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UAL REPORT 2023
Dear Fellow Shareholder,
Dear Fellow Shareholder,
L
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Economy
When we started fiscal 2023, the Federal Reserve was in
the midst of aggressively increasing interest rates to slow
down consumer demand and mute job growth as well as
the associated wage pressure. This resulted in slower GDP
growth, and more importantly, the hopes of orchestrating
a soft landing for the U.S. economy. Historically, monetary
policy takes time to influence the economy, and in this post-
pandemic environment the effects are more difficult to
measure. We did see a few sectors including manufacturing,
real estate and technology experience economic slowdown.
Successive moves resulted in a 550 basis point fed funds
rate and the inversion of the yield curve. While sectors of
the economy decelerated, core inflation remained too
high from the Federal Reserve’s perspective. As a result,
the Federal Reserve continued to raise rates incrementally
with the expectation that future economic data might reflect
the possibility that inflation might decelerate. To add to
the economic uncertainty, the financial services industry
experienced an unintended consequence because of the
liquidity pressure created by the Federal Reserve’s aggressive
monetary policy and the failure of three large regional financial
institutions. The postmortem performed by the regulatory
agencies on these institutions exposed large deposit
The Fairleigh Dickinson University (FDU) Florham Campus athletic
program has received a $25,000 contribution from Kearny Bank.
The funds, provided to the Madison, NJ-based university
through the KearnyBank Foundation’s education
category of corporate giving, will be directed
toward renovation of Ferguson
Recreation Center.
T
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REHOLDERS
concentrations in speculative industries, and an over-reliance
on uninsured deposits, as well as volatile funding
and inadequate risk management monitoring and planning.
The industry as a whole felt the reverberations with many
regional institutions feeling the greatest effects, followed by
community banks. We were fortunate during this period —
our staff worked diligently, reaching out to our clients to
assure them that we were not involved in any of these
speculative activities and did not have exposure to industries
that created higher levels of risk, as these risks were
conservatively quantified by the Kearny management team.
For over 139 years, our philosophy remains focused on
strength and stability with a fortress-like balance sheet
supported by capital ratios that exceed the “Well Capitalized”
classification according to regulatory guidelines, as well as a
seasoned risk management team with years of experience.
We had the foresight several years ago to adopt a deposit
product that provides extended FDIC Insurance coverage to
handle the most challenging financial conditions. Looking
out over the horizon, we anticipate that the U.S. and global
economies may experience some form of a slowdown
followed by some monetary policy easing over the next
12 to 24 months, as inflation begins to get closer to more
normalized pre-pandemic levels — although it is always
difficult to predict the economic future.
Financial Performance
In an effort to mitigate these challenging conditions,
we completed a restructuring of the company’s investment
portfolio and added over $1 billion of derivative notional
assets. Additionally, we made a number of targeted
adjustments to our wholesale balance sheet to reduce risk
and support future earnings. In conjunction with this balance
sheet restructuring project, management embarked on a
company-wide operating efficiency initiative to improve the
company’s cost structure through cost-reduction and cost-
containment. These initiatives included the optimization
and reduction of vendor spending, the automation or
outsourcing of routine activities and the re-alignment of the
company’s workforce. The result was an improvement in our
non-interest expense to average assets ratio to 1.53% during
fiscal 2023 from 1.73% of average assets during year-end fiscal
2022. Despite these efforts, the company earned net income
of $40.8 million, or $0.63 per share for fiscal 2023, compared
to $67.5 million, or $0.95 per share for fiscal 2022. Overall, it
was a challenging operating environment with the inverted
yield curve creating many obstacles from a lending and
funding perspective. There were a few bright spots
to note during fiscal 2023, as our investment
services business turned a small profit
of $242,000. It also helped support
our relationship banking effort
by growing additional non-
maturity deposits. Our private
client group had another
strong year, reaching the
$217 million mark with
489 clients despite
the added pressure
created by the March
2023 bank failures
within the regional
banking space.
As a part of our
ongoing capital
management plan,
we purchased 2,820,398
Technology/Workflow/Efficiency
During fiscal 2023, we refocused our technology expansion
efforts towards process improvement and workflow
automation, utilizing tools such as robotic process
automation. Utilizing these tools, our IT/Innovation teams
worked with different business lines to identify manually
intensive processes that, once automated, would result in
improved workflow and greater efficiencies. For example,
our loan servicing department worked collaboratively
with these two teams during a pilot program to automate
manual portions of their daily tasks. This resulted in
improved processing time along with a reduction
in workforce hours and, not surprisingly,
improvements in client service response
time. Additionally, our Anti-Money
Laundering team utilized
similar tools during their pilot
program to automate a
portion of their client case
development process,
which tends to be
labor-intensive. Each
of the pilot programs
created improved
efficiency to support
our growth plans while
limiting the number of
additional headcount
in these and potentially
other areas.
Turning toward loan
originations, we completed
the implementation of our
commercial loan origination
system as well as the implementation
shares of our common stock
at a cost of $27.4 million or
$9.73 per diluted share during
this fiscal year. Finally, our special
Kearny Bank donated $5,000 in support of Beach Sweeps,
while employee volunteers — including those representing
some of the bank’s 13 Jersey Shore-area locations —
participated in the cleanup
at Sandy Hook.
assets team worked diligently this year,
as the balance of our non-performing assets
decreased by $36.6 million or 39.7% to $55.6 million, or 0.69%
of total assets from $92.2 million, or 1.19% of total assets in
fiscal year 2022. This was accomplished while maintaining an
average annualized charge-off ratio of 0.01% for fiscal 2023
as compared to 0.07% for fiscal 2022. Historically, we have
maintained a charge-off ratio of approximately 3 basis points
on average over the last five years, which is one of the lowest
ratios in the community bank sector.
of our new construction loan management
platform. The implementation of both of
these platforms has moved us into the digital age and
improved the workflow and processing times in these
growing business lines. Lastly, we expect to launch our
new online banking platform in mid-October of this coming
fiscal year. I spent the last few weeks beta testing it with
our digital banking and innovation teams, and I am
confident that this platform will significantly improve
our digital capabilities.
Community Impact
One of the great benefits of being a community bank is that our
strategic focus has always included elements of ESG, because they
just made good business sense. As a local financial institution, we
understand the importance of supporting the community we serve
and promoting organizations whose work supports individuals
in underserved communities. Our support ensures that these
communities have the resources they need to grow and prosper.
Some of the ways we accomplish this mission are through
grants from the KearnyBank Foundation to local non-profits
in our markets to support educational initiatives, housing and
other quality-of-life programs. Another example of this
support includes the enhancement of our First
Time Home Buyer program, which provided
over $26 million in loans to families that
might not otherwise have had the
opportunity to enjoy the American
Dream of home ownership.
Additionally, the Kearny Bank
ChangeMakers program was
launched in 2023 with the
principles of supporting local
women-owned businesses and
providing services to help them
succeed. As part of this effort, we
partnered with Rutgers University
to develop a specific curriculum
to educate us further on gender
socialization and to give us a better
understanding of some of the dynamics
behind women’s progress in business. This
knowledge has helped our program ambassadors
develop networking and workshop opportunities with fellow
female entrepreneurs, business owners, visionaries and
creatives to help these leaders grow and succeed.
As I have mentioned in past letters, people are our most valuable
resource. They are also the fuel that powers the engine of our
business. In 2023, we appointed a Director of Diversity, Equity
and Inclusion to help create a more powerful and dynamic
employee base. This individual will create and implement
strategies to increase the representation and retention of
under-represented segments of our workforce by developing
programs and partnerships with community groups to enhance
the available pool of diverse candidates. Our aim is to ensure
that our workforce reflects the communities we serve, that our
employees feel valued and that we provide opportunities for
them so they can reach their maximum potential.
Turning to the environment, we are committed to managing the
impact associated with our operations and the risks created by
climate change. To better quantify these risks, we conduct an
annual climate risk analysis. The analysis reviews the various
risks posed to our retail branch network, regional corporate
headquarters and loan portfolio as measured by the Federal
Emergency Management Agency National Risk Index. Overall,
our business continues to be exposed to only low to moderate
risk of natural disaster. During 2023, we implemented an energy
management system to monitor and reduce energy usage in
our regional corporate headquarters. Transitioning to paperless
processes utilizing digital technology is another way to help
reduce our overall reliance on paper resources. Lastly, the move
to more cloud-based technologies to reduce on-premises power
consumption by our electronic equipment should continue
to evolve over the coming years.
Finally, many years ago, we committed to
developing strong risk management,
audit and compliance practices focused
on stress testing capital, liquidity,
interest rate risk and credit to help
manage our risk exposure and to
recalibrate our risk appetite during
different business cycles.
Closing/Future
As a fellow shareholder, I am
sure that we share the same
disappointment with the economic
environment and the overall change
in market valuations that occurred in the
financial service sector as bank valuations
have declined significantly over the last 12
months. These are the times when I am reminded by my
predecessor that patience and staying the course in terms
of our strategy will ultimately pay off. We have an excellent
management team and dedicated employees that have
successfully navigated challenging environments before, such
as the Dot.com bubble, 2008 Financial Crisis and the Pandemic.
When the shape of the yield curve improves, our earnings
growth should accelerate, and we will all be rewarded for our
patience. In closing, I would like to thank our board of directors,
management team, staff and our faithful shareholders for the
support and belief in our mission during these challenging times.
Sincerely,
Craig L. Montanaro
Craig L. Montanaro
President & CEO
President & CEO
Kearny Financial Corp.
Kearny Financial Corp.
Kearny Bank
Kearny Bank
Kearny Bank employees volunteering for
a local Habitat for Humanity chapter.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-K
___________________________________________________
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2023
Or
o 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
(State or Other Jurisdiction of
Incorporation or Organization)
120 Passaic Avenue, Fairfield, New Jersey
(Address of Principal Executive Offices)
30-0870244
(I.R.S. Employer
Identification No.)
07004
(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
Common Stock, $0.01 par value
Trading Symbol(s)
KRNY
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
___________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
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. x Yes o 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). x Yes o 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 filer”, “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
x
o
Accelerated filer
Smaller reporting company
Emerging growth company
o
o
o
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant on December 30, 2022 (the last
business day of the Registrant’s most recently completed second fiscal quarter) was $627.7 million. Solely for purposes of this calculation, shares
held by directors, executive officers and greater than 10% stockholders are treated as shares held by affiliates.
As of August 18, 2023 there were outstanding 65,214,903 shares of the Registrant’s Common Stock.
1.
Portions of the definitive Proxy Statement for the Registrant’s 2023 Annual Meeting of Stockholders. (Part III)
DOCUMENTS INCORPORATED BY REFERENCE
KEARNY FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended June 30, 2023
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
SIGNATURES
PART IV
i
Page
2
28
36
36
36
36
37
38
39
51
52
53
53
53
53
54
54
54
55
55
56
58
Item 1. Business
Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words
such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These
forward-looking statements include, but are not limited to:
•
•
•
•
statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions
that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after
the date of the Annual Report on Form 10-K.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general economic conditions, either nationally or in our market areas, that are worse than expected;
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy
of the allowance for credit losses;
our ability to access cost-effective funding;
fluctuations in real estate values and both residential and commercial real estate market conditions;
demand for loans and deposits in our market area;
our ability to implement changes in our business strategies;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields, or reduce the fair
value of financial instruments or reduce the origination levels in our lending business, or increase the level of
defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the
secondary markets;
adverse changes in the securities markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in
regulatory fees and capital requirements;
changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board;
our ability to manage market risk, credit risk and operational risk in the current economic conditions;
significant increases in our loan losses;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate any assets, liabilities, clients, systems and management personnel we have
acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings
within expected time frames and any goodwill charges related thereto;
changes in consumer demand, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by bank regulatory agencies, the Financial
Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting
Oversight Board;
our ability to retain key employees;
technological changes;
2
•
•
•
•
•
•
cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or
other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;
technological changes that may be more difficult or expensive than expected;
the ability of third-party providers to perform their obligations to us;
the ability of the U.S. Government to manage federal debt limits;
changes in the financial condition, results of operations or future prospects of issuers of securities that we own;
and
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing
products and services described elsewhere in this Annual Report on Form 10-K.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated
by these forward-looking statements.
General
Kearny Financial Corp. (the “Company,” or “Kearny Financial”), is a Maryland corporation that is the holding company
for Kearny Bank (the “Bank” or “Kearny Bank”), a nonmember New Jersey-chartered savings bank.
The Company is a unitary savings and loan holding company, regulated by the Board of Governors of the Federal
Reserve Bank (“FRB”) and conducts no significant business or operations of its own. The Bank’s deposits are federally insured
by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation (“FDIC”) and the Bank is primarily
regulated by the New Jersey Department of Banking and Insurance (“NJDBI”) and, as a nonmember bank, the FDIC. References
in this Annual Report on Form 10-K to the Company or Kearny Financial generally refer to the Company and the Bank, unless
the context indicates otherwise. References to “we,” “us,” or “our” refer to the Bank or Company, or both, as the context
indicates.
The Company’s primary business is the ownership and operation of the Bank. The Bank is principally engaged in the
business of attracting deposits from the general public and using these deposits, together with other funds, to originate or purchase
loans for its portfolio and for sale into the secondary market. Our loan portfolio is primarily comprised of loans collateralized by
commercial and residential real estate augmented by secured and unsecured loans to businesses and consumers. We also maintain
a portfolio of investment securities, primarily comprised of U.S. agency mortgage-backed securities, obligations of state and
political subdivisions, corporate bonds, asset-backed securities and collateralized loan obligations.
We operate from our administrative headquarters in Fairfield, New Jersey and other administrative locations throughout
the state of New Jersey. As of June 30, 2023, we had 43 branch offices. The Company maintains a website at
www.kearnybank.com. We make available through that website, free of charge, copies of our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and proxy materials as soon as is
reasonably practicable after the Company electronically files those materials with, or furnishes them to, the Securities and
Exchange Commission. You may access these materials by following the links under “Investor Relations” under the “Financial
Information” tab at the Company’s website. Information on the Company’s website is not and should not be considered a part of
this Annual Report on Form 10-K.
3
Business Strategy
We have evolved our business model from that of a traditional thrift into that of a full-service community bank. This
evolution has been accomplished by growing our commercial loans and deposits, expanding our product and service offerings, de-
novo branching and the acquisition of other financial institutions. During this time, our strategy has been largely focused on
profitably deploying capital and enhancing earnings through a variety of balance sheet growth and diversification strategies. The
key components of our business strategy are as follows:
• Maintain Robust Capital and Liquidity Levels
As demonstrated by the June 30, 2023 Tier 1 Leverage ratios of the Company and the Bank of 9.07% and 8.15%,
respectively, we currently maintain, and plan to continue to maintain, capital levels in excess of regulatory minimums
and internal capital adequacy guidelines.
In addition to our robust capital levels, we maintain significant sources of both on- and off-balance sheet liquidity and
plan to continue to do so. At June 30, 2023, our liquid assets included $70.5 million of short-term cash and equivalents
supplemented by $1.23 billion of investment securities classified as available for sale which can be readily sold or
pledged as collateral, if necessary. In addition, we had the capacity to borrow additional funds totaling $990.0 million via
unsecured overnight borrowings from other financial institutions and $1.55 billion and $415.0 million from the Federal
Home Loan Bank of New York and FRB, respectively, without pledging additional collateral.
•
Continue Our Technology Transformation
Given the ongoing evolution of our business towards digital channels, we have invested significant human resources and
capital towards enhancing both our internal and client-facing technology systems. Our ongoing technology
transformation will impact nearly every area of the Company including the residential and commercial lending functions,
retail deposit gathering, risk management and back office operations. In fiscal 2024, we plan to accelerate our digital
strategy, spearheaded by the adoption of a cloud-based, best-in-breed digital banking platform, and continue to serve our
clients’ needs in an omnichannel environment while expanding our products and services into new markets in an
efficient and cost-effective manner.
•
Focus on Relationship Banking and Core Deposits
We focus on the acquisition and retention of core non-maturity deposit accounts and expanding customer relationships.
Our philosophy is to provide superior, personalized service to our clients. In addition, we intend to increase core non-
maturity deposit accounts by growing business banking relationships through expanded product lines tailored to meet our
target business customers’ needs. Core non-maturity deposit accounts totaled $3.61 billion at June 30, 2023, representing
64.2% of total deposits.
•
Improve Our Operating Efficiency
In recent years, our operating efficiency has improved both organically and via economies of scale gained from merger
and acquisition activity. Exclusive of potential future acquisitions, we plan to continue to improve operating efficiency
through organic means, such as the increased use of technology and the continual evaluation of our branch network. We
plan to continue to evaluate and optimize the performance of our existing branch network through additional branch
consolidations, where appropriate. Such efforts will take into consideration historical branch profitability, market
demographic trajectory, geographic proximity of consolidating branches and the expected impact on the Bank’s clients
and communities served.
During the year ended June 2023, we announced the adoption of a company-wide operating efficiency initiative that
included the optimization and reduction of vendor spend, the automation or outsourcing of routine activities, and the
realignment of our workforce. The result was an improvement in our non-interest expense to average assets ratio to
1.53% during the year ended June 30, 2023 from 1.73% during the year ended June 30, 2022.
Market Area. At June 30, 2023, our primary market area consisted of the counties in which we currently operate
branches, including Bergen, Essex, Hudson, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Union counties in New
Jersey and Kings (Brooklyn) and Richmond (Staten Island) counties in New York. Our lending is concentrated in New Jersey and
New York and our predominant sources of deposits are the communities in which our offices are located as well as the
neighboring communities.
4
Competition. We operate in a highly competitive market area with a large concentration of financial institutions and we
face substantial competition in attracting deposits and in originating loans. A number of our competitors are significantly larger
institutions with greater financial and technological resources and lending limits. Our ability to compete successfully is a
significant factor affecting our growth potential and profitability. Our competition for deposits and loans comes from other
insured depository institutions located in our primary market area as well as out-of-market depository institutions operating via
online channels and from non-depository institutions including mortgage banks, finance companies, insurance companies,
brokerage firms and financial technology companies.
Lending Activities
General. Our loan portfolio is comprised of multi-family mortgage loans, nonresidential mortgage loans, commercial
business loans, construction loans, one- to four-family residential mortgage loans, home equity loans and other consumer loans. In
recent years our lending strategies have placed increasing emphasis on the origination of commercial loans.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio in dollar amounts and
as a percentage of the total portfolio at the dates indicated.
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Consumer loans:
Home equity loans
Other consumer
Total loans
Less:
Allowance for credit losses
Unaccreted yield adjustments
Total adjustments
At June 30,
2023
2022
Amount
Percent
Amount
Percent
(Dollars In Thousands)
$
2,761,775
47.21 % $
2,409,090
44.31 %
968,574
146,861
226,609
1,700,559
43,549
2,549
16.56
2.51
3.87
29.07
0.74
0.04
1,019,838
176,807
140,131
1,645,816
42,028
2,866
18.76
3.25
2.58
30.27
0.78
0.05
5,850,476
100.00 %
5,436,576
100.00 %
48,734
21,055
69,789
47,058
18,731
65,789
Total loans, net
$
5,780,687
$
5,370,787
5
The following table sets forth the composition of our real estate secured loans indicating the loan-to-value (“LTV”), by
loan category, at June 30, 2023 and 2022:
Commercial mortgage loans:
Multi-family mortgage
Nonresidential mortgage
Construction
Total commercial mortgage loans
June 30, 2023
June 30, 2022
Balance
LTV
Balance
LTV
(Dollars in Thousands)
$
2,761,775
64 % $
2,409,090
968,574
226,609
3,956,958
54 %
58 %
61 %
1,019,838
140,131
3,569,059
One- to four-family residential mortgage
1,700,559
62 %
1,645,816
Consumer loans:
Home equity loans
43,549
49 %
42,028
Total mortgage loans
$
5,701,066
61 % $
5,256,903
64 %
54 %
61 %
61 %
62 %
46 %
61 %
Loan Maturity Schedule. The following table sets forth the maturities of our loan portfolio at June 30, 2023. Demand
loans, loans having no stated maturity and overdrafts are shown as due in one year or less. Loans are stated in the following table
at contractual maturity and actual maturities could differ due to prepayments.
Amounts Due
Within
One Year
1 to 5
Years
5 to 15
Years
Over 15
Years
(In Thousands)
Total Due
After One
Year
Total
$
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
90,918 $ 871,298 $ 1,691,671 $ 107,888 $ 2,670,857 $ 2,761,775
968,574
75,890
146,861
59,165
226,609
192,382
1,700,559
4,602
43,549
270
2,549
987
$ 424,214 $ 1,357,018 $ 2,411,616 $ 1,657,628 $ 5,426,262 $ 5,850,476
892,684
87,696
34,227
1,695,957
43,279
1,562
92,459
4,138
2,961
1,437,894
11,007
1,281
432,710
45,855
—
215,164
26,198
18
367,515
37,703
31,266
42,899
6,074
263
6
The following table shows the loans as of June 30, 2023 due after June 30, 2024 according to rate type and loan category:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Fixed Rates
Floating or
Adjustable
Rates
(In Thousands)
$
2,004,363 $
569,901
52,934
1,094
1,570,705
24,997
508
666,494 $
322,783
34,762
33,133
125,252
18,282
1,054
Total
2,670,857
892,684
87,696
34,227
1,695,957
43,279
1,562
Total loans
$
4,224,502 $
1,201,760 $
5,426,262
Multi-Family and Nonresidential Real Estate Mortgage Loans. At June 30, 2023, multi-family mortgage loans totaled
$2.76 billion, or 47.2% of our loan portfolio, while nonresidential mortgage loans totaled $968.6 million, or 16.6% of our loan
portfolio. We originate commercial mortgage loans on a variety of multi-family and nonresidential property types, including loans
on mixed-use properties which combine residential and commercial space. We generally offer fixed-rate and adjustable-rate
balloon mortgage loans on multi-family and nonresidential properties with final stated maturities ranging from three to 15 years
with amortization terms which generally range from 15 to 30 years. Our commercial mortgage loans are primarily secured by
properties located in New Jersey, New York and the surrounding states.
