairfield, New Jersey.  In November 2010, these companies consisted of Abington Bancorp, Inc., Bryn Mawr Bank Corporation, Dime Community Bancshares, Inc., First of Long Island Corporation, First National Community Bancorp, Inc., Flushing Financial Corporation, Hudson Valley Holding Corp., Intervest Bancshares Corporation, Lakeland Bancorp. Incorporated, Northfield Bancorp, Inc., OceanFirst Financial Corp., Oritani Financial Corp, Peapack-Gladstone Financial Corp, Provident New York Bancorp, Roma Financial Corporation, Royal Bancshares of PA, Inc., Smithtown Bancorp, Inc., State Bancorp, Inc., Sterling Bancorp, Suffolk Bancorp, Sun Bancorp, Inc. and Univest Corporation of PA.  In November 2010, the Committee reviewed the total salary plus cash bonus payments received by the Chief Executive Officer, the Chief Financial Officer and the Chief Lending Officer for the companies in this comparative group as reported in the summary compensation table of such companies as set forth in the most recent annual meeting proxy statements as filed with the Securities and Exchange Commission.  The Committee reviewed the reported compensation for the comparable group’s 25th percentile, median and 75th percentile with respect to total salary and total salary plus cash bonus paid by this group of companies for each executive position reviewed.  The Committee reviewed such data prior to making its salary and cash bonus decisions in late 2010 with respect to the executive officers included in the Summary Compensation Table.  The Company does not engage in any specific benchmarking of total compensation or specific elements of compensation to a predetermined peer group of companies when determining compensation levels for its executive officers. The comparison companies and the elements of compensation that are compared are reviewed annually and may change from year-to-year. The Compensation Committee makes decisions regarding each individual executive’s target total compensation opportunity with consideration of the goal of motivating and retaining an experienced and effective management team.
 
In June 2011, the Committee reviewed updated total salary and total salary plus cash bonus compensation received by the Chief Executive Officers, the Chief Operating Officers, the Chief Financial Officers and the Chief Lending Officers for the companies in this comparative group as reported in the summary compensation table of such companies.  The Committee reviewed updated compensation information with respect to the comparable group’s 25th percentile, median and 75th percentile with respect to total salary and total salary plus cash bonus paid by this group of companies for each executive position reviewed.  The Committee determined that the compensation decisions made in December 2010 were consistent with the updated market data available.
 
The Committee has not, in the past several years, retained any compensation experts or consultants to specifically advise the committee or formulate recommendations.  The Committee has access to the public disclosures of comparable companies and available trade compensation surveys through the Company’s internal resources and its business and legal advisors.  However, the Committee formulates its own compensation decisions based upon its review and analysis of such data, rather than relying on the analysis and recommendations of third-party consultants.
 
The Committee is responsible for conducting periodic reviews of the executive compensation of senior executives, including the Chief Executive Officer.  The Committee determines salary levels for senior executives and other officers and amounts of cash bonuses to be distributed to those individuals, if and as appropriate. Awards to senior management and key employees under the Company’s 2005 Stock Compensation and Incentive Plan are determined by the Compensation Committee.
 
The Compensation Committee met during November and December 2010 and determined to make salary changes for the named executive officers effective January 1, 2011 of approximately 5.0% of base salary for each such named executive officer, and increases in salary for Mr. Montanaro of $40,000
 

 
16

 

(15%) to a salary of $300,000 and Mr. Ledgerwood of $24,600 (10%) to a salary of $270,600, reflecting their promotions as part of the Company’s succession plans. The Compensation Committee also approved a cash bonus of 5% for certain named executive officers, Hopkins, Montanaro, Ledgerwood, Gossweiler, Joyce and Heyer, paid in December 2010.  Such cash bonuses awarded in December 2010 related to performance for the fiscal year ended June 30, 2010.
 
Compensation of the Chief Executive Officer
 
In assessing appropriate types and amounts of compensation for the CEO, the Board evaluates both corporate and individual performance. Individual factors include the CEO’s initiation and implementation of successful business strategies; maintenance of an effective management team and management succession planning; and various personal qualities, including leadership, commitment, and professional and community standing.
 
In November 2010, the Compensation Committee reviewed the Company’s fiscal year 2010 operating results, as well as the job performance of CEO, John N. Hopkins. The Compensation Committee believes that Mr. Hopkins has made significant contributions to the ongoing success of the Company and the Bank, including his efforts in managing the Company’s executive team, corporate succession planning for senior executive officers, negotiating and completing the Central Jersey Bank, NA merger and implementing cost-control initiatives. The Compensation Committee approved an increase in salary of $35,000 and a bonus award of $34,500 for the CEO for the fiscal year 2010 performance.
 
Tax Deductibility of Executive Compensation
 
Under Section 162(m) of the Internal Revenue Code, companies are subject to limits on the deductibility of executive compensation. Deductible compensation is limited to $1 million per year for the CEO and the three most highly paid executive officers listed in the summary compensation table. Compensation that is “performance-based” under the Internal Revenue Code’s definition is exempt from this limit. Stock option grants by the Company are intended to qualify as performance-based compensation.
 
The Compensation Committee does not have a formal policy with respect to the payment of compensation in excess of the deduction limit. The Compensation Committee’s practice is to structure compensation programs offered to the executive officers with a view to providing incentives necessary to attract, retain and reward its executive officers. In most instances, such compensation satisfies the requirements for tax-deductibility. The Committee may determine to authorize payments, all or part of which would be nondeductible for federal tax purposes. Approximately $212,472 of compensation earned by the CEO Hopkins for the fiscal year ended June 30, 2011 will be a non-deductible expense for tax purposes in accordance with Section 162(m) of the Internal Revenue Code. It is not anticipated that similar amounts will exceed the deductibility limits for fiscal year 2012.
 
