SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ----------------------

                                    FORM 10-K
<TABLE>
<CAPTION>
<S>     <C>
(Mark One)

[X]  Annual report pursuant to section 13 OR 15(d) of the Securities Exchange Act of 1934
     For the fiscal year ended             June 30, 2005
                               -------------------------------------------------
                                     - or -

[ ]  Transition Report pursuant to section 13 OR 15(d) of the Securities Exchange Act of 1934
     For the transition period from           to
                                    ---------    ---------
</TABLE>

                           Commission Number: 0-51093
                                              -------

                             Kearny Financial Corp.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)

                United States                                   22-3803741
---------------------------------------------                ----------------
(State or other jurisdiction of incorporation                (I.R.S. Employer
 or organization)                                            Identification No.)

120 Passaic Avenue, Fairfield, New Jersey                        07004
-----------------------------------------                        -----
(Address of principal executive offices)                        Zip Code

Registrant's telephone number, including area code:     (973) 244-4500
                                                        --------------

Securities registered pursuant to Section 12(b) of the Act:    None
                                                             --------
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                    ---------------------------------------
                                (Title of Class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES  X    NO
                                              ---      ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2).  YES       NO  X
                                              ---      ---

         The aggregate  market value of the voting and non-voting  common equity
held by non-affiliates of the Registrant on December 31, 2004 was $0.

         As of September 26, 2005 there were issued and  outstanding  72,737,500
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Proxy Statement for the 2005 Annual Meeting of  Stockholders.
   (Part III)

<PAGE>

                                     PART I

         Kearny  Financial  Corp. (the "Company" or the  "Registrant")  may from
time to  time  make  written  or oral  "forward-looking  statements,"  including
statements  contained in the Company's  filings with the Securities and Exchange
Commission (including this Annual Report on Form 10-K and the exhibits thereto),
in its reports to stockholders and in other communications by the Company, which
are made in good faith by the Company  pursuant to the "safe harbor"  provisions
of the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economy in which the Company conducts  operations;
the effects of, and changes in,  trade,  monetary and fiscal  policies and laws,
including  interest  rate  policies  of the Board of  Governors  of the  Federal
Reserve System, inflation, interest rates, market and monetary fluctuations; the
impact of changes in financial  services' laws and  regulations  (including laws
concerning  taxes,  banking,  securities and  insurance);  changes in accounting
policies and practices,  as may be adopted by regulatory agencies, the Financial
Accounting  Standards Board or the Public Company  Accounting  Oversight  Board;
technological changes;  competition among financial services providers;  and the
success of the  Company at managing  the risks  involved  in the  foregoing  and
managing its business.

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company does not  undertake  to update any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

Item 1.  Business
-----------------

General

         The Company is a federally-chartered  corporation that was organized on
March 30,  2001 for the purpose of being a holding  company  for Kearny  Federal
Savings Bank (the "Bank"), a federally-chartered stock savings bank. On February
23,  2005,  the  Company  completed a minority  stock  offering in which it sold
21,821,250  shares, or 30% of its outstanding common stock. The remaining 70% of
the outstanding common stock, or 50,916,250 shares, are owned by Kearny MHC (the
"MHC"). The MHC is a  federally-chartered  mutual holding company and is subject
to  regulation  by the  Office of Thrift  Supervision.  So long as the MHC is in
existence,  it will at all times own a majority of the outstanding  common stock
of the  Company.  The MHC and the Company are  regulated by the Office of Thrift
Supervision.

         The Company is a unitary  savings and loan holding company and conducts
no  significant  business or  operations  of its own.  References in this Annual
Report on Form 10-K to the Company or Registrant  generally refer to the Company
and the Bank, unless the context indicates otherwise.  References to "we," "us,"
or "our" refer to the Bank or Company, or both, as the context indicates.

         The Bank was originally founded in 1884 as a New Jersey mutual building
and loan  association.  It obtained  federal  insurance  of accounts in 1939 and
received a federal charter in 1941. The Bank's deposits are federally insured by
the Savings Association Insurance Fund as administered by the Federal

                                       1

<PAGE>

Deposit Insurance Corporation, and the Bank is regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation.

         Our primary  business is  attracting  retail  deposits from the general
public and using those deposits,  together with funds generated from operations,
principal  repayments  on  securities  and loans  and  borrowed  funds,  for our
investing and lending activities. We invest in mortgage-backed  securities, U.S.
government  obligations,  obligations  of state and political  subdivisions  and
other securities. Our loan portfolio consists of one- to four-family residential
mortgage loans,  multi-family and commercial mortgage loans, construction loans,
commercial  business  loans,  home equity  loans and lines of credit,  and other
consumer loans. Our interest-earning assets consist primarily of mortgage-backed
securities and investment securities,  which comprised 59.9% of our total assets
while our loan portfolio  comprised  26.5% of our total assets at June 30, 2005.
We intend to increase the balance of our loan portfolio  relative to the size of
our securities portfolio, however, such a change will take time and, in the near
future, our assets will continue to consist primarily of securities.

         Market Area. We currently operate from  administrative  headquarters in
Fairfield, New Jersey, and twenty-five branch offices located in Bergen, Hudson,
Passaic, Morris, Middlesex, Essex, Union and Ocean Counties, New Jersey. We also
consider Monmouth County,  New Jersey to be part of our market area. Our lending
is concentrated in these nine New Jersey counties,  and our predominant  sources
of deposits are the  communities in which our offices are located as well as the
neighboring communities.

         Our primary  market  area is largely  urban and  suburban  with a broad
economic  base as is typical with  counties in the New York  metropolitan  area.
Service   jobs   represent   the   largest   employment   sector   followed   by
wholesale/retail trade.

         Our  business of  attracting  deposits  and making  loans is  primarily
conducted  within our market area. A downturn in the local  economy could reduce
the amount of funds  available for deposit and the ability of borrowers to repay
their loans. As a result, our profitability could decrease.

         Competition.  We operate in a market area with a high  concentration of
banking and  financial  institutions,  and we face  substantial  competition  in
attracting  deposits and in originating  loans. A number of our  competitors are
significantly   larger   institutions  with  greater  financial  and  managerial
resources  and  lending  limits.  Our  ability  to  compete  successfully  is  a
significant factor affecting our growth potential and profitability.

         Our competition for deposits and loans historically has come from other
insured  financial  institutions  such as local and regional  commercial  banks,
savings  institutions,  and credit unions located in our primary market area. We
also compete with mortgage  banking and finance  companies for real estate loans
and with commercial  banks and savings  institutions  for consumer loans, and we
face  competition  for funds  from  investment  products  such as mutual  funds,
short-term money funds and corporate and government securities.  There are large
competitors  operating  throughout  our total  market  area,  including  Bank of
America,  Commerce  Bank,  Wachovia  Bank and PNC Bank,  and we also face strong
competition from other community-based financial institutions.

                                        2

<PAGE>

Lending Activities

         General.  We have  traditionally  focused on the origination of one- to
four-family  loans,  which  comprise a  significant  majority  of the total loan
portfolio.  Our next largest  category of lending is  commercial  lending  which
includes multi-family dwellings,  mixed-use properties and other commercial real
estate.  We also offer consumer loans,  primarily  composed of home equity loans
and  lines of  credit.  We also  originate  construction  loans  and  commercial
business loans, generally secured by real estate.

         Analysis of Loan  Portfolio.  Set forth below is selected data relating
to the composition of the Bank's loan portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                         At June 30,
                                ---------------------------------------------------------------------------------------------
                                     2005               2004                2003               2002                2001
                                ----------------   ---------------    ----------------    ---------------    ----------------
                                Amount   Percent   Amount  Percent    Amount   Percent    Amount  Percent    Amount   Percent
                                ------   -------   ------  -------    ------   -------    ------  -------    ------   -------
                                                          (In thousands)
<S>                          <C>         <C>    <C>         <C>    <C>         <C>     <C>        <C>     <C>         <C>
Type of Loans:
Real estate mortgage -
   one-to-four family........ $382,766    68.04% $358,241    70.22% $366,391    71.50%  $458,969   77.24%  $468,846    77.42%
Real estate mortgage -
  multi-family and
  commercial.................   96,685    17.18    83,426    16.35    71,099    13.88     59,418   10.00     57,013     9.42
Commercial business..........    2,930     0.52     5,161     1.01     2,353     0.46      6,704    1.13      4,325     0.71
Consumer:
   Home equity loans.........   54,199     9.63    37,381     7.33    37,315     7.28     36,750    6.19     39,492     6.52
   Home equity lines of
     credit..................   14,850     2.64    15,677     3.07    19,905     3.89     19,183    3.23     12,641     2.09
   Passbook or certificate...    2,831     0.50     2,746     0.54     2,895     0.56      3,044    0.51      3,539     0.59
   Other.....................      264     0.05       336     0.07     1,273     0.25      1,111    0.18      1,405     0.23
Construction.................    8,094     1.44     7,212     1.41    11,183     2.18      9,030    1.52     18,299     3.02
                              --------   ------  --------   ------  --------   ------   --------  ------   --------   ------
     Total loans.............  562,619   100.00%  510,180   100.00%  512,414   100.00%   594,209  100.00%   605,560   100.00%
                              --------   ======  --------   ======  --------   ======   --------  ======   --------   ======
Less:
   Allowance for loan
      losses.................    5,416              5,144              5,180               5,170              5,167
   Deferred loan (costs)
      and fees, net..........     (815)              (758)            (1,927)             (2,103)            (1,789)
                              --------           --------           --------            --------           --------
                                 4,601              4,386              3,253               3,067              3,378
                              --------           --------           --------            --------           --------
     Total loans, net........ $558,018           $505,794           $509,161            $591,142           $602,182
                              ========           ========           ========            ========           ========

</TABLE>

                                        3

<PAGE>

         Loan Maturity Schedule.  The following table sets forth the maturity of
the Bank's loan portfolio at June 30, 2005. Demand loans, loans having no stated
maturity,  and overdrafts are shown as due in one year or less. Loans are stated
in the following  tables at  contractual  maturity and actual  maturities  could
differ due to prepayments.

<TABLE>
<CAPTION>
                                                                      At June 30, 2005
                           ---------------------------------------------------------------------------------------------------------
                           Real estate      Real estate                           Home
                           mortgage -       mortgage -                Home       equity     Passbook
                           one-to-four     multi-family  Commercial   equity     lines of       or
                             family       and commercial  business    loans       credit   certificate Other  Construction   Total
                             ------       --------------  --------    -----       ------   ----------- -----  ------------   -----
                                                                        (In thousands)
<S>                       <C>               <C>            <C>      <C>         <C>         <C>        <C>        <C>      <C>
Amounts Due:
Within 1 Year..............  $    198        $ 1,383        $2,866   $    80     $    47     $2,520     $116       $7,536   $ 14,746
                             --------        -------        ------   -------     -------     ------     ----       ------   --------
After 1 year:
  1 to 3 years.............     4,757          1,034            25     3,772         302        301       53          558     10,802
  3 to 5 years.............     5,394          3,853            39     4,699         678          -        -            -     14,663
  5 to 10 years............    53,720         11,308             -    17,365       1,709          -        -            -     84,102
  10 to 15 years...........   129,951         22,916             -    24,156       8,551         10       95            -    185,679
  Over 15 years............   188,746         56,191             -     4,127       3,563          -        -            -    252,627
                             --------        -------        ------   -------     -------     ------     ----       ------   --------

Total due after one year...   382,568         95,302            64    54,119      14,803        311      148          558    547,873
                             --------        -------        ------   -------     -------     ------     ----       ------   --------
Total amount due...........  $382,766        $96,685        $2,930   $54,199     $14,850     $2,831     $264       $8,094   $562,619
                             ========        =======        ======   =======     =======     ======     ====       ======   ========

</TABLE>

                                        4

<PAGE>

         The  following  table sets forth the dollar amount of all loans at June
30, 2005 that are due after June 30, 2006.


                                                    Floating or
                                    Fixed Rates   Adjustable Rates    Total
                                    -----------   ----------------    -----
                                                   (In thousands)
Real estate mortgage -
   one-to-four family..............    $341,400            $41,168    $382,568
Real estate mortgage -
  multi-family and commercial......      64,826             30,476      95,302
Commercial business................          39                 25          64
Consumer:
   Home equity loans...............      54,119                  -      54,119
   Home equity lines of credit.....       1,605             13,198      14,803
   Passbook or certificate.........           -                311         311
   Other...........................         139                  9         148
   Construction....................           -                558         558
                                       --------            -------    --------
       Total.......................    $462,128            $85,745    $547,873
                                       ========            =======    ========


         One- to  Four-Family  Mortgage  Loans.  Our  primary  lending  activity
consists of the origination of one- to four-family first mortgage loans,  nearly
all of which are secured by property located in New Jersey.

         We will  originate  a one- to  four-family  mortgage  loan on an  owner
occupied  property  with  principal  amounts  up to  95% of  the  lesser  of the
appraised  value or the purchase  price of the property,  with private  mortgage
insurance  required for loans with a loan to value ratio exceeding 80%. The loan
to value  limit on a  non-owner  occupied  property  is 75%.  Loans in excess of
$750,000  are  handled on a case by case basis and are  subject to lower loan to
value limits, generally no more than 50%.

         Our fixed rate and adjustable rate residential  mortgage loans on owner
occupied  properties  have terms of ten to thirty  years.  Residential  mortgage
loans on non-owner occupied  properties have terms up to fifteen years for fixed
rate loans and terms up to twenty years for adjustable rate loans. We also offer
ten-year  balloon  mortgages with a thirty year  amortization  schedule on owner
occupied  properties  and a  twenty  year  amortization  schedule  on  non-owner
occupied properties.

         Our adjustable rate loan products  provide for an interest rate that is
tied to the one-year  Constant Maturity U.S. Treasury index and have terms of up
to thirty years with initial fixed rate periods of one, three,  five,  seven, or
ten  years  according  to the  terms  of the  loan and  annual  rate  adjustment
thereafter. We also offer an adjustable rate loan with a term up to thirty years
with a rate that adjusts  every five years to the  five-year  Constant  Maturity
U.S. Treasury index.  There is a 200 basis point limit on the rate adjustment in
any adjustment  period,  and the rate adjustment limit over the life of the loan
is 600 basis points.  We emphasize  the  origination  of adjustable  rate loans,
however,  as a result of the low interest rate  environment  of the last several
years, customer demand has recently been primarily for fixed rate loans.

         We offer a first  time home  buyer  program  for  persons  who have not
previously  owned real estate and are purchasing a one- to four-family  property
in Bergen, Passaic, Morris, Essex, Hudson, Middlesex,  Monmouth, Ocean and Union
Counties,  New  Jersey  for use as a primary  residence.  This  program  is also
available  outside these areas only to persons who are existing  deposit or loan
customers of Kearny Federal

                                        5

<PAGE>

Savings  Bank  and/or  members  of  their  immediate  families.   The  financial
incentives  offered  under this  program are a  one-quarter  of one percent rate
reduction on all first mortgage loan types and the refund of the application fee
at closing.

         The fixed rate  mortgage  loans that we  originate  generally  meet the
secondary   mortgage  market   standards  of  the  Federal  Home  Loan  Mortgage
Corporation. However, as our focus is on growing the size of the loan portfolio,
we  generally  do not sell loans in the  secondary  market and do not  currently
anticipate that we will commence doing so in any large  capacity.  There were no
residential mortgage loan sales during the last three fiscal years.

         Substantially  all of our residential  mortgages  include "due on sale"
clauses,  which are provisions giving us the right to declare a loan immediately
payable if the borrower sells or otherwise transfers an interest in the property
to a third  party.  Property  appraisals  on real  estate  securing  our one- to
four-family   residential   loans  are  made  by  state  certified  or  licensed
independent  appraisers  approved  by the  Board of  Directors.  Appraisals  are
performed in accordance  with applicable  regulations  and policies.  We require
title  insurance  policies on all first  mortgage real estate loans  originated.
Homeowners,  liability,  fire and, if applicable,  flood insurance  policies are
also required.

         Multi-family  and  Commercial  Real  Estate  Mortgage  Loans.  We  also
originate  mortgage loans on multi-family and commercial real estate properties,
including loans on apartment  buildings,  retail/service  properties,  and other
income-producing   properties,    including   mixed-use   properties   combining
residential and commercial space. Going forward,  we intend to increase the size
of this portfolio.

         We generally require no less than a 30% down payment or equity position
for mortgage loans on multi-family and commercial real estate properties, and we
require personal guarantees on all such loans.  Currently,  these loans are made
with a maturity of up to 15 years. We also offer a five year balloon loan with a
twenty year amortization  schedule.  All of our multi-family and commercial real
estate mortgage loans are on properties within New Jersey.

         Multi-family  and commercial  real estate  mortgage loans generally are
considered to entail significantly greater risk than that which is involved with
one- to four-family real estate lending.  The repayment of these loans typically
is dependent on the successful  operations and income stream of the borrower and
the  real  estate   securing  the  loan  as  collateral.   These  risks  can  be
significantly  affected by economic  conditions.  In addition,  multi-family and
commercial  real estate mortgage loans generally carry larger balances to single
borrowers or related groups of borrowers than one- to four-family loans.  Multi-
family and commercial real estate lending also generally requires  substantially
greater  evaluation and oversight  efforts  compared to residential  real estate
lending.

         Commercial Business Loans. We also originate  commercial term loans and
lines of credit to a variety of professionals,  sole  proprietorships  and small
businesses in our market area. These loans are generally secured by real estate,
and  we  require  personal  guarantees  on  all  commercial  loans.   Marketable
securities  are also accepted as collateral on lines of credit,  but with a loan
to value limit of 50%.  The loan to value limit on secured  commercial  lines of
credit  and term  loans is  otherwise  generally  limited  to 70%.  We also make
unsecured commercial loans in the form of overdraft checking authorization up to
$25,000 and unsecured lines of credit up to $25,000.

         Our commercial  term loans generally have terms up to fifteen years and
 are mostly fixed rate loans.  Our  commercial  lines of credit have terms up to
two years  and are  mostly  adjustable  rate  loans.  We also  offer a  one-year
interest only commercial line of credit with balloon payment.

                                        6

<PAGE>

         Unlike  single-family  residential  mortgage loans, which generally are
made on the basis of the  borrower's  ability to make  repayment from his or her
employment  and other income and which are secured by real property  whose value
tends to be more easily  ascertainable,  commercial business loans typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the  borrower's  business.  As a result,  the  availability  of funds for the
repayment of commercial  business  loans may be  substantially  dependent on the
success of the business itself and the general economic environment.  Commercial
business loans,  therefore,  have greater credit risk than residential  mortgage
loans. In addition,  commercial  loans generally carry larger balances to single
borrowers  or  related  groups  of  borrowers  than one- to  four-family  loans.
Commercial lending also generally requires  substantially greater evaluation and
oversight  efforts  compared  to  residential  or  non-residential  real  estate
lending.

         Home Equity Loans and Lines of Credit.  Our home equity loans are fixed
rate loans for terms of  generally up to twenty  years.  We also offer fixed and
adjustable  rate home equity lines of credit with terms up to fifteen years.  We
still have in this  portfolio a substantial  amount of  twenty-year  home equity
loans originated by Pulaski Savings Bank, which we acquired in 2002.  Collateral
value is determined through an Automated  Valuation Module (AVM),  specifically,
the Freddie Mac's Home  Valuation  Explorer  (HVE),  or property  value analysis
report  (FHLMC Form 704) provided by a state  certified or licensed  independent
appraiser.  In some cases,  we determine  collateral  value by a full  appraisal
performed by a state certified or licensed  independent  appraiser.  Home equity
loans  and  lines of  credit  do not  require  title  insurance  but do  require
homeowner, liability, fire and, if applicable, flood insurance policies.

         Home  equity  loans and  fixed  rate home  equity  lines of credit  are
primarily  originated in our market area and are generally made in amounts of up
to 80% of value on term loans and up to 75% of value on home  equity  adjustable
rate lines of credit.  We originate  home equity loans secured by either a first
lien or a second lien on the property.

         Other  Consumer  Loans.  In addition to home equity  loans and lines of
credit,  our  consumer  loan  portfolio at June 30, 2005 also  included  savings
secured  (passbook)  loans  and  unsecured  personal  overdraft  loans.  We will
generally lend up to 90% of the account balance on a savings secured loan.

         Consumer loans entail greater risks than  residential  mortgage  loans,
particularly  consumer  loans that are  unsecured.  Consumer  loan  repayment is
dependent on the borrower's continuing financial stability and is more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.  The
application of various federal laws,  including federal and state bankruptcy and
insolvency  laws,  may limit the amount which can be recovered on consumer loans
in the event of a default.

         Our  underwriting  standards for consumer loans include a determination
of the applicant's  credit history and an assessment of the applicant's  ability
to meet existing obligations and payments on the proposed loan. The stability of
the  applicant's  monthly  income may be  determined  by  verification  of gross
monthly income from primary employment and any additional  verifiable  secondary
income.

         We previously made student  education  loans. We sold this portfolio to
Sallie  Mae  during  the  year  ended  June  30,  2003.  Additionally,   in  our
acquisitions  of Pulaski  Savings  Bank and West Essex Bank,  we acquired  small
portfolios of automobile loans and personal overdraft  accounts.  The balance of
automobile  loans and unsecured  personal  loans  remaining at June 30, 2005 was
$10,300  and  $119,200,  respectively.  We  began  offering  unsecured  personal
overdraft  loans  of up to  $2,500  to our  customers  in  September  2004,  and
automobile loans of up to $50,000 to our customers in June 2005.

                                        7

<PAGE>

         Construction  Lending.  Our  construction  lending  includes  loans  to
individuals  for  construction  of one- to  four-family  residences or for major
renovations or improvements to an existing  dwelling.  Our construction  lending
also  includes  loans to builders and  developers  for  multi-unit  buildings or
multi-house projects. All of our construction lending is in New Jersey.

         Construction  borrowers  must hold  title to the land free and clear of
any liens. Financing for construction loans is limited to 80% of the anticipated
appraised value of the completed property.  Disbursements are made in accordance
with inspection  reports by our approved appraisal firms. Terms of financing are
limited to one year with an interest rate tied to the prime rate and may include
a premium of one or more points.  In some cases, we convert a construction  loan
to a permanent mortgage loan upon completion of construction.

         We have no formal  limits as to the number of  projects  a builder  has
under  construction or  development,  and make a case by case  determination  on
loans to builders and developers who have multiple  projects under  development.
Loans to builders  and  developers  must be  approved by the Board of  Directors
before the  borrower's  application  can be  accepted.  We generally do not make
construction  loans to builders on a  speculative  basis,  without a contract in
place.  Financing  is  only  provided  for  up to  two  houses  at a  time  in a
multi-house  project,  requiring  a  contract  on one of the two  houses  before
financing for the next house may be obtained.

         Construction lending is generally considered to involve a higher degree
of credit risk than  mortgage  lending.  If the  estimate of  construction  cost
proves to be  inaccurate,  we may be  compelled to advance  additional  funds to
complete the construction with repayment  dependent,  in part, on the success of
the ultimate project rather than the ability of a borrower or guarantor to repay
the loan. If we are forced to foreclose on a project prior to completion,  there
is no assurance that we will be able to recover all of the unpaid portion of the
loan. In addition,  we may be required to fund additional  amounts to complete a
project and may have to hold the property for an indeterminate period of time.

         Loans to One Borrower.  Under federal law, savings  institutions  have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the  institution's  unimpaired  capital and
surplus.  Accordingly,  as of June 30, 2005, our loans to one borrower limit was
approximately $46.0 million.

         At June 30, 2005,  our largest  single  borrower had an aggregate  loan
balance of approximately  $9.7 million,  representing two mortgage loans secured
by commercial  real estate.  Our second largest single borrower had an aggregate
loan balance of  approximately  $9.6 million,  representing two loans secured by
commercial real estate, one commercial line of credit secured by real estate and
one residential  mortgage loan. Our third largest borrower had an aggregate loan
balance of  approximately  $7.0  million,  representing  four  loans  secured by
commercial  real estate.  At June 30, 2005,  all of these lending  relationships
were  current  and  performing  in  accordance  with the  terms  of  their  loan
agreements.

         Loan Originations,  Purchases,  Sales, Solicitation and Processing. The
following  table shows total loans  originated,  purchased and repaid during the
periods indicated. During the periods indicated, the Bank did not sell any loans
other than the sale of the student loan  portfolio to Sallie Mae during the year
ended June 30, 2003.

                                        8

<PAGE>

<TABLE>
<CAPTION>
                                                                       For the Year Ended June 30,
                                                                    --------------------------------
                                                                       2005      2004        2003
                                                                    ---------  ---------   ---------
                                                                             (In thousands)
<S>                                                               <C>           <C>             <C>
Loan originations and purchases:
  Loan originations:
    Real estate mortgage - one-to-four family...............        $  86,026  $  69,550   $  87,545
    Real estate mortgage - multi-family and commercial......           24,622     26,052      17,227
    Commercial business.....................................            1,422      5,631       1,714
    Construction............................................            7,378      6,864       7,662
  Consumer:
    Home equity loans and lines of credit...................           39,598     31,656      45,328
    Passbook or certificate.................................            1,618      1,830       2,693
    Other...................................................              324        266         101
                                                                    ---------  ---------   ---------
  Total loan originations...................................          160,988    141,849     162,270
                                                                    ---------  ---------   ---------
  Loan purchases:
    Real estate mortgage - one-to-four family...............            1,500     14,262           -
    Real estate mortgage - multi-family and commercial......                -        762       5,687
                                                                    ---------  ---------   ---------
  Total loan purchases......................................            1,500     15,024       5,687
                                                                    ---------  ---------   ---------
  Loans sold (student loan portfolio).......................                -          -        (338)
  Loan principal repayments.................................         (111,740)  (157,906)   (249,414)
                                                                    ---------  ---------   ---------
  Total loans sold and principal repayments.................         (111,740)  (157,906)   (249,752)
                                                                    ---------  ---------   ---------
Increase (decrease) due to other items......................            1,476     (2,334)       (186)
                                                                    ---------  ---------   ---------
Net increase (decrease) in loan portfolio...................        $  52,224  $  (3,367)  $ (81,981)
                                                                    =========  =========   =========
</TABLE>

         Our customary  sources of loan  applications  include repeat customers,
referrals from realtors and other  professionals  and "walk-in"  customers.  Our
residential loan originations are largely  advertising driven. On the commercial
lending side,  we have  recently  hired four  experienced  business  development
officers  who focus on  commercial  loan  originations  and we expect to further
increase staffing in this area.

         We primarily  originate our own loans and retain them in our portfolio.
As part of our loan  growth  strategy,  we  generally  do not sell  loans in the
secondary market and do not currently  anticipate that we will commence doing so
in any large  capacity.  There were no whole loan sales  during the three  years
ended June 30, 2005 other than the sale of the  student  loan  portfolio.  Gross
loan originations  totaled $161.0 million for the year ended June 30, 2005. Loan
originations  exceeded principal  repayments by approximately  $49.2 million for
the fiscal year ended June 30, 2005.

         During the years ended June 30, 2005,  2004 and 2003, we purchased $1.5
million,  $14.3  million  and $0 of  one- to  four-family  mortgage  loans.  The
mortgage  loans  purchased  during the year ended June 30, 2005 were  adjustable
rate loans.  The mortgage  loans  purchased  during the year ended June 30, 2004
consisted  mostly of  fifteen  and twenty  year fixed rate loans with  servicing
retained by the seller.  All loans were  purchased  with  recourse for a limited
period. In accordance with the terms of the loan purchase  agreements,  for loan
purchases  in the  years  ended  June 30,  2005 and 2004,  any loan that  became
delinquent  for 60 days  within six  months  from the date of  purchase  must be
repurchased by the seller,  with a refund to the Bank of the unamortized portion
of the premium  paid for that loan.  As of June 30, 2005,  the  recourse  period
expired for the purchases made in the year ended June 30, 2004.

         In April 2005, the Bank entered into loan purchase  agreements with two
mortgage  companies,  Millenium Home Mortgage  Corporation  of  Parsippany,  New
Jersey and Merit Financial  Corporation of Montville,  New Jersey. The agreement
with Millenium Home Mortgage Corporation calls for the

                                        9

<PAGE>

purchase,  on a flow basis,  of $20 million of  adjustable  rate and/or 10 or 15
year fixed rate mortgage loans.  The Bank will retain servicing for these loans.
The agreement with Merit Financial Corporation calls for the purchase, on a flow
basis,  of $20  million  of  adjustable  rate  and/or 10 or 15 year  fixed  rate
mortgage loans. The Bank will retain servicing for these loans.  During the year
ended  June 30,  2005,  a total  of $1.5  million  adjustable  rate  loans  were
purchased from these two companies.

         In  addition  to  purchasing   one-  to  four-family   loans,  we  also
occasionally purchase participations in loans originated by other banks and also
through the Thrift Institutions  Community Investment  Corporation of New Jersey
("TICIC").  At June 30, 2005, our TICIC participations included multi-family and
commercial real estate properties. The aggregate balance of TICIC participations
at  June  30,  2005  was  $9.4  million  and the  average  balance  on a  single
participation  was approximately  $252,800.  At June 30, 2005, we had a total of
six  non-TICIC  participations  with an  aggregate  balance  of  $14.8  million,
consisting of loans on commercial  real estate  properties,  including a medical
center, a self storage facility,  a shopping plaza and commercial buildings with
a combination of retail and office space.

         Loan Approval  Procedures and Authority.  Our lending policies and loan
approval limits are  recommended by senior  management and approved by the Board
of Directors.  Our Senior Vice President/Chief Lending Officer may approve loans
up to $500,000.  Assistant vice presidents of Kearny Federal Savings Bank in the
following  positions  may approve  loans as  follows:  mortgage  loan  managers,
mortgage  loans up to $250,000;  consumer loan  managers,  consumer  loans up to
$100,000;  and consumer  loan  underwriters,  consumer  loans up to $50,000.  In
addition to these principal amount limits,  there are established limits for the
different  levels of approval  authority as to minimum credit scores and maximum
loan to value ratios and debt ratios.  Members of the Loan Committee,  comprised
of four senior officers, our President and Chief Executive Officer,  Senior Vice
President/Chief  Financial Officer,  Senior Vice  President/Treasurer and Senior
Vice  President/Chief  Lending  Officer,  each have individual  authorization to
approve  loans up to $500,000.  Loans  between  $500,000  and  $750,000  must be
approved by at least two members of the Loan Committee.  Non-conforming mortgage
loans and loans over $750,000 require the approval of the Board of Directors.

Asset Quality

         Loan Delinquencies and Collection Procedures.  The borrower is notified
by both  mail  and  telephone  when a loan  is  thirty  days  past  due.  If the
delinquency  continues,  subsequent  efforts are made to contact the  delinquent
borrower and additional  collection notices and letters are sent. When a loan is
ninety days  delinquent,  it is our general  practice to refer it to an attorney
for  repossession  or foreclosure.  All reasonable  attempts are made to collect
from  borrowers  prior to  referral to an attorney  for  collection.  In certain
instances, we may modify the loan or grant a limited moratorium on loan payments
to enable the  borrower  to  reorganize  his or her  financial  affairs,  and we
attempt to work with the borrower to establish a repayment  schedule to cure the
delinquency.

         As to mortgage loans, if a foreclosure  action is taken and the loan is
not  reinstated,  paid in full or  refinanced,  the property is sold at judicial
sale at which we may be the buyer if there are no adequate offers to satisfy the
debt.  Any property  acquired as the result of foreclosure or by deed in lieu of
foreclosure  is  classified  as real estate  owned until it is sold or otherwise
disposed of. When real estate owned is acquired,  it is recorded at the lower of
the unpaid  principal  balance of the related loan or its fair market value less
estimated selling costs. The initial writedown of the property is charged to the
allowance for loan losses.  Adjustments  to the carrying value of the properties
that result from  subsequent  declines in value are charged to operations in the
period in which the declines  occur. At June 30, 2005, we held real estate owned
totaling $209,000, consisting of two parcels of vacant land.

                                       10

<PAGE>

         Loans are  reviewed  on a regular  basis and are placed on  non-accrual
status when they are more than ninety days  delinquent,  with the exception of a
passbook  loan, the  outstanding  balance of which is collected from the related
passbook  account along with accrued interest and a penalty when the loan is 120
days delinquent.  Loans may be placed on a non-accrual status at any time if, in
the opinion of management,  the  collection of additional  interest is doubtful.
Interest  accrued and unpaid at the time a loan is placed on non-accrual  status
is charged against  interest income.  Subsequent  payments are either applied to
the outstanding  principal balance or recorded as interest income,  depending on
the assessment of the ultimate  collectibility of the loan. At June 30, 2005, we
had approximately $1.9 million of loans that were held on a non-accrual basis.

         Non-Performing   Assets.  The  following  table  provides   information
regarding the Bank's non- performing loans and other  non-performing  assets. As
of  each  of  the  dates   indicated,   we  did  not  have  any  troubled   debt
restructurings.  At June 30, 2005,  the allowance  for loan losses  totaled $5.4
million,  non- performing loans totaled $1.9 million, and the ratio of allowance
for loan losses to non-performing loans was 281.79%.

<TABLE>
<CAPTION>
                                                                            At June 30,
                                                     ----------------------------------------------------------
                                                      2005          2004         2003         2002        2001
                                                     ------        ------       ------       ------      ------
                                                                        (Dollars in thousands)
<S>                                                 <C>           <C>          <C>          <C>         <C>
Loans accounted for on a non-accrual basis:
  Real estate mortgage - one-to-four family          $  846        $  771       $1,571       $1,152      $1,957
  Real estate mortgage - multi-family and
     commercial..............................         1,004         1,414          621          897         454
  Commercial business........................            31            39            -            -           -
  Consumer:
     Home equity loans.......................            20            65          178           91          92
     Home equity lines of credit.............            17             -            -            -          13
     Other...................................             4             -            -           21           -
  Construction...............................             -             -            -            -           -
                                                     ------        ------       ------       ------      ------
      Total..................................         1,922         2,289        2,370        2,161       2,516
                                                     ------        ------       ------       ------      ------
Accruing loans which are contractually
past due 90 days or more:
  Real estate mortgage - one-to-four family               -             -          423          427           -
  Real estate mortgage - multi-family and
     commercial..............................             -             -            -          168         381
  Commercial business........................             -             -           23           23           -
  Consumer:
     Home equity loans and lines of credit...             -             -            -            1           -
     Passbook or certificate.................             -            39           98            -          49
     Other...................................             -             -            2           39          55
  Construction...............................             -             -            -          469         218
                                                     ------        ------       ------       ------      ------
      Total..................................             -            39          546        1,127         703
                                                     ------        ------       ------       ------      ------
Total non-performing loans...................        $1,922        $2,328       $2,916       $3,288      $3,219
                                                     ======        ======       ======       ======      ======
Real estate owned............................        $  209        $  209       $  209       $  209      $  361
                                                     ======        ======       ======       ======      ======
Other non-performing assets..................        $    -        $    -       $    -       $    -      $    -
                                                     ======        ======       ======       ======      ======
Total non-performing assets..................        $2,131        $2,537       $3,125       $3,497      $3,580
                                                     ======        ======       ======       ======      ======
Total non-performing loans to total loans....         0.34%         0.46%        0.57%        0.55%       0.53%
                                                     ======        ======       ======       ======      ======
Total non-performing loans to total assets...         0.09%         0.12%        0.15%        0.17%       0.18%
                                                     ======        ======       ======       ======      ======
Total non-performing assets to total assets..         0.10%         0.13%        0.16%        0.18%       0.20%
                                                     ======        ======       ======       ======      ======
</TABLE>


                                       11

<PAGE>

         During the year ended June 30, 2005,  gross interest income of $162,500
would have been recorded on loans accounted for on a non-accrual  basis if those
loans had been  current,  and $68,500 of interest on such loans was  included in
income for the year ended June 30, 2005.

         Classified  Assets.  Management,  in  compliance  with Office of Thrift
Supervision guidelines,  has instituted an internal loan review program, whereby
non-performing loans are classified as substandard,  doubtful or loss. It is our
policy  to  review  the  loan   portfolio,   in   accordance   with   regulatory
classification  procedures,  on at  least  a  quarterly  basis.  When a loan  is
classified as  substandard  or doubtful,  management is required to evaluate the
loan for impairment.  When management  classifies a portion of a loan as loss, a
reserve  equal to 100% of the loss amount is required to be  established  or the
loan is to be charged-off.

         An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral  pledged,  if
any.  Substandard assets include those characterized by the distinct possibility
that the insured  institution will sustain some loss if the deficiencies are not
corrected.  Assets classified as "doubtful" have all of the weaknesses  inherent
in  those  classified  substandard,  with  the  added  characteristic  that  the
weaknesses  present make  collection or liquidation in full highly  questionable
and  improbable,  on the basis of  currently  existing  facts,  conditions,  and
values.  Assets,  or  portions  thereof,  classified  as "loss"  are  considered
uncollectible  and of so little value that their  continuance  as assets without
the  establishment of a specific loss reserve is not warranted.  Assets which do
not currently expose the insured  institution to a sufficient  degree of risk to
warrant  classification in one of the  aforementioned  categories but which have
credit  deficiencies  or  potential  weaknesses  are  required to be  designated
"special mention" by management.

         Management's  classification  of assets is  reviewed  by the Board on a
regular  basis  and by the  regulatory  agencies  as part of  their  examination
process.  An independent  loan review firm performs a review of our  residential
and commercial loan portfolios,  and we downgrade our  classifications  to match
those of this reviewing firm if there is disagreement between our assessment and
the independent assessment.  The following table discloses our classification of
assets and  designation of certain loans as special mention as of June 30, 2005.
At June 30, 2005, all of the classified  assets and special  mention  designated
assets were loans, and approximately  36.5%, or $2.7 million,  of the classified
and special mention loans at such date were loans originated  through the Thrift
Institutions Community Investment Corporation of New Jersey ("TICIC").


                                                  At June 30,
                                  -----------------------------------------
                                    2005             2004             2003
                                    ----             ----             ----
                                 (In thousands)

Special Mention..............     $3,161           $  734           $1,011
Substandard..................      2,343            6,264            5,129
Doubtful.....................      1,936            1,149              590
Loss.........................          6                -                -
                                  ------           ------           ------
  Total......................     $7,446           $8,147           $6,730
                                  ======           ======           ======

         At June 30, 2005, none of the loans classified as "special  mention" or
"substandard" are included under non-performing assets, as shown in the table on
page 12.  At June 30,  2005,  none of the loans  classified  as  "doubtful"  are
included under non-performing assets, as shown in the table on page 12.

         Allowance for Loan Losses. The allowance for loan losses is a valuation
account that reflects our  estimation of the losses in our loan portfolio to the
extent they are both probable and reasonable to estimate.

                                       12

<PAGE>

The allowance is maintained  through provisions for loan losses that are charged
to income in the period they are established.  We charge losses on loans against
the allowance for loan losses when we believe the  collection of loan  principal
is unlikely.  Recoveries on loans  previously  charged-off are added back to the
allowance.

         Management, in determining the allowance for loan losses, considers the
losses  inherent in the loan  portfolio  and changes in the nature and volume of
our  loan  activities,  along  with  general  economic  and real  estate  market
conditions. We utilize a two tier approach: (1) identification of impaired loans
and   establishment   of  specific  loss  allowances  on  such  loans;  and  (2)
establishment  of general  valuation  allowances  on the  remainder  of our loan
portfolio by type of loan.

         A loan evaluated for impairment is deemed to be impaired when, based on
current information and events, it is probable that we will be unable to collect
all amounts due according to the contractual  terms of the loan  agreement.  All
loans  identified as impaired are evaluated  independently.  We do not aggregate
such loans for  evaluation  purposes.  Payments  received on impaired  loans are
applied first to interest receivable and then to principal.

         We maintain a loan review system which allows for a periodic  review of
our loan portfolio and the early  identification  of potential  impaired  loans.
Such system takes into  consideration,  among other things,  delinquency status,
size of loan, type of collateral and financial condition of the borrower.  Large
groups of smaller balance homogeneous loans, such as residential real estate and
home equity and consumer loans,  are evaluated in the aggregate using historical
loss factors and current economic conditions.  Large balance and/or more complex
loans,  such as  multi-family  and commercial  real estate loans,  are evaluated
individually for impairment.