Commercial Business (C&I) Loans. At June 30, 2023, commercial business loans totaled $146.9 million, or 2.5% of our
loan portfolio. We originate commercial term loans and lines of credit to a variety of clients in our market area. Our commercial
term loans generally have terms of up to 10 years. Our commercial lines of credit have terms of up to one year and are generally
floating-rate loans.
Construction Lending. At June 30, 2023, construction loans totaled $226.6 million, or 3.9% of our loan portfolio. Our
construction lending includes loans to individuals, builders or developers for the construction of multi-family residential buildings
or commercial real estate or for the construction or renovation of one- to four-family residences. Construction borrowers must
hold title to the land free and clear of any liens. Financing for construction loans is limited to 80% of the anticipated appraised
value of the completed property. Disbursements are made in accordance with inspection reports by our approved appraisal firms.
Terms of financing are generally limited to one year with an interest rate tied to the prime rate and may include a premium of one
or more points. In some cases, we convert a construction loan to a permanent mortgage loan upon completion of construction. We
have no formal limits as to the number of projects a builder has under construction or development and make a case-by-case
determination on loans to builders and developers who have multiple projects under development.
One- to Four-Family Residential Mortgage Loans Held in Portfolio. At June 30, 2023, one- to four-family residential
mortgage loans totaled $1.70 billion, or 29.1% of our loan portfolio. At June 30, 2023, $1.58 billion, or 93.1%, of our one- to
four-family residential mortgage loans were secured by properties located within New Jersey and New York with the remaining
$117.6 million, or 6.9%, secured by properties in other states. The fixed-rate residential mortgage loans that we originate for
portfolio generally meet the secondary mortgage market standards of the Federal Home Loan Mortgage Corporation (“Freddie
Mac”). In addition, we offer a first-time homebuyer program which provides financial incentives for persons who have not
previously owned real estate and are purchasing a one- to four-family property in our primary lending area for use as a primary
residence.
One- to Four-Family Residential Mortgage Loans Held for Sale. As a complement to our residential one- to four-
family portfolio lending activities, we operate a mortgage banking platform which supports the origination of one- to four-family
mortgage loans for sale into the secondary market. The loans we originate for sale generally meet the secondary mortgage market
standards of Freddie Mac. Such loans are generally originated by, and sourced from, the same resources and markets as those
loans originated and held in our portfolio. Our mortgage banking business strategy resulted in the recognition of $760,000 in
gains associated with the sale of $103.8 million of mortgage loans held for sale during the year ended June 30, 2023. As of that
date, an additional $9.6 million of loans were held and committed for sale into the secondary market.
Home Equity Loans. At June 30, 2023, home equity loans totaled $43.5 million, or 0.7% of our loan portfolio. Our
home equity loans are fixed-rate loans for terms of generally up to 20 years. We also offer fixed-rate and adjustable-rate home
equity lines of credit with terms of up to 20 years.
7
Other Consumer Loans. At June 30, 2023, other consumer loans totaled $2.5 million, or 0.04% of our loan portfolio.
Our consumer loan portfolio includes unsecured overdraft lines of credit and personal loans as well as loans secured by savings
accounts and certificates of deposit on deposit with the Bank.
Loans to One Borrower. New Jersey law generally limits the amount that a savings bank may lend to a single borrower
and related entities to 15% of the institution’s capital funds. Accordingly, as of June 30, 2023, our legal loans to one borrower
limit was approximately $104.3 million.
At June 30, 2023, our largest single borrower had an aggregate outstanding loan exposure of approximately $98.9
million comprising six multi-family mortgage loans. At June 30, 2023, this lending relationship was current and performing in
accordance with the terms of their loan agreements.
Loan Originations, Purchases, Sales and Repayments. The following table shows the principal balances of portfolio
loans originated, purchased, acquired and repaid during the periods indicated:
Loan originations: (1)
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Consumer loans:
Home equity loans
Other consumer
Total loan originations
Loan purchases:
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
One- to four-family residential mortgage
Total loan purchases
Loans acquired from MSB (2)
Loan sales:(1)
Commercial business
Total loans sold
Loan repayments
Decrease due to other items
For the Years Ended June 30,
2023
2022
2021
(In Thousands)
$
602,206 $
114,184
91,803
87,669
197,839
911,021 $
231,159
140,051
86,448
415,602
256,223
96,238
104,628
50,382
553,194
26,014
1,095
1,120,810
18,634
1,167
1,804,082
15,804
1,227
1,077,696
—
—
46
656
702
—
55,847
—
146
67,396
123,389
—
—
21,351
251
60,105
81,707
530,693
(655)
(655)
(1,035)
(1,035)
(44,450)
(44,450)
(706,860)
(4,097)
(1,343,081)
(5,797)
(1,311,576)
(1,911)
Net increase in loan portfolio
$
409,900 $
577,558 $
332,159
________________________________________
(1) Excludes origination and sales of one- to four-family mortgage loans held for sale.
(2) For information on loans acquired in the MSB acquisition, see Note 3 to the audited consolidated financial statements.
Additional information about our loans is presented in Note 5 to the audited consolidated financial statements.
Loan Approval Procedures and Authority. Senior management recommends, and the Board of Directors approves, our
lending policies and loan approval limits. The Bank’s Loan Committee consists of the Chief Executive Officer, Chief Lending
Officer, Chief Credit Officer, Chief Risk Officer and other members of senior management. Loans which exceed certain
thresholds, as defined within our policies, are submitted to the Bank’s Loan Committee and/or Board of Directors for approval.
8
Asset Quality
Collection Procedures on Delinquent Loans. We regularly monitor the payment status of all loans within our portfolio
and promptly initiate collection efforts on past due loans in accordance with applicable policies and procedures. Delinquent
borrowers are notified when a loan is 30 days past due. If the delinquency continues, subsequent efforts are made to contact the
delinquent borrower and additional collection notices are sent. All reasonable attempts are made to collect from borrowers prior to
referral to an attorney for collection. However, when a residential loan is 120 days delinquent and a commercial loan is 90 days
delinquent, it is our general practice to refer it to an attorney for repossession, foreclosure or other form of collection action, as
appropriate. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower
to reorganize their financial affairs as we attempt to work with the borrower to establish a repayment schedule to cure the
delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property
is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as
the result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned until it is sold or otherwise
disposed of. When other real estate owned is acquired, it is recorded at its fair market value less estimated selling costs. The initial
write-down of the property, if necessary, is charged to the allowance for credit losses. Adjustments to the carrying value of the
properties that result from subsequent declines in value are charged to operations in the period in which the declines are identified.
Past Due Loans. A loan’s past due status is generally determined based upon its principal and interest (“P&I”) payment
delinquency status in conjunction with its past maturity status, where applicable. A loan’s P&I payment delinquency status is
based upon the number of calendar days between the date of the earliest P&I payment due and the as of measurement date. A
loan’s past maturity status, where applicable, is based upon the number of calendar days between a loan’s contractual maturity
date and the as of measurement date. Based upon the larger of these criteria, loans are categorized into the following past due tiers
for financial statement reporting and disclosure purposes: Current (including 1-29 days past due), 30-59 days past due, 60-89 days
past due and 90 or more days past due.
Additional information about our past due loans is presented in Note 5 to the audited consolidated financial statements.
Nonaccrual Loans. Loans are generally placed on nonaccrual status when contractual payments become 90 or more days
past due or when we do not expect to receive all P&I 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 we expect to receive all remaining P&I 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.
Purchased Credit Deteriorated Loans (“PCD”). PCD loans are acquired loans that, as of the acquisition date, have
experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD loans are acquired loans that
have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of
acquired loans, we evaluate risk characteristics that have been determined to be indicators of deteriorated credit quality. The
determining criteria may involve loan specific characteristics such as payment status, debt service coverage or other changes in
creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in
industries impacted by the pandemic. As part of our acquisition of MSB, we acquired PCD loans with a par value of $69.4 million
and an allowance for credit losses of $3.9 million. Additional information about our PCD loans is presented in Note 5 to the
audited consolidated financial statements.
9
Nonperforming Assets. The following table provides information regarding our nonperforming assets which are
comprised of nonaccrual loans, accruing loans 90 days or more past due, nonaccrual loans held-for-sale and other real estate
owned:
Nonaccrual loans (1)
Accruing loans 90 days or more past due
Total nonperforming loans
Nonaccrual loans held-for-sale
Other real estate owned
Total nonperforming assets
Total nonaccrual loans to total loans
Total nonperforming loans to total loans
Total nonperforming loans to total assets
Total nonperforming assets to total assets
At June 30,
2023
2022
(Dollars In Thousands)
$
42,627
$
70,321
$
—
42,627
—
12,956
55,583
0.73 %
0.73 %
0.53 %
0.69 %
—
70,321
21,745
178
$
92,244
1.30 %
1.30 %
0.91 %
1.19 %
________________________________________
(1) TDRs on accrual status not included above totaled $10.5 million and $8.7 million at June 30, 2023 and 2022, respectively.
Total nonperforming assets decreased by $36.7 million to $55.6 million at June 30, 2023 from $92.2 million at June 30,
2022. For those same comparative periods, the number of nonperforming loans decreased to 45 loans from 61 loans. There was
one property in other real estate owned at June 30, 2023 and 2022, respectively. All nonaccrual loans held-for sale at June 30,
2022 were sold during the year ended June 30, 2023.
At June 30, 2023 and 2022, we had loans with aggregate outstanding balances totaling $17.4 million and $22.2 million,
respectively, reported as TDRs.
Loan Review System. We maintain a loan review system consisting of several related functions including, but not limited
to, classification of assets, calculation of the allowance for credit losses, independent credit file review as well as internal audit
and lending compliance reviews. We utilize both internal and external resources, where appropriate, to perform the various loan
review functions, all of which operate in accordance with a scope and frequency determined by senior management and the Audit
and Compliance Committee of the Board of Directors.
As one component of our loan review system we engage a third-party firm which specializes in loan review and analysis
functions. As part of their review process, our third-party review firm compares their review results with their client base to
evaluate our risk assessment among our peers. This firm assists senior management and the Board of Directors in identifying
potential credit weaknesses; in reviewing and confirming risk ratings or adverse classifications internally ascribed to loans by
management; in identifying relevant trends that affect the collectability of the portfolio and identifying segments of the portfolio
that are potential problem areas; in verifying the appropriateness of the allowance for credit losses; in evaluating the activities of
lending personnel including compliance with lending policies and the quality of their loan approval, monitoring and risk
assessment; and by providing an objective assessment of the overall quality of the loan portfolio. Currently, third-party loan
reviews are being conducted quarterly and include non-performing loans as well as samples of performing loans of varying types
within our portfolio.
In addition, our loan review system includes functions performed by internal audit and compliance personnel. Internal
audit resources perform credit review functions utilizing guidance from regulatory and Institute of Internal Auditors standards in
addition to assessing the adequacy of, and adherence to, internal credit policies and loan administration procedures and adherence
to regulatory guidance. Our compliance resources monitor adherence to relevant lending-related and consumer protection-related
laws and regulations.
10
Classification of Assets. In compliance with the regulatory guidelines, our loan review system includes an evaluation
process through which certain loans exhibiting adverse credit quality characteristics are classified as Substandard, Doubtful or
Loss. An asset is classified as Substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the
collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all of the weaknesses inherent in those
classified 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. Assets, or portions thereof, classified
as Loss are considered uncollectible or of so little value that their continuance as assets is not warranted. Assets which do not
currently expose us to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other
potential weaknesses are designated as Special Mention by management. Adversely classified assets, together with those rated as
Special Mention are generally referred to as Classified Assets. Non-classified assets are internally rated within one of four Pass
categories or as Watch with the latter denoting a potential deficiency or concern that warrants increased oversight or tracking by
management until remediated.
Additional information about our classification of assets is presented in Note 5 to the audited consolidated financial
statements.
The following table discloses our designation of certain loans as special mention or adversely classified during each of
the two years presented:
Special mention
Substandard
Doubtful
Total classified loans
At June 30,
2023
2022
(In Thousands)
17,674 $
75,777
75
93,526 $
12,740
81,650
165
94,555
$
$
Individually Evaluated Loans. On a case-by-case basis, we may conclude that a loan should be evaluated on an
individual basis based on its disparate risk characteristics. When we determine that a loan no longer shares similar risk
characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of
expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated
selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, we will establish an
allowance for the difference between the fair value of the collateral, less costs to sell, at the reporting date and the amortized cost
basis of the loan.
Allowance for Credit Losses - Loans
On July 1, 2020, we adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments,” which replaced the incurred loss methodology with an expected loss methodology, referred to
as the “CECL” methodology. See Note 1 to the audited consolidated financial statements for additional information on the
adoption of Topic 326.
A description of our methodology in establishing our allowance for credit losses is set forth in the section
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies -
Allowance for Credit Losses.”
Additional information about our allowance for credit losses is also presented in Note 6 to the audited consolidated
financial statements.
Our allowance for credit losses is maintained at a level necessary to cover lifetime expected credit losses in financial
assets at the balance sheet date. The following table presents allowance for credit losses ratios, along with the components of their
calculation, for the periods indicated:
Allowance for credit losses - loans
Total loans outstanding
Total non-performing loans
Allowance for credit losses as a percent of total loans outstanding
Allowance for credit losses to non-performing loans
11
At June 30,
2023
2022
(Dollars in Thousands)
48,734
$
$ 5,850,476
42,627
$
47,058
$
$ 5,436,576
70,321
$
0.83 %
114.33 %
0.87 %
66.92 %
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Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses
(“ACL”) allocated by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The
ACL allocated to each category is the estimated amount considered necessary to cover lifetime expected credit losses inherent in
any particular category as of the balance sheet date and does not restrict the use of the allowance to absorb losses in other
categories.
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total
At June 30,
2023
2022
Amount
Percent of Loans
to Total Loans
Amount
Percent of Loans
to Total Loans
(Dollars In Thousands)
$
$
26,362
8,953
1,440
1,336
10,237
338
68
48,734
47.21 % $
16.56
2.51
3.87
29.07
0.74
0.04
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25,321
10,590
1,792
1,486
7,540
245
84
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44.31 %
18.76
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2.58
30.27
0.78
0.05
100.00 %
At June 30, 2023, the ACL totaled $48.7 million, or 0.83% of total loans, reflecting an increase of $1.7 million from
$47.1 million, or 0.87% of total loans, at June 30, 2022. The increase was largely attributable to a provision for credit losses of
$2.5 million, primarily driven by loan growth, partially offset by a reduction in the expected life of the loan portfolio. Partially
offsetting the provision for credit losses were net charge-offs of $810,000.
The ACL at June 30, 2023 is maintained at a level that is management’s best estimate of lifetime expected credit losses
inherent in loans at the balance sheet date. The ACL is subject to estimates and assumptions that are susceptible to significant
revisions as more information becomes available and as events or conditions effecting individual borrowers and the marketplace
as a whole change over time. Additions to the ACL may be necessary if the future economic environment deteriorates from
forecasted conditions. In addition, the banking regulators, as an integral part of their examination process, periodically review our
loan and foreclosed real estate portfolios, related ACL and valuation allowance for foreclosed real estate. The regulators may
require the ACL to be increased based on their review of information available at the time of the examination, which may
negatively affect our earnings.
Additional information about the ACL at June 30, 2023 and 2022 is presented in Note 6 to the audited consolidated
financial statements.
Investment Securities
At June 30, 2023, our investment securities portfolio totaled $1.37 billion and comprised 17.0% of our total assets. By
comparison, at June 30, 2022, our securities portfolio totaled $1.46 billion and comprised 18.9% of our total assets. Additional
information about our investment securities at June 30, 2023 is presented in Note 4 to the audited consolidated financial
statements.
The year-over-year net decrease in the securities portfolio totaled $88.2 million which largely reflected repayments and
sales that were partially offset by purchases. The decrease in the portfolio included a $38.1 million decrease in the fair value of
the available for sale securities portfolio to an unrealized loss of $156.1 million at June 30, 2023 from an unrealized loss of $118.0
million at June 30, 2022.
Our investment policy, which is approved by the Board of Directors, is designed to foster earnings and manage cash
flows within prudent interest rate risk and credit risk guidelines, taking into consideration our liquidity needs, asset/liability
management goals, and performance objectives. Our Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and
Treasurer/Chief Investment Officer are the senior management members of our Capital Markets Committee that are designated by
the Board of Directors as the officers primarily responsible for securities portfolio management and all transactions require the
approval of at least two of these designated officers.
The investments authorized for purchase under the investment policy approved by our Board of Directors include U.S.
government and agency mortgage-backed securities, U.S. government agency debentures, municipal obligations, corporate bonds,
asset-backed securities, collateralized loan obligations and subordinated debt.
13
The carrying value of our mortgage-backed securities totaled $710.0 million at June 30, 2023 and comprised 51.7% of
total investments and 8.8% of total assets as of that date. We generally invest in mortgage-backed securities issued by U.S.
government agencies or government-sponsored entities. Mortgage-backed securities issued or sponsored by U.S. government
agencies and government-sponsored entities are guaranteed as to the payment of principal and interest to investors.
The carrying value of our securities representing obligations of state and political subdivisions totaled $16.1 million at
June 30, 2023 and comprised 1.2% of total investments and less than 1.0% of total assets as of that date. Such securities primarily
included highly-rated, fixed-rate bank-qualified securities representing general obligations of municipalities located within the
U.S. or the obligations of their related entities such as boards of education or school districts. Each of our municipal obligations
were consistently rated by Moody’s and S&P well above the thresholds that generally support our investment grade assessment
with such ratings equaling A- or higher by S&P or A2 or higher by Moody’s, where rated by those agencies. In the absence of, or
as a complement to, such ratings, we rely upon our own internal analysis of the issuer’s financial condition to validate its
investment grade assessment.
The carrying value of our asset-backed securities totaled $136.2 million at June 30, 2023 and comprised 9.9% of total
investments and 1.7% of total assets as of that date. This category of securities is comprised entirely of structured, floating-rate
securities representing securitized federal education loans with 97% U.S. government guarantees. Our securities represent the
highest credit-quality tranches within the overall structures with each being rated AA+ or higher by S&P or Aa1 or higher by
Moody’s, where rated by those agencies.
The outstanding balance of our collateralized loan obligations totaled $377.0 million at June 30, 2023 and comprised
27.4% of total investments and 4.7% of total assets as of that date. This category of securities is comprised entirely of structured,
floating-rate securities representing securitized commercial loans to large, U.S. corporations. At June 30, 2023, each of our
collateralized loan obligations were consistently rated by Moody’s and/or S&P well above the thresholds that generally support
our investment grade assessment with such ratings equaling AAA by S&P or Aaa by Moody’s, where rated by those agencies.
The carrying value of our corporate bonds totaled $135.0 million at June 30, 2023 and comprised 9.8% of total
investments and 1.7% of total assets as of that date. This category of securities is comprised of two floating-rate corporate debt
obligations issued by large financial institutions and subordinated debt representing profitable, well-capitalized, small- to mid-
sized community banks located mainly in the mid-Atlantic region of the U.S. At June 30, 2023, corporate bonds issued by large
financial institutions were consistently rated by Moody’s and S&P well above the thresholds that generally support our investment
grade assessment with such ratings equaling BBB- or higher by S&P or Baa3 or higher by Moody’s, where rated by those
agencies.
Current accounting standards require that debt securities be categorized as held to maturity or available for sale, based on
management’s intent as to the ultimate disposition of each security. These standards allow debt securities to be classified as held
to maturity and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to
hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the
security’s prepayment risk, increases in loan demand, or other similar factors cannot be classified as held to maturity.
We do not currently use or maintain a trading account. Securities not classified as held to maturity are classified as
available for sale. These securities are reported at fair value and unrealized gains and losses on the securities are excluded from
earnings and reported, net of deferred taxes, as adjustments to accumulated other comprehensive income (loss), a separate
component of equity. As of June 30, 2023, our available for sale securities portfolio had a carrying value of $1.23 billion or
89.3% of our total securities with the remaining $146.5 million or 10.7% of securities were classified as held to maturity.
Other than securities issued or guaranteed by the U.S. government or its agencies, we did not hold securities of any one
issuer having an aggregate book value in excess of 10% of our equity at June 30, 2023. All of our securities carry market risk
insofar as increases in market interest rates have caused, and may continue to cause, a decrease in their market value. We believe
that unrealized and unrecognized losses on securities held at June 30, 2023, are a function of changes in market interest rates and
credit spreads, not changes in credit quality. Therefore, no allowance for credit losses was recorded at that time.
During the year ended June 30, 2023, proceeds from sales of securities available for sale totaled $105.2 million and
resulted in no gross gains and gross losses of $15.2 million. During the year ended June 30, 2022, proceeds from sales of
securities available for sale totaled $100.3 million and resulted in no gross gains and gross losses of $565,000. During the year
ended June 30, 2021, proceeds from sales of securities available for sale totaled $98.1 million and resulted in gross gains of
$1.2 million and gross losses of $470,000. There were no sales of held to maturity securities during the years ended June 30,
2023, 2022 and 2021.
