Equibles

10-Q

Kearny Financial Corp. (KRNY)

10-Q 2022-05-06 For: 2022-03-31
View Original
Added on April 06, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from to

Commission File Number 001-37399

KEARNY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Maryland 30-0870244
(State or other jurisdiction of<br>incorporation or organization) (I.R.S. Employer<br>Identification Number)
120 Passaic Ave., Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code

973-244-4500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value KRNY The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filers,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: April 29, 2022.

$0.01 par value common stock — 70,421,270 shares outstanding

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX

Page<br><br>Number
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at March 31, 2022 (Unaudited) and June 30, 2021 1
Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited) 2
Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited) 3
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and March 31, 2021 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39
Item 3. Quantitative and Qualitative Disclosure About Market Risk 51
Item 4. Controls and Procedures 52
PART II—OTHER INFORMATION
Item 1. Legal Proceedings 53
Item 1A. Risk Factors 53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 53
Item 3. Defaults Upon Senior Securities 53
Item 4. Mine Safety Disclosures 53
Item 5. Other Information 53
Item 6. Exhibits 54
SIGNATURES 55

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data)

June 30,
2021
Assets
Cash and amounts due from depository institutions 22,864 $ 21,463
Interest-bearing deposits in other banks 39,515 46,392
Cash and cash equivalents 62,379 67,855
Investment securities available for sale (amortized cost 1,590,074 and 1,666,853,  respectively), net of allowance for credit losses of 0 at March 31, 2022 and June 30, 2021 1,526,086 1,676,864
Investment securities held to maturity (fair value 117,017 and 39,610, respectively), net of  allowance for credit losses of 0 at March 31, 2022 and June 30, 2021 121,853 38,138
Loans held-for-sale 2,822 16,492
Loans receivable 5,003,201 4,851,394
Less: allowance for credit losses on loans (43,860 ) (58,165 )
Net loans receivable 4,959,341 4,793,229
Premises and equipment 53,727 56,338
Federal Home Loan Bank (“FHLB”) of New York stock 30,997 36,615
Accrued interest receivable 19,517 19,362
Goodwill 210,895 210,895
Core deposit intangibles 3,166 3,705
Bank owned life insurance 287,644 283,310
Deferred income tax assets, net 34,349 29,323
Other real estate owned 401 178
Other assets 76,714 51,431
Total Assets 7,389,891 $ 7,283,735
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing 621,954 $ 593,718
Interest-bearing 4,906,708 4,891,588
Total deposits 5,528,662 5,485,306
Borrowings 851,220 685,876
Advance payments by borrowers for taxes 16,979 15,752
Other liabilities 37,861 53,857
Total Liabilities 6,434,722 6,240,791
Stockholders' Equity
Preferred stock, 0.01 par value, 100,000,000 shares authorized;  none issued and outstanding - -
Common stock, 0.01 par value; 800,000,000 shares authorized;  71,424,469 shares and 78,964,859 shares issued and outstanding, respectively 714 790
Paid-in capital 561,176 654,396
Retained earnings 441,522 408,367
Unearned employee stock ownership plan shares;  2,609,069 shares and 2,759,594 shares, respectively (25,294 ) (26,753 )
Accumulated other comprehensive (loss) income (22,949 ) 6,144
Total Stockholders' Equity 955,169 1,042,944
Total Liabilities and Stockholders' Equity 7,389,891 $ 7,283,735

All values are in US Dollars.

See notes to unaudited consolidated financial statements.

  • 1 -

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,
2022 2021 2022 2021
Interest Income
Loans $ 45,846 $ 50,159 $ 141,651 $ 153,776
Taxable investment securities 8,024 7,891 23,831 22,934
Tax-exempt investment securities 316 410 976 1,297
Other interest-earning assets 415 705 1,261 2,406
Total Interest Income 54,601 59,165 167,719 180,413
Interest Expense
Deposits 3,565 6,670 11,293 26,379
Borrowings 3,309 4,012 10,422 14,865
Total Interest Expense 6,874 10,682 21,715 41,244
Net Interest Income 47,727 48,483 146,004 139,169
(Reversal of) provision for credit losses (3,920 ) 1,126 (11,740 ) 3,820
Net Interest Income after (Reversal of)<br>  Provision for Credit Losses 51,647 47,357 157,744 135,349
Non-Interest Income
Fees and service charges 617 473 1,922 1,474
Gain on sale and call of securities 3 18 4 454
Gain on sale of loans 376 943 2,352 5,211
Gain on sale of other real estate owned 14 - 14 -
Income from bank owned life insurance 1,511 1,530 4,634 4,722
Electronic banking fees and charges 432 456 1,260 1,265
Bargain purchase gain - - - 3,053
Other income 238 1,194 938 1,351
Total Non-Interest Income 3,191 4,614 11,124 17,530
Non-Interest Expense
Salaries and employee benefits 19,184 16,965 55,897 51,023
Net occupancy expense of premises 3,223 3,433 10,926 9,675
Equipment and systems 3,822 3,823 11,370 11,295
Advertising and marketing 516 567 1,356 1,580
Federal deposit insurance premium 480 488 1,693 1,450
Directors' compensation 340 748 1,792 2,244
Merger-related expenses - - - 4,349
Debt extinguishment expenses - - - 796
Other expense 3,058 3,792 9,062 11,487
Total Non-Interest Expense 30,623 29,816 92,096 93,899
Income before Income Taxes 24,215 22,155 76,772 58,980
Income tax expense 6,522 5,732 20,595 14,230
Net Income $ 17,693 $ 16,423 $ 56,177 $ 44,750
Net Income per Common Share (EPS)
Basic $ 0.25 $ 0.20 $ 0.78 $ 0.53
Diluted $ 0.25 $ 0.20 $ 0.78 $ 0.53
Weighted Average Number of Common Shares<br>  Outstanding
Basic 69,790 80,673 72,130 83,958
Diluted 69,817 80,690 72,154 83,961

See notes to unaudited consolidated financial statements.

  • 2 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands, Unaudited)

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
Net Income $ 17,693 $ 16,423 $ 56,177 $ 44,750
Other Comprehensive (Loss) Income, net of tax:
Net unrealized loss on securities available for sale (41,922 ) (15,671 ) (52,354 ) (14,379 )
Net realized gain on sale and call of securities<br>  available for sale (2 ) (13 ) (3 ) (319 )
Fair value adjustments on derivatives 17,387 10,574 23,227 14,750
Benefit plan adjustments 14 14 37 48
Total Other Comprehensive (Loss) Income (24,523 ) (5,096 ) (29,093 ) 100
Total Comprehensive (Loss) Income $ (6,830 ) $ 11,327 $ 27,084 $ 44,850

See notes to unaudited consolidated financial statements.

  • 3 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data, Unaudited)

Paid-In Retained Unearned<br>ESOP Accumulated<br>Other<br>Comprehensive
Amount Capital Earnings Shares Income Total
Balance - December 31, 2020 84,938 $ 849 $ 724,389 $ 388,376 $ (27,726 ) $ 6,453 $ 1,092,341
Net income - - - 16,423 - - 16,423
Other comprehensive loss, net  of income tax - - - - - (5,096 ) (5,096 )
ESOP shares committed to be  released (50 shares) - - 87 - 487 - 574
Stock option exercise 41 - 373 - - - 373
Share repurchases (3,026 ) (29 ) (34,834 ) - - - (34,863 )
Stock-based compensation expense - - 1,379 - - - 1,379
Cancellation of shares issued for  restricted stock awards (10 ) - (114 ) - - - (114 )
Cash dividends declared  (0.09 per common share) - - - (7,205 ) - - (7,205 )
Balance - March 31, 2021 81,943 $ 820 $ 691,280 $ 397,594 $ (27,239 ) $ 1,357 $ 1,063,812

All values are in US Dollars.

Paid-In Retained Unearned<br>ESOP Accumulated<br>Other<br>Comprehensive
Amount Capital Earnings Shares Income Total
Balance - June 30, 2020 83,663 $ 837 $ 722,871 $ 387,911 $ (28,699 ) $ 1,257 $ 1,084,177
Cumulative effect of change in accounting principle - Topic 326 - - - (14,239 ) - - (14,239 )
Balance - July 1, 2020 as adjusted for change in accounting principle 83,663 837 722,871 373,672 (28,699 ) 1,257 1,069,938
Net income - - - 44,750 - - 44,750
Other comprehensive income, net  of income tax - - - - - 100 100
ESOP shares committed to be  released (150 shares) - - (25 ) - 1,460 - 1,435
Stock option exercise 41 - 373 - - - 373
Stock repurchases (7,535 ) (74 ) (80,493 ) - - - (80,567 )
Stock-based compensation expense - - 4,281 - - - 4,281
Cancellation of shares issued for  restricted stock awards (80 ) (1 ) (802 ) - - - (803 )
Shares issued in conjunction with  the acquisition of MSB  Financial Corp. 5,854 58 45,075 - - - 45,133
Cash dividends declared  (0.25 per common share) - - - (20,828 ) - - (20,828 )
Balance - March 31, 2021 81,943 $ 820 $ 691,280 $ 397,594 $ (27,239 ) $ 1,357 $ 1,063,812

All values are in US Dollars.

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data, Unaudited)

Paid-In Retained Unearned<br>ESOP Accumulated<br>Other<br>Comprehensive
Amount Capital Earnings Shares Income (Loss) Total
Balance - December 31, 2021 73,453 $ 735 $ 587,392 $ 431,549 $ (25,780 ) $ 1,574 $ 995,470
Net income - - - 17,693 - - 17,693
Other comprehensive loss, net  of income tax - - - - - (24,523 ) (24,523 )
ESOP shares committed to be  released (51 shares) - - 180 - 486 - 666
Stock repurchases (2,020 ) (21 ) (26,948 ) - - - (26,969 )
Stock-based compensation expense - - 676 - - - 676
Cancellation of shares issued for  restricted stock awards (9 ) - (124 ) - - - (124 )
Cash dividends declared  (0.11 per common share) - - - (7,720 ) - - (7,720 )
Balance - March 31, 2022 71,424 $ 714 $ 561,176 $ 441,522 $ (25,294 ) $ (22,949 ) $ 955,169

All values are in US Dollars.

Paid-In Retained Unearned<br>ESOP Accumulated<br>Other<br>Comprehensive
Amount Capital Earnings Shares Income (Loss) Total
Balance - June 30, 2021 78,965 $ 790 $ 654,396 $ 408,367 $ (26,753 ) $ 6,144 $ 1,042,944
Net income - - - 56,177 - - 56,177
Other comprehensive loss, net  of income tax - - - - - (29,093 ) (29,093 )
ESOP shares committed to be  released (151 shares) - - 486 - 1,459 - 1,945
Stock repurchases (7,468 ) (75 ) (95,892 ) - - - (95,967 )
Stock-based compensation expense - - 3,117 - - - 3,117
Cancellation of shares issued for  restricted stock awards (73 ) (1 ) (931 ) - - - (932 )
Cash dividends declared  (0.32 per common share) - - - (23,022 ) - - (23,022 )
Balance - March 31, 2022 71,424 $ 714 $ 561,176 $ 441,522 $ (25,294 ) $ (22,949 ) $ 955,169

All values are in US Dollars.

See notes to unaudited consolidated financial statements.

  • 5 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

Nine Months Ended
March 31,
2022 2021
Cash Flows from Operating Activities:
Net income $ 56,177 $ 44,750
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 4,470 4,355
Net accretion of premiums, discounts and loan fees and costs (4,374 ) (11,257 )
Deferred income taxes and valuation allowance 6,943 3,004
Bargain purchase gain - (3,053 )
Amortization of intangible assets 539 797
Amortization of benefit plans’ unrecognized net loss 60 62
(Reversal of) provision for credit losses (11,740 ) 3,820
Gain on sale of other real estate owned (14 ) -
Loans originated for sale (151,783 ) (249,671 )
Proceeds from sale of mortgage loans held-for-sale 167,713 270,147
Gain on sale of mortgage loans held-for-sale, net (2,260 ) (4,859 )
Realized gain on sale/call of investment securities available for sale (4 ) (454 )
Realized loss on debt extinguishment - 796
Realized gain on sale of loans receivable (92 ) (352 )
Realized (gain) loss on disposition of premises and equipment (356 ) 40
Increase in cash surrender value of bank owned life insurance (4,634 ) (4,722 )
ESOP and stock-based compensation expense 5,062 5,716
Increase in interest receivable (155 ) (1,488 )
Decrease (increase) in other assets 6,679 (1,021 )
Increase (decrease) in interest payable 49 (406 )
(Decrease) increase in other liabilities (15,125 ) 1,519
Net Cash Provided by Operating Activities 57,155 57,723
Cash Flows from Investing Activities:
Purchases of:
Investment securities available for sale (206,145 ) (865,163 )
Investment securities held to maturity (86,406 ) -
Proceeds from:
Repayments/calls/maturities of investment securities available for sale 280,496 407,489
Repayments/calls/maturities of investment securities held to maturity 2,586 5,280
Sales of investment securities available for sale - 44,842
Purchase of loans (112,485 ) (34,635 )
Net (increase) decrease in loans receivable (36,895 ) 237,383
Proceeds from sale of loans receivable 1,126 43,931
Proceeds from the sale of other real estate owned 494 -
Additions to premises and equipment (1,859 ) (2,889 )
Proceeds from death benefit of bank owned life insurance 300 -
Proceeds from cash settlement of premises and equipment 599 3,401
Redemption of FHLB stock 5,618 16,421
Net cash acquired in acquisition - 4,296
Net Cash Used in Investing Activities $ (152,571 ) $ (139,644 )

See notes to unaudited consolidated financial statements.

  • 6 -

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands, Unaudited)

Nine Months Ended
March 31,
2022 2021
Cash Flows from Financing Activities:
Net increase in deposits $ 43,903 $ 485,417
Repayment of term FHLB advances (1,170,000 ) (2,257,796 )
Proceeds from term FHLB advances 1,045,000 1,955,000
Net increase (decrease) in other short-term borrowings 290,000 (68,635 )
Net increase (decrease) in advance payments by borrowers for taxes 1,227 (2,063 )
Repurchase and cancellation of common stock of Kearny Financial Corp. (95,967 ) (80,567 )
Cancellation of shares repurchased on vesting to pay taxes (932 ) (803 )
Exercise of stock options - 373
Dividends paid (23,291 ) (20,981 )
Net Cash Provided by Financing Activities 89,940 9,945
Net Decrease in Cash and Cash Equivalents (5,476 ) (71,976 )
Cash and Cash Equivalents - Beginning 67,855 180,967
Cash and Cash Equivalents - Ending $ 62,379 $ 108,991
Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Income taxes, net of refunds $ 9,497 $ 13,675
Interest $ 21,666 $ 41,649
Non-cash investing and financing activities:
Acquisition of other real estate owned in settlement of loans $ 703 $ -
Transfers from loans receivable to loans receivable held-for-sale $ - $ 43,579
Fair value of assets acquired, net of cash and cash equivalents acquired $ - $ 567,816
Fair value of liabilities assumed $ - $ 523,926

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Kearny Financial Corp. (the “Company”), its wholly-owned subsidiary, Kearny Bank (the “Bank”) and the Bank’s wholly-owned subsidiary, CJB Investment Corp. The Company conducts its business principally through the Bank. Management prepared the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), including the elimination of all significant inter-company accounts and transactions during consolidation.

