SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

 

FORM            10-Q

 

| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| X                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                            SECURITIES |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| For the quarterly period ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | March 31, 2008 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| 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 Number000-51093                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| 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 markwhether 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. YesxNo o |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Indicate by check mark whether the registrant is a large                            accelerated filer, an accelerated filer, a non-accelerated filer or a                            smaller reporting company. See definitions of “large accelerated                            filer,” “accelerated filer” and smaller reporting                            company” in Rule 12b-2 of the Exchange Act.                                                                 |
| Large accelerated filer                            o                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Accelerated filerx |
| Non-accelerated filer                            o                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Smaller reporting company                            o |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Indicate by check mark whether the registrant is a shell                            company (as defined in Rule 12b-2 of the Exchange Act). Yes                            o Nox                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| The number of shares outstanding of each of the                            issuer’s classes of common stock, as of the latest practicable                            date: May 1, 2008.                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| $0.10 par value common stock - 70,628,303 shares                            outstanding                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  |  |  |  |  |  |  |  |  |  |

 

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

 

INDEX

 

 

|                           |                                                                                                     | Page   |
|--------------------------------|----------------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                                     | Number |
| PART I - FINANCIAL INFORMATION |                                                                                                     |   |
|                           |                                                                                                     |   |
| Item 1:                        | Financial Statements                                                                                     |   |   |
|                           |                                                                                                     |   |
|                           | Consolidated Statements of Financial                            Condition                                |   |   |
|                           | at March 31, 2008 and June 30, 2007                            (Unaudited)                               |   | 1 |
|                           |                                                                                                     |   |
|                           | Consolidated Statements of Income for the Three Months                            and Nine Months        |   |   |
|                           | Ended March 31, 2008 and 2007 (Unaudited)                                                                |   | 2-3 |
|                           |                                                                                                     |   |
|                           | Consolidated Statements of Changes in                            Stockholders’ Equity for the Nine |   |   |
|                           | Months Ended March 31, 2008 and 2007                            (Unaudited)                              |   | 4-5 |
|                           |                                                                                                     |   |
|                           | Consolidated Statements of Cash Flows for the                            Nine                            |   |   |
|                           | Months Ended March 31, 2008 and 2007                            (Unaudited)                              |   | 6-7 |
|                           |                                                                                                     |   |
|                           | Notes to Consolidated Financial Statements                                                               |   | 8-12 |
|                           |                                                                                                     |   |
| Item 2:                        | Management’s Discussion and Analysis of                                                            |   |   |
|                           | Financial Condition and Results of Operations                                                            |   | 13-28 |
|                           |                                                                                                     |   |
| Item 3:                        | Quantitative and Qualitative Disclosure About Market                            Risk                     |   | 29-30 |
|                           |                                                                                                     |   |
| Item 4:                        | Controls and Procedures                                                                                  |   | 31 |
|                           |                                                                                                     |   |
|                           |                                                                                                     |   |
| PART II - OTHER INFORMATION    |                                                                                                     | 32-34  |
|                           |                                                                                                     |   |
|                           |                                                                                                     |   |
| SIGNATURES                     |                                                                                                     | 35     |
|                           |                                                                                                     |   |

 

 

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In            Thousands, Except Share Data, Unaudited)

 

|                                                                                                                                                                                                  |   | March 31, |      | June 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|----------|--------|
|                                                                                                                                                                                                  |   | 2008      |      | 2007     |   |
| Assets                                                                                                                                                                                                |   |      |      |     |   |   |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Cash and amounts due from depository                            institutions                                                                                                                          |   | $         | 17,888    |     | $      | 18,999 |   |
| Interest-bearing deposits in other banks                                                                                                                                                              |   |      | 131,926   |     |   | 144,342 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Cash and Cash Equivalents                                                                                                                                                                             |   |      | 149,814   |     |   | 163,341 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Securities available for sale (amortized cost $41,040                            and $90,580)                                                                                                         |   |      | 39,384    |     |   | 88,869 |   |
| Loans receivable, including net deferred loan costs of                            $1,057 and $1,511                                                                                                   |   |      | 953,355   |     |   | 866,542 |   |
| Less allowance for loan losses                                                                                                                                                                        |   |      | (6,135    | )        |   | (6,049 | ) |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Net Loans Receivable                                                                                                                                                                                  |   |      | 947,220   |     |   | 860,493 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Mortgage-backed securities available for sale (amortized                            cost $752,457 and $655,123)                                                                                       |   |      | 762,026   |     |   | 643,779 |   |
| Premises and equipment                                                                                                                                                                                |   |      | 35,041    |     |   | 35,369 |   |
| Federal Home Loan Bank of New York (“FHLB”)                            stock                                                                                                              |   |      | 12,690    |     |   | 4,162 |   |
| Interest receivable                                                                                                                                                                                   |   |      | 8,712     |     |   | 8,028 |   |
| Goodwill                                                                                                                                                                                              |   |      | 82,263    |     |   | 82,263 |   |
| Bank owned life insurance                                                                                                                                                                             |   |      | 15,568    |     |   | 15,154 |   |
| Other assets                                                                                                                                                                                          |   |      | 7,321     |     |   | 15,795 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Total Assets                                                                                                                                                                                          |   | $         | 2,060,039 |     | $      | 1,917,253 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Liabilities and Stockholders’                            Equity                                                                                                                                 |   |      |      |     |   |   |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Liabilities                                                                                                                                                                                           |   |      |      |     |   |   |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Deposits:                                                                                                                                                                                             |   |      |      |     |   |   |   |
| Non-interest bearing                                                                                                                                                                                  |   | $         | 53,705    |     | $      | 56,339 |   |
| Interest-bearing                                                                                                                                                                                      |   |      | 1,296,969 |     |   | 1,355,374 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Total Deposits                                                                                                                                                                                        |   |      | 1,350,674 |     |   | 1,411,713 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Advances from FHLB                                                                                                                                                                                    |   |      | 218,000   |     |   | 28,488 |   |
| Advance payments by borrowers for taxes                                                                                                                                                               |   |      | 5,366     |     |   | 5,460 |   |
| Other liabilities                                                                                                                                                                                     |   |      | 8,714     |     |   | 9,000 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Total Liabilities                                                                                                                                                                                     |   |      | 1,582,754 |     |   | 1,454,661 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Stockholders’ Equity                                                                                                                                                                            |   |      |      |     |   |   |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Preferred stock $0.10 par value, 25,000,000 shares                            authorized; none issuedand outstanding                                                                                  |   |      | —   |     |   | — |   |
| Common stock $0.10 par value, 75,000,000 shares                            authorized; 72,737,500 sharesissued; 70,628,303 and 71,143,337 shares outstanding,                            respectively |   |      | 7,274     |     |   | 7,274 |   |
| Paid-in capital                                                                                                                                                                                       |   |      | 201,966   |     |   | 197,976 |   |
| Retained earnings                                                                                                                                                                                     |   |      | 307,273   |     |   | 304,970 |   |
| Unearned Employee Stock Ownership Plan shares; 1,297,152                            shares                                                                                                            |   |      |      |     |   |   |   |
| and 1,406,258 shares, respectively                                                                                                                                                                    |   |      | (12,972   | )        |   | (14,063 | ) |
| Treasury stock, at cost; 2,109,197 shares and 1,594,163                            shares, respectively                                                                                               |   |      | (30,479   | )        |   | (24,361 | ) |
| Accumulated other comprehensive income (loss)                                                                                                                                                         |   |      | 4,223     |     |   | (9,204 | ) |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Total Stockholders’ Equity                                                                                                                                                                      |   |      | 477,285   |     |   | 462,592 |   |
|                                                                                                                                                                                                  |   |      |      |     |   |   |   |
| Total Liabilities and Stockholders’                            Equity                                                                                                                           |   | $         | 2,060,039 |     | $      | 1,917,253 |   |

 

See            notes to consolidated financial statements.

 

1

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In            Thousands, Except Per Share Data, Unaudited)

 

|                                                |   | Three Months Ended |    | Nine Months Ended |   |
|-----------------------------------------------------|--------|--------------------|---------|-------------------|--------|
|                                                |   | March 31,          |    | March 31,         |   |
|                                                |   | 2008               |    | 2007              |   | 2008 |   | 2007 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Interest Income:                                    |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Loans                                               |   | $                  | 13,906  |              | $      | 11,658 |   | $ | 41,014 |   | $ | 33,044 |   |
| Mortgage-backed securities                          |   |               | 8,665   |              |   | 8,095 |   |   | 25,451 |   |   | 24,193 |   |
| Securities:                                         |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Taxable                                             |   |               | 279     |              |   | 351 |   |   | 966 |   |   | 1,141 |   |
| Tax-exempt                                          |   |               | 161     |              |   | 825 |   |   | 914 |   |   | 4,086 |   |
| Other interest-earning assets                       |   |               | 1,543   |              |   | 3,229 |   |   | 4,233 |   |   | 9,065 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Total Interest Income                               |   |               | 24,554  |              |   | 24,158 |   |   | 72,578 |   |   | 71,529 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Interest Expense:                                   |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Deposits                                            |   |               | 10,650  |              |   | 12,150 |   |   | 32,874 |   |   | 34,991 |   |
| Borrowings                                          |   |               | 2,293   |              |   | 754 |   |   | 5,058 |   |   | 2,412 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Total Interest Expense                              |   |               | 12,943  |              |   | 12,904 |   |   | 37,932 |   |   | 37,403 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Net Interest Income                                 |   |               | 11,611  |              |   | 11,254 |   |   | 34,646 |   |   | 34,126 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Provision for Loan Losses                           |   |               | — |              |   | 101 |   |   | 94 |   |   | 378 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Net Interest Income after Provision                 |   |               |    |              |   |   |   |   |   |   |   |   |   |
| for Loan Losses                                     |   |               | 11,611  |              |   | 11,153 |   |   | 34,552 |   |   | 33,748 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Non-Interest Income:                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Fees and service charges                            |   |               | 334     |              |   | 188 |   |   | 996 |   |   | 692 |   |
| Gain (loss) on sale of securitiesavailable for sale |   |               | (5      | )                 |   | (97 | ) |   | 0 |   |   | 55 |   |
| Miscellaneous                                       |   |               | 341     |              |   | 392 |   |   | 1,055 |   |   | 1,076 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Total Non-Interest Income                           |   |               | 670     |              |   | 483 |   |   | 2,051 |   |   | 1,823 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Non-interest expenses:                              |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                      |   |               | 6,035   |              |   | 7,070 |   |   | 18,360 |   |   | 20,623 |   |
| Net occupancy expense ofpremises                    |   |               | 1,001   |              |   | 895 |   |   | 2,793 |   |   | 2,594 |   |
| Equipment                                           |   |               | 1,067   |              |   | 1,098 |   |   | 3,190 |   |   | 3,274 |   |
| Advertising                                         |   |               | 186     |              |   | 362 |   |   | 592 |   |   | 1,164 |   |
| Federal insurance premium                           |   |               | 138     |              |   | 144 |   |   | 419 |   |   | 428 |   |
| Amortization of intangible assets                   |   |               | 11      |              |   | 159 |   |   | 230 |   |   | 477 |   |
| Directors’ compensation                       |   |               | 576     |              |   | 544 |   |   | 1,686 |   |   | 1,762 |   |
| Miscellaneous                                       |   |               | 1,056   |              |   | 1,030 |   |   | 3,260 |   |   | 3,277 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Total Non-Interest Expenses                         |   |               | 10,070  |              |   | 11,302 |   |   | 30,530 |   |   | 33,599 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Income before Income Taxes                          |   |               | 2,211   |              |   | 334 |   |   | 6,073 |   |   | 1,972 |   |
| Income Taxes                                        |   |               | (462    | )                 |   | 92 |   |   | 994 |   |   | 257 |   |
|                                                |   |               |    |              |   |   |   |   |   |   |   |   |   |
| Net Income                                          |   | $                  | 2,673   |              | $      | 242 |   | $ | 5,079 |   | $ | 1,715 |   |

 

 

2

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(In            Thousands, Except Per Share Data, Unaudited)

 

 

 

|                                                 |   | Three Months Ended |   | Nine Months Ended |   |
|------------------------------------------------------|--------|--------------------|--------|-------------------|--------|
|                                                 |   | March 31,          |   | March 31,         |   |
|                                                 |   | 2008               |   | 2007              |   | 2008 |   | 2007 |   |
| Net Income per CommonShare (EPS):                    |   |               |   |              |   |   |   |   |   |   |   |   |   |
| Basic                                                |   | $                  | 0.04   |              | $      | 0.00 |   | $ | 0.07 |   | $ | 0.02 |   |
| Diluted                                              |   |               | 0.04   |              |   | 0.00 |   |   | 0.07 |   |   | 0.02 |   |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |
| Weighted Average Number ofCommon Shares Outstanding: |   |               |   |              |   |   |   |   |   |   |   |   |   |
| Basic                                                |   |               | 68,625 |              |   | 69,012 |   |   | 68,718 |   |   | 69,343 |   |
| Diluted                                              |   |               | 68,646 |              |   | 69,293 |   |   | 68,841 |   |   | 69,664 |   |
|                                                 |   |               |   |              |   |   |   |   |   |   |   |   |   |
| Dividends Declared Per CommonShare                   |   | $                  | 0.05   |              | $      | 0.05 |   | $ | 0.15 |   | $ | 0.15 |   |

 

See            notes to consolidated financial statements.