14
The following table sets forth the carrying value of our securities portfolio at the dates indicated:
Debt securities available for sale:
Obligations of state and political subdivisions
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Total debt securities available for sale
Mortgage-backed securities available for sale:
Collateralized mortgage obligations
Residential pass-through securities
Commercial pass-through securities
Total mortgage-backed securities available for sale
At June 30,
2023
2022
(In Thousands)
$
— $
136,170
376,996
135,018
648,184
—
436,151
143,394
579,545
28,435
166,557
307,813
153,397
656,202
7,122
514,758
166,011
687,891
Total securities available for sale
1,227,729
1,344,093
Debt securities held to maturity:
Obligations of state and political subdivisions
Total debt securities held to maturity
Mortgage-backed securities held to maturity:
Residential pass-through securities
Commercial pass-through securities
Total mortgage-backed securities held to maturity
Total securities held to maturity
Total securities
16,051
16,051
118,166
12,248
130,414
21,159
21,159
84,851
12,281
97,132
146,465
118,291
$
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Sources of Funds
General. Retail deposits are our primary source of funds for lending and other investment purposes. In addition, we
derive funds from principal repayments of loan and investment securities. Loan and securities payments are a relatively stable
source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions.
Wholesale funding sources including, but not limited to, borrowings from the Federal Home Loan Bank of New York (“FHLB”),
wholesale deposits and other short-term borrowings are also used to supplement the funding for loans and investments.
Deposits. Our current deposit products include interest-bearing and non-interest-bearing checking accounts, money
market deposit accounts, savings accounts and certificates of deposit accounts ranging in terms from 30 days to five years.
Certificates of deposit with terms ranging from six months to five years are available for individual retirement account plans.
Deposit account terms, such as interest rate earned, applicability of certain fees and service charges and funds accessibility, will
vary based upon several factors including, but not limited to, minimum balance, term to maturity, and transaction frequency and
form requirements.
Deposits are obtained primarily from within New Jersey and New York through the Bank’s network of retail branches,
business relationship officers, treasury management officers and digital banking channels. We maintain a robust suite of
commercial deposit products designed to appeal to small and mid-size businesses, non-profit organizations and government
entities. Our team of experienced and dedicated business relationship officers serve as the primary points of contact for these
commercial clients and act as both new business originators and relationship managers.
The determination of interest rates on retail deposits is based upon a number of factors, including: (1) our need for funds
based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of
competitors’ rates for similar products; (3) our current cost of funds, yield on assets and asset/liability position; and (4) the
alternate cost of funds on a wholesale basis. Interest rates are reviewed by senior management on a regular basis, with deposit
product and pricing updated, as appropriate, during recurring and ad-hoc senior management meetings.
Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period were not
renewed. At June 30, 2023 and 2022, certificates of deposit maturing within one year were $1.90 billion and $1.47 billion,
respectively. Historically, a significant portion of the certificates of deposit remain with us after they mature.
At June 30, 2023, $1.42 billion or 70.6% of our certificates of deposit were certificates of $100,000 or more compared to
$1.33 billion or 70.2% at June 30, 2022. Excluding brokered certificates of deposit, $783.7 million or 56.9% of our certificates of
deposit were certificates of $100,000 or more at June 30, 2023. The general level of market interest rates and money market
conditions significantly influence deposit inflows and outflows. The effects of these factors are particularly pronounced on deposit
accounts with larger balances. In particular, certificates of deposit with balances of $100,000 or greater are traditionally viewed as
being a more volatile source of funding than comparatively lower balance certificates of deposit or non-maturity transaction
accounts. In order to retain certificates of deposit with balances of $100,000 or more, we may have to pay a premium rate,
resulting in an increase in our cost of funds. To the extent that such deposits do not remain with us, they may need to be replaced
with wholesale funding.
Our sources of wholesale funding included brokered certificates of deposit and listing service certificates of deposit
whose balances totaled approximately $635.3 million and $5.2 million, or 11.3% and 0.1% of total deposits, respectively, at June
30, 2023. We utilize brokered certificates of deposit and listing service certificates of deposits as alternatives to other forms of
wholesale funding, including borrowings, when interest rates and market conditions favor the use of such deposits. For a portion
of our short-term brokered certificates of deposit we utilized interest rate contracts to effectively extend their duration and to fix
their cost.
17
The following table sets forth the distribution of average deposits for the periods indicated and the weighted average
nominal interest rates for each period on each category of deposits presented:
For the Years Ended June 30,
2023
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Average
Balance
2022
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Average
Balance
2021
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Average
Balance
(Dollars In Thousands)
Non-interest-bearing
deposits
$ 644,543
10.79 %
— % $ 624,666
11.37 %
— % $ 518,149
9.88 %
— %
Interest-bearing demand
2,349,802
Savings
896,651
Certificates of deposit
2,083,864
39.33
15.00
34.88
1.73
0.37
1.64
2,067,200
1,088,971
1,711,276
37.64
19.83
31.16
0.25
0.11
0.52
1,726,190
1,066,794
1,931,887
32.92
20.35
36.85
0.41
0.31
1.10
Total average deposits
$ 5,974,860
100.00 %
1.31 % $ 5,492,113
100.00 %
0.28 % $ 5,243,020
100.00 %
0.60 %
.
As of June 30, 2023 and 2022, the aggregate amount of certificates of deposit of $250,000 and over was $883.7 million
and $897.4 million, respectively. The following table presents the time remaining until maturity of those certificates of deposit as
of June 30, 2023:
Maturity Period
Within three months
Three through six months
Six through twelve months
Over twelve months
Total certificates of deposit
At June 30,
2023
(In Thousands)
$
555,894
200,167
115,125
12,509
$
883,695
The following table sets forth the amount and maturities of certificates of deposit at June 30, 2023:
At June 30, 2023
Within
One Year
Over One
Year to
Two Years
Over Two
Years to
Three
Years
Over
Three
Years to
Four Years
Over Four
Years to
Five Years
Over Five
Years
Total
(In Thousands)
$ 180,989 $ 45,910 $ 22,381 $ 13,389 $
54,015
615,122
339,860
503,628
202,518
11,217
13,885
241
64
—
445
329
—
—
—
234
152
—
—
—
7,497 $
93
—
—
—
—
— $ 270,166
66,004
—
629,574
86
345,597
5,496
503,692
—
202,518
—
Interest Rate
0.00 - 0.99%
1.00 - 1.99%
2.00 - 2.99%
3.00 - 3.99%
4.00 - 4.99%
5.00 - 5.99%
Total certificates of deposit $ 1,896,132 $ 71,317 $ 23,155 $ 13,775 $
7,590 $
5,582 $ 2,017,551
Additional information about our deposits is presented in Note 10 to the audited consolidated financial statements.
18
Borrowings. The sources of wholesale funding we utilize include borrowings in the form of advances from the FHLB as
well as other forms of borrowings. We generally use wholesale funding to manage our exposure to interest rate risk and liquidity
risk in conjunction with our overall asset/liability management process.
Advances from the FHLB are typically secured by our FHLB capital stock and certain investment securities as well as
residential and commercial mortgage loans that we choose to utilize as collateral for such borrowings. Additional information
about our FHLB advances is included under Note 11 to the audited consolidated financial statements.
At June 30, 2023, we had $1.28 billion of FHLB advances outstanding, excluding a net fair value adjustment of
$688,000, at a weighted average interest rate of 4.92%. At June 30, 2022, we had $652.5 million of FHLB advances outstanding,
excluding a net fair value adjustment of $1.2 million, at a weighted average interest rate of 2.17%.
Our FHLB advances mature as follows:
By remaining period to maturity:
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
Greater than five years
Total advances
Fair value adjustments
At June 30,
2023
2022
(In Thousands)
$
972,500 $
520,000
103,500
6,500
—
200,000
—
1,282,500
(688)
22,500
103,500
6,500
—
—
652,500
(1,163)
Total advances, net of fair value adjustments
$
1,281,812 $
651,337
At June 30, 2023, we utilized interest rate contracts to effectively extend the duration and fix the cost of our FHLB
advances maturing in less than one year.
Based upon the market value of investment securities and mortgage loans that are posted as collateral for FHLB
advances at June 30, 2023, we are eligible to borrow up to an additional $1.55 billion of advances from the FHLB as of that date.
We are further authorized to post additional collateral in the form of other unencumbered investments securities and eligible
mortgage loans that may expand our borrowing capacity with the FHLB up to 30% of our total assets. Additional borrowing
capacity up to 50% of our total assets may be authorized with the approval of the FHLB’s Board of Directors or Executive
Committee.
In addition, we had the capacity to borrow additional funds totaling $990.0 million via unsecured overnight borrowings
from other financial institutions and $415.0 million from the FRB without pledging additional collateral.
The balance of borrowings at June 30, 2023 included overnight line of credit borrowings from the FHLB totaling
$125.0 million and unsecured overnight borrowings from other financial institutions totaling $100.0 million.
Interest Rate Derivatives and Hedging
We utilize derivative instruments in the form of interest rate swaps, caps and floors to hedge our exposure to interest rate
risk in conjunction with our overall asset/liability management process. In accordance with accounting requirements, we formally
designate all of our hedging relationships as either fair value hedges or cash flow hedges, and document the strategy for
undertaking the hedge transactions and its method of assessing ongoing effectiveness.
At June 30, 2023, our derivative instruments were comprised of interest rate swaps, caps and a floor with a total notional
amount of $2.23 billion. These instruments are intended to manage the interest rate exposure relating to certain wholesale funding
positions and assets that were outstanding at June 30, 2023.
Additional information regarding our use of interest rate derivatives and our hedging activities is presented in Note 1 and
Note 12 to the audited consolidated financial statements.
19
Subsidiary Activity
At June 30, 2023, Kearny Bank was the only wholly-owned operating subsidiary of Kearny Financial Corp. As of that
date, Kearny Bank had two wholly-owned subsidiaries, CJB Investment Corp. and 189-245 Berdan Avenue LLC. CJB Investment
Corp. is a New Jersey Investment Company and remained active through the three-year period ended June 30, 2023. 189-245
Berdan Avenue LLC was formed during the year ended June 30, 2023 for the purpose of ownership and operation of commercial
real estate.
Human Capital Resources
Kearny Bank subscribes to the belief that people, performance and relationships are what matter most. We serve our
clients and shareholders through our deep-rooted principles of ethics and integrity, and by giving back to our communities. We
understand that the Company succeeds when our employees and customers succeed and therefore strive to create a diverse and
inclusive environment where employees can thrive and where customers want to bank. We recognize the unique contributions
each individual brings to our Company, and we are committed to growing our culture of diversity, equity and inclusion as a
foundation for our values and success.
To further establish our commitment to diversity, in the fourth quarter of fiscal year 2023 we appointed an individual to
the role of Senior Vice President, Director of Diversity, Equity and Inclusion. Beginning in fiscal year 2024, the Director of
Diversity, Equity and Inclusion will work as the intermediary between the business lines and management to promote diversity in
various aspects of the Company’s business. Additionally, this year we launched the Kearny Bank ChangeMakers program to
provide networking and workshop opportunities focusing on women-owned businesses in our communities.
Employee Profile. As of June 30, 2023, we employed 556 employees, approximately 62% of whom are female. We
continue our partnership with a diversity recruitment solution to broaden and enhance our overall diversity recruitment efforts.
Talent Development and Employee Engagement. We invest in the success and the personal and professional
development of our employees by providing employees with career advancement opportunities. We look to promote from within
to leverage employee talent and knowledge of the organization. Additionally, we offer many educational and learning initiatives
to enhance our employees’ professional growth, including support for certifications and licenses, as well as offering a robust
tuition reimbursement program. We offer a Career Mentoring Program, which offers employees an opportunity to interact and
collaborate with our senior leaders. We continue to build on the Company’s Diversity and Inclusion Action Plan which was
established in 2018 and created our Diversity, Equity and Inclusion Committee. The Diversity and Inclusion Action Plan focuses
on expanding our recruiting pipeline, obtaining Diversity & Inclusion certifications and training for our recruiting staff and
establishing programs to attract and retain diverse talent. As part of this initiative, our Senior Women’s Leadership Group was
established to provide a forum for our female employees to exchange ideas and support programs across the Company.
Employee Benefits. We offer our employees competitive compensation including incentive programs, together with a
comprehensive benefits package designed to enhance the employee experience. Such benefits include medical, dental, vision, long
term disability benefits, AD&D and group life insurance, additional supplement plans, Health Advocacy and Employee
Assistance programs, generous paid time off and the ability to participate in charitable events during work time. In addition, our
employees share in our financial success while preparing for their retirement via participation in our 401(k) Plan, which includes a
competitive company match, and our Employee Stock Ownership Plan (“ESOP”), which is 100% funded by the Company.
Health and Wellness. We are committed to providing programs that support the needs of our employees and their
families and provide access to a variety of health and wellness programs, including benefits that support their physical, mental and
financial wellbeing. Additionally, the Company operates in a hybrid work environment, where applicable, one which promotes a
work-life balance and allows for certain flexibility while maintaining productivity and efficiency.
20
Supervision and Regulation
Kearny Bank and Kearny Financial operate in a highly regulated industry. This regulation establishes a comprehensive
framework of activities in which a savings and loan holding company and New Jersey savings bank may engage and is intended
primarily for the protection of the deposit insurance fund and depositors. Set forth below is a brief description of certain laws that
relate to the regulation of Kearny Bank and Kearny Financial. The description does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities,
including the imposition of restrictions on the operation of an institution and its holding company, the classification of assets by
the institution and the adequacy of an institution’s allowance for credit losses. Any change in such regulation and oversight,
whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing savings and
loan holding companies, could have a material adverse impact on Kearny Financial, Kearny Bank and their operations. The
adoption of regulations or the enactment of laws that restrict the operations of Kearny Bank and/or Kearny Financial or impose
burdensome requirements upon one or both of them could reduce their profitability and could impair the value of Kearny Bank’s
franchise, resulting in negative effects on the trading price of our common stock.
Regulation of Kearny Bank
General. As a nonmember New Jersey savings bank with federally insured deposits, Kearny Bank is subject to extensive
regulation by the NJDBI and the FDIC. The regulatory structure gives the regulatory agencies widespread discretion in
connection with their supervisory and enforcement activities and examination policies, including policies regarding the
classification of assets and the level of the allowance for credit losses. The activities of New Jersey savings banks are subject to
extensive regulation including restrictions or requirements with respect to loans to one borrower, dividends, permissible
investments and lending activities, liquidity, transactions with affiliates and community reinvestment. Both state and federal law
regulate a savings bank’s relationship with its depositors and borrowers, especially in such matters as the ownership of savings
accounts and the form and content of Kearny Bank’s mortgage documents.
Kearny Bank must file reports with the NJDBI and FDIC concerning its activities and financial condition and obtain
regulatory approvals prior to entering into certain transactions such as establishing new branches and mergers with or acquisitions
of other depository institutions. The NJDBI and FDIC regularly examine Kearny Bank and prepare reports to Kearny Bank’s
Board of Directors on any deficiencies found in its operations. The agencies have substantial discretion to take enforcement action
with respect to an institution that fails to comply with applicable regulatory requirements or engages in violations of law or unsafe
and unsound practices. Such actions can include, among others, the issuance of a cease and desist order, assessment of civil
money penalties, removal of officers and directors and the appointment of a receiver or conservator.
Activities and Powers. Kearny Bank derives its lending, investment and other powers primarily from the applicable
provisions of the New Jersey Banking Act and the related regulations. Under these laws and regulations, New Jersey savings
banks, including Kearny Bank, generally may invest in real estate mortgages; consumer and commercial loans; specific types of
debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies;
certain types of corporate equity securities and other specified assets.
A savings bank may also invest pursuant to a leeway power that permits investments not otherwise permitted by the New
Jersey Banking Act. Leeway investments must comply with a number of limitations on individual and aggregate amounts of
investments. New Jersey savings banks may also exercise those powers, rights, benefits or privileges authorized for national
banks, federal savings banks or federal savings associations, or either directly or through a subsidiary. New Jersey savings banks
may exercise powers, rights, benefits and privileges of out-of-state banks, savings banks and savings associations, or either
directly or through a subsidiary, provided that prior approval by the NJDBI is required before exercising any such power, right,
benefit or privilege. The exercise of these lending, investment and activity powers is further limited by federal law and the related
regulations. See “—Activity Restrictions on State-Chartered Banks” below.
Activity Restrictions on State-Chartered Banks. Federal law and FDIC regulations generally limit the activities as
principal and equity investments of state-chartered FDIC insured banks and their subsidiaries to those permissible for national
banks and their subsidiaries, except such activities and investments that are specifically exempted by law or regulation, or
approved by the FDIC.
21
Before engaging as principal in a new activity that is not permissible for a national bank, or otherwise permissible under
federal law or FDIC regulations, an insured bank must seek approval from the FDIC, subject to certain specified exceptions. The
FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the
activity does not present a significant risk to the FDIC’s Deposit Insurance Fund. Certain activities of subsidiaries that are
engaged in activities permitted for national banks only through a financial subsidiary are subject to additional requirements.
Federal Deposit Insurance. Kearny Bank’s deposits are insured to applicable limits by the FDIC. The general maximum
deposit insurance amount is $250,000 per depositor.
The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund (“DIF”). Under the FDIC’s
risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions of less than $10
billion of assets, such as Kearny Bank, are based on financial measures and supervisory ratings derived from statistical modeling
estimating the probability of an institution’s failure within three years. The assessment range for insured institutions of less than
$10 billion of total assets is 1.5 to 30 basis points of total assets less tangible equity.
Assessment rates for institutions of Kearny Bank’s size ranged from 1.5 to 30 basis points effective through December
31, 2022. The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial
base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023. As a result,
effective January 1, 2023, assessment rates for institutions of Kearny Bank’s size ranged from 2.5 to 32 basis points.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of
our deposit insurance.
Regulatory Capital Requirements. FDIC regulations require nonmember banks to meet several minimum capital
standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a
total capital to risk-based assets of 8%, and a 4% Tier 1 capital to total assets leverage ratio. The current requirements implement
recommendations of the Basel Committee on Banking Supervision and certain requirements of federal law.
For purposes of the regulatory capital standards, common equity Tier 1 capital is generally defined as common
stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1
capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus
additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting
specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory
convertible securities, intermediate preferred stock and subordinated debt.
Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets
and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive
Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. At June 30,
2023, Kearny Bank has exercised the opt-out election regarding the treatment of Accumulated Other Comprehensive Income.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets,
including certain off-balance sheet assets, are multiplied by a risk weight factor assigned by the regulations based on the risks
believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For
example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to
prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and
consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned
to equity interests depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and
certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer consisting of
2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital
requirements. At June 30, 2023, Kearny Bank exceeded all regulatory capital requirements.
22
In assessing an institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but also
qualitative factors. The FDIC has the authority to establish higher capital requirements for individual institutions where deemed
necessary.
Depository institutions and depository institution holding companies that have less than $10 billion in total consolidated
assets and meet other qualifying criteria may elect to use the optional community bank leverage ratio framework, which requires
maintaining a leverage ratio of greater than 9%, to satisfy the regulatory capital requirements, including the risk-based
requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call
report. Kearny Bank did not opt into the community bank leverage ratio framework as of June 30, 2023.
Regulations issued by the NJDBI establish generally similar regulatory capital standards for New Jersey-chartered
savings banks such as Kearny Bank.
Prompt Corrective Regulatory Action. Federal law requires that federal bank regulatory authorities take prompt
corrective action with respect to institutions that do not meet minimum capital requirements. For these purposes, the law
five capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
establishes
undercapitalized” and “critically undercapitalized.”
The FDIC has adopted regulations to implement the prompt corrective action legislation. An institution is deemed to be
well capitalized if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a
leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is adequately capitalized if it
has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0%
or greater and a common equity Tier 1 ratio of 4.5% or greater.
An institution is undercapitalized if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital
ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is
categorized as significantly undercapitalized if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital
ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. Critically
undercapitalized status is triggered if an institution has a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2.0%. Qualifying banks that elect and comply with the community bank leverage ratio (as established by
the regulatory agencies) are considered well-capitalized under the prompt corrective action regulations.
Undercapitalized banks must adhere to growth, capital distribution (including dividend) and other limitations and are
required to submit a capital restoration plan. A bank’s compliance with such a plan must be guaranteed by any company that
controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution’s total assets when deemed
undercapitalized or the amount necessary to achieve the status adequately capitalized status. If an undercapitalized bank fails to
submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized banks must comply
with one or more of a number of additional measures including, but not limited to, a required sale of sufficient voting stock to
become adequately capitalized, a requirement to reduce total assets, cessation of taking deposits from correspondent banks, the
dismissal of directors or officers and restrictions on interest rates paid on deposits, compensation of executive officers and capital
distributions by the parent holding company. Critically undercapitalized institutions are subject to additional measures including,
subject to a narrow exception, the appointment of a receiver or conservator within 270 days after such status is triggered. These
actions are in addition to other discretionary supervisory or enforcement actions that the FDIC may take.
As of June 30, 2023, Kearny Bank was well capitalized.
Dividend Limitations. Federal regulations impose various restrictions or requirements on Kearny Bank to pay dividends
to Kearny Financial. An institution that is a subsidiary of a savings and loan holding company, such as Kearny Bank, must file
notice with the Federal Reserve Board at least thirty days before paying a dividend. The Federal Reserve Board may disapprove a
notice if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital
distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any
statute, regulation, enforcement action or agreement or condition imposed in connection with an application.
New Jersey law specifies that no dividend may be paid if the dividend would impair the capital stock of the savings
bank. In addition, no dividend may be paid unless the savings bank would, after payment of the dividend, have a surplus of at
least 50% of its capital stock (or if the payment of dividend would not reduce surplus).