         Specific loan loss  allowances are  established  for  identified  loans
based  on a review  of such  information  and/or  appraisals  of the  underlying
collateral. General loan loss allowances are based upon a combination of factors
including,  but not limited to, actual loan loss experience,  composition of the
loan portfolio, current economic conditions and management's judgment.

         The   estimation  of  the  allowance  for  loan  losses  is  inherently
subjective as it requires  estimates and  assumptions  that are  susceptible  to
significant  revisions as more information becomes available or as future events
change.  Future  additions to the  allowance for loan losses may be necessary if
economic  and other  conditions  in the  future  differ  substantially  from the
current operating environment. In addition, the Office of Thrift Supervision, as
an integral part of its examination  process,  periodically reviews our loan and
foreclosed real estate  portfolios and the related allowance for loan losses and
valuation allowance for foreclosed real estate. The Office of Thrift Supervision
may  require  the  allowance  for loan  losses or the  valuation  allowance  for
foreclosed  real  estate to be  increased  based on its  review  of  information
available  at the time of the  examination,  which would  negatively  affect our
earnings.

                                       13

<PAGE>

         The  following  table  sets  forth  information  with  respect  to  the
allowance for loan losses at the dates indicated.

<TABLE>
<CAPTION>
                                                                           For the Year Ended June 30,
                                                         ------------------------------------------------------
                                                           2005       2004        2003       2002        2001
                                                         --------   --------    --------   --------    --------
<S>                                                    <C>        <C>         <C>        <C>         <C>
Allowance balance (at beginning of period)...............$  5,144   $  5,180    $  5,170   $  5,167    $  5,093
                                                         --------   --------    --------   --------    --------
Provision for loan losses................................      68          -           -          3         162
                                                         --------   --------    --------   --------    --------
Charge-offs:
  Real estate mortgage - one-to-four family..............       -         12           -          -          96
  Commercial business....................................       5         24           -          -           -
  Other..................................................       4          -           -          -           -
                                                         --------   --------    --------   --------    --------
      Total charge-offs..................................       9         36           -          -          96
                                                         --------   --------    --------   --------    --------
Recoveries:
  Real estate mortgage - one-to-four family..............     213          -          10          -           8
                                                         --------   --------    --------   --------    --------
      Total recoveries...................................     213          -          10          -           8
                                                         --------   --------    --------   --------    --------
Net (charge-offs) recoveries.............................     204        (36)         10          -         (88)
                                                         --------   --------    --------   --------    --------
Allowance balance (at end of period).....................$  5,416   $  5,144    $  5,180   $  5,170    $  5,167
                                                         ========   ========    ========   ========    ========

Total loans outstanding..................................$562,619   $510,180    $512,414   $594,209    $605,560
                                                         ========   ========    ========   ========    ========
Average loans outstanding................................$517,746   $499,510    $546,521   $603,131    $612,474
                                                         ========   ========    ========   ========    ========
Allowance for loan losses as a percent of total loans
   outstanding...........................................    0.96%      1.01%       1.01%      0.87%       0.85%
                                                         ========   ========    ========   ========    ========
Net loans charged off as a percent of average loans
   outstanding...........................................    0.00%      0.01%       0.00%      0.00%       0.01%
                                                         ========   ========    ========   ========    ========
Allowance for loan losses to non-performing loans........  281.79%    220.96%     177.64%    157.24%     160.52%
                                                         ========   ========    ========   ========    ========
</TABLE>

                                       14

<PAGE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the allowance for loan losses by loan category and the percent
of  loans  in each  category  to  total  loans  receivable,  net,  at the  dates
indicated.  The  portion  of the loan  loss  allowance  allocated  to each  loan
category  does not  represent  the total  available  for future losses which may
occur  within  the loan  category  since the  total  loan  loss  allowance  is a
valuation reserve applicable to the entire loan portfolio.

<TABLE>
<CAPTION>
                                                                            At June 30,
                               ---------------------------------------------------------------------------------------------
                                      2005              2004                   2003               2002              2001
                               -----------------   ----------------   -----------------  -----------------  ----------------
                                         Percent           Percent             Percent            Percent           Percent
                                        of Loans           of Loans            of Loans           of Loans          of Loans
                                        to Total           to Total            to Total           to Total          to Total
                               Amount     Loans    Amount   Loans     Amount    Loans     Amount   Loans    Amount   Loans
                               ------     -----    ------   -----     ------    -----     ------   -----    ------   -----
                                                                     (Dollars in thousands)
<S>                          <C>        <C>      <C>       <C>      <C>        <C>      <C>       <C>     <C>       <C>
At end of period
   allocated to:
Real estate mortgage -
   one-to-four family.......   $1,514     68.04%   $1,422    70.22%   $1,980     71.50%   $2,966    77.24%  $2,944    77.42%
Real estate mortgage -
   multi-family and
   commercial...............    3,368     17.18     3,358    16.35     2,198     13.88     1,184    10.00      725     9.42
Commercial business.........       50      0.52        57     1.01        59      0.46        70     1.13       78     0.71
Consumer:
  Home equity loans.........      182      9.63       131     7.33       214      7.28       188     6.19      207     6.52
  Home equity lines
     of credit..............       47      2.64        52     3.07       218      3.89       261     3.23      169     2.09
  Passbook or certificate...        -      0.50         -     0.54         -      0.56         -     0.51        -     0.59
  Other.....................      120      0.05         4     0.07        10      0.25        17     0.18       11     0.23
Construction................      135      1.44       120     1.41       501      2.18       484     1.52    1,033     3.02
                               ------    ------    ------   ------    ------    ------    ------   ------   ------   ------
     Total allowance........   $5,416    100.00%   $5,144   100.00%   $5,180    100.00%   $5,170   100.00%  $5,167   100.00%
                               ======    ======    ======   ======    ======    ======    ======   ======   ======   ======
</TABLE>

                                       15

<PAGE>

Securities Portfolio

         General.   Our   deposits   have   traditionally   exceeded   our  loan
originations,  and we have invested these deposits  primarily in mortgage-backed
securities  and  investment  securities.   Our  mortgage-backed  securities  and
investment  securities  comprised 59.9% of our total assets at June 30, 2005. We
intend to increase the balance of our loan portfolio relative to the size of our
securities  portfolio,  however,  such a change  will  take time and in the near
future, our assets will continue to be primarily in securities.

         Our investment policy, which is approved by the Board of Directors,  is
designed to foster  earnings and manage cash flows within prudent  interest rate
risk and credit risk guidelines.  Generally,  our investment policy is to invest
funds  in  various  categories  of  securities  and  maturities  based  upon our
liquidity  needs,  asset/liability  management  policies,   investment  quality,
marketability  and  performance  objectives.  Our President and Chief  Executive
Officer,  Senior  Vice  President  and Chief  Financial  Officer and Senior Vice
President, Treasurer and Chief Accounting Officer are designated by the Board of
Directors as the officers responsible for securities investment transactions and
all  transactions  require  the  approval  of at least  two of these  designated
officers.  The Interest Rate Risk Management  Committee,  currently  composed of
Directors  Hopkins,  Regan,  Aanensen,  Mazza and Parow,  with our  Senior  Vice
President and Chief Financial Officer  participating as a management liaison, is
responsible for the administration of the securities  portfolio.  This committee
meets  quarterly  to  review  the  securities  portfolio.  The  results  of  the
committee's  quarterly  review  are  reported  to the full  Board,  which  makes
adjustments  to the investment  policy and strategies as it considers  necessary
and appropriate.

         All of our securities  carry market risk insofar as increases in market
rates of interest may cause a decrease in their  market  value.  Investments  in
securities are made based on certain considerations,  which include the interest
rate, tax considerations, volatility, yield, settlement date and maturity of the
security,  our liquidity position,  and anticipated cash needs and sources.  The
effect that the proposed  security  would have on our credit and  interest  rate
risk and risk-based capital is also considered.

         Federally  chartered  savings  banks  have the  authority  to invest in
various types of liquid assets. The investments  authorized under the investment
policy approved by our Board of Directors include U.S. government and government
agency obligations, municipal securities (consisting of bank qualified municipal
bond obligations of state and local governments) and mortgage-backed  securities
of various  U.S.  government  agencies or  government-sponsored  entities.  On a
short-term  basis,  our investment  policy  authorizes  investment in securities
purchased under agreements to resell, federal funds, certificates of deposits of
insured banks and savings institutions and Federal Home Loan Bank term deposits.

         Statement of Financial  Accounting  Standards No. 115,  "Accounting for
Certain Investments in Debt and Equity Securities,"  requires that securities be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on  management's  intent as to the ultimate  disposition of each security.
Statement No. 115 allows debt  securities to be classified as "held to maturity"
and reported in financial  statements  at amortized  cost only if the  reporting
entity has the positive intent and ability to hold these securities to maturity.
Securities  that might be sold in response to changes in market  interest rates,
changes in the security's  prepayment risk,  increases in loan demand,  or other
similar factors cannot be classified as "held to maturity."

         We do not currently use or maintain a trading  account.  Securities not
classified as "held to maturity" are  classified as "available  for sale." These
securities are reported at fair value,  and  unrealized  gains and losses on the
securities are excluded from earnings and reported,  net of deferred taxes, as a
separate component of equity.

                                       16

<PAGE>

         At June 30, 2005, our  mortgage-backed  securities  portfolio  included
securities issued by the Government National Mortgage  Association,  the Federal
Home Loan Mortgage  Corporation and the Federal National  Mortgage  Association,
and our investment securities portfolio included U.S. government obligations and
obligations of states and political subdivisions.

         At June 30,  2005,  we also held the  following  securities:  shares of
common stock of the Federal Home Loan Mortgage Corporation with a carrying value
of $8.6  million;  mutual fund shares issued by Dryden  Government  Income Fund,
Inc. and AMF Adjustable  Mortgage Rate Fund with an aggregate  carrying value of
$14.1 million;  and trust preferred  securities with an aggregate carrying value
of $10.9  million.  Currently,  our policy  does not permit new  investments  in
corporate equity  securities beyond what we currently hold, and we do not invest
in mortgage-related  securities of private corporate issuers that are not issued
by U.S. government agencies or government-sponsored entities.

         At June 30, 2005 our  securities  portfolio  contained  mortgage-backed
securities  issued  by the  Federal  Home  Loan  Mortgage  Corporation  with  an
aggregate book value in excess of 10% of our equity. The aggregate book value at
June 30,  2005 of  mortgage-backed  securities  in our  portfolio  issued by the
Federal  National  Mortgage  Association  also  exceeded 10% of our equity.  The
aggregate book value and aggregate market value for  mortgage-backed  securities
issued by the Federal Home Loan  Mortgage  Corporation  that we held at June 30,
2005 totaled $305.1 million and $305.8 million, respectively. The aggregate book
value and aggregate market value for  mortgage-backed  securities  issued by the
Federal  National  Mortgage  Association  that we held at June 30, 2005  totaled
$389.7 million and $391.9  million,  respectively.  At June 30, 2005, all of the
securities we hold issued by the Federal Home Loan Mortgage  Corporation and the
Federal National Mortgage Association were classified as held to maturity. Other
than securities issued by the U.S. government or its agencies,  at June 30, 2005
we did not hold securities of any other issuer having an aggregate book value in
excess of 10% of our equity.

         We do not  currently  participate  in hedging  programs,  interest rate
caps,  floors or swaps,  or other  activities  involving the use of  off-balance
sheet derivative financial  instruments.  Further, we do not purchase securities
which are not rated investment grade.

         Actual  maturities  of  the  securities  held  by us  may  differ  from
contractual  maturities  because  issuers  may have the  right to call or prepay
obligations  with or without  prepayment  penalties.  At June 30,  2005,  we had
$379.5 million of callable securities in our portfolio.

         Mortgage-backed  Securities.  We invest in  mortgage-backed  securities
issued by U.S. government  agencies or  government-sponsored  entities,  such as
Government  National  Mortgage  Association,  the  Federal  Home  Loan  Mortgage
Corporation and the Federal  National  Mortgage  Association.  Mortgage-  backed
securities are  pass-through  securities  typically issued with stated principal
amounts,  and the  securities  are backed by pools of mortgages  that have loans
with  interest  rates  that  are  within  a  specific  range  and  have  varying
maturities. The life of a mortgage-backed security thus approximates the life of
the  underlying  mortgages.  We focus  primarily on  mortgage-backed  securities
secured  by one-  to  four-  family  mortgages.  The  mortgage  originators  use
intermediaries   (generally   government   agencies   and   government-sponsored
enterprises,  but also a  variety  of  private  corporate  issuers)  to pool and
repackage the participation interests in the form of securities,  with investors
such as us receiving the principal and interest  payments on the mortgages.  The
characteristics  of the  underlying  pool of  mortgages,  i.e.,  fixed-  rate or
adjustable-rate,  as well as prepayment  risk, are passed on to the  certificate
holder.  Mortgage-backed  securities  are  generally  referred  to  as  mortgage
participation certificates or pass-through certificates.

                                       17

<PAGE>

         We do not  currently  invest in  mortgage-backed  securities of private
issuers or collateralized  mortgage obligations.  Securities issued or sponsored
by U.S. government agencies and government- sponsored entities are guaranteed as
to  the  payment  of  principal  and  interest  to  investors.   Mortgage-backed
securities  generally  yield  less  than  the  mortgage  loans  underlying  such
securities as a result of their payment guarantees or credit  enhancements which
offer nominal credit risk to the security holder.

         The  following  table sets forth the carrying  value of our  securities
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       At June 30,
                                                     -----------------------------------------------------------------------------
                                                        2005             2004             2003            2002             2001
                                                     ----------       ----------       ----------      ----------         --------
                                                                                     (In thousands)
<S>                                                 <C>              <C>              <C>             <C>                <C>
Securities Available for Sale:
------------------------------
Mutual funds....................................     $   14,140       $   13,899       $   14,196      $   13,682         $ 13,203
Common stock....................................          8,551           15,894           12,748          15,367           17,576
U.S. government obligations.....................              -                -                -               -              980
Trust preferred securities due
    after ten years.............................         10,900           11,771           10,896          10,630           10,608
                                                     ----------       ----------       ----------      ----------         --------
      Total securities available for sale.......         33,591           41,564           37,840          39,679           42,367
                                                     ----------       ----------       ----------      ----------         --------
Investment Securities Held to Maturity:
---------------------------------------
U.S. government obligations.....................        265,469          274,401          169,968          60,225          145,080
Obligations of states and political
    subdivisions................................        204,629          161,469          117,353          79,221           48,875
                                                     ----------       ----------       ----------      ----------         --------
      Total investment securities
           held to maturity.....................        470,098          435,870          287,321         139,446          193,955
                                                     ----------       ----------       ----------      ----------         --------
Mortgage-Backed Securities Held to Maturity:
--------------------------------------------
Government National Mortgage Association........         63,399           94,499          150,699         178,220          198,528
Federal Home Loan Mortgage Corporation..........        305,059          314,221          197,962         302,246          218,116
Federal National Mortgage Association...........        389,663          362,633          331,061         454,552          215,330
Collateralized mortgage obligations
    issued by U.S. government agencies..........              -                -            1,894          33,494           56,999
Other...........................................              -                -                3               4              231
                                                     ----------       ----------       ----------      ----------         --------
      Total mortgage-backed securities
          held to maturity......................        758,121          771,353          681,619         968,516          689,204
                                                     ----------       ----------       ----------      ----------         --------
 Total..........................................     $1,261,810       $1,248,787       $1,006,780      $1,147,641         $925,526
                                                     ==========       ==========       ==========      ==========         ========
</TABLE>

                                       18

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
carrying  values,  weighted  average  yields and  maturities  of our  securities
portfolio at June 30, 2005. This table shows contractual maturities and does not
reflect repricing or the effect of prepayments. Actual maturities may differ.

<TABLE>
<CAPTION>
                                                                 At June 30, 2005
                     --------------------------------------------------------------------------------------------------------
                                                                                More than                 Total
                     One Year or Less   One to Five Years Five to Ten Years     Ten Years         Investment Securities
                     ----------------   ----------------- ----------------- ------------------  ----------------------------
                     Carrying Average   Carrying Average  Carrying Average  Carrying Average    Carrying Average    Market
                       Value   Yield     Value    Yield     Value   Yield     Value   Yield       Value   Yield      Value
                       -----   -----     -----    -----     -----   -----     -----   -----       -----   -----      -----
                                                            (Dollars in thousands)
<S>                <C>         <C>   <C>                <C>               <C>               <C>          <C>   <C>
Mutual funds........ $14,140     3.72% $      -        -% $      -      -%  $      -       -% $   14,140   3.72% $   14,140
Common stock........   8,551     2.15         -        -         -      -          -       -       8,551   2.15       8,551
Trust preferred
  securities
  due after
  ten years.........       -        -         -        -         -      -     10,900    5.20      10,900   5.20      10,900
U.S. government
  obligations.......  17,000     2.02   235,019     3.24       494  10.59     12,956    3.35     265,469   3.18     261,225
Obligations of
  states and
  political
  subdivisions......   4,202     4.25    16,139     3.35    99,841   3.77     84,447    3.88     204,629   3.79     207,996
Government
  National
  Mortgage
  Association.......       3     8.31       771     7.78       619  11.54     62,006    4.73      63,399   4.83      64,970
Federal Home
  Loan Mortgage
  Corporation.......      99     7.22     2,560     5.62     2,000   4.86    300,400    4.67     305,059   4.68     305,812
Federal
  National
  Mortgage
  Association.......  19,396     4.48     3,436     4.94    16,341   5.77    350,490    4.74     389,663   4.77     391,948
                     -------           --------           --------          --------          ----------         ----------

  Total............. $63,391     3.33% $257,925     3.31% $119,295   4.13%  $821,199    4.61% $1,261,810   4.23% $1,265,542
                     =======     ====  ========     ====  ========   ====   ========    ====  ==========   ====  ==========
</TABLE>

                                       19

<PAGE>

Sources of Funds

         General.  Deposits  are our major source of funds for lending and other
investment purposes.  In addition, we derive funds from loan and mortgage-backed
securities  principal  repayments,  and  proceeds  from the maturity and call of
investment  securities.  Loan and  securities  payments are a relatively  stable
source of funds,  while deposit inflows are significantly  influenced by general
interest rates and money market  conditions.  Borrowings  (principally  from the
Federal  Home Loan  Bank) are also used to  supplement  the  amount of funds for
lending and investment.

         Deposits.  Our current deposit  products  include  checking and savings
accounts,  certificates of deposit accounts ranging in terms from thirty days to
five years,  and individual  retirement  accounts.  Deposit  account terms vary,
primarily as to the required minimum balance amount, the amount of time that the
funds must remain on deposit and the applicable interest rate.

         Deposits are  obtained  primarily  from within New Jersey.  Traditional
methods of advertising are used to attract new customers and deposits, including
radio, print media,  direct mail and inserts included with customer  statements.
We do not utilize the services of deposit  brokers.  Premiums or incentives  for
opening  accounts are  sometimes  offered.  We  periodically  select  particular
certificate of deposit maturities for promotion. We may also offer a twenty-five
basis point premium on certificate  accounts with a term of at least one year to
certificate  of deposit  account  holders that have  $200,000 or more on deposit
with Kearny Federal  Savings Bank. We also offer the opportunity one time during
the term of the  certificate  to "bump  up" the rate  paid on all  17-month  and
29-month  certificates  of deposit from the rate set on such  certificate to the
current rate being offering by Kearny Federal  Savings Bank on  certificates  of
that particular maturity.

         The  determination of interest rates is based upon a number of factors,
including:  (1) our need for funds based on loan demand,  current  maturities of
deposits and other cash flow needs;  (2) a current survey of a selected group of
competitors' rates for similar products; (3) our current cost of funds, yield on
assets and  asset/liability  position;  and (4) the alternate cost of funds on a
wholesale  basis,  in particular the cost of advances from the Federal Home Loan
Bank.  Interest  rates are reviewed by senior  management  on a weekly basis and
rates are set generally  with the intent to be in the top five to ten percent of
the competition.

         A large  percentage  of our  deposits are in  certificates  of deposit,
which totaled 60.4% of total deposits at June 30, 2005.  Our liquidity  could be
reduced if a significant  amount of  certificates  of deposit  maturing within a
short period of time were not renewed.  Historically,  a significant  portion of
the certificates of deposit remain with us after they mature and we believe that
this  will  continue.  At June  30,  2005,  $209.6  million,  or  22.7%,  of our
certificates of deposit were "jumbo"  certificates of $100,000 or more.  Deposit
inflows are significantly  influenced by general interest rates and money market
conditions.  The inflow of jumbo  certificates  of deposit and the  retention of
such deposits upon maturity are particularly sensitive to general interest rates
and money market conditions,  making jumbo certificates of deposit traditionally
a more volatile  source of funding than core deposits.  In order to retain jumbo
certificates  of deposit,  we may have to pay a premium  rate,  resulting  in an
increase in our cost of funds. In a rising rate environment, we may be unwilling
or unable to pay a  competitive  rate.  To the extent that such  deposits do not
remain  with us,  they may  need to be  replaced  with  borrowings  which  could
increase our cost of funds and  negatively  impact our interest  rate spread and
our financial condition.

                                       20

<PAGE>

         The following tables set forth the distribution of average deposits for
the periods  indicated and the weighted  average nominal interest rates for each
period on each category of deposits presented.

<TABLE>
<CAPTION>
                                                                    For the Year Ended June 30,
                                ----------------------------------------------------------------------------------------------
                                                2005                          2004                         2003
                                ---------------------------------   ---------------------------   ----------------------------
                                                         Weighted                       Weighted                        Weighted
                                              Percent     Average              Percent  Average               Percent   Average
                                              of Total    Nominal              of Total Nominal               of Total  Nominal
                                     Amount   Deposits     Rate       Amount   Deposits  Rate        Amount    Deposits   Rate
                                     ------   --------     ----       ------   --------  ----        ------    --------   ----
                                                                       (Dollars in thousands)

<S>                            <C>           <C>          <C>    <C>           <C>       <C>    <C>           <C>      <C>
 Non-interest-bearing demand.... $   55,112      3.52%         -% $   49,797      3.17%      -%  $   45,431      2.90%      -%
 Interest-bearing demand........    105,503      6.73       0.71     109,830      6.99    0.80       98,926      6.32    1.09
 Savings and club...............    533,131     34.01       1.02     448,509     28.55    1.23      417,780     26.71    1.58
 Certificates of deposit........    873,907     55.74       2.33     963,089     61.29    2.25    1,002,229     64.07    3.22
                                 ----------    ------             ----------    ------           ----------     -----

    Total deposits.............. $1,567,653    100.00%      1.69% $1,571,225    100.00%   1.79%  $1,564,366    100.00%   2.55%
                                 ==========    ======             ==========    ======           ==========    ======

</TABLE>

                                       21

<PAGE>

         The following table sets forth  certificates  of deposit  classified by
interest rate as of the dates indicated.

                                                 At June 30,
                                   -----------------------------------------
                                     2005           2004             2003
                                   --------       --------        ----------
                                               (In thousands)
Interest Rate
0.00-1.99%...................      $189,266       $582,665         $ 510,306
2.00-2.99%...................       343,916        173,505           175,775
3.00-3.99%...................       349,320        100,138           146,170
4.00-4.99%...................        32,750         25,956           145,290
5.00-5.99%...................         7,223         11,957            25,724
6.00-6.99%...................           641          2,716             7,504
7.00-7.99%...................             -             82               249
                                   --------       --------        ----------
  Total......................      $923,116       $897,019        $1,011,018
                                   ========       ========        ==========

         The   following   table  sets  forth  the  amount  and   maturities  of
certificates of deposit at June 30, 2005.

<TABLE>
<CAPTION>
                                                    Amount Due
                   --------------------------------------------------------------------------------
                     Within                                                        After
Interest Rate        1 year    1-2 years    2-3 years   3-4 years   4-5 years    5 years      Total
-------------        ------    ---------    ---------   ---------   ---------    -------      -----
                                                     (In thousands)
<S>              <C>          <C>           <C>          <C>        <C>           <C>     <C>
0.00-1.99%........ $189,155     $      8      $     -      $    -     $     -       $103    $189,266
2.00-2.99%........  292,207       51,437          268           4           -          -     343,916
3.00-3.99%........  213,658       89,087       35,112       9,191       2,271          1     349,320
4.00-4.99%........    2,723        5,221        6,802         172      17,748         84      32,750
5.00-5.99%........    3,326        2,804        1,093           -           -          -       7,223
6.00-6.99%........      641            -            -           -           -          -         641
7.00-7.99%........        -            -            -           -           -          -           -
                   --------     --------      -------      ------     -------       ----    --------
  Total........... $701,710     $148,557      $43,275      $9,367     $20,019       $188    $923,116
                   ========     ========      =======      ======     =======       ====    ========
</TABLE>


         The  following  tables  show the amount of  certificates  of deposit of
$100,000 or more by time remaining until maturity as of the dates indicated.


                                                            At June 30, 2005
                                                            ----------------
                                                              (In thousands)
Maturity Period
Within three months...................................           $ 46,047
Three through six months..............................             23,735
Six through twelve months.............................             88,153
Over twelve months....................................             51,617
                                                                 --------
                                                                 $209,552
                                                                 ========

         Borrowings. To supplement our deposits as a source of funds for lending
or  investment,  we borrow  funds in the form of advances  from the Federal Home
Loan  Bank.  We make use of  Federal  Home  Loan  Bank  advances  as part of our
interest  rate risk  management,  primarily to extend the duration of funding to
match the longer term fixed rate loans held in the loan portfolio as part of our
growth strategy.

                                       22

<PAGE>

         Advances from the Federal Home Loan Bank are  typically  secured by the
Federal  Home Loan Bank stock we own and a portion of our  residential  mortgage
loans  and  may  be  secured  by  other  assets,  mainly  securities  which  are
obligations  of or guaranteed  by the U.S.  government.  Additional  information
regarding our Federal Home Loan Bank  advances is included  under Note 12 to the
Company's consolidated financial statements.

         Short-term  Federal Home Loan Bank  advances  generally  have  original
maturities of less than one year. The details of these  short-term  advances are
presented below for the dates and periods indicated.


                                                        At or For the
                                                     Year Ended June 30,
                                                ------------------------------
                                                  2005        2004       2003
                                                -------     -------    -------
                                                    (Dollars in thousands)
Federal Home Loan Bank Advances:
Average balance outstanding..................   $17,805     $ 1,151    $  274
Maximum amount outstanding at any
   month-end during the period...............   $20,000     $30,000    $    -
Balance outstanding at end of period.........   $     -     $30,000    $    -
Weighted average interest rate during
   the period................................      2.24%       1.43%     1.37%
Weighted average interest rate at end
   of period.................................         -%       1.43%        -%

         At June 30, 2005,  long-term  Federal Home Loan Bank  advances  totaled
$61.7 million.  Advances consist of fixed-rate  advances that will mature within
one to seven years.  The advances are  collateralized  by Federal Home Loan Bank
stock and certain first mortgage  loans and  mortgage-backed  securities.  These
advances had a weighted average interest rate of 5.47% at June 30, 2005.  Unused
overnight  lines of credit at the  Federal  Home Loan Bank at June 30, 2005 were
$100.0 million.

         As of June 30, 2005, long-term advances mature as follows:


Twelve Months Ending June 30,                       (In thousands)
-----------------------------
2006......................................             $   582
2007......................................               5,618
2008......................................              37,487
2009......................................               8,000
2010......................................                   -
Thereafter................................              10,000
                                                       -------
       Total..............................             $61,687
                                                       =======

Subsidiary Activity

         Kearny  Financial  Corp.  has  two  wholly-owned  subsidiaries:  Kearny
Federal  Savings  Bank and Kearny  Financial  Securities,  Inc.  Kearny  Federal
Savings  Bank has two  subsidiaries:  KFS  Financial  Services,  Inc. and Kearny
Federal Investment Corp.

                                       23

<PAGE>

         KFS  Financial  Services,   Inc.  was  incorporated  as  a  New  Jersey
corporation in 1994 under the name of South Bergen Financial Services, Inc., was
acquired  in  Kearny's  merger with South  Bergen  Savings  Bank in 1999 and was
renamed  KFS  Financial  Services,  Inc.  in 2000.  It is a service  corporation
subsidiary  organized for the purpose of selling insurance  products,  including
annuities,  to bank  customers  and the  general  public  through a third  party
networking arrangement. KFS Financial Services, Inc. is not a licensed insurance
agency,  and it may only offer  insurance  products  through an agreement with a
licensed  insurance  agency.  KFS Financial  Services,  Inc. has entered into an
agreement  with  Savings  Bank  Life  Insurance  of  Massachusetts,  a  licensed
insurance agency, through which it offers insurance products.

         Kearny  Federal  Investment  Corp. was organized in June 2004 under New
Jersey law as a New  Jersey  investment  company  primarily  to hold  investment
securities. At June 30, 2005, it held assets totaling $555.6 million.

Personnel

         As of June 30, 2005,  we had 262  full-time  employees and 22 part-time
employees. The employees are not represented by a collective bargaining unit. We
believe our relationship with our employees is good.

Regulation

         The Bank and the Company operate in a highly regulated  industry.  This
regulation  establishes  a  comprehensive  framework  of  activities  in which a
savings and loan  holding  company and  federal  savings  bank may engage and is
intended  primarily  for  the  protection  of the  deposit  insurance  fund  and
depositors.  Set forth below is a brief  description of certain laws that relate
to the regulation of the Bank and the Company.  The description does not purport
to be complete and is qualified in its entirety by reference to applicable  laws
and regulations.

         Regulatory  authorities  have extensive  discretion in connection  with
their  supervisory  and  enforcement  activities,  including  the  imposition of
restrictions  on the operation of an institution  and its holding  company,  the
classification of assets by the institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight,  whether
in the form of regulatory policy, regulations, or legislation, including changes
in the regulations  governing  mutual holding  companies,  could have a material
adverse impact on the Company,  the Bank, and their operations.  The adoption of
regulations  or the enactment of laws that  restrict the  operations of the Bank
and/or the Company or impose  burdensome  requirements  upon one or both of them
could  reduce  their  profitability  and could  impair  the value of the  Bank's
franchise,  resulting in negative  effects on the trading price of the Company's
common stock.

Regulation of the Bank

         General.   As  a  federally   chartered,   Federal  Deposit   Insurance
Corporation-insured savings bank, the Bank is subject to extensive regulation by
the Office of Thrift Supervision and the Federal Deposit Insurance  Corporation.
This regulatory structure gives the regulatory  authorities extensive discretion
in connection with their supervisory and enforcement  activities and examination
policies,  including  policies  regarding the  classification  of assets and the
level of the allowance for loan losses.  The activities of federal savings banks
are subject to extensive regulation including  restrictions or requirements with
respect  to loans to one  borrower,  the  percentage  of  non-mortgage  loans or
investments to total assets, capital distributions,  permissible investments and
lending activities, liquidity, transactions with affiliates and community

                                       24

<PAGE>

reinvestment.  Federal  savings  banks are also subject to reserve  requirements
imposed by the Federal  Reserve System.  A federal  savings bank's  relationship
with its  depositors  and  borrowers is regulated by both state and federal law,
especially in such matters as the ownership of savings accounts and the form and
content of the bank's mortgage documents.

         The Bank  must file  reports  with the  Office  of  Thrift  Supervision
concerning its activities and financial  condition,  and must obtain  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions of other financial  institutions.  The Office of Thrift Supervision
regularly  examines  the  Bank  and  prepares  reports  to the  Bank's  Board of
Directors on deficiencies, if any, found in its operations. The Office of Thrift
Supervision  has  substantial  discretion  to  impose  enforcement  action on an
institution  that  fails to  comply  with  applicable  regulatory  requirements,
particularly with respect to its capital requirements.  In addition, the Federal
Deposit Insurance  Corporation has the authority to recommend to the Director of
the Office of Thrift  Supervision that enforcement  action be taken with respect
to a particular  federally chartered savings bank and, if action is not taken by
the Director,  the Federal Deposit  Insurance  Corporation has authority to take
such action under certain circumstances.

         Insurance  of  Deposit   Accounts.   The  Federal   Deposit   Insurance
Corporation  administers two separate deposit  insurance funds.  Generally,  the
Bank  Insurance  Fund insures the deposits of  commercial  banks and the Savings
Association  Insurance  Fund insures the deposits of savings  institutions.  The
Bank's  deposits  are insured by the Savings  Association  Insurance  Fund.  The
Federal  Deposit  Insurance   Corporation  is  authorized  to  increase  deposit
insurance  premiums if it determines  such increases are appropriate to maintain
the  reserves  of either  the Bank  Insurance  Fund or the  Savings  Association
Insurance Fund or to fund the  administration  of the Federal Deposit  Insurance
Corporation.   In  addition,   the  Federal  Deposit  Insurance  Corporation  is
authorized to levy  emergency  special  assessments  on Bank  Insurance Fund and
Savings  Association  Insurance  Fund  members.  The Federal  Deposit  Insurance
Corporation  maintains a risk-based  assessment system by which institutions are
assigned to one of three  categories  based on their  capitalization  and one of
three   subcategories   based  on  examination  ratings  and  other  supervisory
information.  An  institution's  assessment  rate depends upon the categories to
which it is  assigned.  Assessment  rates are  determined  semi-annually  by the
Federal Deposit Insurance Corporation and currently range from zero basis points
of assessable  deposits for the  healthiest  institutions  to 27 basis points of
assessable  deposits  for the  riskiest.  The  assessment  rate  for the Bank is
currently 0%.

         The Federal  Deposit  Insurance  Corporation  has authority to increase
insurance assessments. A material increase in Savings Association Insurance Fund
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank.  Management cannot predict what insurance
assessment rates will be in the future.

         The  Federal   Deposit   Insurance   Corporation   may   terminate   an
institution's  deposit insurance upon a finding that the institution has engaged
in unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition imposed by the Federal Deposit Insurance  Corporation or the Office of
Thrift  Supervision.  The  management of the Bank does not know of any practice,
condition or violation that might lead to termination of deposit insurance.

         In  addition,   all  Federal  Deposit   Insurance   Corporation-insured
institutions  are required to pay assessments to the Federal  Deposit  Insurance
Corporation  to  fund  interest  payments  on  bonds  issued  by  the  Financing
Corporation, an agency of the federal government established to recapitalize the
predecessor to the Savings  Association  Insurance Fund. These  assessments will
continue until the Financing Corporation bonds mature in 2017.

                                       25

<PAGE>

         Regulatory Capital  Requirements.  Office of Thrift Supervision capital
regulations   require  savings   institutions  to  meet  three  minimum  capital
standards:  (1) tangible  capital equal to 1.5% of total  adjusted  assets,  (2)
"Tier 1" or  "core"  capital  equal to at  least 4% (3% if the  institution  has
received the highest  possible  rating on its most recent  examination) of total
adjusted assets, and (3) risk-based  capital equal to 8% of total  risk-weighted
assets.  At June 30, 2005, the Bank was in compliance  with the minimum  capital
standards and qualified as "well  capitalized."  For the Bank's  compliance with
these regulatory  capital standards,  see Note 14 to the Company's  consolidated
financial statements. In assessing an institution's capital adequacy, the Office
of Thrift  Supervision  takes into  consideration not only these numeric factors
but also qualitative  factors as well, and has the authority to establish higher
capital requirements for individual institutions where necessary.

         In  addition,  the  Office of Thrift  Supervision  may  require  that a
savings  institution  that has a risk-  based  capital  ratio of less than 8%, a
ratio of Tier 1 capital  to  risk-weighted  assets of less than 4% or a ratio of
Tier 1 capital to total adjusted  assets of less than 4% (3% if the  institution
has received  the highest  rating on its most recent  examination)  take certain
action to increase its capital ratios. If the savings  institution's  capital is
significantly  below  the  minimum  required  levels  of  capital  or  if  it is
unsuccessful in increasing its capital ratios,  the Office of Thrift Supervision
may restrict its activities.

         For purposes of the Office of Thrift Supervision  capital  regulations,
tangible  capital is defined as core capital less all  intangible  assets except
for certain  mortgage  servicing  rights.  Tier 1 or core  capital is defined as
common  stockholders'  equity,  non-cumulative  perpetual  preferred  stock  and
related  surplus,  minority  interests  in the equity  accounts of  consolidated
subsidiaries,  and certain  non-withdrawable  accounts  and pledged  deposits of
mutual savings banks.  The Bank does not have any  non-withdrawable  accounts or
pledged  deposits.  Tier 1 and core  capital  are  reduced  by an  institution's
intangible assets, with limited exceptions for certain mortgage and non-mortgage
servicing rights and purchased credit card relationships. Both core and tangible
capital are further reduced by an amount equal to the savings institution's debt
and equity investments in  "non-includable"  subsidiaries  engaged in activities
not permissible for national banks other than subsidiaries engaged in activities
undertaken  as  agent  for  customers  or in  mortgage  banking  activities  and
subsidiary depository institutions or their holding companies.

         The risk-based capital standard for savings  institutions  requires the
maintenance of total capital of 8% of risk-weighted assets. Total capital equals
the sum of core and  supplementary  capital.  The  components  of  supplementary
capital  include,  among other  items,  cumulative  perpetual  preferred  stock,
perpetual   subordinated   debt,   mandatory   convertible   subordinated  debt,
intermediate-term  preferred stock, the portion of the allowance for loan losses
not  designated  for specific loan losses and up to 45% of  unrealized  gains on
equity  securities.  The  portion  of the  allowance  for loan and lease  losses
includable  in  supplementary  capital  is  limited  to a  maximum  of  1.25% of
risk-weighted assets. Overall,  supplementary capital is limited to 100% of core
capital.  For purposes of  determining  total capital,  a savings  institution's
assets are reduced by the amount of capital instruments held by other depository
institutions  pursuant  to  reciprocal  arrangements  and by the  amount  of the
institution's  equity  investments  (other  than  those  deducted  from core and
tangible   capital)   and  its  high   loan-to-value   ratio   land   loans  and
non-residential construction loans.

         A savings  institution's  risk-based  capital  requirement  is measured
against risk-weighted assets, which equal the sum of each on-balance-sheet asset
and the  credit-equivalent  amount of each  off-balance-  sheet item after being
multiplied by an assigned risk weight. These risk weights range from 0% for cash
to 100% for delinquent loans, property acquired through foreclosure,  commercial
loans, and certain other assets.

                                       26

<PAGE>

         The Federal Deposit Insurance  Corporation  Improvement Act, or FDICIA,
requires  that the  Office  of Thrift  Supervision  and  other  federal  banking
agencies revise their risk-based capital standards,  with appropriate transition
rules,  to ensure  that  they take into  account  interest  rate  risk,  or IRR,
concentration of risk and the risks of non-traditional activities. The Office of
Thrift  Supervision  adopted  regulations,  effective  January 1, 1994, that set
forth the methodology  for calculating an IRR component to be incorporated  into
the Office of Thrift  Supervision  risk-based  capital  regulations.  On May 10,
2002,  the Office of Thrift  Supervision  adopted an  amendment  to its  capital
regulations  which  eliminated  the  IRR  component  of the  risk-based  capital
requirement.  Pursuant to the amendment,  the Office of Thrift  Supervision will
continue to monitor  the IRR of  individual  institutions  through the Office of
Thrift Supervision requirements for IRR management, the ability of the Office of
Thrift  Supervision  to  impose  individual  minimum  capital   requirements  on
institutions  that exhibit a high degree of IRR, and the  requirements of Thrift
Bulletin  13a,  which  provides  guidance  on  the  management  of IRR  and  the
responsibility of boards of directors in that area.

         The  Office of  Thrift  Supervision  continues  to  monitor  the IRR of
individual  institutions  through analysis of the change in net portfolio value,
or NPV.  NPV is defined as the net  present  value of the  expected  future cash
flows of an  entity's  assets and  liabilities  and,  therefore,  hypothetically
represents  the  value of an  institution's  net  worth.  The  Office  of Thrift
Supervision has also used this NPV analysis as part of its evaluation of certain
applications or notices submitted by thrift  institutions.  The Office of Thrift
Supervision,  through  its  general  oversight  of the safety and  soundness  of
savings  associations,  retains the right to impose minimum capital requirements
on individual  institutions  to the extent the  institution is not in compliance
with certain written guidelines  established by the Office of Thrift Supervision
regarding NPV  analysis.  The Office of Thrift  Supervision  has not imposed any
such requirements on the Bank.