 

 

3

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’            EQUITY

Nine            Months Ended March 31, 2007

(In            Thousands, Except Share Data, Unaudited)

 

 

|                                    |         |   |    |   |     |   |     |   |     |   |          |   | Accumulated |   |     |
|-----------------------------------------|--------------|--------|---------|--------|----------|--------|----------|--------|----------|--------|---------------|--------|-------------|--------|----------|
|                                    |         |   |    |   |     |   |     |   | Unearned |   |          |   | Other       |   |     |
|                                    | Common Stock |   | Paid-In |   | Retained |   | ESOP     |   | Treasury |   | Comprehensive |   |        |
|                                    | Shares       |   | Amount  |   | Capital  |   | Earnings |   | Shares   |   | Stock         |   | (Loss)      |   | Total    |
|                                    |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| Balance - June 30, 2006                 | 72,737       | $      | 7,274   | $      | 192,534  | $      | 306,728  | $      | (15,517) | $      | -             | $      | (15,885)    | $      | 475,134  |
| Comprehensive income:                   |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| Net income                              | -            |   | -       |   | -        |   | 1,715    |   | -        |   | -             |   | -           |   | 1,715    |
| Realized gain on securities available   |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| for sale, net of income tax of $19      | -            |   | -       |   | -        |   | -        |   | -        |   | -             |   | (36)        |   | (36)     |
| Unrealized gain on securities available |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| for sale, net of deferred income tax    |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| of $6,633                               | -            |   | -       |   | -        |   | -        |   | -        |   | -             |   | 12,320      |   | 12,320   |
| Total Comprehensive income              |         |   |    |   |     |   |     |   |     |   |          |   |        |   | 13,999   |
|                                    |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| ESOP shares committed to be released    |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| (108 shares)                            | -            |   | -       |   | 576      |   | -        |   | 1,091    |   | -             |   | -           |   | 1,667    |
| Stock option expense                    | -            |   | -       |   | 1,494    |   | -        |   | -        |   | -             |   | -           |   | 1,494    |
| Treasury stock purchases                | (1,144)      |   | -       |   | -        |   | -        |   | -        |   | (18,169)      |   | -           |   | (18,169) |
| Treasury stock reissued                 | 9            |   | -       |   | (27)     |   | -        |   | -        |   | 135           |   | -           |   | 108      |
| Restricted stock plan shares            |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| purchased (54 shares)                   | -            |   | -       |   | (789)    |   | -        |   | -        |   | -             |   | -           |   | (789)    |
| Restricted stock plan shares earned     |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| (201 shares)                            | -            |   | -       |   | 2,477    |   | -        |   | -        |   | -             |   | -           |   | 2,477    |
| Tax effect from stock based             |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |
| compensation                            | -            |   | -       |   | 434      |   | -        |   | -        |   | -             |   | -           |   | 434      |
| Cash dividends declared ($0.15/share)   | -            |   | -       |   | -        |   | (2,768)  |   | -        |   | -             |   | -           |   | (2,768)  |
| Balance - March 31, 2007                | 71,602       | $      | 7,274   | $      | 196,699  | $      | 305,675  | $      | (14,426) | $      | (18,034)      | $      | (3,601)     | $      | 473,587  |
|                                    |         |   |    |   |     |   |     |   |     |   |          |   |        |   |     |

 

See            notes to consolidated financial statements.

 

4

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’            EQUITY

Nine            Months Ended March 31, 2008

(In            Thousands, Except Share Data, Unaudited)

 

 

|                                    |         |   |    |   |     |   |     |   |     |   |          |   | Accumulated   |   |    |
|-----------------------------------------|--------------|--------|---------|--------|----------|--------|----------|--------|----------|--------|---------------|--------|---------------|--------|---------|
|                                    |         |   |    |   |     |   |     |   | Unearned |   |          |   | Other         |   |    |
|                                    | Common Stock |   | Paid-In |   | Retained |   | ESOP     |   | Treasury |   | Comprehensive |   |          |
|                                    | Shares       |   | Amount  |   | Capital  |   | Earnings |   | Shares   |   | Stock         |   | Income (Loss) |   | Total   |
|                                    |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| Balance - June 30, 2007                 | 71,143       | $      | 7,274   | $      | 197,976  | $      | 304,970  | $      | (14,063) | $      | (24,361)      | $      | (9,204)       | $      | 462,592 |
| Comprehensive income:                   |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| Net income                              | -            |   | -       |   | -        |   | 5,079    |   | -        |   | -             |   | -             |   | 5,079   |
| Unrealized gain on securities available |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| for sale, net of deferred income tax    |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| of $8,015                               | -            |   | -       |   | -        |   | -        |   | -        |   | -             |   | 12,954        |   | 12,954  |
| Benefit plans, net of deferred income   |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| tax of $315                             | -            |   | -       |   | -        |   | -        |   | -        |   | -             |   | 473           |   | 473     |
| Total Comprehensive income              |         |   |    |   |     |   |     |   |     |   |          |   |          |   | 18,506  |
| ESOP shares committed to be released    |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| (108 shares)                            | -            |   | -       |   | 238      |   | -        |   | 1,091    |   | -             |   | -             |   | 1,329   |
| Dividends contributed for payment of    |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| ESOP loan                               | -            |   | -       |   | 36       |   | -        |   | -        |   | -             |   | -             |   | 36      |
| Stock option expense                    | -            |   | -       |   | 1,431    |   | -        |   | -        |   | -             |   | -             |   | 1,431   |
| Treasury stock purchases                | (520)        |   | -       |   | -        |   | -        |   | -        |   | (6,194)       |   | -             |   | (6,194) |
| Treasury stock reissued                 | 5            |   | -       |   | (13)     |   | -        |   | -        |   | 76            |   | -             |   | 63      |
| Restricted stock plan shares earned     |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| (189 shares)                            | -            |   | -       |   | 2,313    |   | -        |   | -        |   | -             |   | -             |   | 2,313   |
| Tax effect from stock based             |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |
| Compensation                            | -            |   | -       |   | (15)     |   | -        |   | -        |   | -             |   | -             |   | (15)    |
| Cash dividends declared ($0.15/share)   | -            |   | -       |   | -        |   | (2,776)  |   | -        |   | -             |   | -             |   | (2,776) |
| Balance - March 31, 2008                | 70,628       | $      | 7,274   | $      | 201,966  | $      | 307,273  | $      | (12,972) | $      | (30,479)      | $      | 4,223         | $      | 477,285 |
|                                    |         |   |    |   |     |   |     |   |     |   |          |   |          |   |    |

 

See            notes to consolidated financial statements.

 

5

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In            Thousands, Unaudited)

 

|                                                                                               | Nine Months Ended |     |
|----------------------------------------------------------------------------------------------------|-------------------|----------|
|                                                                                               | March 31,         |     |
|                                                                                               | 2008              |     |   | 2007 |   |
| Cash Flows from Operating Activities:                                                              |              |     |   |   |   |   |   |
| Net income                                                                                         | $                 | 5,079    |   |   | $ | 1,715 |   |
| Adjustments to reconcile net income to net cash provided                            by operating   |              |     |   |   |   |   |   |
| activities:                                                                                        |              |     |   |   |   |   |   |
| Depreciation and amortization of premises and                            equipment                 |              | 1,394    |   |   |   | 1,462 |   |
| Net amortization of premiums, discounts and loan fees                            and costs         |              | 575      |   |   |   | 678 |   |
| Deferred income taxes                                                                              |              | (1,423   | ) |   |   | 1,031 |   |
| Amortization of intangible assets                                                                  |              | 231      |   |   |   | 477 |   |
| Amortization of benefit plans’ unrecognized net                            loss, net of gain |              |     |   |   |   |   |   |
| from curtailment and tax effects                                                                   |              | 96       |   |   |   | — |   |
| Provision for loan losses                                                                          |              | 94       |   |   |   | 378 |   |
| Realized gains on sales of securities available for                            sale                |              | —  |   |   |   | (55 | ) |
| Increase in cash surrender value of bank owned life                            insurance           |              | (414     | ) |   |   | (392 | ) |
| ESOP, stock option plan and restricted stock plan                            expenses              |              | 5,073    |   |   |   | 5,638 |   |
| Realized gain on disposition of premises and                            equipment                  |              | —  |   |   |   | (3 | ) |
| (Increase) decrease in interest receivable                                                         |              | (684     | ) |   |   | 1,019 |   |
| Decrease (increase) in other assets                                                                |              | 1,401    |   |   |   | (2,714 | ) |
| Increase (decrease) in interest payable                                                            |              | 893      |   |   |   | (3 | ) |
| (Decrease) increase in other liabilities                                                           |              | (551     | ) |   |   | 60 |   |
|                                                                                               |              |     |   |   |   |   |   |
| Net Cash Provided by Operating Activities                                                          |              | 11,764   |   |   |   | 9,291 |   |
|                                                                                               |              |     |   |   |   |   |   |
| Cash Flows from Investing Activities:                                                              |              |     |   |   |   |   |   |
| Purchases of securities available for sale                                                         |              | (299     | ) |   |   | (286 | ) |
| Proceeds from sale of securities available for                            sale                     |              | 48,476   |   |   |   | 131,383 |   |
| Proceeds from calls and maturities of securities                            available for sale     |              | 656      |   |   |   | 3,894 |   |
| Proceeds from repayments of securities available for                            sale               |              | 708      |   |   |   | 1,395 |   |
| Purchase of loans                                                                                  |              | (50,343  | ) |   |   | (71,377 | ) |
| Net increase in loans receivable                                                                   |              | (36,655  | ) |   |   | (43,287 | ) |
| Purchases of mortgage-backed securities available for                            sale              |              | (202,815 | ) |   |   | (81,703 | ) |
| Principal repayments on mortgage-backed securities                            available for sale   |              | 105,082  |   |   |   | 102,545 |   |
| Additions to premises and equipment                                                                |              | (1,066   | ) |   |   | (1,189 | ) |
| Proceeds from cash settlement on premises and                            equipment                 |              | —  |   |   |   | 21 |   |
| Purchase of FHLB stock                                                                             |              | (9,000   | ) |   |   | — |   |
| Redemption of FHLB stock                                                                           |              | 472      |   |   |   | 245 |   |
|                                                                                               |              |     |   |   |   |   |   |
| Net Cash (Used In) Provided by Investing                            Activities                     | $                 | (144,784 | ) |   | $ | 41,641 |   |
|                                                                                               |              |     |   |   |   |   |   |

 

 

6

 

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In            Thousands, Unaudited)

 

|                                                                                         |   | Nine Months Ended |    |
|----------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                         |   | March 31,         |    |
|                                                                                         |   | 2008              |    |   | 2007 |   |
| Cash Flows from Financing Activities:                                                        |   |              |    |   |   |   |   |   |
| Net (decrease) increase in deposits                                                          |   | $                 | (61,021 | ) |   | $ | 22,933 |   |
| Repayment of long-term FHLB advances                                                         |   |              | (10,488 | ) |   |   | (5,459 | ) |
| Long-term FHLB advances                                                                      |   |              | 200,000 |   |   |   | — |   |
| Decrease in advance payments by borrowers for                            taxes               |   |              | (94     | ) |   |   | (34 | ) |
| Dividends paid to minority stockholders of Kearny                            Financial Corp. |   |              | (2,794  | ) |   |   | (2,750 | ) |
| Purchase of common stock of Kearny Financial Corp. for                            treasury   |   |              | (6,194  | ) |   |   | (18,169 | ) |
| Treasury stock reissued                                                                      |   |              | 63      |   |   |   | 108 |   |
| Purchase of common stock of Kearny Financial Corp. for                            restricted |   |              |    |   |   |   |   |   |
| stock plan                                                                                   |   |              | — |   |   |   | (789 | ) |
| Dividends contributed for payment of ESOP                            loan                    |   |              | 36      |   |   |   | — |   |
| Tax (expense) benefit from stock based                            compensation               |   |              | (15     | ) |   |   | 434 |   |
|                                                                                         |   |              |    |   |   |   |   |   |
| Net Cash Provided by (Used in) Financing                            Activities               |   |              | 119,493 |   |   |   | (3,726 | ) |
|                                                                                         |   |              |    |   |   |   |   |   |
| Net (Decrease) Increase in Cash and Cash                            Equivalents              |   |              | (13,527 | ) |   |   | 47,206 |   |
|                                                                                         |   |              |    |   |   |   |   |   |
| Cash and Cash Equivalents – Beginning                                                  |   |              | 163,341 |   |   |   | 230,279 |   |
|                                                                                         |   |              |    |   |   |   |   |   |
| Cash and Cash Equivalents – Ending                                                     |   | $                 | 149,814 |   |   | $ | 277,485 |   |
|                                                                                         |   |              |    |   |   |   |   |   |
| Supplemental Disclosures of Cash Flows                            Information:               |   |              |    |   |   |   |   |   |
| Cash paid during the year for:                                                               |   |              |    |   |   |   |   |   |
| Income taxes, net of refunds                                                                 |   | $                 | 1,424   |   |   | $ | 1,313 |   |
|                                                                                         |   |              |    |   |   |   |   |   |
| Interest                                                                                     |   | $                 | 37,039  |   |   | $ | 37,406 |   |
|                                                                                         |   |              |    |   |   |   |   |   |

 

See            notes to consolidated financial statements.