Compensation Committee Report
 
Pursuant to rules and regulations of the Securities and Exchange Commission, this Compensation Committee Report shall not be deemed incorporated by reference to any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and otherwise shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission subject to Regulation 14A or 14C of the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
 

 
17

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
 
The Compensation Committee
 
Theodore J. Aanensen (Chair), John J. Mazur, Jr., Joseph P. Mazza and Matthew T. McClane.
 
Compensation Committee Interlocks and Insider Participation
 
The Compensation Committee consists of Directors Aanensen, Mazur, Mazza and McClane.  Members of the Compensation Committee are non-employee directors of the Company and the Bank. No member of the Committee or any other director is, or was during fiscal year 2011, an executive officer of another company whose board of directors has a comparable committee on which one of the Company’s executive officers serves. None of the executive officers of the Company is, or was during fiscal year 2011, a member of the board of directors or a comparable compensation committee of a company of which any of the directors of the Company is an executive officer.
 

COMPENSATION RISK ASSESSMENT

 

During the 2011 fiscal year, senior management has conducted a Compensation Risk Assessment which was presented to and reviewed by the Compensation Committee.  This Compensation Risk Assessment concluded the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
 
 
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EXECUTIVE COMPENSATION

 
Summary Compensation Table. The following table sets forth for the past three fiscal years the total compensation of each person who served as the principal executive officer and the principal financial officer and the three other most highly compensated executive officers of the Company and the Bank during fiscal year 2011.

                       Change in              
                       Pension              
                       Value and              
                       Nonqualified              
                      Deferred               
Name and              Stock     Option   Compensation     All Other          
Principal Position
Year
 
Salary
 
Bonus
 
Awards (1)
 
Awards (2)
 
Earnings (3)
 
Compensation (4)
 
Total
     
                                                   
John N. Hopkins *
2011
 
$
     607,836
 
$
34,500
 
$
0
 
$
0
 
$
208,000
 
$
105,250
 
$
955,586
     
  Former Chief Executive
2010
   
682,976
   
0
   
0
   
0
   
451,000
   
173,995
 
 
1,307,971
     
  Officer
2009
   
666,256
   
32,750
   
0
   
0
   
506,000
   
214,283
   
1,419,289
     
                                                   
Craig L. Montanaro
2011
 
$
281,909
 
$
13,000
 
$
0
 
$
0
 
$
---------
 
$
 43,098
 
$
338,007
     
  President and
2010
   
247,548
   
12,300
   
0
   
0
   
13,000
   
 46,209
   
319,057
     
  Chief Executive Officer
2009
   
230,024
   
10,925
   
0
   
0
   
17,000
   
 58,463
   
316,412
     
                                                   
William C. Ledgerwood
2011
 
$
257,827
 
$
12,300
 
$
0
 
$
0
 
$
5,000
 
$
 47,172
 
$
322,299
     
  Executive Vice
2010
   
243,495
   
12,300
   
0
   
0
   
46,000
   
 55,477
   
357,272
     
  President and Chief
2009
   
238,149
   
11,738
   
0
   
0
   
66,000
   
 67,381
   
383,268
     
  Operating Officer                                                  
                                                   
Albert E. Gossweiler
2011
 
$
251,914
 
$
12,300
 
$
0
 
$
0
 
$
12,000
 
$
 42,044
 
$
318,258
     
  Senior Vice President,
2010
   
243,495
   
12,300
   
0
   
0
   
47,000
   
 54,916
   
357,711
     
  Chief Investment
2009
   
238,149
   
11,738
   
0
   
0
   
70,000
   
 68,637
   
388,524
     
  Officer and Treasurer
                                                 
                                                   
Patrick M. Joyce
2011
 
$
251,914
 
$
12,300
 
$
0
 
$
0
 
$
--------
 
$
 36,152
 
$
300,366
     
  Senior Vice President
2010
   
243,495
   
12,300
   
0
   
0
   
30,000
   
 50,004
   
335,799
     
  and Chief Lending
2009
   
238,149
   
11,738
   
0
   
0
   
42.000
   
 65,703
   
357,590
     
  Officer                                                  
                                                   
Eric B. Heyer
2011
 
$
214,858
 
$
10,350
 
$
0
 
$
0
 
$
0
 
$
   6,213
 
$
231,421
     
  Senior Vice President
                                                 
  and Chief Financial
                                                 
  Officer                                                  
_______________
*
Mr. Hopkins retired on March 31, 2011.
(1)
Based on the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718.  For assumptions used in determining the grant date for value of the stock awards, see Note 15 of Notes to the Consolidated Financial Statements in the 2011 Annual Report to Shareholders.
(2)
Based on the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718.  For assumptions used in determining the grant date for value of the options, see Note 15 of Notes to the Consolidated Financial Statements in the 2011 Annual Report to Shareholders.
(3)
Includes for each individual the increase (if any) for the fiscal year in the present value of the individual’s accrued benefit (whether not vested) under each tax-qualified and non-qualified actuarial or defined benefit plan calculated by comparing the present value of each individual’s accrued benefit under each such plan in accordance with FASB ASC Topic 715 as of the plan’s measurement date in such fiscal year to the present value of the individual’s accrued benefit as of the plan’s measurement date in the prior fiscal year.  For fiscal year 2011, Messrs Montanaro and Joyce each has a change in pension value and deferred compensation earnings of $(1,000).
(4)
For fiscal year 2011, all other compensation included the following:
 