         Dividend  and Other  Capital  Distribution  Limitations.  The Office of
Thrift Supervision  imposes various  restrictions or requirements on the ability
of savings institutions to make capital distributions, including cash dividends.

         A  savings  institution  that is a  subsidiary  of a  savings  and loan
holding company, such as the Bank, must file an application or a notice with the
Office  of Thrift  Supervision  at least  thirty  days  before  making a capital
distribution,  such as paying a dividend to the Company.  A savings  institution
must file an application for prior approval of a capital distribution if: (i) it
is not eligible for expedited treatment under the applications  processing rules
of the  Office  of Thrift  Supervision;  (ii) the  total  amount of all  capital
distributions,  including the proposed capital distribution,  for the applicable
calendar  year would  exceed an amount  equal to the savings  institution's  net
income for that year to date plus the institution's  retained net income for the
preceding  two years;  (iii) it would not  adequately be  capitalized  after the
capital  distribution;  or (iv) the distribution would violate an agreement with
the Office of Thrift Supervision or applicable regulations.

         The Office of Thrift  Supervision  may  disapprove  a notice or deny an
application for a capital  distribution if: (i) the savings institution would be
undercapitalized  following the capital distribution;  (ii) the proposed capital
distribution  raises  safety  and  soundness  concerns;  or  (iii)  the  capital
distribution would violate a prohibition contained in any statute, regulation or
agreement.  The Bank made a capital  distribution  to the Company to provide the
cash paid in connection with the acquisition of West Essex Bank, and as a result
it is likely that the Bank will be required to file an application,  rather than
a notice, for any capital distributions for a period of time.

         Capital  distributions  by the  Company,  as a savings and loan holding
company,   are  not  subject  to  the  Office  of  Thrift  Supervision   capital
distribution rules. Because the Company retained 50% of the net

                                       27

<PAGE>

proceeds of the stock offering  completed in February 2005, the likelihood  that
the Bank must file an application rather than a notice for capital distributions
is not  expected to affect the payment of cash  dividends  by the Company to its
stockholders or the amount of such dividends.

         Qualified Thrift Lender Test. Federal savings  institutions must meet a
qualified  thrift  lender test or they become  subject to the business  activity
restrictions and branching rules applicable to national banks.
 To qualify as a qualified thrift lender, a savings  institution must either (i)
be deemed a "domestic  building and loan association" under the Internal Revenue
Code by  maintaining  at least 60% of its total  assets  in  specified  types of
assets,  including cash,  certain  government  securities,  loans secured by and
other  assets  related  to  residential  real  property,  educational  loans and
investments  in  premises  of the  institution  or (ii)  satisfy  the  statutory
qualified  thrift  lender  test  set  forth  in the  Home  Owners'  Loan  Act by
maintaining at least 65% of its portfolio assets in qualified thrift investments
(defined  to include  residential  mortgages  and  related  equity  investments,
certain  mortgage-related  securities,  small business loans,  student loans and
credit card loans). For purposes of the statutory  qualified thrift lender test,
portfolio assets are defined as total assets minus goodwill and other intangible
assets,  the  value  of  property  used by the  institution  in  conducting  its
business,  and  specified  liquid  assets up to 20% of total  assets.  A savings
institution  must maintain its status as a qualified  thrift lender on a monthly
basis in at least nine out of every twelve  months.  The Bank met the  qualified
thrift  lender test as of June 30,  2005 and in each of the last  twelve  months
and, therefore, qualifies as a qualified thrift lender.

         A savings bank that fails the qualified thrift lender test and does not
convert to a bank charter generally will be prohibited from: (1) engaging in any
new activity not  permissible  for a national  bank,  (2) paying  dividends  not
permissible under national bank regulations, and (3) establishing any new branch
office in a location not  permissible  for a national bank in the  institution's
home  state.  In  addition,  if the  institution  does not  requalify  under the
qualified  thrift  lender test within  three years after  failing the test,  the
institution  would be prohibited  from engaging in any activity not  permissible
for a national  bank and would have to repay any  outstanding  advances from the
Federal Home Loan Bank as promptly as possible.

         Community Reinvestment Act. Under the Community Reinvestment Act, every
insured  depository  institution,  including  the  Bank,  has a  continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The  Community  Reinvestment  Act  does not  establish  specific
lending requirements or programs for financial institutions nor does it limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular community. The Community Reinvestment
Act  requires  the  Office  of  Thrift  Supervision  to  assess  the  depository
institution's  record of meeting the credit needs of its  community  and to take
such record  into  account in its  evaluation  of certain  applications  by such
institution,  such as a merger or the  establishment  of a branch  office by the
Bank. An  unsatisfactory  Community  Reinvestment Act examination  rating may be
used by the  Office of  Thrift  Supervision  as the  basis for the  denial of an
application.  The Bank received a satisfactory Community Reinvestment Act rating
in its most  recent  Community  Reinvestment  Act  examination  by the Office of
Thrift Supervision.

         Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank of New York,  which is one of twelve regional Federal Home Loan Banks.
Each  Federal Home Loan Bank serves as a reserve or central bank for its members
within its  assigned  region.  It is funded  primarily  from funds  deposited by
financial  institutions  and  proceeds  derived  from the  sale of  consolidated
obligations  of the  Federal  Home Loan Bank  System.  It makes loans to members
pursuant to policies and procedures established by the board of directors of the
Federal Home Loan Bank.

                                       28

<PAGE>

         As a member, the Bank is required to purchase and maintain stock in the
Federal  Home Loan Bank of New York in an amount  equal to the  greater of 1% of
our aggregate  unpaid  residential  mortgage loans,  home purchase  contracts or
similar  obligations  at the  beginning  of each  year or 5% of our  outstanding
Federal Home Loan Bank advances. The Bank is in compliance with this requirement
with an  investment in Federal Home Loan Bank of New York stock at June 30, 2005
of $11.4  million.  The Federal Home Loan Bank imposes  various  limitations  on
advances  such as limiting  the amount of certain  types of real estate  related
collateral to 30% of a member's capital and limiting total advances to a member.

         The  Federal  Home Loan Banks are  required  to  provide  funds for the
resolution  of troubled  savings  institutions  and to  contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment and low- and moderate-income  housing projects.  These
contributions  have  adversely  affected  the  level of  Federal  Home Loan Bank
dividends  paid and could  continue to do so in the future.  In addition,  these
requirements  could result in the Federal Home Loan Banks imposing a higher rate
of interest on advances to their members.

         Federal  Reserve  System.  The  Federal  Reserve  System  requires  all
depository institutions to maintain  non-interest-bearing  reserves at specified
levels against their checking accounts and non-personal certificate accounts. At
June 30, 2005, the Bank was in compliance with such requirements.

         Savings  institutions have authority to borrow from the Federal Reserve
System "discount  window," but Federal Reserve System policy generally  requires
savings  institutions  to exhaust all other sources  before  borrowing  from the
Federal Reserve System.

         The  USA  Patriot  Act.  The  Bank  is  subject  to  Office  of  Thrift
Supervision  regulations  implementing the Uniting and Strengthening  America by
Providing  Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001,  or the USA Patriot Act. The USA Patriot Act gives the federal  government
powers to address terrorist threats through enhanced domestic security measures,
expanded  surveillance  powers,  increased  information  sharing  and  broadened
anti-money  laundering  requirements.  By way of  amendments to the Bank Secrecy
Act,  Title III of the USA Patriot  Act takes  measures  intended  to  encourage
information  sharing among bank regulatory  agencies and law enforcement bodies.
Further,  certain  provisions of Title III impose  affirmative  obligations on a
broad  range of  financial  institutions,  including  banks,  thrifts,  brokers,
dealers,  credit unions,  money transfer agents and parties registered under the
Commodity Exchange Act. As of June 30, 2005, management of the Bank believes all
required  actions  to be taken by the Bank under the USA  Patriot  Act have been
completed.

         Among  other  requirements,  Title III of the USA  Patriot  Act and the
related  regulations  of the Office of Thrift  Supervision  impose the following
requirements with respect to financial institutions:

o        Establishment  of  anti-money  laundering  programs  that  include,  at
         minimum: (i) internal policies, procedures, and controls; (ii) specific
         designation  of an  anti-money  laundering  compliance  officer;  (iii)
         ongoing  employee  training  programs;  and (iv) an  independent  audit
         function to test the anti-money laundering program.

o        Establishment  of  a  program   specifying   procedures  for  obtaining
         identifying  information  from customers  seeking to open new accounts,
         including  verifying  the  identity of  customers  within a  reasonable
         period of time.

o        Establishment of appropriate,  specific, and, where necessary, enhanced
         due diligence policies, procedures, and controls designed to detect and
         report money laundering.

                                       29

<PAGE>

o        Prohibitions on  establishing,  maintaining,  administering or managing
         correspondent  accounts for foreign shell banks  (foreign banks that do
         not have a physical  presence  in any  country),  and  compliance  with
         certain  record  keeping  obligations  with  respect  to  correspondent
         accounts of foreign banks.

         Bank   regulators   are  directed  to  consider  a  holding   company's
effectiveness  in combating money  laundering when ruling on Federal Reserve Act
and Bank Merger Act applications.

Regulation of the Company

         General.  The Company is a savings and loan holding  company within the
meaning of Section  10 of the Home  Owners'  Loan Act.  It is  required  to file
reports with the Office of Thrift  Supervision  and is subject to regulation and
examination  by the Office of Thrift  Supervision.  The Company must also obtain
regulatory  approval from the Office of Thrift  Supervision  before  engaging in
certain  transactions,  such as mergers with or  acquisitions of other financial
institutions.  In addition,  the Office of Thrift  Supervision  has  enforcement
authority over the Company and any non-savings  institution  subsidiaries.  This
permits the Office of Thrift Supervision to restrict or prohibit activities that
it  determines  to be a serious risk to the Bank.  This  regulation  is intended
primarily  for the  protection  of the  depositors  and not for the  benefit  of
stockholders of the Company.

         Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into
law the  Sarbanes-Oxley  Act of 2002, or the Act, which implemented  legislative
reforms intended to address  corporate and accounting  fraud. In addition to the
establishment  of a new accounting  oversight board that will enforce  auditing,
quality control and  independence  standards and will be funded by fees from all
publicly traded companies,  the Act places certain  restrictions on the scope of
services that may be provided by accounting  firms to their public company audit
clients.  Any non-audit services being provided to a public company audit client
will require preapproval by the company's audit committee.  In addition, the Act
makes certain changes to the requirements for partner rotation after a period of
time. The Act requires chief executive officers and chief financial officers, or
their equivalent,  to certify to the accuracy of periodic reports filed with the
Securities and Exchange  Commission,  subject to civil and criminal penalties if
they knowingly or willingly violate this certification requirement. In addition,
under the Act,  counsel  will be  required  to  report  evidence  of a  material
violation of the  securities  laws or a breach of fiduciary duty by a company to
its chief  executive  officer or its chief legal  officer,  and, if such officer
does not appropriately  respond,  to report such evidence to the audit committee
or other similar committee of the board of directors or the board itself.

         Under the Act,  longer prison terms will apply to corporate  executives
who violate  federal  securities  laws; the period during which certain types of
suits can be brought against a company or its officers is extended;  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods,  and loans to company executives (other than
loans by financial  institutions permitted by federal rules and regulations) are
restricted.  In addition,  a provision  of the Act directs that civil  penalties
levied by the Securities and Exchange  Commission as a result of any judicial or
administrative  action  under the Act be  deposited to a fund for the benefit of
harmed investors.  The Federal Accounts for Investor Restitution  provision also
requires the Securities and Exchange  Commission to develop methods of improving
collection rates. The legislation  accelerates the time frame for disclosures by
public  companies,  as they must  immediately  disclose any material  changes in
their financial  condition or operations.  Directors and executive officers must
also

                                       30

<PAGE>

provide  information  for most changes in  ownership  in a company's  securities
within two business days of the change.

         The  Act  also  increases  the  oversight  of,  and  codifies   certain
requirements  relating  to audit  committees  of public  companies  and how they
interact with the company's "registered public accounting firm." Audit committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose  whether at least one member of the  committee is a "financial  expert"
(as such term is defined by the Securities and Exchange  Commission) and if not,
why not.  Under  the Act,  a  company's  registered  public  accounting  firm is
prohibited from performing  statutorily mandated audit services for a company if
such company's chief executive officer,  chief financial  officer,  comptroller,
chief accounting officer or any person serving in equivalent  positions had been
employed by such firm and  participated  in the audit of such company during the
one-year period  preceding the audit initiation date. The Act also prohibits any
officer  or  director  of a  company  or any other  person  acting  under  their
direction from taking any action to fraudulently influence,  coerce,  manipulate
or mislead  any  independent  accountant  engaged in the audit of the  company's
financial  statements  for the purpose of  rendering  the  financial  statements
materially  misleading.  The Act  also  requires  the  Securities  and  Exchange
Commission to prescribe rules requiring inclusion of any internal control report
and  assessment  by management  in the annual  report to  stockholders.  The Act
requires the company's  registered  public accounting firm that issues the audit
report to  attest to and  report on  management's  assessment  of the  company's
internal controls.

         Activities Restrictions. As a savings and loan holding company and as a
subsidiary  holding company of a mutual holding company,  the Company is subject
to  statutory  and  regulatory  restrictions  on its  business  activities.  The
non-banking   activities  of  the  Company  and  its   non-savings   institution
subsidiaries are restricted to certain activities  specified by Office of Thrift
Supervision regulation, which include performing services and holding properties
used by a savings institution subsidiary,  activities authorized for savings and
loan  holding  companies  as  of  March  5,  1987,  and  non-banking  activities
permissible for bank holding companies  pursuant to the Bank Holding Company Act
of  1956  or  authorized  for  financial  holding  companies   pursuant  to  the
Gramm-Leach-Bliley  Act.  Before  engaging  in  any  non-  banking  activity  or
acquiring a company engaged in any such  activities,  the Company must file with
the  Office  of  Thrift  Supervision  either a prior  notice  or (in the case of
non-banking  activities  permissible for bank holding  companies) an application
regarding its planned activity or acquisition.

         Mergers and  Acquisitions.  The Company must obtain  approval  from the
Office of Thrift Supervision before acquiring, directly or indirectly, more than
5% of the  voting  stock of another  savings  institution  or  savings  and loan
holding  company or acquiring such an institution or holding  company by merger,
consolidation  or purchase of its assets.  Federal law also  prohibits a savings
and loan holding  company from  acquiring  more than 5% of a company  engaged in
activities other than those authorized for savings and loan holding companies by
federal law; or acquiring or retaining control of a depository  institution that
is not insured by the Federal Deposit  Insurance  Corporation.  In evaluating an
application  for the Company to acquire  control of a savings  institution,  the
Office of  Thrift  Supervision  would  consider  the  financial  and  managerial
resources and future  prospects of the Company and the target  institution,  the
effect of the  acquisition on the risk to the insurance  funds,  the convenience
and the needs of the community and competitive factors.

         Waivers  of  Dividends  by  Kearny  MHC (the  "MHC").  Office of Thrift
Supervision  regulations  require  the  MHC  to  notify  the  Office  of  Thrift
Supervision of any proposed waiver of its receipt of dividends from the Company.
The  Office  of  Thrift  Supervision   reviews  dividend  waiver  notices  on  a
case-by-case basis, and, in general,  does not object to any such waiver if: (i)
the mutual holding company's

                                       31

<PAGE>

board  of  directors  determines  that  such  waiver  is  consistent  with  such
directors' fiduciary duties to the mutual holding company's members; (ii) for as
long as the savings  association  subsidiary is controlled by the mutual holding
company,  the dollar amount of dividends waived by the mutual holding company is
considered as a restriction on the retained earnings of the savings association,
which restriction,  if material, is disclosed in the public financial statements
of the savings  association  as a note to the  financial  statements;  (iii) the
amount of any dividend  waived by the mutual  holding  company is available  for
declaration  as a  dividend  solely  to the  mutual  holding  company,  and,  in
accordance  with  Statement of Financial  Accounting  Standards No. 5, where the
savings  association  determines that the payment of such dividend to the mutual
holding  company is  probable,  an  appropriate  dollar  amount is recorded as a
liability;  and (iv) the amount of any waived  dividend is  considered as having
been paid by the savings  association in evaluating any proposed  dividend under
Office of Thrift Supervision  capital  distribution  regulations.  We anticipate
that the MHC will waive any dividends paid by the Company.

         Conversion  of the MHC to Stock  Form.  Office  of  Thrift  Supervision
regulations  permit the MHC to convert from the mutual form of  organization  to
the capital stock form of  organization,  commonly  referred to as a second step
conversion. In a second step conversion a new holding company would be formed as
the  successor  to the Company,  the MHC's  corporate  existence  would end, and
certain  depositors  of the Bank would receive the right to subscribe for shares
of the new holding company.  In a second step  conversion,  each share of common
stock held by stockholders  other than the MHC would be automatically  converted
into a number of shares of common  stock of the new holding  company  determined
pursuant to an exchange ratio that ensures that the Company's  stockholders  own
the same  percentage of common stock in the new holding company as they owned in
the Company  immediately  prior to the second step  conversion.  Under Office of
Thrift Supervision regulations,  the Company's stockholders would not be diluted
because of any dividends  waived by the MHC (and waived  dividends  would not be
considered in determining an appropriate  exchange ratio),  in the event the MHC
converts  to stock  form.  The  total  number of  shares  held by the  Company's
stockholders  after a second  step  conversion  also would be  increased  by any
purchases by the Company's stockholders in the stock offering of the new holding
company conducted as part of the second step conversion.

         Acquisition of Control. Under the federal Change in Bank Control Act, a
notice  must be  submitted  to the  Office of Thrift  Supervision  if any person
(including a company), or group acting in concert, seeks to acquire "control" of
a savings and loan holding  company or savings  association.  An  acquisition of
"control" can occur upon the acquisition of 10% or more of the voting stock of a
savings and loan holding company or savings  institution or as otherwise defined
by the Office of Thrift  Supervision.  Under the Change in Bank Control Act, the
Office of Thrift Supervision has 60 days from the filing of a complete notice to
act,  taking into  consideration  certain  factors,  including the financial and
managerial  resources  of  the  acquirer  and  the  anti-trust  effects  of  the
acquisition.  Any  company  that so  acquires  control  would then be subject to
regulation as a savings and loan holding company.

Item  2.  Properties
--------------------

         At June 30, 2005, our net investment in property and equipment  totaled
$35.0 million.  We use Financial  Services,  Inc.  ("FSI"),  an outside  service
company headquartered in Glen Rock, New Jersey, for data processing.

Item 3.  Legal Proceedings
--------------------------

         The Bank,  from time to time,  is a party to routine  litigation  which
arises in the  normal  course of  business,  such as  claims to  enforce  liens,
condemnation proceedings on properties in which we hold

                                       32

<PAGE>

security  interests,  claims involving the making and servicing of real property
loans, and other issues incident to our business. There were no lawsuits pending
or known to be  contemplated  against  the  Company or the Bank at June 30, 2005
that would have a material effect on operations or income.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         None.

                                     PART II

Item 5. Market for Registrant's  Common Equity,  Related Stockholder Matters and
--------------------------------------------------------------------------------
        Issuer Purchases of Equity Securities
        -------------------------------------

         Upon completion of the Company's  first-step minority stock offering in
February  2005,  the  Company's  common  stock  commenced  trading on the Nasdaq
National Market under the symbol "KRNY." The table below shows the reported high
and low closing  prices of the common  stock during the periods  indicated.  The
quotations reflect inter-dealer prices,  without retail mark-up,  mark-down,  or
commission, and may not represent actual transactions.


                                            High             Low
                                            ----             ---
       2005
       Third quarter (1)                  $11.95          $11.08
       Fourth quarter                      11.95           10.10

__________
(1) Closing of the minority stock offering February 23, 2005.  Trading commenced
    February 24, 2005.

         No dividends  were paid during the year ended June 30, 2005. On July 6,
2005,  the  Company  announced  that the Board of  Directors  had  declared  the
Company's a quarterly cash dividend of $.04 to stockholders of record as of July
18, 2005,  paid on July 25, 2005.  This was the Company's  first  dividend since
completing its initial public stock offering in February 2005.  Declarations  of
dividends  by the Board of  Directors  depend on a number of factors,  including
investment opportunities, growth objectives, financial condition, profitability,
tax considerations,  minimum capital requirements, regulatory limitations, stock
market  characteristics and general economic conditions.  The timing,  frequency
and amount of dividends is determined by the Board.

         The  Company's  ability to pay dividends may also depend on the receipt
of dividends from the Bank,  which is subject to a variety of limitations  under
the regulations of the Office of Thrift Supervision on the payment of dividends.

         As of September  13, 2005,  there were  approximately  5,176 holders of
record of the Company's  common stock,  not including  persons who hold stock in
"street" name through various brokerage firms.

                                       33

<PAGE>

         Set  forth  below  is   information   regarding  the  Company's   stock
repurchases during the fourth quarter of the fiscal year ended June 30, 2005.

<TABLE>
<CAPTION>
                                       ISSUER PURCHASES OF EQUITY SECURITIES
----------------------------------------------------------------------------------------------------------------------------

                                       (a)             (b)                  (c)                           (d)
                                      Total                           Total Number of               Maximum Number
                                    Number of       Average          Shares (or Units)           (or Approximate Dollar
                                      Shares       Price Paid      Purchased as Part of       Value) of Shares (or Units)
                                    (or Units)     per Share        Publicly Announced         that May Yet Be Purchased
             Period                 Purchased      (or Unit)         Plans or Programs        Under the Plans or Programs
----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>                   <C>                           <C>
Quarter ended June 30, 2005           - 0 -            $0                  - 0 -                           0
----------------------------------------------------------------------------------------------------------------------------
             Total                    - 0 -            $0                  - 0 -                           0
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


Item 6.  Selected Financial Data
--------------------------------

         The following financial  information and other data in this section for
the years  ended  June 30,  2005,  2004 and 2003 is derived  from the  Company's
audited  consolidated  financial statements and should be read together with the
consolidated financial statements and the notes thereto contained in this Annual
Report on Form 10-K. The  information at and for the year ended June 30, 2001 is
derived from unaudited  consolidated  financial  statements of the Company.  The
Company acquired  Pulaski Bancorp,  Inc. in October 2002 and West Essex Bancorp,
Inc.  in July  2003.  For an  explanation  of the  accounting  treatment  of the
acquisitions, see Note 2 to the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                      At June 30,
                                           ----------------------------------------------------------------
                                              2005         2004          2003          2002         2001
                                           ----------   ----------    ----------   ----------   ----------
                                                                    (In thousands)
<S>                                      <C>          <C>           <C>          <C>          <C>
Balance Sheet Data:
Assets...................................  $2,107,005   $1,936,518    $1,996,482   $1,905,638   $1,756,257
Loans receivable, net....................     558,018      505,794       509,161      591,142      602,182
Mortgage-backed securities
  held to maturity.......................     758,121      771,353       681,619      968,516      689,204
Securities available for sale............      33,591       41,564        37,840       39,679       42,367
Investment securities held to maturity...     470,098      435,870       287,321      139,446      193,955
Cash and cash equivalents................     139,865       39,488       325,657       97,030      159,901
Goodwill.................................      82,263       82,263        31,746       15,600       17,911
Deposits.................................   1,528,777    1,537,510     1,613,684    1,479,729    1,342,107
Federal Home Loan Bank advances..........      61,687       94,234        75,749      112,080      112,109
Total stockholders' equity...............     505,482      293,505       295,669      302,454      290,110
</TABLE>


                                       34

<PAGE>

<TABLE>
<CAPTION>
                                                                  For the Year Ended June 30,
                                            ------------------------------------------------------------------------
                                                2005             2004            2003            2002         2001
                                            -----------       ---------        --------       ---------    ---------
                                                       (Dollars in thousands, except per share amounts)
<S>                                        <C>               <C>              <C>            <C>          <C>
Summary of Operations:
Interest income..........................   $    82,441       $  78,654        $ 96,492       $ 106,162    $ 114,566
Interest expense.........................        30,422          32,100          44,695          54,443       67,318
                                            -----------       ---------        --------       ---------    ---------
Net interest income......................        52,019          46,554          51,797          51,719       47,248
Provision for loan losses................            68               -               -               3          162
                                            -----------       ---------        --------       ---------    ---------
Net interest income after provision
  for loan losses........................        51,951          46,554          51,797          51,716       47,086
Non-interest income, excluding gain on
  sale of available for sale securities..         1,798           1,560           1,847           1,765        1,523
Non-interest income from gain on sale
   of available for sale securities......         7,705               -               -               -            -
Merger related expenses..................             -             592          14,921             619            -
Non-interest expense, excluding
  merger related expenses................        34,862          28,880          29,431          28,446       27,519
                                            -----------       ---------        --------       ---------    ---------
Income before income taxes...............        26,592          18,642           9,292          24,416       21,090
Provisions for income taxes..............         7,694           5,745           5,237           7,926        6,823
                                            -----------       ---------        --------       ---------    ---------
Net income...............................   $    18,898       $  12,897        $  4,055       $  16,490    $  14,267
                                            ===========       =========        ========       =========    =========

Net income per share - basic.............   $      0.27       $1,289.70        $ 337.52       $1,294.02    $1,119.43
Net income per share - diluted...........   $      0.27       $1,289.70        $ 336.06       $1,287.13    $1,116.48
Weighted average number of common
    shares outstanding - basic...........    70,997,978          10,000          12,014          12,743       12,745
Weighted average number of common
    shares outstanding - diluted.........    70,997,978          10,000          12,066          12,811       12,779
</TABLE>

<TABLE>
<CAPTION>
                                                                  For the Year Ended June 30,
                                            ------------------------------------------------------------------------
                                                2005             2004            2003            2002         2001
                                            -----------       ---------        --------       ---------    ---------
<S>                                         <C>            <C>            <C>             <C>          <C>
Per Share Data:
  Cash dividends per share (1).........      $      -        $     -        $ 82.07         $ 98.80      $ 79.56

  Dividend payout ratio (2)............          0.00%          0.00%         24.32%           7.63%        7.11%

Performance Ratios:
  Return on average assets
    (net income divided by
    average total  assets).............          0.94%          0.67%          0.21%           0.91%        0.83%

  Return on average equity
    (net income divided by
    average equity)....................          5.40           4.52           1.38            5.55         4.96

  Net interest rate spread.............          2.51           2.37           2.36            2.35         2.08

  Net interest margin on average
    interest-earnings assets...........          2.79           2.59           2.75            2.95         2.86

  Average interest-earning
    assets to average
    interest-bearing liabilities.......        116.93         112.46         116.54          119.58       119.17

  Efficiency ratio (Non-interest
    expense divided by the sum
    of net interest income and
    non-interest income)...............         56.67          61.25          82.68           54.34        56.42

</TABLE>

                                       35

<PAGE>

<TABLE>
<CAPTION>
                                                                  For the Year Ended June 30,
                                            ------------------------------------------------------------------------
                                                2005             2004            2003            2002         2001
                                            -----------       ---------        --------       ---------    ---------
<S>                                         <C>            <C>            <C>             <C>          <C>
  Efficiency ratio (net of gain on sale of
     available for sale securities)........     64.78          61.25          82.68           54.34        56.42

  Non-interest expense to                        1.73           1.52           2.26            1.60         1.60
    average assets.........................

Asset Quality Ratios:(3)
  Non-performing loans to total loans......      0.34           0.46           0.57            0.55         0.53

  Non-performing assets to total assets          0.10           0.13           0.16            0.18         0.20

  Net charge-offs to average
   loans outstanding.......................      0.00           0.01           0.00            0.00         0.01

  Allowance for loan losses to
       total loans.........................      0.96           1.01           1.01            0.87         0.85

  Allowance for loan losses to
       non-performing loans................    281.79         220.96         177.64          157.24       160.52

Capital Ratios:
  Average equity to average
    assets (average equity divided
    by average total assets)...............     17.36          14.73          14.97           16.38        16.70

  Equity to assets at period end...........     23.99          15.16          14.81           15.87        16.52

  Tangible equity to tangible
       assets at period end................     20.66          11.29          13.31           15.02        15.46

Number of Offices:
Offices (including offices
       acquired in mergers)................        25             25             25              24           23
</TABLE>
_____________________
(1)  Cash dividends paid per share represents,the aggregate of dividends paid by
     Kearny Financial Corp., West Essex Bancorp, Inc., and Pulaski Bancorp, Inc.
     to the  minority  stockholders  of West Essex  Bancorp,  Inc.  and  Pulaski
     Bancorp,  Inc. divided by the outstanding  shares of Kearny Financial Corp.
     common stock.
(2)  Represents  cash  dividends  declared  per share  divided by net income per
     common share.
(3)  Asset quality ratios are period end ratios.


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
        of Operations
        -------------

General

         This  discussion  and  analysis   reflects  Kearny  Financial   Corp.'s
consolidated  financial  statements and other relevant  statistical  data and is
intended to enhance your understanding of our financial condition and results of
operations.  You should read the information in this section in conjunction with
Kearny Financial Corp.'s consolidated financial statements and the notes thereto
contained in this Annual  Report on Form 10-K,  and the other  statistical  data
provided herein.

                                       36

<PAGE>

Overview

         Financial Condition and Results of Operations. Kearny Financial Corp.'s
results of operations depend primarily on its net interest income.  Net interest
income  is  the  difference   between  the  interest   income  we  earn  on  our
interest-earning  assets  and  the  interest  we  pay  on  our  interest-bearing
liabilities.  It is a function of the average  balances of loans and investments
versus deposits and borrowed funds  outstanding in any one period and the yields
earned  on those  loans  and  investments  and the cost of  those  deposits  and
borrowed funds.

         Our  interest-earning   assets  consist  primarily  of  mortgage-backed
securities and investment  securities,  which comprised 59.9% of total assets at
June 30, 2005 while our loan portfolio comprised 26.5% of total assets. This was
a change  from 64.5% and 26.1%,  respectively,  at June 30,  2004.  The  largest
change in our  interest-earning  assets  between June 30, 2004 and June 30, 2005
was a $100.4 million, or 254.2%,  increase in cash and cash equivalents,  due to
the  proceeds  from the initial  public  offering  completed  in February  2005.
Investment   securities   held  to   maturity   increased   $34.2   million  and
mortgage-backed securities held to maturity decreased $13.2 million. We invested
some of the  offering  proceeds  in  investment  securities  held  to  maturity,
particularly  tax-exempt  securities.  Demand for mortgages  contributed  to the
decrease  in  mortgage-backed  securities,  as we used  principal  and  interest
payments to fund mortgage loans, supplemented by the investment of cash and cash
equivalents from the initial public offering.

         Our  interest-bearing  liabilities consist primarily of retail deposits
and  borrowings  from the Federal Home Loan Bank of New York.  At June 30, 2005,
our total  deposits  were $1.53  billion,  compared to $1.54 billion at June 30,
2004, and our Federal Home Loan Bank of New York  borrowings  were $61.7 million
compared to $94.2 million a year earlier. The primary factor for the decrease in
deposits was the runoff of certificates of deposit due to low interest rates and
a  movement  by  customers  to  alternative  investment   opportunities  in  the
marketplace  in the  first  half of  fiscal  2005.  However,  rising  short-term
interest  rates  reversed the trend during the second half of the year.  We also
saw $40.4 million of deposits,  net of oversubscriptions,  withdrawn to purchase
the Company's common stock during the initial public offering. Federal Home Loan
Bank advances decreased as we replaced  short-term  advances borrowed earlier in
the year to fund  commitments  to purchase  securities  with  proceeds  from the
initial public offering completed in February 2005.

         Our net interest  income  increased by 11.6%,  to $52.0 million for the
year ended June 30, 2005 from $46.6  million  for the year ended June 30,  2004.
The net interest rate spread increased to 2.51% for the year ended June 30, 2005
from  2.37%  for  2004  as the  average  cost  of  interest-bearing  liabilities
continued  to  decrease  while  the  average  yield on  interest-earning  assets
improved  slightly.  Total interest income increased 4.8% due to a 3.9% increase
in the  average  balance  of  interest-earning  assets  and a four  basis  point
increase in the average yield thereof,  while total interest  expense  decreased
5.3%,  primarily  due to a ten  basis  point  decrease  in the  average  cost of
interest-bearing  liabilities.  Net  interest  income  received a boost from the
investment  of  stock  subscription  funds,  including  oversubscriptions,  at a
positive spread versus the interest rate paid on the funds.

         Our results of operations also depend on our provision for loan losses,
non-interest  income and  non-interest  expense.  Non-interest  income  includes
service fees and charges,  including  income generated by Kearny Federal Savings
Bank's  ATM  network,  and income on bank  owned  life  insurance.  Non-interest
expense includes salaries and employee  benefits,  occupancy  expenses and other
general and  administrative  expenses.  Non-interest  expense increased for 2005
compared  to 2004,  from  $29.5  million  for 2004 to $34.9  million  for  2005,
primarily because of increases in salaries and employee benefits and higher net

                                       37

<PAGE>

occupancy  expense of premises  and  equipment.  The  increase  in salaries  and
benefits is from ordinary salary increases,  higher pension and health insurance
costs, ESOP compensation  expense and the addition of staff,  including business
development personnel. Net occupancy expense of premises and equipment increased
primarily  due  to  expenses   associated   with  our  new  53,000  square  foot
administrative  headquarters  building in Fairfield,  New Jersey,  completed and
occupied during the quarter ended December 31, 2004.

         Net  income  for the year ended  June 30,  2005 was $18.9  million,  an
increase of $6.0 million, or 46.5%, from $12.9 million for 2004. The increase in
net income  resulted  primarily  from the gain on the sale of available for sale
securities,  Freddie  Mac common  stock and a  trust-preferred  security,  which
together contributed $7.7 million,  before taxes, to income. The increase in net
interest income of $5.4 million offset the $5.4 million increase in non-interest
expense.

         Total assets  increased  8.8%,  to $2.11  billion at June 30, 2005 from
$1.94  billion at June 30,  2004.  Cash and cash  equivalents  increased  $100.4
million  year-over-year,  due to the proceeds  from the initial  stock  offering
completed in February  2005. An $8.0 million  reduction in securities  available
for sale, to $33.6 million at the year ended June 30, 2005 from $41.6 million in
2004,   was  the  result  of  the  sale  of  Freddie  Mac  common  stock  and  a
trust-preferred  security.  Cash and cash  equivalents  generated by the initial
public  offering  funded  the $34.2  million  and  $52.2  million  increases  in
investment  securities held to maturity and net loans receivable,  respectively,
as did principal and interest payments on mortgage- backed  securities.  We also
used the cash flow from  mortgage-backed  securities to fund the deposit outflow
and to reduce Federal Home Loan Bank advances.

         Stockholders'  equity  increased  $212.0  million,  or 72.2%, to $505.5
million at June 30, 2005,  from $293.5  million at June 30,  2004.  The increase
primarily reflects offering proceeds of $197.1 million,  net of $17.5 million in
unearned ESOP shares from the February 2005 initial stock  offering,  net income
of $18.9  million,  along with a decrease of $4.5 million in  accumulated  other
comprehensive income resulting from the sale of available for sale securities.

         Recent  Acquisitions.  During  recent  years,  we have  implemented  an
expansion  strategy  fueled  primarily  by  acquisitions,  and have  experienced
significant  growth with total assets  growing  from $793.2  million at June 30,
1998 to $2.11 billion at June 30, 2005,  securities  growing from $596.9 million
at June 30,  1998 to $1.26  billion  at June 30,  2005,  loans  receivable,  net
growing from $152.1  million at June 30, 1998 to $558.0 million at June 30, 2005
and total deposits growing from $608.9 million at June 30, 1998 to $1.53 billion
at June 30, 2005. At June 30, 1998, we had five branch offices and 75 employees,
and at June 30, 2005, we had 25 branch offices and 284 employees.

         We completed  our first whole bank  acquisition  in March 1999 with the
acquisition  of 1st Bergen  Bancorp and the merger of South Bergen  Savings Bank
into Kearny  Federal  Savings  Bank,  adding  $274.3  million in assets and four
branch  offices,  giving  Kearny  Federal  Savings  Bank a total of nine  branch
offices  following  completion of this merger. In October 2002, Kearny Financial
Corp.  acquired Pulaski Bancorp,  Inc., and Pulaski Savings Bank was merged into
Kearny Federal Savings Bank. This transaction added $286.7 million in assets and
seven branch offices.  Additionally, we completed one deposit assumption in 1999
and  opened a de novo  branch in 2002.  Our third  whole  bank  acquisition  was
completed in July 2003 with Kearny Financial  Corp.'s  acquisition of West Essex
Bancorp,  Inc.  and the merger of West Essex Bank into  Kearny  Federal  Savings
Bank, adding $369.3 million in assets and eight branch offices,  bringing Kearny
Federal Savings Bank's total offices to twenty-five.

         The acquisitions of Pulaski Bancorp,  Inc. and West Essex Bancorp, Inc.
involved   institutions  that  were  in  the  mutual  holding  company  form  of
organization, with the minority of outstanding shares held by

                                       38

<PAGE>

public  stockholders  and the majority of outstanding  shares held by the mutual
holding  company.  Accordingly,  (i) the merger of the mutual holding  companies
utilized the pooling-of-interests method accounting, (ii) the acquisition of the
mid-tier stock holding company's  minority  shareholder  interests was accounted
for as the  acquisition of  non-controlling  minority  interests,  and (iii) the
merger of the mid-tier  holding  companies was accounted for as a combination of
entities  under  common  control.  Under  pooling-of-interests  accounting,  the
recorded  assets and  liabilities of each of West Essex and Pulaski were carried
forward to the combined  corporation  at their recorded  amounts;  income of the
combined  corporation  includes income of each of West Essex and Pulaski for the
entire fiscal year in which the respective  acquisitions  occurred. The reported
income of the separate corporations for prior periods were combined and restated
as income of the combined corporation.  Expenses incurred in connection with the
acquisitions  constituted  expenses for the accounting periods subsequent to the
closing of the  acquisitions.  The  amounts  paid to  minority  shareholders  of
Pulaski Bancorp,  Inc. and West Essex Bancorp, Inc. in excess of their interests
in such companies were recorded as goodwill.  For  additional  information,  see
Note 2 to the consolidated financial statements.

         We intend to continue to grow. In addition to building our core banking
business  through  internal  growth,  we will also actively  consider  expansion
opportunities   such  as  the   acquisition  of  branches  and  other  financial
institutions. We do not, however, have any current understandings, agreements or
arrangements for expansion by the acquisition of any branches or other financial
institutions.  Furthermore,  there can be no assurance  that we will continue to
experience  such  rapid  growth,  or any  growth,  in the  future.  We may  have
difficulty  finding  suitable  sites for de novo  branches and  identifying  and
successfully acquiring branches or other financial institutions.

         Business Strategy. Our current business strategy is to seek to grow and
improve our profitability by:

          o    increasing  the volume of our loan  originations  and the size of
               our loan portfolio relative to our securities portfolio;

          o    increasing the  origination of  multi-family  and commercial real
               estate loans, construction loans and commercial business loans;

          o    building our core banking business through internal growth and de
               novo  branching,   as  well  as  actively  considering  expansion
               opportunities  such as the  acquisition  of  branches  and  other
               financial institutions;

          o    developing a sales culture by training and encouraging our branch
               personnel  to promote our  existing  products and services to our
               customers; and

          o    maintaining high asset quality.

         Our deposits have traditionally exceeded our loan originations,  and we
have  invested  these  deposits  primarily  in  mortgage-backed  securities  and
investment securities. Following our acquisition of South Bergen Savings Bank in
1999, we began focusing on growing the size of our loan portfolio. Prior to that
time,  our  operations  were  more  focused  on  obtaining   deposits  from  the
communities  in which we operated  our five branch  offices in Bergen and Hudson
counties and investing those funds in  mortgage-backed  and other securities.  A
primary focus of our current business strategy is to increase our volume of loan
originations  and the size of our loan  portfolio.  There  can be no  assurance,
however, that we will be successful in this effort.