23
Transactions with Related Parties. Transactions between a depository institution (and, generally, its subsidiaries) and its
related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act. An affiliate of an institution is any
company or entity that controls, is controlled by or is under common control with the institution. In a holding company context,
the parent holding company and any companies that are controlled by such parent holding company are affiliates of the
institution. Generally, Section 23A of the Federal Reserve Act limits the extent to which the institution or its subsidiaries may
engage in covered transactions with any one affiliate to 10% of such institution’s capital stock and surplus and contain an
aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such institution’s capital stock and surplus.
The term “covered transaction” includes an extension of credit, purchase of assets, issuance of a guarantee or letter of credit and
similar transactions. In addition, loans or other extensions of credit by the institution to the affiliate are required to be
collateralized in accordance with specified requirements.
The law also requires that affiliate transactions generally be on terms and conditions that are substantially the same as, or
at least as favorable to the institution as, those provided to non-affiliates.
Kearny Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities
controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and
Regulation O of the Federal Reserve Board. Among other things, subject to certain exceptions, these provisions generally require
that extensions of credit to insiders:
•
•
be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less
stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve
more than the normal risk of repayment or present other unfavorable features; and
not exceed certain limitations on the amount of credit extended to such persons, individually and in the
aggregate, which limits are based, in part, on the amount of Kearny Bank’s regulatory capital.
In addition, extensions of credit in excess of certain limits must be approved by Kearny Bank’s Board of Directors.
Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Community Reinvestment Act. Under the Community Reinvestment Act (the “CRA”), every insured depository
institution, including Kearny Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to
help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop
the types of products and services that it believes are best suited to its particular community. The CRA requires the FDIC to assess
the depository institution’s record of meeting the credit needs of its community and consider that record in its consideration of
certain applications by the institution, such as for a merger or the establishment of a branch office. The FDIC may use an
unsatisfactory CRA examination rating as the basis for denying such an application. Kearny Bank received a satisfactory CRA
rating from the FDIC in its most recent CRA evaluation.
On May 5, 2022, the FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency released a
notice of proposed rulemaking to “strengthen and modernize” the CRA regulations and the related regulatory framework.
Commercial Real Estate Lending Concentrations. The federal banking agencies have issued guidance on sound risk
management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial
real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to
conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as
an abundance of caution). The purpose of the guidance is not to limit a bank’s commercial real estate lending but to guide banks
in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.
The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that
may have significant commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real
estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following
supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk:
•
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Total reported loans for construction, land development and other land represent 100% or more of the bank’s
capital; or
Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total
capital or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more
during the prior 36 months.
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The guidance provides that the strength of an institution’s lending and risk management practices with respect to such
concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy.
Federal Home Loan Bank System. Kearny Bank is a member of the FHLB of New York, which is one of eleven
regional Federal Home Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned region. It
is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations
of the FHLB System. It makes loans to members pursuant to policies and procedures established by the Board of Directors of the
FHLB.
As a member, Kearny Bank is required to purchase and maintain stock in the FHLB of New York in specified amounts.
The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral
and limiting total advances to a member.
The FHLB of New York may pay periodic dividends to members. These dividends are affected by factors such as the
FHLB’s operating results and statutory responsibilities that may be imposed such as providing certain funding for affordable
housing and interest subsidies on advances targeted for low- and moderate-income housing projects. The payment dividends, or
any particular amount of dividend, cannot be assumed.
Other Laws and Regulations
Interest and other charges collected or contracted for by Kearny Bank are subject to state usury laws and federal laws
concerning interest rates. Kearny Bank’s operations are also subject to federal laws (and their implementing regulations)
applicable to credit transactions, such as the:
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•
•
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•
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one- to four-family
residential real estate receive various disclosures, including good faith estimates of settlement costs, lender
servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement
services;
Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing
needs of the community it serves;
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors
in extending credit;
Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts.
The operations of Kearny Bank also are subject to the:
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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records;
Electronic Funds Transfer Act, and Regulation E promulgated thereunder, governing automatic deposits to and
withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller
machines and other electronic banking services;
Check Clearing for the 21st Century Act (also known as “Check 21”), which gives substitute checks, such as
digital check images and copies made from that image, the same legal standing as the original paper check;
USA PATRIOT Act, which requires institutions operating to, among other things, establish broadened anti-
money laundering compliance programs, due diligence policies and controls to ensure the detection and
reporting of money laundering. Such required compliance programs are intended to supplement existing
compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of
Foreign Assets Control regulations; and
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Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by
financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all
financial institutions offering financial products or services to retail customers to provide such customers with
the financial institution’s privacy policy and provide such customers the opportunity to opt out of the sharing of
certain personal financial information with unaffiliated third parties.
Banking organizations are required to notify their primary federal regulator as soon as possible and no later than
36 hours of determining that a “computer-security incident” that arises to the level of a “notification incident”
has occurred. A notification incident is a “computer-security incident” that has materially disrupted or degraded,
or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a
material portion of its customer base, jeopardize the viability of key operations of the banking organization, or
impact the stability of the financial sector. Bank service providers are also required to notify any affected bank
to or on behalf of which the service provider provides services “as soon as possible” after determining that it has
experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or
degrade, covered services provided to such bank for four or more hours.
Regulation of Kearny Financial
General. Kearny Financial is a savings and loan holding company within the meaning of federal law. Kearny Financial
maintained its savings and loan holding company status (rather than becoming a bank holding company), notwithstanding the
June 2017 conversion of Kearny Bank to a New Jersey savings bank charter, through Kearny Bank exercising an election
available to it under federal law. Kearny Financial is required to file reports with, and is subject to regulation and examination by,
the Federal Reserve Board. Kearny Financial must also obtain regulatory approval from the Federal Reserve Board before
engaging in certain transactions, such as mergers with or acquisitions of other depository institutions.
In addition, the Federal Reserve Board has enforcement authority over Kearny Financial and any non-depository
subsidiaries. That permits the Federal Reserve Board to restrict or prohibit activities that are determined to pose a serious risk to
Kearny Bank. This regulatory structure is intended primarily for protection of Kearny Bank’s depositors and not for the benefit of
stockholders of Kearny Financial.
The Federal Reserve Board has indicated that, to the greatest extent possible taking into account any unique
characteristics of savings and loan holding companies and the requirements of federal law, its approach is to apply to savings and
loan holding companies the supervisory principles applicable to the supervision of bank holding companies. The stated objective
of the Federal Reserve Board is to ensure the savings and loan holding company and its non-depository subsidiaries are
effectively supervised, can serve as a source of strength for and do not threaten the safety and soundness of, the subsidiary
depository institution.
Nonbanking Activities. As a savings and loan holding company, Kearny Financial is permitted to engage in those
activities permissible under federal law for financial holding companies (if certain criteria are met and an election is submitted)
and for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in
nature, including underwriting equity securities and insurance, as well as activities that are incidental to financial activities or
complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible
for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act and certain additional activities authorized
by federal regulations, subject to the approval of the Federal Reserve Board.
Mergers and Acquisitions. Kearny Financial must generally obtain approval from the Federal Reserve Board before
acquiring, directly or indirectly, more than 5% of the voting stock of another savings institution or savings and loan holding
company or acquiring such an institution or holding company by merger, consolidation, or purchase of its assets. Federal law also
prohibits a savings and loan holding company from acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by federal law or acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating an application for Kearny Financial to acquire control of a savings institution, the
Federal Reserve Board considers factors such as the financial and managerial resources and future prospects of Kearny Financial
and the target institution, the effect of the acquisition on the risk to the deposit insurance fund, the convenience and the needs of
the community served and competitive factors. A merger of another depository institution into Kearny Bank requires the prior
approval of the NJDBI and FDIC, based on similar considerations.
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Consolidated Capital Requirements. Consolidated regulatory capital requirements identical to those applicable to the
subsidiary depository institutions (including the community bank leverage ratio alternative) apply to savings and loan holding
companies with $3 billion or more of consolidated assets, including Kearny Financial. Kearny Financial was in compliance with
the holding company capital requirements and the capital conservation buffer as of June 30, 2023.
Source of Strength Doctrine; Dividends. Federal law extended the source of strength doctrine, which has long applied to
bank holding companies, to savings and loan holding companies. The Federal Reserve Board has promulgated regulations
implementing the source of strength policy, which requires holding companies to act as a source of strength to their subsidiary
depository institutions by providing capital, liquidity and other support in times of financial distress. Further, the Federal Reserve
Board has issued a policy statement regarding the payment of dividends by bank holding companies that it has also applied to
savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and
only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs,
asset quality and overall financial condition. Regulatory guidance provides for prior consultation with Federal Reserve
supervisory staff as to dividends in certain circumstances, such as when the dividend is not covered by earnings for the period for
which it is being paid, when net income for the past four quarters, net of dividends previously paid over that period, is insufficient
to fully fund the dividend or when the prospective rate of earnings retention by the holding company is inconsistent with its
capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary
depository institution becomes undercapitalized. In addition, a subsidiary institution of a savings and loan holding company must
file prior notice with the Federal Reserve Board, and receive its non-objection, before paying a dividend to the parent savings and
loan holding company. Federal Reserve Board guidance also provides for regulatory review of certain stock redemption and
repurchase proposals by holding companies. These regulatory policies could affect the ability of Kearny Financial to pay
dividends, engage in stock redemptions or repurchases or otherwise engage in capital distributions.
Qualified Thrift Lender Test. In order for Kearny Financial to be regulated by the Federal Reserve Board as a savings
and loan holding company (rather than as a bank holding company), Kearny Bank must remain a qualified thrift lender under
applicable law or satisfy the domestic building and loan association test under the Internal Revenue Code. Under the qualified
thrift lender test, an institution is generally required to maintain at least 65% of its portfolio assets (total assets less: (i) specified
liquid assets up to 20% of total assets; (ii) intangible assets, including goodwill; and (iii) the value of property used to conduct
business) in certain qualified thrift investments (primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least nine months out of each 12 month period. As of June 30, 2023, Kearny Bank
met the qualified thrift lender test.
Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Federal
Reserve Board if any person (including a company), or group acting in concert, seeks to acquire control of a savings and loan
holding company. An acquisition of control can occur upon the acquisition of 10% or more of a class of voting stock of a savings
and loan holding company or as otherwise defined by the Federal Reserve Board. Under the Change in Bank Control Act, the
Federal Reserve Board has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including
the financial condition of the acquirer, and future prospects of the proposed acquirer, the competence and integrity of the proposed
acquirer and the effects of the acquisition on competition. Any company that seeks to acquire “control” of Kearny Financial or
Kearny Bank, within the meaning of the Savings and Loan Holding Company Act, must file an application, and receive the
Federal Reserve Board’s prior approval under that statute. The Company would then be subject to regulation as a savings and loan
holding company.
The prior approval of the NJDBI would also be necessary for the acquisition of 25% of a class of the Company’s voting
stock, or “control” as otherwise defined under New Jersey law.
Incentive Compensation. In October 2022, the SEC adopted a final rule implementing the incentive-based compensation
recovery (“clawback”) provisions of the Dodd-Frank Act. The final rule directs national securities exchanges and associations,
including NASDAQ, to require listed companies to develop and implement clawback policies to recover erroneously awarded
incentive-based compensation from current or former executive officers in the event of a required accounting restatement due to
material noncompliance with any financial reporting requirement under the securities laws, and to disclose their clawback policies
and any actions taken under these policies. On June 9, 2023, the SEC approved the NASDAQ proposed clawback listing
standards, including the amendments that delay the effective date of the rules to October 2, 2023. Each listed issuer, including
Kearny Financial, is required to adopt a clawback policy within 60 days after the effective date, or December 1, 2023.
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Item 1A. Risk Factors
An investment in our securities is subject to risks inherent in our business and the industry in which we operate. Before
making an investment decision, you should carefully consider the risks and uncertainties described below and all other
information included in this Annual Report on Form 10-K. The risks described below may adversely affect our business, financial
condition and operating results. In addition to these risks and any other risks or uncertainties described in “Item 1. Business—
Forward-Looking Statements” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be
immaterial that could materially and adversely affect our business, financial condition or operating results. The value or market
price of our securities could decline due to any of these identified or other risks. Past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Economic and Market Area
Changes in economic conditions, in particular an economic slowdown in the markets we operate in, could materially and
negatively affect our business.
Our business is directly impacted by factors such as economic, political and market conditions, broad trends in industry
and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are
beyond our control. Any deterioration in economic conditions, whether caused by national or local concerns, in particular any
further economic slowdown in the markets we operate in, could result in the following consequences, any of which could hurt our
business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for our products and
services may decrease; low cost or non-interest bearing deposits may decrease; and collateral for loans made by us, especially real
estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral
associated with our existing loans.
Our success significantly depends upon the growth in population, income levels, deposits, and housing starts in our
markets. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are
unfavorable, our business may not succeed. An economic downturn or prolonged recession may result in the deterioration of the
quality of our loan portfolio and reduce our level of deposits, which in turn would hurt its business. If we experience an economic
downturn or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans
as scheduled. Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across
a large number of diversified economies. An economic downturn could, therefore, result in losses that materially and adversely
affect our business.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rose sharply at the end of 2021 and has remained at an elevated level through 2022 and 2023. Small to medium-
sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to
mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans
may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations
and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to
increase, which could adversely affect our results of operations and financial condition.
Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository
institutions. Further, if we were unable to adequately manage our liquidity, deposits, capital levels and interest rate risk,
which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our
financial condition and results of operations.
On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and
wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California
Department of Financial Protection and Innovation (the “DFPI”), on March 12, 2023, Signature Bank, New York, New York, was
closed by the New York State Department of Financial Services and on May 1, 2023, First Republic Bank, San Francisco,
California, was closed by the DFPI, and in each case the FDIC was appointed receiver for the failed institution. These banks had
elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of
funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about
depositor confidence in depository institutions.
These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and
funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount
of accumulated other comprehensive loss, capital levels and interest rate risk management.
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If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material
adverse effect on our financial condition and results of operations. We must maintain sufficient funds to respond to the needs of
depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment
activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While
we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our
market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/
return tradeoff. Accordingly, as a part of our liquidity management, we must use a number of funding sources in addition to
deposits and repayments and maturities of loans and investments, which may include Federal Home Loan Bank of New York
advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry
conditions could lead to difficulty or an inability to access these additional funding sources.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our
expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have
a material adverse impact on our liquidity, business, financial condition and results of operations.
A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators.
Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is
subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply,
including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of
dividends and restrictions on the acceptance of brokered deposits.
Our financial flexibility would be severely constrained if we were unable to maintain our access to funding or if adequate
financing were not available at acceptable interest rates. Further, if we were required to rely more heavily on more expensive
funding sources to support liquidity, our revenues may not increase proportionately to cover our increased costs. In this case, our
operating margins and profitability would be adversely affected. If alternative funding sources were no longer available to us, we
may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could
result in us realizing a loss on the sale of such assets. As of June 30, 2023, we had a net unrealized loss of $156.1 million on our
available-for-sale investment securities portfolio as a result of the rising interest rate environment. Our investment securities
totaled $1.37 billion, or 17.0% of total assets, at June 30, 2023. The details of this portfolio are included in Note 4 to the
consolidated financial statements.
Severe weather could harm our business.
Weather-related events, including those that may result from climate change, can disrupt our operations, result in damage
to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the local economies in which we
operate, which could have a material adverse effect on our results of operations and financial condition. The occurrence of a
natural disaster could result in one or more of the following: (i) an increase in loan delinquencies; (ii) an increase in problem
assets and foreclosures; (iii) a decrease in the demand for our products and services; or (iv) a decrease in the value of the collateral
for loans, especially real estate, in turn reducing clients’ borrowing power, the value of assets associated with problem loans and
collateral coverage. Weather-related events may cause significant flooding and other storm-related damage and these outcomes
may become more common in the future.
Acts of terrorism, public health issues, and geopolitical and other external events could impact our ability to conduct
business.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and
communication systems. Additionally, the metropolitan New York area and northern New Jersey remain central targets for
potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in
additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of
our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the
occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Additionally, global markets may be adversely affected by the emergence of widespread health emergencies or
pandemics, cyber attacks or campaigns, military conflicts, terrorism or other geopolitical events, including the military conflict
between Russia and Ukraine. The impact of global market fluctuations may affect our business liquidity. Also, any sudden or
prolonged market downturn in the U.S. or abroad as a result of the above factors or otherwise could result in a decline in revenues
and adversely affect our results of operations and financial condition, including capital and liquidity levels.
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Our inability to achieve profitability on new branches may negatively affect our earnings.
We have expanded our presence throughout our market area and we intend to pursue further expansion through de novo
branching or the purchase of branches from other financial institutions. The profitability of our expansion strategy will depend on
whether the income that we generate from the new branches will offset the increased expenses resulting from operating these
branches. We expect that it may take a period of time before these branches can become profitable, especially in areas in which
we do not have an established presence. During this period, the expense of operating these branches may negatively affect our net
income.
We face intense competition from other financial services and financial services technology companies, and competitive
pressures could adversely affect our business or financial performance.
We face intense competition in all of its markets and geographic regions. We expect competitive pressures to intensify in
the future, especially in light of legislative and regulatory initiatives arising out of the recent global economic crisis, technological
innovations that alter the barriers to entry, current economic and market conditions, and government monetary and fiscal policies.
Competition with financial services technology companies, or technology companies partnering with financial services
companies, may be particularly intense, due to, among other things, differing regulatory environments. Competitive pressures
may drive us to take actions that we might otherwise eschew, such as lowering the interest rates or fees on loans or raising the
interest rates on deposits in order to keep or attract high-quality clients. These pressures also may accelerate actions that we might
otherwise elect to defer, such as substantial investments in technology or infrastructure. The actions that we take in response to
competition may adversely affect its results of operations and financial condition. These consequences could be exacerbated if we
are not successful in introducing new products and other services, achieving market acceptance of its products and other services,
developing and maintaining a strong client base, or prudently managing expenses.
Asset Quality and Interest Rate
Changes in interest rates or the shape of the yield curve may adversely affect our profitability and financial condition.
We derive our income mainly from the difference or spread between the interest earned on loans, securities and other
interest-earning assets and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the
spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on
our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.
Beginning in March 2022, in response to rising inflation, the Federal Reserve Board’s Federal Open Market Committee
systemically increased the target rate from 0.00% – 0.25% to 5.25% – 5.50% in July 2023. In addition, at June 30, 2023, short-
term rates were meaningfully lower than long-term rates, which results in an inverted yield curve. Our net interest spread and net
interest margin are at risk of being reduced due to potential increases in our cost of funds that may outpace any increases in our
yield on interest-earnings assets.
Interest rates also affect how much money we lend. For example, when interest rates rise, the cost of borrowing increases
and loan originations tend to decrease. In addition, changes in interest rates can affect the average life of loans and securities. For
example, an increase in interest rates generally results in decreased prepayments of loans and mortgage-backed securities, as
borrowers are less likely to refinance their debt. Changes in market interest rates also impact the value of our interest-earning
assets and interest-bearing liabilities as well as the value of our derivatives portfolios. In particular, the unrealized gains and losses
on securities available for sale and changes in the fair value of interest rate derivatives serving as cash flows hedges are reported,
net of tax, in accumulated other comprehensive income which is a component of stockholders’ equity. Consequently, declines in
the fair value of these instruments resulting from changes in market interest rates have, and may continue to, adversely affect
stockholders’ equity.
If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings will decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many
of our loans. In determining the required amount of the allowance for credit losses, we evaluate loans individually and establish
credit loss allowances for specifically identified impairments. For loans not individually analyzed, we estimate losses and
establish reserves based on reasonable and supportable forecasts and adjustments for qualitative factors. If the assumptions used
in our calculation methodology are incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our
loan portfolio, resulting in further additions to our allowance. Our allowance for credit losses on loans was 0.83% of total loans at
June 30, 2023 and significant additions to our allowance could materially decrease our net income.
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In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our
provision for credit losses or recognize further loan charge-offs. Any increase in our allowance for credit losses or loan charge-
offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of
operations.
A significant portion of our assets consists of investment securities, which generally have lower yields than loans, and we
classify a significant portion of our investment securities as available for sale, which creates potential volatility in our
equity and may have an adverse impact on our net income.
As of June 30, 2023, our securities portfolio totaled $1.37 billion, or 17.0% of our total assets. Investment securities
typically have lower yields than loans. For the year ended June 30, 2023, the weighted average yield of our investment securities
portfolio was 3.55%, as compared to 4.00% for our loan portfolio.
Accordingly, our net interest margin is lower than it would have been if a higher proportion of our interest-earning assets
consisted of loans. Additionally, at June 30, 2023, $1.23 billion, or 89.3% of our investment securities, are classified as available
for sale and reported at fair value with unrealized gains or losses excluded from earnings and reported in other comprehensive
income, which affects our reported equity. Accordingly, given the significant size of the investment securities portfolio classified
as available for sale and due to possible mark-to-market adjustments of that portion of the portfolio resulting from market
conditions, we may experience greater volatility in the value of reported equity. Moreover, given that we actively manage our
investment securities portfolio classified as available for sale, we may sell securities which could result in a realized loss, thereby
reducing our net income.
Our commercial lending exposes us to additional risk.
Over the past several years, we have increased our focus on commercial lending. Our increased commercial lending,
however, exposes us to greater risks than one- to four-family residential lending. Unlike single-family, owner-occupied residential
mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from employment and other
income sources, and are secured by real property whose value tends to be more easily ascertainable and realizable, the repayment
of commercial loans typically is dependent on the successful operation and income stream of the borrower, which can be
significantly affected by economic conditions, and are secured, if at all, by collateral that is more difficult to value or sell or by
collateral which may depreciate in value. In addition, commercial loans generally carry larger balances to single borrowers or
related groups of borrowers than one- to four-family mortgage loans, which increases the financial impact of a borrower’s default.