 

7

 

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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            (“GAAP”). 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-month and nine-month periods ended March 31, 2008, are not necessarily indicative            of the results that may be expected for the entire fiscal year or any other            period.

 

The            data in the consolidated statements of financial condition for June 30, 2007 was            derived from the Company’s annual report on Form 10-K. That data, along with the            interim financial information presented in the consolidated statements of financial            condition, income, changes in stockholders’ equity and cash flows should be read            in conjunction with the 2007 consolidated financial statements, including the notes            thereto included in the Company’s annual report on Form 10-K.

 

3. NET INCOME PER COMMON SHARE (“EPS”)

 

Basic EPS is based on the weighted average number of common shares            actually outstanding adjusted for Employee Stock Ownership Plan (“ESOP”)            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.

 

 

 

 

 

8

 

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

 

|                           |   | Three Months Ended                    |    | Nine Months Ended                     |    |
|--------------------------------|--------|---------------------------------------|---------|---------------------------------------|---------|
|                           |   | March 31, 2008                        |    | March 31, 2008                        |    |
|                           |   |                                  |    |                                  |    |   | Per |   |   |   |   |   |   | Per |   |
|                           |   | Income                                |    | Shares                                |    | Share |   | Income |   | Shares |   | Shae |   |
|                           |   | (Numerator)                           |    | (Denominator)                         |    | Amount |   | (Numerator) |   | (Denominator) |   | Amount |   |
|                           |   | (In Thousands, Except Per Share Data) |    | (In Thousands, Except Per Share Data) |    |
|                           |   |                                  |    |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                     |   | $                                     | 2,673   |                                  |    |   |   |   |   | $ | 5,079 |   |   |   |   |   |   |
| Basic earnings per share,      |   |                                  |    |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| income available to            |   |                                  |    |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| common stockholders            |   | $                                     | 2,673   |                                  | 68,625  |   | $ | 0.04 |   | $ | 5,079 |   | 68,718 |   | $ | 0.07 |   |
| Effect of dilutive securities: |   |                                  |    |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options                  |   |                                  | — |                                  | — |   |   |   |   |   | — |   | — |   |   |   |   |
| Restricted stock awards        |   |                                  | — |                                  | 21      |   |   |   |   |   | — |   | 123 |   |   |   |   |
|                           |   |                                  |    |                                  |    |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | $                                     | 2,673   |                                  | 68,646  |   | $ | 0.04 |   | $ | 5,079 |   | 68,841 |   | $ | 0.07 |   |

 

 

|                           |   | Three Months Ended                    |    | Nine Months Ended                     |   |
|--------------------------------|--------|---------------------------------------|---------|---------------------------------------|--------|
|                           |   | March 31, 2007                        |    | March 31, 2007                        |   |
|                           |   |                                  |    |                                  |   |   | Per |   |   |   |   |   |   | Per |   |
|                           |   | Income                                |    | Shares                                |   | Share |   | Income |   | Shares |   | Shae |   |
|                           |   | (Numerator)                           |    | (Denominator)                         |   | Amount |   | (Numerator) |   | (Denominator) |   | Amount |   |
|                           |   | (In Thousands, Except Per Share Data) |    | (In Thousands, Except Per Share Data) |   |
|                           |   |                                  |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                     |   | $                                     | 242     |                                  |   |   |   |   |   | $ | 1,715 |   |   |   |   |   |   |
| Basic earnings per share,      |   |                                  |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| income available to            |   |                                  |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common stockholders            |   | $                                     | 242     |                                  | 69,012 |   | $ | 0.00 |   | $ | 1,715 |   | 69,343 |   | $ | 0.02 |   |
| Effect of dilutive securities: |   |                                  |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock options                  |   |                                  | — |                                  | 115    |   |   |   |   |   | — |   | 101 |   |   |   |   |
| Restricted stock awards        |   |                                  | — |                                  | 166    |   |   |   |   |   | — |   | 220 |   |   |   |   |
|                           |   |                                  |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                           |   | $                                     | 242     |                                  | 69,293 |   | $ | 0.00 |   | $ | 1,715 |   | 69,664 |   | $ | 0.02 |   |

 

4. DIVIDEND WAIVER

 

During the quarter and nine months ended March 31, 2008, Kearny MHC, the            federally chartered mutual holding company of the Company waived its right, in            accordance with the non-objection previously granted by the Office of Thrift            Supervision, to receive cash dividends of approximately $2.5 million and $7.6 million,            respectively, declared on the shares of Company common stock it owns.

 

5. STOCK REPURCHASE PLANS

 

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. During the quarter ended March 31, 2008, the Company purchased 278,234            shares at a cost

 

9

 

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of            $3.2 million, or approximately $11.52 per share. The total purchased under this plan            through March 31, 2008 was 1,036,634 shares at a cost of $13.4 million, or            approximately $12.90 per share.

 

On            April 23, 2008 the Company announced that the Board of Directors authorized a third            stock repurchase plan to acquire up to 985,603 shares or 5% of the Company’s            currently outstanding common stock held by persons other than Kearny MHC.

 

6.            BENEFIT PLANS – COMPONENTS OF NET PERIODIC EXPENSE 

 

The            following table sets forth the aggregate net periodic benefit expense for the            Bank’s Benefit Equalization Plan, Postretirement Welfare Plan and            Directors’ Consultation and Retirement Plan:

 

|                                       |           | Three Months    |           | Nine Months     |   |
|--------------------------------------------|----------------|-----------------|----------------|-----------------|--------|
|                                       |           | Ended March 31, |           | Ended March 31, |   |
|                                       |           | 2008            |           | 2007            |   | 2008 |   | 2007 |   |
|                                       | (In Thousands) |            | (In Thousands) |            |
|                                       |           |            |           |            |   |   |   |   |   |   |   |   |   |
| Service cost                               |           | $               | 40             |            | $      | 57 |   | $ | 119 |   | $ | 171 |   |
| Interest cost                              |           |            | 81             |            |   | 85 |   |   | 244 |   |   | 255 |   |
| Curtailment (Gain)                         |           |            | —        |            |   | — |   |   | (35 | ) |   | — |   |
| Amortization of unrecognized transition    |           |            |           |            |   |   |   |   |   |   |   |   |   |
| obligation                                 |           |            | 11             |            |   | 11 |   |   | 33 |   |   | 33 |   |
| Amortization of unrecognized past service  |           |            |           |            |   |   |   |   |   |   |   |   |   |
| liability                                  |           |            | 18             |            |   | 14 |   |   | 53 |   |   | 42 |   |
| Amortization of unrecognized net actuarial |           |            |           |            |   |   |   |   |   |   |   |   |   |
| loss                                       |           |            | 36             |            |   | 46 |   |   | 109 |   |   | 138 |   |
|                                       |           |            |           |            |   |   |   |   |   |   |   |   |   |
| Net periodic benefit expense               |           | $               | 186            |            | $      | 213 |   | $ | 523 |   | $ | 639 |   |

 

Effective July 1, 2007, the Company implemented a freeze on all future            benefit accruals under the Bank’s non-contributory defined benefit pension plan            and related benefit equalization plan. A curtailment gain of $682,000 related to the            reduction in the projected benefit obligation for the benefit equalization plan was            applied against the unrecognized net actuarial loss. In addition, a curtailment gain of            $35,000 was recorded as part of the net periodic benefit expense due to the immediate            recognition of the unrecognized prior service cost for the benefit equalization plan            during the quarter ended September 30, 2007.

 

7.            NEW ACCOUNTING PRONOUNCEMENTS

 

In            September 2006, the Financial Accounting Standards Board (“FASB”) issued            Statement of Financial Accounting Standards (“SFAS”) 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. SFAS 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. The Company is currently evaluating the            potential impact, if any, of the adoption of SFAS No. 157 on its consolidated            financial condition, results of operations and cash flows.

 

In            September 2006, the FASB’s Emerging Issues Task Force (“EITF”) issued            EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement            Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements”            (“EITF 06-4”). EITF 06-4 requires the recognition of a liability related to            the postretirement benefits covered by an endorsement split-dollar life insurance            arrangement. The consensus highlights that the employer (who is also the policyholder)            has a liability for the benefit it is providing to its employee. As such, if the            policyholder has agreed to maintain the insurance policy in

 

10

 

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force for the employee’s benefit during his or her retirement,            then the liability recognized during the employee’s active service period should            be based on the future cost of insurance to be incurred during the employee’s            retirement. Alternatively, if the policyholder has agreed to provide the employee with            a death benefit, then the liability for the future death benefit should be recognized            by following the guidance in SFAS No. 106 or Accounting Principals Board (APB) Opinion            No. 12, as appropriate. For transition, an entity can choose to apply the guidance            using either of the following approaches: (a) a change in accounting principle through            retrospective application to all periods presented or (b) a change in accounting            principle through a cumulative-effect adjustment to the balance in retained earnings at            the beginning of the year of adoption. The new guidance is effective for fiscal years            beginning after December 15, 2007, with early adoption permitted. The Company is            currently evaluating the impact of adopting EITF Issue No. 06-4 on its financial            statements.

 

On            September 29, 2006, the FASB issued SFAS No. 158, “Employers’            Accounting for Defined Benefit Pension and Other Postretirement Plans”, which            amends SFAS No. 87 and SFAS No. 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 No. 158, gains and losses, prior service costs and credits, and any            remaining transition amounts under SFAS No. 87 and SFAS No. 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 No. 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. The implementation            of this standard did not have and is not expected to have a material impact on the            Company’s consolidated financial position or results of operations.

 

In            February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial            Assets and Financial Liabilities-Including an Amendment of SFAS No. 115”.            SFAS No. 159 permits entities to choose to measure many financial instruments and            certain other items at fair value. Unrealized gains and losses on items for which the            fair value option has been elected will be recognized in earnings at each subsequent            reporting date. SFAS No. 159 is effective for our Company July 1, 2008. The            Company is evaluating the impact that the adoption of SFAS No. 159 will have on            its consolidated financial statements.

 

In            March 2007, the FASB ratified EITF Issue No. 06-10 “Accounting for Collateral            Assignment Split-Dollar Life Insurance Agreements.” EITF 06-10 provides guidance            for determining a liability for the postretirement benefit obligation as well as            recognition and measurement of the associated asset on the basis of the terms of the            collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning            after December 15, 2007. The Company is currently assessing the impact of EITF 06-10 on            its consolidated financial position and results of operations.

 

In            June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue            No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based            Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity            should recognize a realized tax benefit associated with dividends on non-vested equity            shares, non-vested equity share units and outstanding equity share options charged to            retained earnings as an increase in additional paid in capital. The amount recognized            in additional paid in capital should be included in the pool of excess tax benefits            available to absorb potential future tax deficiencies on share-based payment awards.            EITF 06-11 should be applied prospectively to income tax benefits of dividends on            equity-classified share-based payment awards that are declared in fiscal years            beginning after December 15, 2007. The Company expects that EITF 06-11 will not            have an impact on its consolidated financial statements.