 
19

 

 
Name
 
401(k) Plan
Employer
Contribution
 
Bank
Owned Life
Insurance
(taxable)
 
Allocation of
Shares Under the
Employee Stock
Ownership Plan
 
 
Long-Term
Care Insurance
Premium
 
Accrued
Dividends on
Unvested Stock
Awards
 
 
 
 
Auto
 
 
Country
Club Dues
John N. Hopkins
$  
7,350
 
$  
4,435
 
$
60,754
 
$
4,475
 
$  
6,120
 
16,404
 
5,712
Craig L. Montanaro
$  
      0
 
$  
   419
 
$
26,450
 
$
2,311
 
$  
1,734
 
 7,000
 
5,184
William C. Ledgerwood
$  
7,025
 
$  
   996
 
$
26,999
 
$
3,418
 
$  
1,734
 
 7,000
 
      0
Albert E. Gossweiler
$  
7,572
 
$  
1,476
 
$
26,999
 
$
4,263
 
$  
1,734
 
       0
 
      0
Patrick M. Joyce
$  
5,012
 
$  
   470
 
$
26,999
 
$
1,937
 
$  
1,734
 
       0
 
      0
Eric B. Heyer
$  
5,859
 
$  
   354
 
$
        0
 
$
      0
 
$  
      0
 
       0
 
      0

 
For Mr. Hopkins and Mr. Montanaro, includes regular Employee Stock Ownership Plan Compensation of $27,206 and $25,968, respectively, and compensation under the related ESOP Benefits Equalization Plan of $33,548 and $482, respectively.
 
Outstanding Equity Awards at Fiscal Year End. The following table provides information regarding options and restricted stock awards held by the named executive officers as of June 30, 2011.
 
       
Stock Awards
 
   
Option Awards
     
Market
 
   
Number of
 
Number of
         
Number  of
 
Value of
 
   
Securities
 
Securities
         
Shares or
 
Shares or
 
   
Underlying
 
Underlying
         
Units of
 
Units of
 
   
Unexercised
 
Unexercised
 
Option
 
Option
 
Stock That
 
Stock That
 
   
Options
 
Options
 
Exercise
 
Expiration
 
Have Not
 
Have Not
 
Name
 
Exercisable
 
Unexercisable(1)
 
Price
 
Date
 
Vested(1)
 
Vested
 
John N. Hopkins
 
600,000
 
0
 
$
12.71
 
12/5/2015
     
$
0
 
Craig L. Montanaro
 
140,000
 
0
 
$
12.71
 
12/5/2015
     
$
0
 
William C. Ledgerwood
 
140,000
 
0
 
$
12.71
 
12/5/2015
     
$
0
 
Albert E. Gossweiler
 
140,000
 
0
 
$
12.71
 
12/5/2015
     
$
0
 
Patrick M. Joyce
 
140,000
 
0
 
$
12.71
 
12/5/2015
     
$
0
 
Eric B. Heyer
 
0
 
30,000
 
$
10.16
 
 04/1/2021
 
15,000
 
$
136,650
 
 
_______________
(1)  
Such award was made on April 1, 2011 and vests at the rate of 20% per year, beginning on the one-year anniversary of the date of the award.

Vesting of Stock Awards During the Last Fiscal Year. The following table sets forth information regarding the vesting of restricted stock awards to the named executive officers during the fiscal year ended June 30, 2011.
 
Name
 
Number of
Shares Acquired
on Vesting
 
Value Realized
on Vesting (1)
 
John N. Hopkins
 
60,000
 
$
577,407
 
Craig L. Montanaro
 
17,000
 
$
163,599
 
William C. Ledgerwood
 
17,000
 
$
163,599
 
Albert E. Gossweiler
 
17,000
 
$
163,599
 
Patrick M. Joyce
 
17,000
 
$
163,597
 
Eric B. Heyer
 
0
 
$
0
 
_______
(1) 
  Based upon the fair market value of the stock on the date of vesting, December 5, 2010.


 
20

 

Pension Benefits. The Bank is a participating employer in a multiple-employer pension plan sponsored by the Financial Institutions Retirement Fund (the “Pension Plan”). All full-time employees of the Bank are eligible to participate after one year of service and attainment of age 21. A qualifying employee becomes fully vested in the Pension Plan upon the earlier of completion of five years service or attainment of the normal retirement age of 65. The Pension Plan is intended to comply with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Pension Plan provides for monthly payments to each participating employee at normal retirement age. A participant who is vested in the Pension Plan may take an early retirement and elect to receive a reduced monthly benefit beginning as early as age 45. The Pension Plan also provides for payments in the event of disability or death. The annual benefit amount upon retirement at age 65 equals 2% of the participant’s highest five-year average salary times years of service. Benefits are payable in the form of a monthly retirement benefit and a death benefit or an alternative form that is actuarially equivalent. Effective July 1, 2007, the Bank “froze” all future enrollments and benefit accruals under its non-contributory defined benefit pension plan and related benefits equalization plan.
 