The risk exposure from our increased commercial lending is also a function of the markets in which we operate. Our
commercial lending activity is generally focused on borrowers domiciled, and real estate located, within the states of New Jersey
and New York. Regional risk factors and changes to local laws and regulations, including changes to rent regulations or
foreclosure laws, may present greater risk than a more geographically diversified portfolio.
Our increased commercial business and construction loan originations exposes us to increased credit risk.
We have increased our originations of commercial business and construction loans, which generally have more risk than
both one- to four-family residential and commercial mortgage loans. Since repayment of commercial business and construction
loans may depend on the successful operation of the borrower’s business or the successful completion of a construction project,
repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. If we continue to
increase our originations of these loans, it may be necessary to increase the level of our allowance for credit losses because of the
increased risk characteristics associated with these types of loans. Any such increase to our allowance for credit losses would
adversely affect our earnings.
We have a significant concentration in commercial real estate loans. If our regulators were to curtail our commercial real
estate lending activities, our earnings, dividend paying capacity and/or ability to repurchase shares could be adversely
affected.
In 2006, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve
System issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices” (the “Guidance”). The Guidance provides that a bank’s commercial real estate lending exposure may receive increased
supervisory scrutiny when total non-owner occupied commercial real estate loans, including loans secured by multi-family
property, non-owner occupied commercial real estate and construction loans, represent 300% or more of an institution’s total risk-
based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the
preceding 36 months. Our level of non-owner occupied commercial real estate equaled 553% of Bank total risk-based capital at
June 30, 2023, however our commercial real estate loan portfolio increased by only 31% during the preceding 36 months.
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Income from secondary mortgage market operations is volatile, and we may incur losses with respect to our secondary
mortgage market operations that could negatively affect our earnings.
A component of our business strategy is to sell a portion of residential mortgage loans originated into the secondary
market, earning non-interest income in the form of gains on sale. For the year ended June 30, 2023, gains attributable to the sale
of residential mortgage loans totaled $760,000, or approximately 27.6% of our non-interest income, a decline of $1.7 million from
$2.4 million for the year ended June 30, 2022. When interest rates rise, the demand for mortgage loans tends to fall and may
reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand.
If the residential mortgage loan demand decreases or we are unable to sell such loans for an adequate profit, then our non-interest
income will likely decline which would adversely affect our earnings.
We may be required to record impairment charges with respect to our investment securities portfolio.
We review our securities portfolio at the end of each quarter to determine whether the fair value is below the current
carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to
assess whether we intend to sell, or it is more than likely than not that we will be required to sell the security before recovery of its
amortized cost basis. If this assessment indicates that a credit loss exists, we would be required to record an impairment charge.
We elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies.
A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived
creditworthiness of U.S. government-related obligations could adversely impact the value of our investment securities portfolio.
We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will
affect economic conditions. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related
institutions, agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse
effects on the business, financial condition and results of operations.
At June 30, 2023, we had investment securities with fair values of approximately $1.36 billion on which we had
approximately $171.7 million in gross unrealized losses and $274,000 of gross unrealized gains. The valuation and liquidity of
our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased
uncertainty of market participants, which could reduce the market value of our securities, including those with no apparent credit
exposure. The valuation of our securities requires judgment and as market conditions change security values may also change.
Significant negative changes to valuations could result in impairments in the value of our securities portfolio, which could have an
adverse effect on our financial condition or results of operations.
Our investments in corporate and municipal debt securities, subordinated debt securities and collateralized loan
obligations expose us to additional credit risks.
The composition and allocation of our investment portfolio has historically emphasized U.S. agency mortgage-backed
securities and U.S. agency debentures. While such assets remain a significant component of our investment portfolio at June 30,
2023, prior enhancements to our investment policies, strategies and infrastructure have enabled us to diversify the composition
and allocation of our securities portfolio. Such diversification has included investing in corporate debt, municipal obligations,
subordinated debt securities issued by financial institutions and collateralized loan obligations. With the exception of
collateralized loan obligations, these securities are generally backed only by the credit of their issuers while investments in
collateralized loan obligations generally rely on the structural characteristics of an individual tranche within a larger investment
vehicle to protect the investor from credit losses arising from borrowers defaulting on the underlying securitized loans.
While we have invested primarily in investment grade securities, these securities are not backed by the federal
government and expose us to a greater degree of credit risk than U.S. agency securities. Any decline in the credit quality of these
securities exposes us to the risk that the market value of the securities could decrease which may require us to write down their
value and could lead to a possible default in payment.
Source of Funds
Our reliance on wholesale funding could adversely affect our liquidity and operating results.
Among other sources of funds, we rely on wholesale funding, including short- and long-term borrowings, brokered
deposits and non-brokered deposits acquired through listing services, to provide funds with which to make loans, purchase
investment securities and provide for other liquidity needs. On June 30, 2023, wholesale funding totaled $2.15 billion, or
approximately 26.6% of total assets.
32
In the future, this funding may not be readily replaced as it matures, or we may have to pay a higher rate of interest to
maintain it. Not being able to maintain or replace those funds as they mature would adversely affect our liquidity. Paying higher
interest rates to maintain or replace funding would adversely affect our net interest margin and operating results.
Public funds deposits are a notable source of funds for us and a reduced level of those deposits may hurt our profits and
liquidity position.
Public funds deposits are a notable source of funds for our lending and investment activities. At June 30, 2023, $672.0
million, or 11.9% of our total deposits, consisted of public funds deposits from local government entities in the state of New
Jersey, such as townships, counties and school districts. These deposits are collateralized by letters of credit from the FHLB or
through the pledge of eligible investment securities. Given our reliance on these typically high-average balance public funds
deposits as a source of funds, our inability to retain such funds could adversely affect our liquidity. Further, our public funds
deposits are primarily floating rate interest-bearing demand deposit accounts and therefore their pricing is more sensitive to
changes in interest rates. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if we are
unable to retain such funds and we are forced to rely on other sources of funds for our lending and investment activities, such as
borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are
currently paying on our public funds deposits, which would adversely affect our net interest income.
Information Security
Risks associated with system failures, service interruptions or other performance exceptions could negatively affect our
earnings.
Information technology systems are critical to our business. We use various technology systems to manage our client
relationships, general ledger, securities investments, deposits, and loans. We have established policies and procedures to prevent
or limit the effect of system failures, service interruptions or other performance exceptions, but such events may still occur or may
not be adequately addressed if they do occur. In addition, performance failures or other exceptions of our client-facing
technologies could deter clients from using our products and services.
In addition, we outsource a majority of our data processing to certain third-party service providers. If these service
providers encounter difficulties, or if we have difficulty communicating with them, our ability to timely and accurately process
and account for transactions could be adversely affected.
The occurrence of any system failures, service interruptions or other performance exceptions could damage our
reputation and result in a loss of clients and business thereby subjecting us to additional regulatory scrutiny, or could expose us to
litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and
results of operations.
Risks associated with cyber-security could negatively affect our earnings.
The financial services industry has experienced an increase in both the number and severity of reported cyber-attacks
aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and
destroy data, or cause operational disruptions. We have established policies and procedures to prevent or limit the impact of
security breaches, but such events may still occur or may not be adequately addressed if they do occur. Although we rely on
security safeguards to secure our data, these safeguards may not fully protect our systems from compromises or breaches. We also
rely on the integrity and security of a variety of third party processors, payment, clearing and settlement systems, as well as the
various participants involved in these systems, many of which have no direct relationship with us. Failure by these participants or
their systems to protect our clients' transaction data may put us at risk for possible losses due to fraud or operational disruption.
Our clients are also the target of cyber-attacks and identity theft. Large scale identity theft could result in clients'
accounts being compromised and fraudulent activities being performed in their name. We have implemented certain safeguards
against these types of activities but they may not fully protect us from fraudulent financial losses. The occurrence of a breach of
security involving our clients' information, regardless of its origin, could damage our reputation and result in a loss of clients and
business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability. Any of
these events could have a material adverse effect on our financial condition and results of operations.
33
While our Board of Directors takes an active role in cybersecurity risk tolerance, we rely to a large degree on management
and outside consultants in overseeing cybersecurity risk management.
Our Board of Directors takes an active role in the cybersecurity risk tolerance of the Company and all members receive
cybersecurity training annually. The Board reviews the annual risk assessments and approves information technology policies,
which include cybersecurity. Furthermore, our Audit Committee is responsible for reviewing all audit findings related to
information technology general controls, internal and external vulnerability, and penetration testing. The Board receives an annual
information security report and the Enterprise Risk Management Committee receives an annual presentation from our Information
Security Officer as it relates to cybersecurity and related issues. We also engage outside consultants to support our cybersecurity
efforts. However, our directors do not have significant experience in cybersecurity risk management outside of the Company and
therefore, its ability to fulfill its oversight function remains dependent on the input it receives from management and outside
consultants.
Regulatory Matters
We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and
regulations.
The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to
protect the deposit insurance funds and consumers, not to benefit a company’s shareholders. These regulations may sometimes
impose significant limitations on operations. The significant federal and state banking regulations that affect us are described
under the heading “Item 1. Business—Regulation.” These regulations, along with the currently existing tax, accounting,
securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which
financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and
disclosures. New proposals for legislation continue to be introduced in the U.S. Congress that could further alter the regulation of
the bank and non-bank financial services industries and the manner in which companies within the industry conduct business.
In addition, federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner
in which existing regulations are applied. Future changes in federal policy and at regulatory agencies may occur over time through
policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services
industry. These changes may require us to invest significant management attention and resources to make any necessary changes
to operations to comply and could have an adverse effect on our business, financial condition and results of operations.
Changes to tax laws and regulations could adversely affect our financial condition or results of operations.
Changes in tax laws and/or regulatory requirements could be enacted. These changes in the law may be retroactive to
previous periods and as a result could negatively affect our current and future financial performance. An increase in our corporate
tax rate could have an unfavorable impact on our earnings and capital generation abilities. Similarly, the Bank’s clients could
experience varying effects from changes in tax laws and such effects, whether positive or negative, may have a corresponding
impact on our business and the economy as a whole. In addition, changes to regulatory requirements could increase our costs of
regulatory compliance and may significantly affect the markets in which we do business, the markets for and value of our loans
and investments, and our ongoing operations, costs and profitability.
Business Issues
We hold certain intangible assets, including goodwill, which could become impaired in the future. If these assets are
considered to be either partially or fully impaired in the future, our earnings would decrease.
At June 30, 2023, we had approximately $213.4 million in intangible assets on our balance sheet comprising $210.9
million of goodwill and $2.5 million of core deposit intangibles. We are required to periodically test our goodwill and identifiable
intangible assets for impairment. The impairment testing process considers a variety of factors, including the current market price
of our common stock, the estimated net present value of our assets and liabilities, and information concerning the terminal
valuation of similarly situated insured depository institutions. If an impairment determination is made in a future reporting period,
our earnings and the book value of these intangible assets will be reduced by the amount of the impairment. If an impairment loss
is recorded, it will have little or no impact on the tangible book value of our common stock or our regulatory capital levels, but
recognition of such an impairment loss could significantly restrict Kearny Bank’s ability to make dividend payments to Kearny
Financial and therefore adversely impact our ability to pay dividends to stockholders.
34
We cannot guarantee that our allocation of capital to various alternatives, including stock repurchase plans, will enhance
long-term stockholder value.
Our business plan calls for us to execute a variety of strategies to allocate and deploy any excess capital including, but
not limited to, continued organic balance sheet growth and diversification, implementation of stock repurchase plans and payment
of regular cash dividends. Additionally, we will carefully consider acquisition opportunities to further deploy capital when we
expect such opportunities to significantly enhance long-term shareholder value. If we are unable to effectively and timely deploy
capital through these strategies, it may constrain growth in earnings and return on equity and thereby diminish potential growth in
stockholder value.
On August 1, 2022, we announced that our Board authorized a new stock repurchase plan to acquire up to 4,000,000
shares of the Company’s outstanding common stock. Repurchases are made at management’s discretion at prices management
considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock,
general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance.
The Inflation Reduction Act of 2022, which was signed into law on August 16, 2022, contains a number of changes to
U.S. federal tax laws. One such change is a 1% excise tax on stock repurchases, which increased the cost of stock repurchases and
may impact our future decisions on how to return value to stockholders in the most efficient manner.
Our acquisitions and the integration of acquired businesses, subject us to various risks and may not result in all of the cost
savings and benefits anticipated, which could adversely affect our financial condition or results of operations.
We have in the past, and may in the future, seek to grow our business by acquiring other businesses. There is risk that
our acquisitions may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of
the assets being acquired; the total cost and time required to complete the integration successfully; being able to profitably deploy
funds acquired in an acquisition; or the overall performance of the combined entity.
Acquisitions may also result in business disruptions that could cause clients to remove their accounts from us and move
their business to competing financial institutions. It is possible that the integration process related to acquisitions could result in
the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely
affect our ability to maintain relationships with clients and employees. The loss of key employees in connection with an
acquisition could adversely affect our ability to successfully conduct our business. Acquisition and integration efforts could divert
management attention and resources, which could have an adverse effect on our financial condition and results of operations.
Additionally, the operation of the acquired branches may adversely affect our existing profitability, and we may not be able to
achieve results in the future similar to those achieved by the existing banking business or manage growth resulting from the
acquisition effectively.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational
risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of
transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by
employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating to
transaction processing and technology, breaches of the internal control system and compliance requirements, and business
continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may
exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational
deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their
implementation, and client attrition due to potential negative publicity. In the event of a breakdown in the internal control system,
improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer
damage to our reputation.
Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
Our risk management framework is designed to effectively manage and mitigate risk while minimizing exposure to
potential losses. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market,
liquidity, compliance and operational risks. While we use a broad and diversified set of risk monitoring and mitigation techniques,
these techniques are inherently limited because they cannot anticipate the existence or future development of currently
unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial
services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses as a result of
our failure to properly anticipate and manage these risks.
35
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the
perception that clients, regulators and investors may have of us. We continue to devote a significant amount of effort, time and
resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking
regulations.
The inability to attract and retain key personnel could adversely affect our business.
The successful execution of our business strategy is partially dependent on our ability to attract and retain experienced
and qualified personnel. Failure to do so could adversely affect our strategy, client relationships and internal operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company and the Bank conduct business from their corporate headquarters at 120 Passaic Avenue in Fairfield, New
Jersey and from administrative offices located in Fairfield, Clifton and Oakhurst, New Jersey.
At June 30, 2023, the Company operated 43 branch offices located in Bergen, Essex, Hudson, Middlesex, Monmouth,
Morris, Ocean, Passaic, Somerset and Union counties, New Jersey and Kings and Richmond counties, New York. At June 30,
2023, 18 of our branch offices are leased with remaining terms between seven months and nine years. At June 30, 2023, our net
investment in property and equipment totaled $48.3 million.
Additional information regarding our properties as of June 30, 2023, is presented in Note 8 to the audited consolidated
financial statements.
Item 3. Legal Proceedings
We are, from time to time, party to routine litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and
servicing of real property loans and other issues incident to our business. At June 30, 2023, there were no lawsuits pending or
known to be contemplated against us that would be expected to have a material effect on operations or income.
Item 4. Mine Safety Disclosures
Not applicable.
36
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Market Information. The Company’s common stock trades on The NASDAQ Global Select Market under the symbol
“KRNY.”
Declarations of dividends by the Board of Directors depend on a number of factors, including investment opportunities,
growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations,
stock market characteristics and general economic conditions. The timing, frequency and amount of dividends are determined by
the Board of Directors.
The Company’s ability to pay dividends may also depend on the receipt of dividends from the Bank, which is subject to
a variety of limitations under federal banking regulations regarding the payment of dividends. For discussion of corporate and
regulatory limitations applicable to the payment of dividends, see “Item 1. Business-Regulation.”
As of August 18, 2023, there were 4,207 registered holders of record of the Company’s common stock. Certain shares of
the Company are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included
in the foregoing number.
(b) Use of Proceeds. Not applicable.
(c) Issuer Purchases of Equity Securities. Set forth below is information regarding the Company’s stock repurchases during the
fourth quarter of the fiscal year ended June 30, 2023.
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
April 1-30, 2023
May 1-31, 2023
June 1-30, 2023
Total
596,479 $
216,027 $
— $
812,506 $
7.91
7.62
—
7.83
596,479
216,027
—
1,720,774
1,504,747
1,504,747
812,506
1,504,747
On August 1, 2022, the Company announced the authorization of a new stock repurchase plan to repurchase up to
4,000,000 shares. This current plan has no expiration date.
37
Stock Performance Graph. The following graph compares the cumulative total shareholder return on the Company’s
common stock with the cumulative total return on the NASDAQ Composite Index and a peer group of the S&P U.S. SmallCap
Banks Index, in each case assuming an investment of $100 as of June 30, 2018. Total return assumes the reinvestment of all
dividends.
Kearny Financial Corp.
NASDAQ Composite Index
S&P U.S. SmallCap Banks Index
At June 30,
2018
2019
2020
2021
2022
2023
$
100 $
102 $
64 $
97 $
93 $
100
100
108
92
137
69
199
116
152
107
62
192
87
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on
The NASDAQ Stock Market. The S&P U.S. SmallCap Banks Index includes all major exchange (NYSE, NYSE American and
NASDAQ) traded banks under $15 billion in market capitalization in S&P’s coverage universe. There can be no assurance that
the Company’s future stock performance will be the same or similar to the historical stock performance shown in the graph above.
The Company neither makes nor endorses any predictions as to stock performance.
Item 6. [Reserved]
38
Index ValueTotal Return PerformanceKearny Financial Corp.Nasdaq Composite IndexS&P U.S. SmallCap Banks Index06/30/1806/30/1906/30/2006/30/2106/30/2206/30/23050100150200250
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
This discussion and analysis reflects Kearny Financial Corp.’s consolidated financial statements and other relevant
statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should
read the information in this section in conjunction with the business and financial information regarding Kearny Financial Corp.
and the audited consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our accounting policies are integral to understanding the results reported. We describe them in detail in Note 1 to our
audited consolidated financial statements. In preparing the audited consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the Consolidated
Statements of Financial Condition and revenues and expenses for the periods then ended. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the
allowance for credit losses and goodwill.
Allowance for Credit Losses. The determination of our allowance for credit losses on loans (“ACL”) is considered a
critical accounting estimate by management because of the high degree of judgment involved in determining qualitative loss
factors, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could
result in changes to the amount of the recorded ACL. See Note 1 to our audited consolidated financial statements for a detailed
discussion of our accounting policies and methodologies for establishing the ACL.
Management believes the following information may enable investors to better understand the changes in our ACL. Our
ACL totaled $48.7 million and $47.1 million at June 30, 2023 and 2022, respectively. The $1.7 million increase in our ACL was
primarily driven by our collectively evaluated loans. The quantitative component of our ACL, which is largely based on the
national unemployment rate forecast, increased $8.5 million, which largely resulted from loan growth, slower prepayment speeds
and a higher forecasted national unemployment rate. The qualitative component of our ACL, which is largely based on
management’s judgment of qualitative loss factors, decreased $6.5 million.
Our ACL totaled $48.7 million at June 30, 2023 and the amount allocated to our collectively evaluated multi-family and
nonresidential mortgage loans was $32.0 million, of which $23.3 million was attributable to qualitative loss factors. Changes in
managements’ judgement of qualitative loss factors could result in a significant change to the ACL. As described in Note 1,
qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the
most severe loss periods identified in the historical loan charge-offs of a peer group of similar-sized regional banks. At June 30,
2023, the most severe historical loss rate for multi-family and nonresidential mortgages loans was 1.72%.
Management performed a hypothetical sensitivity analysis to understand the impact of a change in a key input on our
ACL. At June 30, 2023, if the four-quarter national unemployment rate forecast had been 9% rather than an average of
approximately 4.0%, our ACL as a percent of total loans would have increased 33 basis points from 0.83% to 1.16%. This
sensitivity analysis includes the impact to both the quantitative and qualitative components of our ACL. Changes in quantitative
inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and
deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others. This sensitivity analysis
does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the
sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management’s
judgment of qualitative loss factors.
Our ACL on individually analyzed loans is determined on an individual basis using the present value of expected cash
flows discounted using the loan’s effective interest rate or, for collateral-dependent loans, the fair value of the collateral, less
estimated selling costs, as applicable. Our ACL on individually analyzed loans decreased $315,000 during the year ended June 30,
2023.
39
Goodwill. We have goodwill of $210.9 million at June 30, 2023. Goodwill arises from business combinations and is
generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling
interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill
is not amortized, but is tested for impairment at least annually or more frequently if events and circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying amount.
In assessing impairment, we have the option to perform a qualitative analysis to determine whether the existence of
events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than
its carrying amount. Due to a significant decline in bank stock prices, triggered by regional bank failures, we performed a
quantitative goodwill impairment during the fourth quarter of the year ended June 30, 2023. The quantitative goodwill impairment
test compares the estimated fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair
value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the
carrying amount of the reporting unit were to exceed its estimated fair value, and impairment loss would be recorded.