 

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FASB            statement No. 141 (R) “Business Combinations” was issued in December of            2007. This Statement establishes principles and requirements for how the acquirer of a            business recognizes and measures in its financial statements the identifiable assets            acquired, the liabilities assumed, and any non-controlling interest in the acquiree.            The Statement also provides guidance for recognizing and measuring the goodwill            acquired in the business combination and determines what information to disclose to            enable users of the financial statements to evaluate the nature and financial effects            of the business combination. The guidance will become effective as of the beginning of            a company’s fiscal year beginning after December 15, 2008. This new pronouncement            will impact the Company’s accounting for business combinations completed after            the effective date.

 

Staff Accounting Bulletin (“SAB”) No. 110 (SAB 110)            amends and replaces Question 6 of Section D.2 of Topic 14 “Share-Based            Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of            Topic 14 expresses the views of the staff regarding the use of the            “simplified” method in developing an estimate of expected term of            “plain vanilla” share options and allows usage of the            “simplified” method for share option grants prior to December 31,            2007. SAB 110 allows public companies which do not have historically sufficient            experience to provide a reasonable estimate to continue use of the            “simplified” method for estimating the expected term of “plain            vanilla” share option grants after December 31, 2007. SAB 110 is effective            January 1, 2008. The Company expects that SAB 110 will not have an impact on its            consolidated financial statements.

 

In            February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3, “Accounting            for Transfers of Financial Assets and Repurchase Financing Transactions.” This            FSP addresses the issue of whether or not these transactions should be viewed as two            separate transactions or as one “linked” transaction. The FSP includes a            “rebuttable presumption” that presumes linkage of the two transactions            unless the presumption can be overcome by meeting certain criteria. The FSP will be            effective for fiscal years beginning after November 15, 2008 and will apply only to            original transfers made after that date; early adoption will not be allowed. The            Company expects that FAS 140-3 will not have an impact on its consolidated financial            statements.

 

In            February 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date            of FASB Statement No. 157,” that permits a one-year deferral in applying the            measurement provisions of Statement No. 157 to non-financial assets and non-financial            liabilities (non-financial items) that are not recognized or disclosed at fair value in            an entity’s financial statements on a recurring basis (at least annually).            Therefore, if the change in fair value of a non-financial item is not required to be            recognized or disclosed in the financial statements on an annual basis or more            frequently, the effective date of application of Statement 157 to that item is deferred            until fiscal years beginning after November 15, 2008 and interim periods within            those fiscal years. This deferral does not apply, however, to an entity that applied            Statement 157 in interim or annual financial statements prior to the issuance of FSP            157-2. The Company is currently evaluating the potential impact, if any, of the            adoption of FSP 157-2 on its consolidated financial condition, results of operations            and cash flows.

 

In            March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative            Instruments and Hedging Activities—an amendment of FASB Statement No. 133”            (Statement 161). Statement 161 requires entities that utilize derivative instruments to            provide qualitative disclosures about their objectives and strategies for using such            instruments, as well as any details of credit-risk-related contingent features            contained within derivatives. Statement 161 also requires entities to disclose            additional information about the amounts and location of derivatives located within the            financial statements, how the provisions of SFAS 133 has been applied, and the impact            that hedges have on an entity’s financial position, financial performance, and            cash flows. Statement 161 is effective for fiscal years and interim periods beginning            after November 15, 2008, with early application encouraged. The Company expects that            Statement 161 will not have an impact on its consolidated financial            statements.

 

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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. Such forward-looking statements may be identified by reference to a            future period or periods or by the use of forward-looking terminology, such as            “may,” “will,” “believe,” “expect,”            “estimate,” “anticipate,” “continue,” or similar            terms or variations on those terms, or the negative of those terms. 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 March 31, 2008 and June 30,            2007**

 

Total assets increased $142.8 million or 7.4%, to $2.06 billion at March            31, 2008 from $1.92 billion at June 30, 2007. The increase was due primarily to            increases in mortgage-backed securities and net loans receivable of $118.2 million and            $86.7 million, respectively. Partially offsetting these increases were decreases in            securities other than mortgage-backed securities and cash and cash equivalents of $49.5            million and $13.5 million, respectively.

 

Cash            and cash equivalents, consisting primarily of interest-bearing deposits in other banks            decreased $13.5 million or 8.3%, to $149.8 million at March 31, 2008 from $163.3            million at June 30, 2007. During the first six months of the current fiscal year, the            Bank borrowed $200.0 million from the Federal Home Loan Bank (“FHLB”) to            replenish liquidity previously depleted by loan originations and deposit outflows.            During the quarter ended March 31, 2008, management redeployed cash and cash            equivalents into mortgage-backed securities due to a decrease in loan originations as            well as the need to counter the negative effect on interest income derived from cash            and cash equivalents resulting from the 300 basis points reduction in the federal funds            rate since September 2007.

 

Securities available for sale decreased $49.5 million or 55.7%, to $39.4            million from $88.9 million between June 30, 2007 and March 31, 2008 due primarily to            sales of securities, calls and principal repayments, partially offset by a $55,000            decrease in unrealized losses. During the nine months ended March 31, 2008, management            sold securities from the municipal bond portfolio with an amortized cost of $48.5            million, with realized gains and losses netting to zero. During the prior fiscal year,            the decision to sell municipal bonds was initially prompted by a below market yield on            such bonds as well as the overall decline in the Company’s pre-tax income, which            reduced the advantage of holding tax-exempt instruments. Management has continued to            sell municipal bonds due primarily to a preference for securities that provide a steady            cash flow.

 

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Loans receivable, net of deferred fees and costs and the allowance for            loan losses, increased $86.7 million or 10.1%, to $947.2 million at March 31, 2008,            compared to $860.5 million at June 30, 2007. Loans receivable decreased $14.2 million            during the quarter ended March 31, 2008, reversing a trend of steady growth during the            first six months of this fiscal year. The decrease was attributable to a drop off in            loan originations due to a decline in borrower demand resulting from a slowing economy,            as well as the repayment of approximately $9.0 million in loans from one borrower.            During the current fiscal year, the Bank has originated $139.5 million in new loans and            supplemented in-house originations with purchases of $50.3 million one-to-four family            residential mortgages.

 

During the nine months ended March 31, 2008, loan growth was            concentrated in one-to-four family residential first mortgage loans, which increased by            $57.8 million to $617.1 million at March 31, 2008. Nonresidential mortgages increased            by $16.3 million to $157.8 million at March 31, 2008. Multi-family mortgages increased            by $3.7 million to $21.3 million at March 31, 2008. Home equity loans increased by $7.1            million to $120.7 million at March 31, 2008. Commercial loans increased by $3.0 million            and totaled $7.2 million at March 31, 2008. The disbursed portion of home equity lines            of credit decreased $711,000 to $12.0 million while the unused balance decreased            $355,000 to $25.8 million at March 31, 2008. Construction loans outstanding and gross            construction loans increased $787,000 to $12.1 million and $5.5 million to $22.0            million, respectively, at March 31, 2008. With respect to gross construction loans,            $18.6 million is committed for one-to-four family structures and $3.3 million for            nonresidential structures.

 

Mortgage-backed securities available for sale increased by $118.2            million or 18.4%, to $762.0 million from $643.8 million between June 30, 2007 and March            31, 2008. The increase resulted primarily from purchases totaling $202.8 million as            well as a $20.9 million increase in fair value due to declining interest rates,            partially offset by principal repayments and maturities of $105.1 million. Purchases            totaling $107.5 million were executed during the quarter ended March 31, 2008. Given            the decline in lending opportunities in the sluggish real estate market, management            increased the Bank’s investment in mortgage-backed securities to supplement loan            originations and purchases. Generally, cash flows from principal and interest payments            were redeployed to fund the purchases of additional mortgage-backed securities.            Management purchased mortgage-backed securities issued by Fannie Mae or Freddie Mac            composed of $132.9 million of 5/1, 7/1 and 10/1 adjustable rate mortgages and $25.4            million of 30 year fixed rate Community Reinvestment Act eligible issues needed to meet            CRA investment requirements. Management also implemented a nominal leverage strategy            utilizing a part of the proceeds from FHLB advances taken during the quarter ended            September 30, 2007 to fund the purchase of $24.8 million of 15 year and 20 year fixed            rate mortgage-backed securities. The leverage strategy was expanded to include the            purchase of an additional $19.7 million of 20 year fixed rate product during the most            recent quarter.

 

FHLB            of New York stock increased $8.5 million or 202.4%, to $12.7 million at March 31, 2008,            compared to $4.2 million at June 30, 2007 due to a required purchase of stock related            to the $200.0 million increase in advances from FHLB. The FHLB declared a 7.80%            annualized cash dividend for the quarter ended March 31, 2008, which followed a cash            dividend paid at an annualized rate of 8.40% for the quarter ended December 31,            2007.

 

Deposits decreased $61.0 million or 4.3%, to $1.35 billion at March 31,            2008, compared to $1.41 billion at June 30, 2007. However, the trend of deposit            outflows which the Bank experienced since the quarter ended December 31, 2006 was            reversed as deposits increased $35.3 million during the quarter ended March 31, 2008            compared to decreases during the quarters ended September 30 and December 31, 2007 of            $73.4 million and $22.9 million, respectively. Certificates of deposit increased $39.5            million during the most recent quarter, partially offset by a net decrease in savings            deposits, interest-bearing demand deposits and non-interest-bearing demand deposits            totaling $4.2 million in aggregate. Recent reductions in the federal funds rate            amounting to a 300 basis points cut in aggregate have had a significant effect            on

 

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interest rates, particularly lowering the rates paid on certificates of            deposit. Management believes that turmoil in the stock market may be contributing to            improved deposit inflows. During the nine months ended March 31, 2008, certificates of            deposit decreased $36.8 million from $888.1 million to $851.3 million, savings deposits            decreased $20.1 million from $318.3 million to $298.2 million, interest-bearing demand            deposits decreased $1.5 million from $149.0 million to $147.5 million and            non-interest-bearing demand accounts decreased $2.6 million from $56.3 million to $53.7            million. The Bank opened a new retail branch in Brick Township, New Jersey in March            2008 and expects to open another retail branch in Leisure Village, Lakewood, New Jersey            during May 2008.

 

FHLB            advances increased $189.5 million or 664.9%, to $218.0 million at March 31, 2008,            compared to $28.5 million at June 30, 2007. During the first six months of the current            fiscal year, the Bank borrowed $200.0 million from the Federal Home Loan Bank to            replenish liquidity previously depleted by loan originations and deposit outflows and            to make cash available for potential implementation of growth and diversification            strategies related to execution of the Company’s business plan. The $200.0            million in long-term advances have a ten year term. Partially offsetting the increase            was the repayment of a $10.0 million advance which matured in March 2008 and $488,000            in scheduled principal payments on an amortizing advance which was paid in full during            February 2008.

 

During the nine months ended March 31, 2008, stockholders’ equity            increased $14.7 million or 3.2%, to $477.3 million from $462.6 million at June 30,            2007. The increase was primarily the result of a $13.4 million increase in accumulated            other comprehensive income due to mark-to-market adjustments to the available for sale            securities and mortgage-backed securities portfolios and benefit plans related            amortization from accumulated other comprehensive income pursuant to SFAS No. 158. Also            contributing to the increase was net income for the nine months of $5.1 million, the            release of $1.3 million of Employee Stock Ownership Plan (“ESOP”) shares,            the release of $2.3 million of restricted stock plan shares and an addition to paid-in            capital of $1.4 million for the expensing of stock options. Partially offsetting the            increase was a $6.1 million increase in treasury stock due to the purchase of 520,034            shares of the Company’s common stock at a cost of $6.2 million, partially offset            by shares reissued for stock option exercises; and $2.8 million in cash dividends            declared for payment to minority shareholders. The Company’s dividend was $0.15            per share in aggregate for the three quarters.

 

**Comparison of Operating Results for the Three Months Ended March 31,            2008 and 2007**

 

**General.**Net income for the quarter ended            March 31, 2008 was $2.7 million or $0.04 per diluted share, an increase of $2.4 million            from $242,000 for the quarter ended March 31, 2007. The increase in net income            year-over-year resulted primarily from a tax benefit as well as a decrease in            non-interest expense, an increase in net interest income, an increase in non-interest            income and decrease in the provision for loan losses. As part of the income tax benefit            for the quarter ended March 31, 2008, the Bank recognized a $1.2 million income tax            benefit resulting from the reversal of a previously established valuation allowance on            deferred income tax assets.

 

**Net Interest Income.**Net interest income            for the quarter ended March 31, 2008 was $11.6 million, an increase of $357,000 or            3.2%, compared to $11.3 million for the quarter ended March 31, 2007. The increase in            net interest income was due to an increase in interest income, partially offset by an            increase in interest expense.