The Bank has adopted a Benefit Equalization Plan related to the Pension Plan. The purpose of this plan is to provide a pension benefit based upon the actual earnings of senior officers of the Bank in the event that their average annual earnings exceeds the permissible pensionable earnings level under the Pension Plan as required by the limitations of Sections 401(a)(17) and 415 of the Internal Revenue Code. The supplemental pension for such officers will reflect years in which earnings exceed the limits of Sections 401(a)(17) and 415 of the Internal Revenue Code with the supplemental benefit based upon the difference between their average earnings taking into effect this maximum pensionable earnings limitation and their average earnings without regard to such limitation, multiplied by 2% times their years of service at retirement. The benefits payment under the Benefit Equalization Plan for the Pension Plan will be in the form of an annual benefit payable for life and a death benefit. Effective July 1, 2007, the Bank “froze” all future enrollments and benefit accruals under its non-contributory defined benefit pension plan and related benefits equalization plan.
 
The following table provides information with respect to each defined benefit pension plan in which the named officers may receive payments or other benefits at, following, or in connection with retirement.
 
Name
 
Plan Name
 
Number of
Years
Credited
Service
 
Present
Value of
Accumulated
Benefit (1)
 
Payments
During Last
Fiscal Year
 
John N. Hopkins
 
Pension
 
32
 
$  
1,689,000
 
$   0
 
   
Pension BEP
 
32
 
$  
2,171,000
 
$   0
 
Craig L. Montanaro
 
Pension
 
  4
 
$  
     52,000
 
$   0
 
William C. Ledgerwood
 
Pension
 
  9
 
$  
   291,000
 
$   0
 
Albert E. Gossweiler
 
Pension
 
  8
 
$  
   380,000
 
$   0
 
Patrick M. Joyce
 
Pension
 
  8
 
$  
   131,000
 
$   0
 
Eric B. Heyer
 
Pension
 
  0
 
$  
              0
 
$   0
 

(1)  
Assumes retirement at normal retirement age as defined in the Plan. Present value is calculated using assumptions set forth in Note 15 of Notes to Consolidated Financial Statements in the 2011 Annual Report to Shareholders.

Nonqualified Deferred Compensation. The Bank has implemented for its senior officers a Benefits Equalization Plan related to the Employee Stock Ownership Plan. This plan constitutes a defined contribution plan providing for deferral of compensation on a non tax-qualified basis. The purpose of this plan is to provide a benefit to senior officers of the Bank whose benefits under the Employee Stock

 
21

 

Ownership Plan are limited by Sections 401(a)(17) and 415 of the Internal Revenue Code. For example, this plan provides participants with a benefit for any compensation that they may earn in excess of $245,000 (as indexed) comparable to the benefits earned by all participants under the employee stock ownership plan for compensation earned below that level. The Bank may utilize a grantor trust in connection with this plan in order to set aside funds that ultimately may be used to pay benefits under the plan. The assets of the grantor trust will remain subject to the claims of the Bank’s general creditors in the event of insolvency, until paid to a participant following termination of employment according to the terms of the plan. Benefits under the plan will be paid in a lump sum in the form of shares of common stock of the Company to the extent permissible under applicable regulations, or in the alternative, benefits will be paid in cash based upon the value of such shares at the time that such benefit payments are made. The actual value of benefits under this plan and the annual financial reporting expense associated with this plan are calculated annually based upon a variety of factors, including the actual value of benefits for participants determined under the Employee Stock Ownership Plan each year, the applicable limitations under the Internal Revenue Code that are subject to adjustment annually and the compensation of each participant at such time. Generally, benefits under the plan are taxable to each participant at the time of receipt of such payment, and the Bank will recognize a tax-deductible compensation expense at such time.

The following table sets forth information with respect to the Benefits Equalization Plan related to the Employee Stock Ownership Plan. Mr. Hopkins and Mr. Montanaro are the only officers at present with an accumulated benefit under the Benefits Equalization Plan for the Employee Stock Ownership Plan.

 
 
Name
Executive
Contributions in
Last Fiscal Year
Registrant
Contributions in
Last Fiscal Year
Aggregate
Earnings in Last
Fiscal Year
Aggregate
Withdrawals/
Distributions
Aggregate
Balance at Last
Fiscal Year End
John N. Hopkins
  
ESOP BEP
 
$0
 
$33,548
 
$3,639
 
$0
 
$216,539
Craig L. Montanaro
  ESOP BEP
 
$0
 
$482
 
$0
 
$0
 
$455

Employment Agreements. Effective June 30, 2011, the Bank entered into amended and restated employment agreements with President Montanaro providing for a minimum base salary of $300,000 Executive Vice President Ledgerwood providing for a minimum base salary of $270,600 and Senior Vice Presidents Gossweiler and Joyce providing for a minimum base salary of $258,300.  Effective June 30, 2011, the Bank entered into an employment agreement with Senior Vice President and Chief Financial Officer Eric B. Heyer providing for a base salary of $230,000. These agreements each have a term of two years, and each provides for extension of the term on or before each anniversary of the effective date upon determination of the Board of Directors of the Bank that the officer’s performance has met its requirements and standards. Pursuant to the terms of the employment agreements, each officer is generally entitled to participate in all discretionary bonuses, pension and other retirement benefit plans, welfare benefit plans and other equity, incentive and benefit plans and perquisites applicable to senior management of the Bank. Upon termination of employment at any time on or after attainment of age 62, each of the officers and his or her dependent family is also permitted to continue to participate, at the Bank’s expense, in the group medical plan sponsored by the Bank until such time that the officer and his or her spouse become eligible for Medicare coverage. If terminated without cause, each of these officers will be entitled to (i) a continuation of his or her salary through the remaining term of the agreement, and (ii) during the same period, the cost of obtaining health, life, disability and other benefits at levels substantially equal to those provided on the date of termination of employment. As of June 30, 2011, the remaining term of the agreement for President Montanaro was three years and each of the other officers was approximately two years, so a continuation of salary through the end of the term would equal $900,000 for President Montanaro, $541,200 for Executive Vice President Ledgerwood, $516,600 for
 

 
22

 

Senior Vice Presidents Gossweiler and Joyce, and $460,000 for Senior Vice President Heyer if the officer were terminated without cause as of that date. The value of the continuation of health, life disability and other benefits through the end of the term for each officer would equal approximately $60,000 based on the Bank’s current cost of providing those benefits.
 
