UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2006
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24040
A. Full title of the plan and the address of the plan, if
different from that of the
issuer named below:
Penn Federal Savings Bank 401(k) Employee Stock Ownership Plan
B. Name of issuer of the securities held pursuant to the
plan and the address of its
principal executive office:
PennFed Financial Services, Inc.
622 Eagle Rock Avenue
West Orange, New Jersey 07052-2989
Financial Statements and Exhibits
---------------------------------
(a) Financial Statements for the Years Ended June 30, 2006 and 2005,
Supplemental Schedule as of June 30, 2006, and Report of Independent
Registered Public Accounting Firm.
The financial statements required to be filed hereunder appear commencing
at page 2 hereof.
(b) Exhibit
(23) Consent of Independent Registered Public Accounting Firm (following
financial statements).
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Table of Contents
Page
Report of Independent Registered Public Accounting Firm 1
Statements of Net Assets Available for Benefits - June 30, 2006 and 2005 2
Statements of Changes in Net Assets Available for Benefits -
Years ended June 30, 2006 and 2005 3
Notes to Financial Statements 4 - 9
Supplemental Schedule
Schedule of Assets (Held at End of Year) - June 30, 2006 10
Exhibit Index 11
Report of Independent Registered Public Accounting Firm
Penn Federal Savings Bank
401(k) Employee Stock
Ownership Plan Trustees:
We have audited the accompanying statements of net assets available for benefits
of the Penn Federal Savings Bank 401(k) Employee Stock Ownership Plan (formerly
the Penn Federal Savings Bank 401(k) Plan) as of June 30, 2006 and 2005, and the
related statements of changes in net assets available for benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Penn Federal
Savings Bank 401(k) Employee Stock Ownership Plan as of June 30, 2006 and 2005,
and the changes in net assets available for benefits for the years then ended,
in conformity with U.S. generally accepted accounting principles.
As further discussed in Note 7 to the financial statements, the Plan will be
terminated effective the date of the PennFed Financial Services, Inc. merger
with New York Community Bancorp, Inc. In accordance with U.S. generally accepted
accounting principles, the financial statements are presented on the liquidation
basis of accounting.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of June 30, 2006 is presented for the purpose of additional
analysis and is not a required part of the 2006 basic financial statements, but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the 2006 audit of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the 2006
basic financial statements taken as a whole. In accordance with U.S. generally
accepted accounting principles, the supplemental schedule is presented on the
liquidation basis of accounting.
/s/ KPMG, LLP
December 22, 2006
1
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Benefits
June 30, 2006 and 2005
Assets: 2006 2005
----------- -----------
Investments, at fair value $39,393,212 $ 7,533,690
Participant loans receivable 68,569 93,246
----------- -----------
Total investments 39,461,781 7,626,936
----------- -----------
Receivables:
Employer receivables -- 641,003
Employee receivables -- 43,340
----------- -----------
-- 684,343
----------- -----------
Net assets available for benefits $39,461,781 $ 8,311,279
=========== ===========
See accompanying notes to financial statements.
2
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended June 30, 2006 and 2005
2006 2005
----------- -----------
Additions:
Employer's contributions $ 622,410 $ 641,003
Participants' contributions 577,718 550,843
Transfer from ESOP 28,013,803 --
----------- -----------
Total contributions 29,213,931 1,191,846
Interest income 6,063 1,846
Investment income 19,325 224,756
Dividend Income 466,065 --
Net appreciation in fair value of investments 3,818,081 158,561
----------- -----------
Total additions 33,523,465 1,577,009
Deductions:
Administrative expenses 30,911 --
Payment to participants 2,342,052 221,359
----------- -----------
Increase in net assets 31,150,502 1,355,650
Net assets available for benefits, beginning of year 8,311,279 6,955,629
----------- -----------
Net assets available for benefits, end of year $39,461,781 $ 8,311,279
=========== ===========
See accompanying notes to financial statements.
3
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(1) Plan Description
The Penn Federal Savings Bank 401(k) Plan (401(k)) and the PennFed
Financial Services, Inc. Employee Stock Ownership Plan (ESOP) were merged
effective July 1, 2005 forming the Penn Federal Savings Bank 401(k)
Employee Stock Ownership Plan (the Plan). All financial information
presented for periods prior to July 1, 2005 represents only the historical
information of the 401(k) Plan. While the Plan is one plan, the two
separate components of the 401(k) Plan and the ESOP remain. The following
description of the Plan provides only general information. Participants
should refer to the Plan document for a more complete description of the
Plan's provisions. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
(a) General
The 401(k) Plan was established January 1, 1990 as a defined contribution
plan. Employees become eligible to participate in the Plan on January 1 or
July 1, immediately after obtaining age 21 and completing 1,000 hours of
service at Penn Federal Savings Bank (the Bank).