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 the information or footnotes necessary for a complete presentation of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the unaudited consolidated financial statements have been included. The results of operations for the three months and nine months ended March 31, 2022 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 statement of financial condition for June 30, 2021 was derived from the Company’s 2021 Annual Report on Form 10-K. That data, along with the interim unaudited financial information presented in the consolidated statements of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s 2021 Annual Report on Form 10-K.

The accounting and reporting policies of the Company conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1, Summary of Significant Accounting Policies, included in the Company’s 2021 Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies since June 30, 2021.

The Company has reclassified certain amounts in the prior period’s financial statements to conform to the current period’s presentation. Specifically, effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented reflect this reclassification.

Update to Significant Accounting Policies

Allowance for Credit Losses (“ACL”) on Loans. In accordance with the ACL policy, the methodology is reviewed no less than annually. During the quarter ended September 30, 2021, the Company updated the econometric factors used in the determination of the probability of default for certain loan portfolio segments used in its ACL methodology for pooled loans. Econometric factors are selected based on the correlation of the factor to credit losses for each loan portfolio segment. Effective July 1, 2021, the primary econometric factor utilized in the determination of the probability of default for each loan portfolio segment is the national unemployment rate (“NUR”). Prior to July 1, 2021, NUR and gross domestic product (“GDP”) econometric factors were used in the determination of the probability of default for each loan portfolio segment.

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2. SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2022, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date this document was filed.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” to improve the usefulness of information provided to investors about certain loan refinancings, restructurings and writeoffs. ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain modifications made to borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires public business entities to disclose current-period gross writeoffs for financing receivables and net investments in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted if an entity has adopted ASU 2016-13, including adoption in an interim period. If an entity elects to early adopt the amendments in ASU 2022-02, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The amendments in ASU 2022-02 should be applied prospectively, but for the amendments related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method that would result in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method” which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU amends the guidance in ASU 2017-12 (released in August 2017) that, among other things, established the last-of-layer method to enable fair value hedge accounting for these portfolios to be more accessible. ASU 2022-01 expands the current last-of-layer method to allow multiple hedged layers of a single closed portfolio under this method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The scope of last-of-layer hedging will be expanded so that the portfolio layer method can be utilized for nonprepayable financial assets. In addition, ASU 2022-01 specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. For public business entities, the amendments in ASU 2022-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted on any date on or after the issuance of ASU 2022-01 for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

Adoption of New Accounting Standards

In December 2019, the FASB issued ASU 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes: (i) exceptions to the incremental approach for intraperiod tax allocation; (ii) exceptions to accounting for basis differences when a foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740: (i) franchise taxes that are based partially on income; (ii) transactions that result in a step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; (iv) enacted changes in tax laws in interim periods; and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. For public business entities, the amendments in the ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 in July 2021, and its adoption did not have a significant impact on the Company’s consolidated financial statements.

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4. SECURITIES

The following tables present the amortized cost, gross unrealized gains and losses and estimated fair values for available for sale securities and the amortized cost, gross unrecognized gains and losses and estimated fair values for held to maturity securities as of the dates indicated:

March 31, 2022
Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Allowance for<br>Credit Losses Fair<br>Value
(In Thousands)
Available for sale:
Debt securities:
Obligations of state and political subdivisions $ 30,973 $ 118 $ 13 $ - $ 31,078
Asset-backed securities 230,997 375 1,788 - 229,584
Collateralized loan obligations 313,651 11 2,042 - 311,620
Corporate bonds 154,922 1,193 2,620 - 153,495
Total debt securities 730,543 1,697 6,463 - 725,777
Mortgage-backed securities:
Collateralized mortgage obligations (1) 8,265 1 270 - 7,996
Residential pass-through securities (1) 617,387 332 47,569 - 570,150
Commercial pass-through securities (1) 233,879 249 11,965 - 222,163
Total mortgage-backed securities 859,531 582 59,804 - 800,309
Total securities available for sale $ 1,590,074 $ 2,279 $ 66,267 $ - $ 1,526,086

(1) Government-sponsored enterprises.

June 30, 2021
Amortized<br>Cost Gross<br>Unrealized<br>Gains Gross<br>Unrealized<br>Losses Allowance for<br>Credit Losses Fair<br>Value
(In Thousands)
Available for sale:
Debt securities:
Obligations of state and political subdivisions $ 33,800 $ 803 $ - $ - $ 34,603
Asset-backed securities 240,217 2,835 63 - 242,989
Collateralized loan obligations 189,873 177 170 - 189,880
Corporate bonds 155,622 2,802 73 - 158,351
Total debt securities 619,512 6,617 306 - 625,823
Mortgage-backed securities:
Collateralized mortgage obligations (1) 13,420 319 - - 13,739
Residential pass-through securities (1) 744,196 7,443 7,148 - 744,491
Commercial pass-through securities (1) 289,725 5,738 2,652 - 292,811
Total mortgage-backed securities 1,047,341 13,500 9,800 - 1,051,041
Total securities available for sale $ 1,666,853 $ 20,117 $ 10,106 $ - $ 1,676,864

(1) Government-sponsored enterprises.

  • 10 -
March 31, 2022
Amortized<br>Cost Gross<br>Unrecognized<br>Gains Gross<br>Unrecognized<br>Losses Allowance for<br>Credit Losses Fair<br>Value
(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions $ 23,546 $ 122 $ 24 $ - $ 23,644
Total debt securities 23,546 122 24 - 23,644
Mortgage-backed securities:
Residential pass-through securities (1) 86,017 - 3,989 - 82,028
Commercial pass-through securities (1) 12,290 - 945 - 11,345
Total mortgage-backed securities 98,307 - 4,934 - 93,373
Total securities held to maturity $ 121,853 $ 122 $ 4,958 $ - $ 117,017

(1) Government-sponsored enterprises.

June 30, 2021
Amortized<br>Cost Gross<br>Unrecognized<br>Gains Gross<br>Unrecognized<br>Losses Allowance for<br>Credit Losses Fair<br>Value
(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions $ 25,824 $ 1,204 $ - $ - $ 27,028
Total debt securities 25,824 1,204 - - 27,028
Mortgage-backed securities:
Commercial pass-through securities (1) 12,314 268 - - 12,582
Total mortgage-backed securities 12,314 268 - - 12,582
Total securities held to maturity $ 38,138 $ 1,472 $ - $ - $ 39,610

(1) Government-sponsored enterprises.

Excluding the balances of mortgage-backed securities, the following tables present the amortized cost and estimated fair values of debt securities available for sale and held to maturity, by contractual maturity, at March 31, 2022:

March 31, 2022
Amortized<br>Cost Fair<br>Value
(In Thousands)
Available for sale debt securities:
Due in one year or less $ 1,970 $ 1,971
Due after one year through five years 18,939 19,008
Due after five years through ten years 353,679 351,676
Due after ten years 355,955 353,122
Total $ 730,543 $ 725,777
  • 11 -
March 31, 2022
Amortized<br>Cost Fair<br>Value
(In Thousands)
Held to maturity debt securities:
Due in one year or less $ 6,817 $ 6,832
Due after one year through five years 15,026 15,084
Due after five years through ten years 1,703 1,728
Due after ten years - -
Total $ 23,546 $ 23,644

Sales of securities available for sale were as follows for the periods presented below:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(In Thousands)
Available for sale securities sold:
Proceeds from sales of securities $ - $ - $ - $ 44,842
Gross realized gains $ - $ - $ - $ 800
Gross realized losses - - - (385 )
Net gain on sales of securities $ - $ - $ - $ 415

Gains resulting from calls of securities available for sale were as follows for the periods presented below:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(In Thousands)
Available for sale securities called:
Gross realized gains $ 3 $ 18 $ 4 $ 39
Gross realized losses - - - -
Net gain on calls of securities $ 3 $ 18 $ 4 $ 39

During the three months and nine months ended March 31, 2022 and 2021, there were no gains or losses recognized on sales of securities held to maturity.

The carrying value of securities pledged for borrowings at the FHLB and other institutions, and securities pledged for public funds and other purposes, were as follows as of the dates presented below:

March 31, June 30,
2022 2021
(In Thousands)
Securities pledged:
Pledged for borrowings at the FHLB of New York $ 155,868 $ 170,120
Pledged to secure public funds on deposit 324,425 137,778
Pledged for potential borrowings at the Federal Reserve Bank of New York 372,968 274,076
Total carrying value of securities pledged $ 853,261 $ 581,974
  • 12 -

The following tables present the gross unrealized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that securities have been in a continuous unrealized loss position within the available for sale portfolio at March 31, 2022 and June 30, 2021:

March 31, 2022
Less than 12 Months 12 Months or More Total
Fair<br>Value Unrealized<br>Losses Fair<br>Value Unrealized<br>Losses Number of Securities Fair<br>Value Unrealized<br>Losses
(Dollars in Thousands)
Securities Available for Sale:
Obligations of state and political<br>  subdivisions $ 2,303 $ 13 $ - $ - 8 $ 2,303 $ 13
Asset-backed securities 180,827 1,788 - - 15 180,827 1,788
Collateralized loan obligations 226,513 1,780 52,851 262 22 279,364 2,042
Corporate bonds 75,909 2,495 3,875 125 16 79,784 2,620
Collateralized mortgage obligations 6,819 270 - - 5 6,819 270
Commercial pass-through securities 48,811 1,147 113,569 10,818 15 162,380 11,965
Residential pass-through securities 237,063 14,376 302,905 33,193 66 539,968 47,569
Total $ 778,245 $ 21,869 $ 473,200 $ 44,398 147 $ 1,251,445 $ 66,267
June 30, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Less than 12 Months 12 Months or More Total
Fair<br>Value Unrealized<br>Losses Fair<br>Value Unrealized<br>Losses Number of Securities Fair<br>Value Unrealized<br>Losses
(Dollars in Thousands)
Securities Available for Sale:
Asset-backed securities $ 12,159 $ 63 $ - $ - 2 $ 12,159 $ 63
Collateralized loan obligations 36,741 9 58,605 161 8 95,346 170
Corporate bonds 15,952 73 - - 4 15,952 73
Commercial pass-through securities 145,055 2,652 - - 7 145,055 2,652
Residential pass-through securities 424,112 7,148 - - 10 424,112 7,148
Total $ 634,019 $ 9,945 $ 58,605 $ 161 31 $ 692,624 $ 10,106

The following table presents the gross unrecognized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that securities have been in a continuous unrecognized loss position within the held to maturity portfolio at March 31, 2022:

March 31, 2022
Less than 12 Months 12 Months or More Total
Fair<br>Value Unrecognized<br>Losses Fair<br>Value Unrecognized <br>Losses Number of Securities Fair<br>Value Unrecognized<br>Losses
(Dollars in Thousands)
Securities Held to Maturity:
Obligations of state and political<br>  subdivisions $ 4,901 $ 24 $ - $ - 8 $ 4,901 $ 24
Commercial pass-through<br>  securities 11,345 945 - - 1 11,345 945
Residential pass-through<br>  securities 82,028 3,989 - - 8 82,028 3,989
Total $ 98,274 $ 4,958 $ - $ - 17 $ 98,274 $ 4,958

At June 30, 2021, there were no held to maturity securities with unrecognized losses.

  • 13 -

Available for sale securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or from other factors. An impairment related to credit factors would be recorded through an allowance for credit losses. The allowance is limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the consolidated statement of income if management intends to sell, or may be required to sell, the securities before they recover in value. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due or were placed in nonaccrual status at March 31, 2022. Management believes that the unrealized losses on these securities are a function of changes in market interest rates and credit spreads, not changes in credit quality. No allowance for credit losses was recorded at March 31, 2022 on available for sale securities.

At March 31, 2022, the held to maturity securities portfolio consists of agency mortgage-backed securities and obligations of state and political subdivisions. The mortgage-backed securities are issued by U.S. government agencies and are implicitly guaranteed by the U.S. government. The obligations of state and political subdivisions in the portfolio are highly rated by major rating agencies and have a long history of no credit losses. The Company regularly monitors the obligations of state and political subdivisions sector of the market and reviews collectability including such factors as the financial condition of the issuers as well as credit ratings in effect as of the reporting period. No allowance for credit losses was recorded at March 31, 2022 on held to maturity securities.

5. LOANS RECEIVABLE

The following table sets forth the composition of the Company’s loan portfolio at March 31, 2022 and June 30, 2021:

March 31, June 30,
2022 2021
(In Thousands)
Commercial loans:
Multi-family mortgage $ 2,076,003 $ 2,039,260
Nonresidential mortgage 1,085,988 1,079,444
Commercial business 169,551 168,951
Construction 121,137 93,804
Total commercial loans 3,452,679 3,381,459
One- to four-family residential mortgage 1,527,980 1,447,721
Consumer loans:
Home equity loans 41,501 47,871
Other consumer 2,755 3,259
Total consumer loans 44,256 51,130
Total loans 5,024,915 4,880,310
Unaccreted yield adjustments (21,714 ) (28,916 )
Total loans receivable, net of yield adjustments $ 5,003,201 $ 4,851,394
  • 14 -

Past Due Loans

Past due status is based on the contractual payment terms of the loans. The following tables present the payment status of past due loans as of March 31, 2022 and June 30, 2021, by loan segment:

Payment Status
March 31, 2022
30-59 Days 60-89 Days 90 Days and Over Total Past Due Current Total
(In Thousands)
Multi-family mortgage $ - $ - $ 28,197 $ 28,197 $ 2,047,806 $ 2,076,003
Nonresidential mortgage 2,101 - 25,283 27,384 1,058,604 1,085,988
Commercial business - 64 281 345 169,206 169,551
Construction - - - - 121,137 121,137
One- to four-family<br>  residential mortgage 3,410 520 2,968 6,898 1,521,082 1,527,980
Home equity loans 25 4 59 88 41,413 41,501
Other consumer - - - - 2,755 2,755
Total loans $ 5,536 $ 588 $ 56,788 $ 62,912 $ 4,962,003 $ 5,024,915
Payment Status
--- --- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2021
30-59 Days 60-89 Days 90 Days and Over Total Past Due Current Total
(In Thousands)
Multi-family mortgage $ - $ - $ 16,094 $ 16,094 $ 2,023,166 $ 2,039,260
Nonresidential mortgage - - 32,891 32,891 1,046,553 1,079,444
Commercial business - - 401 401 168,550 168,951
Construction - - - - 93,804 93,804
One- to four-family<br>  residential mortgage 382 2,734 5,104 8,220 1,439,501 1,447,721
Home equity loans 6 5 32 43 47,828 47,871
Other consumer 1 - - 1 3,258 3,259
Total loans $ 389 $ 2,739 $ 54,522 $ 57,650 $ 4,822,660 $ 4,880,310

Nonperforming Loans

Loans are generally placed on nonaccrual status when contractual payments become 90 or more days past due or when the Company does not expect to receive all principal and interest payments owed substantially in accordance with the terms of the loan agreement, regardless of past due status. Loans that become 90 days past due, but are well secured and in the process of collection, may remain on accrual status. Nonaccrual loans are generally returned to accrual status when all payments due are brought current and the Company expects to receive all remaining principal and interest payments owed substantially in accordance with the terms of the loan agreement. Payments received in cash on nonaccrual loans, including both the principal and interest portions of those payments, are generally applied to reduce the carrying value of the loan. The Company did not recognize interest income on non-accrual loans during the three months and nine months ended March 31, 2022 and 2021.