If terminated involuntarily during the term of the agreement following a “change in control” of the Company or the Bank, as defined in the agreement, or without cause within twenty-four months following a change in control, each of these officers will be paid an amount equal to 2.0 times his or her most recent total annual  compensation paid to the Executive or accrued by the Bank (including amounts attributable to salary, bonus, deferred compensation and retirement plans) with respect to the Executive for the most recently completed calendar year ending on or prior to such date of termination of employment of such Executive.  The sum shall be paid in one (1) lump sum not later than the date of such termination of service.  The executive and his or her dependents shall remain eligible to participate in the medical and dental insurance programs offered by the Bank to its employees for a period of not less than 18 months following the date of the termination; provided that the Employee shall pay to the Bank not less than monthly the corresponding COBRA continuation premiums in effect at such time for the Company or Bank.  Each of the officers will also be entitled to the foregoing change in control severance payment and benefits upon a voluntary termination of employment within 120 days following certain events during the term of the agreement following a change in control of the Company or the Bank. All amounts payable to any of the officers as severance in respect of a change in control will be reduced to the extent necessary such that neither the payments under the employment agreement, nor any other payments, constitute “excess parachute payments” under Section 280G of the Internal Revenue Code. If change in control payments had been made under these agreements as of June 30, 2011, President Montanaro would have received a payment of approximately $1,320,033, Executive Vice President Ledgerwood would have received a payment of $553,500, Senior Vice Presidents Gossweiler and Joyce would each have received a payment of approximately $528,900 and Senior Vice President Heyer would have received a payment of approximately $607,000.
 
Potential Payments Upon Resignation, Retirement or Termination. The table below reflects the amount of compensation payable to each of the named officers in accordance with each individual’s employment agreement and other benefit plans and agreements as discussed in the preceding sections in the event of termination of such executive’s employment. The amounts shown assume that such termination was effective as of June 30, 2011, and thus includes amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The amounts shown relating to unvested stock options and stock awards are based on the fair market value of the Common Stock on June 30, 2011 of $9.11. The actual amounts to be paid out can only be determined at the time of such executive’s termination of employment.

 
23

 


Name and Plan
 
 
 
Voluntary
Resignation
   
 
Early
Retirement
 (at age 62)
   
Normal
Retirement
 (at age 65)
   
Termination
w/o Cause
No Change in
Control
   
Termination
w/o Cause With
Change in
Control
   
 
 
 
Death
   
 
 
 
Disability
John N. Hopkins – Retired 3/31/11
                                       
Salary
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
Incentive/Bonus
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Cash Payments
 
0
   
0
   
0
   
0
   
0
   
0
   
0
                                         
Benefits
                                       
Medical/Vision
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Dental
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Life Insurance
 
0
   
0
   
0
   
0
   
0
   
0
   
0
LTD/LTC
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Accident
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Pension BEP Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Benefits
 
0
         
0
   
0
   
0
   
0
   
0
                                         
Total Cash & Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Options Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
        Total
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
                                         
Craig L. Montanaro
                                       
Salary
$
0
 
$
0
 
$
0
 
$
900,000
 
$
1,319,578
 
$
25,000
 
$
690,000
Incentive/Bonus
 
0
   
0
   
0
   
13,000
   
0
   
0
   
13,000
Total Cash Payments
 
0
   
0
   
0
   
913,000
   
1,319,578
   
25,000
   
703,000
                                         
Benefits
                                       
Medical/Vision
 
0
   
73,028
   
0
   
73,028
   
0
   
0
   
73,028
Dental
 
0
   
4,717
   
0
   
4,717
   
0
   
0
   
4,717
Life Insurance
 
0
   
499
   
166
   
499
   
0
   
0
   
499
LTD/LTC
 
0
   
0
   
0
   
9,164
   
0
   
0
   
9,164
Accident
 
0
   
0
   
0
   
792
   
0
   
0
   
792
Pension BEP Benefits
 
0
   
0
   
 
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
455
   
455
   
 
455
   
455
   
455
   
0
   
455
Total Benefits
 
455
   
78,699
   
621
   
88,655
   
455
   
0
   
88,655
                                         
Total Cash & Benefits
 
455
   
78,699
   
621
   
1,001,655
   
1,320,033
   
25,000
   
791,655
Value Unvested Options Acceleration
 
0
   
0
   
 
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
 
0
   
0
   
0
   
0
   
0
        Total
$
455
 
$
78,699
 
$
621
 
$
1,001,655
 
$
1,320,033
 
$
25,000
 
$
791,655

 
24

 

Potential Payments Upon Resignation, Retirement or Termination (continued)
 
Name and Plan
 
 
 
Voluntary
Resignation
   
 
Early
Retirement
 (at age 62)
   
Normal
Retirement
 (at age 65)
   
Termination
w/o Cause
No Change in
Control
   
Termination
w/o Cause With
Change in
Control
   
 
 