The quantitative assessment of goodwill for our single reporting unit was performed utilizing a discounted cash flow
analysis (“income approach”) and estimates of selected market information (“market approaches”). The result of the income
approach was weighted at 50% and the results of the market approaches comprised the remaining 50% in determining the fair
value of our single reporting unit. The fair value of our single reporting unit exceeded its carrying value and no impairment
charges were recorded for the year ended June 30, 2023. Determining fair value of our single reporting unit is subject to
uncertainty as it is reliant on projected future cash flows, discount rate assumption, and market estimates. In the future, changes in
projected future cash flows, discount rate assumption, or market estimates could result in material goodwill impairment. To
quantify the impact of a potential goodwill impairment charge at June 30, 2023, the impact of a five percent impairment charge on
goodwill would result in a reduction in pre-tax income of approximately $10.5 million.
40
Financial Overview
The following financial information and other data in this section are derived from our audited consolidated financial
statements and should be read together therewith:
Balance Sheet Data:
Cash and equivalents
Assets
Net loans receivable
Investment securities available for sale
Investment securities held to maturity
Goodwill
Deposits
Borrowings
Stockholders' equity
Summary of Operations:
Interest income
Interest expense
Net interest income
Provision for (reversal of) credit losses
Net interest income after provision for (reversal of) credit losses
Non-interest income
Non-interest expenses
Income before taxes
Income tax expense
Net income
Per Share Data:
At June 30,
2023
2022
2021
(In Thousands)
$
70,515 $
101,615 $
67,855
8,064,815
5,780,687
1,227,729
146,465
210,895
5,629,183
1,506,812
869,284
7,719,883
5,370,787
1,344,093
118,291
210,895
7,283,735
4,793,229
1,676,864
38,138
210,895
5,862,256
5,485,306
901,337
894,000
685,876
1,042,944
For the Years Ended June 30,
2023
2022
2021
(Dollars in Thousands, Except Per Share
Amounts)
$
293,724
$
226,272
$
238,085
117,859
175,865
2,486
173,379
2,751
123,751
52,379
11,568
40,811
$
29,669
196,603
(7,518)
204,121
13,934
125,708
92,347
24,800
67,547
$
49,851
188,234
(1,121)
189,355
21,026
125,885
84,496
21,263
63,233
$
Net income per share - Basic and diluted
$
0.63
$
0.95
$
0.77
Weighted average number of common shares outstanding (in thousands):
Basic
Diluted
Cash dividends per share
Dividend payout ratio(1)
________________________________________
(1)
Represents cash dividends declared divided by net income.
64,804
64,804
70,911
70,933
$
0.44
$
0.43
$
70.2 %
45.1 %
82,387
82,391
0.35
45.1 %
41
Performance ratios:
Return on average assets (ratio of net income to average total assets)
Return on average equity (ratio of net income to average total equity)
Return on average tangible equity (ratio of net income to average tangible equity)(1)
Net interest rate spread
Net interest margin
Average interest-earning assets to average interest-bearing liabilities
Efficiency ratio(2)
Non-interest expense to average assets
Asset Quality Ratios:
Non-performing loans to total loans
Non-performing assets to total assets
Net charge-offs to average loans outstanding
Allowance for credit losses to total loans
At or For the Years Ended June 30,
2023
2022
2021
0.51 %
4.66 %
6.17 %
2.09 %
2.34 %
0.93 %
6.86 %
8.77 %
2.86 %
2.94 %
0.86 %
5.79 %
7.22 %
2.61 %
2.75 %
115.66 %
118.93 %
118.63 %
69.28 %
1.53 %
59.71 %
1.73 %
60.16 %
1.72 %
0.73 %
0.69 %
0.01 %
0.83 %
1.30 %
1.19 %
0.07 %
0.87 %
1.64 %
1.10 %
0.03 %
1.19 %
Allowance for credit losses to non-performing loans
114.33 %
66.92 %
72.92 %
Capital Ratios:
Average equity to average assets
10.85 %
13.52 %
14.88 %
Equity to assets at period end
Tangible equity to tangible assets at period end(3)
________________________________________
(1) Average tangible equity equals average total stockholders’ equity reduced by average goodwill and average core deposit intangible assets.
(2) Efficiency ratio equals non-interest expense divided by the sum of net interest income and non-interest income.
(3) Tangible equity equals total stockholders’ equity reduced by goodwill and core deposit intangible assets.
11.58 %
10.78 %
8.35 %
9.06 %
11.72 %
14.32 %
Comparison of Financial Condition at June 30, 2023 and June 30, 2022
Executive Summary. Total assets increased by $344.9 million, or 4.5%, to $8.06 billion at June 30, 2023 from $7.72
billion at June 30, 2022. 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 by $116.4 million to $1.23 billion at June 30,
2023 from $1.34 billion at June 30, 2022. This decrease was largely the result of principal repayments of $124.7 million, sales of
$120.4 million and a $38.1 million decrease in the fair value of the portfolio to a net unrealized loss of $156.1 million, partially
offset by purchases of $166.5 million.
Investment securities held to maturity increased by $28.2 million to $146.5 million at June 30, 2023 from $118.3 million
at June 30, 2022. The increase was largely the result of purchases of $40.4 million, partially offset by principal repayments of
$12.1 million.
Additional information regarding investment securities at June 30, 2023 is presented under “Item 1. Business” of this
Annual Report on Form 10-K, as well as in Note 4 to the audited consolidated financial statements.
Loans Held-for-Sale. Loans held-for-sale totaled $9.6 million at June 30, 2023 as compared to $28.9 million at June 30,
2022 and are reported separately from the balance of net loans receivable. Loans held-for-sale consisted of residential mortgage
loans of $9.6 million at June 30, 2023 as compared to residential mortgage loans and commercial mortgage loans of $7.1 million
and $21.7 million, respectively, at June 30, 2022. During the year ended June 30, 2023, we sold $103.8 million of residential
mortgage loans, resulting in a net gain on sale of $760,000, and $25.3 million of commercial mortgage loans, resulting in a net
loss on sale of $2.5 million.
42
Net Loans Receivable. Net loans receivable increased by $409.9 million, or 7.6%, to $5.78 billion at June 30, 2023 from
$5.37 billion at June 30, 2022. Detail regarding the change in the loan portfolio is presented below:
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
Total commercial loans
June 30,
2023
June 30,
2022
Increase/
(Decrease)
(In Thousands)
$
2,761,775 $
2,409,090 $
352,685
968,574
146,861
226,609
1,019,838
176,807
140,131
4,103,819
3,745,866
(51,264)
(29,946)
86,478
357,953
One- to four-family residential mortgage
1,700,559
1,645,816
54,743
Consumer loans:
Home equity loans
Other consumer
Total consumer loans
43,549
2,549
46,098
42,028
2,866
44,894
1,521
(317)
1,204
Total loans
5,850,476
5,436,576
413,900
Unaccreted yield adjustments
Allowance for credit losses
(21,055)
(48,734)
(18,731)
(47,058)
(2,324)
(1,676)
Net loans receivable
$
5,780,687 $
5,370,787 $
409,900
Commercial loan origination volume for the year ended June 30, 2023 totaled $895.9 million, comprised of $716.4
million of commercial mortgage loan originations, $91.8 million of commercial business loan originations and construction loan
disbursements of $87.7 million.
One- to four-family residential mortgage loan origination volume, excluding loans held-for-sale, totaled $197.8 million
for the year ended June 30, 2023 and was supplemented with loan purchases totaling $656,000. Home equity loan and line of
credit origination volume for the same period totaled $26.0 million.
Additional information about our loans at June 30, 2023 is presented under “Item 1. Business” of this Annual Report on
Form 10-K, as well as in Note 5 to the audited consolidated financial statements.
Nonperforming Loans and TDRs. Nonperforming loans decreased by $27.7 million to $42.6 million, or 0.73% of total
loans, at June 30, 2023 from $70.3 million, or 1.30% of total loans, at June 30, 2022. The decrease in nonperforming loans was
largely attributable to a decrease of $15.4 million in nonperforming nonresidential mortgage loans and a decrease of $7.5 million
in nonperforming multi-family mortgage loans.
TDRs are loans where we have 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. At June 30, 2023, we had accruing TDRs
totaling $10.5 million, an increase of $1.8 million from $8.7 million at June 30, 2022. At June 30, 2023, we had non-accrual
TDRs totaling $6.9 million, a decrease of $6.6 million from $13.5 million at June 30, 2022.
Additional information about nonperforming loans and TDRs at June 30, 2023 is presented under “Item 1. Business” of
this Annual Report on Form 10-K, as well as in Note 5 to the audited consolidated financial statements.
43
Allowance for Credit Losses. At June 30, 2023, the ACL totaled $48.7 million, or 0.83% of total loans, reflecting an
increase of $1.7 million from $47.1 million, or 0.87% of total loans, at June 30, 2022. The increase was largely attributable to a
provision for credit losses of $2.5 million, primarily driven by loan growth, partially offset by a reduction in the expected life of
the loan portfolio. Partially offsetting the provision for credit losses were net charge-offs of $810,000, of which $396,000 had
been individually reserved for within the ACL at June 30, 2022.
Additional information about the allowance for credit losses at June 30, 2023 is presented under “Item 1. Business” of
this Annual Report on Form 10-K, as well as in Note 1 and Note 6 to the audited 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 by $73.6
million to $829.8 million at June 30, 2023 from $756.2 million at June 30, 2022. The increase in other assets largely reflected a
$24.6 million increase in FHLB stock, a $23.8 million increase in the fair value of our derivatives portfolio and a $12.8 million
increase in OREO. The increase in OREO was a result of our acquisition of a $13.0 million nonresidential real estate property
through foreclosure. The remaining change generally reflected normal operating fluctuations within these line items.
Deposits. Total deposits decreased by $233.1 million, or 4.0%, to $5.63 billion at June 30, 2023 from $5.86 billion at
June 30, 2022. Included in total deposits are brokered and listing service time deposits of $640.5 million and $773.5 million at
June 30, 2023 and 2022, respectively. The following table sets forth the distribution of, and changes in, deposits, by type, at the
dates indicated:
Non-interest-bearing deposits
$
609,999 $
653,899 $
(43,900)
June 30,
2023
June 30,
2022
Increase/
(Decrease)
(In Thousands)
Interest-bearing deposits:
Interest-bearing demand
Savings
Certificates of deposit
Interest-bearing deposits
Total deposits
2,252,912
748,721
2,017,551
5,019,184
2,265,597
1,053,198
1,889,562
5,208,357
(12,685)
(304,477)
127,989
(189,173)
$
5,629,183 $
5,862,256 $
(233,073)
Uninsured deposits totaled $1.77 billion as of June 30, 2023 compared to $1.53 billion as of June 30, 2022. Excluding
collateralized deposits of state and local governments, and deposits of the Bank’s wholly-owned subsidiary and holding company,
uninsured deposits totaled $710.4 million, or 12.6% of total deposits, at June 30, 2023 compared to $792.1 million, or 13.5% of
total deposits, at June 30, 2022.
Additional information about our deposits at June 30, 2023 is presented under “Item 1. Business” of this Annual Report
on Form 10-K, as well as in Note 10 to the audited consolidated financial statements.
Borrowings. The balance of borrowings increased by $605.5 million, or 67.2%, to $1.51 billion at June 30, 2023 from
$901.3 million at June 30, 2022 which included overnight borrowings totaling $225.0 million and $250.0 million at June 30, 2023
and 2022, respectively. The increase was primarily driven by a net increase in FHLB advances.
Additional information about our borrowings at June 30, 2023 is presented under “Item 1. Business” of this Annual
Report on Form 10-K, as well as in Note 11 to the audited consolidated financial statements.
Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other
miscellaneous liabilities, decreased by $2.8 million to $59.5 million at June 30, 2023 from $62.3 million at June 30, 2022. The
change in the balance of other liabilities generally reflected normal operating fluctuations within these line items.
Stockholders’ Equity. Stockholders’ equity decreased by $24.7 million to $869.3 million at June 30, 2023 from $894.0
million at June 30, 2022. The decrease in stockholders’ equity during the year ended June 30, 2023 largely reflected dividends
totaling $28.7 million and share repurchases totaling $27.4 million. In addition, other comprehensive loss, net of tax, was $13.7
million, which was driven by 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 items were partially offset by net income of $40.8 million.
44
Book value per share increased by $0.18 to $13.20 at June 30, 2023 while tangible book value per share increased by
$0.06 to $9.96 at June 30, 2023.
On August 1, 2022, we announced that the Board of Directors had authorized a new stock repurchase plan to repurchase
up to 4,000,000 shares, and the completion of our previous stock repurchase plan, which authorized the repurchase of 7,602,021
shares. During the year ended June 30, 2023, we repurchased 2,820,398 shares of common stock at a cost of $27.4 million, or
$9.73 per share, including 2,495,253 shares, or 62.4% of the shares authorized for repurchase under the current repurchase
program, at a cost of $23.8 million, or $9.54 per share.
Comparison of Operating Results for the Years Ended June 30, 2023 and June 30, 2022
Net Income. Net income for the year ended June 30, 2023 was $40.8 million, or $0.63 per diluted share, a decrease of
39.6% from $67.5 million, or $0.95 per diluted share for the year ended June 30, 2022. The decrease in net income reflected a
decrease in net interest income, an increase in the provision for credit losses and a decrease in non-interest income, partially offset
by a decrease in non-interest expense and a decrease in income tax expense. Net income for the years ended June 30, 2023 and
June 30, 2022 was impacted by various non-recurring items, as described in further detail below.
Net Interest Income. Net interest income decreased by $20.7 million to $175.9 million for the year ended June 30, 2023.
The decrease between the comparative periods resulted from an increase of $88.2 million in interest expense, partially offset by an
increase of $67.5 million in interest income. Included in net interest income for the years ended June 30, 2023 and 2022,
respectively, was purchase accounting accretion of $5.3 million and $9.0 million and loan prepayment penalty income of
$895,000 and $5.4 million.
Net interest margin decreased 60 basis points to 2.34% for the year ended June 30, 2023, from 2.94% for the year ended
June 30, 2022. The decrease reflected increases in the cost and average balance of interest-bearing liabilities, partially offset by
increases in the yield on and average balance of interest-earning assets. The increased cost of interest-bearing liabilities and yield
on interest-earning assets is the result of higher market interest rates that were caused by an increase in the federal funds target
rate from 0% - 0.25% in March 2022 to 5.00% - 5.25% in May 2023.
45
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 and exclude the impact of prepayment
penalties, which are recorded to non-interest income.
For the Years Ended June 30,
2023
2022
2021
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
(Dollars in Thousands)
$ 5,827,123 $ 233,147
4.00 % $ 4,922,400 $ 190,520
3.87 % $ 4,866,436 $ 202,240
4.16 %
1,532,961
54,855
30,332
694
115,390
5,028
3.58
2.29
4.36
3.91
1,622,475
32,746
55,981
82,802
1,273
1,733
6,683,658
226,272
2.02
2.27
2.09
3.39
1,571,452
31,238
74,604
200,435
1,652
2,955
6,712,927
238,085
1.99
2.21
1.47
3.55
Interest-earning assets:
Loans receivable (1)
Taxable investment securities(2)
Tax-exempt securities (2)
Other interest-earning assets(3)
Total interest-earning assets
7,505,806
293,724
Non-interest-earning assets
Total assets
563,131
$ 8,068,937
598,712
$ 7,282,370
620,934
$ 7,333,861
Interest-bearing liabilities:
Interest-bearing demand
$ 2,349,802 $ 40,650
Savings
896,651
3,351
Certificates of deposit
2,083,864
34,162
Total interest-bearing deposits
5,330,317
78,163
FHLB advances
Other borrowings
1,101,658
37,734
57,468
1,962
Total borrowings
1,159,126
39,696
Total interest-bearing liabilities 6,489,443
117,859
Non-interest-bearing liabilities(4)
704,136
Total liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
7,193,579
875,358
$ 8,068,937
1.73
0.37
1.64
1.47
3.43
3.41
3.42
1.82
$ 2,067,200 $ 5,123
1,088,971
1,711,276
1,190
8,895
4,867,447
15,208
679,388
14,067
72,841
394
752,229
14,461
5,619,676
29,669
0.25
0.11
0.52
0.31
2.07
0.54
1.92
0.53
$ 1,726,190 $ 7,028
1,066,794
3,299
1,931,887
21,208
4,724,871
31,535
931,148
18,314
2,563
2
933,711
18,316
5,658,582
49,851
0.41
0.31
1.10
0.67
1.97
0.06
1.96
0.88
678,143
6,297,819
984,551
$ 7,282,370
583,886
6,242,468
1,091,393
$ 7,333,861
Net interest income
Interest rate spread(5)
Net interest margin(6)
Ratio of interest-earning assets to
interest-bearing liabilities
$ 175,865
$ 196,603
$ 188,234
2.09 %
2.34 %
2.86 %
2.94 %
2.67 %
2.80 %
1.16
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)
(4)
Includes interest-bearing deposits at other banks and FHLB of New York capital stock.
Includes average balances of non-interest-bearing deposits of $644.5 million, $624.7 million and $518.1 million for the years ended June
30, 2023, 2022 and 2021, respectively.
Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(5)
(6) Net interest margin represents net interest income as a percentage of average interest-earning assets.
46
The following table reflects the dollar amount of changes in interest income and interest expense to changes in volume
and in prevailing interest rates during the periods indicated. Each category reflects the: (1) changes in volume (changes in volume
multiplied by old rate); (2) changes in rate (changes in rate multiplied by old volume); and (3) net change. The net change
attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change
in each.
Year Ended June 30, 2023
versus
Year Ended June 30, 2022
Year Ended June 30, 2022
versus
Year Ended June 30, 2021
Increase (Decrease) Due to
Increase (Decrease) Due to
Volume
Rate
Net
Volume
Rate
Net
(In Thousands)
(In Thousands)
Interest and dividend income
Loans receivable
$
36,040 $
6,587 $
42,627 $
2,337 $
(14,057) $
(11,720)
Taxable investment securities
(1,901)
24,010
22,109
Tax-exempt securities
Other interest-earning assets
(590)
876
11
2,419
(579)
3,295
1,030
(423)
(2,157)
478
44
935
1,508
(379)
(1,222)
Total interest-earning assets
$
34,425 $
33,027 $
67,452 $
787 $
(12,600) $
(11,813)
Interest expense:
Interest-bearing demand
$
802 $
34,725 $
35,527 $
1,216 $
(3,121) $
(1,905)
Savings
Certificates of deposit
Borrowings
(243)
2,320
10,324
2,404
22,947
14,911
2,161
25,267
25,235
67
(2,176)
(2,109)
(2,192)
(10,121)
(12,313)
(3,489)
(366)
(3,855)
Total interest-bearing liabilities
$
13,203 $
74,987 $
88,190 $
(4,398) $
(15,784) $
(20,182)
Change in net interest income
$
21,222 $
(41,960) $
(20,738) $
5,185 $
3,184 $
8,369
Provision for Credit Losses. The provision for credit losses increased by $10.0 million to a provision for credit losses of
$2.5 million for the year ended June 30, 2023, compared to a reversal of credit losses of $7.5 million for the year ended June 30,
2022. The provision for credit losses for the year ended June 30, 2023 was largely attributable to loan growth, partially offset by a
reduction in the expected life of the loan portfolio. By comparison, the reversal of credit losses for the year ended June 30, 2022
was largely attributable to an 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 analyzed for impairment.
Additional information regarding the allowance for credit losses and the associated provision recognized during the year
ended June 30, 2023 is presented under “Item 1, Business” on this Annual Report on Form 10-K as well as in Note 1 and Note 6
to the audited consolidated financial statements as well as the Comparison of Financial Condition at June 30, 2023.
Non-Interest Income. Non-interest income decreased by $11.2 million to $2.8 million for the year ended June 30, 2023.
Loss on sale and call of securities was $15.2 million during the year ended June 30, 2023 compared to $559,000 recorded
during the earlier comparative period. The current year loss was the result of a previously announced wholesale restructuring that
involved the sale of $120.4 million of available for sale securities. The proceeds of the sale were reinvested in higher yielding
securities.
Loss on sale of loans was $1.6 million for the year ended June 30, 2023 compared to a gain on sale of loans of $2.5
million during the earlier comparative period. The current year included a loss of $2.5 million that resulted from the sale of a non-
performing commercial mortgage loan held-for-sale. In addition, the decrease in gain on sale of loans reflected a decrease in the
volume of loans sold between comparative periods.
Income from bank owned life insurance increased $2.5 million to $8.6 million for the year ended June 30, 2023. The
increase is the result of payouts on life insurances policies.
47
Other non-interest income increased $4.7 million to $6.3 million for the year ended June 30, 2023. The increase was
primarily attributable to a non-recurring gain of $2.9 million from the sale of a former branch location and a $1.8 million increase
in income from investment services. These increases were partially offset by $356,000 of non-recurring gains on asset disposals in
the earlier comparative 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. Non-interest expense decreased by $2.0 million to $123.8 million for the year ended June 30,
2023.
Salaries and employee benefits expense decreased by $675,000 to $75.6 million for the year ended June 30, 2023. This
decrease was largely due to lower incentive compensation, lower incentive payments tied to loan origination volume and lower
expense from retirement plans. These decreases were partially offset by higher salary expense and non-recurring severance
expense resulting from a reduction in headcount.
Net occupancy expense of premises decreased by $2.1 million to $12.0 million for the year ended June 30, 2023. This
decrease was largely due to expenses recognized in the prior period including $1.5 million of non-recurring expenses related to
the consolidation of three retail branch locations and an office facility and $250,000 related to facility repairs made in connection
with damage incurred during Tropical Storm Ida. The current year includes $250,000 of non-recurring occupancy expenses
related to the consolidation of two retail branch locations.
Equipment and systems expense decreased by $1.3 million to $14.6 million for the year ended June 30, 2023. This
decrease was largely attributable to a prior period non-recurring expense of $800,000 from the early termination of a contract with
a service provider.