  • 15 -

The following tables present information relating to the Company’s nonperforming loans as of March 31, 2022 and June 30, 2021:

Performance Status
March 31, 2022
90 Days and Over Past Due Accruing Nonaccrual Loans with Allowance for Credit Losses Nonaccrual Loans with no Allowance for Credit Losses Total Nonperforming Performing Total
(In Thousands)
Multi-family mortgage $ - $ 11,369 $ 28,646 $ 40,015 $ 2,035,988 $ 2,076,003
Nonresidential mortgage - 3,667 24,523 28,190 1,057,798 1,085,988
Commercial business - 63 430 493 169,058 169,551
Construction - - 1,791 1,791 119,346 121,137
One- to four-family<br>  residential mortgage - 4,376 4,241 8,617 1,519,363 1,527,980
Home equity loans - 313 1,176 1,489 40,012 41,501
Other consumer - - - - 2,755 2,755
Total loans $ - $ 19,788 $ 60,807 $ 80,595 $ 4,944,320 $ 5,024,915
Performance Status
--- --- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2021
90 Days and Over Past Due Accruing Nonaccrual Loans with Allowance for Credit Losses Nonaccrual Loans with no Allowance for Credit Losses Total Nonperforming Performing Total
(In Thousands)
Multi-family mortgage $ - $ 8,300 $ 10,226 $ 18,526 $ 2,020,734 $ 2,039,260
Nonresidential mortgage - 12,612 24,575 37,187 1,042,257 1,079,444
Commercial business - 236 676 912 168,039 168,951
Construction - - 2,228 2,228 91,576 93,804
One- to four-family<br>  residential mortgage - 7,422 11,748 19,170 1,428,551 1,447,721
Home equity loans - 452 1,292 1,744 46,127 47,871
Other consumer - - - - 3,259 3,259
Total loans $ - $ 29,022 $ 50,745 $ 79,767 $ 4,800,543 $ 4,880,310

Troubled Debt Restructurings (“TDRs”)

TDRs are loans where the Company has modified the contractual terms of the loan as a result of the financial condition of the borrower. Subsequent to their modification, TDRs are placed on non-accrual until such time as satisfactory payment performance has been demonstrated, at which time the loan may be returned to accrual status. On a case-by-case basis, the Company may agree to modify the contractual terms of a loan to assist a borrower who may be experiencing financial difficulty, as well as to preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR. The Company had TDRs totaling $31.7 million and $17.8 million as of March 31, 2022 and June 30, 2021, respectively. The allowance for credit losses associated with the TDRs presented in the tables below totaled $672,000 and $256,000 as of March 31, 2022 and June 30, 2021, respectively. As of March 31, 2022, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR.

  • 16 -

The following tables present total TDR loans at March 31, 2022 and June 30, 2021:

March 31, 2022
Accrual Non-accrual Total
# of Loans Amount # of Loans Amount # of Loans Amount
(Dollars In Thousands)
Commercial loans:
Multi-family mortgage - $ - 3 $ 14,605 3 $ 14,605
Nonresidential mortgage 4 400 2 1,646 6 2,046
Commercial business 5 3,704 3 325 8 4,029
Construction - - 1 1,791 1 1,791
Total commercial loans 9 4,104 9 18,367 18 22,471
One- to four-family residential<br>  mortgage 29 4,270 15 3,392 44 7,662
Consumer loans:
Home equity loans 5 170 2 1,396 7 1,566
Total 43 $ 8,544 26 $ 23,155 69 $ 31,699
June 30, 2021
--- --- --- --- --- --- --- --- --- --- --- --- ---
Accrual Non-accrual Total
# of Loans Amount # of Loans Amount # of Loans Amount
(Dollars In Thousands)
Commercial loans:
Multi-family mortgage - $ - 1 $ 2,896 1 $ 2,896
Nonresidential mortgage 1 105 6 2,275 7 2,380
Commercial business 3 3,755 6 693 9 4,448
Construction - - 1 2,228 1 2,228
Total commercial loans 4 3,860 14 8,092 18 11,952
One- to four-family residential<br>  mortgage 18 2,216 20 3,405 38 5,621
Consumer loans:
Home equity loans 4 159 3 68 7 227
Total 26 $ 6,235 37 $ 11,565 63 $ 17,800

The following tables present information regarding troubled debt restructurings that occurred during the three months and nine months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022 Nine Months Ended March 31, 2022
# of Loans Pre-<br>modification<br>Recorded<br>Investment Post-<br>modification<br>Recorded<br>Investment # of Loans Pre-<br>modification<br>Recorded<br>Investment Post-<br>modification<br>Recorded<br>Investment
(Dollars In Thousands)
Multi-family mortgage 1 $ 9,104 $ 9,101 2 $ 12,091 $ 12,073
One- to four-family residential<br>  mortgage 8 2,953 2,965 10 3,214 3,226
Home equity loans 2 1,477 1,477 2 1,477 1,477
Total 11 $ 13,534 $ 13,543 14 $ 16,782 $ 16,776
Three Months Ended March 31, 2021 Nine Months Ended March 31, 2021
--- --- --- --- --- --- --- --- --- --- --- --- ---
# of Loans Pre-<br>modification<br>Recorded<br>Investment Post-<br>modification<br>Recorded<br>Investment # of Loans Pre-<br>modification<br>Recorded<br>Investment Post-<br>modification<br>Recorded<br>Investment
(Dollars In Thousands)
One- to four-family residential<br>  mortgage - $ - $ - 1 $ 309 $ 308
Home equity loans 1 24 24 1 24 24
Total 1 $ 24 $ 24 2 $ 333 $ 332
  • 17 -

During the three months and nine months ended March 31, 2022 and 2021, there were no charge-offs related to TDRs. During the three months and nine months ended March 31, 2022 and 2021, there were no defaults of TDRs.

Loan modifications generally involve a reduction in interest rates and/or extension of maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. The loans which qualified as TDRs during the three months and nine months ended March 31, 2022 and 2021, capitalized prior past due amounts and modified the repayment terms.

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System (the “FRB”) and the Federal Deposit Insurance Corporation (the “FDIC”), issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. The agencies confirmed with the staff of the FASB that short-term modifications, made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, were not to be considered TDRs. This included short-term modifications such as payment deferrals, fee waivers, extension of repayment terms, or other delays in payment that were insignificant. Provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) largely mirrored the provisions of the interagency statement, providing that modified loans were not to be considered TDRs if they were performing at December 31, 2019 and other considerations set forth in the interagency statements were met. Borrowers considered current are those that were less than 30 days past due at the time a modification program was implemented or at December 31, 2019.

On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law. The $900 billion relief package included legislation that extended certain relief provisions of the CARES Act that were set to expire on December 31, 2020. The relief expired on January 1, 2022. As of March 31, 2022, the Company did not have any non-TDR loan modifications granted under the CARES Act.

Individually Analyzed Loans

Effective July 1, 2020, individually analyzed loans include loans which do not share similar risk characteristics with other loans. TDRs will generally be evaluated for individual impairment, however, after a period of sustained repayment performance which permits the credit to be returned to accrual status, a TDR would generally be removed from individual impairment analysis and returned to its corresponding pool. As of March 31, 2022, the carrying value of individually analyzed loans totaled $82.7 million, of which $65.1 million were considered collateral dependent.

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral, less costs to sell, and the amortized cost basis of the loan as of the measurement date. See Note 12 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

  • 18 -

The following table presents the carrying value and related allowance of collateral dependent individually analyzed loans at the dates indicated:

March 31, 2022 June 30, 2021
Carrying Value Related Allowance Carrying Value Related Allowance
(In Thousands)
Commercial loans:
Multi-family mortgage $ 31,078 $ 661 $ 18,526 $ 1,368
Nonresidential mortgage (1) 27,384 119 32,891 4,724
Commercial business (2) 176 - 183 -
Construction 1,791 - - -
Total commercial loans 60,429 780 51,600 6,092
One- to four-family residential mortgage (3) 4,581 196 7,612 420
Consumer loans:
Home equity loans (3) 59 - 31 -
Total $ 65,069 $ 976 $ 59,243 $ 6,512

(1) Secured by income-producing nonresidential property.

(2) Secured by business assets.

(3) Secured by one- to four-family residential properties.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:

Pass – Loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – Loans which do not currently expose the Company to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other potential weaknesses.

Substandard – Loans which are inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans which have all of the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.

Loss – Loans which are considered uncollectible or of so little value that their continuance as assets is not warranted.

  • 19 -

The following table presents the risk category of loans as of March 31, 2022 by loan segment and vintage year:

Term Loans by Origination Year for Fiscal Years ended June 30,
2022 2021 2020 2019 2018 Prior Revolving Loans Total
(In Thousands)
Multi-family mortgage:
Pass $ 520,269 $ 263,316 $ 216,072 $ 256,541 $ 252,909 $ 500,758 $ - $ 2,009,865
Special Mention - - - 16,370 4,994 4,759 - 26,123
Substandard - - - 10,182 2,788 27,045 - 40,015
Doubtful - - - - - - - -
Total multi-family mortgage 520,269 263,316 216,072 283,093 260,691 532,562 - 2,076,003
Nonresidential mortgage:
Pass 201,205 86,212 64,161 37,706 51,884 569,499 6,087 1,016,754
Special Mention - - - 23,364 4,070 9,249 - 36,683
Substandard - 724 - 933 - 30,894 - 32,551
Doubtful - - - - - - - -
Total nonresidential mortgage 201,205 86,936 64,161 62,003 55,954 609,642 6,087 1,085,988
Commercial business:
Pass 36,918 39,481 12,441 3,961 9,147 7,370 54,513 163,831
Special Mention - - 65 189 2,173 895 216 3,538
Substandard - 39 230 - 1,422 285 58 2,034
Doubtful - - - - - 145 3 148
Total commercial business 36,918 39,520 12,736 4,150 12,742 8,695 54,790 169,551
Construction loans:
Pass 7,868 85,564 9,492 3,058 6,513 1,117 5,735 119,347
Special Mention - - - - - - - -
Substandard - - - - - 1,790 - 1,790
Doubtful - - - - - - - -
Total construction loans 7,868 85,564 9,492 3,058 6,513 2,907 5,735 121,137
Residential mortgage:
Pass 312,625 531,111 90,576 53,262 56,834 464,738 375 1,509,521
Special Mention - - - 1,213 - 439 - 1,652
Substandard - - 1,704 83 - 15,020 - 16,807
Doubtful - - - - - - - -
Total residential mortgage 312,625 531,111 92,280 54,558 56,834 480,197 375 1,527,980
Home equity loans:
Pass 1,759 715 1,744 3,245 2,125 7,552 22,156 39,296
Special Mention - - - - - 265 - 265
Substandard - - - 124 - 1,816 - 1,940
Doubtful - - - - - - - -
Total home equity loans 1,759 715 1,744 3,369 2,125 9,633 22,156 41,501
Other consumer loans
Pass 281 324 477 398 247 913 40 2,680
Special Mention - - - - - - - -
Substandard - - - - - - - -
Doubtful - - - - - - 75 75
Other consumer loans 281 324 477 398 247 913 115 2,755
Total loans $ 1,080,925 $ 1,007,486 $ 396,962 $ 410,629 $ 395,106 $ 1,644,549 $ 89,258 $ 5,024,915
  • 20 -

The following table presents the risk category of loans as of June 30, 2021 by loan segment and vintage year:

Term Loans by Origination Year for Fiscal Years ended June 30,
2021 2020 2019 2018 2017 Prior Revolving Loans Total
(In Thousands)
Multi-family mortgage:
Pass $ 281,402 $ 257,970 $ 374,871 $ 341,304 $ 343,370 $ 374,909 $ - $ 1,973,826
Special Mention - - 26,974 5,079 4,834 1,054 - 37,941
Substandard - - - 2,896 13,198 11,399 - 27,493
Doubtful - - - - - - - -
Total multi-family mortgage 281,402 257,970 401,845 349,279 361,402 387,362 - 2,039,260
Nonresidential mortgage:
Pass 99,602 77,146 56,435 64,616 254,940 441,696 6,150 1,000,585
Special Mention - - 23,520 4,146 8,801 4,513 - 40,980
Substandard 743 - - 4,934 20,602 11,600 - 37,879
Doubtful - - - - - - - -
Total nonresidential mortgage 100,345 77,146 79,955 73,696 284,343 457,809 6,150 1,079,444
Commercial business:
Pass 44,514 18,988 4,701 12,654 3,322 12,892 65,657 162,728
Special Mention - - - 2,304 945 12 461 3,722
Substandard 41 76 160 1,474 132 189 - 2,072
Doubtful - - - - - 420 9 429
Total commercial business 44,555 19,064 4,861 16,432 4,399 13,513 66,127 168,951
Construction loans:
Pass 40,332 17,404 11,203 13,860 1,641 1,382 5,735 91,557
Special Mention - - - - - - - -
Substandard - - - - - 2,247 - 2,247
Doubtful - - - - - - - -
Total construction loans 40,332 17,404 11,203 13,860 1,641 3,629 5,735 93,804
Residential mortgage:
Pass 560,543 124,606 69,917 74,754 119,238 472,587 375 1,422,020
Special Mention - - 1,233 - - 712 - 1,945
Substandard - 1,040 671 511 1,468 20,066 - 23,756
Doubtful - - - - - - - -
Total residential mortgage 560,543 125,646 71,821 75,265 120,706 493,365 375 1,447,721
Home equity loans:
Pass 834 2,508 4,585 2,778 2,241 7,798 24,788 45,532
Special Mention - - - - - 393 - 393
Substandard - - - - 11 1,935 - 1,946
Doubtful - - - - - - - -
Total home equity loans 834 2,508 4,585 2,778 2,252 10,126 24,788 47,871
Other consumer loans
Pass 550 517 633 256 127 1,044 44 3,171
Special Mention - - - - - - - -
Substandard - - - - - - 1 1
Doubtful - - - - - - 87 87
Other consumer loans 550 517 633 256 127 1,044 132 3,259
Total loans $ 1,028,561 $ 500,255 $ 574,903 $ 531,566 $ 774,870 $ 1,366,848 $ 103,307 $ 4,880,310

Residential Mortgage Loans in Foreclosure

The Company may obtain physical possession of one- to four-family real estate collateralizing a residential mortgage loan via foreclosure or through an in-substance repossession. As of March 31, 2022, the Company held two single-family properties in other real estate owned with an aggregate carrying value of $401,000 that were acquired through foreclosure on residential mortgage loans. As of that same date, the Company held eight residential mortgage loans with aggregate carrying values totaling $1.6 million which were in the process of foreclosure. As of June 30, 2021, the Company held one single-family property in other real estate owned with an aggregate carrying value of $178,000 that was acquired through a foreclosure on a residential mortgage loan. As of that same date, the Company held 11 residential mortgage loans with aggregate carrying values totaling $2.1 million which were in the process of foreclosure.

New Jersey’s moratorium on evictions ended on December 31, 2021. Under New Jersey’s new eviction protections for people under certain income levels, no evictions may occur now or in the future based on rent due during the time period of March 1, 2020 through August 31, 2021, for certain moderate income families, or March 1, 2020 through December 31, 2021 for certain low income families. The moratorium on home foreclosures ended on November 15, 2021, for all income levels. This included landlords facing foreclosure who currently have tenants. New York’s moratorium on evictions for tenants who have endured COVID-related hardships and on foreclosures ended on January 15, 2022. As a result, the Company has resumed residential property foreclosure sales and evictions. Eviction laws may be subject to legal challenges and could change based on the results of court proceedings.