 
Death
   
 
 
 
Disability
                                         
William C. Ledgerwood
                                       
Salary
$
0
 
$
0
 
$
0
 
$
541,200
 
$
553.500
 
$
22,550
 
$
446,490
Incentive/Bonus
 
0
   
0
   
0
   
12,300
   
0
   
0
   
12,300
Total Cash Payments
 
0
   
0
   
0
   
553,500
   
553,500
   
22,550
   
458,790
                                         
Benefits
                                       
Medical/Vision
 
0
   
50,673
   
0
   
40,617
   
0
   
0
   
40,617
Dental
 
0
   
0
   
0
   
3,145
   
0
   
0
   
3,145
Life Insurance
 
0
   
499
   
166
   
332
   
0
   
0
   
332
LTD/LTC
 
0
   
0
   
0
   
8,323
   
0
   
0
   
8,323
Accident
 
0
   
0
   
0
   
528
   
0
   
0
   
528
Pension BEP Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Benefits
 
0
   
51,172
   
166
   
52,945
   
0
   
0
   
52,945
                                         
Total Cash & Benefits
 
0
   
51,172
   
166
   
      606,445
   
553,500
   
22,550
   
511,735
Value Unvested Options Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
        Total
$
0
 
$
51,172
 
$
166
 
$
606,445
 
$
553,500
 
$
22,550
 
$
511,735
                                         
Albert E. Gossweiler
                                       
Salary
$
0
 
$
0
 
$
0
 
$
516,600
 
$
528,900
 
$
21,525
 
$
426,195
Incentive/Bonus
 
0
   
0
   
0
   
12,300
   
0
   
0
   
12,300
Total Cash Payments
 
0
   
0
   
0
   
528,900
   
528,900
   
21,525
   
438,495
                                         
Benefits
                                       
Medical/Vision
 
0
   
50,673
   
0
   
33,782
   
0
   
0
   
33,782
Dental
 
0
   
0
   
0
   
3,145
   
0
   
0
   
3,145
Life Insurance
 
0
   
499
   
166
   
332
   
0
   
0
   
332
LTD/LTC
 
0
   
0
   
0
   
10,015
   
0
   
0
   
10,015
Accident
 
0
   
0
   
0
   
528
   
0
   
0
   
528
Pension BEP Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Benefits
 
0
   
51,172
   
166
   
47,802
   
528,900
   
0
   
47,802
                                         
Total Cash & Benefits
 
0
   
51,172
   
166
   
576,702
   
528,900
   
21,525
   
486,297
Value Unvested Options Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
        Total
$
0
 
$
51,172
 
$
166
 
$
576,702
 
$
528,900
 
$
21,525
 
$
486,297
 

 
25

 

Potential Payments Upon Resignation, Retirement or Termination (continued)
 
Name and Plan
 
 
 
Voluntary
Resignation
   
 
Early
Retirement
 (at age 62)
   
Normal
Retirement
 (at age 65)
   
Termination
w/o Cause
No Change in
Control
   
Termination
w/o Cause With
Change in
Control
   
 
 
 
Death
   
 
 
 
Disability
                                         
Patrick M. Joyce
                                       
Salary
$
0
 
$
0
 
$
0
 
$
516,600
 
$
528,900
 
$
21,525
 
$
426,195
Incentive/Bonus
 
0
   
0
   
0
   
12,300
   
0
   
0
   
12,300
Total Cash Payments
 
0
   
0
   
0
   
       528,900
   
528,900
   
21,525
   
438,495
                                         
Benefits
                                       
Medical/Vision
 
0
   
73,028
   
0
   
48,685
   
0
   
0
   
48.685
Dental
 
0
   
0
   
0
   
3,145
   
0
   
0
   
3,145
Life Insurance
 
0
   
499
   
166
   
332
   
0
   
0
   
332
LTD/LTC
 
0
   
0
   
0
   
5,361
   
0
   
0
   
5,361
Accident
 
0
   
0
   
0
   
528
   
0
   
0
   
528
Pension BEP Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Benefits
 
0
   
73,527
   
166
   
58,051
   
0
   
0
   
58,051
                                         
Total Cash & Benefits
 
0
   
73,527
   
166
   
586,951
   
528,900
   
21,525
   
496,546
Value Unvested Options Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
        Total
$
0
 
$
73,527
 
$
166
 
$
586,951
 
$
528,900
 
$
21,525
 
$
496,546
                                         
Eric B. Heyer
 
 
                                   
Salary
$
0
 
$
0
 
$
0
 
$
460,000
 
$
470,350
 
$
19,167
 
$
379,500
Incentive/Bonus
 
0
   
0
   
0
   
10,350
   
0
   
0
   
10,350
Total Cash Payments
 
0
   
0
   
0
   
470,350
   
470,350
   
19,167
   
389,850
                                         
Benefits
                                       
Medical/Vision
 
0
   
73,028
   
0
   
48,685
   
0
   
0
   
48,685
Dental
 
0
   
0
   
0
   
3,145
   
0
   
0
   
3,145
Life Insurance
 
0
   
499
   
166
   
332
   
0
   
0
   
332
LTD/LTC
 
0
   
0
   
0
   
1,201
   
0
   
0
   
1,201
Accident
 
0
   
0
   
0
   
458
   
0
   
0
   
458
Pension BEP Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
ESOP BEP  Benefits
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Total Benefits
 
0
   
73,527
   
166
   
53,821
   
0
   
0
   
53,821
                                         
Total Cash & Benefits
 
0
   
73,527
   
166
   
524,171
   
470,350
   
19,167
   
443,671
Value Unvested Options Acceleration
 
0
   
0
   
0
   
0
   
0
   
0
   
0
Value Unvested Awards Acceleration
 
0
   
0
   
0
   
0
   
136,650
   
136,650
   
136,650
        Total
 
$
0
 
 
$
73,527
 
 
$
166
 
 
$
524,171
 
 
$
607,000
 
 
$
155,817
 
 
$
580,321

 
26

 



DIRECTOR COMPENSATION

 
Set forth below is a table providing information concerning the compensation of the non-employee directors of the Company for the fiscal year ended June 30, 2011.
 