                                       39

<PAGE>

         In an effort to develop our commercial business,  during the year ended
June 30, 2005 we added four experienced  business  development officers who will
focus on commercial loan  originations,  and we expect to offer Internet banking
and cash  management  services to our  commercial  customers  during the quarter
ended December 31, 2005. Our residential loan  originations  have  traditionally
been largely  advertising driven, but we added two regional loan originators who
are working in our branch network.  We expect to hire  additional  regional loan
originators  in  this  coming  year,  seeking  to  build  our  residential  loan
portfolio.

Critical Accounting Policies

         Our  accounting  policies  are  integral to  understanding  the results
reported  and are  described in detail in Note 1 to the  consolidated  financial
statements beginning on page F-1 of this document. In preparing the consolidated
financial  statements,  management is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities  as of the dates of
the consolidated statements of financial condition and revenues and expenses for
the periods then ended.  Actual  results could differ  significantly  from those
estimates.  Material estimates that are particularly  susceptible to significant
changes  relate to the  determination  of the  allowance  for loan  losses,  the
assessment of prepayment risks associated with mortgage-backed  securities,  the
evaluation of securities impairment and the impairment testing of goodwill.

         Allowance for Loan Losses. The allowance for loan losses represents our
best estimate of losses known and inherent in our loan  portfolio  that are both
probable and reasonable to estimate.  In determining the amount of the allowance
for loan  losses,  we consider  the losses  inherent in our loan  portfolio  and
changes  in the nature and  volume of our loan  activities,  along with  general
economic and real estate  market  conditions.  We use a two tier  approach:  (1)
identification  of impaired loans and  establishment of specific loss allowances
on such loans;  and (2)  establishment  of general  valuation  allowances on the
remainder of our loan  portfolio.  We maintain a loan review system which allows
for a periodic  review of our loan  portfolio  and the early  identification  of
potential  impaired  loans.  Our system  takes into  consideration,  among other
things,  delinquency  status,  size of loans,  type of collateral  and financial
condition of the borrowers.  Specific loan loss  allowances are  established for
identified loans based on a review of such information  and/or appraisals of the
underlying collateral. General loan loss allowances are based upon a combination
of  factors  including,  but  not  limited  to,  actual  loan  loss  experience,
composition of the loan portfolio,  current economic conditions and management's
judgment.

         Although  specific and general loan loss  allowances are established in
accordance  with  management's  best estimate,  actual losses are dependent upon
future events and, as such,  further provisions for loan losses may be necessary
in order to increase the level of the  allowance  for loan losses.  For example,
our  evaluation  of the allowance  includes  consideration  of current  economic
conditions,  and a change in economic conditions could reduce the ability of our
borrowers  to make  timely  repayments  of their  loans.  This  could  result in
increased  delinquencies and increased  non-performing loans, and thus a need to
make  increased  provisions to the  allowance for loan losses,  which would be a
charge to income  during  the  period  the  provision  is made,  resulting  in a
reduction to our earnings.  A change in economic conditions could also adversely
affect  the  value of the  properties  collateralizing  our real  estate  loans,
resulting in increased charge-offs against the allowance and reduced recoveries,
and thus a need to make  increased  provisions to the allowance for loan losses.
Furthermore,  a change in the composition of our loan portfolio or growth of our
loan portfolio could result in the need for additional provisions.

         Historically,  we believe our estimates and  assumptions  in evaluating
the  allowance  for loan  losses and  setting  the  provision  have been  fairly
accurate. The increase in the ratio of the allowance for loan

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<PAGE>

losses to non-performing  loans to 281.79% at June 30, 2005 from 220.96% at June
30, 2004 is a result of a $406,000 decrease in non-performing loans.

         Prepayment Risks Associated with  Mortgage-backed  Securities.  At June
30, 2005 and June 30, 2004, net premiums of approximately  $3.6 million and $3.6
million,   respectively,   were   included  in  the  carrying   amounts  of  our
mortgage-backed  securities.  We amortize  the premium  included in the carrying
amount over the average life of the security. The mortgage-backed  securities we
hold in our portfolio are subject to prepayment risk because changes in interest
rates can affect the expected life of these mortgage-  backed  securities.  This
means  the level of  prepayments  must be  estimated  in order to  estimate  the
average life of mortgage-backed securities.

         We evaluate the estimated average life of mortgage-backed securities on
a monthly basis and adjust the  amortization  speed to reflect any change in the
average life.  Amortizing the premium faster results in a reduction of the yield
on the  securities,  whereas  slowing the  amortization  increases the yield.  A
reduction  in  the  yield  decreases  our  interest  income  on  mortgage-backed
securities,  while an increase in the yield  increases  our  interest  income on
mortgage-backed securities.

         The  assessment  of the  prepayment  risks  related to  mortgage-backed
securities is highly  dependent upon the prediction of trends in market interest
rates. A reduction in interest rates generally results in increased  prepayments
of  mortgage-backed  securities,  as borrowers  refinance their debt in order to
reduce their  borrowing  cost.  Correspondingly,  an increase in interest  rates
should result in decreased  prepayments and fewer refinancings.  Because changes
in interest  rates can affect the average  life of  mortgage-backed  securities,
this makes the  estimation of the  prepayment  risk  difficult.  We address this
difficulty  by adjusting the  amortization  speed monthly to reflect the current
average life.

         Impairment  Testing of Goodwill.  Goodwill,  representing the excess of
amounts paid over the fair value of net assets of the  institutions  acquired in
purchase transactions, is recorded at its fair value at the date of acquisition.
Through June 30, 2002, we amortized goodwill using the straight line method over
15 years.  Effective July 1, 2002, we adopted the Financial Accounting Standards
Board's Statement of Financial  Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142,  "Goodwill and Other Intangible  Assets," under
which we no longer  amortize  goodwill,  but test it  annually  for  impairment.
Impairment  exists when the carrying value of goodwill  exceeds its implied fair
value.  We would also test goodwill for  impairment  between  annual tests if an
event occurs or circumstances  change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.

         At June 30,  2005 and June 30,  2004,  we  reported  goodwill  of $82.3
million.  This amount  includes  goodwill that resulted from our  acquisition of
West Essex Bank in which $50.5 million, the amount paid to minority stockholders
of West Essex Bancorp, Inc. in excess of their interest in the fair value of net
assets of West Essex Bancorp, Inc., was recorded as goodwill.

         We have tested our goodwill and concluded  that no  impairment  charges
were required to be recorded in the year ended June 30, 2005. Although the value
of the  goodwill was  determined  not to be impaired at the date of the testing,
the value of the  goodwill  can change in the future.  The value of the goodwill
would be  expected  to  decrease  if there  was a  significant  decrease  in the
franchise  value of  Kearny  Federal  Savings  Bank.  If an  impairment  loss is
determined  in the  future,  the loss will be  reflected  as an expense  for the
period in which the impairment was  determined,  meaning that our net income for
that  period  would be  reduced  by the  amount of the  impairment  loss.  Since
beginning  testing for impairment under SFAS 142 effective July 1, 2002, we have
not had any impairment  loss, thus we believe that  historically,  our estimates
and assumptions in evaluating the value of the goodwill have been accurate.

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         Other-than-Temporary Impairment of Securities. We evaluate on a monthly
basis whether any securities are other-than-temporarily impaired. In making this
determination, we consider the extent and duration of the impairment, the nature
and financial  health of the issuer,  our ability and intent to hold  securities
for a period of time sufficient to allow for any anticipated  recovery in market
value and other factors relevant to specific securities, such as the credit risk
of the issuer and whether a guarantee or insurance applies to the security. This
evaluation  method has not changed  during the three fiscal years ended June 30,
2005.  If a security is  determined to be  other-than-temporarily  impaired,  an
impairment  loss is charged to income during the period the  impairment  loss is
found to exist, resulting in a reduction to our earnings for that period.

         As of June 30, 2005,  we concluded  that any  unrealized  losses in the
securities available for sale,  mortgage-backed  securities held to maturity and
investment  securities  held to maturity  portfolios  were  temporary  in nature
because they were primarily  related to market interest rates and not related to
the underlying credit quality of the issuers of the securities. Additionally, we
have the intent and ability to hold these  investments for the time necessary to
recover the  amortized  cost.  Future events that would  materially  change this
conclusion and require an impairment loss to be charged to operations  include a
change in the credit quality of the issuers.  We believe that historically,  our
estimates  and   assumptions   in   evaluating   whether  any   securities   are
other-than-temporarily impaired have been accurate.

         Effective June 30, 2004, we adopted Emerging Issues Task Force ("EITF")
Issuance  No.  03-1,  "The Meaning of Other than  Temporary  Impairment  and Its
Application to Certain Investments," which requires quantitative and qualitative
disclosures  for  investment  securities  that are impaired at the balance sheet
date, but for which  other-than-temporary  impairment  has not been  recognized.
Under EITF 03-1,  individual  securities are considered impaired when fair value
is less than amortized cost. Adoption of EITF 03-01 has not changed our policies
for determining whether any securities are other-than-temporarily impaired.

Comparison of Financial Condition at June 30, 2005 and June 30, 2004

         Our total assets increased by $170.5 million, or 8.8%, to $2.11 billion
at June 30, 2005 from $1.94 billion at June 30, 2004, primarily due to increases
in cash and cash  equivalents,  investment  securities and net loans receivable,
partially offset by a decrease in mortgage-backed securities.

         Cash and cash equivalents were the largest  contributor to the increase
in total assets, increasing $100.4 million, or 254.2%, to $139.9 million at June
30, 2005,  from $39.5  million at June 30,  2004.  Proceeds  from the  Company's
initial public  offering  completed in February 2005 provided the growth in cash
and cash equivalents. Use of cash and cash equivalents and monthly principal and
interest  payments  from  mortgage-backed  securities  funded  the  increase  in
investment  securities  and net  loans  receivable  as well  as the  outflow  of
deposits and repayment of Federal Home Loan Bank advances.

         The carrying  value of  securities  available for sale  decreased  $8.0
million, or 19.2%, to $33.6 million at June 30, 2005, from $41.6 million at June
30, 2004. Concern about the future of government-sponsored enterprises triggered
the sale of 120,000  shares,  or 48% of the  Company's  Freddie Mac common stock
investment,  which were part of the securities available for sale portfolio.  We
also sold a  trust-preferred  security  from the  securities  available for sale
portfolio.  Investment  securities held to maturity increased $34.2 million,  or
7.8%, to $470.1 million at June 30, 2005,  from $435.9 million at June 30, 2004.
The growth in the investment  securities held to maturity  portfolio came in the
tax-exempt  category,  with an increase of $43.1  million,  or 26.7%,  to $204.6
million at June 30,  2005,  from $161.5  million at June 30,  2004.  The taxable
component of investment securities held to maturity portfolio

                                       42

<PAGE>

decreased $8.9 million, or 3.2%, to $265.5 million at June 30, 2005, from $274.4
million at June 30, 2004.  Maturing taxable investment  securities were replaced
with  tax-exempt  securities,  to take  advantage of their higher tax equivalent
yield.  Mortgage-backed  securities held to maturity decreased $13.3 million, or
1.7%, to $758.1 million at June 30, 2005,  from $771.4 million at June 30, 2004.
We used the cash flow from  mortgage-backed  securities  to fund the purchase of
tax-exempt  investment  securities,  with their higher tax equivalent  yield, as
well as the  origination  of mortgage loans and to cover the outflow of deposits
and repayment of Federal Home Loan Bank advances.

         Net loans  receivable  increased  $52.2  million,  or 10.3%,  to $558.0
million at June 30, 2005,  from $505.8  million at June 30, 2004. Our goal is to
improve the overall ratio of loans to deposits, which increased to 36.5% at June
30, 2005 from 32.9% at June 30, 2004.  One-to-four  family real estate mortgages
increased  $24.6  million,  or 6.9%,  to $382.8  million at June 30, 2005,  from
$358.2  million  at June 30,  2004.  Multi-family  and  commercial  real  estate
mortgages  increased $13.3 million, or 15.9%, to $96.7 million at June 30, 2005,
from $83.4 million at June 30, 2004. Our strategy emphasizes growth in this part
of the loan portfolio.  Consumer  lending,  primarily home equity loans and home
equity lines of credit  increased  $16.0 million,  or 28.5%, to $72.1 million at
June 30, 2005, from $56.1 million at June 30, 2004. Construction loans increased
$882,000,  or 12.5%, to $8.1 million at June 30, 2005, from $7.2 million at June
30, 2004. The only category to decrease was commercial business lines of credit,
which fell to $2.9  million  at June 30,  2005,  a  decrease  of 44.2% from $5.2
million  at June 30,  2004.  During  the  year,  we added  business  development
personnel and loan  solicitors to assist in growing the commercial  portfolio as
well as other loan categories.

         Premises and  equipment  increased  $8.4  million,  or 31.6%,  to $35.0
million at June 30,  2005,  from $26.6  million at June 30,  2004.  The increase
resulted  primarily  from the cost  associated  with our new 53,000  square foot
administrative   headquarters  building  in  Fairfield,  New  Jersey,  which  we
completed and occupied  during the quarter ending December 31, 2004. The Company
is in the process of preparing to lease space  vacated by  management  staff and
administrative operations on their move to the new headquarters,  with the first
tenant scheduled to begin occupancy during December 2005. The cost of relocating
a branch in  Wanaque,  New Jersey and the  construction  of a de novo  branch in
Lacey, New Jersey also contributed to the increase in premises and equipment.

         Total deposits decreased by $8.7 million, or 0.56%, to $1.53 billion at
June 30, 2005,  from $1.54  billion at June 30, 2004.  Non-interest  bearing and
interest-bearing  demand  accounts  decreased  $3.6 million,  or 2.3%, to $155.4
million at June 30, 2005, from $159.0 million at June 30, 2004. Savings and club
accounts  decreased $31.3 million,  or 6.5%, to $450.2 million at June 30, 2005,
from $481.5 million at June 30, 2004.  Certificates  of deposit  increased $26.1
million,  or 2.9%, to $923.1  million at June 30, 2005,  from $897.0  million at
June 30,  2004.  During  the first  part of fiscal  2005,  there was a runoff of
certificates of deposit due to low interest rates and a movement by customers to
alternative  investment  opportunities  in  the  marketplace.   However,  rising
short-term interest rates reversed the trend during the second half of the year.
Most of the  decrease in savings and clubs  resulted  from the $40.4  million of
deposits,  net of oversubscriptions,  withdrawn to purchase the Company's common
stock during the initial public offering completed in February 2005.

         Federal Home Bank of New York  advances  decreased  $32.5  million,  or
34.5%,  to $61.7 million at June 30, 2005,  from $94.2 million at June 30, 2004.
We paid off $30.0 million of fixed rate  advances  with  maturities of less than
one  year,  borrowed  earlier  in the  year  to  fund  commitments  to  purchase
securities,  but no  longer  needed  due to the  availability  of cash  and cash
equivalents  from the initial  public  offering  completed in February  2005. We
retired  an  additional  $2.5  million  of  borrowings,  some of which were on a
quarterly repayment schedule.

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<PAGE>

         Stockholders'  equity  increased  $212.0  million,  or 72.2%, to $505.5
million at June 30, 2005,  from $293.5  million at June 30, 2004.  Stockholders'
equity  increased  primarily  due to net  proceeds  of $214.6  million  from the
initial public  offering.  Initially,  $17.5 million in unearned  Employee Stock
Ownership  Plan  ("ESOP")  shares  reduced   stockholders'   equity  immediately
following the initial public offering. The effect of the ESOP decreased slightly
thereafter,  as $485,000 of ESOP shares  were  released  between  March and June
2005.  Net income  recorded  during the year  contributed  an  additional  $18.9
million  to  stockholders'   equity.   Accumulated  other  comprehensive  income
decreased $4.5 million,  or 45.0%,  to $5.5 million at June 30, 2005, from $10.0
million at June 30, 2004. The decrease in accumulated other comprehensive income
resulted from a reduction in the carrying value,  net of taxes, of the Company's
securities  available for sale  portfolio due to the sales of Freddie Mac common
stock and a trust-preferred security.

Comparison  of Operating  Results for the Years Ended June 30, 2005 and June 30,
2004

         General. Net income for the year ended June 30, 2005 was $18.9 million,
an increase of $6.0 million, or 46.5%, from $12.9 million for 2004. The increase
in net income  resulted from the gain on sale of available  for sale  securities
recorded in 2005.  Without the gain on sale,  net income for the year ended June
30, 2005 remained virtually unchanged from a year earlier,  since an increase in
non-interest expense offset a comparable increase in net interest income.

         Net Interest Income. Net interest income increased by $5.4 million,  or
11.6%, to $52.0 million for the year ended June 30, 2005, from $46.6 million for
the year ended June 30, 2004.  The net interest  rate spread  increased to 2.51%
for the year ended June 30, 2005,  from 2.37% for 2004. The net interest  margin
increased 20 basis  points to 2.79% for the year ended June 30,  2005,  compared
with  2.59% for the year ended  June 30,  2004.  The net  interest  rate  spread
improved  due  to  a  four  basis  point   increase  in  the  average  yield  on
interest-earning  assets  complemented  by a decrease of ten basis points in the
average  cost of  interest-bearing  liabilities.  The  increase in net  interest
margin  resulted from the  improvement in the ratio of average  interest-earning
assets to average interest-bearing liabilities,  116.93% for the year ended June
30,  2005,  compared  to  112.46%  for the year  ended  June 30,  2004.  Average
interest-earning  assets increased $68.8 million,  or 3.9%, to $1.86 billion for
the year ended June 30,  2005,  from $1.79  billion  for the year ended June 30,
2004.  Average   interest-bearing   liabilities  remained  virtually  unchanged,
decreasing by $2.3 million for the year ended June 30, 2005.

         Interest Income. Total interest income increased $3.7 million, or 4.7%,
to $82.4  million for the year ended June 30, 2005,  from $78.7  million for the
year ended June 30, 2004. The  improvement in interest income resulted from both
the  increase  in the yield on  average  interest-earning  assets as well as the
increase  in  average  interest-earning  assets.  The  average  yield on average
interest-earning  assets increased four basis points to 4.42% from 4.38%,  while
average  interest-earning  assets  increased  $68.8  million,  or 3.9%, to $1.86
billion from $1.79 billion.

         Interest income on loans  receivable  increased  $392,000,  or 1.4%, to
$29.3 million for the year ended June 30, 2005,  from $28.9 million for the year
ended June 30,  2004.  The  increase  resulted  from an  increase in the average
balance of loans receivable, net, partially offset by a reduction in the average
yield on loans. The average balance of loans  receivable,  net,  increased $18.2
million,  or 3.6%,  to $517.7  million  for the year ended June 30,  2005,  from
$499.5  million for the year ended June 30,  2004.  The  average  yield on loans
decreased 13 basis points,  to 5.66% for the year ended June 30, 2005,  compared
to 5.79% for 2004. The increased  average balance  reflects an effort to improve
the ratio of loans to deposits. Net loans receivable increased $52.2 million, or
10.3%, to $558.0 million at June 30, 2005, from $505.8 million at June 30, 2004.
The lower yield reflects generally lower interest rates on originations and

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<PAGE>

downward  rate  adjustments  on  adjustable  rate and  floating  rate loans.  To
counteract  this trend,  management's  strategy  calls for steady  growth in the
higher yielding multi-family and commercial real estate categories.

         Interest income on mortgage-backed securities held to maturity deceased
$26,000  and was $34.0  million  for the year  ended  June 30,  2005,  virtually
unchanged  from 2004.  Interest  income on  mortgage-backed  securities  did not
change  as an  increase  in the  average  balance  outstanding  was  offset by a
decrease in the average yield. The average balance of mortgage-backed securities
increased $27.0 million,  or 3.8%, to $740.4 million for the year ended June 30,
2005,  from $713.4  million for the year ended June 30, 2004.  At the same time,
the average yield decreased 17 basis points to 4.59% for the year ended June 30,
2005,  compared to 4.76% for 2004. The increase in average balance resulted from
the  substitution of  mortgage-backed  securities for loans earlier in the year,
while  management  launched an  advertising  campaign  designed to increase loan
originations.  Mortgage-backed  securities  actually decreased $13.3 million, or
1.7%, to $758.1 million at June 30, 2005,  from $771.4 million at June 30, 2004.
The decline in yield resulted from principal repayments received on older higher
yielding  securities  being  reinvested in a lower  interest  rate  environment.
Additionally,  most  mortgage-backed  securities  purchased during the year were
adjustable  rate,  sacrificing  higher  yields on fixed  rate  mortgages  in the
short-term for some interest rate risk protection in the future.

         Interest income on investment securities available for sale and held to
maturity,  both taxable and  tax-exempt,  increased $2.1 million,  or 14.6%,  to
$16.5 million for the year ended June 30, 2005,  from $14.4 million for the year
ended June 30, 2004. The increase resulted from an increase of $64.9 million, or
15.3%, in the average balance of investment securities to $490.2 million for the
year ended June 30, 2005,  from $425.3 million for the year ended June 30, 2004.
A two basis point  reduction  in the average  yield,  declining to 3.37% for the
year ended June 30, 2005 from 3.39% for 2004,  nominally  offset the increase in
the  average  balance.  Interest  income  on  tax-exempt  investment  securities
increased  $1.2 million,  or 21.1%,  to $6.9 million for the year ended June 30,
2005, from $5.7 million for the year ended June 30, 2004. The increase  resulted
from an increase in the average  balance  partially  offset by a decrease in the
average yield.  The average  balance  increased by $38.9 million,  or 27.5%,  to
$180.5  million for the year ended June 30,  2005,  from $141.6  million for the
year ended June 30, 2004,  while the average yield decreased by 22 basis points,
to 3.81% for the year ended June 30, 2005,  from 4.03% in 2004.  Interest income
on taxable  investment  securities  increased  $1.0 million,  or 11.5%,  to $9.7
million for the year ended June 30,  2005,  from $8.7 million for the year ended
June 30, 2004,  resulting  from  increases  in both average  balance and average
yield. The average balance  increased $26.0 million,  or 9.2%, to $309.7 million
for the year ended June 30,  2005,  from $283.7  million for the year ended June
30, 2004. The average yield  increased five basis points,  to 3.12% for the year
ended June 30, 2005,  from 3.07% for 2004.  There has been steady growth in both
the tax-exempt and taxable portfolios over the previous three years.  Management
gradually  shifted  assets from those  vulnerable  to high  prepayments  such as
mortgage-backed  securities,  or  with  low  yields,  including  cash  and  cash
equivalents  and securities  purchased under  agreements to resell,  into higher
yielding investments,  particularly tax-exempt securities which offer higher tax
equivalent yields.

         Interest  income  on  other  interest-earning   assets  increased  $1.3
million,  or 100.0%, to $2.6 million for the year ended June 30, 2005, from $1.3
million for the year ended June 30,  2004.  There were no  securities  purchased
under agreements to resell during the year ended June 30, 2005,  therefore,  the
composition  of  interest  income  on  other  interest-earning  assets  for 2005
included only interest  received from deposits at other banks,  specifically the
Federal Home Loan Bank of New York, and dividends paid on Federal Home Loan Bank
of New York capital  stock.  The increase in interest  income  resulted  from an
increase  in  average  yield,  partially  offset by a  decrease  in the  average
balance. The average yield increased

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<PAGE>

1.45%,  to 2.30% for the year ended June 30, 2005, from 0.85% for 2004 while the
average  balance  decreased  $41.4 million,  or 26.5%, to $114.9 million for the
year ended June 30, 2005,  from $156.3 million for the year ended June 30, 2004.
The  investment  of funds  received  from the purchase of the  Company's  common
stock,   including   oversubscriptions  held  during  the  subscription  period,
contributed to the increase in interest income on other interest-earning assets,
particularly  the  ability  to  invest  those  funds  during a period  of rising
short-term interest rates.

         Interest  Expense.  Total interest expense  decreased $1.7 million,  or
5.3%, to $30.4 million for the year ended June 30, 2005,  from $32.1 million for
year ended June 30, 2004.  The decrease  resulted from a decrease in the average
cost of  interest-bearing  liabilities,  with virtually no change in the average
balance of  interest-bearing  liabilities.  The average cost decreased ten basis
points to 1.91% in the year  ended  June 30,  2005,  from  2.01%  for 2004.  The
average  balance of  interest-bearing  liabilities  declined  slightly  to $1.59
billion during the year ended June 30, 2005, as compared to $1.60 billion during
the year ended June 30, 2004.  Average cost  decreased due to  historically  low
market interest rates  prevailing  during the period,  though  short-term  rates
started  climbing as the  Federal  Reserve  raised the federal  funds rate by 25
basis point increments.

         Interest expense on deposits decreased $1.6 million,  or 5.7%, to $26.5
million for the year ended June 30, 2005,  from $28.1 million for the year ended
June 30, 2004. Interest expense included $491,000, paid on funds received during
the  subscription  period of the initial public  offering  completed in February
2005.   The  decrease   resulted   from  a  decrease  in  the  average  cost  of
interest-bearing  deposits  and a slight  decrease  in the  average  balance  of
interest-bearing   deposits.  The  average  cost  of  interest-bearing  deposits
decreased ten basis points to 1.75% for the year ended June 30, 2005, from 1.85%
in 2004.  The average cost of  certificates  of deposit  increased to 2.33% from
2.25%,  while the average cost of savings and club  accounts  decreased to 1.02%
from 1.23% and the average cost of interest-bearing demand accounts decreased to
0.71% from 0.80%.  Management found it necessary to begin raising certificate of
deposit interest rates,  reacting to rising short-term interest rates during the
second  half of the year in order  to  address  earlier  deposit  outflows.  The
average  balance of  interest-bearing  deposits  decreased $8.9 million to $1.51
billion for the year ended June 30, 2005, from $1.52 billion for the prior year.
The  nominal  decrease  in the  average  balance  partially  resulted  from  the
temporary  increase  in  deposits   attributed  to  funds  received  during  the
subscription  period of the initial public  offering  completed in February 2005
substantially  offsetting an overall deposit  outflow.  Average  certificates of
deposit declined to $873.9 million from $963.1 million, average savings and club
accounts   increased  to  $533.1   million  from  $448.5   million  and  average
interest-bearing  demand  deposits  decreased  to  $105.5  million  from  $109.8
million.  The  increase  in  average  savings  and club  accounts  reflects  the
aforementioned temporary increase in deposits associated with the initial public
offering.

         Interest expense on Federal Home Loan Bank advances decreased $128,000,
or 3.2%, to $3.9 million for the year ended June 30, 2005, from $4.0 million for
the year ended June 30, 2004. The decrease in interest  expense  resulted from a
decrease in the average cost of advances  partially offset by an increase in the
average  balance of advances.  The average cost of advances fell 60 basis points
to 4.80% for the year  ended  June 30,  2005,  from  5.40%  for 2004,  while the
average balance  increased $6.7 million,  or 9.0%, to $81.0 million for the year
ended June 30, 2005,  from $74.3  million for the year ended June 30, 2004.  The
increase in the average  balance  resulted  from  short-term  advances  obtained
earlier in the year to fund the purchase of  securities,  subsequently  paid off
with proceeds from the initial stock  offering  completed in February  2005. The
relatively low interest  rates  associated  with those  advances  contributed to
lowering the average cost of borrowed money.

                                       46

<PAGE>

         Provision  for Loan Losses.  Provisions  for loan losses are charged to
operations at a level  required to reflect  credit losses in the loan  portfolio
that are both probable and  reasonable to estimate.  Management,  in determining
the  allowance  for loan  losses,  considers  the  losses  inherent  in the loan
portfolio  and  changes in the nature and volume of our loan  activities,  along
with the  general  economic  and real  estate  market  conditions.  We utilize a
two-tier  approach:  (1)  identification  of impaired loans and establishment of
specific  loss  allowances  on such  loans;  and (2)  establishment  of  general
valuation  allowances  on the remainder of our loan  portfolio.  A specific loan
loss allowance is established for an impaired loan based on delinquency  status,
size of loan, type of collateral  and/or appraisal of the underlying  collateral
and financial condition of the borrower.  General loan loss allowances are based
upon a combination  of factors  including,  but not limited to, actual loan loss
experience,  composition of the loan portfolio,  current economic conditions and
management's judgment.

         There was a $68,000  provision  for loan losses  recorded  for the year
ended June 30, 2005,  but no provision for loan losses in 2004.  During the year
ended June 30, 2005,  total loans  increased to $562.6 million at June 30, 2005,
from $510.2 million at June 30, 2004. Non-performing loans were $1.9 million, or
0.34%,  of total loans at June 30, 2005, as compared to $2.3 million,  or 0.46%,
of total loans at June 30, 2004.  The  allowance for loan losses as a percentage
of gross loans outstanding was 0.96% at June 30, 2005, compared to 1.01% at June
30, 2004,  reflecting  balances of $5.4 million and $5.1 million,  respectively.
The ratio of the allowance for loan losses to non-performing  loans increased to
281.79% at June 30,  2005,  from  220.96% at June 30,  2004.  The  increase is a
result of a $406,000 decrease in non-performing  loans from $2.3 million at June
30, 2004, to $1.9 million at June 30, 2004.

         Management  assesses  the  allowance  for loan  losses  monthly.  While
management uses available  information to recognize losses on loans, future loan
loss  provisions may be necessary  based on changes in economic  conditions.  In
addition, regulatory agencies, as an integral part of their examination process,
periodically  review  the  allowance  for  loan  losses  and may  require  us to
recognize additional provisions based on their judgment of information available
to them at the time of their  examination.  The  allowance for loan losses as of
June 30,  2005 was  maintained  at a level that  represented  management's  best
estimate of losses in the loan  portfolio to the extent they were both  probable
and reasonably estimable.

         Non-interest  Income.  Non-interest  income attributed to fees, service
charges and  miscellaneous  income and excluding gains on the sale of securities
increased $238,000,  or 14.9%, to $1.8 million for the year ended June 30, 2005,
from $1.6  million  for the year  ended June 30,  2004.  The  increase  resulted
primarily from an increase in fee income from the Bank's retail branch  network,
an increase  in the cash value of bank owned life  insurance  and  non-recurring
loan fee income.  At June 30,  2005,  we had a $4.0 million  investment  in bank
owned life insurance, compared to $3.8 million at June 30, 2004.

         Non-interest  income  attributed to gains on the sale of securities was
$7.7 million in the year ended June 30, 2005, resulting from the sale of 120,000
shares of  Freddie  Mac  common  stock and a trust-  preferred  security  with a
carrying value of $1.0 million.  There were no sales of securities  during 2004.
Concern about the future of government-sponsored  enterprises triggered the sale
of approximately 48% of the Company's Freddie Mac common stock investment.  Both
the  common  stock  and  trust-preferred  security  were  part of the  Company's
available for sale investment portfolio.

         Non-interest  Expense.  Non-interest expense increased $5.4 million, or
18.3%, to $34.9 million for the year ended June 30, 2005, from $29.5 million for
the year ended June 30, 2004. The increase in non-interest expense resulted from
increases in salaries and employee  benefits,  net occupancy expense of premises
and equipment,  advertising  and  miscellaneous  expenses.  These increases were
offset by the absence of merger related expenses in 2005 as compared to $592,000
of such expense during 2004.

                                       47

<PAGE>

         Salaries and employee  benefits  increased $4.3 million,  or 26.1%,  to
$20.8  million in the year ended June 30, 2005,  from $16.5  million in the year
ended June 30, 2004.  The  compensation  component  increased  $1.4 million,  or
12.5%, to $12.6 million for the year ended June 30, 2005, from $11.2 million for
the year ended June 30, 2004. The increase resulted from normal salary increases
plus additional employees,  including several business development personnel and
mortgage  solicitors  hired  during the year.  Pension plan expense and employee
benefits expense increased $1.7 million and $574,000, respectively, for the year
ended June 30, 2005  compared to 2004.  The  increase  in pension  plan  expense
resulted from lower than expected  investment  returns on plan assets and higher
contributions due to the incremental  effect of normal salary increases.  During
the period  March  through  June 2005,  we recorded  $466,000 in employee  stock
ownership plan ("ESOP")  compensation  expense.  The ESOP commenced  immediately
following the initial public  offering  completed in February  2005,  therefore,
there was no such expense recorded in 2004. Benefit expense will increase in the
future  if the  Company's  stockholders  approve  the  establishment  of a stock
benefit plan at the 2005 Annual Meeting.

         Net occupancy  expense of premises and equipment expense increased $1.1
million,  or 18.3%,  to $7.1 million for the year ended June 30, 2005, from $6.0
million for the year ended June 30, 2004. Net occupancy  expense of premises and
equipment expense increased  $640,000 and $478,000,  respectively,  for the year
ended June 30, 2005 compared to 2004.  The increase in net occupancy  expense of
premises  reflects  the  impact of our new  53,000  square  foot  administrative
headquarters   building  in  Fairfield,   New  Jersey.   Management   staff  and
administrative  operations  began  occupying the building in late  September and
continued to move in until December 2004. Approximately nine months of operating
expenses  and six months of  depreciation  expense is included in the year ended
June 30, 2005. The Company is in the process of preparing to lease space vacated
by  management  staff and  administrative  operations  on their  move to the new
headquarters, with the first tenant scheduled to begin occupancy during December
2005. This will generate rental income,  which will partially  offset  occupancy
expense of such  premises  in the future.  The  increase  in  equipment  expense
resulted from higher  depreciation  expense and increased  costs related to data
processing, ATM support and Internet banking, all of which are outsourced.

         Advertising expense increased  $315,000,  or 36.6%, to $1.2 million for
the year ended June 30,  2005,  from  $861,000 for the year ended June 30, 2004.
The increase in advertising  expense resulted from greater media  advertising in
an  attempt to  increase  loan  originations,  publicize  the Bank's  retail and
commercial  products and refine the Bank's branding.  Also,  rather than relying
exclusively  on the large  circulation  newspapers,  management  began  focusing
specifically  on the eight  counties we operate in,  through  advertisements  in
smaller local newspapers.

         All other elements of non-interest expense increased $281,000, or 5.4%,
to $5.8  million for the year ended June 30,  2005,  from $5.5  million,  net of
merger  related  expenses of $592,000 for the year ended June 30, 2004.  Most of
the increase in miscellaneous  expenses is due to the increased costs associated
with being a public company, such as periodic reporting, retention of a transfer
agent and professional  fees.  Professional fees consisting of legal expense and
audit  and  accounting   services  expense   increased   $43,000  and  $161,000,
respectively,  for the year ended June 30, 2005,  compared to 2004. In addition,
as a  public  company,  management  currently  expects  to  spend  approximately
$112,000 to comply with Sarbanes-Oxley Section 404 during 2006. However,  actual
compliance costs could be significantly  higher. The Company recorded expense of
approximately $10,000 in 2005 to begin the compliance effort for Section 404.

         Provision  for Income Taxes.  The provision for income taxes  increased
$2.0 million,  or 35.1%,  to $7.7 million for the year ended June 30, 2005, from
$5.7  million  for the year  ended June 30,  2004.  The  increase  in income tax
expense  resulted from an increase in pre-tax income of $8.0 million,  or 43.0%,
to

                                       48

<PAGE>

$26.6  million in the year ended June 30, 2005,  from $18.6 million for the year
ended  June 30,  2004.  The  effective  income tax rates were 28.9% for the year
ended June 30,  2005,  as  compared  to 30.8% for the year ended June 30,  2004.
Management  attributes  the lower  effective  income tax rate to tax  management
strategies, including investing in bank-qualified tax-exempt municipal bonds and
transferring   investment   securities  held  to  maturity  and  mortgage-backed
securities  held to  maturity  to a New  Jersey  investment  subsidiary,  Kearny
Federal Investment Corp., a wholly-owned subsidiary of the Bank, which commenced
operations in July 2004. Of particular  significance,  tax-exempt municipal bond
interest  reduced the Company's  Federal  income expense by  approximately  $2.2
million.

Comparison of Financial Condition at June 30, 2004 and June 30, 2003

         Our total assets decreased by $60.0 million,  or 3.0%, to $1.94 billion
at June 30, 2004 from $2.0  billion at June 30, 2003,  primarily  due to a $76.2
million net outflow of deposits,  partially  offset by an $18.5 million increase
in Federal Home Loan Bank advances.

         The  decrease  in total  assets  was most  pronounced  in cash and cash
equivalents,  which decreased $286.2 million, or 87.9%, to $39.5 million at June
30,  2004  from  $325.7  million  at June  30,  2003,  in order  to  offset  the
aforementioned   deposit  outflow  and  to  fund  increases  in  the  securities
portfolios.  The securities portfolios,  including both securities available for
sale and securities held to maturity,  increased  $242.0  million,  or 24.0%, to
$1.25 billion at June 30, 2004, from $1.01 billion at June 30, 2003.  Investment
securities  held to  maturity  increased  $148.6  million,  or 51.7%,  to $435.9
million at June 30, 2004, from $287.3 million at June 30, 2003.  Mortgage-backed
securities held to maturity increased $89.8 million, or 13.2%, to $771.4 million
at June 30,  2004,  from $681.6  million at June 30,  2003.  In both cases,  the
increases were the result of investing funds previously held in cash equivalents
in order to increase overall yield. We would not expect further  similarly large
investments of the funds currently held in cash  equivalents into the securities
portfolio since a sufficient amount of cash equivalents is necessary to maintain
sufficient liquidity.

         Loans  receivable  decreased  marginally to $505.8  million at June 30,
2004,  from $509.2  million at June 30, 2003.  One-to  -four family  residential
mortgage loans  decreased by $8.2 million to $358.2 million from $366.4 million,
as repayments exceeded originations and purchases during the year ended June 30,
2004.  Multi-family and commercial real estate mortgage loans increased by $12.3
million to $83.4 million, reflecting our strategy to build this part of our loan
portfolio.

         The West Essex Bancorp, Inc. merger was consummated on July 1, 2003. As
a result,  goodwill increased $50.6 million, or 159.6%, to $82.3 million at June
30, 2004,  from $31.7 million at June 30, 2003.  The $67.9  million  deposit for
acquisition of West Essex Bancorp,  Inc. at June 30, 2003 was paid to West Essex
stockholders.

         Premises and equipment  increased by $6.8 million,  or 34.0%,  to $26.6
million from $19.9 million.  This increase  resulted  mainly from a $5.9 million
increase in construction in progress in connection with the  construction of our
new 53,000  square feet  administrative  building in Fairfield,  New Jersey.  We
began moving management staff and  administrative  operations into parts of this
building in October 2004 and completed the move-in phase in December 2004.

         Total deposits decreased by $76.2 million, or 4.7%, to $1.54 billion at
June 30, 2004,  from $1.61 billion at June 30, 2003. The primary factor for this
decrease was the runoff of  certificates  of deposit due to lower interest rates
paid.

                                       49

<PAGE>

         Federal Home Loan Bank advances  increased $18.5 million,  or 24.4%, to
$94.2 million at June 30, 2004 from $75.7 million at June 30, 2003. The increase
in Federal Home Loan Bank  advances was used to fund the purchase of  investment
securities and mortgage-backed securities  held-to-maturity.  New advances drawn
were fixed rate borrowings with maturities of less than one year.

         Stockholders' equity decreased $2.2 million, or 0.7%, to $293.5 million
at June 30, 2004 from $295.7  million at June 30, 2003,  primarily  reflecting a
$17.3 million reduction related to the purchase, on July 1, 2003, of 100% of the
outstanding minority owned shares of West Essex Bancorp,  Inc., partially offset
by net income of $12.9 million for the twelve months ended June 30, 2004,  along
with an increase  in  accumulated  other  comprehensive  income of $2.3  million
reflecting an increase in the unrealized gain on available for sale securities.

Comparison  of Operating  Results for the Years Ended June 30, 2004 and June 30,
2003

         General. Net income for the year ended June 30, 2004 was $12.9 million,
an increase of $8.8 million, or 218.1%, from $4.1 million for 2003. The increase
in net  income  resulted  primarily  from a  decrease  in  non-interest  expense
primarily due to significantly lower merger related expenses recorded in 2004 as
compared to 2003, partially offset by a decrease in net interest income.

         Net Interest Income. Net interest income decreased by $5.2 million,  or
10.0%,  to $46.6 million for the year ended June 30, 2004 from $51.8 million for
the year ended June 30, 2003. The net interest rate spread increased slightly to
2.37% for the year ended June 30,  2004 from  2.36% for 2003.  The net  interest
margin  decreased  16 basis  points to 2.59% for the year  ended  June 30,  2004
compared  with 2.75% for the year ended June 30,  2003.  The net  interest  rate
spread  changed  little  as  the  76  basis  point  reduction  in  the  cost  of
interest-bearing  liabilities  was closely matched by the 75 basis point decline
in the  average  yield  on  interest-earning  assets.  The  decrease  in the net
interest  margin  is  largely  reflective  of  the  decrease  in  the  ratio  of
interest-earning assets to interest-bearing  liabilities to 112.46% for the year
ended June 30, 2004, from 116.54% for the year ended June 30, 2003.