  • 21 -

6. ALLOWANCE FOR CREDIT LOSSES

Adoption of Topic 326

On July 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology, referred to as the “CECL” methodology.

Allowance for Credit Losses on Loans Receivable

The following tables present the balance of the allowance for credit losses at March 31, 2022 and June 30, 2021. For the three months and nine months ended March 31, 2022 and 2021, the balance of the allowance for credit losses is based on the CECL methodology, as noted above. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates.

Allowance for Credit Losses
March 31, 2022
Loans<br>acquired with<br>deteriorated<br>credit quality<br>individually<br>analyzed Loans<br>acquired with<br>deteriorated<br>credit quality<br>collectively<br>evaluated Loans individually <br>analyzed Loans collectively <br>evaluated Total allowance for credit losses
(In Thousands)
Multi-family mortgage $ - $ - $ 1,083 $ 23,144 $ 24,227
Nonresidential mortgage - 363 119 8,557 9,039
Commercial business - 11 6 1,708 1,725
Construction - - - 1,274 1,274
One- to four-family<br>  residential mortgage - 242 278 6,758 7,278
Home equity loans 22 - - 214 236
Other consumer - - - 81 81
Total loans $ 22 $ 616 $ 1,486 $ 41,736 $ 43,860
Balance of Loans Receivable
--- --- --- --- --- --- --- --- --- --- --- ---
March 31, 2022
Loans<br>acquired with<br>deteriorated<br>credit quality<br>individually<br>analyzed Loans<br>acquired with<br>deteriorated<br>credit quality<br>collectively<br>evaluated Loans individually <br>analyzed Loans collectively <br>evaluated Total loans
(In Thousands)
Multi-family mortgage $ - $ - $ 40,015 $ 2,035,988 $ 2,076,003
Nonresidential mortgage 381 13,179 29,911 1,042,517 1,085,988
Commercial business 176 1,267 317 167,791 169,551
Construction - 5,735 1,791 113,611 121,137
One- to four-family<br>  residential mortgage 230 6,666 8,386 1,512,698 1,527,980
Home equity loans 342 60 1,147 39,952 41,501
Other consumer - - - 2,755 2,755
Total loans $ 1,129 $ 26,907 $ 81,567 $ 4,915,312 $ 5,024,915
Unaccreted yield adjustments (21,714 )
Loans receivable, net of<br>  yield adjustments $ 5,003,201
  • 22 -
Allowance for Credit Losses
June 30, 2021
Loans<br>acquired with<br>deteriorated<br>credit quality<br>individually<br>analyzed Loans<br>acquired with<br>deteriorated<br>credit quality<br>collectively<br>evaluated Loans individually <br>analyzed Loans collectively <br>evaluated Total allowance for credit losses
(In Thousands)
Multi-family mortgage $ - $ 155 $ 1,368 $ 26,927 $ 28,450
Nonresidential mortgage 2,700 692 2,025 10,826 16,243
Commercial business - 15 33 2,038 2,086
Construction - 49 - 1,121 1,170
One- to four-family<br>  residential mortgage 122 204 447 8,974 9,747
Home equity loans 21 1 1 410 433
Other consumer - - - 36 36
Total loans $ 2,843 $ 1,116 $ 3,874 $ 50,332 $ 58,165
Balance of Loans Receivable
--- --- --- --- --- --- --- --- --- --- --- ---
June 30, 2021
Loans<br>acquired with<br>deteriorated<br>credit quality<br>individually<br>analyzed Loans<br>acquired with<br>deteriorated<br>credit quality<br>collectively<br>evaluated Loans individually <br>analyzed Loans collectively <br>evaluated Total loans
(In Thousands)
Multi-family mortgage $ - $ 5,599 $ 18,526 $ 2,015,135 $ 2,039,260
Nonresidential mortgage 6,519 25,844 30,668 1,016,413 1,079,444
Commercial business 183 2,533 729 165,506 168,951
Construction - 12,970 2,228 78,606 93,804
One- to four-family<br>  residential mortgage 3,617 4,785 15,553 1,423,766 1,447,721
Home equity loans 380 65 1,364 46,062 47,871
Other consumer - - - 3,259 3,259
Total loans $ 10,699 $ 51,796 $ 69,068 $ 4,748,747 $ 4,880,310
Unaccreted yield adjustments (28,916 )
Loans receivable, net of<br>  yield adjustments $ 4,851,394
  • 23 -

The following tables present the activity in the allowance for credit losses on loans for the three months and nine months ended March 31, 2022 and 2021.

Changes in the Allowance for Credit Losses
Three Months Ended March 31, 2022
Balance at<br>December 31, 2021 Charge-offs Recoveries (Reversal of)<br>provision for<br>credit losses Balance at<br>March 31, 2022
(In Thousands)
Multi-family mortgage $ 25,795 $ - $ - $ (1,568 ) $ 24,227
Nonresidential mortgage 10,078 (441 ) - (598 ) 9,039
Commercial business 1,903 - 4 (182 ) 1,725
Construction 1,441 - - (167 ) 1,274
One- to four-family<br>  residential mortgage 8,601 - - (1,323 ) 7,278
Home equity loans 308 - - (72 ) 236
Other consumer 90 - 1 (10 ) 81
Total loans $ 48,216 $ (441 ) $ 5 $ (3,920 ) $ 43,860
Changes in the Allowance for Credit Losses
--- --- --- --- --- --- --- --- --- --- --- --- ---
Nine Months Ended March 31, 2022
Balance at<br>June 30, 2021 Charge-offs Recoveries (Reversal of)<br>provision for<br>credit losses Balance at<br>March 31, 2022
(In Thousands)
Multi-family mortgage $ 28,450 $ (104 ) $ - $ (4,119 ) $ 24,227
Nonresidential mortgage 16,243 (2,538 ) - (4,666 ) 9,039
Commercial business 2,086 (175 ) 105 (291 ) 1,725
Construction 1,170 - - 104 1,274
One- to four-family<br>  residential mortgage 9,747 - 147 (2,616 ) 7,278
Home equity loans 433 - 1 (198 ) 236
Other consumer 36 (2 ) 1 46 81
Total loans $ 58,165 $ (2,819 ) $ 254 $ (11,740 ) $ 43,860
  • 24 -
Changes in the Allowance for Credit Losses
Three Months Ended March 31, 2021
Balance at<br>December 31, 2020 Charge-offs Recoveries (Reversal of)<br>provision for<br>credit losses Balance at<br>March 31, 2021
(In Thousands)
Multi-family mortgage $ 29,500 $ - $ - $ (514 ) $ 28,986
Nonresidential mortgage 15,933 (9 ) - 4,053 19,977
Commercial business 3,348 (738 ) 2 (86 ) 2,526
Construction 1,205 - - 40 1,245
One- to four-family<br>  residential mortgage 12,625 - 2 (2,249 ) 10,378
Home equity loans 725 - - (117 ) 608
Other consumer 50 (9 ) 2 (1 ) 42
Total loans $ 63,386 $ (756 ) $ 6 $ 1,126 $ 63,762
Changes in the Allowance for Credit Losses
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Nine Months Ended March 31, 2021
Balance at June 30, 2020 (prior to<br>adoption of ASC 326): Impact of adopting<br>Topic 326 Charge-offs Recoveries Initial allowance on PCD loans (Reversal of)<br>provision for<br>credit losses Balance at<br>March 31, 2021
(In Thousands)
Multi-family mortgage $ 20,916 $ 8,408 $ - $ - $ 250 $ (588 ) $ 28,986
Nonresidential mortgage 8,763 2,390 (75 ) - 1,720 7,179 19,977
Commercial business 1,926 (421 ) (802 ) 7 1,007 809 2,526
Construction 236 80 - - 99 830 1,245
One- to four-family<br>  residential mortgage 4,860 9,106 (13 ) 2 720 (4,297 ) 10,378
Home equity loans 568 92 (32 ) - 105 (125 ) 608
Other consumer 58 (15 ) (22 ) 9 - 12 42
Total loans $ 37,327 $ 19,640 $ (944 ) $ 18 $ 3,901 $ 3,820 $ 63,762

Allowance for Credit Losses on Off Balance Sheet Commitments

The following table presents the activity in the allowance for credit losses on off balance sheet commitments recorded in other non-interest expense for the three months and nine months ended March 31, 2022 and 2021:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(In Thousands) (In Thousands)
Balance at beginning of the period $ 1,148 $ 1,058 $ 1,708 $ -
Impact of adopting Topic 326 (1) - - - 536
(Reversal of) provision for credit losses (208 ) 207 (768 ) 729
Balance at end of the period $ 940 $ 1,265 $ 940 $ 1,265

(1) Adoption of CECL accounting standard effective July 1, 2020.

  • 25 -

7. DEPOSITS

Deposits are summarized as follows:

March 31, June 30,
2022 2021
(In Thousands)
Non-interest-bearing demand $ 621,954 $ 593,718
Interest-bearing demand 2,154,488 1,902,478
Savings 1,088,974 1,111,364
Certificates of deposits 1,663,246 1,877,746
Total deposits $ 5,528,662 $ 5,485,306

8. BORROWINGS

Borrowings at March 31, 2022 and June 30, 2021 consisted of the following:

March 31, June 30,
2022 2021
(In Thousands)
FHLB advances $ 541,220 $ 665,876
Overnight borrowings 310,000 20,000
Total borrowings $ 851,220 $ 685,876

Fixed rate advances from the FHLB of New York mature as follows:

March 31, 2022 June 30, 2021
Balance Weighted<br>Average<br>Interest Rate Balance Weighted<br>Average<br>Interest Rate
(Dollars in Thousands)
By remaining period to maturity:
Less than one year $ 265,000 0.63 % $ 390,000 0.33 %
One to two years 145,000 3.04 145,000 3.04
Two to three years 103,500 2.65 22,500 2.63
Three to four years 29,000 2.77 103,500 2.68
Four to five years - - 6,500 2.82
Greater than five years - - - -
Total advances 542,500 1.77 % 667,500 1.38 %
Unamortized fair value adjustments (1,280 ) (1,624 )
Total advances, net of fair value adjustments $ 541,220 $ 665,876

At March 31, 2022, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.44 billion and $155.9 million, respectively. At June 30, 2021, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.27 billion and $170.1 million, respectively.

  • 26 -

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to specific wholesale funding positions.

Fair Values of Derivative Instruments on the Statement of Financial Condition

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Statement of Financial Condition as of March 31, 2022 and June 30, 2021:

March 31, 2022
Asset Derivatives Liability Derivatives
Location Fair Value Location Fair Value
(In Thousands)
Derivatives designated as hedging instruments:
Interest rate contracts Other assets $ 34,007 Other liabilities $ -
Total $ 34,007 $ -
June 30, 2021
--- --- --- --- --- --- ---
Asset Derivatives Liability Derivatives
Location Fair Value Location Fair Value
(In Thousands)
Derivatives designated as hedging instruments:
Interest rate contracts Other assets $ 1,832 Other liabilities $ 673
Total $ 1,832 $ 673

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using derivatives are primarily to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps and caps as part of its interest rate risk management strategy. These interest rate products are designated as cash flow hedges. As of March 31, 2022, the Company had a total of 10 interest rate swaps and caps with a total notional amount of $790.0 million hedging specific wholesale funding positions.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in other comprehensive income, net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate wholesale funding positions. During the three months and nine months ended March 31, 2022 the Company reclassified $1.3 million and $4.3 million, respectively, as additional interest expense. During the next twelve months, the Company estimates that $4.6 million will be reclassified as a reduction in interest expense.

The table below presents the pre-tax effects of the Company’s derivative instruments on the Consolidated Statements of Income for the three months and nine months ended March 31, 2022 and 2021:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(In Thousands) (In Thousands)
Amount of gain recognized in other comprehensive income $ 23,343 $ 13,075 $ 28,607 $ 14,353
Amount of loss reclassified from accumulated other comprehensive income<br>  to interest expense (1,268 ) (1,987 ) (4,271 ) (6,576 )
  • 27 -

Offsetting Derivatives

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Statements of Financial Condition as of March 31, 2022 and June 30, 2021, respectively. The net amounts presented for derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Statements of Financial Condition.

March 31, 2022
Gross Amounts Not Offset
Gross Amount Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral Received Net Amount
(In Thousands)
Assets:
Interest rate contracts $ 34,158 $ (151 ) $ 34,007 $ - $ - $ 34,007
Total $ 34,158 $ (151 ) $ 34,007 $ - $ - $ 34,007
Gross Amounts Not Offset
Gross Amount Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral Posted Net Amount
(In Thousands)
Liabilities:
Interest rate contracts $ 151 $ (151 ) $ - $ - $ - $ -
Total $ 151 $ (151 ) $ - $ - $ - $ -
June 30, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Gross Amounts Not Offset
Gross Amount Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral Received Net Amount
(In Thousands)
Assets:
Interest rate contracts $ 6,847 $ (5,015 ) $ 1,832 $ - $ - $ 1,832
Total $ 6,847 $ (5,015 ) $ 1,832 $ - $ - $ 1,832
Gross Amounts Not Offset
Gross Amount Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral Posted Net Amount
(In Thousands)
Liabilities:
Interest rate contracts $ 5,688 $ (5,015 ) $ 673 $ - $ (673 ) $ -
Total $ 5,688 $ (5,015 ) $ 673 $ - $ (673 ) $ -

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty. At March 31, 2022, none of the Company’s derivatives were in a net liability position. As required under the enforceable master netting arrangement with its derivatives counterparties, at March 31, 2022, the Company was not required to post financial collateral.

In addition to the derivative instruments noted above, the Company’s pipeline of loans held for sale at March 31, 2022 and June 30, 2021, included $16.0 million and $48.4 million, respectively, of in process loans whose terms included interest rate locks to borrowers, which are considered free-standing derivative instruments whose fair values are not material to the Company’s financial condition or results of operations.

  • 28 -

10. 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, Directors’ Consultation and Retirement Plan and Atlas Bank Retirement Income Plan:

Three Months Ended Nine Months Ended Affected Line Item in the Consolidated
March 31, March 31, Statements of Income
2022 2021 2022 2021
(In Thousands) (In Thousands)
Service cost $ 29 $ 26 $ 87 $ 79 Salaries and employee benefits
Interest cost 67 66 205 197 Other expense
Amortization of unrecognized loss 20 20 60 62 Other expense
Expected return on assets (27 ) (28 ) (83 ) (85 ) Other expense
Net periodic benefit cost $ 89 $ 84 $ 269 $ 253

2021 Equity Incentive Plan

At the Company’s 2021 Annual Meeting of Stockholders held on October 28, 2021, the stockholders approved the Kearny Financial Corp. 2021 Equity Incentive Plan (“2021 Plan”) which provides for the grant of stock options, restricted stock and restricted stock units (“RSUs”). The 2021 Plan authorized the issuance of up to 7,500,000 shares (the “Share Limit”); provided, however that the Share Limit is reduced, on a one-for-one-basis, for each share of common stock subject to a stock option grant, and on a three-for-one basis for each share of common stock issued pursuant to restricted stock awards or RSUs.

