SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              ____________________

                                    FORM 10-Q
(Mark One)

---------
   X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------  EXCHANGE ACT OF 1934

    For the quarterly period ended  December 31, 2006
                                    -------------------

                                       OR

---------
           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------  EXCHANGE ACT OF 1934

   For the transition period from __________  to _________


                        Commission File Number 000-51093


                             KEARNY FINANCIAL CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


     UNITED STATES                                             22-3803741
--------------------------------------------------------------------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                           Identification Number)

 120 Passaic Ave., Fairfield, New Jersey                         07004-3510
--------------------------------------------------------------------------------
   (Address of principal executive offices)                      (Zip Code)

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


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

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large  accelerated  filer" in Rule 12b-2 of the  Exchange Act (Check
one):

Large accelerated filer     Accelerated filer X         Non-accelerated filer

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).   Yes     No  X

     The number of shares  outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: February 1, 2007.

          $0.10 par value common stock - 71,654,937 shares outstanding
<PAGE>

                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES

                                      INDEX



                                                                          Page
                                                                         Number
                                                                         ------
PART I - FINANCIAL INFORMATION

      Item 1:  Financial Statements

               Consolidated Statements of Financial Condition
               at December 31, 2006 and June 30, 2006 (Unaudited)           1

               Consolidated Statements of Income for the Three Months
               and Six Months Ended December 31, 2006 and 2005
               (Unaudited)                                                  2-3

               Consolidated Statements of Changes in Stockholders'
               Equity for the Six Months Ended December 31, 2006
               and 2005 (Unaudited)                                         4-5

               Consolidated Statements of Cash Flows for the Six
               Months Ended December 31, 2006 and 2005 (Unaudited)          6-7

               Notes to Consolidated Financial Statements                   8-14

      Item 2:  Management's Discussion and Analysis of
               Financial Condition and Results of Operations               15-28

      Item 3:  Quantitative and Qualitative Disclosure About Market
               Risk                                                        29-30

      Item 4:  Controls and Procedures                                     31


PART II - OTHER INFORMATION                                                32-33


SIGNATURES                                                                 34

<PAGE>

                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 ----------------------------------------------
                  (In Thousands, Except Share Data, Unaudited)
<TABLE>
<CAPTION>
                                                                              December 31,     June 30,
                                                                                 2006           2006
                                                                                             (As restated)
                                                                              -----------    -----------
<S>                                                                           <C>            <C>
Assets
------

Cash and amounts due from depository institutions                             $    19,376    $    22,563
Interest-bearing deposits in other banks                                          266,543        207,716
                                                                              -----------    -----------
        Cash and Cash Equivalents                                                 285,919        230,279

Securities available for sale (amortized cost $116,985 and $227,598)              116,468        222,793
Loans receivable, including net deferred loan costs of $1,272 and $1,087          799,418        709,064
  Less allowance for loan losses                                                   (5,755)        (5,451)
                                                                              -----------    -----------
  Net Loans Receivable                                                            793,663        703,613

Mortgage-backed securities available for sale (amortized cost $669,753            661,898        670,329
   and $689,962)
Premises and equipment                                                             35,929         35,941
Federal Home Loan Bank of New York ("FHLB") stock                                   5,168          5,406
Interest receivable                                                                 8,013          8,836
Goodwill                                                                           82,263         82,263
Bank owned life insurance                                                          14,889         14,628
Other assets                                                                       13,820         17,685
                                                                              -----------    -----------
        Total Assets                                                          $ 2,018,030    $ 1,991,773
                                                                              ===========    ===========

Liabilities and Stockholders' Equity
------------------------------------

Liabilities

Deposits:
  Non-interest bearing                                                        $    56,816    $    61,080
  Interest-bearing                                                              1,423,258      1,382,658
                                                                              -----------    -----------
        Total Deposits                                                          1,480,074      1,443,738

Advances from FHLB                                                                 55,801         61,105
Advance payments by borrowers for taxes                                             4,838          5,232
Other liabilities                                                                   6,036          6,564
                                                                              -----------    -----------
        Total Liabilities                                                       1,546,749      1,516,639
                                                                              -----------    -----------

Stockholders' Equity
--------------------

Preferred stock $0.10 par value, 25,000,000 shares authorized; none
  issued and outstanding                                                               --             --
Common stock $0.10 par value, 75,000,000 shares authorized; 72,737,500
  shares and 71,648,937 shares and 72,737,500 shares issued and outstanding         7,274          7,274
Paid-in capital                                                                   195,210        192,534
Retained earnings                                                                 306,387        306,728
Unearned Employee Stock Ownership Plan shares; 1,478,994 shares
  and 1,551,732 shares
                                                                                  (14,790)       (15,517)
Treasury stock, at cost; 1,088,563 shares and 0 shares                            (17,358)          --
Accumulated other comprehensive (loss)                                             (5,442)       (15,885)
                                                                              -----------    -----------
        Total Stockholders' Equity                                                471,281        475,134
                                                                              -----------    -----------
        Total Liabilities and Stockholders' Equity                            $ 2,018,030    $ 1,991,773
                                                                              ===========    ===========
</TABLE>

See notes to consolidated financial statements.


                                       1
<PAGE>

                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                        ---------------------------------
                (In Thousands, Except Per Share Data, Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended                      Six Months Ended
                                                       December 31,                           December 31,
                                                  -------------------------          --------------------------
                                                    2006             2005              2006               2005
                                                  --------         --------          --------          --------
<S>                                               <C>              <C>               <C>               <C>
Interest Income:
    Loans                                         $ 11,075         $  8,544          $ 21,386          $ 16,665
    Mortgage-backed securities                       8,077            8,418            16,098            16,986
    Securities:
      Taxable                                          390            2,416               790             4,854
      Tax-exempt                                     1,376            1,912             3,261             3,837
    Other interest-earning assets                    3,169              705             5,836             1,624
                                                  --------         --------          --------          --------

        Total Interest Income                       24,087           21,995            47,371            43,966
                                                  --------         --------          --------          --------

Interest Expense:
    Deposits                                        12,096            8,650            22,841            16,937
    Borrowings                                         807              857             1,658             1,728
                                                  --------         --------          --------          --------

        Total Interest Expense                      12,903            9,507            24,499            18,665
                                                  --------         --------          --------          --------

Net Interest Income                                 11,184           12,488            22,872            25,301

Provision for Loan Losses                              119               64               277               139
                                                  --------         --------          --------          --------

Net Interest Income after Provision
  for Loan Losses                                   11,065           12,424            22,595            25,162
                                                  --------         --------          --------          --------

Non-Interest Income:
    Fees and service charges                           276              289               504               566
    Gain on sale of securities                         152               --               152                86
    Miscellaneous                                      344              328               684               558
                                                  --------         --------          --------          --------

        Total Non-Interest Income                      772              617             1,340             1,210
                                                  --------         --------          --------          --------

Non-interest expenses:
    Salaries and employee benefits                   6,746            5,760            13,560            11,363
    Net occupancy expense of
      premises                                         841              789             1,699             1,685
    Equipment                                        1,100            1,080             2,176             2,132
    Advertising                                        409              385               802               710
    Federal insurance premium                          142              136               284               270
    Amortization of intangible assets                  159              159               318               318
    Directors' compensation                            561              582             1,218               812
    Miscellaneous                                    1,243            1,247             2,240             2,226
                                                  --------         --------          --------          --------

        Total Non-Interest Expenses                 11,201           10,138            22,297            19,516
                                                  --------         --------          --------          --------

Income before Income Taxes                             636            2,903             1,638             6,856
Income Taxes                                            89              577               165             1,566
                                                  --------         --------          --------          --------
Net Income                                        $    547         $  2,326          $  1,473          $  5,290
                                                  ========         ========          ========          ========
</TABLE>

                                       2
<PAGE>

                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (Continued)
                  ---------------------------------------------
                (In Thousands, Except Per Share Data, Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended                      Six Months Ended
                                                       December 31,                           December 31,
                                                  -------------------------          --------------------------
                                                    2006             2005              2006               2005
                                                  --------         --------          --------          --------
<S>                                               <C>              <C>               <C>               <C>
Net Income per Common Share:
    Basic                                         $   0.01        $   0.03           $   0.02          $    0.07
    Diluted                                           0.01            0.03               0.02               0.07

Weighted Average Number of
  Common Shares Outstanding:
    Basic                                           69,258          71,046             69,505             71,049
    Diluted                                         69,753          71,063             69,901             71,058

Dividends Declared Per Common
   Share                                          $   0.05        $   0.05           $   0.10          $    0.14

</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>
                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          ----------------------------------------------------------
                       Six Months Ended December 31, 2005
                (In Thousands, Except Per Share Data, Unaudited)
                                   Accumulated
<TABLE>
<CAPTION>
                                                  Common Stock                              Unearned
                                              --------------------    Paid-In    Retained     ESOP
                                               Shares       Amount    Capital    Earnings    Shares
                                               ------       ------    -------    --------    ------

<S>                                            <C>        <C>         <C>        <C>        <C>
Balance - June 30, 2005                        72,738     $  7,274    $ 207,838  $ 301,857  $(16,972)

Comprehensive income:
  Net income                                       --           --           --      5,290        --

  Realized gain on securities available
    for sale, net of income tax of $30             --           --           --         --        --

  Unrealized loss on securities available
    for sale, net of deferred income tax
    benefit of $44                                 --           --           --         --        --

 Total Comprehensive income

Refund of common stock offering
  expense                                          --           --            3         --        --

ESOP shares committed to be released
  (72 shares)                                      --           --          150         --       727

Stock option transactions                          --           --          215         --        --

Treasury stock purchases                         (178)          --           --         --        --

Cash dividends declared ($0.14/share)              --           --           --     (2,802)       --

                                               ------        -----      -------    -------   -------
Balance - December 31, 2005                    72,560        7,274      208,206    304,345   (16,245)
                                               ======        =====      =======    =======   =======
<CAPTION>
                                                                  Other
                                                    Treasury  Comprehensive
                                                     Stock    Income (Loss)     Total
                                                     -----    -------------     -----

<S>                                               <C>          <C>           <C>
Balance - June 30, 2005                           $    --      5,485         $  505,482

Comprehensive income:
  Net income                                           --         --              5,290

  Realized gain on securities available
    for sale, net of income tax of $30                 --        (56)               (56)

  Unrealized loss on securities available
    for sale, net of deferred income tax
    benefit of $44                                     --        (83)               (83)

 Total Comprehensive income                                                       5,151

Refund of common stock offering
  expense                                              --         --                  3

ESOP shares committed to be released
  (72 shares)                                          --         --                877

Stock option transactions                              --         --                215

Treasury stock purchases                           (2,268)        --             (2,268)

Cash dividends declared ($0.14/share)                  --         --             (2,802)

                                                   ------      -----            -------
Balance - December 31, 2005                        (2,268)     5,346            506,658
                                                   ======      =====            =======
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>
                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          ----------------------------------------------------------
                       Six Months Ended December 31, 2006
                (In Thousands, Except Per Share Data, Unaudited)
                                   Accumulated

<TABLE>
<CAPTION>
                                                  Common Stock                              Unearned
                                              --------------------    Paid-In    Retained     ESOP
                                               Shares       Amount    Capital    Earnings    Shares
                                               ------       ------    -------    --------    ------

<S>                                            <C>        <C>         <C>        <C>        <C>
Balance - June 30, 2006 (as restated)          72,737     $  7,274    $ 192,534  $ 306,728  $(15,517)


Comprehensive income:
  Net income                                       --           --           --      1,473        --

  Realized gain on securities available
    for sale, net of income tax of $53             --           --           --         --        --


  Unrealized loss on securities available
    for sale, net of deferred income tax
    benefit of $5,676                              --           --           --         --        --

 Total Comprehensive income

ESOP shares committed to be released
  (72 shares)                                      --           --          391         --       727

Stock option transactions                          --           --          996         --        --

Treasury stock purchases                       (1,091)          --           --         --        --

Treasury stock reissued                             3           --           (8)        --        --

Restricted stock plan shares
    purchased (54 shares)                          --           --         (789)        --        --

Restricted stock plan shares
    earned (134 shares)                            --           --        1,652         --        --

Tax benefit related to vesting of
    restricted stock                               --           --          434         --        --

Cash dividends declared ($0.10/share)              --           --           --     (1,814)       --

                                               ------        -----      -------    -------   -------
Balance - December 31, 2006                    71,649        7,274      195,210    306,387   (14,790)
                                               ======        =====      =======    =======   =======
<CAPTION>
                                                                 Other
                                                   Treasury  Comprehensive
                                                    Stock    Income (Loss)     Total
                                                    -----    -------------     -----

<S>                                              <C>          <C>           <C>
Balance - June 30, 2006 (as restated)            $    --      (15,885)      $  475,134
                                                                            ----------