         Interest  Income.  Total interest income  decreased  $17.8 million,  or
18.5%, to $78.7 million for the year ended June 30, 2004, from $96.5 million for
the year ended  June 30,  2003,  due to  decreases  in average  interest-earning
assets,  which  declined  $87.3  million,  or 4.6%,  to $1.79 billion from $1.88
billion, and average yield, which declined to 4.38% from 5.13%.

         Interest income on loans receivable  decreased $7.8 million,  or 21.3%,
to $28.9  million for the year ended June 30, 2004,  from $36.7  million for the
year ended June 30, 2003. The primary factor for the decrease in interest income
on loans  was a  decrease  in the  average  yield on loans to 5.79% for the year
ended June 30,  2004,  from  6.71% for the year  ended  June 30,  2003 which was
accompanied  by a  $47.0  million  decrease  in the  average  balance  of  loans
receivable  from  $546.5  million  for the year ended June 30,  2003,  to $499.5
million for the year ended June 30, 2004. The decreased average balance reflects
the high pace of refinancing and prepayment activity which resulted from the low
interest rate environment and which exceeded origination volume. The lower yield
reflects  generally  lower  interest  rates on  originations  and downward  rate
adjustments on adjustable rate and floating rate loans.

         Interest  income on investment  securities,  including both taxable and
tax-exempt  issues,  increased $5.3 million,  or 58.2%, to $14.4 million for the
year ended June 30, 2004 from $9.1 million for the year ended June 30, 2003. The
increase  resulted from an increase of $171.6 million,  or 67.6%, in the average
balance of investment  securities to $425.3  million  during the year ended June
30,  2004 from $253.7  million  during the year ended June 30,  2003,  partially
offset by a decrease in the average yield on investment

                                       50

<PAGE>

securities  to 3.39%  during the year ended June 30, 2004 from 3.60%  during the
year ended June 30, 2003.  The lower yield  reflects  generally  lower  interest
rates available on securities  purchased  during the current year. The increased
average balance reflects the reinvestment of cash flows from repayments of loans
and  mortgage-backed  securities  held  to  maturity,   reflecting  management's
decision to shift assets from those vulnerable to high  prepayments,  as well as
the redeployment of cash and cash equivalents,  reflecting management's decision
to move  assets  from low  yielding  interest-bearing  deposits  and  securities
purchased under agreements to resell into higher yielding securities.

         Interest income on mortgage-backed  securities decreased $13.8 million,
or 28.9%,  to $34.0  million for the year ended June 30, 2004 from $47.8 million
for the year  ended June 30,  2003.  This was a result of a $162.9  million,  or
18.6%,  decrease in the average balance of mortgage-backed  securities to $713.4
million  during the year ended June 30, 2004 from $876.3 million during the year
ended June 30, 2003,  along with a decrease in the average yield to 4.76% during
the year ended June 30, 2004 from 5.45% during the year ended June 30, 2003. The
decrease in the average  balance of  mortgage-backed  securities was due to high
repayment  levels  due  to  accelerated   prepayments  and  refinancing  of  the
underlying  mortgage loans,  with a significant  portion of the cash flows being
reinvested  in  investment  securities.  The  decline  in  yield  resulted  from
principal  repayments  received on older higher  yielding  securities  while new
purchases were made in a lower interest rate environment.

         Interest income on securities  purchased under agreements to resell and
other interest-earning  assets decreased $1.6 million, or 55.2%, to $1.3 million
for the year ended June 30,  2004 from $2.9  million for the year ended June 30,
2003.  This was a result of a $49.0 million,  or 23.9%,  decrease in the average
balance of these  assets to $156.3  million  during the year ended June 30, 2004
from $205.3 million  during the year ended June 30, 2003,  along with a decrease
in the  average  yield to 0.85%  during the year ended June 30,  2004 from 1.42%
during the year ended June 30, 2003. The decrease in the average balance was due
to the use of assets in these categories to invest in higher yielding securities
and to  fund  deposit  outflows.  The  decline  in  yield  resulted  from  lower
short-term market interest rates.

         Interest Expense.  Total interest expense  decreased $12.6 million,  or
28.2%,  to $32.1 million for the year ended June 30, 2004 from $44.7 million for
the year ended June 30, 2003, primarily as a result of a decrease in the average
cost of  interest-bearing  liabilities  to 2.01%  during the year ended June 30,
2004 from 2.77%  during the year ended June 30,  2003.  The  average  balance of
interest-bearing  liabilities declined slightly to $1.60 billion during the year
ended June 30, 2004 as compared to $1.61 billion  during the year ended June 30,
2003.  Average cost  decreased  due to lower market  interest  rates  prevailing
during the period.

         Interest  expense on deposits  decreased  $11.8 million,  or 29.6%,  to
$28.1  million for the year ended June 30, 2004 from $39.9  million for the year
ended  June  30,  2003,  primarily  due to a  decrease  in the  average  cost of
interest-bearing  deposits  to 1.85%  during the year  ended June 30,  2004 from
2.63% during the year ended June 30, 2003. The average cost of  certificates  of
deposit  declined  to 2.25% from  3.22%,  the  average  cost of savings and club
accounts declined to 1.23% from 1.58%, and the average cost of  interest-bearing
demand  accounts   declined  to  0.80%  from  1.09%.   The  average  balance  of
interest-bearing  deposits remained  relatively stable overall at $1.52 billion,
although a shift  from  certificates  of deposit to savings  and club and demand
accounts took place.  Certificates  of deposit  declined to $963.1  million from
$1.0 billion,  savings and club accounts increased to $448.5 million from $417.8
million, and  interest-bearing  demand accounts increased to $109.8 million from
$98.9  million.  This shift in deposit  composition  reflects  the impact of the
lower interest rate environment.

                                       51

<PAGE>

         Interest expense on Federal Home Loan Bank advances decreased $769,000,
or 16.1%, to $4.0 million for the year ended June 30, 2004 from $4.8 million for
the year ended June 30, 2003,  as a result of a decrease in the average  balance
to $74.3 million  during the year ended June 30, 2004 from $95.9 million  during
the year ended June 30, 2003,  which more than offset an increase in the average
cost to 5.40%  during the year ended  June 30,  2004 from 4.99%  during the year
ended June 30,  2003.  Both the decline in average  balance and the  increase in
average  cost were the result of the  repayment  of lower cost  short-term  debt
during 2004.

         Provision  for Loan Losses.  Provisions  for loan losses are charged to
operations at a level  required to reflect  credit losses in the loan  portfolio
that are both probable and  reasonable to estimate.  Management,  in determining
the  allowance  for loan  losses,  considers  the  losses  inherent  in the loan
portfolio  and  changes in the nature and volume of our loan  activities,  along
with the general  economic and real estate market  conditions.  We utilize a two
tier  approach:  (1)  identification  of  impaired  loans and  establishment  of
specific  loss  allowances  on such  loans;  and (2)  establishment  of  general
valuation  allowances  on the remainder of our loan  portfolio.  A specific loan
loss allowance is established for an impaired loan based on delinquency  status,
size of loan, type of collateral  and/or appraisal of the underlying  collateral
and financial condition of the borrower.  General loan loss allowances are based
upon a combination  of factors  including,  but not limited to, actual loan loss
experience,  composition of the loan portfolio,  current economic conditions and
management's judgment.

         There was no provision for loan losses made during the years ended June
30, 2004 and 2003.  During the year ended June 30, 2004,  total loans  decreased
slightly  to $510.2  million at June 30,  2004 from  $512.4  million at June 30,
2003.  Non-performing  loans were $2.3 million, or 0.46%, of total loans at June
30,  2004,  as compared to $2.9  million,  or 0.57%,  of total loans at June 30,
2003.  The allowance for loan losses as a percentage of gross loans  outstanding
was 1.01% at both June 30, 2004 and 2003,  reflecting  balances of $5.1  million
and $5.2 million,  respectively.  The increase in the ratio of the allowance for
loan losses to non-performing  loans to 220.96% at June 30, 2004 from 177.64% at
June 30, 2003 is a result of a $588,000  decrease in  non-performing  loans from
$2.9 million at June 30, 2003 to $2.3 million at June 30, 2004.

         Management  assesses  the  allowance  for loan  losses  monthly.  While
management uses available  information to recognize losses on loans, future loan
loss  provisions may be necessary  based on changes in economic  conditions.  In
addition, regulatory agencies, as an integral part of their examination process,
periodically  review  the  allowance  for  loan  losses  and may  require  us to
recognize additional provisions based on their judgment of information available
to them at the time of their  examination.  The  allowance for loan losses as of
June 30,  2004 was  maintained  at a level that  represented  management's  best
estimate of losses in the loan  portfolio to the extent they were both  probable
and reasonably estimable.

         Non-Interest Income.  Non-interest income decreased $287,000, or 15.5%,
to $1.6  million for the year ended June 30, 2004  compared to $1.8  million for
the year ended June 30, 2003. The decrease was primarily a result of a reduction
in fees and service charge income due to the deposit outflow  experienced during
the year.

         At June 30, 2004,  we had a $3.8 million  investment in bank owned life
insurance.  The  returns  on the  investment  of the cash  value  of the  policy
generate non-interest income. This investment was acquired in our acquisition of
West Essex Bank in 2003 and covers  the  former  president  and chief  executive
officer and former chief lending officer of West Essex Bank.

                                       52

<PAGE>

         Non-Interest Expense.  Non-interest expense decreased $14.9 million, or
33.6%, to $29.5 million for the year ended June 30, 2004, from $44.4 million for
the year ended June 30, 2003.  The decrease was  primarily a result of decreases
of $14.3  million in merger  related  expenses  and  $440,000  in  salaries  and
employee benefits.

         Merger  related  expenses  decreased  $14.3 million to $592,000 for the
year ended June 30, 2004,  from $14.9  million for the year ended June 30, 2003.
Included  in the amount  recorded  during the year ended June 30, 2003 are $12.3
million in expenses related to the payout of employment  contracts,  unexercised
stock options, supplemental benefit plans and incentive stock awards as a result
of both the Pulaski and West Essex mergers.  The expenses  recorded for the year
ended June 30,  2004,  and the  remaining  expenses  for the year ended June 30,
2003,  consisted  primarily of fees due to attorneys and financial  advisors for
their work related to the mergers.

         Salaries and employee benefits  decreased  $440,000,  or 2.6%, to $16.5
million for the year ended June 30, 2004, compared to $17.0 million for the year
ended June 30, 2003.  The decrease was the result of the  elimination of several
management and  non-management  positions related to the merger with West Essex,
the impact of which more than  offset  normal  increases  in salary and  benefit
levels.

         All other elements of  non-interest  expense  totaled $12.4 million for
the year ended June 30, 2004, a decrease of  $111,000,  or 0.9%,  from the $12.5
million  total for the year ended June 30, 2003.  This decrease  reflects  costs
savings  realized  as a result of the West  Essex  merger,  partially  offset by
normal increases in these elements.

         Management  expects increased expenses in the future as a result of the
establishment  of the employee  stock  ownership  plan and the  potential  stock
benefit plans, as well as increased costs associated with being a public company
such as periodic reporting, annual meetings,  retention of a transfer agent, and
professional fees.

         Furthermore, non-interest expense for the year ended June 30, 2004 does
not reflect the impact of our new 53,000 square feet administrative  building in
Fairfield,  New Jersey.  We began  moving  management  staff and  administrative
operations into parts of this building in October 2004 and completed the move-in
phase in  December  2004.  The total cost of this  building  is  expected  to be
approximately $13.5 million, which cost will be capitalized and amortized over a
forty-year  period.  Additionally,  it is  estimated  that the annual  operating
expense of this new  building,  excluding  depreciation,  will be  approximately
$450,000.  We expect to open a de novo branch office in Lacey, New Jersey in the
first quarter of 2005, with a total cost of approximately  $2.3 million.  During
2005, we also plan to replace three office  locations with new buildings,  at an
estimated  cost of  approximately  $1.9  million  per  branch.  Furthermore,  in
December of 2004,  we acquired a 3.7 acre parcel of land in West  Caldwell,  New
Jersey for approximately $2.3 million. We intend to construct a branch office at
this  location and  subdivide and lease to third parties the portion of land not
used for the branch building.  Expenses related to the planned  expansion of our
operations  through de novo  branching and the  acquisition of branches or other
financial institutions could also impact earnings in future periods.

         Provision  for Income Taxes.  The provision for income taxes  increased
$508,000 to $5.7  million for the year ended June 30, 2004 from $5.2 million for
the year ended June 30, 2003. The effective  income tax rates were 30.8% for the
year ended June 30, 2004 as compared to 56.4% for the year ended June 30,  2003.
The income tax  expense  for the year ended June 30,  2003 was higher than usual
due  to  the  presence  of  non-deductible   merger  related  costs  and  excess
compensation  expenses,  partially  offset by a tax benefit  related to a former
employee  benefit  plan.  The impact of these items was to  increase  income tax
expense

                                       53

<PAGE>

for the year ended June 30, 2003 by approximately $1.9 million.  Excluding these
items,  the  effective tax rate for the year ended June 30, 2003 would have been
36.2%.

Comparison  of Operating  Results for the Years Ended June 30, 2003 and June 30,
2002

         General.  Net income for the year ended June 30, 2003 was $4.1 million,
a decrease of $12.4  million,  or 75.4%,  from $16.5  million for the year ended
June 30, 2002. The decrease in net income was due to a $15.3 million increase in
non-interest expense,  primarily  attributable to approximately $12.9 million of
expenses  related to the West Essex  merger and  approximately  $2.0  million of
expenses  related to the  Pulaski  merger,  partially  offset by a $2.7  million
decrease in income taxes.

         Net Interest Income.  Net interest income increased by $78,000,  or 0.2
%, to $51.8 million for the year ended June 30, 2003, from $51.7 million for the
year ended June 30, 2002.  The net interest  rate spread  increased  slightly to
2.36% for the year  ended  June 30,  2003 from 2.35% for the year ended June 30,
2002,  while the net interest margin  decreased  during the period to 2.75% from
2.95%.  The net  interest  rate  spread  changed  little  as the 94 basis  point
reduction in the cost of interest-bearing liabilities was closely matched by the
93 basis point  decline in the average  yield on  interest-earning  assets.  The
decrease in the net interest margin is largely reflective of the decrease in the
ratio of interest-earning assets to interest-bearing  liabilities to 116.54% for
the year ended June 30, 2003, from 119.58% for the year ended June 30, 2002.

         Interest Income.  Total interest income  decreased by $9.7 million,  or
9.1%, to $96.5 million for the year ended June 30, 2003 from $106.2  million for
the year ended June 30,  2002.  The primary  factor for the decrease in interest
income was a decrease in the average yield of interest-earning assets from 6.06%
for the year  ended June 30,  2002 to 5.13% for the year  ended  June 30,  2003.
Partially offsetting the decreased yield was a $129.0 million, or 7.4%, increase
in the average balance of interest-earning  assets.  Average yield decreased due
to lower market  interest rates  prevailing  during the period.  The increase in
average assets was funded by an overall increase in average deposits.

         Interest income on loans receivable  decreased $6.6 million,  or 15.2%,
to $36.7  million for the year ended June 30, 2003,  from $43.3  million for the
year ended June 30, 2002. The primary  factors for the decrease in loan interest
income  were a  decrease  of  $56.6  million  in the  average  balance  of loans
receivable  along with a decrease in the average  yield on loans  receivable  to
6.71% from 7.17%.  The  decrease  in average  loans was the result of the higher
than  normal  loan  repayments   which  resulted  from  the  low  interest  rate
environment and which exceeded  origination  volume. The decrease in the average
yield on loans  receivable  reflected  decreased  market  rates of  interest  on
originations as well as downward  interest rate adjustments on floating rate and
adjustable rate loans.

         Interest  income on investment  securities,  including both taxable and
tax-exempt  issues,  decreased  $794,000,  or 8.0%, to $9.1 million for the year
ended June 30, 2003,  from $9.9  million for the year ended June 30,  2002.  The
decrease resulted from a decrease in the average yield on investment  securities
to 3.60% during the year ended June 30,  2003,  from 5.25% during the year ended
June 30, 2002,  which was partially  offset by an increase of $64.6 million,  or
34.2%, in the average balance of investment  securities to $253.7 million during
the year ended June 30, 2003, from $189.1 million during the year ended June 30,
2002. The lower yield reflects  $108.7 million of maturities and calls of higher
yielding issues,  as well as the generally lower interest rates available on the
securities  purchased during the year ended June 30, 2003. The increased average
balance  reflects the reinvestment of a portion of the cash flow from repayments
of loans and mortgage-backed securities held to maturity.

                                       54

<PAGE>

         Interest income on mortgage-backed  securities  decreased $2.4 million,
or 4.8%,  to $47.8  million for the year ended June 30, 2003 from $50.2  million
for the year ended June 30,  2002.  This  decrease was a result of a decrease in
the  average  yield to 5.45%  during the year ended  June 30,  2003,  from 5.93%
during the year ended June 30,  2002,  partially  offset by an increase of $28.7
million, or 3.4%, in the average balance of mortgage-backed securities to $876.3
million during the year ended June 30, 2003, from $847.6 million during the year
ended June 30, 2002.  The decline in yield  resulted from  principal  repayments
received on older higher yielding  securities while new purchases were made in a
lower  interest  rate  environment.  The  change  in  average  balance  was  not
considered significant.

         Interest income on securities  purchased under agreements to resell and
other interest-earning  assets increased $170,000, or 6.2%, to $2.92 million for
the year ended June 30,  2003,  from $2.75  million  for the year ended June 30,
2002.  This was a result of a $92.3 million,  or 81.7%,  increase in the average
balance of these assets to $205.3  million  during the year ended June 30, 2003,
from $113.0 million during the year ended June 30, 2002,  partially  offset by a
decrease in the average yield to 1.42% during the year ended June 30, 2003, from
2.44% during the year ended June 30, 2002.  The increase in the average  balance
was due to the  accumulation of assets in these  categories  which resulted from
heavy  repayments on the  securities  portfolios.  The decline in yield resulted
from lower short-term market interest rates.

         Interest  Expense.  Total interest expense  decreased $9.7 million,  or
17.8%,  to $44.7 million for the year ended June 30, 2003 from $54.4 million for
the year ended June 30, 2002, primarily as a result of a decrease in the average
cost of  interest-bearing  liabilities  to 2.77%  during the year ended June 30,
2003,  from 3.71%  during the year ended June 30,  2002,  partially  offset by a
$149.0,  or  10.2%,   increase  in  the  average  balance  of   interest-bearing
liabilities to $1.61 billion during the year ended June 30, 2003, as compared to
$1.47 billion during the year ended June 30, 2002. Average cost decreased due to
lower market interest rates prevailing during the period.  The growth in average
interest-bearing liabilities is attributed to the growth of the deposit base.

         Interest expense on deposits decreased $9.2 million, or 18.7%, to $39.9
million for the year ended June 30, 2003,  from $49.1 million for the year ended
June 30, 2002. The decrease in interest expense on deposits  primarily  resulted
from a decrease in the average  cost to 2.63% for the year ended June 30,  2003,
from  3.61%  for the year  ended  June 30,  2002,  partially  offset by a $160.6
million, or 11.8 %, increase in the average balance of interest-bearing deposits
to $1.52  billion  during the year ended June 30,  2003,  as  compared  to $1.36
billion  during the year ended June 30, 2002.  The decreased  average cost was a
result of the decline in market  interest  rates from 2002 to 2003. The increase
in the  average  balance  of  interest-bearing  deposits  was the result of both
interest  credited to accounts and growth of the deposit base.  Certificates  of
deposit increased to $1.0 billion from $924.0 million, savings and club accounts
increased to $417.8 million from $340.7  million,  and  interest-bearing  demand
accounts increased to $98.9 million from $93.6 million.

         Interest expense on Federal Home Loan Bank advances decreased $587,000,
or 10.9%,  to $4.8 million for the year ended June 30,  2003,  from $5.4 million
for the year ended June 30,  2002,  primarily  as a result of a decrease  in the
average balance of outstanding advances to $95.9 million for the year ended June
30, 2003, from $107.5 million for the year ended June 30, 2002. The average cost
remained relatively unchanged at 4.99% and 5.00%, respectively.

         Provision  for Loan Losses.  Provisions  for loan losses are charged to
operations at a level  required to reflect  credit losses in the loan  portfolio
that are both probable and  reasonable to estimate.  Management,  in determining
the  allowance  for loan  losses,  considers  the  losses  inherent  in the loan
portfolio  and  changes in the nature and volume of our loan  activities,  along
with the general economic and real estate market

                                       55

<PAGE>

conditions. We utilize a two tier approach: (1) identification of impaired loans
and   establishment   of  specific  loss  allowances  on  such  loans;  and  (2)
establishment  of general  valuation  allowances  on the  remainder  of our loan
portfolio.  A specific loan loss allowance is  established  for an impaired loan
based on delinquency  status,  size of loan, type of collateral and/or appraisal
of the underlying  collateral and financial  condition of the borrower.  General
loan loss allowances are based upon a combination of factors including,  but not
limited to,  actual loan loss  experience,  composition  of the loan  portfolio,
current economic conditions and management's judgment.

         There was no provision  for losses for the year ended June 30, 2003, as
compared to $3,000 for the year ended June 30, 2002.  The overall loan portfolio
reflected an $81.8 million, or 13.8%, decrease in total loans. The allowance for
loan losses as a  percentage  of gross loans  outstanding  increased to 1.01% at
June 30, 2003, from 0.87% at June 30, 2002,  reflecting balances of $5.2 million
and $5.2 million,  respectively.  Non-performing  loans as a percentage of gross
loans increased only slightly to 0.57% at June 30, 2003, as compared to 0.55% at
June 30, 2002.

         Non-Interest Income. Non-interest income increased $82,000, or 4.6%, to
$1.85 million for the year ended June 30, 2003, as compared to $1.77 million for
the year ended June 30, 2002. This minimal  increase in non-interest  income for
2003, as compared to 2002, was consistent with management's expectations.

         Non-Interest Expense.  Non-interest expense increased $15.3 million, or
52.6%, to $44.4 million for the year ended June 30, 2003, from $29.1 million for
the year ended June 30, 2002.  The  increase  was  primarily a result of a $14.3
million increase in merger related expenses,  partially offset by a $2.3 million
decrease in goodwill and intangible asset amortization.

         Merger related  expenses  increased  $14.3 million to $14.9 million for
the year ended June 30,  2003,  from  $619,000 for the year ended June 30, 2002.
Included in the amount  recorded  during the year ended June 30, 2003, are $12.3
million in expenses related to the payout of employment  contracts,  unexercised
stock options, supplemental benefit plans and incentive stock awards as a result
of both the Pulaski and West Essex mergers.  The remaining expenses recorded for
the year ended June 30, 2003,  and for the year ended June 30,  2002,  consisted
primarily of fees due attorneys and financial advisors for their work related to
the mergers.

         Goodwill and intangible  asset  amortization  decreased to $636,000 for
the year  ended June 30,  2003,  from $2.9  million  for the year ended June 30,
2002,  due to the  adoption,  effective  July 1, 2003, of Statement of Financial
Accounting  Standards No. 142, "Goodwill and Other Intangible Assets." Statement
No. 142 eliminated the  amortization of goodwill and,  accordingly,  no goodwill
related amortization expense was recognized during the year ended June 30, 2003.
Goodwill amortization totaled $2.3 million during the year ended June 30, 2002.

         All other elements of  non-interest  expense  totaled $28.8 million for
the year ended June 30, 2003,  an increase of $3.3 million,  or 12.9%,  over the
$25.5  million  amount for the year ended June 30, 2002.  The increases in these
elements are attributable to the growth of the institution and were reflected in
salary and employee benefits,  net occupancy expenses,  equipment,  advertising,
and miscellaneous expenses.

         Provision  for Income Taxes.  The provision for income taxes  decreased
$2.7 million to $5.2 million for the year ended June 30, 2003, from $7.9 million
for the year ended June 30, 2002. The effective  income tax rates were 56.4% for
the year ended June 30,  2003,  as compared to 32.5% for the year ended June 30,
2002. The income tax expense for the year ended June 30, 2003, was higher than

                                       56

<PAGE>

usual due to the  presence of  non-deductible  merger  related  costs and excess
compensation  expenses,  partially  offset by a tax benefit  related to a former
employee  benefit  plan.  The impact of these items was to  increase  income tax
expense  for the year  ended  June 30,  2003,  by  approximately  $1.9  million.
Excluding these items,  the effective tax rate for the year ended June 30, 2003,
would have been 36.2%.  The effective tax rate for the year ended June 30, 2003,
was  expected  to be higher  than in the  preceding  year due to the effect of a
change in the New Jersey  statutory  tax rate whereby the statutory tax rate was
increased from 3% to 9% effective January 1, 2002.

                                       57

<PAGE>

         Average   Balance  Sheet.   The  following  table  sets  forth  certain
information relating to Kearny Financial Corp. at and for the periods indicated.
The average  yields and costs are  derived by dividing  income or expense by the
average  balance  of  assets  or  liabilities,  respectively,  for  the  periods
presented. Average balances are derived from daily, weekly and monthly balances.
Management does not believe that the use of other than daily balances has caused
any material differences in the information presented in the table.

<TABLE>
<CAPTION>
                                                                            For the Year Ended June 30,
                              At June 30,    ---------------------------------------------------------------------------------------
                                  2005                       2005                         2004                        2003
                             -------------   ---------------------------------------------------------------------------------------
                                      Actual                         Average                      Average                    Average
                             Actual   yield/    Average              Yield/    Average            Yield/    Average           Yield/
                             Balance   Cost     Balance    Interest   Cost     Balance  Interest   Cost     Balance Interest   Cost
                             -------   ----     -------    --------   ----     -------  --------   ----     ------- --------   ----
                                                                                (Dollars in thousands)
<S>                     <C>          <C>   <C>            <C>       <C>    <C>          <C>       <C>      <C>      <C>       <C>
Interest-earning assets:
 Loans receivable,
   net(1).................$  558,018   5.59% $  517,746     $29,311   5.66% $  499,510   $28,919   5.79%   $546,521 $36,673    6.71%
 Mortgage-backed
   securities held
   to maturity............   758,121   4.74     740,417      33,954   4.59     713,422    33,980   4.76     876,348  47,764    5.45
 Investment
   securities:(2)
    Tax-exempt............   204,629   3.79     180,513       6,873   3.81     141,630     5,702   4.03      98,626   4,346    4.41
    Taxable...............   299,060   3.25     309,740       9,663   3.12     283,708     8,724   3.07     155,051   4,787    3.09
 Securities
   purchased under
   agreements to
   resell.................         -   0.00           -           -   0.00      95,385       982   1.03     118,077   1,577    1.34
 Other interest-earning
  assets(3)...............   134,543   3.36     114,916       2,642   2.30      60,885       347   0.57      87,238   1,345    1.54
                          ----------         ----------     -------         ----------   -------         ---------- -------
    Total
      interest-
      earning assets...... 1,954,371   4.56   1,863,332      82,443   4.42   1,794,540    78,654   4.38   1,881,861  96,492    5.13
                          ----------         ----------     -------         ----------   -------         ---------- -------
 Non-interest-
  earning assets..........   152,634            151,055                        144,698                       83,357
                          ----------         ----------                     ----------                   ----------
    Total assets..........$2,107,005         $2,014,387                     $1,939,238                   $1,965,218
                          ==========         ==========                     ==========                   ==========
Interest-bearing
  liabilities:
 Interest-bearing
   demand.................$   99,308   0.78  $  105,503         752   0.71  $  109,830       882   0.80      98,926   1,074    1.09
 Savings and club.........   450,211   1.12     533,131       5,422   1.02     448,509     5,508   1.23     417,780   6,604    1.58
 Certificates of
   deposit................   923,116   2.81     873,907      20,360   2.33     963,089    21,692   2.25   1,002,229  32,230    3.22
 Federal Home Loan
   Bank advances..........    61,687   5.47      80,990       3,890   4.80      74,340     4,018   5.40      95,853   4,787    4.99
                          ----------         ----------     -------         ----------   -------         ---------- -------
    Total interest-
      bearing
      liabilities......... 1,534,322   2.29   1,593,531      30,424   1.91   1,595,768    32,100   2.01   1,614,788  44,695   2.77
 Non-interest-bearing                                       -------                      -------                     ------
   liabilities............    67,201             71,119                         57,846                       56,217
                          ----------         ----------                     ----------                   ----------
    Total liabilities..... 1,601,523          1,664,650                      1,653,614                    1,671,005
Stockholders' equity......   505,482            349,737                        285,624                      294,213
                          ----------         ----------                     ----------                   ----------
    Total liabilities
      and stockholders'
      equity..............$2,107,005         $2,014,387                     $1,939,238                   $1,965,218
                          ==========         ==========                     ==========                   ==========
Net interest income.......                                  $52,019                      $46,554                    $51,797
                                                            =======                      =======                    =======
Interest rate
  spread(4)...............             2.27%                          2.51%                        2.37%                       2.36%
                                       ====                           ====                         ====                        ====
Net yield on
  interest-earning
  assets(5)...............                                            2.79%                        2.59%                       2.75%
                                                                      ====                         ====                        ====
Ratio of average
  interest-earning
  assets to average
  interest-bearing
  liabilities.............      1.27x              1.17x                          1.12x                          1.17x
                                ====               ====                           ====                           ====
</TABLE>

_________________
(1)  Non-accruing loans have been inccluded in loans receivable,  and the effect
     of such inclusion was not material.
(2)  Includes both available for sale and held to maturity securities.
(3)  Includes  interest-bearing deposits at other banks, federal funds purchased
     and Federal Home Loan Bank of New York capital stock.
(4)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(5)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       58

<PAGE>

         Rate/Volume  Analysis.  The following table reflects the sensitivity of
Kearny  Financial  Corp.'s  interest  income and interest  expense to changes in
volume and in  prevailing  interest  rates  during the periods  indicated.  Each
category  reflects the: (1) changes in volume  (changes in volume  multiplied by
old rate);  (2) changes in rate (changes in rate multiplied by old volume);  and
(3) net change. The net change attributable to the combined impact of volume and
rate has been allocated  proportionally to the absolute dollar amounts of change
in each.

<TABLE>
<CAPTION>
                                                            Year Ended June 30,               Year Ended June 30,
                                                     --------------------------------    --------------------------------
                                                               2005 vs. 2004                     2004 vs. 2003
                                                     --------------------------------    --------------------------------
                                                            Increase (Decrease)               Increase (Decrease)
                                                                  Due to                              Due to
                                                     --------------------------------    --------------------------------
                                                      Volume       Rate         Net       Volume       Rate         Net
                                                     --------    --------    --------    --------    --------    --------
                                                                                (In thousands)
<S>                                                 <C>         <C>         <C>         <C>         <C>         <C>
Interest and dividend income:
 Loans receivable ................................   $  1,047    $   (655)   $    392    $ (2,989)   $ (4,765)   $ (7,754)
 Mortgage-backed securities held to maturity .....      1,234      (1,260)        (26)     (8,201)     (5,583)    (13,784)
 Investment securities:
   Tax-exempt ....................................      1,497        (326)      1,171       1,758        (402)      1,356
   Taxable .......................................        797         142         939       3,968         (31)      3,937
 Securities purchased under agreements to resell..       (491)       (491)       (982)       (270)       (325)       (595)
 Other interest-earning assets ...................        519       1,776       2,295        (323)       (675)       (998)
                                                     --------    --------    --------    --------    --------    --------
  Total interest-earning assets ..................   $  4,603    $   (814)   $  3,789    $ (6,057)   $(11,781)   $(17,838)
                                                     ========    ========    ========    ========    ========    ========

Interest expense:
 Interest-bearing demand .........................   $    (34)   $    (96)   $   (130)   $    112    $   (304)   $   (192)
 Savings and club ................................        944      (1,030)        (86)        456      (1,552)     (1,096)
 Certificates of deposit .........................     (2,076)        744      (1,332)     (1,210)     (9,328)    (10,538)
 Advances from Federal Home Loan Bank ............        341        (469)       (128)     (1,138)        369        (769)
                                                     --------    --------    --------    --------    --------    --------
   Total interest-bearing liabilities ............   $   (825)   $   (851)   $ (1,676)   $ (1,780)   $(10,815)   $(12,595)
                                                     ========    ========    ========    ========    ========    ========

Change in net interest income ....................   $  5,428    $     37    $  5,465    $ (4,277)   $   (966)   $ (5,243)
                                                     ========    ========    ========    ========    ========    ========

</TABLE>

                                       59

<PAGE>

Liquidity and Commitments

         We are  required  to have  enough  investments  that  qualify as liquid
assets  in order to  maintain  sufficient  liquidity  to ensure a safe and sound
operation. Liquidity may increase or decrease depending upon the availability of
funds and comparative  yields on investments in relation to the return on loans.
Historically,  we have  maintained  liquid  assets above  levels  believed to be
adequate to meet the  requirements  of normal  operations,  including  potential
deposit  outflows.  Cash flow projections are regularly  reviewed and updated to
assure that adequate liquidity is maintained.

         Our liquidity,  represented by cash and cash equivalents,  is a product
of our operating,  investing and financing activities.  The largest uses of cash
by investing  activities during the year ended June 30, 2005 was to fund a $52.2
million increase in loans  receivable,  net and the purchase of $34.2 million of
investment  securities  held to maturity.  At June 30,  2005,  our cash and cash
equivalents  totaled  $139.9  million,  as compared to $39.5 million at June 30,
2004. Cash and cash equivalents  increased $100.4 million, or 254.2%, due to the
proceeds  from the  initial  public  offering  completed  in February  2005.  We
invested  some of the  proceeds  in  investment  securities  held  to  maturity,
particularly  tax-exempt  securities.  Demand for mortgages  contributed  to the
decrease in mortgage-backed  securities,  with the reinvestment of principal and
interest  payments into mortgage  loans,  supplemented by the investment of cash
and cash equivalents from the initial public offering.

         At June 30, 2005, our total  deposits were $1.53  billion,  compared to
$1.54  billion  at June 30,  2004,  and our  Federal  Home Loan Bank of New York
borrowings  were $61.7 million  compared to $94.2  million a year  earlier.  The
primary  factor for the decrease in deposits was the runoff of  certificates  of
deposit due to low interest  rates and a movement by  customers  to  alternative
investment  opportunities  in the  marketplace in the first half of fiscal 2005.
However,  rising short-term  interest rates reversed the trend during the second
half  of  the  year.   We  also  saw  $40.4   million   of   deposits,   net  of
oversubscriptions  withdrawn to purchase the  Company's  common stock during the
initial  public  offering.  Federal  Home Loan  Bank  advances  decreased  as we
replaced short-term advances borrowed earlier in the year to fund commitments to
purchase securities, with proceeds from the initial public offering completed in
February 2005.

         Our primary  sources of funds are deposits,  amortization,  prepayments
and maturities of mortgage-backed  securities and outstanding loans,  maturities
of investment  securities and other  short-term  investments  and funds provided
from  operations.  While scheduled  payments from the  amortization of loans and
mortgage-backed  securities  and maturing  investment  securities and short-term
investments are relatively  predictable sources of funds, deposit flows and loan
and  mortgage-backed  securities  prepayments are greatly  influenced by general
interest rates,  economic  conditions and  competition.  In addition,  we invest
excess funds in short-term  interest-earning  assets, which provide liquidity to
meet lending requirements. We also generate cash through borrowings.

         Liquidity management is both a daily and long-term function of business
management.  Excess  liquidity is generally  invested in short-term  investments
such as  overnight  deposits or U.S.  agency  securities.  We use our sources of
funds primarily to meet our ongoing commitments, to pay maturing certificates of
deposit and savings  withdrawals,  to fund loan  commitments and to maintain our
portfolio of mortgage-backed  securities and investment securities.  At June 30,
2005, the total approved loan origination  commitments  outstanding  amounted to
$33.7 million and there were no commitments to purchase participation  interests
in loans.  At the same  date,  unused  lines of credit  were $30.0  million  and
construction  loans in  process  were  $6.5  million.  Certificates  of  deposit
scheduled  to  mature  in one  year or less at June  30,  2005,  totaled  $701.7
million. The average cost of deposits increased throughout fiscal

                                       60

<PAGE>

2005.  Management's  policy is to  maintain  deposit  rates at  levels  that are
competitive with other local financial  institutions and this caused our average
cost of deposits to increase as short-term  interest rates increased  during the
year. Based on the competitive  rates and on historical  experience,  management
believes that a significant portion of maturing deposits will remain with Kearny
Federal Savings Bank. At June 30, 2005, the total collateralized borrowing limit
was $106.7  million,  of which we had $61.7 million  outstanding,  giving us the
ability at June 30, 2005, to borrow an additional $45.0 million from the Federal
Home  Loan  Bank of New York as a funding  source  to meet  commitments  and for
liquidity purposes.

         If the need for  additional  borrowing  arises,  we have the  option of
pledging  additional  collateral to  significantly  increase our  collateralized
borrowing  limit and enable us to obtain  advances up to a total borrowing limit
of 25% of our assets. For example,  in the event that we are unable or unwilling
to pay  market  rates on the  significant  amount  of  certificates  of  deposit
maturing in one year or less,  we could obtain  replacement  funding by pledging
additional  collateral,  thus securing a greater  borrowing limit and generating
the ability to borrow  additional funds from the Federal Home Loan Bank. At June
30, 2005,  our total Federal Home Loan Bank  borrowing  limit was $526.8 million
and we  had  the  ability  to  pledge  additional  collateral  to  increase  our
collateralized  borrowing  limit from $106.7  million to the full $526.8 million
limit.  At June 30, 2005,  we had $1.26 billion of securities we could pledge as
collateral in order to obtain  secured  borrowings,  of which $106.7 million was
pledged.

         As noted above,  loan  prepayments  are greatly  influenced  by general
interest rates. At June 30, 2005, 82.1% of our loan portfolio consisted of fixed
rate loans with  maturities of greater than one year. If a rising  interest rate
environment were to occur, we would expect that the rate of prepayments on fixed
rate loans  would  decrease,  thus  decreasing  the amount of funds  coming from
prepayments and reducing our liquidity.

         The  following  table   discloses  our   contractual   obligations  and
commitments as of June 30, 2005.

<TABLE>
<CAPTION>

                                                            Less Than                                      After
                                              Total          1 Year       1-3 Years      4-5 Years       5 Years
                                              -----          ------       ---------      ---------       -------
                                                                       (In thousands)
<S>                                         <C>                <C>         <C>            <C>           <C>
Federal Home Loan Bank advances...........   $61,687            $582        $43,105        $8,000        $10,000
                                             =======            ====        =======        ======        =======
    Total.................................   $61,687            $582        $43,105        $8,000        $10,000
                                             =======            ====        =======        ======        =======
</TABLE>

<TABLE>
<CAPTION>
                                              Total
                                             Amounts        Less Than                                       Over
                                            Committed         1 Year       1-3 Years     4-5 Years       5 Years
                                            ---------         ------       ---------     ---------       -------
                                                                        (In thousands)
<S>                                        <C>             <C>             <C>           <C>           <C>
Lines of credit(1)........................   $27,817         $ 3,059         $    -        $    -        $24,758
Construction loans in process.............     6,489           6,489              -             -              -
Other commitments to extend credit(1).....    35,873          33,573          2,300             -              -
                                             -------         -------         ------        ------        -------
    Total.................................   $70,179         $43,121         $2,300        $    -        $24,758
                                             =======         =======         ======        ======        =======
</TABLE>

________________
(1)  Represents amounts committed to customers.

         Our  material  capital  expenditure  plans  relate to  renovations  and
significant  improvements to six branch offices,  which includes the replacement
of one office location with a new building.  Our capital  expenditure plans also
include  the  Lacey,  New Jersey de novo  branch  which is  expected  to open in
October  2005.  We  expect  to  complete  such  renovations,   improvements  and
construction  by the end of calendar year 2006, and we anticipate  approximately
$4.5  million in funds will be  required  for the plans  related to these  seven
offices. Furthermore, in December of 2004, we acquired a 3.7 acre parcel of land
in West Caldwell,

                                       61

<PAGE>

New  Jersey.  We intend  to  construct  a branch  office  at this  location  and
subdivide and lease to third parties the portion of land not used for the branch
building. Engineering studies continue at this location.