During the quarter ended March 31, 2022, the Company granted 251,905 RSUs comprised of 181,588 service-based RSUs and 70,317 performance-based RSUs. The service-based RSUs will vest in three tranches over a period of

2.6

years and the performance-based RSUs will cliff vest upon the achievement of performance measures over the three-year period ending June 30, 2024. The total number of performance-based RSUs that will vest, if any, will depend on whether and to what extent the performance measures are achieved. Common stock will be issued from authorized shares upon the vesting of the RSUs.

11. INCOME TAXES

The following table presents a reconciliation between the reported income taxes for the periods presented and the income taxes which would be computed by applying the federal income tax rate of 21% to income for the three months and nine months ended March 31, 2022 and 2021:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(Dollars in Thousands) (Dollars in Thousands)
Income before income taxes $ 24,215 $ 22,155 $ 76,772 $ 58,980
Statutory federal tax rate 21 % 21 % 21 % 21 %
Federal income tax expense at statutory rate $ 5,085 $ 4,653 $ 16,122 $ 12,386
(Reduction) increase in income taxes resulting from:
Tax exempt interest (66 ) (85 ) (204 ) (270 )
State tax, net of federal tax effect 1,908 1,498 6,026 3,738
Incentive stock option compensation expense 3 23 42 63
Income from bank-owned life insurance (317 ) (324 ) (973 ) (989 )
Non-deductible merger-related expenses - - - 49
Bargain purchase gain - - - (641 )
Other items, net (91 ) (21 ) (418 ) 429
$ 6,522 $ 5,744 $ 20,595 $ 14,765
Reversal of valuation allowance - (12 ) - (535 )
Total income tax expense $ 6,522 $ 5,732 $ 20,595 $ 14,230
Effective income tax rate 26.93 % 25.87 % 26.83 % 24.13 %
  • 29 -

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from, or corroborated by, market data by correlation or other means.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets Measured on a Recurring Basis:

The following methods and significant assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at March 31, 2022 and June 30, 2021:

Investment Securities Available for Sale

The Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.

Derivatives

The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate caps and swaps. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis and extensions of the Black-Scholes model. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.

  • 30 -

Those assets measured at fair value on a recurring basis are summarized below:

March 31, 2022
Quoted<br>Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3) Total
(In Thousands)
Assets:
Debt securities available for sale:
Obligations of state and political subdivisions $ - $ 31,078 $ - $ 31,078
Asset-backed securities - 229,584 - 229,584
Collateralized loan obligations - 311,620 - 311,620
Corporate bonds - 153,495 - 153,495
Total debt securities - 725,777 - 725,777
Mortgage-backed securities available for sale:
Collateralized mortgage obligations - 7,996 - 7,996
Residential pass-through securities - 570,150 - 570,150
Commercial pass-through securities - 222,163 - 222,163
Total mortgage-backed securities - 800,309 - 800,309
Total securities available for sale $ - $ 1,526,086 $ - $ 1,526,086
Interest rate contracts $ - $ 34,007 $ - $ 34,007
Total assets $ - $ 1,560,093 $ - $ 1,560,093
  • 31 -
June 30, 2021
Quoted Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3) Total
(In Thousands)
Assets:
Debt securities available for sale:
Obligations of state and political subdivisions $ - $ 34,603 $ - $ 34,603
Asset-backed securities - 242,989 - 242,989
Collateralized loan obligations - 189,880 - 189,880
Corporate bonds - 158,351 - 158,351
Total debt securities - 625,823 - 625,823
Mortgage-backed securities available for sale:
Collateralized mortgage obligations - 13,739 - 13,739
Residential pass-through securities - 744,491 - 744,491
Commercial pass-through securities - 292,811 - 292,811
Total mortgage-backed securities - 1,051,041 - 1,051,041
Total securities available for sale $ - $ 1,676,864 $ - $ 1,676,864
Interest rate contracts $ - $ 1,832 $ - $ 1,832
Total assets $ - $ 1,678,696 $ - $ 1,678,696
Liabilities:
Interest rate contracts $ - $ 673 $ - $ 673
Total liabilities $ - $ 673 $ - $ 673

Assets Measured on a Non-Recurring Basis:

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis at March 31, 2022 and June 30, 2021:

Collateral Dependent Individually Analyzed Loans

The fair value of collateral dependent loans that are individually analyzed is determined based upon the appraised fair value of the underlying collateral, less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may also adjust appraised values to reflect estimated changes in market values or apply other adjustments to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. For non-collateral-dependent loans, management estimates fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans. Collateral dependent individually analyzed loans are considered a Level 3 valuation by the Company.

  • 32 -

Other Real Estate Owned

Other real estate owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for credit losses. If further declines in the estimated fair value of the asset occur, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions.

Those assets measured at fair value on a non-recurring basis are summarized below:

March 31, 2022
Quoted Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3) Total
(In Thousands)
Collateral dependent loans:
Residential mortgage $ - $ - $ 2,239 $ 2,239
Multi-family mortgage - - 4,558 4,558
Nonresidential mortgage - - 5,799 5,799
Total $ - $ - $ 12,596 $ 12,596
Other real estate owned, net:
Residential $ - $ - $ 401 $ 401
Total $ - $ - $ 401 $ 401
June 30, 2021
--- --- --- --- --- --- --- --- ---
Quoted Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3) Total
(In Thousands)
Collateral dependent loans:
Residential mortgage $ - $ - $ 3,051 $ 3,051
Multi-family mortgage 6,932 6,932
Nonresidential mortgage - - 8,679 8,679
Total $ - $ - $ 18,662 $ 18,662
Other real estate owned, net:
Residential $ - $ - $ 178 $ 178
Total $ - $ - $ 178 $ 178
  • 33 -

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value:

March 31, 2022
Fair<br>Value Valuation<br>Techniques Unobservable<br>Input Range Weighted<br>Average
(Dollars in Thousands)
Collateral dependent loans:
Residential mortgage $ 2,239 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 7% - 14% 10.39 %
Multi-family mortgage 4,558 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 10% - 11% 10.60 %
Nonresidential mortgage 5,799 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 9% - 19% 14.97 %
Total $ 12,596
Other real estate owned, net:
Residential $ 401 Market valuation of underlying collateral (3) Adjustments to reflect current conditions/selling costs (2) 5% - 6% 5.44 %
Total $ 401
June 30, 2021
--- --- --- --- --- --- --- --- --- --- ---
Fair<br>Value Valuation<br>Techniques Unobservable<br>Input Range Weighted<br>Average
(Dollars in Thousands)
Collateral dependent loans:
Residential mortgage $ 3,051 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 7% - 13% 9.77 %
Multi-family mortgage 6,932 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 10% - 11% 10.39 %
Nonresidential mortgage 8,679 Market valuation of underlying collateral (1) Adjustments to reflect current conditions/selling costs (2) 9% - 16% 14.48 %
Total $ 18,662
Other real estate owned, net:
Residential $ 178 Market valuation of underlying collateral (3) Adjustments to reflect current conditions/selling costs (2) 6.00% 6.00 %
Total $ 178

(1) The fair value of collateral dependent individually analyzed loans is generally determined based on an independent appraisal of the fair value of a loan’s underlying collateral.

(2) The fair value basis of collateral dependent individually analyzed loans and other real estate owned is adjusted to reflect management’s estimates of selling costs including, but not necessarily limited to, real estate brokerage commissions and title transfer fees.

(3) The fair value of other real estate owned is generally determined based upon the lower of an independent appraisal of the property’s fair value or the applicable listing price or contracted sales price.

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At March 31, 2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $13.6 million and valuation allowances of $976,000 reflecting fair values of $12.6 million. By comparison, at June 30, 2021, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $25.2 million and valuation allowances of $6.5 million reflecting fair values of $18.7 million.

Once a loan is foreclosed, the fair value of the other real estate owned continues to be evaluated based upon the fair value of the repossessed real estate originally securing the loan. At March 31, 2022 and June 30, 2021, the Company held other real estate owned totaling $401,000 and $178,000, respectively, whose carrying value was written down utilizing Level 3 inputs.

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2022 and June 30, 2021:

March 31, 2022
Carrying<br>Amount Fair<br>Value Quoted<br>Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3)
(In Thousands)
Financial assets:
Cash and cash equivalents $ 62,379 $ 62,379 $ 62,379 $ - $ -
Investment securities available for sale 1,526,086 1,526,086 - 1,526,086 -
Investment securities held to maturity 121,853 117,017 - 117,017 -
Loans held-for-sale 2,822 2,759 - 2,759 -
Net loans receivable 4,959,341 4,877,212 - - 4,877,212
FHLB Stock 30,997 - - - -
Interest receivable 19,517 19,517 3 5,311 14,203
Interest rate contracts 34,007 34,007 - 34,007 -
Financial liabilities:
Deposits 5,528,662 5,515,560 3,865,416 - 1,650,144
Borrowings 851,220 853,824 - - 853,824
Interest payable on deposits 164 164 79 - 85
Interest payable on borrowings 1,365 1,365 - - 1,365
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June 30, 2021
Carrying<br>Amount Fair<br>Value Quoted<br>Prices<br>in Active<br>Markets for<br>Identical<br>Assets<br>(Level 1) Significant<br>Other<br>Observable<br>Inputs<br>(Level 2) Significant<br>Unobservable<br>Inputs<br>(Level 3)
(In Thousands)
Financial assets:
Cash and cash equivalents $ 67,855 $ 67,855 $ 67,855 $ - $ -
Investment securities available for sale 1,676,864 1,676,864 - 1,676,864 -
Investment securities held to maturity 38,138 39,610 - 39,610 -
Loans held-for-sale 16,492 16,934 - 16,934 -
Net loans receivable 4,793,229 4,830,136 - - 4,830,136
FHLB Stock 36,615 - - - -
Interest receivable 19,362 19,362 1 4,238 15,123
Interest rate contracts 1,832 1,832 - 1,832 -
Financial liabilities:
Deposits 5,485,306 5,490,923 3,607,560 - 1,883,363
Borrowings 685,876 701,419 - - 701,419
Interest payable on deposits 145 145 96 - 49
Interest payable on borrowings 1,335 1,335 - - 1,335
Interest rate contracts 673 673 - 673 -

Commitments. The fair value of commitments to fund credit lines and originate or participate in loans held in portfolio or loans held for sale is estimated using fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, including those relating to loans held for sale that are considered derivative instruments for financial statement reporting purposes, the fair value also considers the difference between current levels of interest and the committed rates. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.

Limitations. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no fair value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment, and advances from borrowers for taxes and insurance. In addition, the ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

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13. COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive (loss) income included in stockholders’ equity at March 31, 2022 and June 30, 2021 are as follows:

March 31, June 30,
2022 2021
(In Thousands)
Net unrealized (loss) gain on securities available for sale $ (63,988 ) $ 10,011
Tax effect 18,760 (2,882 )
Net of tax amount (45,228 ) 7,129
Fair value adjustments on derivatives 32,566 (312 )
Tax effect (9,557 ) 94
Net of tax amount 23,009 (218 )
Benefit plan adjustments (1,033 ) (1,093 )
Tax effect 303 326
Net of tax amount (730 ) (767 )
Total accumulated other comprehensive (loss) income $ (22,949 ) $ 6,144

Other comprehensive (loss) income and related tax effects for the three months and nine months ended March 31, 2022 and 2021 are presented in the following table:

Three Months Ended Nine Months Ended
March 31, March 31,
2022 2021 2022 2021
(In Thousands)
Net unrealized holding loss on securities<br>  available for sale $ (59,249 ) $ (22,285 ) $ (73,995 ) $ (20,374 )
Net realized gain on sale and call of securities<br>  available for sale (1) (3 ) (18 ) (4 ) (454 )
Fair value adjustments on derivatives 24,611 15,062 32,878 20,929
Amortization of benefit plan net actuarial loss 20 20 60 62
Other comprehensive (loss) income before taxes (34,621 ) (7,221 ) (41,061 ) 163
Tax effect 10,098 2,125 11,968 (63 )
Total other comprehensive (loss) income $ (24,523 ) $ (5,096 ) $ (29,093 ) $ 100

(1) Represents amounts reclassified out of accumulated other comprehensive income and included in gain on sale of securities on the consolidated statements of income.

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

The following schedule shows the Company’s earnings per share calculations for the periods presented:

Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
(In Thousands, Except Per Share Data)
Net income $ 17,693 $ 16,423 $ 56,177 $ 44,750
Weighted average number of common shares<br>  outstanding - basic 69,790 80,673 72,130 83,958
Effect of dilutive securities 27 17 24 3
Weighted average number of common shares<br>  outstanding - diluted 69,817 80,690 72,154 83,961
Basic earnings per share $ 0.25 $ 0.20 $ 0.78 $ 0.53
Diluted earnings per share $ 0.25 $ 0.20 $ 0.78 $ 0.53

Stock options for 3,115,000 and 3,253,040 shares of common stock were not considered in computing diluted earnings per share at March 31, 2022 and March 31, 2021, respectively, because the stock options were considered anti-dilutive. In addition, 251,905 RSUs were not considered in computing diluted earnings per share at March 31, 2022 because the RSUs were considered anti-dilutive.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on 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 the Company could differ materially from those management expectations. This includes statements regarding general economic conditions, public health crisis such as the governmental, social and economic effects of the novel coronavirus, 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 and failure to integrate or profitably operate acquired businesses. Additional potential factors include changes in interest rates, the rate of inflation, deposit flows, cost of funds, demand for loan products and financial services, competition and changes in the quality or composition of loan and investment portfolios of the Company. 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.

In addition, the COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including whether the coronavirus can continue to be controlled and abated. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy worsens, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; due to a decline in our stock price or other factors, goodwill may become impaired and be required to be written down; and our cyber security risks are increased as the result of an increase in the number of employees working remotely. Reference is made to Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021.

Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. At March 31, 2022, we consider the determination of the allowance for credit losses on loans, individually evaluating loans, calculating the allowance of credit losses on acquired loans, accounting for business combinations and the valuation of goodwill and identifiable intangible assets to be our critical accounting policies. Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, for a description of the Company’s critical accounting policies.

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Comparison of Financial Condition at March 31, 2022 and June 30, 2021

Executive Summary. Total assets increased $106.2 million to $7.39 billion at March 31, 2022 from $7.28 billion at June 30, 2021. The increase primarily reflected an increase in net loans receivable, partially offset by a decrease in investment securities.

Investment Securities. Investment securities available for sale decreased $150.8 million to $1.53 billion at March 31, 2022, from $1.68 billion at June 30, 2021. This decrease was largely the result of principal repayments of $280.5 million and a fair value decrease of $74.0 million, partially offset by security purchases of $206.1 million. Investment securities held to maturity increased $83.7 million to $121.9 million at March 31, 2022 from $38.1 million at June 30, 2021. This increase was largely the result of security purchases of $86.4 million, partially offset by principal repayments of $2.6 million.

Additional information regarding our investment securities at March 31, 2022 and June 30, 2021 is presented in Note 4 to the unaudited consolidated financial statements.

Loans Held-for-Sale. Loans held-for-sale totaled $2.8 million at March 31, 2022 as compared to $16.5 million at June 30, 2021 and are reported separately from the balance of net loans receivable. During the nine months ended March 31, 2022, $165.5 million of residential mortgage loans were sold, resulting in a gain on sale of $2.3 million.