Comprehensive income:
  Net income                                          --           --            1,473

  Realized gain on securities available
    for sale, net of income tax of $53                --          (99)             (99)

  Unrealized loss on securities available
    for sale, net of deferred income tax
    benefit of $5,676                                 --       10,542           10,542
                                                                            ----------
 Total Comprehensive income                                                     11,916
                                                                            ----------

ESOP shares committed to be released
  (72 shares)                                         --          --             1,118

Stock option transactions                             --          --               996

Treasury stock purchases                         (17,398)         --           (17,398)

Treasury stock reissued                               40          --                32

Restricted stock plan shares
    purchased (54 shares)                             --          --              (789)

Restricted stock plan shares
    earned (134 shares)                               --          --             1,652

Tax benefit related to vesting of
    restricted stock                                  --          --               434

Cash dividends declared ($0.10/share)                 --          --            (1,814)

                                                 -------      ------           -------
Balance - December 31, 2006                      (17,358)     (5,442)          471,281
                                                 =======      ======           =======
</TABLE>

See notes to consolidated financial statements.
                                       5
<PAGE>

                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands, Unaudited)
<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                       December 31,
                                                                                   --------------------
                                                                                      2006       2005
                                                                                   --------    --------
<S>                                                                                <C>         <C>
Cash Flows from Operating Activities:
    Net income                                                                     $  1,473    $  5,290
                                                                                   --------    --------
    Adjustments  to  reconcile  net  income to net cash  provided  by  operating
      activities:
        Depreciation and amortization of premises and equipment                         992         924
        Net amortization of premiums, discounts and loan fees and costs                 464         406
        Deferred income taxes                                                         2,377         748
        Amortization of intangible assets                                               318         318
        Provision for loan losses                                                       277         139
        Realized gains on sale of securities available for sale                        (152)        (86)
        (Increase) in cash surrender value of bank owned life insurance                (261)       (184)
        ESOP, stock option plan and restricted stock plan expenses                    3,766       1,092
        Realized loss on sale of real estate owned                                       --          35
        Realized gain on disposition of premises and equipment                           (3)         --
        (Increase) decrease in interest receivable                                      823        (289)
        (Increase) in other assets                                                   (4,454)     (2,911)
        Increase (decrease) in interest payable                                         (21)         30
        (Decrease) in other liabilities                                                (450)     (1,177)
                                                                                   --------    --------
            Net Cash Provided by Operating Activities                                 5,149       4,335
                                                                                   --------    --------

Cash Flows from Investing Activities:
    Purchases of securities available for sale                                         (189)       (139)
    Proceeds from sale of securities available for sale                             105,823       6,864
    Purchases of securities held to maturity                                             --      (4,000)
    Proceeds from calls and maturities of securities available for sale               3,894          --
    Proceeds from calls and maturities of securities held to maturity                    --       9,989
    Proceeds from repayments of securities available for sale                         1,246        --
    Proceeds from repayments of securities held to maturity                            --         2,337
    Purchase of loans                                                               (42,791)     (3,794)
    Net (increase) in loans receivable                                              (47,662)    (66,361)
    Proceeds from sale of real estate owned                                              --          65
    Purchases of mortgage-backed securities available for sale                      (49,627)         --
    Purchases of mortgage-backed securities held to maturity                             --     (64,765)
    Principal repayments on mortgage-backed securities available for sale            69,488          --
    Principal repayments on mortgage-backed securities held to maturity                  --     104,429
    Additions to premises and equipment                                                (998)     (2,068)
    Proceeds from cash settlement on premises and equipment                              21        --
    Redemption of FHLB stock                                                            238       6,181
    Purchase of bank owned life insurance                                                --     (10,208)
                                                                                   --------    --------

            Net Cash Provided by (Used in) Investing Activities                    $ 39,443    $(21,470)
                                                                                   ========    ========
</TABLE>

                                       6
<PAGE>
                     KEARNY FINANCIAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                -------------------------------------------------
                            (In Thousands, Unaudited)
<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                             December 31,
                                                                        -----------------------
                                                                           2006        2005
                                                                        ---------    ---------
<S>                                                                     <C>          <C>
Cash Flows from Financing Activities:
    Net increase (decrease) in deposits                                 $  36,322    $ (45,314)
    Repayment of FHLB advances                                             (5,304)        (287)
    (Decrease) in advance payments by borrowers for taxes                    (394)          (6)
    Refund of common stock offering expense                                    --            3
    Return of dividends paid in prior periods                                  15           --
    Dividends paid to minority stockholders of Kearny Financial Corp.      (1,870)      (1,964)
    Purchase of common stock of Kearny Financial Corp. for treasury       (17,398)      (2,268)
    Treasury stock reissued                                                    32           --
    Purchase of common stock of Kearny Financial Corp. for restricted
     stock plan                                                              (789)          --
    Tax benefit related to vesting of restricted stock                        434           --
                                                                        ---------    ---------

            Net Cash Provided by (Used in) Financing Activities         $  11,048    $ (49,836)
                                                                        ---------    ---------

            Net Increase (Decrease) in Cash and Cash Equivalents        $  55,640    $ (66,971)

Cash and Cash Equivalents - Beginning                                     230,279      139,865
                                                                        ---------    ---------

Cash and Cash Equivalents - Ending                                      $ 285,919    $  72,894
                                                                        =========    =========

Supplemental Disclosures of Cash Flows Information:
    Cash paid during the year for:
        Income taxes, net of refunds                                    $   1,247    $   4,302
                                                                        =========    =========

        Interest                                                        $  24,520    $  18,635
                                                                        =========    =========

Supplemental Disclosure of Non-Cash Transactions:
    Cash dividend declared                                              $     901    $     995
                                                                        =========    =========
</TABLE>

See notes to consolidated financial statements.

                                       7
<PAGE>

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


1.  PRINCIPLES OF CONSOLIDATION
-------------------------------

The consolidated  financial  statements include the accounts of Kearny Financial
Corp. (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. The Company conducts its business principally through the Bank.
Management  prepared the  consolidated  financial  statements in conformity with
accounting  principles  generally  accepted  in the  United  States of  America,
including  the  elimination  of  all  significant   inter-company  accounts  and
transactions during consolidation.

2.  BASIS OF PRESENTATION
-------------------------

The accompanying  unaudited  consolidated  financial statements were prepared in
accordance with instructions for Form 10-Q and Regulation S-X and do not include
information  or footnotes  necessary  for a complete  presentation  of financial
condition,  results of operations  and cash flows in conformity  with  generally
accepted  accounting  principles.  However,  in the opinion of  management,  all
adjustments (consisting of normal adjustments) necessary for a fair presentation
of the  consolidated  financial  statements  have been included.  The results of
operations  for the three and six month periods ended December 31, 2006, are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any other period.

3.  NET INCOME PER COMMON SHARE
-------------------------------

Basic  earnings  per share  ("EPS") is based on the weighted  average  number of
common shares  actually  outstanding  adjusted for Employee Stock Ownership Plan
shares not yet  committed to be released and unvested  restricted  stock awards.
Diluted EPS reflects the  potential  dilution  that could occur if securities or
other contracts to issue common stock, such as unvested  restricted stock awards
and outstanding stock options,  were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.  Diluted EPS is calculated by adjusting the weighted  average number of
shares of common  stock  outstanding  to  include  the  effect of  contracts  or
securities  exercisable  or which  could be  converted  into  common  stock,  if
dilutive,  using the treasury stock method.  Shares issued and reacquired during
any period are weighted for the portion of the period they were outstanding.

The following is a reconciliation of the numerator and denominators of the basic
and diluted earnings per share computations:
<TABLE>
<CAPTION>

                                           Three Months Ended                           Six Months Ended
                                            December 31, 2006                           December 31, 2006
                                  --------------------------------------    ------------------------------------------
                                                                 Per                                           Per
                                   Income         Shares        Share          Income           Shares        Share
                                  (Numerator)  (Denominator)   Amount       (Numerator)     (Denominator)    Amount
                                  -----------  -------------   ------       -----------     -------------    ------
                                  (In Thousands, Except Per Share  Data)      (In  Thousands,  Except Per Share Data)

<S>                                <C>          <C>            <C>           <C>              <C>          <C>
Net income                         $  547                                    $1,473
                                   ======                                    ======
Basic earnings per share,
     income available to
     common stockholders           $  547        69,258        $0.01         $1,473           69,505        $0.02
                                                               =====                                        =====
Effect of dilutive securities:
     Stock options                     --           217                          --              109
     Restricted stock awards           --           278                          --              287
                                   ------      --------                      ------           ------

                                   $  547        69,753        $0.01         $1,473           69,901        $0.02
                                   ======      ========        =====         ======           ======        =====
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>

                                           Three Months Ended                           Six Months Ended
                                            December 31, 2005                           December 31, 2005
                                  --------------------------------------    ------------------------------------------
                                                                 Per                                           Per
                                   Income         Shares        Share          Income           Shares        Share
                                  (Numerator)  (Denominator)   Amount       (Numerator)     (Denominator)    Amount
                                  -----------  -------------   ------       -----------     -------------    ------
                                  (In Thousands, Except Per Share  Data)      (In  Thousands,  Except Per Share Data)

<S>                                <C>          <C>            <C>           <C>              <C>          <C>
Net income                         $2,326                                    $5,290
                                   ======                                    ======
Basic earnings per share,
     income available to
     common stockholders           $2,326        71,046        $0.03         $5,290           71,049        $0.07
                                                               =====                                        =====
Effect of dilutive securities:
     Stock options                     --            --                          --               --
     Restricted stock awards           --            17                          --                9
                                   ------      --------                      ------           ------

                                   $2,326        71,063        $0.03         $5,290           71,058        $0.07
                                   ======      ========        =====         ======           ======        =====
</TABLE>

4.  DIVIDEND WAIVER
-------------------

During the quarter  ended  December 31, 2006,  the  federally  chartered  mutual
holding  company  of  the  Company  ("Kearny  MHC"),   waived  its  right,  upon
non-objection  from the Office of Thrift  Supervision  ("OTS"),  to receive cash
dividends of  approximately  $2.5 million  declared  during the quarter,  on the
shares of Company common stock it owns.  Furthermore,  in December 2006, the OTS
advised Kearny MHC that it would not object to dividend waivers for the quarters
ending March 31, 2007,  June 30, 2007 and September  30, 2007,  provided the OTS
does not subsequently determine that the proposed waivers are detrimental to the
safe and sound operation of the Bank.

5.  STOCK COMPENSATION PLANS
----------------------------

At the annual  meeting  held on October 24,  2005,  stockholders  of the Company
approved the Kearny Financial Corp. 2005 Stock  Compensation and Incentive Plan.
The Plan  authorizes  the award of up to 3,564,137  shares as stock  options and
1,425,655 shares as restricted stock awards.  On October 24, 2005,  non-employee
directors  received  in  aggregate  1,069,240  options  and  427,696  shares  of
restricted  stock. On December 5, 2005,  certain officers of the Company and the
Bank received in aggregate  2,305,000  options and 910,000  shares of restricted
stock.  The Company adopted SFAS No. 123(R) upon approval of the Plan, and began
to expense the fair value of all options over their vesting periods and began to
expense  the  fair  value  of all  share-based  compensation  granted  over  the
requisite service periods.

SFAS No.  123(R) also  requires the Company to realize as a financing  cash flow
rather than an operating  cash flow,  as  previously  required,  the benefits of
realized  tax  deductions  in excess of  previously  recognized  tax benefits on
compensation  expense  (which was $434,000 for the six months ended December 31,
2006). In accordance with Staff Accounting Bulletin ("SAB") No. 107, the Company
classified  share-based  compensation for employees within salaries and employee
benefits to correspond with the same line item as the cash  compensation paid to
employees.  The Company  classified  share-based  compensation  for non-employee
directors within  directors'  compensation to correspond with the same line item
as the cash  compensation paid to non-employee  directors.


                                       9
<PAGE>
Employee  options  and  non-employee  director  options  generally  vest  over a
five-year service period.  Management  recognizes  compensation  expense for all
option grants over the awards' respective requisite service periods.  Management
estimated the fair values relating to all of the fiscal 2006 option grants using
the Black-Sholes  option-pricing model. Since there is no historical information
on the volatility of the Company's stock,  management based  expectations  about
future  volatility  on the  average  volatilities  of  similar  entities  for an
appropriate period following their initial public offering.  Thus,  calculations
to determine the stock  volatility of mutual holding  companies  converted since
1995,  and a subset  of the first  group,  all  mutual  holding  companies  that
converted  after  2000,  were used to  derive  the one and  three-year  Beta for
purposes of identifying a reasonable volatility factor. Management estimated the
expected life of the options assuming that they must be no less than the vesting
period,  five years, and no greater than their  contractual  life, ten years, in
conjunction with an evaluation of the grantees' ages and lengths of service. The
10-year Treasury yield in effect at the time of the grant provides the risk-free
rate  for  periods  within  the  contractual  life  of  the  option.  Management
recognizes  compensation expense for the fair values of these awards, which have
graded vesting,  on a straight-line  basis over the requisite  service period of
the awards.