         The general business  purpose of these  expenditures is to maintain and
improve Kearny Federal Savings Bank's facilities.  We anticipate that cash flows
from our  normal  operations  will be a  sufficient  source  of funds  for these
expenditure plans.

Off-Balance Sheet Arrangements

         We are a party to financial instruments with  off-balance-sheet risk in
the normal  course of our business of investing in loans and  securities as well
as in the normal course of  maintaining  and improving  Kearny  Federal  Savings
Bank's facilities.  These financial  instruments  include  significant  purchase
commitments,  such as  commitments  related  to  capital  expenditure  plans and
commitments to purchase investment securities or mortgage-backed securities, and
commitments to extend credit to meet the financing  needs of our  customers.  At
June 30, 2005, we had no significant  off-balance  sheet commitments to purchase
securities.  Our significant purchase commitments as of June 30, 2005 related to
capital   expenditure   plans  consisted  of  anticipated   post-June  30,  2005
expenditures of approximately  $927,000 in connection with the completion of the
de novo branch office in Lacey, New Jersey.

         Commitments  to extend  credit are  agreements to lend to a customer as
long as there is no  violation of any  condition  established  in the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee.  Our  exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend  credit  is  represented  by the  contractual  notional  amount  of those
instruments.  We  use  the  same  credit  policies  in  making  commitments  and
conditional obligations as we do for on-balance-sheet  instruments.  At June 30,
2005, the total approved loan origination  commitments  outstanding  amounted to
$33.7  million and  commitments  to purchase  participation  interests  in loans
totaled  $0. At the same date,  unused  lines of credit  were $30.0  million and
construction  loans in process were $6.5 million.  Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.  For additional  information
regarding our outstanding  lending  commitments at June 30, 2005, see Note 16 to
the consolidated  financial  statements  contained in this Annual Report on Form
10-K.

Capital

         Consistent  with its goals to operate a sound and profitable  financial
organization,  Kearny  Federal  Savings Bank  actively  seeks to maintain a well
capitalized  institution in accordance with regulatory standards. As of June 30,
2005,  Kearny  Federal  Savings Bank  exceeded all capital  requirements  of the
Office of Thrift  Supervision.  Kearny Federal Savings Bank's regulatory capital
ratios at June 30, 2005 were as follows:  core capital 15.94%; Tier I risk-based
capital 43.92%;  and total  risk-based  capital 45.19%.  The regulatory  capital
requirements  to be  considered  well  capitalized  are  5.0%,  6.0% and  10.0%,
respectively.

Impact of Inflation

         The financial  statements  included in this document have been prepared
in accordance with accounting principles generally accepted in the United States
of America.  These principles  require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.

                                       62

<PAGE>

         Our primary assets and liabilities are monetary in nature. As a result,
interest  rates  have a more  significant  impact  on our  performance  than the
effects  of  general  levels  of  inflation.  Interest  rates,  however,  do not
necessarily  move in the same  direction or with the same magnitude as the price
of goods and services,  since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities of our assets and
liabilities are critical to the maintenance of acceptable performance levels.

         The principal effect of inflation on earnings,  as distinct from levels
of interest rates, is in the area of non-interest expense. Expense items such as
employee  compensation,  employee benefits and occupancy and equipment costs may
be  subject to  increases  as a result of  inflation.  An  additional  effect of
inflation  is the  possible  increase  in the  dollar  value  of the  collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which  properties  securing our loans have appreciated in dollar value due to
inflation.

Recent Accounting Pronouncements

         Accounting for Stock-Based  Payments: In December 2004, the FASB issued
SFAS No. 123 (revised),  "Share-Based  Payment." SFAS No. 123 (revised) replaces
SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123 (revised)  requires
compensation costs related to share-based payment  transactions to be recognized
in the financial statements over the period that an employee provides service in
exchange for the award.  Public companies are required to adopt the new standard
using a modified prospective method and may elect to restate prior periods using
the  modified  retrospective  method.  Under the  modified  prospective  method,
companies are required to record  compensation  cost for new and modified awards
over  the  related  vesting  period  of such  awards  prospectively  and  record
compensation  cost  prospectively  for  the  unvested  portion  at the  date  of
adoption, of previously issued and outstanding awards over the remaining vesting
period of such awards.  No change to prior periods  presented is permitted under
the  modified  prospective  method.  Under the  modified  retrospective  method,
companies  record  compensation  costs for prior periods  retroactively  through
restatement  of such periods using the exact pro forma amounts  disclosed in the
companies'  footnotes.  Also,  in the period of  adoption  and after,  companies
record compensation cost based on the modified prospective method.

         On April 14, 2005, the Securities and Exchange  Commission  (the "SEC")
adopted a new rule that amends the compliance  dates for SFAS No. 123 (revised).
Under the new rule, we are required to adopt SFAS No. 123 (revised) in the first
annual period beginning after June 15, 2005.  Early  application of SFAS No. 123
(revised)  is  encouraged,  but not  required.  Accordingly,  we are required to
record  compensation  expense for all new awards granted and any awards modified
after  July 1,  2006.  In  addition,  the  transition  rules  under SFAS No. 123
(revised)  will require that,  for all awards  outstanding  at July 1, 2006, for
which the  requisite  service has not yet been  rendered,  compensation  cost be
recorded as such service is rendered after July 1, 2006.

         The  pronouncement  related to  stock-based  payments will not have any
effect on our existing historical consolidated financial statements as we do not
presently have stock-based  compensation plans and as restatements of previously
reported periods will not be required.

         Accounting For Variable Interest  Entities:  In December 2003, the FASB
issued a revision to  Interpretation  46,  "Consolidation  of Variable  Interest
Entities,"  which  established  standards for  identifying  a variable  interest
entity  ("VIE") and for  determining  under what  circumstances  a VIE should be
consolidated with its primary beneficiary. Application of this interpretation is
required in  financial  statements  of public  entities  that have  interests in
special-purpose entities for periods ending after December

                                       63

<PAGE>

15, 2003. Application by public entities, other than small business issuers, for
all other types of VIE is required in financial  statements  for periods  ending
after March 15, 2004. Small business issuers must apply this  interpretation  to
all other types of VIE at the end of the first  reporting  period  ending  after
December 15, 2004.  The adoption of this  interpretation  has not had and is not
expected  to have a  material  effect on our  financial  position  or results of
operations.

         Accounting for Certain Financial  Instruments with  Characteristics  of
both  Liabilities  and  Equity:  In May  2003,  the FASB  issued  SFAS No.  150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of both
Liabilities  and Equity." SFAS No. 150  establishes  standards for how a company
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity as well as their  classification  in the company's
statement  of  financial  position.  It  requires  that the  company  classify a
financial  instrument  that  is  within  its  scope  as a  liability  when  that
instrument  embodies an obligation of the issuer.  SFAS No. 150 did not have any
impact on our consolidated financial statements.

         Amendment  of  SFAS  No.  133 on  Derivative  Instruments  and  Hedging
Activities:  On April 30,  2003,  the FASB issued SFAS No.  149,  "Amendment  of
Statement 133 on Derivative  Instruments and Hedging  Activities."  SFAS No. 149
amends and clarifies  accounting for derivative  instruments,  including certain
derivative  instruments embedded in other contracts,  and for hedging activities
under SFAS No. 133. With a number of  exemptions,  SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on our consolidated financial statements.

         Guarantor's  Accounting and  Disclosure  Requirements  for  Guarantees,
Including  Indirect  Guarantees of Indebtedness of Others: In November 2002, the
FASB issued FASB Interpretation No. 45,  "Guarantor's  Accounting and Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others" ("FIN 45").  FIN 45 requires a guarantor  entity,  at the inception of a
guarantee covered by the measurement provisions of the interpretation, to record
a  liability  for the fair value of the  obligation  undertaken  in issuing  the
guarantee.  In addition,  FIN 45 elaborates on  previously  existing  disclosure
requirements  for most  guarantees,  including loan  guarantees  such as standby
letters of credit.  We do not have any  financial  letters of credit at June 30,
2005 or at December 31, 2004.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

Management of Interest Rate Risk and Market Risk

         Qualitative   Analysis.   Because  the   majority  of  our  assets  and
liabilities  are sensitive to changes in interest  rates, a significant  form of
market  risk for us is  interest  rate  risk,  or  changes  in  interest  rates.
Notwithstanding  the  unpredictability  of  future  interest  rates,  management
expects that changes in interest rates may have a significant, adverse impact on
our net interest income.

         Our  ability  to make a  profit  largely  depends  on our net  interest
income,  which could be negatively  affected by changes in interest  rates.  Net
interest income is the difference between:

o    the interest income we earn on our  interest-earning  assets, such as loans
     and securities; and
o    the interest expense we pay on our  interest-bearing  liabilities,  such as
     deposits and amounts we borrow.

         The rates we earn on our assets are  generally  fixed for a contractual
period of time.  We,  like many  savings  institutions,  have  liabilities  that
generally have shorter contractual maturities than our assets, such

                                       64

<PAGE>

as  certificates  of deposit,  or have no stated  maturity,  such as savings and
money market deposits. This imbalance can create significant earnings volatility
because market  interest rates change over time. In a period of rising  interest
rates,  the interest  income earned on our assets,  which  consist  primarily of
long- term, fixed-rate  securities,  may not increase as rapidly as the interest
paid on our liabilities.

         We are  vulnerable  to  volatility  in our  earnings  as a result of an
increase in interest rates because the majority of our  interest-earning  assets
consist of long-term,  fixed rate assets.  At June 30, 2005,  82.1% of our loans
with  contractual  maturities  of  greater  than  one year  had  fixed  rates of
interest, and 77.9% of our total loans had contractual maturities of ten or more
years. At June 30, 2005, we held $758.1 million of  mortgage-backed  securities,
representing  36.0% of our assets. We invest generally in fixed-rate  securities
and  substantially  all of our  mortgage-backed  securities at June 30, 2005 had
contractual  maturities of ten or more years. In an increasing rate environment,
our cost of funds is expected to increase more rapidly than the interest  earned
on our loan  portfolio and  securities  portfolio  because our primary source of
funds is deposits with generally  shorter  maturities than the maturities on our
loans  and  investment  securities.  Having  interest-bearing  liabilities  that
reprice more frequently than interest-earning  assets will be detrimental during
periods of rising interest rates and could cause our net interest rate spread to
shrink  because the  increase in the rates we would earn on our  securities  and
loan  portfolios  may be less  than the  increase  in the  rates we would pay on
deposits and borrowings.

         In a period  of  falling  interest  rates,  prepayments  of  loans  and
mortgage-backed  securities generally will increase as borrowers refinance their
debt in order to reduce their  borrowing cost.  This causes  reinvestment  risk,
because in a falling  rate  environment  we are  generally  not able to reinvest
prepayments  at rates that are  comparable to the rates we earned on the prepaid
loans or securities.  A falling rate  environment  would result in a decrease in
rates we pay on deposits  and  borrowings,  but the  decrease in the cost of our
funds may not be as great as the  decrease in the yields on our  mortgage-backed
securities and loan portfolios. This could cause a narrowing of our net interest
rate spread and could cause a decrease in our earnings.

         The Board of Directors has established an Interest Rate Risk Management
Committee,  comprised of Directors Hopkins,  Regan,  Aanensen,  Mazza and Parow,
which is  responsible  for monitoring  interest rate risk.  Our Chief  Financial
Officer  also  participates  in this  committee  as a  management  liaison.  The
committee meets quarterly to address  management of our assets and  liabilities,
including review of our short term liquidity position;  loan and deposit pricing
and production  volumes and alternative  funding sources;  current  investments;
average lives, durations and repricing frequencies of loans and securities;  and
a variety of other asset and  liability  management  topics.  The results of the
committee's  quarterly  review  are  reported  to the full  Board,  which  makes
adjustments  to our  interest  rate risk policy and  strategies  as it considers
necessary and appropriate.

         Quantitative  Analysis.  The following  tables  present  Kearny Federal
Savings Bank's net portfolio value as of June 30, 2005. The net portfolio values
shown in these tables were calculated by the Office of Thrift Supervision, based
on information provided by Kearny Federal Savings Bank.

                                       65

<PAGE>


                              At June 30, 2005
               -----------------------------------------------------------------
                                                 Net Portfolio Value
                Net Portfolio Value          as % of Present Value of Assets
               ----------------------    ---------------------------------------
  Changes in                                         Net Portfolio   Basis Point
   Rates(1)    $ Amount     $ Change     % Change     Value Ratio      Change
   --------    --------     --------     --------     -----------      ------
               (Dollars in thousands)
+300 bp         270,156     -138,711         -34%      14.46%         -570 bp
+200 bp         317,332      -91,535         -22%      16.52%         -365 bp
+100 bp         364,231      -44,635         -11%      18.44%         -173 bp
   0 bp         408,866                                20.17%
-100 bp         438,355       29,488          +7%      21.23%         +106 bp
-200 bp         455,020       46,154         +11%      21.76%         +159 bp

__________
(1)  The-300bp  scenario is not shown due to the low  prevailing  interest  rate
     environment.

         This analysis also  indicated that as of June 30, 2005 an immediate and
permanent  2.0%  increase in interest  rates  would cause an  approximately  11%
decrease in our net interest income.

         Future  interest  rates or their effect on net  portfolio  value or net
interest  income are not  predictable.  Computations  of prospective  effects of
hypothetical interest rate changes are based on numerous assumptions,  including
relative levels of market interest rates, prepayments, and deposit run-offs, and
should not be relied upon as indicative of actual results.  Certain shortcomings
are  inherent  in  this  type  of  computation.   Although  certain  assets  and
liabilities may have similar maturity or periods of repricing, they may react at
different  times and in  different  degrees to  changes  in the market  interest
rates.  The interest  rate on certain types of assets and  liabilities,  such as
demand  deposits and savings  accounts,  may  fluctuate in advance of changes in
market interest rates,  while rates on other types of assets and liabilities may
lag behind changes in market interest rates.  Certain assets, such as adjustable
rate mortgages, generally have features which restrict changes in interest rates
on a short-term  basis and over the life of the asset.  In the event of a change
in  interest  rates,  prepayments  and early  withdrawal  levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increased  credit  risk may  result  as the  ability  of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.

         Notwithstanding  the discussion  above, the quantitative  interest rate
analysis presented above indicates that a rapid increase in interest rates would
adversely affect our net interest margin and earnings.

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

         The Company's financial  statements are contained in this Annual Report
on Form 10-K immediately following Item 15.

Item 9.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure
         --------------------

         Not applicable.  There were no  disagreements  or reportable  events as
described in Item 304 of  Regulation  S-K in  connection  with the merger of the
Company's  former  independent  auditors,  Radics & Co., LLC, into the Company's
current independent auditors, Beard Miller Company LLP.

Item 9A.  Controls and Procedures
---------------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
evaluation of the Company's  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) under the Securities Exchange

                                       66

<PAGE>

Act of 1934 (the "Exchange Act")), the Company's principal executive officer and
principal  financial  officer  have  concluded  that as of the end of the period
covered  by this  Annual  Report  on Form  10-K  such  disclosure  controls  and
procedures are effective to ensure that information  required to be disclosed by
the  Company  in  reports  that it files or submits  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.

         (b) Changes in internal  control over financial  reporting.  During the
last  quarter of the year  under  report,  there was no change in the  Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

Item 9B.  Other Information
---------------------------

         None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

         The  information  that  appears  under  the  headings   "Section  16(a)
Beneficial  Ownership  Reporting  Compliance"  and  "Proposal  I -  Election  of
Directors" in the  Registrant's  definitive proxy statement for the Registrant's
2005 Annual Meeting of  Stockholders  (the "Proxy  Statement")  is  incorporated
herein by reference.

         The Company has adopted a code of ethics that applies to its  principal
executive officer, principal financial officer and principal accounting officer.
A copy of the code of ethics is  available  without  charge upon  request to the
Corporate Secretary,  Kearny Financial Corp., 120 Passaic Avenue, Fairfield, New
Jersey 07004.

Item 11.  Executive Compensation
--------------------------------

         The above-captioned information appears under the heading "Director and
Executive  Officer  Compensation"  in the Proxy  Statement  and is  incorporated
herein by reference.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
--------------------------------------------------------------------------------
          Related Stockholder Matters
          ---------------------------

          (a)  Security Ownership of Certain Beneficial Owners

               Information  required  by this  item is  incorporated  herein  by
               reference  to  the  section  captioned  "Voting   Securities  and
               Principal Holders Thereof" in the Proxy Statement.

          (b)  Security Ownership of Management

               Information  required  by this  item is  incorporated  herein  by
               reference  to the  section  captioned  "Proposal I -- Election of
               Directors" in the Proxy Statement.

                                       67

<PAGE>

          (c)  Management of the Company knows of no arrangements, including any
               pledge by any person of securities of the Company,  the operation
               of which may at a  subsequent  date result in a change in control
               of the registrant.

          (d)  Securities  Authorized  for Issuance  Under  Equity  Compensation
               Plans

         As of June 30, 2005,  the Registrant  had no  compensation  plans under
which equity securities of the Registrant are authorized for issuance.

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  above-captioned  information  appears  under the heading  "Certain
Relationships   and  Related   Transactions"  in  the  Proxy  Statement  and  is
incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services
------------------------------------------------

         The  information  relating  to this  item  is  incorporated  herein  by
reference to the information  contained under the section  captioned  "Principal
Accounting Fees and Services" in the Proxy Statement.

                                     PART IV

Item 15.  Exhibits and Financial Statement Schedules
----------------------------------------------------

         (1) The following  financial  statements and the independent  auditors'
report appear in this Annual Report on Form 10-K immediately after this Item 15:


               Report of Independent Registered Public Accounting Firm
               Consolidated  Statements  of  Financial  Condition as of June 30,
               2005 and 2004
               Consolidated  Statements  of Income For the Years  Ended June 30,
               2005, 2004 and 2003
               Consolidated  Statements of Changes in  Stockholders'  Equity for
               the Years Ended June 30, 2005, 2004 and 2003
               Consolidated  Statements  of Cash Flows for the Years  Ended June
               30, 2005, 2004 and 2003
               Notes to Consolidated Financial Statements

         (2)  All  schedules  are  omitted  because  they  are not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.

         (3) The following exhibits are filed as part of this report:

<TABLE>
<CAPTION>
<S>             <C>
                  3.1      Charter of Kearny Financial Corp.*
                  3.2      Bylaws of Kearny Financial Corp.*
                  4        Stock Certificate of Kearny Financial Corp*
                  10.1     Employment Agreement between Kearny Federal Savings Bank and John N.
                           Hopkins*+
                  10.2     Employment Agreement between Kearny Federal Savings Bank and Allan
                           Beardslee*+

                                       68

<PAGE>

                  10.3     Employment Agreement between Kearny Federal Savings Bank and Albert E.
                           Gossweiler*+
                  10.4     Employment Agreement between Kearny Federal Savings Bank and Sharon
                           Jones*+
                  10.5     Employment Agreement between Kearny Federal Savings Bank and William C.
                           Ledgerwood*+
                  10.6     Employment Agreement between Kearny Federal Savings Bank and Erika
                           Sacher*+
                  10.7     Employment Agreement between Kearny Federal Savings Bank and Patrick M.
                           Joyce*+
                  10.8     Directors Consultation and Retirement Plan*+
                  10.9     Benefit Equalization Plan*+
                  10.10    Benefit Equalization Plan for Employee Stock Ownership Plan*+
                  11       Statement regarding computation of earnings per share
                  21       Subsidiaries of the Registrant (see "Item 1. Business - Subsidiary Activity"
                           herein)
                  31       Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                  32       Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>
          ______________
          *    Incorporated by reference to the identically  numbered exhibit to
               the  Registrant's  Registration  Statement  on Form S-1 (File No.
               333-118815).
          +    Management  or  compensatory  plan  required  to be  filed  as an
               exhibit.


                                       69
<PAGE>
                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT


                                  JUNE 30, 2005



<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
TABLE OF CONTENTS


                                                                       PAGE NO.

CONSOLIDATED FINANCIAL STATEMENTS:

     Report of Independent Registered Public Accounting Firm            F-1

     Consolidated Statements of Financial Condition                     F-2

     Consolidated Statements of Income                                  F-3

     Consolidated Statements of Changes in Stockholders' Equity         F-4

     Consolidated Statements of Cash Flows                              F-6

     Notes to Consolidated Financial Statements                         F-8


<PAGE>

BEARD MILLER COMPANY LLP
--------------------------------------------
Certified Public Accountants and Consultants




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Kearny Financial Corp. and Subsidiaries


         We have audited the accompanying  consolidated  statements of financial
condition of Kearny  Financial Corp. (the "Company") and Subsidiaries as of June
30, 2005 and 2004, and the related consolidated statements of income, changes in
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended June 30, 2005.  These  consolidated  financial  statements  are the
responsibility  of management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audits.

         We conducted  our audits in accordance  with auditing  standards of the
Public Company  Accounting  Oversight  Board (United  States).  Those  standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes  examining,  on a test basis,  evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.

         In our opinion,  the consolidated  financial  statements referred to in
the second preceding  paragraph  present fairly, in all material  respects,  the
consolidated financial position of Kearny Financial Corp. and Subsidiaries as of
June 30, 2005 and 2004,  and the  consolidated  results of their  operations and
cash flows for each of the years in the  three-year  period ended June 30, 2005,
in conformity with accounting principles generally accepted in the United States
of America.


                                              /s/Beard Miller Company LLP



Pine Brook, New Jersey
July 29, 2005


                                      F-1

<PAGE>

<TABLE>
<CAPTION>
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                                                     June 30,
                                                                                            ---------------------------
                                                                                                2005           2004
                                                                                            -------------  ------------
                                                                                            (In Thousands, Except Share
                                                                                                and Per Share Data)
                                     ASSETS
<S>                                                                                      <C>                   <C>
   Cash and amounts due from depository institutions                                       $     16,683          $    21,008
   Interest-bearing deposits in other banks                                                     123,182               18,480
                                                                                           ------------          -----------

       Cash and Cash Equivalents                                                                139,865               39,488

   Securities available for sale                                                                 33,591               41,564
   Investment securities held to maturity                                                       470,098              435,870
   Loans receivable, including net deferred loan costs 2005 $815; 2004 $758                     563,434              510,938
      Less allowance for loan losses                                                             (5,416)              (5,144)
                                                                                           ------------          -----------

       Net Loans Receivable                                                                     558,018              505,794

   Mortgage-backed securities held to maturity                                                  758,121              771,353
   Premises and equipment                                                                        34,977               26,649
   Federal Home Loan Bank of New York stock ("FHLB")                                             11,361               11,392
   Interest receivable                                                                           10,430                9,861
   Goodwill                                                                                      82,263               82,263
   Other assets                                                                                   8,281               12,284
                                                                                           ------------          -----------

       Total Assets                                                                        $  2,107,005          $ 1,936,518
                                                                                           ============          ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES

   Deposits:
      Non-interest bearing                                                                 $     56,142          $    55,377
      Interest bearing                                                                        1,472,635            1,482,133
                                                                                           ------------          -----------

       Total Deposits                                                                         1,528,777            1,537,510

   Advances from FHLB                                                                            61,687               94,234
   Advance payments by borrowers for taxes                                                        4,627                4,224
   Other liabilities                                                                              6,432                7,045
                                                                                           ------------          -----------

       Total Liabilities                                                                      1,601,523            1,643,013
                                                                                           ------------          -----------

STOCKHOLDERS' EQUITY
   Preferred stock, $0.10 par value; 25,000,000 shares authorized; non-issued and
      outstanding                                                                                     -                    -
   Common stock, $0.10 par value; 75,000,000 shares authorized; 2005 72,737,500 shares
      and 2004 10,000 shares issued and outstanding                                               7,274                    1
   Paid-in capital                                                                              207,838                  499
   Retained earnings - substantially restricted                                                 301,857              282,959
   Unearned Employee Stock Ownership Plan shares                                                (16,972)                   -
   Accumulated other comprehensive income                                                         5,485               10,046
                                                                                           ------------          -----------

       Total Stockholders' Equity                                                               505,482              293,505
                                                                                        ---------------      ---------------

       Total Liabilities and Stockholders' Equity                                       $     2,107,005      $     1,936,518
                                                                                        ===============      ===============
See notes to consolidated  financial statements.
----------------------------------------------------------------------------------------------------------------------------

                                      F-2
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME

                                                                                      Years Ended June 30,
                                                                           ----------------------------------------------------
                                                                              2005                2004                 2003
                                                                           ----------          ----------           ----------
                                                                         (In Thousands, Except Share and Per Share Data)
<S>                                                                         <C>                <C>                 <C>
INTEREST INCOME
   Loans                                                                      $29,311            $28,919             $36,673
   Mortgage-backed securities                                                  33,954             33,980              47,764
   Investment and available for sale securities                                16,536             14,426               9,133
   Other interest-earning assets                                                2,640              1,329               2,922
                                                                           ----------          ---------            --------

       Total Interest Income                                                   82,441             78,654              96,492
                                                                           ----------          ---------            --------

INTEREST EXPENSE
   Deposits                                                                    26,532             28,082              39,908
   Borrowings                                                                   3,890              4,018               4,787
                                                                           ----------          ---------            --------

       Total Interest Expense                                                  30,422             32,100              44,695
                                                                           ----------          ---------            --------

       Net Interest Income                                                     52,019             46,554              51,797

PROVISION FOR LOAN LOSSES                                                          68                  -                   -
                                                                           ----------          ---------            --------

       Net Interest Income after Provision for Loan Losses                     51,951             46,554              51,797
                                                                           ----------          ---------            --------

NON-INTEREST  INCOME
   Fees and service charges                                                       712                681               1,002
   Gain on sale of available for sale securities                                7,705                  -                   -
   Miscellaneous                                                                1,086                879                 845
                                                                           ----------          ---------            --------

       Total Non-Interest Income                                                9,503              1,560               1,847
                                                                           ----------          ---------            --------

NON-INTEREST EXPENSES
   Salaries and employee benefits                                              20,790             16,522              16,962
   Net occupancy expense of premises                                            3,163              2,523               2,376
   Equipment                                                                    3,931              3,453               3,142
   Advertising                                                                  1,176                861                 861
   Federal insurance premium                                                      554                587                 620
   Amortization of intangible assets                                              636                636                 636
   Directors' fees                                                                886                827                 818
   Merger related expenses                                                          -                592              14,921
   Miscellaneous                                                                3,726              3,471               4,016
                                                                           ----------          ---------            --------

       Total Non-Interest Expenses                                             34,862             29,472              44,352
                                                                           ----------          ---------            --------

       Income before Income Taxes                                              26,592             18,642               9,292

INCOME TAXES                                                                    7,694              5,745               5,237
                                                                           ----------          ---------            --------

       Net Income                                                             $18,898            $12,897            $  4,055
                                                                           ==========          =========            ========

NET INCOME PER COMMON SHARE
   Basic                                                                        $0.27          $1,289.70             $337.52
                                                                           ==========          =========            ========

   Diluted                                                                      $0.27          $1,289.70             $336.06
                                                                           ==========          =========            ========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
   Basic                                                                   70,997,978             10,000              12,014
                                                                           ==========         ==========            ========

   Diluted                                                                 70,997,978             10,000              12,066
                                                                           ==========         ==========            ========

See notes to consolidated financial statements.
----------------------------------------------------------------------------------------------------------------------------
                                       F-3
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2005, 2004, and 2003

                                                          Retained                                            Accumulated
                          Common Stock                    Earnings -                 Unearned                   Other
                         ---------------      Paid-In  Substantially   Unearned     Incentive     Treasury Comprehensive
                         Shares   Amount      Capital   Restricted    ESOP Shares  Plan Shares      Stock     Income        Total
                         ------   ------      -------   ----------    -----------  -----------      -----     ------        -----
                                                                             (In Thousands)

<S>                       <C>       <C>      <C>          <C>             <C>        <C>         <C>            <C>      <C>
BALANCE - JUNE 30, 2002      13     $  1       $27,906      $272,983     $   (811)     $(419)      $(6,249)     $  9,043   $302,454
                                                                                                                           --------

   Comprehensive income:
      Net income              -        -             -         4,055            -          -             -             -      4,055
      Unrealized loss
        on securities
        available for
        sale, net of
        deferred income
        tax benefit of $743   -        -             -             -            -          -             -        (1,272)    (1,272)
                                                                                                                           --------

      Total Comprehensive
        Income                                                                                                                2,783
                                                                                                                           --------

   ESOP shares
     committed to be
     released                 -        -           459             -          148          -             -             -        607
   Incentive Plan
     shares earned            -        -             -             -            -        182             -             -        182
   Treasury stock
     reissued                 -        -           (20)            -            -          -           365             -        345
   Cash dividends
     declared                 -        -             -          (986)           -          -             -             -       (986)
   Acquisition of Pulaski
     Bancorp, Inc.           (1)       -        (9,850)       (2,082)           -         44         1,601             -    (10,287)
   Permanent tax benefit
     related to stock
     options                  -        -           571             -            -          -             -             -        571
                          ------  -------  ------------ ------------- ------------ ----------  ------------ -------------  --------

BALANCE - JUNE 30, 2003      12        1        19,066       273,970         (663)      (193)       (4,283)        7,771    295,669
                                                                                                                           --------

   Comprehensive income:
      Net income              -        -             -        12,897            -          -             -             -     12,897
      Unrealized gain
       on securities
       available for
       sale, net of
       deferred income
       tax expense
       of $1,296              -        -             -             -            -          -             -         2,275      2,275
                                                                                                                           --------

      Total Comprehensive
        Income                                                                                                               15,172
                                                                                                                           --------
------------------------------------------------------------------------------------------------------------------------------------
                                       F-4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
Years Ended June 30, 2005, 2004, and 2003

                                                           Retained                                        Accumulated
                            Common Stock                   Earnings -                Unearned                Other
                           ---------------     Paid-In  Substantially   Unearned    Incentive  Treasury Comprehensive
                           Shares   Amount     Capital   Restricted    ESOP Shares Plan Shares   Stock     Income          Total
                           ------   ------     --------  -------------  ----------- ----------- -------- -------------    ---------
                                                                            (In Thousands)
<S>                       <C>       <C>      <C>          <C>             <C>        <C>           <C>       <C>      <C>
   Acquisition of West Essex
      Bancorp, Inc.            (2)  $    -     $(18,567)    $ (3,908)      $  663       $193    $ 4,283      $     -       $(17,336)
                             ----   ------     --------     --------       ------       ----    -------      -------       --------

BALANCE - JUNE 30, 2004        10        1          499      282,959            -          -          -       10,046        293,505
                                                                                                                           --------

   Comprehensive income:
      Net income                -        -            -       18,898            -          -          -            -         18,898
      Realized gain
        on securities
        available for
        sale, net of
        income tax
        of $2,697               -        -            -            -            -          -          -       (5,008)        (5,008)
      Unrealized gain
        on securities
        available for
        sale, net of
        deferred income
        tax expense of $240     -        -            -            -            -          -          -          447            447
                                                                                                                           --------

      Total Comprehensive
        Income                                                                                                               14,337
                                                                                                                           --------

   Initial capitalization
     from establishment
     of mutual
     holding company          (10)      (1)           1            -            -          -          -            -              -
   Proceeds from common
     stock offering        72,738    7,274      207,293            -      (17,457)         -          -            -        197,110
   ESOP shares committed
     to be released             -        -           45            -          485          -          -            -            530
                          -------  -------  -----------     --------     --------     ------       ----  -----------       --------

BALANCE - JUNE 30, 2005    72,738  $ 7,274     $207,838     $301,857     $(16,972)    $    -       $  -       $5,485       $505,482
                          =======  =======  ===========     ========     ========     ======       ====  ===========       ========

See notes to consolidated financial statements.
------------------------------------------------------------------------------------------------------------------------------------
                                       F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                          Years Ended June 30,
                                                                            ------------------------------------------------
                                                                                2005               2004                2003
                                                                            ---------          ---------            --------
                                                                                             (In Thousands)
<S>                                                                       <C>                <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                               $  18,898          $  12,897            $  4,055
   Adjustments to reconcile net income to net cash provided by
      operating activities:
         Depreciation and amortization of premises and equipment                1,549              1,314               1,279
         Net amortization of premiums, discounts and loan fees
              and costs                                                         1,035              2,679               2,260
         Deferred income taxes                                                    343                556                (734)
         Amortization of intangible assets                                        636                636                 636
         Provision for loan losses                                                 68                  -                   -
         Realized gains on sale of securities available for sale               (7,705)                 -                   -
         (Increase) decrease in interest receivable                              (569)            (1,381)                977
         (Increase) decrease in other assets                                    3,861                (17)             (1,461)
         (Decrease) in interest payable                                           (57)              (376)               (375)
         Increase (decrease) in other liabilities                               1,045             (1,705)              1,944
         ESOP expenses                                                            530                  -                 789
                                                                            ---------          ---------            --------

         Net Cash Provided by Operating Activities                             19,634             14,603               9,370
                                                                            ---------          ---------            --------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities available for sale                                    (202)              (152)               (180)
   Proceeds from sale of securities available for sale                          8,866                  -                   -
   Purchases of investment securities held to maturity                        (54,387)          (263,187)           (261,813)
   Proceeds from calls and maturities of investment securities
      held to maturity                                                         15,387            111,189             108,705
   Proceeds from repayments of investment securities held to maturity           4,797              3,612              73,154
   Purchase of loans                                                           (1,515)           (15,024)             (5,687)
   Proceeds from sale of student loans                                              -                  -                 338
   Net (increase) decrease in loans receivable                                (50,913)            16,922              86,934
   Purchases of mortgage-backed securities held to maturity                  (163,607)          (425,124)           (154,799)
   Principal repayments on mortgage-backed securities held to
      maturity                                                                175,911            334,016             371,915
   Additions to premises and equipment                                         (9,877)            (8,079)             (3,714)
   Redemption of FHLB stock                                                        31              2,395               1,954)
   Cash paid for acquisition of minority interest in Pulaski
      Bancorp, Inc.                                                                 -                  -             (26,433)
   Cash paid for acquisition of minority interest in West Essex
      Bancorp, Inc.                                                                 -                  -             (67,853)
                                                                            ---------          ---------            --------

         Net Cash Provided by (Used in) Investing Activities                  (75,509)          (243,432)            122,521
                                                                            ---------          ---------            --------

See notes to consolidated financial statements.
----------------------------------------------------------------------------------------------------------------------------
                                       F-6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


                                                                                          Years Ended June 30,
                                                                           --------------------------------------------------
                                                                                2005               2004                2003
                                                                            ---------          ---------            --------
                                                                                              (In Thousands)

<S>                                                                       <C>                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in deposits                                      $  (8,714)          $(75,836)           $134,221
   Repayment of FHLB advances                                                  (2,547)           (11,515)            (36,331)
   Net change in short-term borrowings from FHLB                              (30,000)            30,000                   -
   Increase (decrease) in advance payments by borrowers for taxes                 403                 11                (445)
   Proceeds from issuance of common stock of West Essex
      Bancorp, Inc.                                                                 -                  -                 345
   Proceeds from issuance of common stock of Kearny
      Financial Corp.                                                         197,110                  -                   -
   Dividends paid to minority stockholders of West Essex
      Bancorp, Inc. and Pulaski Bancorp, Inc.                                       -                  -              (1,054)
                                                                            ---------           --------            --------

         Net Cash Provided by (Used in) Financing Activities                  156,252            (57,340)             96,736
                                                                            ---------           --------            --------

         Net Increase (Decrease) in Cash and Cash Equivalents                 100,377           (286,169)            228,627

CASH AND CASH EQUIVALENTS - BEGINNING                                          39,488            325,657              97,030
                                                                            ---------           --------            --------

CASH AND CASH EQUIVALENTS - ENDING                                           $139,865          $  39,488            $325,657
                                                                             ========          =========            ========

SUPPLEMENTAL  DISCLOSURES  OF CASH FLOWS  INFORMATION
   Cash paid during the year for:
      Income taxes, net of refunds                                           $  2,090          $   5,956            $  6,931
                                                                             ========          =========            ========

      Interest                                                               $ 30,479          $  32,476            $ 45,061
                                                                             ========          =========            ========

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
   Minority interest in consolidated subsidiaries                            $      -          $  17,336            $      -
                                                                             ========          =========            ========

   Goodwill - West Essex acquisition                                         $      -          $  50,517            $      -
                                                                             ========          =========            ========

   Deposit for acquisition of West Essex Bancorp, Inc.                       $      -          $ (67,853)           $      -
                                                                             ========          =========            ========


See notes to consolidated financial statements.
----------------------------------------------------------------------------------------------------------------------------
                                       F-7
</TABLE>

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

     The consolidated  financial statements include the accounts of the Company,
     its wholly-owned subsidiaries, Kearny Federal Savings Bank (the "Bank") and
     Kearny   Financial   Securities,   Inc.,   and  the   Bank's   wholly-owned
     subsidiaries,  KFS Financial  Services,  Inc. and Kearny Federal Investment
     Corp.,  and have been prepared in  conformity  with  accounting  principles
     generally  accepted  in the  United  States  of  America.  All  significant
     intercompany   accounts   and   transactions   have  been   eliminated   in
     consolidation.

     In preparing the consolidated financial statements,  management is required
     to make  estimates  and  assumptions  that affect the  reported  amounts of
     assets and  liabilities as of the dates of the  consolidated  statements of
     financial  condition  and revenues and expenses for the periods then ended.
     Actual results could differ significantly from those estimates.  A material
     estimate that is particularly  susceptible to significant change relates to
     the  determination  of the allowance for loan losses.  Management  believes
     that the allowance for loan losses  represents  its best estimate of losses
     known  and  inherent  in the loan  portfolio  that are  both  probable  and
     reasonable to estimate.  While  management  uses  available  information to
     recognize  losses on loans,  future  additions  to the  allowance  for loan
     losses may be  necessary  based on changes in  economic  conditions  in the
     market area.

     In addition,  various  regulatory  agencies,  as an integral  part of their
     examination  process,  periodically  review the Bank's  allowance  for loan
     losses.  Such  agencies  may require the  recognition  of  additions to the
     allowance based on their judgments about  information  available to them at
     the time of their examination.

Business of the Company and Subsidiaries

     The Company's  primary business is the ownership and operation of the Bank.
     The Bank is principally engaged in the business of attracting deposits from
     the  general  public at its 25  locations  in New  Jersey  and using  these
     deposits,  together with other funds,  to invest in securities  and to make
     loans  collateralized  by residential  and commercial real estate and, to a
     lesser extent,  consumer  loans.  The Company's  other  subsidiary,  Kearny
     Financial Securities,  Inc., was organized in April 2005 under Delaware law
     as  a  Delaware   Investment  Company  primarily  to  hold  investment  and
     mortgage-backed   securities.   The  Bank's   subsidiary,   Kearny  Federal
     Investment  Corp.  was organized in July 2004 under New Jersey law as a New
     Jersey Investment Company primarily to hold investment and  mortgage-backed
     securities.

Cash and Cash Equivalents

     Cash and cash  equivalents  include  cash and amounts  due from  depository
     institutions  and  interest-bearing  deposits  in  other  banks,  all  with
     original maturities of three months or less.

Securities

     Investments in debt securities that we have the positive intent and ability
     to hold to maturity  are  classified  as  held-to-maturity  securities  and
     reported at amortized cost. Debt and equity  securities that are bought and
     held  principally  for the  purpose  of  selling  them in the near term are
     classified  as  trading   securities  and  reported  at  fair  value,  with
     unrealized  holding gains and losses included in earnings.  Debt and equity
     securities  not  classified as trading  securities  or as  held-to-maturity
     securities are classified as available for sale  securities and reported at
     fair value, with unrealized holding gains or losses, net of deferred income
     taxes,  reported in the accumulated other comprehensive income component of
     stockholders' equity.