Effective July 1, 1993, PennFed Financial Services, Inc. (PennFed or the
Company) adopted the PennFed Financial Services, Inc. Employee Stock
Ownership Plan. The Plan is a noncontributory defined contribution plan
covering all employees of the Bank who have completed 1,000 hours of
service and attained age 21. The purpose of the plan is to enable its
participants to obtain beneficial interest in the stock of PennFed, the
parent company of the Bank.
The ESOP purchased the Company's common shares using the proceeds of a
Bank borrowing guaranteed by the Company, and holds the stock in a trust
established under the ESOP Plan. The borrowing has been repaid over a
period of ten years by fully deductible Company contributions to the trust
fund. As the ESOP Plan made each payment of principal, an appropriate
percentage of stock was allocated to eligible employees' accounts in
accordance with applicable regulations under the Code.
(b) 401 (k) Contributions
(a) Salary Deferral Contributions - An eligible employee may elect to
have a percentage of compensation contributed to this Plan on a
pre-tax salary reduction basis. A participant may elect to defer
between 1% and 25% of their compensation under a Salary Reduction
Agreement to the Plan. Additionally, participants may allocate their
contributions to seventeen different investment funds and to the
common stock of PennFed Financial Services, Inc. This contribution
amount is limited by the Internal Revenue Code (the Code) on a
pretax basis to $15,000 and $14,000 in 2006 and 2005, respectively.
In addition, certain eligible participants can make "catch-up"
contributions if the maximum amount of regular contributions are
made and the participant is age 50 or older, thereby increasing the
total elective deferrals to $20,000 or $18,000 for 2006 and 2005,
respectively.
(b) Vesting - Participants are always vested with respect to their
contributions plus actual earnings thereon. Vesting with respect to
the Bank's matching contributions is 20% per year of service and
100% vesting after 5 years.
(Continued)
4
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(c) Safe Harbor Nonelective Contribution - The Plan was amended July 1,
2004 to provide for a Safe Harbor Nonelective Contribution of 6% of
compensation as defined in the Plan. The amount of the contribution
for the plan years ended June 30, 2006 and 2005 was $622,410 and
$641,003, respectively. Participants are always 100% vested in the
Safe Harbor Nonelective contributions.
(d) Participant Loans - 401(k) loans are made for hardship situations
only. Each loan must be adequately secured and the loan repayment
must be made before any distribution of retirement benefits.
Principal and interest is paid ratably through payroll deductions.
(e) 401(k) Participant Accounts- Individual accounts are maintained for
each Plan participant. Each participant's account is credited with
the participant contribution and the Safe Harbor Nonelective
contribution. Allocations are based on participant earnings or
account balances, as defined. The benefit to which participant is
entitled is the benefit that can be provided from participant's
vested account.
(f) Hardship Distributions - During employment and in the event of
financial hardship, participants may request payments of their
401(k) account value; however, this distribution cannot exceed the
amount required to relieve the hardship. Such payment is subject to
approval by the Plan administrator.
(c) ESOP Contributions
The Bank made discretionary contributions to the ESOP Plan in amounts
determined by the Board of Directors of PennFed. PennFed was obligated to
make contributions in cash to the ESOP Plan, which, when aggregated with
the Plan's dividends and interest earnings, equal the amount necessary to
enable the ESOP Plan to make its regularly scheduled payments of principal
and interest on its loan. The stock purchased was pledged as collateral
for the note payable and was held in a suspense account. As the
outstanding note was repaid, a proportional number of shares were released
from the suspense account.
Shares of stock purchased were allocated to a participant's account in the
same proportion as the participant's compensation bears to the total
compensation of all participants in the ESOP Plan. As of June 30, 2004,
the note payable was fully repaid.
Cash dividends received are allocated to the participant's account in the
same manner as the shares to which they are attributable. The portion of
the dividends received by the Plan for allocated shares may be used to
purchase additional shares of stock for the benefit of the participants
during the year, or the participant can elect to receive a cash dividend.
(Continued)
5
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(a) ESOP Vesting and Distributions - All shares allocated to a
participant's account become fully vested upon the occurrence of any
of the following events: completion of seven years of service,
attainment of a participant's early or normal retirement date,
termination of employment due to death, or total and permanent
disability. At the end of three years of service, a participant's
account balance becomes 20% vested. Each year thereafter an
additional 20% of the balance is vested until completion of seven
years of service.
(b) ESOP Voting Rights - Each participant is entitled to exercise his
voting rights attributable to the shares allocated to his or her
account. Unallocated shares are voted by the Trustee on each issue,
with respect to which shareholders are entitled to vote, in the
proportion that the participants had voted the shares allocated to
their accounts with respect to such issue.