Management used the following assumptions to estimate the fair values of options
granted:
<TABLE>
<CAPTION>
                                                                Three Months Ended                 Six Months Ended
                                                                   December 31,                      December 31,
                                                           -----------------------------     -----------------------------
                                                              2006             2005             2006             2005
                                                           ------------     ------------     ------------     ------------
<S>                                                            <C>                <C>            <C>                <C>
Weighted average risk-free interest rate                        --                4.53%           --                4.53%
Expected dividend yield                                         --                1.62%           --                1.62%
Weighted average volatility factor of the expected
      market price of the Company's common stock                --               18.00%           --               18.00%
Weighted average expected life of the options                   --           6.50 years           --           6.50 years
</TABLE>

Restricted  shares  generally vest in full after five years.  The product of the
number of shares granted and the grant date market price of the Company's common
stock  determine  the fair value of  restricted  shares.  Management  recognizes
compensation  expense for the fair value of restricted shares on a straight-line
basis over the requisite service period of five years.

During the three months ended  December 31,  2006,  the Company  recorded  stock
option expense of $498,000 and restricted stock expense of $825,000.  During the
six months ended December 31, 2006, the Company recorded stock option expense of
$996,000 and restricted stock expense of $1.6 million.  The Company estimates it
will  record in  aggregate  an  additional  $2.6  million  of stock  option  and
restricted stock expenses during the remainder of fiscal 2007.

The  following  is a summary of the status of the  Company's  outstanding  stock
options  as  of  December  31,  2006  and  stock  option  activity  and  related
information during the six months ended December 31, 2006:

<TABLE>
<CAPTION>
                                                                                      Weighted
                                                                       Weighted         Average         Aggregate
                                                                        Average        Remaining        Intrinsic
                                                       Options         Exercise       Contractual         Value
                                                       (000's)           Price           Term            (000's)
                                                     ------------     ------------    ------------     ------------
<S>                                                     <C>             <C>            <C>                <C>
Outstanding at June 30, 2006                               3,374           $12.34
     Granted                                                  --              --
     Exercised                                                (3)          $12.71                               $8
     Forfeited                                                --              --
                                                        -------
Outstanding at December 31, 2006                           3,371           $12.34      8.9 years           $12,536
                                                     ==========

Exercisable at December 31, 2006                             672           $12.34      8.9 years            $2,509
</TABLE>

                                       10
<PAGE>

The following is a summary of the status of the Company's  unexercisable options
as of December  31, 2006 and changes  during the six months  ended  December 31,
2006:
<TABLE>
<CAPTION>
                                                                                                        Weighted
                                                                                                         Average
                                                                                        Options        Grant Date
                                                                                        (000's)        Fair Value
                                                                                       ----------      -----------
<S>                                                                                         <C>              <C>
Unexercisable at June 30, 2006                                                              3,374            $2.95
     Granted                                                                                   --               --
     Vested                                                                                  (675)           $2.95
     Forfeited                                                                                 --               --
                                                                                       ----------      -----------
Unexercisable at December 31, 2006                                                          2,699            $2.95
                                                                                       ==========      ===========
</TABLE>

As of December 31, 2006, expected future compensation  expense attributed to the
2.7 million unexercisable options outstanding is $7.8 million over 3.9 years.

Upon exercise of options,  management  expects to draw on treasury  stock as the
source of the shares.  In July 2006,  the Company  announced a stock  repurchase
plan to acquire up to 1,091,063 shares during the next twelve months for general
corporate purposes including funding the exercise of options.

The following is a summary of the status of the Company's outstanding restricted
share  awards as of December  31, 2006 and changes  during the six months  ended
December 31, 2006:
                                                                 Weighted
                                               Restricted         Average
                                                 Shares         Grant Date
                                                 (000's)        Fair Value
                                               ------------     ----------
Non-vested at June 30, 2006                       1,338           $12.34
     Granted                                         --               --
     Vested                                        (268)          $12.34
     Forfeited                                       --               --
                                                  -----           ------
Non-vested at December 31, 2006                   1,070           $12.34
                                                  =====           ======

As of December 31, 2006, expected future compensation  expense attributed to the
1.1  million  non-vested  restricted  shares  outstanding  at that date is $12.8
million over 3.9 years.

6.  STOCK REPURCHASE PLANS
--------------------------

On July 18, 2006, the Company announced that the Board of Directors authorized a
stock repurchase plan to acquire up to 1,091,063  shares, or 5% of the Company's
outstanding  common  stock held by persons  other than  Kearny  MHC.  This stock
repurchase plan commenced after the Company  completed its purchase of shares in
the open market to fund awards under the Company's 2005 Stock  Compensation  and
Incentive  Plan.  During the three months ended  December 31, 2006,  the Company
purchased 808,263 shares at a cost of $13.1 million, or approximately $16.27 per
share.  During the six months  ended  December  31,  2006,  a total of 1,091,063
shares  were  purchased  under  the  plan  at  a  cost  of  $17.4  million,   or
approximately $15.95 per share.

On  January  18,  2007,  the  Company  announced  that the  Board  of  Directors
authorized  an  additional  stock  repurchase  plan to acquire  up to  1,036,634
shares,  or 5% of the  Company's  outstanding  stock held by persons  other than
Kearny MHC. Such  purchases will be made from time to time in the open market or
in privately negotiated stock purchases, based on stock availability,  price and
the Company's  financial  performance.  It is anticipated that purchases will be
made during the next twelve  months,  although no

                                       11
<PAGE>

assurance  can be given as to when they  will be made or to the total  number of
shares that will be purchased.

7. BENEFIT PLANS - COMPONENTS OF NET PERIODIC COST
--------------------------------------------------

Benefit Equalization Plan net periodic pension expense was as follows:
<TABLE>
<CAPTION>
                                                          Three Months                        Six Months
                                                       Ended December 31,                 Ended December 31,
                                                    -----------------------            -----------------------
                                                     2006             2005             2006             2005
                                                    -----             -----            -----             -----
                                                         (In Thousands)                   (In Thousands)
<S>                                                 <C>               <C>              <C>               <C>
Service cost                                        $  15             $  15            $  30             $  30
Interest cost                                          44                44               88                88
Amortization of unrecognized past service
   costs                                               (3)               (3)              (6)               (6)
Amortization of unrecognized net actuarial
   loss                                                46                46               92                92
                                                    -----             -----            -----             -----
Net periodic pension expense                        $ 102             $ 102            $ 204             $ 204
                                                    =====             =====            =====             =====
</TABLE>

Postretirement  Welfare  Plan net  periodic  postretirement  benefit cost was as
follows:
<TABLE>
<CAPTION>
                                                          Three Months                        Six Months
                                                       Ended December 31,                 Ended December 31,
                                                    -----------------------            -----------------------
                                                     2006             2005             2006             2005
                                                    -----             -----            -----             -----
                                                         (In Thousands)                   (In Thousands)
<S>                                                 <C>               <C>              <C>               <C>
Service cost                                        $  8              $  6             $ 16              $ 12
Interest cost                                          7                 6               14                12
Amortization of unrecognized past service
   liability                                           2                 3                4                 6
                                                    ----              ----             ----              ----
Net periodic postretirement benefit cost            $ 17              $ 15             $ 34              $ 30
                                                    ====              ====             ====              ====
</TABLE>

Directors'  Consultation  and  Retirement  Plan net  periodic  plan  cost was as
follows:

<TABLE>
<CAPTION>
                                                          Three Months                      Six Months
                                                       Ended December 31,               Ended December 31,
                                                    ----------------------            ----------------------
                                                     2006             2005             2006            2005
                                                    -----            -----            -----            -----
                                                         (In Thousands)                   (In Thousands)
<S>                                                 <C>              <C>             <C>              <C>
Service cost                                        $ 34             $ 32            $ 68             $ 64
Interest cost                                         34               29              68               58
Amortization of unrecognized transition
   obligation                                         11               11              22               22
Amortization of unrecognized past service
   liability                                          15               15              30               30
                                                    ----             ----            ----             ----
Net periodic postretirement benefit cost            $ 94             $ 87            $188             $174
                                                    ====             ====            ====             ====
</TABLE>


                                       12
<PAGE>

8.  NEW ACCOUNTING PRONOUNCEMENTS
---------------------------------

In  September  2006,  the  FASB  issued  FASB  Statement  No.  157,  Fair  Value
Measurements,  which  defines fair value,  establishes a framework for measuring
fair value under GAAP, and expands  disclosures  about fair value  measurements.
FASB Statement No. 157 applies to other accounting  pronouncements  that require
or permit fair value  measurements.  The new guidance is effective for financial
statements  issued for fiscal years  beginning  after November 15, 2007, and for
interim  periods  within those fiscal  years.  We are currently  evaluating  the
potential  impact,  if any,  of the  adoption of FASB  Statement  No. 157 on our
consolidated financial condition, results of operations and cash flows.

On September 29, 2006, the Financial  Accounting  Standards  Board "FASB" issued
SFAS No.  158,  Employers'  Accounting  for  Defined  Benefit  Pension and Other
Postretirement  Plans ("SFAS 158"), which amends SFAS 87 and SFAS 106 to require
recognition  of the over  funded or under  funded  status of  pension  and other
postretirement  benefit plans on the balance  sheet.  Under SFAS 158,  gains and
losses,  prior service costs and credits,  and any remaining  transition amounts
under  SFAS 87 and SFAS  106 that  have  not yet  been  recognized  through  net
periodic  benefit cost will be recognized  in  accumulated  other  comprehensive
income,  net of tax  effects,  until they are  amortized  as a component  of net
periodic cost. The measurement date -- the date at which the benefit  obligation
and plan assets are measured -- is required to be the company's fiscal year end.
SFAS 158 is effective for publicly-held  companies for fiscal years ending after
December  15,  2006,  except  for the  measurement  date  provisions,  which are
effective  for fiscal  years ending after  December 15, 2008.  We are  currently
evaluating the potential  impact,  if any, of the adoption of FASB Statement No.
158 on our consolidated financial condition and results of operations.

On September 13, 2006, the Securities and Exchange Commission "SEC" issued Staff
Accounting Bulleting No. 108 ("SAB 108"). SAB 108 provides interpretive guidance
on how the effects of the  carryover  or  reversal  of prior year  misstatements
should be considered in quantifying a potential current year misstatement. Prior
to SAB 108,  companies  might evaluate the  materiality  of  financial-statement
misstatements using either the income statement or balance sheet approach,  with
the income statement approach focusing on new misstatements added in the current
year,  and the  balance  sheet  approach  focusing on the  cumulative  amount of
misstatements present in a company's balance sheet.  Misstatements that would be
material  under  one  approach  could be  viewed  as  immaterial  under  another
approach,  and not be  corrected.  SAB  108 now  requires  that  companies  view
financial statement  misstatements as material if they are material according to
either the income statement or balance sheet approach.  The Company has analyzed
SAB 108 and determined that upon adoption it will have no impact on the reported
results of operations or financial condition.

9  RESTATEMENT
--------------

In a Form 8-K filed  January 8, 2007,  the Company  reported  that on January 2,
2007, the Audit  Committee of the Company's  Board of Directors  determined that
the  Company  will need to restate the  financial  statements  contained  in its
Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and Quarterly
Reports  on Form  10-Q  for the  quarterly  periods  ended  March  31,  2006 and
September 30, 2006 (collectively, the "Financial Statements") and the previously
issued Financial Statement should no longer be relied upon.

The Company had  previously  disclosed its intention to reclassify its portfolio
of securities held to maturity (consisting primarily of municipal bonds and to a
lesser  degree U.S.  government  obligations)  to available  for sale during the
quarter  ending  December  31, 2006,  for the purpose of executing  sales of the
municipal  bonds at opportune  times.  A decline in pre-tax  income  reduces the
advantage of holding  tax-exempt  instruments  and their yield is  substantially
below market.  During the three months ended

                                       13
<PAGE>

December 31, 2006,  management  sold municipal  bonds with a par value of $105.9
million recording a gain of $152,000.

The  determination  was made by the Audit  Committee  that  under  Statement  of
Financial  Accounting  Standards No. 115,  Accounting for Certain Investments in
Debt  and   Equity   Securities,   an  error  was  made  in  not   making   this
reclassification  during the quarter  ended March 31, 2006 when the Company sold
all of the government  agency notes held in the portfolio.  Notwithstanding  the
Company's  decision  to make  the  reclassification  during  the  quarter  ended
December  31,  2006 in order to  permit  management  to make  periodic  sales of
securities  from this portfolio when the  opportunity  presents  itself,  proper
accounting  treatment of the securities held to maturity  portfolio required the
change to already have been made. Furthermore, the Audit Committee believes that
this reclassification  should be extended to mortgage-backed  securities held to
maturity and included in the Financial Statements for the fiscal year ended June
30, 2006 and quarterly periods ended March 31, 2006 and September 30, 2006.