--------------------------------------------------------------------------------
                                      F-8

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Securities (Continued)

     Individual  securities are considered impaired when fair value is less than
     amortized  cost.  Management  evaluates  on a  monthly  basis  whether  any
     securities   are   other-than-temporarily    impaired.   In   making   this
     determination,  we consider the extent and duration for the impairment, the
     nature and  financial  health of the  issuer,  other  factors  relevant  to
     specific  securities,  and our ability and intent to hold  securities for a
     period of time sufficient to allow for any  anticipated  recovery in market
     value. If a security is determined to be  other-than-temporarily  impaired,
     an impairment loss is charged to operations.

     Premiums and discounts on all securities are amortized/accreted to maturity
     by use of the  level-yield  method.  Gain or loss on sales of securities is
     based on the specific identification method.

Concentration of Risk

     The Bank's lending activity is concentrated in loans secured by real estate
     located primarily in the State of New Jersey.

Loans Receivable

     Loans receivable are stated at unpaid principal  balances plus net deferred
     loan  origination  costs and discounts  less the allowance for loan losses.
     Loan  origination  fees and  certain  direct  loan  origination  costs  are
     deferred and amortized,  using the level-yield  method, as an adjustment of
     yield over the contractual lives of the related loans.  Unearned  discounts
     are accreted by use of the level-yield method over the contractual lives of
     the related loans.

     Recognition  of interest by the accrual  method is  generally  discontinued
     when interest or principal payments are ninety days or more in arrears on a
     contractual  basis,  or when other factors  indicate that the collection of
     such  amounts  is  doubtful.  At the time a loan is  placed  on  nonaccrual
     status,  an allowance for  uncollected  interest is recorded in the current
     period for previously  accrued and uncollected  interest.  Interest on such
     loans, if appropriate,  is recognized as income when payments are received.
     A loan is returned to accrual  status when  interest or principal  payments
     are no longer  ninety  days or more in arrears on a  contractual  basis and
     factors indicating doubtful collectibilty no longer exist.

--------------------------------------------------------------------------------
                                      F-9

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses

     An  allowance  for loan  losses is  maintained  at a level that  represents
     management's  best  estimate  of  losses  known  and  inherent  in the loan
     portfolio that are both probable and reasonable to estimate.  The allowance
     is decreased by loan  charge-offs,  increased by  subsequent  recoveries of
     loans  previously  charged off, and then  adjusted,  via either a charge or
     credit  to  operations,  to  an  amount  determined  by  management  to  be
     necessary.   Loans  or  portions  thereof,  are  charged  off  when,  after
     collection efforts are exhausted,  they are determined to be uncollectible.
     Management  of the Bank,  in  determining  the  allowance  for loan losses,
     considers  the losses  inherent  in its loan  portfolio  and changes in the
     nature and volume inherent in its loan  activities,  along with the general
     economic and real estate  market  conditions.  The Bank utilizes a two tier
     approach:  (1)  identification  of  impaired  loans  and  establishment  of
     specific loss allowances on such loans;  and (2)  establishment  of general
     valuation  allowances  on the  remainder  of its loan  portfolio.  The Bank
     maintains a loan review  system which  allows for a periodic  review of its
     loan portfolio and the early  identification  of potential  impaired loans.
     Such  system  takes into  consideration,  among other  things,  delinquency
     status,  size of loans,  type of collateral and financial  condition of the
     borrowers.  Specific loan loss  allowances are  established  for identified
     loans  based on a  review  of such  information  and/or  appraisals  of the
     underlying collateral.  General loan losses are based upon a combination of
     factors  including,  but not  limited  to,  actual  loan  loss  experience,
     composition  of  the  loan  portfolio,   current  economic  conditions  and
     management's  judgment.  Although  management  believes  that  specific and
     general loan losses are  established in accordance with  management's  best
     estimate,  actual  losses are  dependent  upon future  events and, as such,
     further additions to the level of loan loss allowances may be necessary.

     A loan  evaluated for  impairment is deemed to be impaired  when,  based on
     current information and events, it is probable that the Bank will be unable
     to collect all amounts due according to the  contractual  terms of the loan
     agreement.  All loans  identified as impaired are evaluated  independently.
     The Bank does not aggregate  such loans for evaluation  purposes.  Payments
     received on impaired  loans are applied  first to interest  receivable  and
     then to principal.

Premises and Equipment

     Land is  carried  at cost.  Buildings  and  improvements,  furnishings  and
     equipment and leasehold  improvements are carried at cost, less accumulated
     depreciation and amortization computed on the straight-line method over the
     following estimated useful lives:

                                                                    Years
                                                              ------------------
                            Building and improvements              10 - 50
                            Furnishings and equipment               4 - 20
                            Leasehold improvements            Shorter of useful
                                                                 lives or 10

     Construction in progress primarily represents facilities under construction
     for future use in our  business  and includes all costs to acquire land and
     construct   buildings,   as  well  as  capitalized   interest   during  the
     construction period.  Interest is capitalized at the Bank's average cost of
     interest-bearing liabilities.

     Significant  renewals  and  betterments  are  charged to the  property  and
     equipment account. Maintenance and repairs are charged to operations in the
     year  incurred.  Rental  income is netted  against  occupancy  costs in the
     consolidated statements of income.

--------------------------------------------------------------------------------
                                      F-10

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill and Other Intangible Assets

     Goodwill and other intangible assets principally  represent the excess cost
     over the fair  value of the net  assets  of the  institutions  acquired  in
     purchase transactions. Goodwill is evaluated annually by reporting unit and
     an impairment loss recorded if indicated.  The impairment test is performed
     in two phases. The first step of the goodwill  impairment test compares the
     fair  value of the  reporting  unit  with its  carrying  amount,  including
     goodwill.  If the fair value of the  reporting  unit  exceeds its  carrying
     amount, goodwill of the reporting unit is considered not impaired; however,
     if the carrying  amount of the  reporting  unit exceeds its fair value,  an
     additional procedure must be performed.  That additional procedure compares
     the implied fair value of the reporting unit's goodwill (as defined in SFAS
     No. 142), with the carrying amount of that goodwill.  An impairment loss is
     recorded to the extent  that the  carrying  amount of goodwill  exceeds its
     implied  fair  value.  Fair value is  determined  by a  combination  of the
     Comparable  Transaction and Discounted Cash Flow approaches.  No impairment
     charges were required to be recorded in the years ended June 30, 2005, 2004
     or 2003. If an impairment  loss is determined to exist in the future,  such
     loss will be  reflected  as an expense in the  consolidated  statements  of
     income in the period in which the impairment  loss is determined.  Separate
     intangible assets,  including core deposit  intangibles that are not deemed
     to have indefinite lives, continue to be amortized over their useful lives,
     which is estimated to be ten years.

Income Taxes

     The Company  and its  subsidiaries  file  consolidated  federal  income tax
     returns.  Income taxes are allocated based on the contribution of income to
     the consolidated income tax returns.  Separate state income tax returns are
     filed.

     Federal  and state  income  taxes  have been  provided  on the basis of the
     reported income. The amounts reflected on our tax returns differ from these
     provisions  due  principally  to temporary  differences in the reporting of
     certain  items for financial  reporting and income tax reporting  purposes.
     Deferred income taxes are recorded to recognize such temporary differences.

Interest Rate Risk

     The Bank is principally engaged in the business of attracting deposits from
     the general public and using these deposits,  together with other funds, to
     purchase securities and to make loans secured by real estate. The potential
     for interest-rate risk exists as a result of the generally shorter duration
     of interest-sensitive liabilities compared to the generally longer duration
     of  interest-sensitive  assets. In a rising rate  environment,  liabilities
     will reprice faster than assets,  thereby reducing net interest income. For
     this reason,  management  regularly  monitors the maturity structure of the
     Bank's   assets  and   liabilities   in  order  to  measure  its  level  of
     interest-rate risk and to plan for future volatility.

Net Income per Common Share

     Net income per common  share is  calculated  by dividing  net income by the
     weighted average number of shares of common stock outstanding.  Diluted net
     income  per common  share did not  differ  from basic net income per common
     share as there were no contracts or securities  exercisable  or which could
     be converted into common stock.  Though the effective date of the Company's
     initial public  offering was February 23, 2005, the  presentation  of basic
     and  diluted  net  income  per  share  assumes  the  effective  date of the
     transaction  was July 1, 2004.  The  calculation  of basic and  diluted net
     income per share  includes  the 30% of the  outstanding  shares sold to the
     public as well as the 70% of the outstanding  shares held by Kearny MHC and
     excludes  Kearny Federal  Savings Bank Employee  Stock  Ownership Plan (the
     "ESOP") shares that have not been  previously  allocated to participants or
     have not been committed to be released for allocation to participants.

--------------------------------------------------------------------------------
                                      F-11

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassification

     Certain  amounts as of and for the years  ended June 30, 2004 and 2003 have
     been reclassified to conform to the current year's presentation.


NOTE 2 - BUSINESS COMBINATIONS

On January 10, 2002, the Company and the Bank,  entered into a merger  agreement
with Pulaski Bancorp, Inc. ("Pulaski") and its subsidiary,  Pulaski Savings Bank
(PSB). On October 18, 2002, the Company purchased Pulaski's common stock held by
public  stockholders  for $32.90 per share,  in cash.  The  purchase of minority
interest shares was recorded as the acquisition of the noncontrolling  interests
of a subsidiary  utilizing the purchase method of accounting and the immediately
following  mergers  of the  Company  and  Pulaski,  and the Bank  and PSB,  were
recorded as a combination of entities under common  control.  The amount paid to
minority shareholders of Pulaski in excess of their interest in Pulaski amounted
to $16,146,000, which was recorded as goodwill.

On September 11, 2002, the Company and the Bank entered into a merger  agreement
with West Essex Bancorp,  Inc. (West Essex),  West Essex Savings Bank (WESB) and
its 100% owned subsidiaries. On July 1, 2003, the Company purchased West Essex's
common stock held by public  stockholders  for $35.10 per share,  in cash.  (The
purchase  price was  transferred  to a third party  escrow  agent as of June 30,
2003.) The purchase of minority  interest shares was recorded as the acquisition
of the noncontrolling interests of a subsidiary utilizing the purchase method of
accounting and the immediately  following  merger of the Company and West Essex,
and the Bank and WESB,  were recorded as a combination  of entities under common
control.  The amount  paid to minority  shareholders  of West Essex in excess of
their  interest in West Essex  amounted to  $50,517,000,  which was  recorded as
goodwill.

Merger related expenses include the following:

<TABLE>
<CAPTION>
                                                                         Years Ended June 30,
                                                                 -----------------------------------
                                                                    2005          2004        2003
                                                                 ----------     -------     --------
                                                                            (In Thousands)
<S>                                                            <C>            <C>         <C>
Legal, professional, filing fees and other expenses              $       -      $   592     $  2,670
Payments for terminated employment contracts and stock-based
     compensation plans for officers                                     -            -       10,657
Stock option payment to directors                                        -            -        1,594
                                                                 ---------      -------     --------

                                                                 $       -      $   592     $ 14,921
                                                                 =========      =======     ========
</TABLE>

In addition,  compensation  expense for the year ended June 30,  2003,  included
approximately $1,464,000 and $607,000 in pension and ESOP expense, respectively,
of West Essex Bancorp, Inc.

--------------------------------------------------------------------------------
                                      F-12

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - STOCK OFFERING

On June 7, 2004,  the Board of  Directors  of the Company and the Bank adopted a
plan of stock issuance  pursuant to which the Company  subsequently  sold common
stock  representing a minority ownership of the estimated pro forma market value
of the Company to eligible  depositors  of the Bank.  On February 23, 2005,  the
Company  completed  the  minority  stock  offering  in which it sold  21,821,250
shares,  valued at $10.00 per share,  representing 30% of its outstanding common
stock.  Kearny MHC (the "MHC") owns the remaining 70% of the outstanding  common
stock, or 50,916,250  shares.  The MHC is a  federally-chartered  mutual holding
company  organized on March 30, 2001, and is subject to regulation by the Office
of Thrift Supervision.  So long as the MHC is in existence,  it will continue to
own a majority of the  outstanding  common stock of the  Company.  The Office of
Thrift Supervision also regulates the Company and the Bank.

Following  the sale of  common  stock,  all  depositors  who had  membership  or
liquidation  rights  with  respect to the Bank as of the  effective  date of the
transaction  continue to have such rights solely with respect to the MHC as long
as they  continue to hold  deposit  accounts  with the Bank.  In  addition,  all
persons  who  become  depositors  of the  Bank  subsequent  to the  date  of the
transaction  have such  membership  and  liquidation  rights with respect to the
holding  company.  Borrowers of the Bank as of the date of the transaction  have
the same  membership  rights in the  holding  company  that they had in the Bank
immediately  prior to the date of the  transaction  as long as their  borrowings
remain outstanding.

The minority stock offering  resulted in net proceeds of $214.6  million,  after
expenses of $3.6  million.  The Company  used 50% of the net  proceeds to make a
capital  contribution  to the Bank. The Company also provided a term loan to the
Bank's  Employee  Stock  Ownership  Plan (the  "ESOP") to enable it to  purchase
1,745,700 shares of the Company's common stock for the plan.


NOTE 4 - SECURITIES AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                                   June 30, 2005
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized     Carrying
                                                      Cost        Gains          Losses         Value
                                                    --------     ------          ------       --------
                                                                     (In Thousands)
<S>                                               <C>          <C>             <C>         <C>
Common stock                                         $   128     $8,423          $    -      $  8,551
Mutual funds                                          14,134        161             155        14,140
Trust preferred securities due after ten years        10,891        200             191        10,900
                                                     -------     ------          ------       -------

                                                     $25,153     $8,784          $  346       $33,591
                                                     =======     ======          ======       =======
</TABLE>

--------------------------------------------------------------------------------
                                      F-13

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - SECURITIES AVAILABLE FOR SALE (CONTINUED)

<TABLE>
<CAPTION>
                                                                   June 30, 2004
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized     Carrying
                                                      Cost        Gains          Losses         Value
                                                    --------     ------          ------       --------
                                                                      (In Thousands)
<S>                                               <C>          <C>             <C>         <C>
Common stock                                        $   246      $15,648       $     -       $15,894
Mutual funds                                         13,933           63            97        13,899
Trust preferred securities due after ten years       11,929           69           227        11,771
                                                    -------      -------       -------       -------

                                                    $26,108      $15,780       $   324       $41,564
                                                    =======      =======       =======       =======
</TABLE>

The age of unrealized losses and fair value of related securities  available for
sale at June 30, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                                Less than 12 Months       12 Months or More               Total
                                -------------------    -------------------------  --------------------------
                                 Fair    Unrealized     Fair         Unrealized     Fair         Unrealized
                                 Value     Losses       Value          Losses       Value          Losses
                                -------  ----------    --------      -----------  ----------    ------------
                                                             (In Thousands)
<S>                           <C>         <C>       <C>               <C>       <C>               <C>
June 30, 2005:
     Common stock               $    -     $    -      $     -           $   -      $     -           $  -
     Mutual funds                    -          -        7,201             155        7,201            155
     Trust preferred
     securities                      -          -        5,210             191        5,210            191
                                ------     ------     --------           -----      -------           ----

       Total                    $    -     $    -      $12,411           $ 346      $12,411           $346
                                ======     ======      =======           =====      =======           ====

June 30, 2004:
     Common stock               $    -     $    -      $     -           $   -      $     -           $  -
     Mutual funds                    -          -        7,057              97        7,057             97
     Trust preferred
     securities                      -          -        7,577             227        7,577            227
                                ------     ------      -------           -----      -------           ----

       Total                    $    -     $    -      $14,634           $ 324      $14,634           $324
                                ======     ======      =======           =====      =======           ====
</TABLE>

As of June 30,  2005 and 2004,  management  has  concluded  that the  unrealized
losses  are  temporary  in nature  since  they are  primarily  related to market
interest rates and not related to the underlying credit quality of the issuer of
the  securities.  Additionally,  we have the  intent  and  ability to hold these
investments for a time necessary to recover the amortized cost.

During the year ended June 30, 2005, proceeds from sales of securities available
for sale totaled  $8,866,000  and resulted in gross gains of  $7,705,000.  There
were no sales of  securities  available for sale during the years ended June 30,
2004 and 2003.


--------------------------------------------------------------------------------
                                      F-14

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
                                                                   June 30, 2005
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized     Carrying
                                                      Cost        Gains          Losses         Value
                                                    --------     ------          ------       --------
                                                                      (In Thousands)
<S>                                               <C>          <C>             <C>         <C>
Government agencies:
     Within one year                                 $ 17,000    $    -         $  152      $ 16,848
     After one year but within five years             235,019         4          4,065       230,958
     After five years but within ten years                494        81              -           575
     After ten years                                   12,956         -            112        12,844
                                                     --------    ------         ------      --------

                                                      265,469        85          4,329       261,225
                                                     --------    ------         ------      --------

Obligations of states and political subdivisions:
     Within one year                                    4,202        11              3         4,210
     After one year but within five years              16,139       216             78        16,277
     After five years but within ten years             99,841     2,453            261       102,033
     After ten years                                   84,447     1,327            298        85,476
                                                     --------    ------         ------      --------

                                                      204,629     4,007            640       207,996
                                                     --------    ------         ------      --------

                                                     $470,098    $4,092         $4,969      $469,221
                                                     ========    ======         ======      ========
</TABLE>
--------------------------------------------------------------------------------
                                      F-15

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                   June 30, 2004
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized   Carrying
                                                      Cost        Gains          Losses       Value
                                                    --------     ------          ------     --------
                                                                      (In Thousands)
<S>                                               <C>          <C>             <C>         <C>
Government agencies:
     After one year but within five years          $246,259        $    -        $5,223     $241,036
     After five years but within ten years           10,493           117            62       10,548
     After ten years                                 17,649            11           104       17,556
                                                   --------        ------        -------    --------

                                                    274,401           128         5,389      269,140
                                                   --------        ------        -------    --------

Obligations of states and political subdivisions:
     Within one year                                  5,386            33             -        5,419
     After one year but within five years            13,606           369            54       13,921
     After five years but within ten years           65,990           922           991       65,921
     After ten years                                 76,487           394         2,507       74,374
                                                   --------        ------        ------     --------

                                                    161,469         1,718         3,552      159,635
                                                   --------        ------        ------     --------

                                                   $435,870        $1,846        $8,941     $428,775
                                                   ========        ======        ======     ========
</TABLE>

There were no sales of investment  securities  held to maturity during the years
ended June 30, 2005,  2004 and 2003.  During the years ended June 30, 2005, 2004
and 2003, proceeds from calls of securities totaled  $10,000,000,  $111,189,000,
and  $108,705,000,  respectively,  resulting in no gains or losses.  At June 30,
2005,   investment  securities  held  to  maturity  with  a  carrying  value  of
$243,007,000 are callable within one year.

At June 30, 2005 and 2004, all obligations of states and political  subdivisions
were guaranteed by insurance policies issued by various insurance companies.

The age of  unrealized  losses and fair value of related  investment  securities
held to maturity at June 30, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                                  Less than 12 Months       12 Months or More               Total
                                  -------------------    -------------------------  --------------------------
                                   Fair    Unrealized     Fair         Unrealized     Fair         Unrealized
                                   Value     Losses       Value          Losses       Value          Losses
                                  -------  ----------    --------      -----------  ----------    ------------
                                                               (In Thousands)
<S>                               <C>         <C>       <C>               <C>       <C>              <C>
June 30, 2005:
     Government agencies           $   754     $    6    $254,116          $4,323    $254,870         $4,329
     Obligations of states
       and political subdivisions   19,469        221      32,923             419      52,392            640
                                   -------       ----    --------          ------    --------         ------

       Total                       $20,223       $227    $287,039          $4,742    $307,262         $4,969
                                   =======       ====    ========          ======    ========         ======

</TABLE>
--------------------------------------------------------------------------------
                                      F-16

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5 - INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)

<TABLE>
<CAPTION>
                                  Less than 12 Months       12 Months or More               Total
                                  -------------------    -------------------------  --------------------------
                                   Fair    Unrealized     Fair         Unrealized     Fair         Unrealized
                                   Value     Losses       Value          Losses       Value          Losses
                                  -------  ----------    --------      -----------  ----------    ------------
                                                               (In Thousands)
<S>                               <C>         <C>       <C>               <C>       <C>              <C>
June 30, 2004:
     Government agencies          $250,973    $5,285     $16,386          $104        $267,359         $5,389
     Obligations of states
       and political subdivisions   85,620     3,026       7,365           526          92,985          3,552
                                  --------    ------     -------          ----        --------         ------

       Total                      $336,593    $8,311     $23,751          $630        $360,344         $8,941
                                  ========    ======     =======          ====        ========         ======
</TABLE>

As of June 30,  2005 and 2004,  management  has  concluded  that the  unrealized
losses  are  temporary  in nature  since  they are  primarily  related to market
interest rates and not related to the  underlying  credit quality of the issuers
of the  securities.  Additionally,  we have the intent and ability to hold these
investments for the time necessary to recover the amortized cost.


NOTE 6 - LOANS RECEIVABLE

                                                                June 30,
                                                       -------------------------
                                                          2005            2004
                                                        --------        --------
                                                             (In Thousands)

          Real estate mortgage                          $479,451        $441,667
                                                        --------        --------

          Commercial business                              2,930           5,161
                                                        --------        --------
          Consumer:
               Home equity loans                          54,199          37,381
               Home equity lines of credit                14,850          15,677
               Passbook or certificate                     2,831           2,746
               Other                                         264             336
                                                        --------        --------

                                                          72,144          56,140
                                                        --------        --------
          Construction                                     8,094           7,212
                                                        --------        --------

                 Total Loans                             562,619         510,180

          Deferred loan costs and fees, net                  815             758
                                                        --------        --------

                                                        $563,434        $510,938
                                                        ========        ========

--------------------------------------------------------------------------------
                                      F-17

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - LOANS RECEIVABLE (CONTINUED)

At June 30, 2005 and 2004, real estate mortgage loans included  $382,766,000 and
$358,241,000,  respectively, of loans secured by one-to-four-family  residential
properties.

The Bank has granted  loans to  officers  and  directors  of the Company and its
Subsidiaries  and  to  their  associates.   Related  party  loans  are  made  on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve  more than normal  risk of  collectibility.  As of June 30, 2005 and
2004 such loans totaled approximately  $1,285,000 and $1,633,000,  respectively.
During the year ended June 30, 2005, new loans to related  parties  totaled $-0-
and repayments totaled approximately $348,000.

The activity in the allowance for loan losses is as follows:

                                                        Years Ended June 30,
                                                 -------------------------------
                                                   2005         2004       2003
                                                 -------     -------     -------
                                                          (In Thousands)

Balance - beginning                              $ 5,144     $ 5,180     $ 5,170
     Provisions charged to operations                 68           -           -
     Loans charged off                                (9)        (36)          -
     Loans recovered                                 213           -          10
                                                 -------     -------     -------

Balance - ending                                 $ 5,416     $ 5,144     $ 5,180
                                                 =======     =======     =======

At June 30,  2005 and 2004,  nonaccrual  loans for which the accrual of interest
had  been  discontinued   totaled   approximately   $1,922,000  and  $2,289,000,
respectively.  Had these loans been performing in accordance with their original
terms,  the interest  income  recognized for the years ended June 30, 2005, 2004
and 2003,  would  have been  $162,000,  $177,000,  and  $178,000,  respectively.
Interest income  recognized on such loans was $69,000,  $118,000,  and $102,000,
respectively.

Impaired  loans and related  amounts  recorded in allowance  for loan losses are
summarized as follows:

                                                                      June 30,
                                                                  --------------
                                                                   2005    2004
                                                                   ----    ----
                                                                  (In Thousands)

    Recorded investment in impaired loans with recorded allowance  $  -    $256
    Without recorded allowance                                        -       -
                                                                   ----    ----

           Total Impaired Loans                                       -     256

    Related allowance for loan losses                                 -     115
                                                                   ----    ----

           Net Impaired Loans                                      $  -    $141
                                                                   ====    ====

$88,000,  $-0-,  and $-0- was received and recognized for these loans during the
years ended June 30, 2005, 2004 and 2003,  respectively.  The average balance of
impaired loans during the years ended June 30, 2005, 2004 and 2003  approximated
$235,000, $243,000, and $229,000, respectively.


--------------------------------------------------------------------------------
                                      F-18

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - MORTGAGE-BACKED SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
                                                                   June 30, 2005
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized     Carrying
                                                      Cost        Gains          Losses         Value
                                                    --------     ------          ------       --------
                                                                      (In Thousands)
<S>                                              <C>            <C>             <C>         <C>
Government National Mortgage Association           $ 63,399       $1,767          $  196      $ 64,970
Federal Home Loan Mortgage Corporation              305,059        2,465           1,712       305,812
Federal National Mortgage Association               389,663        3,985           1,700       391,948
                                                   --------       ------          ------      --------

                                                   $758,121       $8,217          $3,608      $762,730
                                                   ========       ======          ======      ========
</TABLE>

<TABLE>
<CAPTION>
                                                                   June 30, 2004
                                                   ----------------------------------------------------
                                                                  Gross          Gross
                                                   Amortized    Unrealized     Unrealized     Carrying
                                                      Cost        Gains          Losses         Value
                                                    --------     ------          ------       --------
                                                                      (In Thousands)
<S>                                              <C>             <C>           <C>           <C>
Government National Mortgage Association           $ 94,499        $2,507        $1,487        $ 95,519
Federal Home Loan Mortgage Corporation              314,221         2,472         3,505         313,188
Federal National Mortgage Association               362,633         4,670         3,300         364,003
                                                   --------        ------        ------        --------

                                                   $771,353        $9,649        $8,292        $772,710
                                                   ========        ======        ======        ========
</TABLE>

Net premiums of  approximately  $3,613,000  and  $3,565,000 at June 30, 2005 and
2004,  respectively,  are  included in the carrying  amounts of  mortgage-backed
securities held to maturity.

There were no sales of  mortgage-backed  securities  held to maturity during the
years ended June 30, 2005, 2004 and 2003. At June 30, 2005 and 2004,  securities
with carrying value of approximately  $426,000 and $906,000,  respectively,  was
pledged to secure public funds on deposit.

The  age  of  unrealized  losses  and  fair  value  of  related  mortgage-backed
securities held to maturity at June 30, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>
                                  Less than 12 Months       12 Months or More               Total
                                  -------------------    -------------------------  --------------------------
                                   Fair    Unrealized     Fair         Unrealized     Fair         Unrealized
                                   Value     Losses       Value          Losses       Value          Losses
                                  -------  ----------    --------      -----------  ----------    ------------
                                                               (In Thousands)
<S>                             <C>         <C>       <C>               <C>       <C>              <C>
June 30, 2005:
     Mortgage-backed
         securities               $143,550    $  986    $230,786          $2,622    $374,336         $3,608
                                  ========    ======    ========          ======    ========         ======

June 30, 2004:
     Mortgage-backed
         securities               $376,245    $7,977   $   4,126          $  315    $380,371         $8,292
                                  ========    ======   =========          ======    ========         ======
</TABLE>

--------------------------------------------------------------------------------
                                      F-19

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - MORTGAGE-BACKED SECURITIES HELD TO MATURITY (CONTINUED)

As of June 30,  2005 and 2004,  management  has  concluded  that the  unrealized
losses  are  temporary  in nature  since  they are  primarily  related to market
interest rates and not related to the  underlying  credit quality of the issuers
of the  securities.  Additionally,  we have the intent and ability to hold these
investments for the time necessary to recover the amortized cost.


NOTE 8 - PREMISES AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                ---------------------------
                                                                  2005                2004
                                                                -------             -------
                                                                      (In Thousands)

<S>                                                          <C>                 <C>
          Land                                                 $  8,984            $  5,689
          Buildings and improvements                             27,288              15,800
          Leasehold improvements                                    490                 422
          Furnishings and equipment                               9,455               7,203
          Construction in progress                                  516               7,902
                                                                -------             -------

                                                                 46,733              37,016
          Less accumulated depreciation and amortization         11,756              10,367
                                                                -------             -------

                                                                $34,977             $26,649
                                                                =======             =======
</TABLE>

NOTE 9 - INTEREST RECEIVABLE

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                ---------------------------
                                                                  2005                2004
                                                                -------             -------
                                                                      (In Thousands)

<S>                                                          <C>                   <C>
          Loans                                                $  2,266              $2,116
          Mortgage-backed securities                              3,481               3,514
          Investments                                             4,683               4,231
                                                                -------              ------

                                                                $10,430              $9,861
                                                                =======              ======
</TABLE>

--------------------------------------------------------------------------------
                                      F-20

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10 - GOODWILL AND OTHER INTANGIBLE ASSETS

Net assets of an institution acquired in a purchase transaction prior to July 1,
2001, were recorded at fair value at the date of acquisition.  The Bank also has
finite-lived  intangible assets, which are included in other assets, in the form
of core  deposit  intangibles.  These  intangibles  are being  amortized  on the
straight line basis over their estimated useful lives of ten years.

                                                                    Core Deposit
                                                         Goodwill    Intangibles
                                                         --------    -----------
                                                             (In Thousands)

Balance at June 30, 2002                                  $15,600       $ 3,472
     Pulaski Savings Bank acquisitions (see Note 2)        16,146             -
     Amortization                                               -          (636)
                                                          -------       -------

Balance at June 30, 2003                                   31,746         2,836
     Amortization                                               -          (636)
     West Essex Savings Bank acquisition (see Note 2)      50,517             -
                                                          -------       -------

Balance at June 30, 2004                                   82,263         2,200
     Amortization                                               -          (636)
                                                          -------       -------

Balance at June 30, 2005                                  $82,263       $ 1,564
                                                          =======       =======

The gross  carrying  amount of core deposit  intangibles  was $5,987,000 at both
June 30, 2005 and 2004, while accumulated  amortization  totaled  $4,423,000 and
$3,787,000 at June 30, 2005 and 2004, respectively.  Amortization is expected to
total  $636,000 in each of the years ending June 30, 2006 and 2007, and $292,000
in the year ending June 30, 2008.


NOTE 11 - DEPOSITS

<TABLE>
<CAPTION>
                                                                     June 30,
                                          -------------------------------------------------------------
                                                      2005                         2004
                                          ---------------------------    ------------------------------
                                                           Weighted                       Weighted
                                                           Average                        Average
                                                           Interest                       Interest
                                              Amount        Rate             Amount         Rate
                                              ------        ----             ------         ----
                                                              (Dollars In Thousands)
<S>                                     <C>               <C>          <C>               <C>
          Non-interest bearing demand     $   56,142            -   %    $   55,377            -   %
          Interest-bearing demand             99,308         0.78           103,648         0.75
          Savings and club                   450,211         1.12           481,466         1.00
          Certificates of deposit            923,116         2.81           897,019         1.92
                                          ----------                     ----------

                                          $1,528,777         2.08   %    $1,537,510         1.48   %
                                          ==========                     ==========
</TABLE>

--------------------------------------------------------------------------------
                                      F-21

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - DEPOSITS (CONTINUED)

Certificates  of deposit with  balances of $100,000 or more at June 30, 2005 and
2004,  totaled  approximately   $209,552,000  and  $188,009,000,   respectively.
Deposits in excess of $100,000 are not insured by the Federal Deposit  Insurance
Corporation.

A summary of certificates of deposit by maturity follows:

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                                   -----------------------------
                                                                                      2005                2004
                                                                                   --------            --------
                                                                                          (In Thousands)
<S>                                                                               <C>                 <C>
          One year or less                                                          $701,710            $709,940
          After one to two years                                                     148,557             128,837
          After two to three years                                                    43,275              31,624
          After three years                                                           29,574              26,618
                                                                                    --------            --------

                                                                                    $923,116            $897,019
                                                                                    ========            ========
</TABLE>

Interest expense on deposits consists of the following:

<TABLE>
<CAPTION>
                                                                               Years Ended June 30,
                                                              --------------------------------------------------
                                                                2005                  2004                 2003
                                                              -------               -------              -------
                                                                                 (In Thousands)

<S>                                                         <C>                   <C>                  <C>
          Demand                                              $   752               $   882              $ 1,074
          Savings and clubs                                     5,422                 5,508                6,604
          Certificates of deposits                             20,358                21,692               32,230
                                                              -------               -------              -------

                                                              $26,532               $28,082              $39,908
                                                              =======               =======              =======
</TABLE>

NOTE 12 - ADVANCES FROM FHLB

<TABLE>
<CAPTION>
                                                                                 June 30,
                                                      -------------------------------------------------------------
                                                                  2005                         2004
                                                      ---------------------------    ------------------------------
                                                                       Weighted                       Weighted
                                                                       Average                        Average
                                                                       Interest                       Interest
                                                          Amount        Rate             Amount         Rate
                                                          ------        ----             ------         ----
                                                                          (Dollars In Thousands)
      <S>                                           <C>               <C>              <C>               <C>
         Due in one year or less                        $     -            -   %        $32,000         1.75   %
         After one to five years                         50,000         5.46   %         50,000         5.46   %
         After five to ten years                         10,000         5.40   %         10,000         5.40   %
         Other borrowings, payable in monthly
              installments through February 25,
              2008                                        1,687         6.03   %          2,234         6.03   %
                                                        -------                         -------

                                                        $61,687         5.47   %        $94,234         4.21   %
                                                        =======                         =======
</TABLE>


--------------------------------------------------------------------------------
                                      F-22

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - ADVANCES FROM FHLB (CONTINUED)

At June 30,  2005,  of the  $60,000,000  in  advances  due after one through ten
years, $57,000,000 are callable, including $47,000,000 which are callable within
one year.

FHLB advances at June 30, 2005 and 2004, are  collateralized by the FHLB capital
stock owned by the Bank and  investment  securities  held to maturity  with fair
values totaling approximately $74,583,000 and $126,810,000, respectively.


NOTE 13 - BENEFIT PLANS

Employee Stock Ownership Plan

     Effective  upon  completion of the  Company's  initial  public  offering in
     February  2005,  the Bank  established  an Employee  Stock  Ownership  Plan
     ("ESOP") for all eligible  employees who complete a twelve-month  period of
     employment with the Bank, have attained the age of 21 and complete at least
     1,000  hours of  service  in a plan  year.  The ESOP  used  $17,457,000  in
     proceeds from a term loan  obtained from the Company to purchase  1,745,700
     shares of Company common stock. The term loan principal is payable over 144
     equal  installments  through March 31, 2017.  The interest rate on the term
     loan  is  5.50%.  Each  year,  the  Bank  intends  to  make   discretionary
     contributions  to the ESOP,  which will be equal to principal  and interest
     payments  required on the term loan. The ESOP may further pay down the loan
     with dividends paid, if any, on the Company common stock owned by the ESOP.

     Shares  purchased  with the loan proceeds  provide  collateral for the term
     loan  and are held in a  suspense  account  for  future  allocations  among
     participants.   Base   compensation   is  the  basis  for   allocation   to
     participants,  of  contributions  to the ESOP and shares  released from the
     suspense account, as described by the Plan, in the year of allocation.

     The ESOP is accounted for in accordance  with  Statement of Position  93-6,
     "Accounting  for Employee Stock  Ownership  Plans," which was issued by the
     American  Institute  of Certified  Public  Accountants.  Accordingly,  ESOP
     shares  pledged as  collateral  were  initially  recorded as unearned  ESOP
     shares in the consolidated  statements of financial condition.  Thereafter,
     on  a  monthly   basis,   12,123  shares  are  committed  to  be  released,
     compensation expense is recorded equal to the number of shares committed to
     be released times the monthly  average market price of the shares,  and the
     committed  shares become  outstanding for basic net income per common share
     computations.  ESOP compensation expense was approximately $530,000 for the
     year ended June 30, 2005.

     At June 30, 2005, the ESOP shares were as follows:

                            Allocated shares                              -
                            Shares committed to be released          48,492
                            Unearned shares                       1,697,208
                                                                -----------

                                   Total ESOP Shares              1,745,700
                                                                ===========

                            Fair value of unearned shares       $20,027,054
                                                                ===========

--------------------------------------------------------------------------------
                                      F-23

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - BENEFIT PLANS

Thrift Plan

     The Bank  sponsors the  Financial  Institutions  Thrift Plan (the  "Plan"),
     pursuant to Section  401(k) of the Internal  Revenue Code, for all eligible
     employees. Employees may elect to save up to 20% of their compensation. The
     Bank will  contribute  a  matching  contribution  up to 3% of the  employee
     annual compensation.  The Plan expense amounted to approximately  $281,000,
     $264,000,  and $183,000  for the years ended June 30, 2005,  2004 and 2003,
     respectively.

Retirement Plan

     The Bank has a non-contributory multiple-employer pension plan covering all
     eligible employees. Significant actuarial assumptions include the projected
     unit credit cost valuation  method and an annual  investment rate of 8.25%,
     8.25%,  and  8.25%  for the  years  ended  June 30,  2005,  2004 and  2003,
     respectively.  At the date of latest plan review,  the net assets available
     for plan benefits  exceeded the actuarial present value of accumulated plan
     benefits.  Data for the actuarial  present value of accumulated  vested and
     non-vested   benefits  is  not  determinable  for  this   multiple-employer
     retirement plan. During the years ended June 30, 2005, 2004 and 2003, total
     pension  plan  expense  and  contributions  to the plan were  approximately
     $2,538,000, $1,193,000, and $685,000, respectively.

Benefit Equalization Plan ("BEP")

     The Bank has an unfunded  non-qualified  plan to compensate senior officers
     of the Bank who  participate  in the  Bank's  qualified  benefit  plans for
     certain  benefits  lost under  such plans by reason of benefit  limitations
     imposed by Sections 415 and 401 of the Internal  Revenue  Code.  There were
     approximately  $59,000 in contributions made to and benefits paid under the
     BEP during each of the years ended June 30, 2005, 2004 and 2003.

     The following  table sets forth the BEP's funded  status and  components of
     net periodic pension cost:

                                                             June 30,
                                                     -------------------------
                                                      2005              2004
                                                     ------            ------
                                                          (In Thousands)

          Change in benefit obligation:
               Benefit obligation - beginning        $1,831           $1,328
                   Service cost                          42               24
                   Interest cost                        135               98
                   Actuarial loss                         -              440
                   Benefit payments                     (59)             (59)
                                                     ------           ------

               Benefit obligation - ending           $1,949           $1,831
                                                     ======           ======

          Change in plan assets:
               Fair value of assets - beginning      $    -           $    -
                   Actual return on plan assets           -                -
                   Settlements                           59               59
                   Contributions                        (59)             (59)
                                                     ------           ------

               Fair value of assets - ending         $    -           $    -
                                                     ======           ======



--------------------------------------------------------------------------------
                                      F-24

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - BENEFIT PLANS (CONTINUED)

Benefit Equalization Plan ("BEP") (Continued)

<TABLE>
<CAPTION>
                                                                            June 30,
                                                                       -------------------
                                                                         2005        2004
                                                                       -------     -------
                                                                          (In Thousands)
<S>                                                                  <C>         <C>
          Reconciliation of funded status:
               Accumulated benefit obligation                          $(1,209)    $  (985)
                                                                       =======     =======

               Projected benefit obligation                            $(1,949)    $(1,831)
               Fair value of assets                                          -           -
                                                                       -------     -------

               Funded status                                            (1,949)     (1,831)
               Unrecognized prior service cost                             (58)        (50)
               Unrecognized net actuarial loss                             913       1,035
                                                                       -------     -------

               Accrued pension cost included in other liabilities      $(1,094)    $  (846)
                                                                       =======     =======

          Value assumptions:
               Discount rate                                             7.50%       7.50%
               Salary increase rate                                      5.50%       5.50%
</TABLE>

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                            ------------------------------------

                                                                 2005        2004        2003
                                                                 ----        ----        ----
                                                                        (In Thousands)

<S>                                                         <C>         <C>         <C>
          Net periodic pension expense:
               Service cost                                   $    42     $    24     $    12
               Interest cost                                      135          98          72
               Amortization of unrecognized past service costs      8           8           8
               Amortization of unrecognized net actuarial         122          77          38
                                                              -------     -------     -------

                                                              $   307     $   207     $   130
                                                              =======     =======     =======

          Valuation assumptions:
               Discount rate                                     7.50%       7.50%       7.50%
               Salary increase rate                              5.50%       5.50%       5.50%
</TABLE>

     It is estimated that  contributions of  approximately  $72,000 will be made
during the year ending June 30, 2006.