 
Fees Earned
         
 
or Paid
Stock
Option
Change in
All Other
 
Name
in Cash
Awards(1)
Awards(2)
Pension Value(3)
Compensation(4)
Total
John J. Mazur, Jr.
$106,240
$0
$0
$46,000
$27,906
$180,146
Matthew T. McClane
$ 94,450
$0
$0
$14,000
$23,975
$132,425
John F. McGovern
$ 97,250
$0
$0
$22,000
$24,411
$143,661
Theodore J. Aanensen
$ 94,800
$0
$0
$11,000
$18,711
$124,511
Joseph P. Mazza
$ 96,250
$0
$0
$  4,000
$19,594
$119,844
John F. Regan
$ 95,950
$0
$0
$14,000
$10,977
$120,927
Leopold W. Montanaro
$ 81,200
$0
$0
$12,000
$20,601
$113,801
John N. Hopkins
$ 21,050
$0
$0
-----------
$  4,194
$  25,244
Henry S. Parow*
$ 33,417
$0
$0
           N/A         
$  4,508
$  37,925
________
*
Mr. Parow retired from the Board of Directors effective October 31, 2010.
(1)
Based on the aggregate grant date fair value of the restricted stock award computed in accordance with FASB ASC Topic 718.  For assumptions used in determining the grant date for value of the stock awards, see Note 15 of Notes to the Consolidated Financial Statements in the 2011 Annual Report to Shareholders.  This amount does not reflect dividends paid on unvested restricted stock, which is included under “All Other Compensation.”
(2)
Based on the aggregate grant date fair value of the award computed in accordance with FASB ASC Topic 718. For assumptions used in determining the grant date for value of the stock options, see Note 15 of Notes to the Consolidated Financial Statements in the 2011 Annual Report to Shareholders.  Each director currently holds options to purchase 133,655   shares of Common Stock at an option exercise price of $11.55 per share.  These options were granted on October 24, 2005 and vest at the rate of 20% per year, beginning on the one-year anniversary of the date of the award.
(3)
For more information concerning the Directors Consultation and Retirement Plan, please see Note 15 of Notes to Consolidated Financial Statements in the 2011 Annual Report to Shareholders.  For fiscal year 2011, the change in pension value for Mr. Hopkins was $(12,000).
(4)
For fiscal year 2011, all other compensation included the following:
 
 
 
 
Name
 
Health Care
and Dental
Premiums
 
Long Term
Care
Premiums
 
Bank Owned
Life
Insurance*
 
 
 
Bonus **
Accrued
Dividends on
Unvested Stock
Awards
 
Total
All Other
Compensation
John J. Mazur, Jr.
$22,703
$3,124
$   966
$     0
$1,113
$27,906
Matthew T. McClane
$10,456
$3,759
$8,647
$     0
$1,113
$23,975
John F. McGovern
$22,703
$      0
$   595
$     0
$1,113
$24,411
Theodore J. Aanensen
$10,470
$4,980
$2,148
$     0
$1,113
$18,711
Joseph P. Mazza
$11,000
$5,110
$2,371
$     0
$1,113
$19,594
John F. Regan
$ 5,160
$2,556
$2,148
$     0
$1,113
$10,977
Leopold W. Montanaro
$10,456
$7,746
$1,286
$     0
$1,113
$20,601
John N. Hopkins***
$ 4,194
$      0
$      0
$     0
$      0
$ 4,194
Henry S. Parow (Retired 10/31/2010)
$ 3,395
$      0
$      0
$     0
$1,113
$ 4,508
 
*
For each director, the Company maintains life insurance arrangements providing for a death benefit of $500,000 for each director.
**
Payments under the Directors Incentive Compensation Plan. The Board determined to suspend payments under the Directors Incentive Compensation Plan for the fiscal year ended June 30, 2011 and for the calendar year 2011. The Board determined that all future bonus payments under the Directors Compensation Plan would terminate effective July 1, 2011.
***
Long Term Care Premiums, Bank Owned Life Insurance and Accrued Dividends on Unvested Stock Awards for Mr. Hopkins reported in the Executive Compensation Table.
 
Board Fees at June 30, 2011. Directors were paid a fee of $1,250.00 per Bank Board meeting attended, $600.00 per Company meeting attended and $600.00 per Kearny MHC meeting attended.  The
 

 
27

 

Chairman received a higher fee of $1,500.00, $720.00 and $720.00, for bank, holding company and mutual holding company meetings, respectively.  Directors were also paid a fee for participation in special meetings of the Board of Directors. Participation in a special meeting by means of a conference telephone or similar communications device through which all persons participating can hear each other at the same time constitutes presence in person for all purposes. Attendance in person is required in order to be paid for regularly scheduled board meetings.
 