Net Loans Receivable. Net loans receivable increased $166.1 million, or 3.5%, to $4.96 billion at March 31, 2022 from $4.79 billion at June 30, 2021. Detail regarding the change in the loan portfolio, by loan segment, is presented below:

March 31, June 30, Increase/
2022 2021 (Decrease)
(In Thousands)
Commercial loans:
Multi-family mortgage $ 2,076,003 $ 2,039,260 $ 36,743
Nonresidential mortgage 1,085,988 1,079,444 6,544
Commercial business 169,551 168,951 600
Construction 121,137 93,804 27,333
Total commercial loans 3,452,679 3,381,459 71,220
One- to four-family residential mortgage 1,527,980 1,447,721 80,259
Consumer loans:
Home equity loans 41,501 47,871 (6,370 )
Other consumer 2,755 3,259 (504 )
Total consumer loans 44,256 51,130 (6,874 )
Total loans 5,024,915 4,880,310 144,605
Unaccreted yield adjustments (21,714 ) (28,916 ) 7,202
Allowance for credit losses (43,860 ) (58,165 ) 14,305
Net loans receivable $ 4,959,341 $ 4,793,229 $ 166,112

Commercial loan origination volume for the nine months ended March 31, 2022 totaled $834.0 million, comprised of $667.1 million of commercial mortgage loan originations, $105.5 million of commercial business loan originations and construction loan disbursements of $61.4 million. Commercial loan origination volume was augmented with the funding of purchased commercial mortgage loans totaling $55.8 million.

One- to four-family residential mortgage loan origination volume for the nine months ended March 31, 2022, excluding loans held-for-sale, totaled $262.7 million and was augmented with the funding of purchased loans totaling $56.5 million. Home equity loan and line of credit origination volume for the same period totaled $13.5 million.

  • 40 -

Loan-to-value (“LTV”) ratios are based on current period loan balances and original appraised values at the time of origination unless a current appraisal has been obtained as a result of the loan being deemed collateral dependent and individually analyzed. The following table sets forth the composition of our real estate secured loans indicating the LTV, by loan category, at March 31, 2022 and June 30, 2021:

March 31, 2022 June 30, 2021
Balance LTV Balance LTV
(Dollars in Thousands)
Commercial mortgage loans:
Multi-family mortgage $ 2,076,003 64 % $ 2,039,260 64 %
Nonresidential mortgage 1,085,988 54 % 1,079,444 54 %
Construction 121,137 59 % 93,804 61 %
Total commercial mortgage loans 3,283,128 61 % 3,212,508 61 %
One- to four-family residential mortgage 1,527,980 61 % 1,447,721 59 %
Consumer loans:
Home equity loans 41,501 46 % 47,871 47 %
Total mortgage loans $ 4,852,609 61 % $ 4,708,100 60 %

Additional information about our loans at March 31, 2022 and June 30, 2021 is presented in Note 5 to the unaudited consolidated financial statements.

Nonperforming Assets and TDRs. Nonperforming assets increased by $1.1 million to $81.0 million, or 1.10% of total assets at March 31, 2022, from $79.9 million, or 1.10% of total assets at June 30, 2021. At March 31, 2022, we had accruing TDRs totaling $8.5 million, an increase of $2.3 million from $6.2 million at June 30, 2021. At March 31, 2022, we had non-accrual TDRs totaling $23.2 million, an increase of $11.6 million from $11.6 million at June 30, 2021.

Based on Section 4013 of the CARES Act, the 2021 Consolidated Appropriations Act and related regulatory guidance promulgated by federal banking regulators, qualifying loan modifications made in response to the COVID-19 pandemic, including short-term payment deferrals, were not considered to be TDRs. We had no active payment deferrals that were not considered TDRs as of March 31, 2022. We had active payment deferrals, which were not considered TDRs, of $5.6 million as of June 30, 2021.

Additional information about our nonperforming loans and TDRs at March 31, 2022 and June 30, 2021 is presented in Note 5 to the unaudited consolidated financial statements.

Allowance for Credit Losses (“ACL”). At March 31, 2022, the ACL totaled $43.9 million, or 0.87% of total loans, reflecting a decrease of $14.3 million from $58.2 million, or 1.19% of total loans, at June 30, 2021. The decrease during the nine months ended March 31, 2022 was largely attributable to a provision for credit losses reversal of $11.7 million, primarily driven by continued improvement in our economic forecast, a reduction in the expected life of various segments of the loan portfolio and a net reduction in reserves on loans individually evaluated for impairment. Also contributing to this decrease were net charge-offs of $2.6 million, which had been individually reserved for within the ACL at June 30, 2021.

Additional information about our ACL at March 31, 2022 and June 30, 2021 is presented in Note 6 to the unaudited consolidated financial statements.

Other Assets. The aggregate balance of other assets, including premises and equipment, FHLB stock, interest receivable, goodwill, core deposit intangibles, bank owned life insurance, deferred income taxes, OREO and other assets, increased $26.3 million to $717.4 million at March 31, 2022 from $691.2 million at June 30, 2021. The increase in the balance of these other assets during the nine months ended March 31, 2022 largely reflected a $32.2 million increase in the fair value of our derivatives portfolio. The remaining change generally reflected normal operating fluctuations within these line items.

  • 41 -

Deposits. Total deposits increased $43.4 million, or 0.8%, to $5.53 billion at March 31, 2022 from $5.49 billion at June 30, 2021. The increase in deposits largely reflected growth in core non-maturity deposits, which was partially offset by the controlled run-off of time deposits. The following table sets forth the distribution of, and changes in, deposits, by type, for the periods indicated:

March 31, June 30, Increase/
2022 2021 (Decrease)
(In Thousands)
Non-interest-bearing deposits $ 621,954 $ 593,718 $ 28,236
Interest-bearing deposits:
Interest-bearing demand 2,154,488 1,902,478 252,010
Savings 1,088,974 1,111,364 (22,390 )
Certificates of deposit 1,663,246 1,877,746 (214,500 )
Interest-bearing deposits 4,906,708 4,891,588 15,120
Total deposits $ 5,528,662 $ 5,485,306 $ 43,356

Additional information about our deposits at March 31, 2022 and June 30, 2021 is presented in Note 7 to the unaudited consolidated financial statements.

Borrowings. The balance of borrowings increased by $165.3 million to $851.2 million at March 31, 2022 from $685.9 million at June 30, 2021.

Additional information about our borrowings at March 31, 2022 and June 30, 2021 is presented in Note 8 to the unaudited consolidated financial statements.

Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities, decreased $14.8 million to $54.8 million at March 31, 2022 from $69.6 million at June 30, 2021. The decrease in these other liabilities largely reflected the payment of a $12.5 million loan participation liability which was outstanding at June 30, 2021. The remaining change in the balance of these other liabilities generally reflected normal operating fluctuations during the period.

Stockholders’ Equity. Stockholders’ equity decreased $87.8 million to $955.2 million at March 31, 2022 from $1.04 billion at June 30, 2021. The decrease in stockholders’ equity during the nine months ended March 31, 2022 largely reflected share repurchases totaling $96.0 million and cash dividends totaling $23.0 million. In addition, accumulated other comprehensive (loss) income decreased $29.1 million due primarily to a decline in the fair value of our available for sale securities, partially offset by an increase in the fair value of our derivatives portfolio. These decreases were partially offset by net income of $56.2 million.

Book value per share increased by $0.16 to $13.37 at March 31, 2022 while tangible book value per share decreased by $0.11 to $10.38 at March 31, 2022.

On September 22, 2021, we announced the authorization of a new stock repurchase plan, which authorized the repurchase of up to 7,602,021 shares, or 10% of the shares then outstanding. During the quarter ended March 31, 2022, we repurchased 2,019,625 shares of common stock at a cost of $27.0 million, or $13.35 per share. Through March 31, 2022, we repurchased a total of 4,522,301 shares, or 59.5% of the shares authorized for repurchase under the current repurchase program, at a total cost of $59.6 million or $13.18 per share.

  • 42 -

Comparison of Operating Results for the Quarter Ended March 31, 2022 and March 31, 2021

Net Income. Net income for the quarter ended March 31, 2022 was $17.7 million, or $0.25 per diluted share, compared to $16.4 million, or $0.20 per diluted share for the quarter ended March 31, 2021. The increase in net income reflected a decrease in the provision for credit losses, partially offset by a decrease in net interest income, a decrease in non-interest income, an increase in non-interest expense and an increase in income tax expense.

Net Interest Income. Effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented reflect this reclassification.

Net interest income decreased by $756,000 to $47.7 million for the quarter ended March 31, 2022 compared to $48.5 million for the quarter ended March 31, 2021. The decrease between the comparative periods resulted from a decrease of $4.6 million in interest income, partially offset by a decrease of $3.8 million in interest expense. Included in net interest income for the quarters ended March 31, 2022 and March 31, 2021, respectively, was purchase accounting accretion of $1.9 million and $4.8 million and loan prepayment penalty income of $1.3 million and $852,000.

Net interest margin increased one basis point to 2.89% for the quarter ended March 31, 2022, from 2.88% for the quarter ended March 31, 2021 and reflected a decrease in the average cost of interest-bearing liabilities that was partially offset by a decrease in the average yield on interest-earning assets.

Details surrounding the composition of, and changes to, net interest income are presented in the table below which reflects the components of the average balance sheet and of net interest income for the periods indicated. We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented with daily balances used to derive average balances. No tax equivalent adjustments have been made to yield or costs. Non-accrual loans were included in the calculation of average balances, however interest receivable on these loans has been fully reserved for and therefore not included in interest income. The yields and costs set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

  • 43 -
For the Three Months Ended March 31,
2022 2021
Average<br>Balance Interest Average<br>Yield/<br>Cost Average<br>Balance Interest Average<br>Yield/<br>Cost
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $ 4,850,236 $ 45,846 3.78 % $ 4,816,592 $ 50,159 4.17 %
Taxable investment securities (2) 1,620,996 8,024 1.98 1,674,223 7,891 1.89
Tax-exempt securities (2) 55,390 316 2.28 73,573 410 2.23
Other interest-earning assets (3) 79,644 415 2.08 169,291 705 1.67
Total interest-earning assets 6,606,266 54,601 3.31 6,733,679 59,165 3.51
Non-interest-earning assets 601,684 617,440
Total assets $ 7,207,950 $ 7,351,119
Interest-bearing liabilities:
Interest-bearing demand $ 2,133,977 $ 1,166 0.22 $ 1,831,617 $ 1,558 0.34
Savings 1,088,351 274 0.10 1,084,981 557 0.21
Certificates of deposit 1,650,048 2,125 0.52 1,904,234 4,555 0.96
Total interest-bearing deposits 4,872,376 3,565 0.29 4,820,832 6,670 0.55
Borrowings 684,478 3,309 1.93 865,690 4,012 1.85
Total interest-bearing liabilities 5,556,854 6,874 0.49 5,686,522 10,682 0.75
Non-interest-bearing liabilities (4) 673,607 582,036
Total liabilities 6,230,461 6,268,558
Stockholders' equity 977,489 1,082,561
Total liabilities and stockholders' equity $ 7,207,950 $ 7,351,119
Net interest income $ 47,727 $ 48,483
Interest rate spread (5) 2.82 % 2.76 %
Net interest margin (6) 2.89 % 2.88 %
Ratio of interest-earning assets<br>  to interest-bearing liabilities 1.19 1.18

(1) Loans held-for-sale and non-accruing loans have been included in loans receivable and the effect of such inclusion was not material. Allowance for credit losses has been included in non-interest-earning assets.

(2) Fair value adjustments have been excluded in the balances of interest-earning assets.

(3) Includes interest-bearing deposits at other banks and FHLB of New York capital stock.

(4) Includes average balances of non-interest-bearing deposits of $624.2 million and $525.0 million for the quarter ended March 31, 2022, and 2021, respectively.

(5) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(6) Net interest margin represents net interest income as a percentage of average interest-earning assets.

Provision for Credit Losses. The provision for credit losses decreased $5.0 million to a provision for credit losses reversal of $3.9 million for the quarter ended March 31, 2022, compared to a provision for credit losses of $1.1 million for the quarter ended March 31, 2021. The provision reversal for the quarter ended March 31, 2022 was largely attributable to continued improvement in our economic forecast. In addition, there was a net reduction in reserves on individually evaluated loans primarily related to improved collateral values. By comparison, the provision for the quarter ended March 31, 2021 was largely attributable to increases in qualitative factors associated with the impact of COVID-19 on economic conditions and an increase in reserves on individually evaluated loans of $4.2 million, partially offset by a release of reserves within the one- to four-family residential segment, reflecting the improved credit risk outlook for that asset class.

Additional information regarding the ACL and the associated provisions recognized during the quarters ended March 31, 2022 and 2021 is presented in Note 6 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at March 31, 2022 and June 30, 2021.

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Non-Interest Income. Total non-interest income decreased $1.4 million to $3.2 million for the quarter ended March 31, 2022.

Fees and service charges increased $144,000 to $617,000 for the quarter ended March 31, 2022. The increase primarily reflected increases in various deposit-related and loan-related fees and charges.

Gain on sale of loans decreased $567,000 to $376,000 for the quarter ended March 31, 2022. The decrease in loan sale gains largely reflected a lower average sales price of loans sold and a decrease in the volume of loans sold between comparative periods largely attributable to increases in market interest rates.

Other non-interest income decreased $956,000 to $238,000 for the quarter ended March 31, 2022. The decrease in other non-interest income primarily reflected $837,000 of non-recurring gains on asset disposals recognized in the prior comparative period for which no such gains were recorded in the current period.

The remaining changes in the other components of non-interest income between comparative periods generally reflected normal operating fluctuations within those line items.

Non-Interest Expense. Total non-interest expense increased $807,000 to $30.6 million for the quarter ended March 31, 2022.

Salaries and employee benefits increased $2.2 million to $19.2 million for quarter ended March 31, 2022. This increase was largely due to the impact of staff additions, annual merit increases, increases in benefit plan expense, including employee medical, post-retirement plan and ESOP expense, and an increase in incentive payments tied to loan origination volume. Partially offsetting these increases was a decrease in stock-based compensation expense.

Director compensation decreased $408,000 to $340,000 for the quarter ended March 31, 2022. This decrease primarily reflected a decline in director-related stock-based compensation expense.

Other non-interest expense decreased $734,000 to $3.1 million for the quarter ended March 31, 2022. This decrease was primarily attributable to the reversal of provision for credit losses on off-balance sheet credit exposures and a decrease in loan expenses. The decrease was also attributable to non-recurring asset impairment charges of $375,000 related to branch consolidation activity recognized during the prior comparative quarter.

The remaining changes in the other components of non-interest expense between comparative periods generally reflected normal operating fluctuations within those line items.

Provision for Income Taxes. Provision for income taxes increased $790,000 to $6.5 million for the quarter ended March 31, 2022 from $5.7 million for the quarter ended March 31, 2021.

The increase in income tax expense reflected a higher level of pre-tax net income, as compared to the prior period, resulting in a higher provision for income tax expense.

Effective tax rates for the quarter ended March 31, 2022 and 2021 were 26.9% and 25.9%, respectively.

Comparison of Operating Results for the Nine Months Ended March 31, 2022 and March 31, 2021

Net Income. Net income for the nine months ended March 31, 2022 was $56.2 million, or $0.78 per diluted share, compared to $44.8 million, or $0.53 per diluted share for the nine months ended March 31, 2021. The increase in net income reflected an increase in net interest income, a decrease in the provision for credit losses and a decrease in non-interest expense, partially offset by a decrease in non-interest income and an increase in income tax expense.