The effect of this change is that the  securities are now reported at fair value
instead of at amortized  cost,  which  results in a change in the value of these
assets previously reported on the statements of financial condition at March 31,
2006,  June 30, 2006 and September 30, 2006.  Carrying these  securities at fair
value will impact the accumulated other comprehensive  income (loss), which is a
component of stockholders'  equity.  The adjustments to be made to the Financial
Statements  are  non-cash  in nature  and do not result in changes to the income
statements or previously reported total net income for any period.

The Company intends to file the restated  Financial  Statements during the first
quarter of the 2007 calendar year.

The following table presents changes to the Consolidated  Statement of Financial
Condition at June 30, 2006 resulting from the restatement:
<TABLE>
<CAPTION>
                                                          June 30,       June 30,
                                                           2006           2006
                                                      (As previously  (As restated)
                                                         reported)
                                                      -----------------------------
                                                              (In Thousands)

<S>                                                       <C>           <C>
Securities available for sale                             18,346        222,793

Securities held to maturity                              209,048           --

Mortgage-backed securities available for sale               --          670,329

Mortgage-backed securities held to maturity              689,962           --

Other assets                                               9,203         17,685

Total Assets                                           2,007,525      1,991,773

Accumulated other comprehensive (loss)                      (133)       (15,885)

Total Stockholders' Equity                               490,886        475,134

Total Liabilities and Stockholders' Equity             2,007,525      1,991,773

</TABLE>

                                       14
<PAGE>
                                     ITEM 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  ---------------------------------------------


FORWARD-LOOKING STATEMENTS

This Form 10-Q may include certain  forward-looking  statements based on current
management  expectations.  The actual  results of Kearny  Financial  Corp.  (the
"Company") could differ materially from those management  expectations.  Factors
that could cause  future  results to vary from current  management  expectations
include,  but are not limited to, general economic  conditions,  legislative and
regulatory  changes,  monetary  and fiscal  policies of the federal  government,
changes in tax policies,  rates and regulations of federal,  state and local tax
authorities.  Additional  potential  factors  include changes in interest rates,
deposit flows,  cost of funds,  demand for loan  products,  demand for financial
services,  competition,  changes  in the  quality  or  composition  of loan  and
investment portfolios of Kearny Federal Savings Bank, the Company's wholly-owned
subsidiary,  (the "Bank"). Other factors that could cause future results to vary
from current management  expectations include changes in accounting  principles,
policies  or  guidelines,  and other  economic,  competitive,  governmental  and
technological  factors affecting the Company's  operations,  markets,  products,
services and prices.  Further  description of the risks and uncertainties to the
business are included in the  Company's  other filings with the  Securities  and
Exchange Commission.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2006 AND JUNE 30, 2006

Total assets increased $26.2 million,  or 1.3%, to $2.02 billion at December 31,
2006,  from $1.99  billion at June 30, 2006,  due  primarily to a $90.1  million
increase in net loans  receivable and a $55.6 million  increase in cash and cash
equivalents and to a lesser degree,  a $24.9 million  increase in the fair value
of the securities portfolio. Partially offsetting these increases were decreases
in the securities portfolio due to calls and maturities, repayments and sales of
securities.

Cash and cash equivalents increased 24.1% to $285.9 million at December 31, 2006
from $230.3 million at June 30, 2006. The increase in cash and cash  equivalents
resulted primarily from the sale of securities as well as principal and interest
payments and from maturities in the securities  portfolio and to a lesser degree
an increase in deposits at the Bank, particularly in certificates of deposit and
tiered money market  accounts,  as discussed  below. To the extent that the Bank
does not need the funds for loan  originations,  management  expects to maintain
liquidity  at an elevated  level as long as the  Treasury  yield  curve  remains
inverted or flat because the high short term interest  rates  resulting from the
current yield curve make cash and cash equivalents attractive.

Securities  decreased by $106.3 million, or 47.7%, to $116.5 million at December
31, 2006,  compared to $222.8 million at June 30, 2006. During the quarter ended
December 31, 2006,  management  sold  municipal  bonds with an amortized cost of
$105.7  million,  recording  a gain of  $152,000.  A decline in  pre-tax  income
reduces the  advantage  of holding  tax-exempt  instruments  and their yield was
substantially  below market.  The municipal bond portfolio was $195.7 million at
June 30, 2006, with a weighted average yield of 3.78%. At December 31, 2006, the
Bank's  remaining  municipal  bond  portfolio  was $92.5 million with a weighted
average yield of 3.73%. During the six months ended December 31, 2006, there was
also a call of a $2.0 million trust preferred security. Management utilized cash
flows from principal and interest payments to fund loan originations  during the
six month period.

Loans  receivable,  net of deferred  fees and costs and the  allowance  for loan
losses,  increased  $90.1 million,  or 12.8%,  to $793.7 million at December 31,
2006,  compared to $703.6 million at June 30, 2006.

                                       15
<PAGE>

The increase resulted from continuing implementation of the Bank's business plan
which calls for  increasing  the loan  portfolio  while  reducing the securities
portfolio.  Total  loans  constituted  39.6% of assets  at  December  31,  2006,
compared  to  35.5%  at June  30,  2006.  Meanwhile,  the  securities  portfolio
constituted 38.6% of assets at December 31, 2006,  compared to 44.8% at June 30,
2006.

One-to-four family residential mortgage loans,  particularly first mortgages and
nonresidential mortgages registered most of the growth, increasing approximately
$43.1  million  and $37.1  million,  to $509.0  million  and  $133.2  million at
December 31, 2006, respectively. There was also an increase in home equity loans
and  multi-family  mortgages of  approximately  $12.9  million and $5.1 million,
which  totaled   $106.6   million  and  $16.1  million  at  December  31,  2006,
respectively.  Commercial  loans decreased  $823,000 to $2.4 million.  There was
also a nominal  decrease  in home  equity  lines of credit of  $932,000 to $12.1
million. Construction loans were the only category to see a significant decrease
during the six months.  With  balances  outstanding  decreasing  $6.3 million to
$15.7 million and gross  constructions  loans  decreasing $10.4 million to $23.0
million.  Virtually the entire decrease in gross  construction loans occurred in
the  nonresidential  category.  To supplement the Bank's own loan  originations,
management  relies on agreements  to purchase  mortgages  from several  mortgage
companies, with $42.8 million purchased during the six months ended December 31,
2006.  The Bank has not  originated or purchased any interest only  mortgages or
pay option adjustable rate mortgages.

Mortgage-backed securities decreased $8.4 million, or 1.3%, to $661.9 million at
December 31, 2006, from $670.3 million at June 30, 2006.  Management  reinvested
approximately  $49.6 million in  mortgage-backed  securities,  purchasing  $15.3
million in fixed rate Community  Reinvestment  Act ("CRA")  eligible  issues and
$34.3 million in issues in which the underlying  loans are 3/1 or 5/1 adjustable
rate mortgages.  Excluding the CRA eligible issues,  which the Bank purchases to
meet its CRA  investments  requirement,  it has  been  management's  policy  for
several years to purchase only adjustable rate issues,  preferably seasoned such
that the conversion to a one-year  adjustable  product may be less than three or
five years away.  Management's  redeployment  of cash flows from  principal  and
interest payments to fund loan  originations  contributed to the decrease in the
size of the mortgage-backed security portfolio.

Premises and  equipment  was  unchanged at $35.9 million at both December 31 and
June 30, 2006, as depreciation  virtually  offset the cost of additions to fixed
assets.  The most  significant  addition to premises  and  equipment  during the
period was  completion of renovations at the Bank's retail branch in Old Tappan,
New  Jersey at a cost of  approximately  $361,000.  Bank  owned  life  insurance
increased  $261,000,  or 1.8%, to $14.9 million at December 31, 2006 compared to
$14.6 million at June 30, 2006, due to an increase in the cash  surrender  value
of the underlying insurance policies.

Deposits  increased  $36.3  million,  or 2.5%,  to $1.48 billion at December 31,
2006,  compared to $1.44  billion at June 30, 2006.  During the six months ended
December 31, 2006, certificates of deposit and interest-bearing demand deposits,
particularly tiered money market deposit accounts, increased approximately $70.7
million and $17.7 million,  to $953.8 million and $139.8 million,  respectively;
while savings deposits decreased  approximately  $47.9 million to $329.6 million
and  non-interest-bearing  deposits decreased $4.3 million to $56.8 million. The
ongoing  threat of loss of  deposits  to  competitors,  both core  deposits  and
certificates of deposit,  necessitated  the continuance of promotional  interest
rates to counteract  promotions  offered by other financial  institutions in the
Bank's market area,  however,  mid-way  through the quarter  ended  December 31,
2006, management began to back away from this strategy in an attempt to mitigate
margin   compression   resulting  from  the  increased  cost  of  deposits  from
promotional  interest rates.  Management  expects to re-price the popular tiered
money  market  account to keep its  growth  under  control.  The  challenge  for
management  continues to be balancing the rate of attrition against reducing the
Bank's  cost  of  deposits.   Management   expects  some  loss  of  deposits  as
certificates  of deposit with five, nine and 13 month terms  previously  offered
with  promotional  interest  rates mature  during  2007.

                                       16
<PAGE>

Federal  Home Loan Bank  advances  decreased  $5.3  million,  or 8.7%,  to $55.8
million at December 31, 2006,  compared to $61.1  million at June 30, 2006.  The
reduction in borrowings  resulted  from the maturity of a $5.0 million  advance,
with an interest rate of 5.90%, and scheduled  principal  payments on amortizing
advances.

During the six months ended December 31, 2006,  stockholders'  equity  decreased
$3.8 million, or 0.8%, to $471.3 million at December 31, 2006 compared to $475.1
million  at June 30,  2006.  The  decrease  was  primarily  the  result of stock
repurchases  partially offset by an increase in accumulated other  comprehensive
income.  The  Company  purchased  54,314  shares at a cost of  $789,000  for the
restricted stock plan and purchased  1,091,063 shares at a cost of $17.4 million
as treasury  shares.  Cash  dividends of $0.10 per share  totaling  $1.8 million
declared  for payment in the quarters  ended  December 31, 2006 and ending March
31, 2007 also  contributed to the decrease in  stockholders'  equity.  Partially
offsetting  the decrease was an increase of $10.4 million in  accumulated  other
comprehensive  income  (loss)  due to a  decrease  in  the  unrealized  loss  on
securities held at December 31, 2006, net income of $1.5 million recorded during
the period, the release of $1.1 million of Employee Stock Ownership Plan shares,
the  release  of $1.7  million  of  restricted  stock  plan  shares,  a $996,000
adjustment to equity for  expensing  stock options and a tax benefit of $434,000
recorded due to vesting of restricted stock.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 AND
2005

GENERAL.  Net income for the quarter  ended  December  31, 2006 was  $547,000 or
$0.01 per share,  a decrease of $1.8  million,  or 78.3%,  from $2.3  million or
$0.03 per share for the quarter  ended  December 31,  2005.  The decrease in net
income resulted primarily from a decrease in net interest income and an increase
in non-interest expense,  particularly salaries and employee benefits due to the
cost of stock compensation plans.

NET INTEREST INCOME. Net interest income for the three months ended December 31,
2006 was $11.2 million, a decrease of $1.3 million, or 10.4%,  compared to $12.5
million for the three  months  ended  December  31,  2005.  The  decrease in net
interest income was due for the most part to a significant  increase in interest
expense only  partially  offset by an increase in interest  income.  To a lesser
degree,   a  reduction  in  the  volume  of   interest-earnings   assets  versus
interest-bearing liabilities contributed to the decrease in net interest income.

The Bank's net interest  rate spread  decreased 39 basis points to 1.67% for the
quarter ended  December 31, 2006,  from 2.06% for the quarter ended December 31,
2005. During the quarter ended December 31, 2006,  interest rate sensitivity was
still an issue as interest-bearing liabilities continued to re-price faster than
interest-earning  assets, due to both the promotional interest rates utilized to
attract  new  deposits,  which also  affected  the  rollover  rates on  maturing
certificates of deposit,  as well as offering  generally higher  non-promotional
interest rates to remain  competitive  in the market place.  The cost of average
interest-bearing liabilities increased 94 basis points, from 2.54% for the three
months ended December 31, 2005, to 3.48% for the three months ended December 31,
2006.  During  the  quarter  ended  December  31,  2006,  the  yield on  average
interest-earning  assets  increased  55 basis  points,  to 5.15% for the quarter
ended December 31, 2006, from 4.60% for the quarter ended December 31, 2005.