--------------------------------------------------------------------------------
                                      F-25

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - BENEFIT PLANS (CONTINUED)

Benefit Equalization Plan ("BEP") (Continued)

     The following benefit payments,  which reflect expected future service,  as
appropriate, are expected to be paid:

                            2006                                  $ 72,000
                            2007                                    79,000
                            2008                                    93,000
                            2009                                    99,000
                            2010-2014                              688,000

Postretirement Welfare Plan

     The Bank has a  postretirement  group term life insurance plan covering all
     eligible employees. The benefits are based on age and years of service. The
     plan is  unfunded.  During the years  ended June 30,  2005,  2004 and 2003,
     contributions  and  benefits  paid  totaled  $7,000,  $6,000,  and  $5,000,
     respectively.  The  following  table  sets  forth the  accrued  accumulated
     postretirement  benefit  obligation  and  the net  periodic  postretirement
     benefit cost:

                                                                June 30,
                                                         ---------------------
                                                           2005          2004
                                                          ------        ------
                                                            (In Thousands)

             Change in benefit obligation:
                  Benefit obligation - beginning          $ 409         $ 378
                      Service cost                           20            18
                      Interest cost                          27            22
                      Actuarial (gain) loss                   2            (3)
                      Premiums/claims paid                   (7)           (6)
                      Plan amendment                          -             -
                                                          -----         -----

                  Benefit obligation - ending             $ 451         $ 409
                                                          =====         =====

             Change in plan assets:
                  Fair value of assets - beginning        $   -         $   -
                      Actual return on plan assets            -             -
                      Premiums/claims paid                    7             6
                      Contributions                          (7)           (6)
                                                          -----         -----

                  Fair value of assets - ending           $   -         $   -
                                                          =====         =====


--------------------------------------------------------------------------------
                                      F-26

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - BENEFIT PLANS (CONTINUED)

Postretirement Welfare Plan (Continued)

                                                                     June 30,
                                                                ----------------
                                                                 2005      2004
                                                                 ----      ----

                                                                 (In Thousands)

Reconciliation of funded status:
     Accumulated benefit obligation                             $(451)    $(409)
     Fair value of assets                                           -         -
                                                                -----     -----

     Funded status                                               (451)     (409)
     Unrecognized net actuarial loss                               (7)       (9)
     Unrecognized prior service cost                               63        74
                                                                -----     -----

     Accrued postretirement benefit cost included
         in other liabilities                                   $(395)    $(344)
                                                                =====     =====

Value assumptions:
     Discount rate                                             5.63%     6.63%
     Salary increase rate                                      3.00%     4.00%


                                                        Years Ended June 30,
                                                   -----------------------------
                                                     2005      2004      2003
                                                     ----      ----      ----
                                                          (In Thousands)

Net periodic postretirement benefit cost:
     Service cost                                   $  20     $  18     $  12
     Interest cost                                     27        22        19
     Amortization of unrecognized net actuarial
         gain                                           -         -         -
     Amortization of unrecognized past service
         liability                                     11         9         4
                                                    -----     -----     -----

                                                    $  58     $  49     $  35
                                                    =====     =====     =====

Valuation assumptions:
     Discount rate                                   6.63%     5.75%     7.00%
     Salary increase rate                            4.00%     3.25%     4.25%



--------------------------------------------------------------------------------
                                      F-27

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - BENEFIT PLANS (CONTINUED)

Postretirement Welfare Plan (Continued)

     It is estimated that  contributions  of  approximately  $8,000 will be made
     during the year ending June 30, 2006.

     The following benefit payments,  which reflect expected future service,  as
     appropriate, are expected to be paid:

                            2006                              $ 8,000
                            2007                                8,000
                            2008                                7,000
                            2009                               10,000
                            2010                               12,000
                            2011-2015                          69,000

Directors' Consultation and Retirement Plan ("DCRP")

     The Bank has an unfunded  retirement plan for non-employee  directors.  The
     benefits  are payable  based on term of service as a  director.  During the
     years ended June 30, 2005, 2004 and 2003,  contributions  and benefits paid
     totaled $89,000, $89,000, and $51,000, respectively.

     The following  table sets forth the DCRP's funded status and  components of
     net periodic cost:

                                                              June 30,
                                                     -------------------------
                                                        2005            2004
                                                     ---------        --------

(In Thousands)

Change in benefit obligation:
     Projected benefit obligation - beginning        $ 1,561         $ 1,487
         Service cost                                     86              78
         Interest cost                                    99              83
         Actuarial loss                                  157               2
         Annuity payments                                (89)            (89)
         Plan amendments                                 335               -
                                                     -------         -------

     Projected benefit obligation - ending           $ 2,149         $ 1,561
                                                     =======         =======

Change in plan assets:
     Fair value of assets - beginning                $     -         $     -
         Actual return on plan assets                      -               -
         Settlements                                      89              89
         Contributions                                   (89)            (89)
                                                     -------         -------

     Fair value of assets - ending                   $     -         $     -
                                                     =======         =======



--------------------------------------------------------------------------------
                                      F-28

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - BENEFIT PLANS (CONTINUED)

Directors' Consultation and Retirement Plan ("DCRP") (Continued)

<TABLE>
<CAPTION>
                                                                              June 30,
                                                                        --------------------
                                                                          2005         2004
                                                                        -------      -------
                                                                           (In Thousands)
<S>                                                                   <C>          <C>
          Reconciliation of funded status:
               Accumulated benefit obligation                           $(1,879)     $(1,361)
                                                                        =======      =======

               Projected benefit obligation                             $(2,149)     $(1,561)
               Fair value of assets                                           -            -
                                                                        -------      -------

               Fund status                                               (2,149)      (1,561)
               Unrecognized transition obligation                           175          219
               Unrealized net actuarial (gain) loss                         150           (7)
               Unrecognized prior service cost                              643          341
                                                                        -------      -------

               Accrued cost included in other liabilities               $(1,181)     $(1,008)
                                                                        =======      =======

          Value assumptions:
               Discount rate                                              5.63%        6.63%
               Fee increase rate                                          3.00%        4.00%

</TABLE>

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                              ---------------------------------
                                                               2005          2004         2003
                                                              ------        ------       ------
                                                                          (In Thousands)
<S>                                                         <C>         <C>           <C>
          Net periodic plan cost:
               Service cost                                   $   86      $     78      $    56
               Interest cost                                      99            83           78
               Amortization of unrecognized transition
                   obligation                                     44            44           44
               Amortization of unrecognized net actuarial
                   gain                                            -             -           (2)
               Amortization of unrecognized past service
                   liability                                      33            33           24
                                                              ------        ------       ------

                                                              $  262        $  238       $  200
                                                              ======        ======       ======

          Valuation assumptions:
               Discount rate                                   6.63%         5.75%        7.00%
               Fee increase rate                               4.00%         3.25%        4.25%
</TABLE>

It is estimated that contributions of approximately $157,000 will be made during
the year ending June 30, 2006.


--------------------------------------------------------------------------------
                                      F-29

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - BENEFIT PLANS (CONTINUED)

Directors' Consultation and Retirement Plan ("DCRP") (Continued)

     The following benefit payments,  which reflect expected future service,  as
     appropriate, are expected to be paid:

                            2006                                    $157,000
                            2007                                     168,000
                            2008                                     178,000
                            2009                                     187,000
                            2010                                     194,000
                            2011-2015                                976,000

NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL

The Office of Thrift  Supervision  (the "OTS") imposes  various  restrictions or
requirements   on  the  ability  of  savings   institutions   to  make   capital
distributions,  including  cash  dividends.  A  savings  institution  that  is a
subsidiary of a savings and loan holding company, such as the Bank, must file an
application  or a notice  with  the OTS at least  thirty  days  before  making a
capital  distribution.  A savings institution must file an application for prior
approval of a capital  distribution  if: (i) it is not  eligible  for  expedited
treatment  under the  applications  processing  rules of the OTS; (ii) the total
amount  of  all  capital   distributions,   including   the   proposed   capital
distribution,  for the applicable  calendar year would exceed an amount equal to
the  savings   institution's   net  income  for  that  year  to  date  plus  the
institution's  retained net income for the preceding  two years;  (iii) it would
not  adequately  be  capitalized  after the  capital  distribution;  or (iv) the
distribution would violate an agreement with the OTS or applicable  regulations.
As a result of the dividend paid by the Bank to the Company in  connection  with
the acquisition of West Essex and its  subsidiaries,  it is likely that the Bank
will be required to file an application,  rather than a notice,  for any planned
capital distributions.

The Bank is subject to various regulatory capital  requirements  administered by
Federal  banking  agencies.  Failure to meet minimum  capital  requirements  can
initiate certain mandatory - and possibly additional  discretionary - actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's consolidated financial statements.  Under capital adequacy guidelines and
the  regulatory  framework  for  prompt  corrective  action,  the Bank must meet
specific  capital  guidelines that involve  quantitative  measures of the Bank's
assets,  liabilities,  and certain  of-balance-sheet  items as accumulated under
regulatory accounting  practices.  The Bank's capital amounts and classification
are also subject to qualitative  judgments by the regulators  about  components,
risk weighting, and other factors.

The  OTS  may  disapprove  a  notice  or  deny  an  application  for  a  capital
distribution if: (i) the savings institution would be undercapitalized following
the capital  distribution;  (ii) the proposed capital distribution raises safety
and  soundness  concerns;  or (iii) the  capital  distribution  would  violate a
prohibition  contained  in any statute,  regulation  or  agreement.  The capital
distributions  by Kearny Financial Corp., as a savings and loan holding company,
will not be subject to the OTS capital distribution rules.

--------------------------------------------------------------------------------
                                      F-30

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (CONTINUED)

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of Total and Tier 1
capital (as defined in the  regulations) to  risk-weighted  assets (as defined),
and of Tier 1 capital to  adjusted  total  assets (as  defined).  The  following
tables present a  reconciliation  of capital per accepted  principles  generally
accepted in the United  States of America  ("GAAP") and  regulatory  capital and
information as to the Bank's capital levels at the dates presented:

<TABLE>
<CAPTION>
                                                                                                         June 30,
                                                                                                -----------------------------
                                                                                                  2005                2004
                                                                                                --------            --------
                                                                                                   (In Thousands)

<S>                                                                                           <C>                 <C>
          GAAP capital:
               Consolidated capital                                                             $505,482            $293,505
               Less:  Unconsolidated capital of the Company                                     (109,653)             (1,520)
                                                                                                --------            --------

               Bank capital                                                                      395,829             291,985

          Less:  Unrealized gain on securities                                                    (5,485)            (10,008)
                   Goodwill                                                                      (82,263)            (82,263)
                   Intangible assets                                                              (1,564)             (2,200)
                                                                                                --------            --------

          Core and tangible capital                                                              306,517             197,514
          Add:  General valuation allowance                                                        5,416               5,029
                   Unrealized gain on equity securities                                            3,467               7,026
                                                                                                --------            --------

               Total regulatory capital                                                         $315,400            $209,569
                                                                                                ========            ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                       To be Well
                                                                                                    Capitalized under
                                                                           For Capital Adequacy       Prompt Corrective
                                                        Actual                  Purposes             Action Provisions
                                             -------------------------  -------------------------  -----------------------
                                               Amount          Ratio       Amount         Ratio     Amount         Ratio
                                               ------          -----       ------         -----     ------         -----
                                                                       (Dollars in Thousands)
<S>                                         <C>              <C>      <C>              <C>      <C>             <C>
As of June 30, 2005:
     Total capital (to risk-weighted
         assets)                              $315,400         45.19%   $=>55,833        =>8.00%  $=>69,791       =>10.00%
     Tier 1 capital (to risk-weighted
         assets)                               306,517         43.92            -             -    =>41,875       => 6.00
     Core (Tier 1) capital (to adjusted
         total assets                          306,517         15.94     =>57,672        =>3.00    =>96,119       => 5.00
     Tangible capital (to adjusted total
         assets)                               306,517         15.94     =>28,836        =>1.50           -             -

As of June 30, 2004:
     Total capital (to risk-weighted
         assets)                              $209,569         32.56%   $=>51,490        =>8.00%  $=>64,362       =>10.00%
     Tier 1 capital (to risk-weighted
         assets)                               197,514         30.69            -             -    =>38,617       => 6.00
     Core (Tier 1) capital (to adjusted
         total assets                          197,514         10.76     =>55,068        =>3.00    =>91,780       => 5.00
     Tangible capital (to adjusted total
         assets)                               197,514         10.76     =>27,534        =>1.50           -             -

</TABLE>

--------------------------------------------------------------------------------
                                      F-31

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14 - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (CONTINUED)

On January 3, 2005,  the most  recent  notification  from the OTS,  the Bank was
categorized as well  capitalized as of September 30, 2004,  under the regulatory
framework for prompt  corrective  action.  There are no  conditions  existing or
events which have occurred  since  notification  that  management  believes have
changed the Bank's category.


NOTE 15 - INCOME TAXES

The Bank qualifies as a savings institution under the provisions of the Internal
Revenue  Code  (the  "IRC").  Retained  earnings  at  June  30,  2005,  includes
approximately  $30.5  million of bad debt  allowance,  pursuant to the IRC,  for
which income taxes have not been  provided.  If such amount is used for purposes
other than or to absorb bad debts,  including  distributions in liquidation,  it
will be subject to income tax at the then current rate.

The components of income taxes are as follows:

                                                 Years Ended June 30,
                                            ------------------------------
                                              2005      2004       2003
                                            -------   -------    -------
                                                   (In Thousands)

         Current tax expense:
              Federal income                $ 6,125   $ 3,600    $ 3,319
              State income                    1,226     1,589      2,652
                                            -------   -------    -------

                                              7,351     5,189      5,971
                                            -------   -------    -------

         Deferred tax (benefit):
              Federal income                    325       470        (72)
              State income                       18        86       (662)
                                            -------   -------    -------

                                                343       556       (734)
                                            -------   -------    -------

                                            $ 7,694   $ 5,745    $ 5,237
                                            =======   =======    =======


--------------------------------------------------------------------------------
                                      F-32

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONTINUED)

The following  table presents  reconciliation  between the reported income taxes
and the income  taxes which would be  computed  by applying  the normal  federal
income tax rate of 35% to income before income taxes:

<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                                ---------------------------------
                                                                  2005        2004       2003
                                                                         (In Thousands)

       <S>                                                    <C>         <C>         <C>
       Federal income tax expense                               $ 9,307     $ 6,525     $ 3,252
       Increases (reductions) in income taxes resulting from:
              Tax exempt interest                                (2,223)     (1,780)     (1,301)
              New Jersey state tax, net of federal income
                  tax effect                                        809       1,106       1,314
              Compensation in excess of limit                         -           -       1,548
              Nondeductible merger expenses                           -         207         934
              Tax benefit on disqualified distribution                -           -        (610)
              Other items, net                                     (199)       (313)        100
                                                                -------     -------     -------

       Total income tax expense                                 $ 7,694     $ 5,745     $ 5,237
                                                                =======     =======     =======

       Effective income tax rate                                  28.93%      30.82%      56.36%
                                                                =======     =======     =======
</TABLE>

The effective  income tax rate  represents  total income tax expense  divided by
income before income taxes.

The tax effects of  existing  temporary  differences  that give rise to deferred
income tax assets and liabilities are as follows:

                                                               June 30,
                                                          -----------------
                                                            2005      2004
                                                          -------   -------
                                                            (In Thousands)

  Deferred income tax assets:
       Allowance for loan losses                          $ 2,212   $ 2,108
       Goodwill                                               453       998
       Benefit plans                                        1,184     1,069
       Compensation                                           167         -
       Other                                                   61        71
                                                          -------   -------

                                                            4,077     4,246
                                                          -------   -------

  Deferred income tax liabilities:
       Unrealized gain on available for sale securities     2,953     5,410
       Depreciation                                           541       377
       Other                                                   89        79
                                                          -------   -------

                                                            3,583     5,866
                                                          -------   -------

  Net deferred income tax (liabilities) assets            $   494   $(1,620)
                                                          =======   =======

--------------------------------------------------------------------------------
                                      F-33

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 16 - COMMITMENTS

The Bank  has  non-cancellable  operating  leases  for  branch  offices.  Rental
expenses  paid  during  the years  ended  June 30,  2005,  2004 and  2003,  were
approximately  $327,000,  $343,000, and $352,000,  respectively.  Future minimum
rental commitments are as follows:

                   Year Ended June 30:
                        2006                         $  314,000
                        2007                            271,000
                        2008                            240,000
                        2009                            203,000
                        2010                            187,000
                        Thereafter                      825,000
                                                     ----------

                                                     $2,040,000
                                                     ==========

The Bank is a party to financial instruments with  off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments include commitments to extend credit. The Bank's exposure
to  credit  loss in the  event  of  nonperformance  by the  other  party  to the
financial  instrument  for  commitments  to extend credit is  represented by the
contractual notional amount of those instruments.  The Bank uses the same credit
policies  in  making  commitments  and  conditional  obligations  as it does for
on-balance-sheet instruments.

The outstanding loan commitments are as follows:

                                                                June 30,
                                                        -----------------------
                                                          2005            2004
                                                        -------         -------
                                                           (In Thousands)

      Mortgage loans                                    $30,594         $23,678
      Home equity loans                                   3,089           4,027
      Commercial lines of credit                              -             265
      Construction loans                                  2,300           4,483
      Purchase of participations                              -             607
      Construction loans in process                       6,489           5,278
      Undisbursed funds from approved lines of credit    27,707          23,817
                                                        -------         -------

                                                        $70,179         $62,155
                                                        =======         =======

At June 30, 2005, the outstanding  mortgage loan commitments include $23,673,000
for fixed  rate  loans  with  interest  rates  ranging  from  4.50% to 6.75% and
$6,921,000 for adjustable  rate loans with an initial rate ranging from 4.00% to
6.13%. Home equity loan commitments  include $2,979,000 of fixed rate loans with
interest  rates  ranging from 4.38% to 7.00% and $110,000  for  adjustable  rate
loans with an initial rate of 5.50%. Construction loan commitments are for loans
with interest  rates ranging from 1.00% to 1.50% above the prime rate  published
in the Wall Street Journal.  Undisbursed funds from approved lines of credit are
adjustable  rate loans with  interest  rates  ranging  from 1.00% below to 2.00%
above the prime rate published in the Wall Street Journal.


--------------------------------------------------------------------------------
                                      F-34

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 16 - COMMITMENTS (CONTINUED)

At June 30, 2004, the outstanding  mortgage loan commitments include $22,980,000
for fixed  rate  loans  with  interest  rates  ranging  from  4.38% to 6.50% and
$1,698,000 for adjustable  rate loans with an initial rate ranging from 3.88% to
6.38%. Home equity loan commitments include $3,019,000 for fixed rate loans with
interest  rates  ranging from 4.63% to 6.25% and $949,000  for  adjustable  rate
loans with an initial rate of 4.00%.  Commercial lines of credit commitments are
for loans with  interest  rates ranging from 0.50% to 1.00% above the prime rate
published in the Wall Street  Journal.  Construction  loan  commitments  are for
loans with  interest  rates  ranging  from  1.00% to 1.50%  above the prime rate
published in the Wall Street Journal. Commitments to purchase participations are
for loans at a fixed rate, set at the funding date,  ranging from 1.35% to 1.36%
above the Federal Home Loan Bank of New York CIP advance rate for ten year or 15
year  advances.  Undisbursed  funds from approved lines of credit are adjustable
rate loans with interest rates ranging from 1.00% below to 2.00% above the prime
rate published in the Wall Street Journal.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness  on a case-by-case  basis. The amount of collateral obtained if
deemed  necessary by the Bank upon extension of credit is based on  management's
credit evaluation of the counterparty.

The Bank has  established  an  overnight  line of  credit  and  companion  (DRA)
commitment,  each in the amount of $50,000,000,  with the Federal Home Loan Bank
of New York,  which expire on December 15, 2005.  As of June 30, 2005,  no funds
were drawn against these credit lines.

At June 30, 2005,  the Bank has  commitments  for building  improvements  in the
amount of  $927,000.  In  addition,  the Bank also has, in the normal  course of
business, commitments for servicers and supplies. Management does not anticipate
losses on any of these transactions.

The Company and subsidiaries are also party to litigation which arises primarily
in the ordinary course of business.  In the opinion of management,  the ultimate
disposition of such litigation  should not have a material adverse effect on the
consolidated financial position of the Company.


NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments:

Cash and Cash Equivalents and Interest Receivable

     The carrying amounts for cash and cash equivalents and interest  receivable
     approximate fair value because they mature in three months or less.

Securities  Available  for Sale,  Investment  Securities  Held to  Maturity  and
Mortgage-Backed Securities Held to Maturity

     The fair values for securities  available for sale,  investment  securities
     held to maturity and mortgage-backed  securities held to maturity are based
     on quoted  market  prices when  available.  If quoted market prices are not
     available,  fair value is estimated  using quoted market prices for similar
     securities.


--------------------------------------------------------------------------------
                                      F-35

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Loans Receivable

     The fair value of loans  receivable is estimated by discounting  the future
     cash flows, using the current rates at which similar loans would be made to
     borrowers   with  similar   credit  ratings  and  for  the  same  remaining
     maturities, of such loans.

Deposits

     The fair value of demand,  savings and club accounts is equal to the amount
     payable on demand at the reporting  date. The fair value of certificates of
     deposit is estimated using rates currently  offered for deposits of similar
     remaining  maturities.  The fair value estimates do not include the benefit
     that  results  from the low-cost  funding  provided by deposit  liabilities
     compared to the cost of borrowing funds in the market.

Advances from FHLB

     Fair value is  estimated  using rates  currently  offered  for  advances of
     similar remaining maturities.

Commitments

     The fair  value of  commitments  to fund  credit  lines  and  originate  or
     participate  in loans is estimated  using fees  currently  charged to enter
     into  similar  agreements  taking into account the  remaining  terms of the
     agreements  and the present  creditworthiness  of the  counterparties.  For
     fixed rate loans  commitments,  fair value also  considers  the  difference
     between  current levels of interest and the committed  rates.  The carrying
     value,  represented  by the net deferred fee arising from the  unrecognized
     commitment,  and the fair value,  determined by  discounting  the remaining
     contractual  fee over  the  term of the  commitment  using  fees  currently
     charged to enter into similar  agreements with similar credit risk, are not
     considered  material for disclosure.  The  contractual  amounts of unfunded
     commitments are presented in Note 16.

     The carrying  amounts and estimated fair values  of  financial  instruments
     are as follows:

<TABLE>
<CAPTION>
                                                                                           June 30,
                                                             ------------------------------------------------------------------
                                                                          2005                               2004
                                                             -------------------------------  ---------------------------------
                                                                                 Estimated                          Estimated
                                                               Carrying           Fair            Carrying            Fair
                                                                Amount            Value            Amount            Value
                                                                ------            -----            ------            -----
                                                                                      (In Thousands)

<S>                                                        <C>              <C>                <C>               <C>
Financial assets:
     Cash and cash equivalents                               $  139,865       $  139,865         $  39,488         $  39,488
     Securities available for sale                               33,591           33,591            41,564            41,564
     Investment securities held to maturity                     470,098          469,221           435,870           428,775
     Loans receivable                                           558,018          550,655           505,794           510,437
     Mortgage-backed securities held to maturity                758,121          762,730           771,353           772,710
     Interest receivable                                         10,430           10,430             9,861             9,861

Financial liabilities:
     Deposits                                                 1,528,777        1,528,203         1,537,510         1,540,029
     Advances from FHLB                                          61,687           63,814            94,234            95,217
</TABLE>


--------------------------------------------------------------------------------
                                      F-36

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Limitations

     Fair value estimates are made at a specific point in time based on relevant
     market information and information about the financial  instruments.  These
     estimates  do not reflect any  premium or discount  that could  result from
     offering for sale at one time the entire holdings of a particular financial
     instrument. Because no market value exists for a significant portion of the
     financial instrument, fair value estimates are based on judgments regarding
     future  expected  loss  experience,   current  economic  conditions,   risk
     characteristics  of various financial  instrument and other factors.  These
     estimates are subjective in nature,  involve  uncertainties  and matters of
     judgment and,  therefore,  cannot be determined with precision.  Changes in
     assumptions could significantly affect the estimates.

     The fair value  estimates  are based on existing  on-and-of  balance  sheet
     financial  instruments  without  attempting the value of anticipated future
     business and the value of assets and  liabilities  that are not  considered
     financial  instruments.  Other significant  assets and liabilities that are
     not  considered  financial  assets and  liabilities  include  premises  and
     equipment,  and  advances  from  borrowers  for  taxes  and  insurance.  In
     addition,  the  ramifications  related to the realization of the unrealized
     gains and losses can have a significant  effect on fair value estimates and
     have not been considered in any of the estimates.

     Finally, reasonable comparability between financial institutions may not be
     likely due to the wide range of permitted valuation techniques and numerous
     estimates which must be made given the absence of active secondary  markets
     for many of the  financial  instruments.  This  lack of  uniform  valuation
     methodologies   introduces  a  greater  degree  of  subjectivity  to  these
     estimated fair values.


NOTE 18 - PARENT ONLY FINANCIAL INFORMATION

Kearny Financial Corp. operates its wholly owned subsidiaries,  Kearny Financial
Securities,   Inc.  and  Kearny  Federal  Savings  Bank  and  its   wholly-owned
subsidiaries.  The  consolidated  earnings of the subsidiaries are recognized by
the Company using equity method of  accounting.  Accordingly,  the  consolidated
earnings  of  the  subsidiaries  are  recorded  as  increase  in  the  Company's
investment  in the  subsidiaries.  The  following  are the  condensed  financial
statements for Kearny Financial Corp. (Parent Company only) as June 30, 2005 and
2004, and for each of the years in the three-year period ended June 30, 2005.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION

                                                                June 30,
                                                       -------------------------
                                                          2005           2004
                                                        --------       --------
                                                            (In Thousands)

                  ASSETS
Cash and amounts due from depository institutions       $ 92,305       $  1,234
Securities available for sale                                  -          1,104
ESOP loan receivable                                      17,198              -
Accrued interest receivable                                   79              3
Investment in subsidiaries                               395,831        291,985
Other assets                                                 241            283
                                                        --------       --------

                                                        $505,654       $294,609
                                                        ========       ========


--------------------------------------------------------------------------------
                                      F-37

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                                                         June 30,
                                                                                              ------------------------------
                                                                                                 2005                2004
                                                                                              ----------          ----------
                                                                                                   (In Thousands)

                             LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                         <C>                 <C>
          Due to subsidiaries                                                                 $      105          $    1,104
          Other liabilities                                                                           67                   -
          Stockholders' equity (A)                                                               505,482             293,505
                                                                                              ----------          ----------

                                                                                                $505,654            $294,609
                                                                                                ========            ========
</TABLE>

(A)  At June 30, 2005, the Company was 70% owned by Kearny MHC, a Mutual Holding
     Company. At June 30, 2004, the Company was wholly-owned by Kearny MHC.

                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                         Years Ended June 30,
                                                   --------------------------------
                                                      2005       2004        2003
                                                   --------   --------   ----------
                                                            (In Thousands)

<S>                                               <C>        <C>         <C>
Net interest income                                $  1,723   $    110    $     86
Gain on sale of available for sale securities            71          -           -
Equity in undistributed earnings of subsidiaries     17,988     13,442       5,256
                                                   --------   --------    --------

                                                     19,782     13,552       5,342
                                                   --------   --------    --------

Directors' fees                                         125         67          32
Merger expense                                            -        592       1,176
Other expenses                                          126          -          74
                                                   --------   --------    --------

                                                        251        659       1,282
                                                   --------   --------    --------

       Income before Income Taxes                    19,531     12,893       4,060

       Income Tax Expense (Benefit)                     633         (4)          5
                                                   --------   --------    --------

       Net income                                  $ 18,898   $ 12,897    $  4,055
                                                   ========   ========    ========
</TABLE>


--------------------------------------------------------------------------------
                                      F-38

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)

                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                              Years Ended June 30,
                                                      -----------------------------------
                                                         2005         2004         2003
                                                      ---------    ---------    ---------
                                                                (In Thousands)
<S>                                                 <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                       $  18,898    $  12,897    $   4,055
     Adjustments to reconcile net income to net
         cash provided by (used in) operating
         activities:
     Equity in undistributed earnings of the
         subsidiaries                                   (17,988)     (13,442)      89,030
     Amortization of premiums                                 -            2            4
     Realized gain on sale of securities available
         for sale                                           (71)           -            -
     (Increase) decrease in accrued interest
         receivable                                         (76)           -           40
     Decrease in intercompany receivable                      -            -          961
     Other assets                                            63          394          (79)
     Other liabilities                                     (932)          16          953
     Minority interest in consolidated subsidiaries           -            -          789
                                                      ---------    ---------    ---------
       Net Cash Provided by (Used in) Operating
           Activities                                      (106)        (133)      95,753
                                                      ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of Pulaski minority interest                    -            -      (26,433)
     Deposit for acquisition of West Essex minority
         interest                                             -            -      (67,853)
     Proceeds from sale of securities available
         for sale                                         1,115            -            -
     Loan to ESOP                                       (17,457)           -            -
     Repayment of loan to ESOP                              259            -            -
     Capital contributions to subsidiaries             (107,307)           -            -
                                                      ---------    ---------    ---------

       Net Cash Used in Investing Activities           (123,390)           -      (94,286)
                                                      ---------    ---------    ---------
</TABLE>


--------------------------------------------------------------------------------
                                      F-39

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     Years Ended June 30,
                                                               ------------------------------
                                                                 2005       2004        2003
                                                               --------   --------    -------
                                                                        (In Thousands)
<S>                                                        <C>         <C>         <C>
          CASH FLOWS FROM FINANCING ACTIVITIES
               Proceeds from issuance of common stock of
                   West Essex Bancorp, Inc.                  $      -   $      -    $    345
               Proceeds from issuance of common stock of
                   Kearny Financial Corp.                     214,567          -           -
               Dividends paid to minority stockholders o)
                   West Essex Bancorp, Inc. and Pulaski
                   Bancorp, Inc.                                    -          -      (1,054
                                                             --------   --------    --------

                 Net Cash Provided by (Used in) Financin)
                     Activities                               214,567          -        (709
                                                             --------   --------    --------

                 Net Increase (Decrease) in Cash and Cash
                     Equivalents                               91,071       (133)        758

          CASH AND CASH EQUIVALENTS - BEGINNING                 1,234      1,367         609
                                                             --------   --------    --------

          CASH AND CASH EQUIVALENTS - ENDING                 $ 92,305   $  1,234    $  1,367
                                                             ========   ========    ========

          SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS
               Minority interest in consolidated subsidi$ries       -   $ 17,336    $      -
                                                             ========   ========    ========

               Goodwill - West Essex acquisition             $      -   $ 50,517    $      -
                                                             ========   ========    ========

               Deposit for acquisition of West Essex         $      -   $(67,853)   $      -
                                                             ========   ========    ========
</TABLE>


--------------------------------------------------------------------------------
                                      F-40

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Stock-Based  Payments: In December 2004, the FASB issued SFAS No.
123 (revised),  "Share-Based  Payment." SFAS No. 123 (revised) replaces SFAS No.
123 and  supersedes  APB  Opinion  No.  25.  SFAS  No.  123  (revised)  requires
compensation costs related to share-based payment  transactions to be recognized
in the financial statements over the period that an employee provides service in
exchange for the award.  Public companies are required to adopt the new standard
using a modified prospective method and may elect to restate prior periods using
the  modified  retrospective  method.  Under the  modified  prospective  method,
companies are required to record  compensation  cost for new and modified awards
over  the  related  vesting  period  of such  awards  prospectively  and  record
compensation  cost  prospectively  for  the  unvested  portion  at the  date  of
adoption, of previously issued and outstanding awards over the remaining vesting
period of such awards.  No change to prior periods  presented is permitted under
the  modified  prospective  method.  Under the  modified  retrospective  method,
companies  record  compensation  costs for prior periods  retroactively  through
restatement  of such periods using the exact pro forma amounts  disclosed in the
companies'  footnotes.  Also,  in the period of  adoption  and after,  companies
record compensation cost based on the modified prospective method.

On April 14, 2005, the Securities and Exchange  Commission (the "SEC") adopted a
new rule that amends the compliance dates for SFAS No. 123 (revised).  Under the
new rule,  we are  required to adopt SFAS No. 123  (revised) in the first annual
period  beginning  after  June 15,  2005.  Early  application  of SFAS  No.  123
(revised)  is  encouraged,  but not  required.  Accordingly,  we are required to
record  compensation  expense for all new awards granted and any awards modified
after  July 1,  2006.  In  addition,  the  transition  rules  under SFAS No. 123
(revised)  will require that,  for all awards  outstanding  at July 1, 2006, for
which the  requisite  service has not yet been  rendered,  compensation  cost be
recorded as such service is rendered after July 1, 2006.

The  pronouncement  related to stock-based  payments will not have any effect on
our existing historical consolidated financial statements as we do not presently
have stock-based  compensation plans and as restatements of previously  reported
periods will not be required.

Accounting For Variable Interest  Entities:  In December 2003, the FASB issued a
revision to Interpretation  46,  "Consolidation of Variable Interest  Entities,"
which  established  standards for identifying a variable interest entity ("VIE")
and for determining  under what  circumstances a VIE should be consolidated with
its  primary  beneficiary.  Application  of this  interpretation  is required in
financial  statements of public entities that have interests in  special-purpose
entities for periods  ending after  December  15,  2003.  Application  by public
entities,  other  than small  business  issuers,  for all other  types of VIE is
required in financial  statements for periods ending after March 15, 2004. Small
business issuers must apply this interpretation to all other types of VIE at the
end of the first  reporting  period ending after December 15, 2004. The adoption
of this interpretation has not had and is not expected to have a material effect
on our financial position or results of operations.

Accounting  for  Certain  Financial  Instruments  with  Characteristics  of both
Liabilities and Equity:  In May 2003, the FASB issued SFAS No. 150,  "Accounting
for Certain Financial  Instruments with  Characteristics of both Liabilities and
Equity." SFAS No. 150  establishes  standards for how a company  classifies  and
measures certain financial  instruments with characteristics of both liabilities
and  equity  as well as  their  classification  in the  company's  statement  of
financial position. It requires that the company classify a financial instrument
that is  within  its  scope as a  liability  when that  instrument  embodies  an
obligation  of the  issuer.  SFAS  No.  150  did  not  have  any  impact  on our
consolidated financial statements.


--------------------------------------------------------------------------------
                                      F-41

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

Amendment of SFAS No. 133 on Derivative  Instruments and Hedging Activities:  On
April 30, 2003,  the FASB issued SFAS No. 149,  "Amendment  of Statement  133 on
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  amends  and
clarifies  accounting for derivative  instruments,  including certain derivative
instruments  embedded in other contracts,  and for hedging activities under SFAS
No. 133.  With a number of  exemptions,  SFAS No. 149 is effective for contracts
entered into or modified  after June 30, 2003.  The adoption of SFAS No. 149 did
not have a material impact on our consolidated financial statements.

Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others: In November 2002, the FASB issued
FASB Interpretation No. 45, "Guarantor's  Accounting and Disclosure Requirements
for Guarantees,  Including Indirect  Guarantees of Indebtedness of Others" ("FIN
45").  FIN 45  requires a  guarantor  entity,  at the  inception  of a guarantee
covered  by the  measurement  provisions  of the  interpretation,  to  record  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  In addition,  FIN 45 elaborates on  previously  existing  disclosure
requirements  for most  guarantees,  including loan  guarantees  such as standby
letters of credit.  We do not have any  financial  letters of credit at June 30,
2005 or at December 31, 2004.


NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a condensed  summary of quarterly results of operations for the
years ended June 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                           Year Ended June 30, 2005
                                                       -------------------------------------------------------------------------
                                                        First Quarter      Second Quarter     Third Quarter      Fourth Quarter
                                                        -------------      --------------     -------------      --------------
                                                                    (In Thousands, Except Per Share Data)

<S>                                                      <C>                <C>                <C>                 <C>
Interest income                                            $19,907            $19,832            $21,078             $21,624
Interest expense                                             7,103              7,174              7,764               8,381
                                                           -------            -------            -------             -------

       Net Interest Income                                  12,804             12,658             13,314              13,243

Provision for loan losses                                      151                (34)              (110)                 61
                                                           -------            -------            -------             -------

       Net Interest Income after Provision for
           Loan Losses                                      12,653             12,692             13,424              13,182

Noninterest income                                             494                410                492               8,107
Noninterest expenses                                         7,789              8,767              8,811               9,495
                                                           -------            -------            -------             -------

       Income before Income Taxes                            5,358              4,335              5,105              11,794

Income taxes                                                 1,562              1,143              1,279               3,710
                                                           -------            -------            -------             -------

       Net Income                                          $ 3,796            $ 3,192            $ 3,826             $ 8,084
                                                           =======            =======            =======             =======

Net income per common share:
     Basic                                                 $  0.05            $  0.05            $  0.05             $  0.11
                                                           =======            =======            =======             =======

     Diluted                                               $  0.05            $  0.05            $  0.05             $  0.11
                                                           =======            =======            =======             =======
</TABLE>


--------------------------------------------------------------------------------
                                      F-42

<PAGE>

KEARNY FINANCIAL CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                                           Year Ended June 30, 2004
                                                       -----------------------------------------------------------------------
                                                       First Quarter    Second Quarter       Third Quarter      Fourth Quarter
                                                       -------------    --------------       -------------      --------------
                                                                    (In Thousands, Except Per Share Data)
<S>                                                      <C>                <C>                <C>                 <C>
Interest income                                            $19,656            $19,664            $19,780             $19,554
Interest expense                                             9,158              8,198              7,597               7,147
                                                           -------            -------            -------             -------

       Net Interest Income                                  10,498             11,466             12,183              12,407

Provision for loan losses                                        -                  -                  -                   -
                                                           -------            -------            -------             -------

       Net Interest Income after Provision for
           Loan Losses                                      10,498             11,466             12,183              12,407

Noninterest income                                             438                355                403                 364
Noninterest expenses                                         7,743              7,093              7,310               7,326
                                                           -------            -------            -------             -------

       Income before Income Taxes                            3,193              4,728              5,276               5,445

Income taxes                                                   958              1,418              1,583               1,786
                                                           -------            -------            -------             -------

       Net Income                                          $ 2,235            $ 3,310            $ 3,693             $ 3,659
                                                           =======            =======            =======             =======

Net income per common share:
     Basic                                                 $223.50            $331.00            $369.30             $365.90
                                                           =======            =======            =======             =======

     Diluted                                               $223.50            $331.00            $369.30             $365.90
                                                           =======            =======            =======             =======
</TABLE>


                                      F-43

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              KEARNY FINANCIAL CORP.

Dated: September 26, 2005                    By: /s/ John N. Hopkins
                                                 -------------------------------
                                                 John N. Hopkins
                                                 President and
                                                   Chief Executive Officer
                                                 (Duly Authorized Officer)

         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this Report has been signed below by the following persons on September 26, 2005
on behalf of the Registrant and in the capacities indicated.


By: /s/ John N. Hopkins                      By: /s/ Albert E. Gossweiler
    -------------------------------------        -------------------------------
    John N. Hopkins                              Albert E. Gossweiler
    President and Chief Executive Officer        Senior Vice President and Chief
    (Principal Executive Officer)                Financial Officer
                                                 (Principal Financial Officer)


By: /s/ William C. Ledgerwood                By: /s/ Theodore J. Aanensen
    -------------------------------------        -------------------------------
    William C. Ledgerwood                        Theodore J. Aanensen
    Senior Vice President, Treasurer and         Director
      Chief Accounting Officer
    (Principal Accounting Officer)


By: /s/ John J. Mazur, Jr.                   By: /s/ Joseph P. Mazza
    -------------------------------------        -------------------------------
    John J. Mazur Jr.                            Joseph P. Mazza
    Chairman                                     Director


By: /s/ Matthew T. McClane                   By: /s/ John F. McGovern
    -------------------------------------        -------------------------------
    Matthew T. McClane                           John F. McGovern
    Director                                     Director


By: /s/ Leopold W. Montanaro                 By: /s/ John F. Regan
    -------------------------------------        -------------------------------
    Leopold W. Montanaro                         John F. Regan
    Director                                     Director


By: /s/ Henry S. Parow
    -------------------------------------
    Henry S. Parow
    Director