 

The            Company’s net interest rate spread was 1.77% during the quarter ended March 31,            2008 compared to 1.70% during the quarter ended March 31, 2007. Year-over-year, the            yield on average interest-earning assets remained unchanged at 5.22% while the cost of            average interest-bearing liabilities decreased seven basis points from 3.52% to 3.45%.            The yield on average interest-earning assets remained unchanged due to nominal            increases in the yields on average loans receivable, mortgage-backed securities and            securities,

 

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substantially offset by a decrease in the yield on other            interest-earning assets, primarily cash and cash equivalents. The cost of average            interest-bearing liabilities decreased due to decreases in both the costs of average            interest-bearing deposits and average borrowings. Though the Bank is generally            liability sensitive, the 300 basis points reduction in the federal funds rate since            September 2007 has had an immediate negative effect on interest income derived from            cash and cash equivalents and interest income overall.

 

The            Company’s net interest margin increased four basis points to 2.47% during the            quarter ended March 31, 2008, compared with 2.43% during the quarter ended March 31,            2007 resulting from an increase in net interest income partially offset by an increase            in average interest-earning assets. Average interest-earning assets during the quarter            ended March 31, 2008 were $1.88 billion or $28.6 million greater than average            interest-earning assets of $1.85 billion during the quarter ended March 31, 2007.            Average loans receivable and mortgage-backed securities increased, partially offset by            a decrease in average securities and other interest-earning assets, which had a            favorable affect on yield. Average interest-bearing liabilities during the quarter            ended March 31, 2008 were $1.50 billion or $34.7 million greater than average            interest-bearing liabilities of $1.47 billion during the quarter ended March 31, 2007.            Average borrowings increased, partially offset by a decrease in average            interest-bearing deposits, which contributed to a decrease in cost since the borrowings            were a cheaper funding source relative to certificates of deposit. The ratio of average            interest-earning assets to average interest-bearing liabilities was 125.2% during the            quarter ended March 31, 2008, compared to 126.2% during the quarter ended March 31,            2007.

 

**Interest Income.**Total interest income            increased $396,000 or 1.6%, to $24.6 million during the quarter ended March 31, 2008,            from $24.2 million during the quarter ended March 31, 2007. The increase in interest            income resulted from increases in interest on loans receivable and mortgage-backed            securities partially offset by decreases in interest from securities and other            interest-earning assets.

 

Interest income from loans receivable increased $2.2 million or 18.8%,            to $13.9 million during the quarter ended March 31, 2008, compared to $11.7 million            during the quarter ended March 31, 2007 due primarily to growth in the portfolio as            well as an improvement in yield. Average loans receivable increased $150.0 million to            $961.4 million during the quarter ended March 31, 2008, from $811.4 million during the            quarter ended March 31, 2007. Year-over-year, in keeping with the Bank’s business            plan, management continued to emphasize growth of the loan portfolio to increase            interest income. Average loans receivable constituted 51.1% of average interest-earning            assets during the quarter ended March 31, 2008, compared to 43.8% during the quarter            ended March 31, 2007. Growth in the loan portfolio stalled during the current quarter            as average loans receivable increased only $7.3 million from $954.1 million during the            quarter ended December 31, 2007. The recent slowing in the growth of loans receivable            resulted from a decrease in loan originations due to the sluggish real estate market as            well as the repayment of approximately $9.0 million in loans from one borrower. The            repayment of those loans also had a negative impact on the portfolio’s yield. The            yield on average loans receivable increased four basis points to 5.79% during the            quarter ended March 31, 2008, compared to 5.75% during the quarter ended March 31,            2007, but slipped from 5.84% during the quarter ended December 31, 2007. The            improvement in yield was aided by growth in the potentially higher yielding            nonresidential and multi-family mortgage categories, with the average balance of the            two types increasing $32.6 million or 21.8%, to $181.9 million in aggregate,            year-over-year. By comparison, the average balance of one-to-four family mortgages            increased $103.0 million or 19.8%, to $623.0 million, year-over-year.

 

Interest income from mortgage-backed securities increased $570,000 or            7.0%, to $8.7 million during the quarter ended March 31, 2008, compared to $8.1 million            during the quarter ended March 31, 2007 due to increases in yield and average            mortgage-backed securities. Average mortgage-backed securities increased $23.8 million            to $693.8 million during the quarter ended March 31, 2008, from $670.0 million during            the

 

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quarter ended March 31, 2007. The yield on average mortgage-backed            securities increased 17 basis points to 5.00% during the quarter ended March 31, 2008,            from 4.83% during the quarter ended March 31, 2007. Management increased the            Bank’s investment in mortgage-backed securities during the current quarter            compared to the comparative quarter, in order to supplement loan originations during a            period of reduced loan demand due to the sluggish real estate market. During the            quarter ended September 30, 2007, management implemented a nominal leverage strategy            utilizing a part of the proceeds from FHLB advances to fund the purchase of $24.8            million of 15 year and 20 year fixed rate mortgage-backed securities, which contributed            to the increase in the average balance and yield. The leverage strategy was expanded to            include the purchase of an additional $19.7 million of 20 year fixed rate product            during the quarter ended March 31, 2008. The improvement in yield resulted primarily            from the re-pricing of pass-through certificates that include adjustable rate            mortgages.

 

Interest income from securities decreased $736,000 or 62.6%, to $440,000            during the quarter ended March 31, 2008, from $1.2 million during the quarter ended            March 31, 2007 due to a decrease in average securities partially offset by an increase            in yield. Average securities decreased $71.2 million to $41.6 million during the            quarter ended March 31, 2008, compared to $112.8 million during the quarter ended March            31, 2007. The decrease in the average balance was due primarily to the sales of            municipal bonds, with $48.5 million sold since the beginning of the current fiscal            year. Average tax-exempt securities decreased $70.0 million to $18.6 million while            average taxable securities decreased $1.2 million to $23.0 million, year-over-year.            Management continued to sell municipal bonds due to a preference for securities that            provide a steady cash flow. The yield on average securities improved six basis points            from 4.17% during the quarter ended March 31, 2007, to 4.23% for the quarter ended            March 31, 2008. The higher yield on the securities portfolio resulted primarily from            the sale of the lower yielding municipal bonds, partially offset by falling rates on            adjustable rate instruments in the portfolio including trust preferred securities and            Small Business Administration pass-through certificates.

 

Interest income from other interest-earning assets, primarily            interest-earning deposits, decreased $1.7 million or 53.1%, to $1.5 million during the            quarter ended March 31, 2008, from $3.2 million during the quarter ended March 31,            2007. The decrease was due to a decrease in average other interest-bearing assets as            well as a decrease in yield. There was a $74.0 million decrease in average other            interest-earning assets to $184.4 million during the quarter ended March 31, 2008, from            $258.4 million during the quarter ended March 31, 2007. Average interest-earning            deposits decreased by $81.9 million to $171.3 million, partially offset by a $7.9            million increase to $13.1 million in average FHLB capital stock. The cash and cash            equivalents were used primarily to fund loan originations, deposit outflows and            particularly the purchase of mortgage-backed securities during the current quarter. The            increase in FHLB capital stock resulted from the increase in FHLB advances during the            first two quarters of this fiscal year. The 300 basis points reduction in the federal            funds rate between mid-September 2007 and March 31, 2008 was primarily responsible for            the decrease in the yield on average other interest-earning assets, which slipped 165            basis points from 5.00% to 3.35%. The yield on interest-earning deposits decreased 191            basis points to 3.04%, partially offset by a 14 basis points increase to 7.35% in the            return on FHLB capital stock, year-over-year.

 

**Interest Expense.**Total interest expense            increased $39,000 or 0.3%, remaining virtually unchanged year-over-year at $12.9            million. Average interesting-bearing liabilities increased $34.7 million from $1.47            billion during the quarter ended March 31, 2007 to $1.50 billion during the quarter            ended March 31, 2008, partially offset by a decrease in the average cost from 3.52%            during the comparative quarter to 3.45% during the current quarter. Year-over year,            average interest-bearing deposits decreased and average borrowings increased while the            average cost of both decreased. 

 

Interest expense from deposits decreased $1.5 million or 12.3%, to $10.7            million during the quarter ended March 31, 2008, from $12.2 million during the quarter            ended March 31, 2007. The quarter ended March

 

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31,            2008 included an additional day due to Leap Year, which increased interest expense            approximately $118,000 compared to the year earlier quarter. The decrease in interest            expense resulted from decreases in both average interest-bearing deposits and in the            cost of deposits, year-over-year. The cost of average interest-bearing deposits            decreased ten basis points to 3.34% during the quarter ended March 31, 2008, from 3.44%            during the quarter ended March 31, 2007. Average interest-bearing deposits decreased            $136.9 million to $1.27 billion during the quarter ended March 31, 2008, from $1.41            billion during the quarter ended March 31, 2007. Average interest-bearing demand            deposit accounts increased $4.4 million to $148.6 million and their cost decreased 32            basis points to 1.71%. The increase in the average balance was due primarily to an            increase in tiered money market deposit accounts, but their growth slowed compared to            prior periods as demand for this type of account waned due to falling short-term            interest rates. Average savings accounts decreased $25.6 million to $299.5 million and            their cost decreased three basis points to 1.06%. Traditional passbook and statement            savings account balances continued to decline as depositors transferred funds to            alternative investments, including the Bank’s own tiered money market deposit            account. Average certificates of deposit decreased $115.8 million to $826.8 million            while their cost decreased one basis point to 4.46%. Since the comparative quarter,            management made a concerted effort to reduce the Bank’s cost of deposits by            allowing more costly certificates of deposit to run off. Given the Bank’s            liability sensitive interest rate risk profile with approximately 82.7% of the            Bank’s certificates of deposit maturing during the next twelve months, the recent            reductions in the federal funds rate amounting to 300 basis points in aggregate offer            the possibility of additional reductions in interest expense during the remainder of            this fiscal year and beyond. If interest rates remain low and the certificates of            deposit remain with the Bank, the majority are projected to re-price            downward.

 

Interest expense from FHLB advances increased $1.5 million or 204.1%, to            $2.3 million during the quarter ended March 31, 2008, from $754,000 during the quarter            ended March 31, 2007. Average borrowings increased $171.6 million to $227.3 million            during the quarter ended March 31, 2008, from $55.7 million during the quarter ended            March 31, 2007. The cost of average borrowings decreased 137 basis points to 4.04%            during the quarter ended March 31, 2008 from 5.41% during the quarter ended March 31,            2007. The Bank borrowed $100.0 million during the quarter ended September 30, 2007 and            an additional $100.0 million during the quarter ended December 31, 2007 at a weighted            average cost of 3.99% and 3.59%, respectively. Given adequate liquidity, management did            not renew a $10.0 million advance, which matured during March 2008. The maturing            advance carried an interest rate of 5.59%. An amortizing advance with an original face            value of $5.0 million and an interest rate of 6.03% was also paid in full during            February 2008.

 

**Provision for Loan Losses.**We charge            provisions for loan losses to operations at a level required to reflect credit losses            in the loan portfolio that are both probable and reasonable to estimate. Management, in            determining the allowance for loan losses, considers the losses inherent in the loan            portfolio and changes in the nature and volume of our loan activities, along with the            general economic and real estate market conditions. We utilize a two-tier approach: (1)            identification of impaired loans and establishment of specific loss allowances on such            loans; and (2) establishment of general valuation allowances on the remainder of our            loan portfolio as required by generally accepted accounting principles and regulatory            guidelines outlined in the Interagency Policy Statement last updated in December 2006.            We establish a specific loan loss allowance for an impaired loan based on delinquency            status, size of loan, type of collateral and/or appraisal of the underlying collateral            and financial condition of the borrower. Management bases general loan loss allowances            upon a combination of factors including, but not limited to, actual loan loss            experience, composition of the loan portfolio, current economic conditions and            management’s judgment

 

There was no provision for loan losses during the quarter ended March            31, 2008, compared to a $101,000 provision recorded during the quarter ended March 31,            2007. The decision not to record a provision was based on no growth in the loan            portfolio as well as no material change in asset quality. Non-performing

 

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loans were $1.4 million or 0.15% of total loans of $952.3 million at            March 31, 2008; $1.1 million or 0.12% of total loans of $966.5 million at December 31,            2007 and $1.1 million or 0.13% of total loans of $822.0 million at March 31, 2007. The            ratio of net charge-offs to average loans outstanding was approximately zero percent            during each of the comparative periods.

 

The            allowance for loan losses as a percentage of total loans outstanding was 0.64% at March            31, 2008, 0.64% at December 31, 2007 and 0.71% at March 31, 2007, reflecting allowance            balances of $6.1 million, $6.1 million and $5.9 million, respectively. The allowance            for loan losses as a percentage of non-performing loans was 432.7% at March 31, 2008,            540.8% at December 31, 2007 and 553.5% at March 31, 2007. There were charge-offs            totaling $8,000 recorded against the allowance for loan losses during the quarter ended            March 31, 2008 compared to none during the year earlier quarter.