The Bank's net interest margin  decreased 22 basis points to 2.39% for the three
months ended  December 31, 2006,  compared with 2.61% for the three months ended
December 31, 2005.  Average  interest-earning  assets  during the quarter  ended
December  31,  2006 were  $1.87  billion  or $41.5  million  less  than  average
interest-earning  assets of $1.91 billion  during the quarter ended December 31,
2005.  The decrease  resulted in part from use of cash to fund deposit  outflows
and  reduce  borrowed  money  as  well  as  fund  stock   repurchases.   Average
interest-bearing  liabilities  during the quarter  ended  December 31, 2006 were
$1.48 billion or $15.3 million less than average interest-bearing liabilities of
$1.50 billion  during the

                                       17
<PAGE>

quarter ended December 31, 2005. The ratio of average interest-earning assets to
average  interest-bearing  liabilities was 126.2% for the quarter ended December
31, 2006, compared to 127.7% for the quarter ended December 31, 2005.

INTEREST INCOME. Total interest income increased $2.1 million, or 9.5%, to $24.1
million for the three months ended December 31, 2006, from $22.0 million for the
three months ended December 31, 2005. Year-over-year, interest income from loans
and other interest-earning  assets increased while interest from mortgage-backed
securities and securities decreased.

Interest income from loans receivable increased $2.6 million, or 30.6%, to $11.1
million for the three months ended December 31, 2006,  from $8.5 million for the
three months ended  December 31, 2005 due to growth in the  portfolio as well as
an improvement in yield. The average balance of net loans  receivable  increased
$155.2  million to $766.4  million  during the quarter ended  December 31, 2006,
from $611.2  million  during the quarter  ended  December 31,  2005.  The Bank's
business  plan seeks to  continue  increasing  the Bank's loan  portfolio  while
reducing its reliance on securities  to generate  interest  income.  Average net
loans receivable  constituted 41.0% of average  interest-earning  assets for the
quarter  ended  December 31,  2006,  as compared to 32.0% for the same quarter a
year  ago.  By  contrast,   average  securities  constituted  45.4%  of  average
interest-earning  assets for the quarter ended December 31, 2006, as compared to
64.3% for the quarter  ended  December 31, 2005.  The yield on average net loans
receivable increased 19 basis points to 5.78% for the quarter ended December 31,
2006, compared to 5.59% for the quarter ended December 31, 2005. The improvement
in yield year-over-year was due in part to growth in the nonresidential mortgage
category.

Interest income from mortgage-backed  securities decreased $341,000, or 4.1%, to
$8.1  million for the three months  ended  December  31, 2006,  compared to $8.4
million for the three months  ended  December 31, 2005 due to a reduction in the
portfolio  partially  offset by an improvement in yield.  The average balance of
mortgage-backed  securities  decreased  $64.2 million to $675.1  million for the
quarter  ended  December 31,  2006,  from $739.3  million for the quarter  ended
December 31, 2005. The yield on average mortgage-backed  securities increased 23
basis points to 4.78% for the three months ended  December 31, 2006,  from 4.55%
for the three  months  ended  December  31,  2005.  The  decrease in the average
balance  of  mortgage-backed  securities,  year-over-year,   resulted  from  the
redeployment of principal payments into loan originations. The increase in yield
resulted  from  rate   adjustments  in  pass-through   certificates   containing
adjustable  rate  mortgages.  Excluding  fixed  rate  CRA  eligible  securities,
management  typically reinvests in adjustable rate product,  preferably seasoned
3/1 and 5/1  adjustable  rate mortgages such that the first rate change date and
conversion to a one-year adjustable product may be less than three or five years
away.

Interest  income from  securities  decreased  $2.5  million,  or 58.1%,  to $1.8
million for the quarter  ended  December  31,  2006,  from $4.3  million for the
quarter ended December 31, 2005 due to a substantial  reduction in the portfolio
partially  offset by an improvement in yield.  The average balance of securities
decreased  $315.1  million to $173.4  million for the quarter ended December 31,
2006,  compared to $488.5  million for the quarter ended  December 31, 2005. The
decrease in the  average  balance  was due  primarily  to the sale of the Bank's
entire  portfolio  of  government  agency  notes and Freddie Mac common stock in
February 2006. Those sales were followed by a sale of municipal  bonds,  with an
amortized cost of $105.7 million during the quarter ended December 31, 2006. The
yield on average  securities  improved 54 basis  points from 3.54% for the three
months ended December 31, 2005, to 4.08% for the three months ended December 31,
2006.  The higher yield on securities  resulted from the sale of the  government
agency notes and municipal  bonds.  The yield on the notes was 3.22% at the time
of their  sale.  The yield on the bonds  was  3.78% at June 30,  2006,  with the
remaining balance of the portfolio yielding 3.73% at December 31, 2006.

                                       18
<PAGE>

Interest  income from other  interest-earning  assets  increased $2.5 million to
$3.2 million for the quarter  ended  December 31,  2006,  from  $705,000 for the
quarter ended December 31, 2005. This was a result of a significant  increase in
the average balance of other  interest-earning  assets as well as an improvement
in yield.  There was a $182.4 million  increase in the average  balance of other
interest-earning  assets to $254.3  million for the three months ended  December
31, 2006, from $71.9 million for the three months ended December 31, 2005. There
was a 106 basis point  increase in the yield on average  other  interest-earning
assets to 4.98% for the quarter  ended  December  31,  2006,  from 3.92% for the
quarter  ended  December  31,  2005,  due to rising  short-term  interest  rates
year-over-year, particularly the rate paid on overnight deposits and due also to
an increase in the dividend yield on Federal Home Loan Bank ("FHLB") of New York
capital stock.  The average balance of other  interest-earning  assets increased
due to an increase in  interest-earning  deposits  in other  banks,  the primary
component of other  interest-earning  assets,  partially offset by a decrease of
$4.0 million in the average  balance of FHLB capital stock,  due to a repurchase
by FHLB to meet regulatory requirements. To the extent not required to fund loan
originations,  management reinvested cash flows from the sales of securities and
principal and interest  payments from  securities  in cash  equivalents  pending
redeployment into other earning assets.
..
INTEREST EXPENSE.  Total interest expense  increased $3.4 million,  or 35.8%, to
$12.9  million for the three months ended  December 31, 2006,  from $9.5 million
for the three  months  ended  December  31,  2005.  Year-over-year,  there was a
significant  increase in interest  expense  attributed  to deposits and a slight
decrease in interest expense from borrowings.

Interest  expense from  deposits  increased  $3.4  million,  or 39.1%,  to $12.1
million for the three months ended December 31, 2006,  from $8.7 million for the
three months ended  December 31, 2005. The increase  resulted  primarily from an
increase  in the cost of  average  interest-bearing  deposits,  which  more than
offset a decrease in the average balance of interest-bearing  deposits. The cost
of average interest-bearing  deposits increased 99 basis points to 3.40% for the
quarter ended  December 31, 2006,  from 2.41% for the quarter ended December 31,
2005. At various times during the year,  management offered promotional rates on
selected  certificates  of deposit  maturities  and tiered money market  deposit
accounts  in an effort to retain  and  attract  deposits.  This  strategy  had a
significant  effect on the Bank's cost of funds  year-over-year.  Midway through
the  current  quarter,  management  began to back away from this  strategy in an
attempt to mitigate margin compression.  The average balance of interest-bearing
deposits  decreased  $12.1  million to $1.42  billion for the three months ended
December 31, 2006,  from $1.43  billion for the three months ended  December 31,
2005.

Interest  expense from Federal Home Loan Bank  advances  decreased  $50,000,  or
5.8%, to $807,000 for the quarter ended December 31, 2006, from $857,000 for the
quarter ended  December 31, 2005 due to a decrease in average  borrowings  and a
decrease in cost. Average borrowings decreased $3.3 million to $58.2 million for
the three months  ended  December  31,  2006,  from $61.5  million for the three
months ended  December 31, 2005.  The decrease in the average  balance  resulted
from the maturity of a $5.0 million advance and scheduled  principal payments on
amortizing  advances.  The  maturity of the  advance,  which was the Bank's most
costly borrowing at 5.90%, also contributed to a decrease in the cost of average
borrowings of three basis points to 5.55% from 5.58%, year-over-year.

PROVISION FOR LOAN LOSSES.  The provision for loan losses  increased  $55,000 to
$119,000 for the quarter ended  December 31, 2006, as compared to $64,000 during
the quarter  ended  December  31,  2005.  The  provisions  during both  quarters
resulted  primarily from growth in the loan portfolio.  Total loans increased to
$798.1  million at December 31, 2006 from $748.0  million at September 30, 2006.
Asset quality continued to be strong as non-performing  loans were $639,000,  or
0.08% of total loans at December 31, 2006, as compared to $1.0 million, or 0.14%
of total  loans at  September  30,  2006.  The  allowance  for loan  losses as a
percentage of total loans  outstanding  was 0.72% at December 31, 2006 and 0.75%
at September 30, 2006,  reflecting  allowance  balances of $5.8 million and $5.6
million,

                                       19
<PAGE>

respectively.  The increase in the allowance  balance during the current quarter
included a recovery of $27,000.

Management  assesses the  allowance  for loan losses  monthly.  Management  uses
available  information to recognize  losses on loans,  however,  additional loan
loss  provisions  may be necessary  in the future,  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  December  31,  2006  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 was virtually unchanged,  increasing $3,000  year-over-year
to $620,000  during the three months ended  December 31, 2006.  Fees and service
charges  from  operations  and the Bank's  retail  branch  network were lower by
$13,000 but miscellaneous  income increased $16,000 compared to the year earlier
quarter.  The quarter  ended  December  31,  2005  included  non-recurring  loan
prepayment fees of $73,000. Management plans to introduce an overdraft privilege
program for the Bank's retail customers as a way of increasing fee income.

There was a gain on sale of  securities  during the quarter  ended  December 31,
2006 of $152,000 but no gain during the  comparative  quarter ended December 31,
2005.

NON-INTEREST  EXPENSE.  Total  non-interest  expense increased $1.1 million,  or
10.9%, to $11.2 million for the three months ended December 31, 2006, from $10.1
million for the three months ended  December  31,  2005.  The increase  resulted
primarily  from  increases  in salaries  and employee  benefits,  net  occupancy
expense of premises, equipment expense and advertising expense, partially offset
by directors' compensation expense.

Salaries and employee benefits increased $986,000, or 17.1%, to $6.7 million for
the quarter  ended  December 31, 2006,  compared to $5.8 million for the quarter
ended December 31, 2005.  Management  attributes  the increase  primarily to the
2005 Stock  Compensation  and Incentive  Plan  approved at the Company's  annual
stockholders'  meeting  held in October  2005,  which  resulted in an expense of
$933,000  during the  quarter  ended  December  31,  2006;  a $653,000  increase
compared  to $280,000  recorded in the quarter  ended  December  31,  2005.  The
current quarter included Employee Stock Ownership Plan  compensation  expense of
$595,000,  an increase of $132,000 compared to $463,000 during the quarter ended
December  31, 2005 due to an  increase in the  Company's  average  stock  price,
year-over-year.  Year-over-year,  there were  increases  totaling  approximately
$201,000 in other  components  of salaries  and employee  benefits,  including a
decrease of $49,000 in compensation  expense, an increase of $104,000 in pension
expense, an increase in other benefits expense of $95,000 and a $51,000 increase
in payroll taxes expense due primarily to vesting of restricted stock.

Year-over-year,  net occupancy expense of premises increased $52,000 to $841,000
from $789,000.  The increase  resulted  principally  from a $53,000  increase in
property taxes expense  attributed to the Bank's  facilities.  Increases in rent
expense, net, depreciation expense and utilities expense of $10,000, $30,000 and
8,000,  respectively,   were  offset  by  a  $47,000  decrease  in  repairs  and
maintenance expense.

Equipment  expense  increased  $21,000,  with an  expense  in both  quarters  of
approximately $1.1 million. An increase in service bureau expense of $80,000 was
partially offset by a decrease of $59,000 in maintenance expense.

                                       20
<PAGE>

Advertising  expense increased $24,000 to $409,000,  compared to $385,000 during
the same period in the prior year, due to an extensive  advertising  campaign to
promote  special  certificate of deposit and tiered money market deposit account
interest rates.  There were also advertising  campaigns focused on loan products
and  celebration  of the first  year  anniversary  of the Bank's  retail  branch
opening in Lacey Township, New Jersey.