Net Interest Income. As noted above, effective July 1, 2021, loan prepayment penalty income was reclassified to interest income on loans. Previously, loan prepayment penalty income was recorded within non-interest income. Interest income and non-interest income for all periods presented reflect this reclassification.

Net interest income increased by $6.8 million to $146.0 million for the nine months ended March 31, 2022 compared to $139.2 million for the nine months ended March 31, 2021. The increase between the comparative periods resulted from a decrease of $19.5 million in interest expense, partially offset by a decrease of $12.7 million in interest income. Included in net interest income, for the nine months ended March 31, 2022 and 2021, respectively, was purchase accounting accretion of $7.4 million and $13.5 million and loan prepayment penalty income of $4.5 million and $2.8 million.

  • 45 -

Net interest margin increased 18 basis points to 2.95% for the nine months ended March 31, 2022, from 2.77% for the nine months ended March 31, 2021 and reflected a decrease in the average cost of interest-bearing liabilities that was partially offset by a decrease in the average yield on interest-earning assets.

Details surrounding the composition of, and changes to, net interest income are presented in the table below which reflects the components of the average balance sheet and of net interest income for the periods indicated. We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented with daily balances used to derive average balances. No tax equivalent adjustments have been made to yield or costs. Non-accrual loans were included in the calculation of average balances, however interest receivable on these loans has been fully reserved for and therefore not included in interest income. The yields and costs set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

For the Nine Months Ended March 31,
2022 2021
Average<br>Balance Interest Average<br>Yield/<br>Cost Average<br>Balance Interest Average<br>Yield/<br>Cost
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $ 4,836,189 $ 141,651 3.91 % $ 4,882,529 $ 153,776 4.20 %
Taxable investment securities (2) 1,627,160 23,831 1.95 1,521,839 22,934 2.01
Tax-exempt securities (2) 57,411 976 2.27 78,442 1,297 2.20
Other interest-earning assets (3) 81,078 1,261 2.07 228,075 2,406 1.41
Total interest-earning assets 6,601,838 167,719 3.39 6,710,885 180,413 3.58
Non-interest-earning assets 609,996 624,644
Total assets $ 7,211,834 $ 7,335,529
Interest-bearing liabilities:
Interest-bearing demand $ 2,037,725 $ 3,446 0.23 $ 1,658,437 $ 5,727 0.46
Savings 1,092,738 896 0.11 1,049,655 2,874 0.37
Certificates of deposit 1,714,448 6,951 0.54 1,930,970 17,778 1.23
Total interest-bearing deposits 4,844,911 11,293 0.31 4,639,062 26,379 0.76
Borrowings 690,372 10,422 2.01 1,020,472 14,865 1.94
Total interest-bearing liabilities 5,535,283 21,715 0.52 5,659,534 41,244 0.97
Non-interest-bearing liabilities (4) 671,935 572,249
Total liabilities 6,207,218 6,231,783
Stockholders' equity 1,004,616 1,103,746
Total liabilities and stockholders' equity $ 7,211,834 $ 7,335,529
Net interest income $ 146,004 $ 139,169
Interest rate spread (5) 2.87 % 2.61 %
Net interest margin (6) 2.95 % 2.77 %
Ratio of interest-earning assets<br>  to interest-bearing liabilities 1.19 1.19

(1) Loans held-for-sale and non-accruing loans have been included in loans receivable and the effect of such inclusion was not material. Allowance for credit losses has been included in non-interest-earning assets.

(2) Fair value adjustments have been excluded in the balances of interest-earning assets.

(3) Includes interest-bearing deposits at other banks and FHLB of New York capital stock.

(4) Includes average balances of non-interest-bearing deposits of $619.5 million and $502.0 million for the nine months ended March 31, 2022, and 2021, respectively.

(5) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(6) Net interest margin represents net interest income as a percentage of average interest-earning assets.

  • 46 -

Provision for Credit Losses. The provision for credit losses decreased $15.6 million to a provision for credit losses reversal of $11.7 million for the nine months ended March 31, 2022, compared to a provision for credit losses of $3.8 million for the nine months ended March 31, 2021. The provision reversal for the nine months ended March 31, 2022 was largely attributable to a continued improvement in our economic forecast, a reduction in the expected life of various segments of the loan portfolio and a net reduction in reserves on loans individually evaluated for impairment. By comparison, the provision for the nine months ended March 31, 2021, was largely attributable to an increase of $5.7 million in reserves on individually evaluated loans and $5.1 million of provision expense on non-PCD loans acquired in connection with the acquisition of MSB, partially offset by a release of reserves within the one- to four-family residential segment, reflecting the improved credit risk outlook for that asset class and provision for credit losses reversal associated with a decline in balances of loans collectively evaluated for impairment.

Additional information regarding the ACL and the associated provisions recognized during the nine months ended March 31, 2022 and 2021 is presented in Note 6 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at March 31, 2022 and June 30, 2021.

Non-Interest Income. Total non-interest income decreased $6.4 million to $11.1 million for the nine months ended March 31, 2022.

Fees and service charges increased $448,000 to $1.9 million for the nine months ended March 31, 2022. The increase primarily reflected increases in loan-related and deposit-related fees and charges.

Gain on sale and call of securities reflected a net gain of $4,000 during the nine months ended March 31, 2022 compared to a net gain of $454,000 recorded during the earlier comparative period.

Gain on sale of loans decreased $2.9 million to $2.4 million for the nine months ended March 31, 2022. The decrease in loan sale gains largely reflected a decrease in the volume of loans sold between comparative periods and a lower average sales price of loans sold.

Bargain purchase gain recognized in the prior comparative period in connection with our acquisition of MSB was $3.1 million. No such gain was recorded in the current period.

Other non-interest income decreased $413,000 to $938,000 for the nine months ended March 31, 2022. The decrease primarily reflected a $356,000 non-recurring gain on asset disposals recognized in the current period compared to $837,000 of non-recurring gains on asset disposals recorded in the prior period.

The remaining changes in the other components of non-interest income between comparative periods generally reflected normal operating fluctuations within those line items.

Non-Interest Expense. Total non-interest expense decreased $1.8 million to $92.1 million for the nine months ended March 31, 2022.

Salaries and employee benefits increased $4.9 million to $55.9 million for the nine months ended March 31, 2022. This increase was largely due to the impact of staff additions, annual merit increases, increases in benefit plan expense, including employee medical, post-retirement plan and ESOP expense, and an increase in incentive payments tied to loan origination volume. Partially offsetting these increases was a decrease in stock-based compensation expense.

Net occupancy expense of premises increased $1.3 million to $10.9 million for the nine months ended March 31, 2022. This increase was primarily due to non-recurring expenses of $1.3 million related to the consolidation of three retail branch locations, $250,000 related to facility repairs made in connection with damage incurred during Tropical Storm Ida and $187,000 related to the closure of a leased office facility acquired in conjunction with the MSB acquisition.

Director compensation decreased $452,000 to $1.8 million for the nine months ended March 31, 2022. This decrease primarily reflected a decline in director-related stock-based compensation expense.

Merger-related expenses, associated with our acquisition of MSB, totaled $4.3 million for the nine months ended March 31, 2021 for which no such costs were recorded in the current period.

Debt extinguishment expenses totaled $796,000 for the nine months ended March 31, 2021 for which no such costs were recorded in the current period.

Other non-interest expense decreased $2.4 million to $9.1 million for the nine months ended March 31, 2022. This decrease was primarily attributable to the reversal of provision for credit losses on off-balance sheet credit exposures and a decrease in loan expenses. The decrease was also attributable to non-recurring asset impairment charges related to branch consolidation activity of $420,000 in the current period compared to $722,000 during the prior period.

  • 47 -

The remaining changes in the other components of non-interest expense between comparative periods generally reflected normal operating fluctuations within those line items.

Provision for Income Taxes. Provision for income taxes increased $6.4 million to $20.6 million for the nine months ended March 31, 2022, from $14.2 million for the nine months ended March 31, 2021.

The increase in income tax expense reflected a higher level of pre-tax net income, as compared to the prior period, resulting in a higher provision for income tax expense. The increase also reflected the effects of various non-recurring items recorded in conjunction with our acquisition of MSB, recorded in the prior comparative period, including non-deductible merger related expenses, which were partially offset by a non-taxable bargain purchase gain. The change in income tax expense also reflected the reversal of a valuation allowance totaling $535,000 which was associated with the realization of a capital loss carryforward recorded in the prior comparative period for which no such amount was recorded in the current period.

Effective tax rates for the nine months ended March 31, 2022 and 2021 were 26.8% and 24.1%, respectively. The effective tax rate for the prior comparative period reflected the effects of various non-recurring items recorded in conjunction with our acquisition of MSB and reversal of a valuation allowance, as noted above.

Liquidity and Capital Resources

Liquidity, represented by cash and cash equivalents, is a product of operating, investing and financing activities. Our primary sources of funds are deposits, borrowings, cash flows from investment securities and loans receivable and funds provided from operations. While scheduled payments from the amortization and maturity of loans and investment securities are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and prepayments on loans and securities.

At March 31, 2022, liquidity included $62.4 million of short-term cash and equivalents supplemented by $1.53 billion of investment securities classified as available for sale. In addition, as of March 31, 2022, we had the capacity to borrow additional funds totaling $2.38 billion and $312.5 million from the FHLB of New York and FRB, respectively, without pledging additional collateral. As of that same date, we also had access to unsecured overnight borrowings with other financial institutions totaling $950.0 million of which $310.0 million was outstanding.

At March 31, 2022, we had outstanding commitments to originate and purchase loans totaling approximately $198.1 million while such commitments totaled $192.8 million at June 30, 2021. As of those same dates, our pipeline of loans held for sale included $16.0 million and $48.4 million, respectively, of loans in process whose terms included interest rate locks to borrowers that were paired with a non-binding, best-efforts commitment to sell the loan to a buyer at a fixed price and within a predetermined timeframe after the sale commitment is established.

Construction loans in process and unused lines of credit were $88.2 million and $165.8 million, respectively, at March 31, 2022 compared to $138.3 million and $181.1 million, respectively, at June 30, 2021. We are also subject to the contingent liabilities resulting from letters of credit whose outstanding balances totaled $180,000 and $739,000, at March 31, 2022 and June 30, 2021, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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.

  • 48 -

The following table sets forth the Bank’s capital position at March 31, 2022 and June 30, 2021, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

At March 31, 2022
Actual For Capital<br>Adequacy Purposes To Be Well Capitalized<br>Under Prompt<br>Corrective Action<br>Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets) $ 668,961 14.14 % $ 378,457 8.00 % $ 473,071 10.00 %
Tier 1 capital (to risk-weighted assets) 641,798 13.57 % 283,843 6.00 % 378,457 8.00 %
Common equity tier 1 capital (to risk-weighted assets) 641,798 13.57 % 212,882 4.50 % 307,496 6.50 %
Tier 1 capital (to adjusted total assets) 641,798 9.14 % 280,960 4.00 % 351,200 5.00 %
At June 30, 2021
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Actual For Capital<br>Adequacy Purposes To Be Well Capitalized<br> Under Prompt<br> Corrective Action<br>Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets) $ 761,883 17.22 % $ 353,970 8.00 % $ 442,462 10.00 %
Tier 1 capital (to risk-weighted assets) 726,737 16.42 % 265,477 6.00 % 353,970 8.00 %
Common equity tier 1 capital (to risk-weighted assets) 726,737 16.42 % 199,108 4.50 % 287,600 6.50 %
Tier 1 capital (to adjusted total assets) 726,737 10.23 % 284,114 4.00 % 355,142 5.00 %

The following table sets forth the Company’s capital position at March 31, 2022 and June 30, 2021, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

At March 31, 2022
Actual For Capital<br>Adequacy Purposes
Amount Ratio Amount Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets) $ 802,929 16.97 % $ 378,574 8.00 %
Tier 1 capital (to risk-weighted assets) 775,766 16.39 % 283,931 6.00 %
Common equity tier 1 capital (to risk-weighted assets) 775,766 16.39 % 212,948 4.50 %
Tier 1 capital (to adjusted total assets) 775,766 11.04 % 281,055 4.00 %
At June 30, 2021
--- --- --- --- --- --- --- --- --- --- ---
Actual For Capital<br>Adequacy Purposes
Amount Ratio Amount Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets) $ 872,823 19.65 % $ 355,274 8.00 %
Tier 1 capital (to risk-weighted assets) 837,677 18.86 % 266,456 6.00 %
Common equity tier 1 capital (to risk-weighted assets) 837,677 18.86 % 199,842 4.50 %
Tier 1 capital (to adjusted total assets) 837,677 11.76 % 284,877 4.00 %

In March 2020, the federal banking agencies announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss method, followed by a three-year transition period established in the previous rule (five-year transition option). We have adopted the capital transition relief over the permissible five-year period.

  • 49 -

Off-Balance Sheet Arrangements

In the normal course of our business of investing in loans and securities we are a party to financial instruments with off-balance-sheet risk. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to extend credit to meet the financing needs of our customers. We had no significant off-balance sheet commitments for capital expenditures as of March 31, 2022.

Recent Accounting Pronouncements

For a discussion of the expected impact of recently issued accounting pronouncements that we have yet to adopt, please refer to Note 3 to the unaudited consolidated financial statements.

  • 50 -

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The majority of our assets and liabilities are sensitive to changes in interest rates and as such interest rate risk is a significant form of market risk that we must manage. Interest rate risk is generally defined in regulatory nomenclature as the risk to earnings or capital arising from the movement of interest rates and arises from several risk factors including re-pricing risk, basis risk, yield curve risk and option risk. We maintain an Asset/Liability Management (“ALM”) program in order manage our interest rate risk. The program is overseen by the Board of Directors through its Interest Rate Risk Management Committee which has assigned the responsibility for the operational aspects of the ALM program to our Asset/Liability Management Committee (“ALCO”), which is comprised of various members of the senior and executive management team.

The quantitative analysis that we conduct measures interest rate risk from both a capital and earnings perspective. With regard to earnings, movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income (“NII”) that we recognize. Movements in market interest rates, and the effect of such movements on the risk factors noted above, significantly influence the spread between the interest earned on our interest-earning assets and the interest paid on our interest-bearing liabilities. Our internal interest rate risk analysis calculates the sensitivity of our projected NII over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments. Product pricing and earning asset prepayment speeds are appropriately adjusted for each rate scenario.

With regard to capital, our internal interest rate risk analysis calculates the sensitivity of our Economic Value of Equity (“EVE”) to movements in interest rates. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet instruments. EVE attempts to quantify our economic value using a discounted cash flow methodology. The degree to which our EVE changes for any hypothetical interest rate scenario from its base case measurement is a reflection of our sensitivity to interest rate risk.

For both earnings and capital at risk, our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates. The relatively low level of interest rates prevalent at March 31, 2022 and June 30, 2021 precluded the modeling of certain falling rate scenarios.

The following tables present the results of our internal EVE and NII analyses as of March 31, 2022 and June 30, 2021, respectively:

March 31, 2022
1 to 12 Months 13 to 24 Months
Change in<br>Interest Rates Amountof EVE % Change<br>in EVE Amountof NII % Change<br>in NII Amountof NII % Change<br>in NII
(Dollars in Thousands)
+300 bps (11.91 ) % (10.70 ) % 3.42 %
+200 bps (7.84 ) % (7.43 ) % 2.10 %
+100 bps (2.47 ) % (2.83 ) % 2.10 %
0 bps - - -
-100 bps (3.73 ) % (4.29 ) % (9.15 ) %

All values are in US Dollars.