 

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 March 31, 2008 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 and service charges from the Bank’s retail operations and            other miscellaneous income increased $95,000 or 16.4%, to $675,000 during the quarter            ended March 31, 2008 compared to $580,000 during the quarter ended March 31, 2007. Fees            and service charges increased $146,000 due primarily to an increase of $111,000 in fee            income generally attributed to the overdraft privilege program introduced in May 2007.            Partially offsetting the increase was a $31,000 decrease in income resulting from the            float on funds held by the Bank’s official check clearing agent, which has been            negatively impacted by asset quality problems; and interest income of $18,000 related            to a 2002 West Essex Bank state income tax refund received during the comparative            quarter.

 

There was a net loss on sale of municipal bonds of $5,000 recorded            during the quarter ended March 31, 2008 compared to a net loss on sale of municipal            bonds of $97,000 recorded during the quarter ended March 31, 2007.

 

**Non-Interest Expense.**Non-interest expense            decreased $1.2 million or 10.6%, to $10.1 million during the quarter ended March 31,            2008, from $11.3 million during the quarter ended March 31, 2007. The decrease in            non-interest expense resulted primarily from a decrease in salaries and employee            benefits of $1.0 million. Also contributing were decreases in advertising expense and            amortization of intangible assets expense of $176,000 and $148,000, respectively, and            reductions in equipment expense and federal insurance premiums totaling $37,000 in            aggregate. Partially offsetting the decrease was an increase in net occupancy expense            of premises of $106,000 and increases in directors’ compensation expense and            miscellaneous expense totaling $58,000 in aggregate.

 

Salaries and employee benefits decreased $1.0 million or 14.3%, to $6.0            million during the quarter ended March 31, 2008, compared to $7.0 million during the            quarter ended March 31, 2007. Pension plan expense contributed the most significant            reduction, decreasing $426,000 year-over-year to $237,000. Effective July 1, 2007, the            Company implemented a freeze on all future benefit accruals under the Bank’s            non-contributory defined benefit pension plan and related benefit equalization plan.            The freeze provides additional flexibility in controlling the costs associated with the            plans while still preserving the participants’ earned and vested benefits.            Benefits expense decreased $356,000 to $681,000 due primarily to a non-recurring            dividend of $253,000 received from the Bank’s health insurer based on the ratio            of

 

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earned premiums to premiums paid in 2006 and the implementation of            contributory health insurance for employees during the current quarter. ESOP expense            decreased $145,000 to $417,000 due to a decrease in the average market price of the            Company’s common stock between the comparative quarters. Stock benefits plan            expense decreased $76,000 to $858,000 due to a forfeiture of unvested restricted stock            and unvested stock options in the prior year. Compensation and payroll tax expenses            decreased $31,000 in aggregate to $3.8 million due to a combination of lower payments            to non-exempt employees for unused vacation days during the prior calendar year and a            reduction in staff due to routine attrition year-over-year; partially offset by normal            salary increases.

 

Net            occupancy expense of premises increased $106,000 or 11.8%, to $1.0 million during the            quarter ended March 31, 2008 from $895,000 during the quarter ended March 31, 2007.            Rent expense, net, increased $25,000 to $72,000 due to additional leased space occupied            by a new retail branch, which opened in Brick Township, New Jersey during March 2008.            Other components of occupancy expense of premises experienced a net increase of $81,000            year-over-year to $929,000.

 

Advertising expense decreased $176,000 or 48.6%, to $186,000 during the            quarter ended March 31, 2008 from $362,000 during the quarter ended March 31, 2007.            Media advertising expense decreased $160,000 year-over-year as the Bank curtailed its            marketing of deposit products. Advertising expense is expected to increase during the            quarter ending June 30, 2008 due to marketing campaigns associated with grand opening            celebrations for the Bank’s new Brick Township branch and another retail branch            opening in Lakewood, New Jersey during May 2008.

 

Amortization of intangible assets expense decreased $148,000 or 93.1%,            to $11,000 during the quarter ended March 31, 2008 compared to $159,000 during the            quarter ended March 31, 2007. The decrease was due to the completion of amortization of            an intangible asset acquired during the purchase of West Essex Bank in 2003, during the            quarter ended December 31, 2007.

 

**Provision for Income Taxes.**The provision            for income taxes during the quarter ended March 31, 2008 was an income tax benefit of            $462,000 compared to income tax expense of $92,000 during the quarter ended March 31,            2007. The Bank recognized a $1.2 million income tax benefit during the quarter ended            March 31, 2008. The tax benefit is attributable to the reversal of a previously            established valuation allowance on deferred income tax assets, as management has            determined that it is now more likely than not that the benefit to be derived from            utilization of a state net operating loss carryforward will be realized due to the            pending dissolution of the Bank’s New Jersey investment subsidiary, which is            expected to prevent further increases in the Bank’s state net operating loss and            allow the Bank to generate sufficient state taxable income to utilize existing net            operating loss carryforwards in their entirety. Excluding the impact of the tax            benefit, the Company’s effective tax rate was approximately 34.1% during the            quarter ended March 31, 2008, compared to 27.5% during the quarter ended March 31,            2007. The effective tax rate increased due to a reduction in interest from tax-exempt            instruments as a percentage of pre-tax income as pre-tax income increased. Tax-exempt            interest was 7.3% of income before taxes during the quarter ended March 31, 2008            compared to 247.0% of income before taxes during the quarter ended March 31,            2007.

 

**Comparison of Operating Results for the Nine months Ended March 31,            2008 and 2007**

 

**General.**Net income for the nine months            ended March 31, 2008 was $5.1 million or $0.07 per diluted share, an increase of $3.4            million from $1.7 million or $0.02 per diluted share for the nine months ended March            31, 2007. The increase in net income year-over-year resulted primarily from a decrease            in non-interest expense as well as an increase in net interest income, a decrease in            the provision for loan losses and an increase in non-interest income, partially offset            by an increase in income taxes.

 

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**Net Interest Income.**Net interest income            for the nine months ended March 31, 2008 was $34.6 million, an increase of $520,000 or            1.5%, compared to $34.1 million for the nine months ended March 31, 2007. The increase            in net interest income was due to an increase in interest income, partially offset by            an increase in interest expense.

 

The            Company’s net interest rate spread increased five basis points to 1.78% during            the nine months ended March 31, 2008 from 1.73% during the nine months ended March 31,            2007. Year-over-year, the yield on average interest-earning assets increased 18 basis            points to 5.31% while the cost of average interest-bearing liabilities increased 13            basis points to 3.53%. The increase in the yield on average interest-earning assets was            due to increases in the yields on average loans receivable, mortgage-backed securities            and securities, partially offset by a decrease in the yield on other interest-earning            assets. The cost of average interest-bearing liabilities increased due to an increase            in the cost of average interest-bearing deposits, partially offset by a decrease in the            cost of average borrowings. The Bank’s one-year cumulative gap, the mismatch            between re-pricing assets and liabilities continues to be liability sensitive. At            December 31, 2007, the most recent date for which the Bank has data, the Bank’s            one-year cumulative gap was approximately -9% compared to -15% at September 30, 2007.            Management does not believe that there has been a material adverse change in the            Bank’s one-year cumulative gap during the three months ended March 31, 2008. The            decline in lending opportunities due to the sluggish real estate market has kept            liquidity higher than desired, as a consequence the 300 basis points reduction in the            federal funds rate since September 2007 has had an immediate negative effect on            interest income derived from cash and cash equivalents and interest income            overall.

 

The            Company’s net interest margin increased nine basis points to 2.54% during the            nine months ended March 31, 2008, compared with 2.45% during the nine months ended            March 31, 2007. Average interest-earning assets during the nine months ended March 31,            2008 were $1.82 billion or $38.8 million less than average interest-earning assets of            $1.86 billion during the nine months ended March 31, 2007. Average securities and other            interest-earning assets decreased, partially offset by an increase in average loans            receivable and mortgage-backed securities, which had a favorable impact on yield. The            decrease in average interest-earning assets resulted in part from the use of cash to            fund deposit outflows and stock repurchases. Average interest-bearing liabilities            during the nine months ended March 31, 2008 were $1.43 billion or $33.1 million less            than average interest-bearing liabilities of $1.47 billion during the nine months ended            March 31, 2007. Average interest-bearing deposits decreased, partially offset by an            increase in average borrowings. Given the interest rate environment during the first            six months of the current fiscal year, management considered FHLB advances to be a            favorable alternative to certificates of deposit as a funding source. The ratio of            average interest-earning assets to average interest-bearing liabilities was 127.1%            during the nine months ended March 31, 2008, compared to 126.9% during the nine months            ended March 31, 2007.

 

Interest Income. Total interest income increased $1.1 million or 1.5%,            to $72.6 million during the nine months ended March 31, 2008, from $71.5 million during            the nine months ended March 31, 2007. The increase in interest income resulted from            increases in interest on loans receivable and mortgage-backed securities partially            offset by decreases in interest from securities and other interest-earning            assets.

 

Interest income from loans receivable increased $8.0 million or 24.2%,            to $41.0 million during the nine months ended March 31, 2008, from $33.0 million during            the nine months ended March 31, 2007 due primarily to growth in the portfolio as well            as an improvement in yield. Average loans receivable increased $170.6 million to $940.6            million during the nine months ended March 31, 2008, from $770.0 million during the            nine months ended March 31, 2007. In implementing the Bank’s business plan,            management continued to focus on growing the loan portfolio. Average loans receivable            constituted 51.6% of average interest-earning assets during the nine months ended March            31, 2008, compared to 41.4% during the nine months ended March 31, 2007. The yield on            average loans receivable increased

 

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nine            basis points to 5.81% during the nine months ended March 31, 2008, compared to 5.72%            during the nine months ended March 31, 2007. The improvement in yield was due in part            to growth in the nonresidential and multi-family mortgage categories, with the average            balance increasing in aggregate $45.2 million to $178.8 million, a change of 33.8%            year-over-year. By comparison, the average balances outstanding of one-to-four family            mortgages increased $112.1 million or 22.6%, to $608.1 million, year-over-year. Rate            adjustments on adjustable rate mortgages as well as higher interest rates on loans            closed during the current period compared to loans closed during the comparative period            also contributed to the improvement in yield, though falling interest rates could            negatively impact the portfolio yield in the future.

 

Interest income from mortgage-backed securities increased $1.3 million            or 5.4%, to $25.5 million during the nine months ended March 31, 2008, compared to            $24.2 million during the nine months ended March 31, 2007 due primarily to an increase            in yield. Average mortgage-backed securities increased $8.1 million to $684.5 million            during the nine months ended March 31, 2008 compared to $676.4 million during the nine            months ended March 31, 2007. To the extent that the Bank did not need the funds for            loan originations, management reinvested cash flows from principal and interest            payments into additional mortgage-backed securities, which contributed to the increase            in the average balance year-over-year. The yield on average mortgage-backed securities            increased 19 basis points to 4.96% during the nine months ended March 31, 2008, from            4.77% during the nine months ended March 31, 2007. During the quarter ending September            30, 2007, management implemented a nominal leverage strategy utilizing a part of the            proceeds from FHLB advances to fund the purchase of $24.8 million of 15 year and 20            year fixed rate mortgage-backed securities, which contributed to the increase in yield.            The leverage strategy was expanded to include the purchase of an additional $19.7            million of 20 year fixed rate product during the quarter ended March 31, 2008. Rate            adjustments on pass-through certificates containing adjustable rate mortgages and            higher coupons on securities purchased during the nine months ended March 31, 2008            compared to purchases during the nine months ended March 31, 2007 also contributed to            the increase in yield. However, falling interest rates could negatively impact the            portfolio yield in the future due to the emphasis on purchasing adjustable rate            product. During the nine months ending March 31, 2008, $132.9 million or 65.5% of the            mortgage-backed securities purchased were adjustable rate product.

 

Interest income from securities decreased $3.3 million or 63.5%, to $1.9            million during the nine months ended March 31, 2008, from $5.2 million during the nine            months ended March 31, 2007 due to a decrease in average securities partially offset by            an improvement in yield. Average securities decreased $113.9 million to $57.5 million            during the nine months ended March 31, 2008, compared to $171.4 million during the nine            months ended March 31, 2007. The decrease in the average balance was due primarily to            the sales of municipal bonds, totaling $131.3 million during the fiscal year ended June            30, 2007, and $48.5 million during the nine months ended March 31, 2008. Average            tax-exempt securities decreased $111.5 million to $34.2 million while average taxable            securities decreased $2.4 million to $23.3 million, year-over-year. Management has            continued to sell municipal bonds due to a preference for securities that provide a            steady cash flow. To the extent not required to fund loan originations, management            reinvested the proceeds from the sales into cash equivalents pending redeployment into            other interest-earning assets. The yield on average securities improved 29 basis points            from 4.07% for the nine months ended March 31, 2007, to 4.36% for the nine months ended            March 31, 2008. The higher yield on the securities portfolio resulted primarily from            the sale of the lower yielding municipal bonds partially offset by downward rate            adjustments on pass-through certificates containing Small Business Administration            adjustable rate loans and adjustable rate trust preferred securities beginning during            the quarter ended December 31, 2007.