Directors'  compensation decreased $21,000, to $561,000 during the quarter ended
December 31, 2006,  compared to $582,000 in the quarter ended December 31, 2005.
An increase of $95,000  attributed to the 2005 Stock  Compensation and Incentive
Plan  approved at the  Company's  annual  stockholders'  meeting held in October
2005, was offset by $80,000 and $36,000  decreases in directors'  fees and other
director  compensation,  respectively.  The Company's obligation to pay advisory
board fees in  connection  with its  acquisition  of West Essex Bancorp ended in
June 2006,  which  contributed  to lower  directors'  fees while  other forms of
director  compensation  decreased  due to the  Board's  decision  to freeze  its
incentive compensation plan for the time being.

Though miscellaneous expenses were unchanged at $1.2 million between comparative
periods, there were several variances of note,  year-over-year.  Included in the
current  quarter were  increases in both legal and  professional  and consulting
fees of $79,000  and  $36,000,  respectively,  which  management  attributes  to
ongoing evaluation and implementation of growth and  diversification  strategies
related  to  execution  of the  Company's  business  plan.  Meanwhile,  expenses
attributed to the Company's annual meeting decreased $57,000,  since the earlier
quarter  contained all of the cost from the first annual meeting held in October
2005 and  management  began to  accrue  for the  cost of the 2006  meeting.  The
quarter ended  December 31, 2005 also included a settlement for $51,000 with the
New Jersey  Division of Taxation  resulting  from a use tax audit  covering  the
previous five years.

PROVISION FOR INCOME TAXES.  The provision for income taxes decreased  $488,000,
or 84.6%,  to $89,000 for the quarter ended December 31, 2006, from $577,000 for
the quarter ended December 31, 2005. The effective income tax rate was 14.0% for
the three  months ended  December  31, 2006,  as compared to 19.9% for the three
months ended  December 31, 2005. The effective tax rate declined due to interest
from tax-exempt  securities  becoming a greater  percentage of net income as net
income  declined.  Tax-exempt  interest  reduced the  Company's  federal  income
expense by  approximately  $420,000  during the quarter ended December 31, 2006,
compared to a reduction of approximately  $603,000 in the quarter ended December
31, 2005.  Management is  liquidating  the municipal  bond  portfolio due to the
decline in pre-tax  income which  reduces the  advantage  of holding  tax-exempt
instruments as well as the low yield on the portfolio.

COMPARISON OF OPERATING  RESULTS FOR THE SIX MONTHS ENDED  DECEMBER 31, 2006 AND
2005

GENERAL.  Net income for the six months ended December 31, 2006 was $1.5 million
or $0.02 per share, a decrease of $3.8 million,  or 71.7%,  from $5.3 million or
$0.07 per share for the six months ended  December 31, 2005. The decrease in net
income resulted primarily from a decrease in net interest income and an increase
in  non-interest  expense,  particularly  salaries  and  employee  benefits  and
directors' compensation due to the cost of stock compensation plans.

NET INTEREST  INCOME.  Net interest income for the six months ended December 31,
2006 was $22.9 million, a decrease of $2.4 million,  or 9.5%,  compared to $25.3
million for the six months ended December 31, 2005. The decrease in net interest
income was due for the most part to a significant  increase in interest  expense
only partially offset by an increase in interest  income.  To a lesser degree, a
reduction  in the volume of  interest-earnings  assets  versus  interest-bearing
liabilities contributed to the decrease in net interest income.

                                       21
<PAGE>

The Bank's net interest  rate spread  decreased 33 basis points to 1.76% for the
six months ended December 31, 2006, from 2.09% for the six months ended December
31, 2005. The cost of average  interest-bearing  liabilities  increased 87 basis
points,  from 2.47% for the six months ended December 31, 2005, to 3.34% for the
six months ended  December 31,  2006.  During the six months ended  December 31,
2006, the yield on average interest-earning assets increased 54 basis points, to
5.10% for the six months ended December 31, 2006,  from 4.56% for the six months
ended  December 31,  2005.  Interest-bearing  liabilities  continued to re-price
faster than  interest-earning  assets  during the six months ended  December 31,
2006,  due to both the  promotional  interest  rates  utilized  to  attract  new
deposits,  which also affected the rollover  rates on maturing  certificates  of
deposit,  as well as offering  generally higher  non-promotional  interest rates
resulting from competitive pressures in the market place. During the comparative
period, management had temporarily ceased offering promotional interest rates, a
strategy  which began earlier in 2005, but was forced to resume those efforts to
address the deposit outflows when the promotions ceased.

The Bank's net  interest  margin  decreased 16 basis points to 2.46% for the six
months ended  December 31,  2006,  compared  with 2.62% for the six months ended
December 31, 2005. Average  interest-earning  assets during the six months ended
December  31,  2006 were  $1.86  billion  or $71.0  million  less  than  average
interest-earning  assets of $1.93 billion  during the six months ended  December
31,  2005.  The  decrease  resulted  in part  from  use of cash to fund  deposit
outflows and reduce  borrowed money as well as fund stock  repurchases.  Average
interest-bearing  liabilities during the six months ended December 31, 2006 were
$1.47 billion or $45.1 million less than average interest-bearing liabilities of
$1.51  billion  during the six months  ended  December  31,  2005.  The ratio of
average  interest-earning  assets to average  interest-bearing  liabilities  was
126.8% for the six months ended  December  31, 2006,  compared to 127.7% for the
six months ended December 31, 2005.

INTEREST INCOME. Total interest income increased $3.4 million, or 7.7%, to $47.4
million for the six months ended  December 31, 2006,  from $44.0 million for the
six months ended December 31, 2005.  Year-over-year,  interest income from loans
and other interest-earning  assets increased while interest from mortgage-backed
securities and securities decreased.

Interest income from loans receivable increased $4.7 million, or 28.1%, to $21.4
million for the six months ended  December 31, 2006,  from $16.7 million for the
six months ended  December 31, 2005 due  primarily to growth in the portfolio as
well as an improvement  in yield.  The average  balance of net loans  receivable
increased  $150.1 million to $744.1 million during the six months ended December
31, 2006, from $594.0 million during the six months ended December 31, 2005. The
increase  resulted from  continuing  implementation  of the Bank's business plan
which calls for  increasing  the loan  portfolio  while  reducing the securities
portfolio.   Average  net  loans   receivable   constituted   40.0%  of  average
interest-earning  assets for the six months ended December 31, 2006, as compared
to 30.8%  for the same  period  a year  ago.  By  contrast,  average  securities
constituted  47.3% of average  interest-earning  assets for the six months ended
December  31, 2006,  as compared to 64.5% for the six months ended  December 31,
2005.  During  the six  months  ended  December  31,  2006,  the Bank  purchased
approximately  $42.8  million  in loans  from  mortgage  companies  compared  to
approximately  $3.8  million  during the same  period a year  earlier due to the
slowing  real restate  market,  which  affected the Bank's  ability to originate
loans internally.  The yield on average net loans receivable  increased 14 basis
points to 5.75% for the six months ended  December  31, 2006,  compared to 5.61%
for  the  six  months  ended  December  31,  2005.  The   improvement  in  yield
year-over-year  was  due  in  part  to  growth  in the  nonresidential  mortgage
category.

Interest income from mortgage-backed  securities decreased $888,000, or 5.2%, to
$16.1  million for the six months ended  December  31,  2006,  compared to $17.0
million  for the  six  months  ended  December  31,  2005  due to a  significant
reduction in the portfolio  partially  offset by an  improvement  in yield.  The
average balance of mortgage-backed  securities decreased $69.0 million to $679.4
million for the six months ended December 31, 2006,  from $748.4 million for the
six  months  ended  December  31,  2005.  The yield on  average  mortgage-backed
securities  increased 20 basis points to 4.74% for the six months ended December
31, 2006, from 4.54% for the six months ended December 31, 2005.

                                       22
<PAGE>

The   decrease   in  the   average   balance  of   mortgage-backed   securities,
year-over-year,  resulted from the redeployment of principal  payments into loan
originations.   The  increase  in  yield  resulted  from  rate   adjustments  in
pass-through  certificates  containing adjustable rate mortgages.  Excluding CRA
eligible  securities  which are fixed rate, when redeploying cash flows from the
portfolio back into mortgage-backed securities,  management routinely reinvested
in adjustable  rate product,  preferably  seasoned 3/1 and 5/1  adjustable  rate
mortgages  such that the first rate  change  date and  conversion  to a one-year
adjustable  product  may be less than six or five  years  away.  By  sacrificing
higher yields on fixed rate securities in the  short-term,  the Bank gained some
interest rate risk protection in the future.

Interest  income from  securities  decreased  $4.6  million,  or 52.9%,  to $4.1
million during the six months ended December 31, 2006,  from $8.7 million during
the six months  ended  December 31, 2005 due to a  substantial  reduction in the
portfolio  partially  offset by an improvement in yield.  The average balance of
securities  decreased  $295.2 million to $199.9 million for the six months ended
December 31, 2006,  compared to $495.1 million for the six months ended December
31, 2005.  The decrease in the average  balance was due primarily to the sale of
the Bank's entire portfolio of government  agency notes,  with an amortized cost
of $249.0  million,  and  Freddie  Mac  common  stock  with a fair value of $8.9
million,  in February  2006.  Those sales were  followed by a sale of  municipal
bonds,  with an  amortized  cost of $105.7  million  during the six months ended
December  31,  2006.  During  the  comparative  period,   management  was  still
reinvesting  cash  flows  from  maturing  securities  back  into the  portfolio,
primarily in the tax-exempt category, due to nominally higher coupons as well as
higher tax equivalent yields. However, the decline in pre-tax income reduces the
advantage of holding  tax-exempt  instruments.  The yield on average  securities
improved 54 basis points from 3.51% for the six months ended  December 31, 2005,
to 4.05% for the six  months  ended  December  31,  2006.  The  higher  yield on
securities  resulted from the sale of the government  agency notes and municipal
bonds.  The yield on the notes was 3.22% at the time of their sale. The yield on
the  bonds  was  3.78%  at June 30,  2006,  with the  remaining  balance  of the
portfolio yielding 3.73% at December 31, 2006.

Interest income from other  interest-earning  assets increased $4.2 million,  or
262.5%,  to $5.8 million for the six months ended  December 31, 2006,  from $1.6
million  for the six months  ended  December  31,  2005.  This was a result of a
significant increase in the average balance of other interest-earning  assets as
well as an  improvement  in yield.  There was a $143.0  million  increase in the
average balance of other  interest-earning  assets to $234.7 million for the six
months  ended  December 31,  2006,  from $91.7  million for the six months ended
December 31, 2005.  There was a 142 basis point increase in the yield on average
other  interest-earning  assets to 4.97% for the six months  ended  December 31,
2006, from 3.55% for the six months ended December 31, 2005, due to increases in
short-term  interest  rates  year-over-year,   particularly  the  rate  paid  on
overnight  deposits  as well as the  dividend  yield on  Federal  Home Loan Bank
("FHLB")   of  New  York   capital   stock.   The   average   balance  of  other
interest-earning  assets  increased  due  to  an  increase  in  interest-earning
deposits,  the primary  component of other  interest-earning  assets,  partially
offset by a decrease in FHLB  capital  stock of $5.0 million due to a repurchase
by FHLB to meet regulatory requirements. Management reinvested the proceeds from
the sales of  securities in cash  equivalents  pending  redeployment  into other
earning assets.
..
INTEREST EXPENSE.  Total interest expense  increased $5.8 million,  or 31.0%, to
$24.5 million for the six months ended December 31, 2006, from $18.7 million for
the six months ended December 31, 2005. Year-over-year,  there was a significant
increase in interest  expense  attributed to deposits and a nominal  decrease in
interest expense from borrowings.

Interest  expense from  deposits  increased  $5.9  million,  or 34.9%,  to $22.8
million for the six months ended  December 31, 2006,  from $16.9 million for the
six months ended  December 31, 2005.  The

                                       23
<PAGE>

increase   resulted   primarily   from  an  increase  in  the  cost  of  average
interest-bearing  deposits,  which more than  offset a decrease  in the  average
balance  of  interest-bearing  deposits.  The cost of  average  interest-bearing
deposits  increased 91 basis  points to 3.25% for the six months ended  December
31,  2006,  from 2.34% for the six months ended  December 31, 2005.  The average
balance of  interest-bearing  deposits  decreased $42.6 million to $1.41 billion
for the six months  ended  December  31,  2006,  from $1.45  billion for the six
months ended December 31, 2005. During the year,  management offered promotional
rates on selected  certificates  of deposit  maturities  and tiered money market
deposit accounts in an effort to retain and attract deposits.  This strategy had
a significant effect on the Bank's cost of funds year-over-year.  Midway through
the quarter  ended  December 31, 2006,  management  began to back away from this
strategy in an attempt to mitigate margin compression.  With respect to the same
period a year ago, the Bank reacted to competitive pressures in the market place
earlier in 2005 by offering a premium short-term  interest rate, which attracted
new  money in the form of  certificates  of  deposit  and then  ceased  offering
promotional interest rates due to the rising cost of funds.