(c) ESOP Participant Accounts-The ESOP Plan is a defined contribution
plan under which a separate individual account is established for
each participant. Each participant's account is credited as of the
last day of each plan year with an allocation of shares of the
Company's common stock released by the Trustee from the unallocated
account and forfeitures of terminated participant's nonvested
accounts. Only those participants who are eligible employees of the
Company as of the last day of the plan year receive an allocation.
Allocations are based on a participant's eligible compensation,
relative to total eligible compensation.
(d) Benefit Payments -Participants or their designated beneficiary, may
elect to receive benefit distributions in lump-sum payments equal to
the total value of their separate accounts upon termination of
employment, disability or death.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial statements of the Plan have been prepared under the
liquidation basis of accounting, in accordance with U.S. generally
accepted accounting principles, which did not result in material
differences from the Plan's prior basis of the accrual method of
accounting. As discussed in Note 7, on November 2, 2006, New York
Community Bancorp, Inc. announced the signing of a definitive agreement
pursuant to which the Bank will merge with and into New York Community
Bancorp, Inc. In accordance with the Plan Document and the Change in
Control provisions therein, the Plan will be terminated effective with the
merger. All participants will become fully vested in their accounts, no
further allocation shall be made and no eligible employee shall become a
participant after the date of termination.
(b) Use of Estimates
In preparing plan financial statements, estimates and assumptions have
been made relating to the reporting of assets and liabilities and changes
therein, and the disclosure of contingent assets and liabilities to
prepare these financials statements in conformity with U.S. generally
accepted accounting principles.
(Continued)
6
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(c) Risks and Uncertainties
Actual results could differ from those estimates. The Plan utilizes
various investment instruments including the common stock of PennFed
Financial Services, Inc. and mutual funds. As a result, interest rates
have a more significant impact on the Plan's performance than do the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods
and services as measured by the consumer price index. Investment
securities, in general, are exposed to various risks such as interest
rate, credit, and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible
that changes in values of the investment securities will occur in the near
term and that such changes could materially affect the amounts reported in
the financial statements.
(d) Investment Valuation and Income Recognition
Investments in the Guaranteed Income Fund are part of a general account
managed by Prudential Retirement. Investments in pooled separate accounts
consisting of the Core Plus bond/Pimco Fund, International Blend/Julius
Baer Fund, Large Cap Value/LSV Asset Management Fund, Mid Cap
Growth/Artisan Partners Fund, MidCap Value/ Cooke & Bieler Fund, Small Cap
Blend/WHV Fund, Small Cap Growth/Granahan Fund, Small Cap Value/Kennedy
Capital Fund, Dryden S & P 500 Index, Oakmark Equity and Income Fund,
Retirement Goal Income Fund, Retirement Goal 2010 Fund, Retirement Goal
2020 Fund, Retirement Goal 2030 Fund, and Retirement Goal 2040 Fund, were
managed by various sub-advised managers in which Prudential Retirement has
oversight. Mutual Fund investments in the American Amcap Fund are managed
by Capital Research. Investments in pooled separate accounts, mutual funds
and investments in PennFed common stock are valued and recorded at market
value as determined by quoted market prices, which represent the net asset
value of the shares held by the Plan at the end of the year. The Plan is
valued at least quarterly and participants' accounts are credited with a
proportional share of investment income. Additionally, investments are
priced daily. All investments are held by Prudential Financial, the Plan
Trustee.
Purchases and sales of securities are recorded as of the settlement date.
There were no material unsettled trades at June 30, 2006 or 2005. Interest
income is recorded on the accrual basis. Participant loans receivable are
valued at cost which approximates fair value.
(e) Administrative Expenses
For the plan year ended June 30, 2006, the Board of Directors approved the
use of plan assets to pay the administrative expenses of the Plan.
At June 30, 2006 and 2005, forfeited nonvested 401(k) accounts totaled
$21,339 and $5,340, respectively. These accounts were used to reduce
employer contributions. ESOP forfeitures are reallocated to participants
based upon the participants' compensation.
(Continued)
7
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(3) Investments
The Plan's investments are held in a trust fund. The values of individual
investments that represent 5% or more of the total Plan's assets at June
30, 2006 and 2005 are as follows:
2006 2005
---------- ----------
Investments at fair value as determined
by quoted market price:
PennFed Financial Services, Inc. Stock $30,551,515 $ 925,919
ML Basic Value Fund -- 1,501,985
ML Global Allocation Fund -- 1,625,763
ML Fundamental Growth Fund -- 815,587
ML Ready Asset Trust Fund -- 726,914
ML Capital Fund -- 661,177
ML Corporate Intermediate Bond Fund -- 616,764
MFS Emerging Growth Fund -- 442,241
During the year ended June 30, 2006, the Plan's investments (including
investments bought, sold, and held during the year) appreciated in value
by $3,818,081 as follows:
Investments at fair value as determined by quoted market price:
Mutual funds $ 781,538
Common stock 3,036,543
----------
Net appreciation in investments $3,818,081
==========
8
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
June 30, 2006 and 2005
(4) Related Parties
Employees of the Bank, who may also be participants of the Plan, perform
certain administrative functions on behalf of the Plan. No such employee
receives compensation from the Plan. At June 30, 2006 and 2005, the Plan
held 1,638,151 and 54,853 shares, respectively, of common stock of PennFed
Financial Services Inc., the parent of Penn Federal Savings Bank, with
cost basis of $8,083,443 and $565,263, respectively. During the year ended
June 30, 2006, the Plan recorded dividend income of $466,065 from these
shares.