FDIC insurance premiums increased $2.7 million to $5.1 million for the year ended June 30, 2023. This increase was
largely driven by asset growth.
Director compensation decreased by $768,000 to $1.4 million for the year ended June 30, 2023. This decrease primarily
reflected a decline in director-related stock-based compensation expense.
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 decreased by $13.2 million to $11.6 million for the year ended
June 30, 2023, from $24.8 million for the year ended June 30, 2022. The decrease in income tax expense reflected a lower level of
pre-tax income as compared to the prior period.
Effective tax rates for the years ended June 30, 2023 and 2022 were 22.1% and 26.9%, respectively. The decrease in the
effective tax rate was primarily due to lower taxable income, as well as non-taxable payouts on life insurance policies, noted
above, during the year ended June 30, 2023.
Comparison of Operating Results for the Years Ended June 30, 2022 and June 30, 2021
A comparison of our operating results for the years ended June 30, 2022 and June 30, 2021 can be found in our Annual
Report on Form 10-K for the year ended June 30, 2022, filed with the SEC on August 26, 2022.
48
Liquidity and Commitments
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.
Liquidity, at June 30, 2023, included $70.5 million of short-term cash and equivalents and $1.23 billion of investment
securities available for sale which can readily be sold or pledged as collateral, if necessary. In addition, we have the capacity to
borrow additional funds from the FHLB, FRB or via unsecured overnight borrowings. As of June 30, 2023, we had the capacity to
borrow additional funds totaling $1.55 billion and $415.0 million from the FHLB and FRB, respectively, without pledging
additional collateral. We had the ability to pledge additional securities to borrow an additional $477.0 million at June 30, 2023. As
of that same date, we also had access to unsecured overnight borrowings with other financial institutions totaling $990.0 million,
of which $100.0 million was outstanding.
Deposits decreased $233.1 million to $5.63 billion at June 30, 2023 from $5.86 billion at June 30, 2022. The decrease in
deposit balances reflected a $189.2 million decrease in interest-bearing deposits coupled with a $43.9 million decrease in non-
interest-bearing deposits. Borrowings from the FHLB and other sources are generally available to supplement our liquidity
position or to replace maturing deposits. As of June 30, 2023, our outstanding balance of FHLB advances, excluding fair value
adjustments, totaled $1.28 billion. As of the same date, we had $125.0 million outstanding via our overnight line of credit with the
FHLB.
The following table sets forth information concerning balances and interest rates on our short-term borrowings at and for
the periods shown:
At or For the Years Ended June 30,
Balance at end of year
Average balance during year
Maximum outstanding at any month end
Weighted average interest rate at end of year
Weighted average interest rate during year
2023
$ 1,175,000
$
900,997
$ 1,280,000
2022
(Dollars in Thousands)
$
$
$
625,000
476,142
684,000
$
$
$
2021
390,000
646,896
815,000
5.42 %
4.49 %
1.72 %
0.58 %
0.33 %
1.08 %
The following table discloses our contractual obligations and commitments as of June 30, 2023:
Contractual obligations
Operating lease obligations
Certificates of deposit
Federal Home Loan Bank Advances
Less than
One Year
One to
Three Years
June 30, 2023
Over Three
Years to
Five Years
(In Thousands)
Over Five
Years
Total
$
3,445 $
1,896,132
972,500
6,254 $
94,472
110,000
4,904 $
21,365
200,000
4,305 $
5,582
—
18,908
2,017,551
1,282,500
Total contractual obligations
$
2,872,077 $
210,726 $
226,269 $
9,887 $
3,318,959
Commitments
Undisbursed funds from approved lines of credit(1)
Construction loans in process(1)
Other commitments to extend credit(1)
$
87,467 $
58,485
23,261
20,942 $
—
—
4,123 $
—
—
56,961 $
—
—
169,493
58,485
23,261
Total commitments
$
169,213 $
20,942 $
4,123 $
56,961 $
251,239
________________________________________
(1) Represents amounts committed to customers.
49
In addition to the loan commitments noted above, the pipeline of loans held for sale included $11.7 million of in process
loans whose terms included interest rate locks to borrowers that were paired with a 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.
In addition to the commitments noted above, we are party to standby letters of credit totaling approximately $115,000 at
June 30, 2023 through which we guarantee certain specific business obligations of our commercial customers.
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.
At June 30, 2023, outstanding loan commitments relating to loans held in portfolio totaled $251.2 million compared to
$510.5 million at June 30, 2022. Since some of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. For additional information regarding our outstanding
lending commitments at June 30, 2023, see Note 17 to the audited consolidated financial statements.
Capital
Consistent with our goals to operate as a sound and profitable financial organization, Kearny Financial and Kearny Bank
actively seek to maintain our well capitalized status in accordance with regulatory standards. As of June 30, 2023, Kearny
Financial and Kearny Bank exceeded all capital requirements of the federal banking regulators and were considered well
capitalized.
The following table presents information regarding the Bank’s regulatory capital levels at June 30, 2023:
June 30, 2023
Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets)
$ 695,417
13.31 % $ 417,853
8.00 % $ 522,316
10.00 %
Tier 1 capital (to risk-weighted assets)
659,783
12.63 %
313,389
6.00 %
417,853
Common equity tier 1 capital (to risk-weighted assets)
659,783
12.63 %
235,042
4.50 %
339,505
Tier 1 capital (to adjusted total assets)
659,783
8.15 %
323,922
4.00 %
404,902
8.00 %
6.50 %
5.00 %
The following table presents information regarding the consolidated Company’s regulatory capital levels at June 30,
2023:
June 30, 2023
Actual
For Capital
Adequacy Purposes
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets)
$ 770,621
14.75 % $ 418,015
Tier 1 capital (to risk-weighted assets)
734,987
14.07 %
313,511
Common equity tier 1 capital (to risk-weighted assets)
734,987
14.07 %
235,133
Tier 1 capital (to adjusted total assets)
734,987
9.07 %
324,170
8.00 %
6.00 %
4.50 %
4.00 %
For additional information regarding regulatory capital at June 30, 2023, see Note 15 to the audited consolidated
financial statements.
50
Impact of Inflation
The financial statements included in this document have been prepared in accordance with accounting principles
generally accepted in the United States of America. These principles require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to
inflation.
Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our
performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction
or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly
rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable
performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense.
Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to
increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have
appreciated in dollar value due to inflation.
Recent Accounting Pronouncements
For a discussion of the expected impact of recently issued accounting pronouncements that have yet to be adopted by us,
please refer to Note 2 to the audited consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Management of Interest Rate Risk and 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 to 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 an institution’s 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 June 30, 2022 precluded the modeling of certain falling rate scenarios.
51
The following tables present the results of our internal EVE and NII analyses as of June 30, 2023 and 2022, respectively:
June 30, 2023
1 to 12 Months
13 to 24 Months
Change in
Interest Rates
$ Amount
of EVE
% Change
in EVE
$ Amount
of NII
% Change
in NII
$ Amount
of NII
% Change
in NII
+300 bps
+200 bps
+100 bps
0 bps
-100 bps
-200 bps
-300 bps
(Dollars in Thousands)
507,998
571,129
673,314
751,040
799,675
814,293
849,208
(32.36) %
(23.95) %
(10.35) %
—
6.48 %
8.42 %
13.07 %
154,552
156,274
160,344
163,132
163,455
161,284
158,526
(5.26) %
(4.20) %
(1.71) %
—
0.20 %
(1.13) %
(2.82) %
168,366
167,683
173,170
175,143
173,319
166,473
156,507
(3.87) %
(4.26) %
(1.13) %
—
(1.04) %
(4.95) %
(10.64) %
June 30, 2022
1 to 12 Months
13 to 24 Months
Change in
Interest Rates
$ Amount
of EVE
% Change
in EVE
$ Amount
of NII
% Change
in NII
$ Amount
of NII
% Change
in NII
(Dollars in Thousands)
+300 bps
+200 bps
+100 bps
0 bps
-100 bps
1,089,795
1,156,219
1,239,935
1,287,700
1,272,203
(15.37) %
(10.21) %
(3.71) %
—
(1.20) %
178,865
187,601
198,126
207,069
205,241
(13.62) %
(9.40) %
(4.32) %
—
(0.88) %
214,839
215,528
219,594
218,501
204,568
(1.68) %
(1.36) %
0.50 %
—
(6.38) %
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 8. Financial Statements and Supplementary Data
The Company’s consolidated financial statements are contained in this Annual Report on Form 10-K immediately
following Item 16.
52
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures
Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and
principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K such
disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and is accumulated and communicated to the Company’s management,
including the principal executive and principal financial officer, as appropriate to allow timely decisions regarding required
disclosures.
(b) Internal Control over Financial Reporting
1.
Management’s Annual Report on Internal Control Over Financial Reporting.
Management’s report on the Company’s internal control over financial reporting appears in the Company’s consolidated
financial statements that are contained in this Annual Report on Form 10-K immediately following Item 16. Such report is
incorporated herein by reference.
2.
Report of Independent Registered Public Accounting Firm.
The report of Crowe LLP, an independent registered public accounting firm, on the Company’s internal control over
financial reporting appears in the Company’s consolidated financial statements that are contained in this Annual Report on Form
10-K immediately following Item 16. Such report is incorporated herein by reference.
3.
Changes in Internal Control Over Financial Reporting.
During the last quarter of the year under report, there was no change in the Company’s internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Plans
During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or
terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the
affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
53
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information that appears under the headings included under “Proposal I – Election of Directors” and “Corporate
Governance Matters” in the Registrant’s definitive proxy statement for the Registrant’s 2023 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year end (the “Proxy Statement”)
is incorporated herein by reference.
The Company has adopted a code of ethics that applies to its principal executive officer and principal financial and
accounting officer. A copy of the code of ethics (referred to as Conflicts of Interest & Code of Conduct) is available on our
website at www.kearnybank.com under the “Investors Relations” link, then within the “Corporate Overview” drop down and
under the link “Governance Documents” or without charge upon request to the Corporate Secretary, Kearny Financial Corp., 120
Passaic Avenue, Fairfield, New Jersey 07004.
Item 11. Executive Compensation
The information that appears under the headings “Executive Compensation,” “Director Compensation” and
“Compensation Discussion and Analysis” in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)
(b)
(c)
(d)
Security Ownership of Certain Beneficial Owners. Information required by this item is incorporated herein
by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in
the Proxy Statement.
Security Ownership of Management. Information required by this item is incorporated herein by reference
to the section captioned “Proposal I – Election of Directors” in the Proxy Statement.
Changes in Control. Management of the Company knows of no arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a subsequent date result in a change in
control of the registrant.
Securities Authorized for Issuance Under Equity Compensation Plans. Set forth below is information as
of June 30, 2023 with respect to compensation plans under which equity securities of the Registrant are
authorized for issuance.
(A)
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights(1)
(B)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(C)
Number of Securities Remaining
Available for Future Issuance Under
Equity Compensation Plans - Excluding
Securities Reflected in Column (A)(2)
Equity compensation plans
approved by stockholders:
2005 Stock Compensation and
Incentive Plan
2016 Equity Incentive Plan
2021 Equity Incentive Plan
Equity compensation plans not
approved by stockholders:
None
Total
103,530 $
2,958,826 $
497,664 $
— $
3,560,020 $
10.65
15.15
—
—
14.99
—
—
5,825,421
—
5,825,421
________________________________________
(1) The number of securities includes 2,923,530 vested options and 60,000 non-vested options outstanding as of June 30, 2023. In addition to
these options, 78,826 restricted stock awards and 497,664 restricted stock units were also non-vested as of June 30, 2023. The non-vested
options and restricted stock awards are earned at a rate of 20% annually. The non-vested restricted stock units are earned at a rate of 33%
annually.
(2) As of June 30, 2023, there were 5,825,421 options (or 1,941,807 restricted stock units or restricted stock awards) remaining available for
award under the approved equity compensation plans.
54
Item 13. Certain Relationships and Related Transactions and Director Independence
The information that appears under the sections captioned “Corporate Governance Matters – Transactions with Certain
Related Persons” and “– Board Independence” in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is Crowe LLP, Livingston, NJ, Auditor Firm ID: 173
The information relating to this item is incorporated herein by reference to the information contained under the section
captioned “Proposal II – Ratification of Appointment of Independent Auditor” in the Proxy Statement.
55
Item 15. Exhibits, Financial Statement Schedules
PART IV
(1)
The following financial statements and the independent auditors’ report appear in this Annual Report on Form
10-K immediately after Item 16:
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of June 30, 2023 and 2022
Consolidated Statements of Income For the Years Ended June 30, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income For the Years Ended June 30, 2023, 2022 and 2021
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended June 30, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended June 30, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
F-1
F-2
F-5
F-6
F-7
F-8
F-10
F-12
(2)
All schedules are omitted because they are not required or applicable, or the required information is shown in
the consolidated financial statements or the notes thereto.
(3)
The following exhibits are filed as part of this Annual Report on Form 10-K:
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
Articles of Incorporation of Kearny Financial Corp. (Incorporated by reference to Kearny Financial Corp.’s
Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)
Amended and Restated Bylaws of Kearny Financial Corp. (Incorporated by reference to Kearny Financial
Corp.’s Current Report on Form 8-K (File No. 001-37399), originally filed on August 16, 2023)
Form of Common Stock Certificate of Kearny Financial Corp. (Incorporated by reference to Kearny Financial
Corp.’s Registration Statement on Form S-1 (File No. 333-198602), originally filed on September 5, 2014)
Description of Capital Stock of Kearny Financial Corp. (Incorporated by reference to Exhibit 4.2 to Kearny
Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399), originally filed on August 28, 2020)
Amended and Restated Employment Agreement between Kearny Bank and Craig Montanaro dated May 18,
2015 (Incorporated by reference to Exhibit 10.1 to Kearny Financial Corp.’s Annual Report on Form 10-K
(File No. 001-37399), originally filed on September 14, 2015)†
Amended and Restated Employment Agreement between Kearny Financial Corp. and Craig Montanaro dated
May 18, 2015 (Incorporated by reference to Exhibit 10.2 to Kearny Financial Corp.’s Annual Report on Form
10-K (File No. 001-37399), originally filed on September 14, 2015)†
Employment Agreement between Kearny Bank and Patrick M. Joyce dated May 18, 2015 (Incorporated by
reference to Exhibit 10.4 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399),
originally filed on September 14, 2015)†
Employment Agreement between Kearny Bank and Erika K. Parisi dated May 18, 2015 (Incorporated by
reference to Exhibit 10.6 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399),
originally filed on September 14, 2015)†
Employment Agreement between Kearny Bank and Keith Suchodolski dated June 15, 2022 (Incorporated by
reference to Exhibit 10.1 to Kearny Financial Corp.’s Current Report on Form 8-K (File No. 001-37399,
originally filed on June 16, 2022)†
Employment Agreement between Kearny Bank and Thomas D. DeMedici dated June 21, 2017 (Incorporated
by reference to Exhibit 10.8 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399),
originally filed on August 28, 2019)†
56
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Change in Control Agreement between Kearny Bank and Anthony V. Bilotta, Jr. dated July 1, 2018
(Incorporated by reference to Exhibit 10.9 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No.
001-37399), originally filed on August 28, 2019)†
Form of Two Year Change in Control Agreement between Kearny Bank and Certain Officers (Incorporated by
reference to Exhibit 10.7 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399),
originally filed on September 14, 2015)†
Directors Consultation and Retirement Plan as Amended and Restated (Incorporated by reference to Exhibit
10.8 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399), originally filed on
September 14, 2015)†
Amended and Restated Benefit Equalization Plan for Pension Plan (Incorporated by reference to Exhibit 10.9
to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399), originally filed on September
14, 2015)†
Amended and Restated Benefits Equalization Plan Related to the Employee Stock Ownership Plan
(Incorporated by reference to Exhibit 10.10 to Kearny Financial Corp.’s Annual Report on Form 10-K (File
No. 001-37399), originally filed on September 14, 2015)†
Kearny Bank Director Life Insurance Agreement (Incorporated by reference to Exhibit 10.1 to Kearny
Financial Corp.’s Current Report on Form 8-K (File No. 000-51093), originally filed on August 18, 2005)†
Form of Amendment to Kearny Bank Director Life Insurance Agreement (Incorporated by reference to Exhibit
10.14 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399), originally filed on
September 14, 2015)†
Kearny Bank Amended and Restated Executive Life Insurance Agreement with Craig Montanaro
(Incorporated by reference to Exhibit 10.2 to Kearny Financial Corp.’s Current Report on Form 8-K (File No.
001-37399), originally filed on June 16, 2022)†
Form of Kearny Bank Executive Life Insurance Agreement with Keith Suchodolski, Patrick M. Joyce and
Thomas D. DeMedici (Incorporated by reference to Exhibit 10.2 to Kearny Financial Corp.’s Current Report
on Form 8-K (File No. 000-51093), originally filed on August 18, 2005)†
Form of Amendment to Kearny Bank Executive Life Insurance Agreement with Keith Suchodolski, Patrick M.
Joyce and Thomas D. DeMedici (Incorporated by reference to Exhibit 10.16 to Kearny Financial Corp.’s
Annual Report on Form 10-K (File No. 001-37399), originally filed on September 14, 2015)†
Kearny Bank Amended and Restated Change in Control Severance Pay Plan (Incorporated by reference to
Exhibit 10.1 to Kearny Financial Corp.’s Quarterly Report on Form 10-Q (File No. 001-37399), originally
filed on May 6, 2022)†
Kearny Bank Executive Management Incentive Compensation Plan (Incorporated by reference to Exhibit
10.20 to Kearny Financial Corp.’s Annual Report on Form 10-K (File No. 001-37399), originally filed on
August 28, 2019) †
Amendment to Freeze Benefit Accruals Under the Kearny Financial Corp. Directors Consultation and
Retirement Plan (Incorporated by reference to Exhibit 10.1 to Kearny Financial Corp.’s Current Report on
Form 8-K (File No. 001-37399), originally filed on December 23, 2015)†
Kearny Financial Corp. 2016 Equity Incentive Plan (Incorporated by reference to Appendix A to Kearny
Financial Corp’s Proxy Statement (File No. 001-37399), originally filed on September 14, 2016)†
Supplemental Executive Retirement Plan by and between Kearny Bank and Craig L. Montanaro effective as of
July 1, 2021 (Incorporated by reference to Exhibit 10.1 to Kearny Financial Corp.’s Current Report on Form 8-
K (File No. 001-37399), originally filed on June 21, 2021)†
Amendment to Freeze the Benefit Under the Supplemental Executive Retirement Plan by and between Kearny
Bank and Craig L. Montanaro effective as of December 21, 2022 (Incorporated by reference to Exhibit 10.1 to
Kearny Financial Corp.’s Current Report on Form 8-K (File No. 001-37399), originally filed on December 22,
2022)†
57
10.23
Kearny Financial Corp. 2021 Equity Incentive Plan (Incorporated by reference to Appendix A to Kearny
Financial Corp’s Proxy Statement (File No. 001-37399), originally filed on September 17, 2021)†
21
23.1
31.1
31.2
32.1
32.2
101
Subsidiaries of Registrant
Consent of Crowe LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following materials from the Company’s Annual Report to Stockholders on Form 10-K for the year ended
June 30, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated
Statements of Financial Condition, (ii) the Consolidated Statements of Operations; (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 with 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)
________________________________________
†
Management contract or compensatory plan or arrangement required to be filed as an exhibit.
Item 16. Form 10-K Summary
Not applicable.
58
August 25, 2023
Management Report on Internal Control over Financial Reporting
The management of Kearny Financial Corp. and Subsidiaries (collectively the “Company”) is responsible for establishing
and maintaining adequate internal control over financial reporting. The Company’s internal control system is a process designed
to provide reasonable assurance to the management and board of directors regarding the preparation and fair presentation of
published consolidated financial statements.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable
assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance
with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our
consolidated financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of internal control over financial reporting as of June 30, 2023. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013). Based on its assessment, management believes that, as of June 30,
2023, the Company’s internal control over financial reporting is effective based on those criteria.
The Company’s independent registered public accounting firm that audited the consolidated financial statements has issued
an audit report on the effective operation of the Company’s internal control over financial reporting as of June 30, 2023, a copy of
which is included in this annual report.
/s/ Craig L. Montanaro
Craig L. Montanaro
/s/ Keith Suchodolski
Keith Suchodolski
President and Chief Executive Officer
Senior Executive Vice President and Chief Financial Officer
F-1
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors of
Kearny Financial Corp. and Subsidiaries
Fairfield, New Jersey
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Kearny Financial Corp. and
Subsidiaries (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2023, and
the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over
financial reporting as of June 30, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-
year period ended June 30, 2023 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June
30, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Explanatory Paragraph – Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for
credit losses effective July 1, 2020 due to the adoption of ASC 326.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
F-2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex
judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical
audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses – Qualitative Factors - As described in Note 1 to the consolidated financial statements, the
Company accounts for credit losses under ASC 326, Financial Instruments – Credit Losses. ASC 326 requires the measurement of
expected lifetime credit losses for financial assets measured at amortized cost at the reporting date. As of June 30, 2023, the
balance of the allowance for credit losses on loans was $48.7 million.
Management employs a process and methodology to estimate the allowance for credit losses (“ACL”) on loans that
evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors involves pooling loans
into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include multi-family,
nonresidential mortgage, commercial business, construction, one-to-four family residential mortgage, home equity and consumer
loans.