 

Interest income from other interest-earning assets decreased $4.9            million or 53.8%, to $4.2 million during the nine months ended March 31, 2008, from            $9.1 million during the nine months ended March 31, 2007. The decrease was due to a            decrease in average other interest-bearing assets, primarily interest-earning deposits,            as well as a decrease in yield. There was a $103.6 million decrease in average other            interest-

 

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earning assets to $138.8 million during the nine months ended March 31,            2008, from $242.4 million during the nine months ended March 31, 2007. For the most            part, management utilized the cash and cash equivalents to fund loan originations,            deposit outflows and particularly to purchase mortgage-backed securities during the            quarter ended March 31, 2008. Partially offsetting the $108.5 million decrease to            $128.7 million in interest-earning deposits, average FHLB capital stock increased $4.8            million to $10.1 million due to the increase in FHLB advances. The 300 basis points            reduction in the federal funds rate between mid-September 2007 and March 31, 2008 was            primarily responsible for the decrease in the yield on average interest-earning assets,            which slipped 92 basis points from 4.99% to 4.07%. The yield on interest-earnings            deposits decreased 104 basis points to 3.91% and the return on FHLB capital stock            decreased 42 basis points to 6.02%, year-over-year.

 

**Interest Expense.**Total interest expense            increased $529,000 or 1.4%, to $37.9 million during the nine months ended March 31,            2008, from $37.4 million during the nine months ended March 31, 2007. The cost of            average interest-bearing liabilities increased 13 basis points to 3.53%, partially            offset by a $33.1 million decrease in average interest-bearing liabilities to $1.43            billion during the nine months ended March 31, 2008 compared to $1.47 billion during            the year earlier nine month period.          

 

Interest expense from deposits decreased $2.1 million or 6.0%, to $32.9            million during the nine months ended March 31, 2008, from $35.0 million during the nine            months ended March 31, 2007. The decrease resulted primarily from a decrease in average            interest-bearing deposits, partially offset by an increase in the cost of deposits. The            cost of average interest-bearing deposits increased 14 basis points to 3.45% during the            nine months ended March 31, 2008, from 3.31% during the nine months ended March 31,            2007. Average interest-bearing deposits decreased $135.6 million to $1.27 billion            during the nine months ended March 31, 2008, from $1.41 billion during the nine months            ended March 31, 2007. Average interest-bearing demand deposit accounts increased $16.1            million to $149.0 million while their cost increased four basis points to 1.92% due to            an increase in tiered money market deposit accounts, which became a popular substitute            for traditional passbook and statement savings accounts. Average savings accounts            decreased $35.7 million to $305.4 million while their cost decreased three basis points            to 1.09% as depositors transferred funds to alternative investments. Average            certificates of deposit decreased $116.0 million to $817.9 million while their cost            increased 28 basis points to 4.60%. Given the Bank’s interest rate risk profile,            a reduction in interest rates and restoration of a more normal yield curve should aid            in improving our profitability. With approximately 82.7% of certificates of deposit            maturing within one year, the recent reductions in the federal funds rate should            contribute to a subsequent decrease in the cost of deposits. A significant trend is            evident when comparing the current year’s interest rate stratification for            certificates of deposit to that of the prior year: At March 31, 2008, the Bank had            $197.7 million of certificates of deposit with interest rates between 3.00% and 3.99%,            compared to $187.9 million at March 31, 2007; at March 31, 2008, the Bank had $625.5            million of certificates of deposit with interest rates between 4.00% and 4.99%,            compared to $385.7 million at March 31, 2007; most importantly, at March 31, 2008 the            Bank had $7.0 million of certificates of deposit with interest rates between 5.00% and            5.99%, compared to $342.4 million at March 31, 2007.

 

Interest expense from FHLB advances increased $2.7 million or 112.5%, to            $5.1 million during the nine months ended March 31, 2008, from $2.4 million during the            nine months ended March 31, 2007. Average borrowings increased $102.6 million to $160.9            million during the nine months ended March 31, 2008, from $58.3 million during the nine            months ended March 31, 2007. The cost of average borrowings decreased 132 basis points            to 4.19% during the nine months ended March 31, 2008 from 5.51% during the nine months            ended March 31, 2007. The increase in borrowings resulted primarily from a need to            replenish liquidity utilized to fund loan originations and fund deposit outflows and            make cash available for potential implementation of growth and diversification            strategies related to execution of the Company’s business plan. The Bank borrowed            $200.0 million during the nine months ended March 31, 2008 at a weighted average cost            of 3.79% resulting in the decrease in the cost of average borrowings. The

 

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advances were determined to be a cheaper funding source compared to            certificates of deposit. Management did not renew a $10.0 million advance, which            carried an interest rate of 5.59% when it matured in March 2008. An amortizing advance            with an original face value of $5.0 million and an interest rate of 6.03% was also paid            in full during February 2008.

 

**Provision for Loan Losses.**We charge            provisions for loan losses to operations at a level required to reflect credit losses            in the loan portfolio that are both probable and reasonable to estimate. Management, in            determining the allowance for loan losses, considers the losses inherent in the loan            portfolio and changes in the nature and volume of our loan activities, along with the            general economic and real estate market conditions. We utilize a two-tier approach: (1)            identification of impaired loans and establishment of specific loss allowances on such            loans; and (2) establishment of general valuation allowances on the remainder of our            loan portfolio as required by generally accepted accounting principles and regulatory            guidelines outlined in the Interagency Policy Statement last updated in December 2006.            We establish a specific loan loss allowance for an impaired loan based on delinquency            status, size of loan, type of collateral and/or appraisal of the underlying collateral            and financial condition of the borrower. Management bases general loan loss allowances            upon a combination of factors including, but not limited to, actual loan loss            experience, composition of the loan portfolio, current economic conditions and            management’s judgment

 

The            provision for loan losses decreased $284,000, to $94,000 during the nine months ended            March 31, 2008, from a $378,000 provision recorded during the nine months ended March            31, 2007. Management attributes the decrease principally to slowing growth in the loan            portfolio during the last six months and to no material change in asset quality.            Non-performing loans were $1.4 million or 0.15% of total loans of $952.3 million at            March 31, 2008; $1.5 million or 0.17% of total loans of $865.0 million at June 30, 2007            and $1.1 million or 0.13% of total loans of $822.0 million at March 31, 2007. The ratio            of net charge-offs to average loans outstanding was approximately zero percent during            each of the comparative periods.

 

The            allowance for loan losses as a percentage of total loans outstanding was 0.64% at March            31, 2008, 0.70% at June 30, 2007 and 0.71% at March 31, 2007, reflecting allowance            balances of $6.1 million, $6.0 million and $5.9 million, respectively. The allowance            for loan losses as a percentage of non-performing loans was 432.7% at March 31, 2008,            406.3% at June 30, 2007 and 553.5% at March 31, 2007. There were charge-offs totaling            $8,000 recorded against the allowance for loan losses during the nine months ended            March 31, 2008 compared to a recovery of $27,000 during the year earlier            period.

 

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 March 31, 2008 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 and service charges from the Bank’s retail operations and            other miscellaneous income increased $283,000 or 16.0%, to $2.1 million during the nine            months ended March 31, 2008 compared to $1.8 million during the nine months ended March            31, 2007. Fees and service charges increased $304,000 due primarily to the overdraft            privilege program introduced in May 2007, partially offset by a $27,000 decrease in            income resulting from the float on funds held by the Bank’s official check            clearing agent, which has been negatively impacted by asset quality            problems.

 

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There was no non-interest income attributed to the gain on sale of            securities available for sale during the nine months ended March 31, 2008 compared to a            $55,000 net gain on the sale of municipal bonds recorded during the nine months ended            March 31, 2007.

 

**Non-Interest Expense.**Non-interest expense            decreased $3.1 million or 9.2%, to $30.5 million during the nine months ended March 31,            2008, from $33.6 million during the nine months ended March 31, 2007. The decrease in            non-interest expense resulted primarily from a decrease in salaries and employee            benefits of $2.2 million. Also contributing were decreases in advertising expense and            amortization of intangible assets expense of $572,000 and $247,000, respectively, and            reductions in equipment expense, directors’ compensation expense, federal            insurance expense and miscellaneous expense totaling $186,000 in aggregate. Partially            offsetting the decrease was an increase in net occupancy expense of premises of            $199,000.

 

Salaries and employee benefits decreased $2.2 million or 10.7%, to $18.4            million during the nine months ended March 31, 2008, compared to $20.6 million during            the nine months ended March 31, 2007. Pension plan expense contributed the most            significant reduction, decreasing $1.3 million year-over-year to $676,000. Effective            July 1, 2007, the Company implemented a freeze on all future benefit accruals under the            Bank’s non-contributory defined benefit pension plan and related benefit            equalization plan. The freeze provides additional flexibility in controlling the costs            associated with the plans while still preserving the participants’ earned and            vested benefits. Benefits expense decreased $389,000 to $2.7 million due primarily to a            non-recurring dividend of $253,000 received from the Bank’s health insurer based            on the ratio of earned premiums to premiums paid in 2006 and the implementation of            contributory health insurance for employees during the quarter ended March 31, 2008.            ESOP expense decreased $334,000 to $1.4 million due to a decrease in the average market            price of the Company’s common stock during the nine months ended March 31, 2008            versus the comparative period. Stock benefits plan expense decreased $227,000 to $2.6            million due to a forfeiture of unvested restricted stock and unvested stock options in            the prior year. Compensation and payroll tax expenses remained virtually unchanged at            $10.1 million and $859,000, respectively. Normal salary increases were partially offset            by a decision by the President and CEO of the Company and the Bank, John N. Hopkins,            that he would voluntarily forgo the cash bonus payment recommended by the Compensation            Committee and approved by the Board of Directors in December 2007. Mr. Hopkins was            motivated to do so as part of the Company’s overall cost cutting effort.            Mr. Hopkins previously received a cash bonus payment of $90,000 in December 2006.            A combination of lower payments to non-exempt employees for unused vacation days during            the prior calendar year and a reduction in staff due to routine attrition also            contributed to offsetting normal salary increases.

 

Net            occupancy expense of premises increased $199,000 or 7.7%, to $2.8 million during the            nine months ended March 31, 2008 from $2.6 million during the nine months ended March            31, 2007. Rent expense, net, increased $50,000 to $192,000 due primarily to additional            leased space occupied by a new retail branch, which opened in Brick Township, New            Jersey during March 2008. Increases in repairs and maintenance expense, property taxes            expense and utilities expense were partially offset by decreases in depreciation            expense and other expenses, resulting in a net increase of $149,000            year-over-year.

 

Advertising expense decreased $572,000 or 49.1%, to $592,000 during the            nine months ended March 31, 2008 from $1.2 million during the nine months ended March            31, 2007. Media advertising decreased $494,000 compared to the comparative period as            the Bank limited its marketing to loan products.

 

Amortization of intangible assets expense decreased $247,000 or 51.8%,            to $230,000 during the nine months ended March 31, 2008 compared to $477,000 during the            nine months ended March 31, 2007. The decrease was due to the completion of            amortization of an intangible asset acquired during the purchase of West Essex Bank in            2003, during the quarter ended December 31, 2007.

 

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**Provision for Income Taxes.**The provision            for income taxes increased $737,000 to $994,000 during the nine months ended March 31,            2008, from $257,000 during the nine months ended March 31, 2007. The Bank recognized a            $1.2 million income tax benefit during the quarter ended March 31, 2008. The tax            benefit is attributable to the reversal of a previously established valuation allowance            on deferred income tax assets, as management has determined that it is now more likely            than not that the benefit to be derived from utilization of a state net operating loss            carryforward will be realized due to the pending dissolution of the Bank’s New            Jersey investment subsidiary, which is expected to prevent further increases in the            Bank’s state net operating loss and allow the Bank to generate sufficient state            taxable income to utilize existing net operating loss carryforwards in their entirety.            Excluding the impact of the tax benefit, the Company’s effective tax rate was            approximately 36.4% during the nine months ended March 31, 2008, compared to 13.0%            during the nine months ended March 31, 2007. The effective tax rate increased due to a            reduction in interest from tax-exempt instruments as a percentage of pre-tax income as            pre-tax income increased. Tax-exempt interest was 15.1% of income before taxes during            the nine months ended March 31, 2008 compared to 207.2% of income before taxes during            the nine months ended March 31, 2007.