Interest  expense from Federal Home Loan Bank  advances  decreased  $70,000,  or
4.1%,  virtually unchanged at $1.7 million,  year-over-year.  Average borrowings
decreased  $2.1 million to $60.0  million for the six months ended  December 31,
2006, from $62.1 million for the six months ended December 31, 2005. The cost of
average  borrowings was unchanged at 5.56%.  The decrease in the average balance
resulted  from  scheduled  principal  payments on  amortizing  advances and to a
limited degree the maturity of a $5.0 million advance in November 2006.

PROVISION FOR LOAN LOSSES. The provision for loan losses increased $138,000,  to
$277,000 for the six months ended December 31, 2006,  from a $139,000  provision
recorded  during the six months ended December 31, 2005.  Management  attributes
the increase principally to growth in the loan portfolio.  Total loans increased
to $798.1  million at December  31, 2006 from $708.0  million at June 30,  2006.
Asset quality continued to be strong as non-performing  loans were $639,000,  or
0.08% of total loans at December 31, 2006, as compared to $1.0 million, or 0.14%
of total loans at June 30, 2006.  The  allowance for loan losses as a percentage
of total loans  outstanding was 0.72% at December 31, 2006 and 0.77% at June 30,
2006,   reflecting   allowance  balances  of  $5.8  million  and  $5.5  million,
respectively.  The increase in the allowance balance during the six months ended
December 31, 2006 included a recovery of $27,000 and no charge-offs  compared to
a recovery and  charge-off  of $5,000 and $6,000,  respectively,  during the six
months ended December 31, 2005.

Management  assesses the  allowance  for loan losses  monthly.  Management  uses
available  information to recognize  losses on loans,  however,  additional loan
loss  provisions  may be necessary  in the future,  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  December  31,  2006  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 increased $64,000, or 5.7%, to $1.2 million during the six
months ended  December 31, 2006  compared to $1.1 million  during the six months
ended December 31, 2005. Fees and service charges from operations and the Bank's
retail branch network  decreased by $62,000 but  miscellaneous  income increased
$126,000  compared  to the year  earlier  period.  Income  from bank  owned life
insurance  increased $58,000 due to the purchase of additional  insurance during
the six months ended December 31, 2005. During the six months ended December 31,
2005, fees and service charges  included  non-recurring  loan prepayment fees of
$85,000 compared to $1,000 in 2006. There was also a loss on sale of real estate
owned of $35,000  recorded during the six months ended December 31, 2005 with no
such loss in the current period.

                                       24
<PAGE>

There was a gain on sale of securities  during the six months ended December 31,
2006 of $152,000  compared to $86,000  during the six months ended  December 31,
2005.

NON-INTEREST  EXPENSE.  Total  non-interest  expense increased $2.8 million,  or
14.4%,  to $22.3 million for the six months ended December 31, 2006,  from $19.5
million for the six months  ended  December  31,  2005.  The  increase  resulted
primarily  from  increases  in salaries and  employee  benefits  and  directors'
compensation  with  nominal  increases  in net  occupancy  expense of  premises,
equipment expense, advertising expense and miscellaneous expense.

Salaries  and employee  benefits  increased  $2.2  million,  or 19.3%,  to $13.6
million for the six months ended  December 31, 2006,  compared to $11.4  million
for the six months ended December 31, 2005.  Management  attributes the increase
primarily to the 2005 Stock  Compensation  and  Incentive  Plan  approved at the
Company's annual  stockholders'  meeting held in October 2005, which resulted in
an expense of $1.9 million during the six months ended December 31, 2006; a $1.6
million increase  compared to $280,000 recorded in the six months ended December
31,  2005.  The  current  six months  included  Employee  Stock  Ownership  Plan
compensation  expense of $1.1  million,  an  increase  of  $222,000  compared to
$922,000 during the six months ended December 31, 2005 due to an increase in the
Company's average stock price, year-over-year.  Other components of salaries and
employee  benefits  increased  $389,000  compared to the prior  year,  including
increases of $80,000 and $36,000 in  compensation  expense and pension  expense,
respectively, both due to normal salary increases, an increase in other benefits
expense of $231,000 due principally to employee  health  insurance and a $42,000
increase in payroll taxes expense due primarily to vesting of restricted stock.

Net occupancy expense of premises increased $14,000, virtually unchanged at $1.7
million, year-over-year. Rental income from surplus retail branch space resulted
in a $29,000 decrease in rent expense,  net, and repairs and maintenance expense
decreased  $72,000.  They were offset by  increases in property  taxes  expense,
depreciation  expense and  utilities  expense of $22,000,  $58,000 and  $36,000,
respectively.  The Bank leases  surplus  space in retail  branch  facilities  in
Springfield  and River  Vale and will begin  receiving  rental  income  from the
Pleasantdale office in West Orange beginning in January 2007.

Equipment expense increased $44,000 to $2.2 million from $2.1 million during the
six months ended  December 31, 2005.  An increase in service  bureau  expense of
$89,000, resulting from higher data processing costs and depreciation expense of
$9,000 were partially offset by a decrease of $54,000 in repairs and maintenance
expense.

Advertising  expense increased $92,000 to $802,000,  compared to $710,000 during
the same period in the prior year, due to an extensive  advertising  campaign to
publicize  promotional interest rates for certificates of deposit,  tiered money
market deposit accounts and StarBanking,  a bundled services package. There were
also extensive advertising campaigns focused on the Bank's loan products.

Directors'  compensation  increased  $406,000,  to $1.2  million  during the six
months ended December 31, 2006, compared to $812,000 during the six months ended
December  31,  2005.  An  increase  of  $486,000  attributed  to the 2005  Stock
Compensation and Incentive Plan approved at the Company's  annual  stockholders'
meeting held in October 2005,  was partially  offset by an $118,000  decrease in
directors'  fees.  The  Company's  obligation  to pay  advisory  board  fees  in
connection with its acquisition of West Essex Bancorp ended in June 2006,  which
contributed  to  lower  directors'  fees  while  other  forms  of  compensation,
including the directors'  incentive  compensation  plan increased  $38,000.  The
directors'  incentive  compensation  plan was not frozen until the quarter ended
December 31, 2006.


                                       25
<PAGE>

Though  miscellaneous   expenses  were  virtually  unchanged  at  $2.2  million,
increasing $14,000 between comparative periods,  there were several variances of
note,  year-over-year.  Included in the current  quarter were  increases in both
legal and professional and consulting fees of $64,000 and $26,000, respectively,
which management  attributes to ongoing  evaluation and implementation of growth
and  diversification  strategies  related to execution of the Company's business
plan.  The six months  ended  December 31, 2005 also  included a settlement  for
$51,000 with the New Jersey Division of Taxation  resulting from a use tax audit
covering the previous five years.

PROVISION FOR INCOME TAXES.  The provision for income taxes  decreased  $1.4, or
87.5%, to $165,000 for the six months ended December 31, 2006, from $1.6 million
for the six months ended December 31, 2005. The effective tax rate was 10.1% for
the six months ended  December 31, 2006, as compared to 22.8% for the six months
ended  December 31, 2005.  The  effective tax rate declined due to interest from
tax exempt securities  becoming a greater percentage of net income as net income
declined.  Tax-exempt  interest reduced the Company's  federal income expense by
approximately  $1.0  million  during the six months  ended  December  31,  2006,
compared to a reduction  of  approximately  $1.2  million  during the six months
ended December 31, 2005.  Management is liquidating the municipal bond portfolio
due to the decline in pre-tax  income  which  reduces the  advantage  of holding
tax-exempt instruments as well as the low yield on the portfolio. During the six
months ended December 31, 2005, the Company recorded  adjustments  attributed to
filing its  federal  and state  income tax  returns  for the year ended June 30,
2005, reducing tax expense by $81,000.


                                       26
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Bank's liquidity,  represented by cash and cash equivalents, is a product of
its operating, investing and financing activities. The Bank's primary sources of
funds are deposits, principal amortization, principal prepayments and maturities
of mortgage-backed securities and loans receivable; maturities of securities and
funds provided from  operations.  In addition,  the Bank invests excess funds in
short-term  interest-earning  assets such as overnight  deposits,  which provide
liquidity  to meet  lending  requirements.  While  scheduled  payments  from the
amortization of loans and mortgage-backed securities and maturing securities and
short-term  investments  are relatively  predictable  sources of funds,  general
interest rates,  economic  conditions and competition  greatly influence deposit
flows and prepayments on loans and mortgage-backed securities.

The Bank is required to have enough investments that qualify as liquid assets in
order to maintain sufficient liquidity to ensure a safe operation. Liquidity may
increase or decrease  depending upon the  availability  of funds and comparative
yields on investments  in relation to the return on loans.  The Bank attempts to
maintain adequate but not excessive liquidity,  and liquidity management is both
a daily and long-term function of business  management.  However,  to the extent
that the Bank does not need the funds for loan originations,  management expects
to maintain  liquidity at an elevated  level as long as the Treasury yield curve
remains inverted or flat.

The Bank reviews cash flow  projections  regularly  and updates them in order to
maintain  liquid assets at levels  believed to meet the  requirements  of normal
operations,  including  loan  commitments  and potential  deposit  outflows from
maturing certificates of deposit and savings withdrawals.  At December 31, 2006,
the  Bank had  outstanding  commitments  to  originate  loans of $10.7  million,
commitments  to fund the  purchase  of loans on a flow  basis of $55.9  million,
construction  loans in process  of $9.5  million  and unused  lines of credit of
$28.2 million.

During the quarter ended June 30, 2006, management introduced  promotional rates
for terms of five, nine and 13 months to retain and attract new  certificates of
deposit.  The Bank continued to offer the promotional  rates for certificates of
deposit with those terms during the quarter ended  September 30, 2006 as well as
a  promotional  rate for a tiered  money  market  deposit  account.  The program
continued until midway through the current quarter when the Bank ceased to offer
promotional rates on certificates of deposit. Management reduced the most costly
tier on the tiered money market deposit account in January 2007.

Certificates of deposit  increased $70.7 million from $883.1 million at June 30,
2006 to $953.8 million at December 31, 2006 while  interest-bearing  transaction
accounts  increased $17.7 million from $122.1 million at June 30, 2006 to $139.8
million at December 31, 2006,  with most of the  increase  attributed  to tiered
money market deposit  accounts.  Certificates of deposit  scheduled to mature in
one year or less at December 31, 2006 totaled $831.5 million  compared to $658.2
million at June 30, 2006. Based on historical  experience,  management  believes
that a  significant  portion of  maturing  deposits  will  remain with the Bank.
However,  given management's more conservative  pricing strategy  implemented in
late October 2006, the Bank could face significant deposit outflows during 2007.
The Bank's substantial liquidity position, which includes $285.9 million in cash
and cash  equivalents  at  December  31,  2006,  provides a cushion  for deposit
outflows, if they occur.

Borrowings from the Federal Home Loan Bank ("FHLB") of New York are available to
supplement  the  Bank's  liquidity  position  and to the  extent  that  maturing
deposits do not remain with us, they may need to be replaced with borrowings. At
December 31, 2006,  advances from the FHLB amounted to $55.8  million.  The Bank
has the capacity to borrow additional funds from the FHLB,  through an overnight
line of credit of $200.0 million or by taking additional short-term or long-term
advances.

                                       27
<PAGE>

Consistent  with  its  goals  to  operate  a  sound  and  profitable   financial
organization,   the  Bank   actively   seeks  to   maintain   its  status  as  a
well-capitalized  institution in accordance  with  regulatory  standards.  As of
December 31, 2006, Kearny Federal Savings Bank exceeded all capital requirements
of the Office of Thrift Supervision (the "OTS").

The following table sets forth the Bank's capital position at December 31, 2006,
as compared to the minimum regulatory capital requirements:
<TABLE>
<CAPTION>
                                                                December 31, 2006 (Unaudited)
                                        -------------------------------------------------------------------------------
                                                                                                      To Be Well
                                                                                                  Capitalized Under
                                                                        Minimum Capital           Prompt Corrective
                                                 Actual                   Requirements            Action Provisions
                                        -------------------------    -----------------------    -----------------------
                                          Amount         Ratio        Amount        Ratio        Amount        Ratio
                                        ------------    ---------    ----------   ----------    ---------    ----------
                                                                    (Dollars in Thousands)
<S>                                      <C>              <C>        <C>              <C>       <C>            <C>
Total Capital
  (to risk-weighted assets)              $  378,691       46.34%      $ 65,381        8.00%     $ 81,726        10.00%

Tier 1 Capital
  (to risk-weighted assets)              $  372,936       45.63%         -            -         $ 49,036         6.00%

Core (Tier 1) Capital
  (to adjusted total assets)             $  372,936       19.28%      $ 58,024        3.00%     $ 96,707         5.00%

Tangible Capital
  (to adjusted total assets)             $  372,936       19.28%      $ 29,012        1.50%        -             -
</TABLE>


In  December  2006,  the Bank  received  approval  from  the  Office  of  Thrift
Supervision  for a $15.0 million capital  distribution to the Company.  The cash
dividend was paid in January 2007.