Members of the Kearny Federal Savings Bank Executive Committee at June 30, 2011 were paid $1,200.00 per committee meeting attended; the Chairman received a higher fee of $1,440.00 for Executive Committee meetings. Each member of the Kearny Federal Savings Bank Board of Directors is also a member of the Executive Committee. Members of the Audit & Compliance Committee and the Chairman of this committee are paid $250 and $350, respectively, for each meeting attended. Members of the Compensation Committee and the Chairman of this committee are paid $250 and $300, respectively, for each meeting attended.
 
Directors at June 30, 2011 also received an annual retainer as follows: $32,000 for service on Kearny Federal Savings Bank’s board, $9,000 for service on Kearny Financial Corp.’s board and $9,000 for service on Kearny MHC’s board.  Directors who also serve as employees do not receive compensation as directors.
 
Board Fees Effective July 1, 2011. Directors are paid a fee of $1,250.00 per Bank Board meeting attended, $600.00 per Company meeting attended and $600.00 per Kearny MHC meeting attended.  The Chairman receives a higher fee of $1,500.00, $720.00 and $720.00, for bank, holding company and mutual holding company meetings, respectively.  Directors receive a fee for participation in special meetings of the Board of Directors. Participation in a special meeting by means of a conference telephone or similar communications device through which all persons participating can hear each other at the same time constitutes presence in person for all purposes. Attendance in person is required in order to be paid for regularly scheduled board meetings.
 
Members of the Kearny Federal Savings Bank Executive Committee do not receive a fee for committee meetings.  Each member of the Kearny Federal Savings Bank Board of Directors is also a member of the Executive Committee.  Members of the Audit & Compliance Committee and the Chairman of this committee are paid $250 and $350, respectively, for each meeting attended.  Members of the Compensation Committee and the Chairman of this committee are paid $250 and $300, respectively, for each meeting attended.
 
Effective July 1, 2011 Directors also receive an annual retainer as follows: Directors are paid $46,400 for service on the Kearny Federal Savings Bank’s board, $9,000 for service on Kearny Financial Corp.’s board and $9,000 for service on Kearny MHC’s board.  The Chairman receives a higher annual retainer of $49,820, $9,000, and $9,000 for service on the bank, holding company and mutual holding company boards.  Directors who also serve as employees do not receive compensation as directors.
 
Directors Consultation and Retirement Plan. Kearny Financial Corp. maintains a Directors Consultation and Retirement Plan (the “DCRP”). The DCRP provides retirement benefits to the directors of Kearny Financial Corp., Kearny MHC and Kearny Federal Savings Bank based upon the number of years of service as a director. To be eligible to receive benefits under the DCRP, a director generally must have completed at least five years of service and must not retire from the board prior to reaching 60 years of age. If a director agrees to become a consulting director upon retirement, he will receive a monthly payment equal to 2.5% of the total retainer plus fees paid for attendance at regular and special meetings and meetings of the executive committee paid to him by Kearny Financial Corp., Kearny MHC and Kearny Federal Savings Bank during the 12-month period prior to the date of retirement multiplied by the number of years of service as a director, not to exceed 80% of board compensation. Benefits under the
 

 
28

 

DCRP begin upon a director’s retirement and are paid for life; provided, however, that in the event of a director’s death prior to the receipt of 120 monthly payments, payments shall continue to the director’s surviving spouse or estate until 120 payments have been made. In the event there is a change in control (as defined in the DCRP), all directors will be presumed to be eligible to receive benefits under the DCRP and each director will receive a lump sum payment equal to the present value of future benefits payable. Benefits under the DCRP are unvested and forfeitable until retirement at or after age 60 with at least five years of service, termination of service following a change in control, disability following at least five years of service or death.
 


PROPOSAL II – APPROVAL OF A NON-BINDING ADVISORY
VOTE ON EXECUTIVE COMPENSATION

 
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the implementing regulations proposed by the Securities and Exchange Commission thereunder provide that for the first annual meeting of shareholders on or after January 21, 2011 and not less than once every three years thereafter the Company must include a separate resolution subject to shareholder vote to approve the compensation of the Company’s named executive officers, as disclosed in its proxy statement pursuant to Item 402 of Regulation S-K of the Securities and Exchange Commission.
 
This proposal, commonly known as a “say-on-pay” proposal, gives the Company’s shareholders the opportunity to endorse or not endorse the Company’s executive pay program and policies, as disclosed in this Proxy Statement, through the following resolution:
 
“Resolved, that the shareholders approve the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement.”
 
As provided in the Dodd-Frank Act, this vote will not be binding on the Board of Directors and may not be construed as overruling a decision by the Board, creating or implying any change to the fiduciary duties of the Board or any additional fiduciary duty by the Board or restricting or limiting the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation.  The Compensation Committee, however, may take into account the outcome of the vote when considering future executive compensation arrangements.
 
In voting to approve the above resolution, shareholders may vote for the resolution, against the resolution or abstain from voting.  This matter will be decided by the affirmative vote of a majority of the votes cast at the Annual Meeting.  On this matter, abstentions will have no effect on the voting.
 
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
 

PROPOSAL III – ADVISORY VOTE ON THE FREQUENCY
OF ADVISORY VOTES ON EXECUTIVE COMPENSATION

 
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the implementing regulations proposed by the Securities and Exchange Commission thereunder require that at the first annual meeting of shareholders held on or after January 21, 2011 and not less frequently than once every six years thereafter the Company must include a separate resolution subject to shareholder vote to determine whether the non-binding shareholder vote on executive compensation that is the subject of Proposal II should occur every one, two or three years.
 

 
29