 

**Liquidity and Capital Resources**

 

Liquidity, represented by cash and cash equivalents, is a product of the            Company’s operating, investing and financing activities. For detail on operating,            investing and financing activities see the Consolidated Statements of Cash Flows for            the nine months ended March 31, 2008. The 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, excess funds are invested 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.

 

To            the extent that the Bank did not need cash and cash equivalents for loan originations,            management maintained liquidity at an elevated level while the Treasury yield curve            remained inverted or flat. Since September 2007, the 300 basis points reduction in the            federal funds rate has caused the Treasury yield curve to revert to its more            traditional shape. As a consequence, there has been an immediate negative impact on            interest income derived from cash and cash equivalents. Given the declining lending            opportunities in the sluggish real estate market, management increased the Bank’s            investment in mortgage-backed securities to supplement loan originations, particularly            during the quarter ended March 31, 2008.

 

Management 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 March 31, 2008, the Bank had            outstanding commitments to originate loans of $36.2 million compared to $14.6 million            at December 31, 2007. At March 31, 2008, the Bank had commitments to fund the purchase            of loans on a flow basis of $15.9 million compared to $25.4 million at December 31,            2007. Construction loans in process and unused lines of credit were $9.8 million and            $29.8 million, respectively, at March 31, 2007 compared to $10.4 million and $28.1            million, respectively, at December 31, 2007. At March 31,

 

26

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2008, the Bank had $704.0 million of certificates of deposit maturing in            one year compared to $676.9 million at December 31, 2007.

 

Deposits increased $35.3 million to $1.35 billion at March 31, 2008,            from $1.32 billion at December 31, 2007. During the quarters ended September 30 and            December 31, 2007, the Bank experienced decreases of $73.4 million and $22.9 million,            respectively. During the quarter ended March 31, 2008, certificates of deposit            increased $39.5 million. Also increasing were non-interest-bearing demand deposits,            partially offset by decreases in savings deposits and interest-bearing demand accounts,            which decreased $3.0 million and $1.5 million, respectively. Conditions in the            marketplace have helped to reverse the deposit attrition experienced by the Bank since            the quarter ended December 31, 2006. Recent reductions in the federal funds rate have            had a significant effect on interest rates, particularly lowering the rates paid on            certificates of deposit as financial institutions endeavor to reduce their cost of            deposits. Management believes that turmoil in the stock market may be contributing to            improved deposit inflows.

 

Borrowings from the 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, management may replace the funds with advances. 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. The Bank borrowed            $100.0 million in ten-year advances during the quarter ended September 30, 2007 with            $50.0 million callable after one year and $50.0 million callable after two years. The            Bank borrowed an additional $100.0 million in ten-year advances during the quarter            ended December 31, 2007 with $50.0 million callable after one year and $50.0 million            after two years. The Bank borrowed the $200.0 million to replenish liquidity previously            depleted by loan originations and deposit outflows and make cash available for            potential implementation of growth and diversification strategies related to execution            of the Company’s business plan. There was no need to make use of overnight            borrowings during the quarter ended March 31, 2008, due to adequate            liquidity.

 

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 March 31, 2008, Kearny            Federal Savings Bank exceeded all capital requirements of the Office of Thrift            Supervision (the “OTS”).

 

27

 

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The            following table sets forth the Bank’s capital position at March 31, 2008, as            compared to the minimum regulatory capital requirements:

 

|                       |   | March 31, 2008         |
|----------------------------|--------|------------------------|
|                       |   | (Unaudited)            |
|                       |   |                   |   |   |   |   |   |   |   | To Be Well |
|                       |   |                   |   |   |   |   |   |   |   | Capitalized Under |
|                       |   |                   |   |   |   | Minimum Capital |   | Prompt Corrective |
|                       |   | Actual                 |   | Requirements |   | Action Provisions |
|                       |   | Amount                 |   | Ratio |   | Amount |   | Ratio |   | Amount |   | Ratio |
|                       |   | (Dollars in Thousands) |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Total Capital              |   |                   |   |   |   |   |   |   |   |   |   |   |
| (to risk-weighted assets)  | $      | 355,328                |   | 39.69% | $ | 71,622 |   | 8.00% | $ | 89,527 |   | 10.00% |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 Capital             |   |                   |   |   |   |   |   |   |   |   |   |   |
| (to risk-weighted assets)  | $      | 349,193                |   | 39.00% |   | - |   | - | $ | 53,716 |   | 6.00% |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Core (Tier 1) Capital      |   |                   |   |   |   |   |   |   |   |   |   |   |
| (to adjusted total assets) | $      | 349,193                |   | 17.95% | $ | 77,805 |   | 4.00% | $ | 97,256 |   | 5.00% |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |
| Tangible Capital           |   |                   |   |   |   |   |   |   |   |   |   |   |
| (to adjusted total assets) | $      | 349,193                |   | 17.95% | $ | 29,177 |   | 1.50% |   | - |   | - |
|                       |   |                   |   |   |   |   |   |   |   |   |   |   |

 

In            August 2007, the Bank received approval from the OTS for a $19.0 million capital            distribution to the Company. However, future dividend requests will require closer OTS            scrutiny due to the Bank’s compressed earnings. The cash dividend was paid in            November 2007.

 

28

 

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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

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The            following table sets forth the Bank’s NPV as of December 31, 2007, 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 March 31,            2008.

 

|                                                                                                                  |   | At December 31, 2007 |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------------------|
|                                                                                                                  |   |                 |   |   |   | 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)       |   |   |   |   |   |   |
| +325 bp                                                                                                               |   | 278,409              |   | -98,339 |   | -26% |   | 15.19% |   | -400 bp |
| +200 bp                                                                                                               |   | 315,651              |   | -61,097 |   | -16% |   | 16.80% |   | -239 bp |
| +100 bp                                                                                                               |   | 349,903              |   | -26,845 |   | -7% |   | 18.19% |   | -100 bp |
| +50 bp                                                                                                                |   | 364,526              |   | -12,222 |   | -3% |   | 18.74% |   | -44 bp |
|   0 bp                                                                                                           |   | 376,748              |   | - |   | - |   | 19.19% |   | - |
| 50 bp                                                                                                                 |   | 385,302              |   | +8,554 |   | +2% |   | 19.46% |   | +28 bp |
|   -100 bp                                                                                                        |   | 392,076              |   | +15,328 |   | +4% |   | 19.66% |   | +47 bp |
|   -200 bp                                                                                                        |   | 397,398              |   | +20,650 |   | +5% |   | 19.69% |   | +50 bp |
|                                                                                                                  |   |                 |   |   |   |   |   |   |   |   |
| (1) The -325 bp scenario is not shown due to the low                            prevailing interest rate environment. |
|                                                                                                                       |        |                      |  |  |  |  |  |  |  |  |  |  |

 

The            Bank is currently liability sensitive. If rates remain low, following the 300 basis            points reduction in the federal funds rate, the Bank will benefit from its negative            cumulative gap position. At March 31, 2008, approximately 82.7% of the Bank’s            certificates of deposit will be maturing in the next twelve months. If the certificates            of deposit remain with the Bank, the majority are projected to re-price downward. The            $100.0 million in long term FHLB borrowings, which are callable during the quarters            ending September 30 and December 31, 2008, are also projected to extend if rates remain            low. The interest rate risk exposure analysis indicated that as of December 31, 2007,            an immediate and permanent 2.0% decrease in interest rates would result in an            approximately 5.9% increase in net interest income over a one year time horizon. The            interest rate risk analysis indicated that a more likely scenario suggests that the            steep cuts which have already occurred in conjunction with the onset of an economic            recovery at the close of 2008, would lead to an approximately 6.5% increase in net            interest income over a 24 month time horizon. Conversely, the interest rate risk            analysis indicated that an immediate and permanent 2.0% increase in interest rates            would cause an approximately 6.2% decrease in net interest income over a one year time            horizon due to the Bank’s fixed rate mortgage loans and mortgage-backed            securities as well as the re-pricing exposure within the certificates of deposit            portfolio.

 

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

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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 during the quarter under report except that the registrant took            steps to strengthen its internal controls related to the accounting for income taxes            and for managing tax risk by retaining a certified public accounting firm to review its            tax provision and methodology.

 

31

 

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PART            II

 

| ITEM 1.  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     | At March 31, 2008, 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, 2007, 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 March 31, 2008.

 

|                |      |       | Total Number of  | Maximum      |
|---------------------|-----------|------------|------------------|--------------|
|                |      |       | Shares           | Number of    |
|                |      |       | Purchased as     | Shares that  |
|                | Total     |       | Part of Publicly | May Yet Be   |
|                | Number of | Average    | Announced        | Purchased Un |
|                | Shares    | Price Paid | Plans or         | the Plans or |
| Period              | Purchased | per Share  | Programs         | Programs (1) |
| January 1-31, 2008  | 183,600   | $11.67     | 183,600          | 94,634       |
| February 1-29, 2008 | 94,634    | $11.21     | 94,634           | -            |
| March 1-31, 2008    | -         | -          | -                | -            |
| Total               | 278,234   | $11.52     | 278,234          | -            |

 

(1)       On January 18, 2007, the            Company announced a five percent stock repurchase plan (approximately 1,036,634            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

 

| ITEM 3. | Defaults Upon Senior Securities                                                |
|---------|--------------------------------------------------------------------------------|
|    |                                                                           |
|    | Not applicable.                                                                |
|    |                                                                           |
| ITEM 4. | Submission of Matters to a Vote of Security                            Holders |
|    |                                                                           |
|    | Not applicable.                                                                |
|    |                                                                           |

 

32

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| ITEM 5. | Other Information                                                                   |
|---------|-------------------------------------------------------------------------------------|
|    |                                                                                |
|    | None.                                                                               |
|    |                                                                                |
| ITEM 6. | Exhibits                                                                            |
|    |                                                                                |
|    | The following Exhibits are filed as part of this                            report: |
|    |                                                                                |
|    |                                                                                | 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 Albert E. Gossweiler (1) |
|    |                                                                                | 10.3 | Employment Agreement between Kearny Federal Savings Bank                            and Sharon Jones (1) |
|    |                                                                                | 10.4 | Employment Agreement between Kearny Federal Savings Bank                            and William C. Ledgerwood (1) |
|    |                                                                                | 10.5 | Employment Agreement between Kearny Federal Savings Bank                            and Erika K. Parisi (1) |
|    |                                                                                | 10.6 | Employment Agreement between Kearny Federal Savings Bank                            and Patrick M. Joyce (1) |
|    |                                                                                | 10.7 | Employment Agreement between Kearny Federal Savings Bank                            and Craig L. Montanaro (2) |
|    |                                                                                | 10.8 | Directors Consultation and Retirement Plan                            (1) |
|    |                                                                                | 10.9 | Benefit Equalization Plan (1) |
|    |                                                                                | 10.10 | Benefit Equalization Plan for Employee Stock Ownership                            Plan (1) |
|    |                                                                                | 10.11 | Stock Option Plan (3) |
|    |                                                                                | 10.12 | Restricted Stock Plan (3) |
|    |                                                                                | 10.13 | Kearny Federal Savings Bank Director Life Insurance                            Agreement (4) |
|    |                                                                                | 10.14 | Kearny Federal Savings Bank Executive Life Insurance                            Agreement (4) |
|    |                                                                                | 10.15 | Kearny Financial Corp. Directors Incentive Compensation                            Plan (5) |
|    |                                                                                | 11.0 | Statement regarding computation of earnings per share                            (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 |
|    |                                                                                |   |   |

 

33

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|   |   | (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).                      |
|   |   | (5) | Incorporated by reference to the exhibit to the                            Registrant’s Form 8-K filed on December 9, 2005 (File No.                            000-51093).                       |

 

34

 

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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:  | May 12, 2008 |   | By:                    | /s/ John N. Hopkins |
|   |         |   |                   | John N. Hopkins |
|   |         |   |                   | President and Chief Executive Officer |
|   |         |   |                   | (Duly authorized officer and principal executive                            officer) |
|   |         |   |                   |   |
| Date:  | May 12, 2008 |   | By:                    | /s/ William C. Ledgerwood |
|   |         |   |                   | William C. Ledgerwood |
|   |         |   |                   | Senior Vice President and |
|   |         |   |                   | Chief Financial Officer |
|   |         |   |                   | (Principal financial officer) |

 

 

35