                                       28
<PAGE>
                                     ITEM 3.
            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
            ---------------------------------------------------------


QUALITATIVE  ANALYSIS.  The ability to maximize net  interest  income is largely
dependent upon the  achievement of a positive  interest rate spread  sustainable
during fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure  of the  difference  between  amounts  of  interest-earning  assets  and
interest-bearing  liabilities,  which either  re-price or mature  within a given
period.  The  difference,  or the interest rate  re-pricing  "gap",  provides an
indication of the extent changes in interest  rates may affect an  institution's
interest  rate spread.  A positive  gap exists when the amount of  interest-rate
sensitive assets exceeds the amount of interest-rate sensitive liabilities,  and
a negative  gap exists when the amount of interest  rate  sensitive  liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a period
of rising  interest  rates,  a negative  gap  within  shorter  maturities  would
adversely  affect  net  interest  income,  while a positive  gap within  shorter
maturities would result in an increase in net interest  income.  During a period
of falling interest rates, a negative gap within shorter maturities would result
in an  increase  in net  interest  income  while a positive  gap within  shorter
maturities would result in a decrease in net interest income.

Because the Bank's interest-bearing liabilities, which mature or re-price within
short periods exceed its interest-earning  assets with similar  characteristics,
material and prolonged  increases in interest rates  generally  would  adversely
affect net interest income,  while material and prolonged  decreases in interest
rates generally would have a positive effect on net interest income.

The Bank's  Board of  Directors  established  an Interest  Rate Risk  Management
Committee comprised of members of the board and management.  The committee meets
quarterly to address management of the Bank's assets and liabilities,  including
review of its short  term  liquidity  position;  loan and  deposit  pricing  and
production volumes and alternative funding sources; current investments; average
lives,  durations and  re-pricing  frequencies  of loans and  securities;  and a
variety of other asset and liability  management  topics.  The committee reports
the results of its quarterly  review to the full board,  which adjusts  interest
rate risk policy and strategies, as it considers necessary and appropriate.

QUANTITATIVE  ANALYSIS.  Management  using the OTS model,  which  estimates  the
change in the Bank's net  portfolio  value (the  "NPV") over a range of interest
rate  scenarios,  monitors  the Bank's  interest  rate  sensitivity.  NPV is the
present value of expected cash flows from assets,  liabilities,  and off-balance
sheet contracts. OTS defines the NPV ratio, under any interest rate scenario, as
the NPV in that  scenario  divided  by the  market  value of  assets in the same
scenario.  The OTS produces its analysis based upon data submitted on the Bank's
quarterly Thrift Financial Reports.


                                       29
<PAGE>


The following table sets forth the Bank's NPV as of September 30, 2006, the most
recent date for which the Bank has received the Bank's NPV as  calculated by the
OTS.  Management does not believe that there has been a material  adverse change
in the Bank's  interest  rate risk during the three  months  ended  December 31,
2006.
<TABLE>
<CAPTION>

                                                              At September 30, 2006
                            ------------------------------------------------------------------------------------------
                                                                                  Net Portfolio Value
                                  Net Portfolio Value                       as % of Present Value of Assets
                            ---------------------------------     ----------------------------------------------------
                                                                                     Net Portfolio       Basis Point
 Changes in Rates (1)         $ Amount           $ Change           % Change          Value Ratio          Change
-----------------------     --------------     --------------     --------------     --------------     --------------
                                                                 (In Thousands)
      <S>                     <C>                <C>                    <C>             <C>                <C>
       +300 bp                290,401           -129,994               -31%             15.90%            -541 bp
       +200 bp                334,873            -85,521               -20%             17.85%            -346 bp
       +100 bp                378,786            -41,609               -10%             19.67%            -164 bp
          0 bp                420,395              -                    -               21.31%              -
       -100 bp                457,349            +36,954                +9%             22.69%            +138 bp
       -200 bp                488,198            +67,803               +16%             23.77%            +246 bp

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

This  analysis  also  indicated  that as of September  30, 2006 an immediate and
permanent  2.00% increase in interest rates would cause an  approximately  7.57%
decrease in our net interest income.

Certain  shortcomings are inherent in the methodology used in the above interest
rate risk  measurements.  Modeling  changes in NPV require the making of certain
assumptions,  which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented  assumes that the composition of the Bank's interest  sensitive assets
and liabilities  existing at the beginning of a period remains constant over the
measurement  period. The model also assumes that a particular change in interest
rates reflects  uniformly  across the yield curve  regardless of the duration to
maturity or re-pricing of specific assets and liabilities. Accordingly, although
the NPV measurements and net interest income models provide an indication of the
Bank's  interest  rate  risk  exposure  at a  particular  point  in  time,  such
measurements  are not  intended to and do not provide a precise  forecast of the
effect of changes in market interest rates on the Bank's net interest income and
will differ from actual results.

                                       30
<PAGE>

                                     ITEM 4.
                             CONTROLS AND PROCEDURES
                             -----------------------


Based on their  evaluation of the Company's  disclosure  controls and procedures
(as defined in Rules  13a-15(e)  under the Securities  Exchange Act of 1934 (the
"Exchange Act"),  the Company's  principal  executive  officer and the principal
financial  officer have  concluded  that as of the end of the period  covered by
this Quarterly  Report on Form 10-Q 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 and is accumulated and communicated to the
Company's  management,  including the principal  executive officer and principal
financial officer,  as appropriate to allow timely decisions  regarding required
disclosures.

During the quarter under report,  there was no change in the Company's  internal
control  over  financial  reporting  (as  defined  in Rule  13a-15(f)  under the
Securities  and  Exchange  Act of 1934)  that  has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.


                                       31
<PAGE>
                                     PART II


     ITEM 1.        Legal Proceedings
                    -----------------

                    At December 31, 2006,  neither the Company nor the Bank were
                    involved in any pending legal proceedings other than routine
                    legal  proceedings  occurring  in  the  ordinary  course  of
                    business, which involve amounts in the aggregate believed by
                    management to be  immaterial  to the financial  condition of
                    the Company and the Bank.

     ITEM 1A.       Risk Factors
                    ------------

                    Management  of the Company  does not believe  there has been
                    any  material  changes  with  regard  to  the  Risk  Factors
                    previously  disclosed  under Item 1A. of the Company's  Form
                    10-K for the year ended June 30, 2006, previously filed with
                    the Securities and Exchange Commission.

     ITEM 2.        Unregistered Sales of Equity Securities and Use of Proceeds
                    -----------------------------------------------------------

                      ISSUER PURCHASES OF EQUITY SECURITIES

                    The   following   table   reports   information    regarding
                    repurchases of the Company's common stock during the quarter
                    ended December 31, 2006.

--------------------------------------------------------------------------------
                                                Total Number of    Maximum
                                                     Shares       Number of
                                                  Purchased by    Shares that
                        Total                   Part of Publicly  May Yet Be
                       Number of     Average       Announced    Purchased Under
                        Shares      Price Paid     Plans or       the Plans or
Period                 Purchsed     per Share      Programs       Programs(1)
--------------------------------------------------------------------------------
October 1-31, 2006      170,500        $15.25       170,500         637,763
--------------------------------------------------------------------------------
November 1-30, 2006     180,500        $16.68       180,500         457,263
--------------------------------------------------------------------------------
December 1-3, 2006      457,263        $16.48       457,263               0
--------------------------------------------------------------------------------
Total                   808,263        $16.27       808,263               -
--------------------------------------------------------------------------------

(1)  On July 18, 2006,  the Company  announced a five percent  stock  repurchase
     plan (approximately  1,091,063 shares).  Such purchases are to be made from
     time to time in the open market, based on stock availability, price and the
     Company's  financial  performance.  This program has no expiration date. On
     January 18, 2007,  the Company  announced an additional  five percent stock
     repurchase plan (approximately 1,036,634 shares).

     ITEM 3.        Defaults Upon Senior Securities
                    -------------------------------

                    Not applicable.

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

                    The Annual Meeting of  Stockholders  (the  "Meeting") of the
                    Company was held on October 23, 2006. There were outstanding
                    and  entitled  to vote at the Meeting  72,624,900  shares of
                    Common Stock of the  Company,  including  50,916,250  shares
                    held by Kearny MHC, the mutual holding company parent of the
                    Company that holds 70% of the outstanding stock.  Kearny MHC
                    voted  its  shares  in favor of all  proposals.  There  were
                    present at the meeting or by proxy the holders of 69,309,563
                    shares  of  Common  Stock  representing  95.4% of the  total
                    eligible  votes to be cast.  Proposal  1 was to elect  three
                    directors  of the  Company.  Proposal  2 was to  ratify  the
                    appointment of the  independent  auditor for the fiscal year
                    ending  June 30,  2007.  The  result  of the  voting  at the
                    Meeting is as follows:
<TABLE>
<CAPTION>
                    PROPOSAL 1:
                    <S>                                <C>       <C>                      <C>
                    Henry S. Parow                     FOR:      68,562,286  WITHHELD:    747,277
                    John N. Hopkins                    FOR:      69,235,059  WITHHELD:     74,504
                    Leopold W. Montanaro               FOR:      69,233,166  WITHHELD:     76,397

                    PROPOSAL 2:
                    Ratification of the appointment of Beard Miller Company LLP as independent auditor.

                                                       FOR:                   69,233,359
                                                       AGAINST:                   37,871
                                                       ABSTAIN:                   38,333
</TABLE>
                                       32
<PAGE>


     ITEM 5.        Other Information
                    -----------------

                    None.

     ITEM 6.        Exhibits
                    --------
<TABLE>
<CAPTION>
                    The following Exhibits are filed as part of this report:

                    <S>            <C>
                    3.1            Charter of Kearny Financial Corp. (1)
                    3.2            By-laws of Kearny Financial Corp. (1)
                    4.0            Specimen Common Stock Certificate of Kearny Financial Corp. (1)
                    10.1           Employment Agreement between Kearny Federal Savings Bank and John
                                   N. Hopkins (1)
                    10.2           Employment Agreement between Kearny Federal Savings Bank and Allan
                                   Beardslee (1)
                    10.3           Employment Agreement between Kearny Federal Savings Bank and Albert
                                   E. Gossweiler (1)
                    10.4           Employment Agreement between Kearny Federal Savings Bank and Sharon Jones (1)
                    10.5           Employment Agreement between Kearny Federal Savings Bank and
                                   William C. Ledgerwood (1)
                    10.6           Employment Agreement between Kearny Federal Savings Bank and Erika K. Parisi (1)
                    10.7           Employment Agreement between Kearny Federal Savings Bank and Patrick M. Joyce (1)
                    10.8           Employment Agreement between Kearny Federal Savings Bank and Craig L. Montanaro (2)
                    10.9           Directors Consultation and Retirement Plan (1)
                    10.10          Benefit Equalization Plan (1)
                    10.11          Benefit Equalization Plan for Employee Stock Ownership Plan (1)
                    10.12          Stock Option Plan (3)
                    10.13          Restricted Stock Plan (3)
                    10.14          Kearny Federal Savings Bank Director Life Insurance Agreement (4)
                    10.15          Kearny Federal Savings Bank Executive Life Insurance Agreement (4)
                    11.0           Statements re: computation of per share earnings (Filed herewith).
                    31.0           Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                    32.0           Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

                    ------------------------------
                    (1)  Incorporated by reference to the  identically  numbered
                         exhibit to the Registrant's  Registration  Statement on
                         Form S-1 (File No. 333-118815).
                    (2)  Incorporated   by  reference  to  the  exhibit  to  the
                         Registrant's Form 8-K filed on July 21, 2005. (File No.
                         000-51093).
                    (3)  Incorporated   by   reference   to   the   Registrant's
                         definitive  proxy  statement  filed  September 30, 2005
                         (File No. 000-51093).
                    (4)  Incorporated  by  reference  to  the  exhibits  to  the
                         Registrant's  Form 8-K filed on August 18, 2005.  (File
                         No. 000-51093).

                                       33
<PAGE>
                                   SIGNATURES





Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on it  behalf  by the
undersigned thereunto duly authorized.


                                KEARNY FINANCIAL CORP.

Date:   February 8, 2007        By: /s/ John N. Hopkins
        ----------------           ---------------------------------------------
                                   John N. Hopkins
                                   President and Chief Executive Officer
                                   (Duly  authorized  officer  and  principal
                                   executive officer)

Date:   February 8, 2007        By: /s/ William C. Ledgerwood
        ----------------           -------------------------------------------
                                   William C. Ledgerwood
                                   Senior Vice President and
                                   Chief Financial Officer
                                   (Principal financial officer)

                                       34