(5) Tax Status
The Internal Revenue Service issued its opinion letter dated November 28,
2005 to the Plan, which states that the Plan and its underlying trust
qualify under the applicable provisions of the Internal Revenue Code (IRC)
and, therefore, are exempt from federal income taxes.
(6) Plan Termination
The Bank reserves the right to amend or terminate the Plan and the related
trust at any time, except that no amendment or termination may cause or
permit any of the assets in the trust to be used for or diverted to
purposes other than the exclusive benefit of participants (and their
beneficiaries) and the payment of Plan expenses. The balance of the shares
and any other assets will be allocated and distributed to Plan
participants in accordance with the terms of the Plan. Upon termination of
the Plan, the amounts credited to the participants will be 100% vested.
The Bank will apply to the IRS for a favorable determination letter
related to the Plan termination. Upon receipt, the final payment process
will begin.
(7) Subsequent Event
On November 2, 2006 the Company entered into an Agreement and Plan of
Merger with New York Community Bancorp, Inc., ("NYCB") pursuant to which
the Company will be merged into NYCB (the "Merger"). It is expected that
concurrent with or immediately after the Merger, the Bank will be merged
into New York Community Bank, a wholly owned subsidiary of NYCB. Upon
completion of the Merger, the holders of the Company's common stock will
be entitled to receive, for each share of Company common stock held, 1.222
shares of NYCB common stock, with cash paid in lieu of fractional NYCB
shares. The Merger is subject to the approval of the Company's
stockholders, the receipt of regulatory approvals and the satisfaction of
other customary closing conditions. It is currently expected that the
Merger will be completed late in the quarter ending March 31, 2007 and as
discussed in Note 2, the Plan will be terminated effective with the
merger, all participants will become fully vested in their accounts, no
further allocations shall be made, and no eligible employee shall become a
participant after the date of termination.
9
PENN FEDERAL SAVINGS BANK 401(k)
EMPLOYEE STOCK OWNERSHIP PLAN
Schedule of Assets (Held at End of Year)
June 30, 2006
Number of Current
Description units value
- --------------------------------------------------------- ---------- -----------
General Account, Pooled Separate Accounts & Mutual Funds:
Small Cap Value/Kennedy Fund 14,285 $ 193,847
Small Cap Blend/WHV Fund 3,739 52,559
Small Cap Growth/Granahan 4,493 58,131
Retirement Goal 2040 Fund 1,848 32,679
Retirement Goal 2030 Fund 44 766
Retirement Goal 2020 Fund 935 15,364
Retirement Goal 2010 Fund 84 1,195
American Amcap R3 78,788 1,485,163
Oakmark Equity & Income Fund 26,186 713,079
MidCap Value/Cooke & Bieler 2,054 25,069
MidCap Growth/Artisan 13,558 152,075
Large Cap Value/LSV Asset Management 100,283 1,794,092
International Equity/Julius Baer 81,890 1,733,853
Guaranteed Income Fund 54,545 1,414,940
Dryden S & P 500 Index Fund 3,134 232,804
Core Plus Bond/PIMCO 79,205 935,393
AP Fund 688
Total 8,841,697
Common stock:
* PennFed Financial Services, Inc. Stock 1,638,151 30,551,515
Participant loans with interest rates of 6.00% to 9.75% 68,569
-----------
Total investments $39,461,781
===========
* Party-in-interest as defined by ERISA.
10
Exhibit Index
Regulation Reference to
S-K Prior Filing
Exhibit or Exhibit
Number Document Number
- --------------------------------------------------------------------------------
23 Consent of Independent Registered Public
Accounting Firm and counsel
(a) Consent of KPMG LLP 23.1
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
Penn Federal Savings Bank 401(k)
Employee Stock Ownership Plan
-------------------------------------
(Name of Plan)
/s/ Joseph L. LaMoncia
-------------------------------------
Joseph L. LaMonica
Trustee
Date: December 22, 2006
/s/ Jeffrey J. Carfora
-------------------------------------
Jeffrey J. Carfora
Trustee
Date: December 22, 2006
/s/ Laura Beckmeyer
-------------------------------------
Laura Beckmeyer
Trustee
Date: December 22, 2006
12