June 30, 2021
1 to 12 Months 13 to 24 Months
Change in<br>Interest Rates Amountof EVE % Change<br>in EVE Amountof NII % Change<br>in NII Amountof NII % Change<br>in NII
(Dollars in Thousands)
+300 bps (8.82 ) % (8.38 ) % 4.11 %
+200 bps (4.69 ) % (5.12 ) % 3.82 %
+100 bps (0.99 ) % (2.06 ) % 3.17 %
0 bps - - -
-100 bps (9.86 ) % (5.35 ) % (10.14 ) %

All values are in US Dollars.

At March 31, 2022, our interest rate risk analysis was impacted by $310.0 million of overnight borrowings, compared to $20.0 million of overnight borrowings at June 30, 2021. This increased level of overnight borrowings resulted in a relatively greater level of interest rate sensitivity in the rising rate shock scenarios and does not reflect any future actions we may take to replace or extend the maturity of these borrowings.

  • 51 -

There are numerous internal and external factors that may contribute to changes in our EVE and its sensitivity. Changes in the composition and allocation of our balance sheet, or utilization of off-balance sheet instruments such as derivatives, can significantly alter the exposure to interest rate risk as quantified by the changes in the EVE sensitivity measures. Changes to certain external factors, most notably changes in the level of market interest rates and overall shape of the yield curve, can also alter the projected cash flows of our interest-earning assets and interest-costing liabilities and the associated present values thereof.

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

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this Report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended March 31, 2022, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

  • 52 -

ITEM 1. Legal Proceedings

At March 31, 2022, 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

There have been no material changes to the Risk Factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, 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, 2022:

Period Total Number<br>of Shares<br>Purchased Average Price<br>Paid per Share Total Number<br>of Shares<br>Purchased as<br>Part of Publicly<br>Announced Plans<br>or Programs Maximum<br>Number of Shares<br>that May Yet Be<br>Purchased Under<br>the Plans or<br>Programs
January 1-31, 2022 599,585 $ 13.49 599,585 4,499,760
February 1-28, 2022 751,431 $ 13.37 751,431 3,748,329
March 1-31, 2022 668,609 $ 13.21 668,609 3,079,720
Total 2,019,625 $ 13.35 2,019,625 3,079,720

On September 22, 2021, the Company announced the authorization of a new stock repurchase plan to repurchase up to 7,602,021 shares, or 10% of the shares then outstanding. This current plan has no expiration date.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

  • 53 -

ITEM 6. Exhibits

The following Exhibits are filed as part of this report:

3.1 Articles of Incorporation of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)
3.2 Bylaws of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)
4 Form of Common Stock Certificate of Kearny Financial Corp. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)
10.1 Kearny Bank Amended and Restated Change in Control Severance Pay Plan
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Company’s Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
101.INS Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
  • 54 -

SIGNATURES

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

KEARNY FINANCIAL CORP.
Date: May 6, 2022 By: /s/ Craig L. Montanaro
Craig L. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 6, 2022 By: /s/ Keith Suchodolski
Keith Suchodolski
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

  • 55 -

    EX-10.1

Exhibit 10.1

KEARNY BANK

AMENDED AND RESTATED

CHANGE IN CONTROL SEVERANCE PAY PLAN

EFFECTIVE AS OF APRIL 20, 2022

A. Purpose.

The primary purpose of the Kearny Bank Amended and Restated Change in Control Severance Pay Plan, effective as of April 20, 2022 (the “Plan”) is to recruit and foster the continuous employment of key management personnel of Kearny Bank (the “Bank”) and to reinforce and encourage their continued attention and dedication to their duties in the event of any potential or actual Change in Control (as defined below), although no such change is now apparent or contemplated.

B. Covered Participants.

Any Participant, subject to paragraph C below, with at least one year of service as of his or her termination date shall be eligible to receive a Change in Control Severance Benefit (as defined below) if, within the period beginning on the effective date of a Change in Control and ending on the first anniversary of such date, (i) the Participant’s employment with the Bank is involuntarily terminated or (ii) the Participant terminates employment with the Bank voluntarily after being offered continued employment in a position that is not a Comparable Position (as defined below).

For purposes of this Plan, a “Participant” shall mean an employee of the Bank who has been named an officer of the Bank with a title of not less than 1st Vice President.

C. Limitations on Eligibility for Change in Control Severance Benefits.

(1) No Participant shall be eligible for a Change in Control Severance Benefit if (a) his or her employment is terminated for “Cause,” (b) he or she is offered a Comparable Position and declines to accept such position, or (c) the Participant is, at the time of termination of employment, a party to an individual employment agreement or change in control agreement with the Bank and/or Kearny Financial Corp. (the “Company”).

(2) For purposes of this Plan, a termination of employment for “Cause” shall include termination because of the Participant’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order.

(3) For purposes of this Plan, a “Comparable Position” shall mean a position that would (a) provide the Participant with base compensation and benefits that are comparable in the aggregate to those provided to the Participant prior to the Change in Control; (b) provide the Participant with an opportunity for variable bonus compensation that is comparable to the opportunity provided to the Participant prior to the Change in Control; (c) be in a location that would not require the Participant to increase his or her daily one way commuting distance by more than twenty-five (25) miles as

compared to the Participant’s commuting distance immediately prior to the Change in Control; and (d) have job skill requirements and duties that are comparable to the requirements and duties of the position held by the Participant prior to the Change in Control.

(4) A Participant shall cease to be a Participant in the Plan when the Participant ceases to be an employee of the Bank, unless such Participant is entitled to benefits under the Plan. A Participant entitled to benefits under the Plan shall remain a Participant in this Plan until he or she has received full payment of his or her Plan benefits.

D. Definitions of Change in Control.

For purposes of this Plan, a “Change in Control” means any of the following events:

(1) Merger: The Company or the Bank merges into or consolidates with another entity, or merges another Bank or corporation into the Bank or the Company, and as a result, less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the Company or the Bank immediately before the merger or consolidation;

(2) Acquisition of Significant Share Ownership: A person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the Company’s or the Bank’s voting securities; provided, however, this clause (2) shall not apply to beneficial ownership of the Company’s or the Bank’s voting shares held in a fiduciary capacity by an entity of which the Company directly or indirectly beneficially owns 50% or more of its outstanding voting securities;

(3) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s or the Bank’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s or the Bank’s Board of Directors; provided, however, that for purposes of this clause (c), each director who is first elected by the board (or first nominated by the board for election by the stockholders or corporators) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

(4) Sale of Assets: The Company or the Bank sells to a third party all or substantially all of its assets.

E. Determination of the Change in Control Severance Benefit.

(1) The Change in Control Severance Benefit payable to an eligible Participant under this Plan shall be determined under the following schedule:

(a) An eligible Participant shall receive a Change in Control Severance Benefit equal to the product of (i) the Participant’s years of credited service from his

or her hire date (including partial years) through the termination date and (ii) an amount equal to three weeks of the Participant’s Base Compensation (as defined below). A “year of credited service” shall mean each twelve (12)-month period of service following a Participant’s hire date determined without regard the number of hours worked during such period(s), provided, however, that upon the written resolution of the Compensation Committee (which may take into consideration recommendations by the President and Chief Executive Officer of the Company or the Bank), an eligible Participant may be credited with additional years of credited service hereunder in order to increase the Severance Benefit payable to such person. The minimum payment to an eligible Participant under this paragraph shall be an amount equal to four (4) months of Base Compensation and the maximum payment to an eligible Participant shall be an amount equal to nine (9) months of Base Compensation.

(b) The Change in Control Severance Benefit shall be paid in a lump sum not later than five (5) business days after the date of the Participant’s termination of employment.

(2) For purpose of determinations under this paragraph E, “Base Compensation” shall mean:

(a) For salaried Participants, the Participant’s annual base salary at the rate in effect on his or her termination date or, if greater, the rate in effect on the date immediately preceding the Change in Control.

(b) For Participants whose compensation is determined in whole or in part on the basis of commission income, the Participant’s base salary at termination (or, if greater, the Participant’s base salary on the date immediately preceding the effective date of the Change in Control), if any, plus the commissions earned by the Participant in the twelve (12) full calendar months preceding his or her termination date (or, if greater, the commissions earned in the twelve (12) full calendar months immediately preceding the effective date of the Change in Control).

(c) For Participants who are compensated on an hourly basis, the Participant’s total hourly wages for the twelve (12) full calendar months preceding his or her termination date or, if greater, the twelve (12) full calendar months preceding the effective date of the Change in Control.

(3) Notwithstanding the foregoing, in the event the party that enters into the merger or change in control transaction with the Bank or the Company (the “Acquiror”) sponsors a severance pay plan, then the eligible Participant will receive the greater of the benefit described above or the severance benefits of the Acquiror, whichever is greater.

F. Withholding.

All payments will be subject to customary withholding for federal, state and local tax purposes.

G. Parachute Payment.

Notwithstanding anything in this Plan to the contrary, if a Change in Control Severance Benefit to a Participant who is a “Disqualified Individual” shall be in an amount which includes an “Excess Parachute Payment,” taking into account payments under this Plan and otherwise, the benefit payable under this Plan shall be reduced to the maximum amount which does not include an Excess Parachute Payment. The terms “Disqualified Individual” and “Excess Parachute Payment” shall have the same meanings as under Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision thereto.

H. Administration.

The Plan is administered by the Compensation Committee, which shall have the discretion to interpret the terms of the Plan and to make all determinations about eligibility and payment of benefits. Notwithstanding anything in the Plan to the contrary, the Board of Directors of the Bank may, in its discretion, take any action and exercise any power, privilege or discretion conferred on the Compensation Committee under the Plan with the same force and effect under the Plan as if done or exercised by the Committee. All decisions of the Compensation Committee, any action taken by the Compensation Committee with respect to the Plan and within the powers granted to the Compensation Committee under the Plan, and any interpretation by the Compensation Committee of any term or condition of the Plan, are conclusive and binding on all persons, and will be given the maximum possible deference allowed by law. The Compensation Committee may delegate and reallocate any authority and responsibility with respect to the Plan.

I. Source of Payments.

Unless otherwise determined by the Compensation Committee, all payments and benefits provided under this Agreement shall be paid solely by the Bank or its successors. Notwithstanding anything in this Agreement to the contrary, no provision of this Agreement shall be construed so as to result in the duplication of any payment or benefit.

J. Inalienability.

In no event may any Participant sell, transfer, anticipate, assign or otherwise dispose of any right or interest under the Plan. At no time will any such right or interest be subject to the claims of creditors, nor liable to attachment, execution or other legal process.

K. Governing Law.

The provisions of the Plan will be construed, administered and enforced in accordance with the laws of the State of New Jersey, except to the extent that federal law applies.

L. Severability.

If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision of the Plan, and the Plan will be construed and enforced as if such provision had not been included.

M. No Employment Rights.

Neither the establishment nor the terms of this Plan shall be held or construed to confer upon any Participant the right to a continuation of employment by the Bank, nor constitute a contract of employment, express or implied. The Bank reserves the right to dismiss or otherwise deal with any Participant to the same extent and on the same basis as though this Plan had not been adopted. Nothing in this Plan is intended to alter the at-will status of the Bank’s employees, it being understood that, except to the extent otherwise expressly set forth to the contrary in an individual employment-related agreement, the employment of any employee may be terminated at any time by either the Bank or the employee with or without cause.

N. Amendment and Termination.

The Plan may be terminated or amended in any respect by resolution adopted by a majority of the Board of Directors, unless a Change in Control has previously occurred. If a Change in Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Bank, certifying that the amendment or termination has been approved by the Board of Directors. A proper amendment of the Plan automatically shall effect a corresponding amendment to each Participant’s rights hereunder. A proper termination of the Plan automatically shall effect a termination of all Participants’ rights and benefits hereunder. This Plan supersedes in its entirely the Kearny Bank Officer Change in Control Severance Pay Plan that was adopted effective as of June 19, 2019.

O. Required Provisions.

(1) In the event any of the provisions of this paragraph O are in conflict with the terms of this Plan, this paragraph O shall prevail.

(2) Any payments made to Participants pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. §1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

(3) Notwithstanding anything else in this Plan to the contrary, a Participant’s employment shall not be deemed to have been terminated unless and until the Participant has a Separation from Service within the meaning of Code Section 409A. For purposes of this Agreement, a “Separation from Service” shall have occurred if the Bank and the Participant reasonably anticipate that either no further services will be performed by the Participant after the date of termination (whether as an employee or as an independent contractor) or the level of further services performed is less than fifty

(50) percent of the average level of bona fide services in the thirty-six (36) months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

(4) Notwithstanding the foregoing, if a Participant is a “specified employee” (i.e., a “key employee” of a publicly traded company within the meaning of Section 409A of the Code and the final regulations issued thereunder) and any payment under this Plan is triggered due to the Participant’s Separation from Service, then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment shall be made during the first six (6) months following the Participant’s Separation from Service. Rather, any payment which would otherwise be paid to the Participant during such period shall be accumulated and paid to the Participant in a lump sum on the first day of the seventh month following such Separation from Service. All subsequent payments shall be paid in the manner specified in this Plan.

P. Claims Procedures and Arbitration.

(1) In the event that benefits under this Plan are not paid to the Participant and such Participant (or former Participant) feels entitled to receive such benefits, then a written claim must be made to the Compensation Committee within sixty (60) days from the date payments are refused. The Compensation Committee shall review the written claim and, if the claim is denied, in whole or in part, they shall provide in writing, within thirty (30) days of receipt of such claim, their specific reasons for such denial, reference to the provisions of this Plan upon which the denial is based, and any additional material or information necessary to perfect the claim. Such writing by the Compensation Committee shall further indicate the additional steps which must be undertaken by the Participant or former Participant if an additional review of the claim denial is desired.

(2) If the Participant or former Participant desires a second review, he or she shall notify the Compensation Committee in writing within thirty (30) days of the first claim denial. The Participant or former Participant may review this Plan or any documents relating thereto and submit any issues and comments, in writing, they may feel appropriate. In its sole discretion, the Compensation Committee shall then review the second claim and provide a written decision within thirty (30) days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Plan upon which the decision is based.

(3) If claimants continue to dispute the benefit denial based upon completed performance of this Plan or the meaning and effect of the terms and conditions thereof, it shall be settled by arbitration administered by the AAA under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Q. Successors.

The provisions of this Plan shall bind and inure to the benefit of the Bank and its successors and assigns. The term “successors” as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Bank, and successors of any such corporation or other business entity.

[signature page follows]

This plan has been approved and adopted by the Board of Directors of the Bank and is effective as of April 20, 2022.

KEARNY BANK

By: /s/ Craig L. Montanaro

Craig L. Montanaro

President and Chief Executive Officer

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Craig L. Montanaro, certify that:

1. I have reviewed this Form 10-Q of Kearny Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2022 /s/ Craig L. Montanaro
Craig L. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Keith Suchodolski, certify that:

1. I have reviewed this Form 10-Q of Kearny Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2022 /s/ Keith Suchodolski
Keith Suchodolski
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kearny Financial Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig L. Montanaro, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2022 /s/ Craig L. Montanaro
Craig L. Montanaro
President and Chief Executive Officer
(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Kearny Financial Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Keith Suchodolski, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2022 /s/ Keith Suchodolski
Keith Suchodolski
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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