For pooled loans, the Company primarily utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses
over the expected life of the loan. The DCF methodology combines the probability of default, the loss given default, remaining
life of the loan and prepayment and curtailment speed assumptions to estimate a reserve for each loan. The loss rates are adjusted
by current and forecasted macroeconomic assumptions and return to the mean after the forecasted periods. These quantitative
factors are supplemented by qualitative factors reflecting management’s view of how losses may vary from those represented by
quantitative loss rates. Qualitative factors are applied to each portfolio segment with the amounts determined by correlation of
credit stress to the maximum loss factors of a peer group’s historical charge-offs. Changes in these assumptions could have a
material effect on the Company’s financial results.
We identified auditing the qualitative component of the ACL on pooled loans in the multi-family, nonresidential
mortgage, and one-to-four family residential mortgage loan segments as a critical audit matter because the methodology to
determine the estimate of credit losses uses subjective judgments by management and is subject to material variability.
Performing audit procedures to evaluate the qualitative factors on the multi-family, nonresidential mortgage, and one-to-four
family residential mortgage loan segments involved a high degree of auditor judgment and required significant effort, including
the need to involve more experienced audit personnel including the use of internal specialists.
The primary procedures we performed to address this critical audit matter included:
•
Testing the effectiveness of controls over the evaluation of the ACL on pooled loans, including controls
addressing:
◦
◦
◦
◦
Methodology and accounting policies.
Data inputs, judgments and calculations used to determine the qualitative factors.
Information technology general controls and application controls.
Management’s review of the qualitative factors.
F-3
•
Substantively testing management’s process, including evaluating their judgments and assumptions, for
developing the ACL on loans collectively evaluated for impairment, which included:
◦
◦
◦
◦
Evaluation of the appropriateness of the Company’s methodology and accounting policies involved in
the application of ASC 326.
Testing the mathematical accuracy of the calculation.
Testing the completeness and accuracy of data used in the calculation including utilizing internal
specialists to assist in testing the accuracy of the underlying peer data used to develop the maximum
loss factors.
Evaluation of the reasonableness of management’s judgments related to qualitative factors to determine
if they are calculated to conform with management’s policies and were consistently applied period over
period. Our evaluation considered evidence from internal and external sources and loan portfolio
composition and performance.
Goodwill Impairment - As described in Notes 1 to the consolidated financial statements, the Company’s consolidated
goodwill balance was $210.9 million as of June 30, 2023, which is allocated to the Company’s single reporting unit. Goodwill is
tested for impairment at the reporting unit level at least annually, or more frequently if events or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual quantitative assessment of
goodwill for the Company’s single reporting unit was performed utilizing a discounted cash flow analysis (“income approach”)
and estimates of selected market information (“market approaches”). The result of the income approach was weighted at 50% and
the results of the market approaches comprised the remaining 50% in determining the fair value of the Company’s single
reporting unit. The fair value of the Company’s single reporting unit exceeded its carrying value and no impairment charges were
recorded as of June 30, 2023. The goodwill impairment assessment involves significant estimates and subjective assumptions
which require a high degree of management judgment.
We identified the goodwill impairment assessment of the Company as a critical audit matter. The principal
considerations for this determination were the degree of auditor judgment in performing procedures over the key assumptions,
which include discount rate, cost savings rate, expected future cash flows, and weighting allocation to valuation methodologies.
The primary procedures we performed to address this critical audit matter included:
•
Testing the effectiveness of controls over the valuation methodologies, assumptions and data used to estimate
the fair value of the Company, including controls addressing:
◦
◦
◦
Management’s review of the reasonableness and accuracy of the Company’s expected future cash
flows used in the income approach.
Management’s evaluation of assumptions and inputs used, including discount rate, cost savings rate,
comparable companies data, and allocated weightings incorporated into the methodologies used to
determine fair value.
Completeness and accuracy of key financial data used in the assessment.
•
Substantively testing management’s estimate, for estimating the fair value of the Company, which included:
◦
◦
◦
◦
Testing of key financial data for completeness and accuracy.
Evaluation of management’s ability to reasonably forecast cash flows.
Utilization of an internal specialist to evaluate appropriateness of valuation methodologies, the
discount rate assumption, cost savings rate, comparable companies data, and overall reasonableness of
the fair value.
Evaluation of management’s weighting allocation to each valuation methodology.
/s/ Crowe LLP
We have served as the Company's auditor since 2017.
Livingston, New Jersey
August 25, 2023
F-4
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In Thousands, Except Share and Per Share Data)
Assets
Cash and amounts due from depository institutions
Interest-bearing deposits in other banks
Cash and cash equivalents
June 30,
2023
2022
$
21,795 $
48,720
70,515
26,094
75,521
101,615
Investment securities available for sale (amortized cost of $1,383,867 and $1,462,124,
respectively), net of allowance for credit losses of $0 at June 30, 2023 and June 30, 2022
1,227,729
1,344,093
Investment securities held to maturity (fair value of $131,169 and $108,118, respectively), net
of allowance for credit losses of $0 at June 30, 2023 and June 30, 2022
Loans held-for-sale
Loans receivable
Less: allowance for credit losses on loans
Net loans receivable
Premises and equipment
Federal Home Loan Bank ("FHLB") of New York stock
Accrued interest receivable
Goodwill
Core deposit intangibles
Bank owned life insurance
Deferred income tax assets, net
Other real estate owned
Other assets
Total Assets
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing
Interest-bearing
Total deposits
Borrowings
Advance payments by borrowers for taxes
Other liabilities
Total Liabilities
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; 65,864,075 shares and
68,666,323 shares issued and outstanding, respectively
Paid-in capital
Retained earnings
Unearned employee stock ownership plan shares; 2,358,198 shares and 2,558,895 shares,
respectively
Accumulated other comprehensive loss
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
See notes to consolidated financial statements.
F-5
146,465
9,591
5,829,421
(48,734)
5,780,687
48,309
71,734
28,133
210,895
2,457
292,825
51,973
12,956
110,546
8,064,815 $
118,291
28,874
5,417,845
(47,058)
5,370,787
53,281
47,144
20,466
210,895
3,020
289,177
49,350
178
82,712
7,719,883
$
$
609,999 $
5,019,184
5,629,183
1,506,812
18,338
41,198
7,195,531
653,899
5,208,357
5,862,256
901,337
16,746
45,544
6,825,883
—
—
659
503,332
457,611
687
528,396
445,451
(22,862)
(69,456)
869,284
8,064,815 $
(24,807)
(55,727)
894,000
7,719,883
$
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
Interest Income
Loans
Taxable investment securities
Tax-exempt investment securities
Other interest-earning assets
Total Interest Income
Interest Expense
Deposits
Borrowings
Total Interest Expense
Net Interest Income
Provision for (reversal of) credit losses
Net Interest Income after Provision for (Reversal of) Credit Losses
Non-Interest Income
Fees and service charges
(Loss) gain on sale and call of securities
(Loss) gain on sale of loans
(Loss) gain on sale of other real estate owned
Income from bank owned life insurance
Electronic banking fees and charges
Bargain purchase gain
Other income
Total Non-Interest Income
Non-Interest Expense
Salaries and employee benefits
Net occupancy expense of premises
Equipment and systems
Advertising and marketing
Federal deposit insurance premium
Directors' compensation
Merger-related expenses
Debt extinguishment expenses
Other expense
Total Non-Interest Expense
Income before Income Taxes
Income tax expense
Net Income
Net Income per Common Share (EPS)
Basic
Diluted
Weighted Average Number of Common Shares Outstanding
Basic
Diluted
See notes to consolidated financial statements.
F-6
Years Ended June 30,
2022
2021
2023
$
233,147 $
54,855
694
5,028
293,724
190,520 $
32,746
1,273
1,733
226,272
202,240
31,238
1,652
2,955
238,085
78,163
39,696
117,859
175,865
2,486
173,379
15,208
14,461
29,669
196,603
(7,518)
204,121
31,535
18,316
49,851
188,234
(1,121)
189,355
3,106
(15,227)
(1,645)
(139)
8,645
1,759
—
6,252
2,751
75,589
12,036
14,577
2,122
5,133
1,364
—
—
12,930
123,751
52,379
11,568
40,811 $
2,580
(559)
2,539
5
6,167
1,626
—
1,576
13,934
76,264
14,114
15,886
2,059
2,455
2,132
—
—
12,798
125,708
92,347
24,800
67,547 $
0.63 $
0.63 $
0.95 $
0.95 $
64,804
64,804
70,911
70,933
1,897
767
5,574
—
6,267
1,717
3,053
1,751
21,026
68,800
12,673
14,870
2,161
1,940
2,993
4,349
796
17,303
125,885
84,496
21,263
63,233
0.77
0.77
82,387
82,391
$
$
$
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands)
Net Income
Other Comprehensive (Loss) Income, net of tax:
Net unrealized loss on securities available for sale
Net realized loss (gain) on sale and call of securities available for sale
Fair value adjustments on derivatives
Benefit plan adjustments
Total Other Comprehensive (Loss) Income
Total Comprehensive Income
Years Ended June 30,
2022
2021
2023
$
40,811 $
67,547 $
63,233
(38,004)
(91,453)
10,811
13,211
253
397
28,481
704
(13,729)
(61,871)
$
27,082 $
5,676 $
(8,274)
(538)
13,470
229
4,887
68,120
See notes to consolidated financial statements.
F-7
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands, Except Per Share Data)
Common Stock
Shares
Amount
Paid-In
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
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
722,871
373,672
(28,699)
1,257
1,069,938
837
—
—
—
—
—
—
—
41
—
—
123
373
(10,567)
(105)
(118,916)
54
—
1
—
(1)
5,673
(80)
(1)
(802)
Net income
Other comprehensive income, net of
income tax
ESOP shares committed to be released
(201 shares)
Stock option exercise
Stock repurchases
Issuance of stock under stock benefit
plans
Stock-based compensation expense
Cancellation of stock issued for
restricted stock awards
Stock issued in conjunction with the
acquisition of MSB Financial Corp.
Cash dividends declared ($0.35 per
common share)
5,854
—
58
—
45,075
—
(28,538)
—
—
1,946
—
—
—
—
—
—
—
—
63,233
4,887
4,887
—
—
—
—
—
—
—
—
2,069
373
(119,021)
—
5,673
(803)
45,133
(28,538)
Balance - June 30, 2021
78,965 $
790 $ 654,396 $ 408,367 $
(26,753) $
6,144 $ 1,042,944
Common Stock
Shares
Amount
Paid-In
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance - June 30, 2021
78,965 $
790 $ 654,396 $ 408,367 $
(26,753) $
6,144 $ 1,042,944
Net income
Other comprehensive loss, net of
income tax
ESOP shares committed to be released
(201 shares)
Stock repurchases
—
—
—
—
—
—
—
—
600
(10,222)
(102)
(129,418)
Stock-based compensation expense
—
—
3,794
Cancellation of stock issued for
restricted stock awards
Cash dividends declared ($0.43 per
common share)
(77)
(1)
(976)
—
—
—
(30,463)
—
—
1,946
—
—
—
—
—
67,547
(61,871)
(61,871)
—
—
—
—
—
2,546
(129,520)
3,794
(977)
(30,463)
63,233
—
—
—
—
—
—
—
—
67,547
—
—
—
—
—
Balance - June 30, 2022
68,666 $
687 $ 528,396 $ 445,451 $
(24,807) $
(55,727) $ 894,000
See notes to consolidated financial statements.
F-8
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands, Except Per Share Data)
Common Stock
Shares
Amount
Paid-In
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Loss
Total
Balance - June 30, 2022
68,666 $
687 $ 528,396 $ 445,451 $
(24,807) $
(55,727) $ 894,000
Net income
Other comprehensive loss, net of
income tax
ESOP shares committed to be released
(201 shares)
Stock repurchases
Issuance of stock under stock benefit
plans
Stock-based compensation expense
Cancellation of stock issued for
restricted stock awards
Cash dividends declared ($0.44 per
common share)
—
—
—
—
—
—
—
—
(8)
(2,821)
(29)
(27,529)
61
—
(42)
—
1
—
—
—
(1)
2,936
(462)
40,811
—
—
—
—
—
—
—
(28,651)
—
—
1,945
—
—
—
—
—
—
40,811
(13,729)
(13,729)
—
—
—
—
—
—
1,937
(27,558)
—
2,936
(462)
(28,651)
Balance - June 30, 2023
65,864 $
659 $ 503,332 $ 457,611 $
(22,862) $
(69,456) $ 869,284
See notes to consolidated financial statements.
F-9
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
Cash Flows from Operating Activities:
Net income
Adjustment to reconcile net income to net cash provided by operating activities:
Years Ended June 30,
2022
2021
2023
$
40,811 $
67,547 $
63,233
Depreciation and amortization of premises and equipment
Net accretion of yield adjustments
Deferred income taxes and valuation allowance
Bargain purchase gain
Amortization of intangible assets
Amortization of benefit plans’ unrecognized net loss
Provision for (reversal of) credit losses
Loss (gain) on sale of other real estate owned
Loans originated for sale
Proceeds from sale of mortgage loans held-for-sale
Loss (gain) on sale of mortgage loans held-for-sale, net
Realized loss (gain) on sale/call of securities available for sale
Realized loss on debt extinguishment
Realized gain on sale of loans receivable
Realized gain on disposition of premises and equipment
Loss on write-down of premises
Increase in cash surrender value of bank owned life insurance
ESOP and stock-based compensation expense
Increase in interest receivable
Decrease (increase) in other assets
Increase (decrease) in interest payable
(Decrease) increase in other liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of:
Investment securities available for sale
Investment securities held to maturity
Proceeds from:
Repayments/calls/maturities of investment securities available for sale
Repayments/calls/maturities of investment securities held to maturity
Sale of investment securities available for sale
Purchase of loans
Net (increase) decrease in loans receivable
Proceeds from sale of loans receivable
Purchase of interest rate caps
Proceeds from sale of other real estate owned
Additions to premises and equipment
Proceeds from death benefit of bank owned life insurance
Proceeds from cash settlement of premises and equipment
Purchase of FHLB stock
Redemption of FHLB stock
Net cash acquired in acquisition
Net Cash Used in Investing Activities
See notes to consolidated financial statements.
F-10
5,733
(5,084)
2,789
—
563
358
2,486
139
(106,288)
127,416
1,700
15,227
—
(55)
(2,886)
—
(8,645)
4,873
(7,667)
2,833
9,776
(14,530)
69,549
5,971
(5,669)
5,023
—
685
1,003
(7,518)
(5)
(179,727)
196,796
(2,415)
559
—
(124)
(363)
—
(6,167)
6,340
(1,104)
7,922
853
(8,306)
81,301
5,862
(13,214)
4,154
(3,053)
980
320
(1,121)
—
(281,086)
290,530
(5,147)
(767)
796
(427)
(971)
1,938
(6,267)
7,742
(288)
(4,454)
(638)
17,295
75,417
(166,483)
(40,398)
(229,145)
(86,406)
(918,668)
(12,321)
124,687
12,095
105,199
(702)
(435,111)
706
(758)
315
(1,355)
4,997
3,480
(98,275)
73,685
—
(417,918)
330,152
6,116
100,336
(123,389)
(467,236)
1,450
—
708
(2,920)
300
612
(30,382)
19,853
—
(479,951)
517,511
6,595
98,084
(81,707)
232,660
44,801
—
—
(5,458)
—
4,852
(37)
25,421
4,296
(83,971)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
Cash Flows from Financing Activities:
Net (decrease) increase in deposits
Repayment of term FHLB advances
Proceeds from term FHLB advances
Net (decrease) increase in other short-term borrowings
Net increase (decrease) in advance payments by borrowers for taxes
Repurchase and cancellation of common stock of Kearny Financial Corp.
Cancellation of shares repurchased on vesting to pay taxes
Exercise of stock options
Dividends paid
Net Cash Provided by (Used in) Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
Supplemental Disclosures of Cash Flows Information:
Cash paid during the year for:
Income taxes, net of refunds
Interest
Non-cash investing and financing activities:
Transfers from loans receivable to loans held-for-sale
Acquisition of other real estate owned in settlement of loans
Fair value of assets acquired, net of cash and cash equivalents acquired
Fair value of liabilities assumed
Years Ended June 30,
2022
2021
2023
(232,804)
(5,650,000)
6,280,000
(25,000)
1,592
(27,558)
(462)
—
(28,499)
317,269
(31,100)
101,615
70,515 $
377,606
(4,100,000)
4,085,000
230,000
994
(129,520)
(977)
—
(30,693)
432,410
33,760
67,855
101,615 $
596,583
(2,847,796)
2,345,000
(48,635)
(1,611)
(119,021)
(803)
373
(28,648)
(104,558)
(113,112)
180,967
67,855
9,883 $
108,516 $
15,552 $
28,816 $
19,734
50,488
3,545 $
13,232 $
— $
— $
27,036 $
703 $
— $
— $
43,579
—
567,816
523,926
$
$
$
$
$
$
$
See notes to consolidated financial statements.
F-11
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Consolidated Financial Statement Presentation
The 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 subsidiaries, CJB Investment Corp. and
189-245 Berdan Avenue LLC. The Company conducts its business principally through the Bank. Management prepared
the consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”), including the elimination of all significant inter-company accounts and transactions during
consolidation.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the dates of the Consolidated Statements of Financial Condition and
revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
Business of the Company and Subsidiaries
The Company’s primary business is the ownership and operation of the Bank. The Bank is principally engaged in the
business of attracting deposits from the general public and using those deposits, together with other funds, to originate or
purchase loans for its portfolio and invest in securities. Loans originated or purchased by the Bank generally include
loans collateralized by residential and commercial real estate augmented by secured and unsecured loans to businesses
and consumers. The investment securities purchased by the Bank generally include U.S. agency mortgage-backed
securities, U.S. government and agency debentures, obligations of state and political subdivisions, corporate bonds,
asset-backed securities, collateralized loan obligations and subordinated debt.
At June 30, 2023, the Bank had two wholly-owned subsidiaries, CJB Investment Corp. and 189-245 Berdan Avenue
LLC. CJB Investment Corp was organized under New Jersey law as a New Jersey Investment Company and remained
active through the three-year period ended June 30, 2023. 189-245 Berdan Avenue LLC was formed during the year
ended June 30, 2023 for the purpose of ownership and operation of commercial real estate.
Subsequent Events
The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of
June 30, 2023, 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.
On July 27, 2023, the Company declared a quarterly cash dividend of $0.11 per share, paid on August 23, 2023 to
stockholders of record as of August 9, 2023.
Cash and Cash Equivalents
Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and
federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in
other financial institutions and borrowings with original maturities fewer than 90 days.
Securities
The Company classifies its investment securities as either available for sale or held to maturity. The Company does not
use or maintain a trading account. Investment securities that management has the positive intent and ability to hold to
maturity are classified as held to maturity and reported at amortized cost. Investment securities not classified as held to
maturity are classified as available for sale and reported at fair value, with unrealized holding gains or losses, net of
deferred income taxes, reported in the accumulated other comprehensive income (“OCI”) component of stockholders’
equity.
Premiums on callable securities are amortized to the earliest call date whereas discounts on such securities are accreted to
the maturity date utilizing the level-yield method. Premiums and discounts on all other securities are generally amortized
or accreted to the maturity date utilizing the level-yield method taking into consideration the impact of principal
amortization and prepayments, as applicable. Gain or loss on sales of securities is based on the specific identification
method.
F-12
Note 1 - Summary of Significant Accounting Policies (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective July 1, 2020, the Company adopted the provisions of ASC 326 and modified its accounting policy for the
assessment of available for sale securities for impairment. Under ASC 326, for available for sale securities in an
unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will
be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities
available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has
resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair
value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the
security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows
expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of
the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for
credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any
impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive
income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S.
government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government,
are highly rate by major agencies and have a long history of no credit losses.
Under ASC 326, changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss
expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale
security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Concentration of Risk
Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk consist
of cash and cash equivalents, investment securities and loans receivable. Cash and cash equivalents include deposits
placed in other financial institutions.
Securities include concentrations of investments backed by U.S. government agencies and U.S. government sponsored
enterprises (“GSEs”), including the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan
Mortgage Corporation (“Freddie Mac”) and the Government National Mortgage Association (“Ginnie Mae”). Additional
concentration risk exists in the Company’s municipal and corporate obligations, asset-backed securities and
collateralized loan obligations.
The Company’s lending activity is primarily concentrated in loans collateralized by real estate in the states of New Jersey
and New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in
these states. Additionally, the Company’s lending policies limit the amount of credit extended to any single borrower and
their related interests thereby limiting the concentration of credit risk to any single borrower.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are reported at unpaid principal balances, net of deferred loan origination fees and costs, purchase discounts and
premiums, purchase accounting fair value adjustments and the allowance for credit losses. Interest income is accrued on
the unpaid principal balance. Certain direct loan origination costs, net of loan origination fees, are deferred and
amortized, using the level-yield method, as an adjustment of yield over the contractual lives of the related loans.
Unearned premiums and discounts are amortized or accreted utilizing the level-yield method over the contractual lives of
the related loans.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or estimated fair value, as determined on an aggregate basis. Net
unrealized losses, if any, are recognized in a valuation allowance through a charge to earnings. Premiums and discounts
and origination fees and costs on loans held-for-sale are deferred and recognized as a component of the gain or loss on
sale. Gains and losses on sales of loans held-for-sale are recognized on settlement dates and are determined by the
difference between the sale proceeds and the carrying value of the loans. These transactions are accounted for as sales
based on satisfaction of the criteria for such accounting which provide that, as transferor, control over the loans have
been surrendered.
F-13
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Past Due Loans
A loan’s past due status is generally determined based upon its principal and interest (“P&I”) payment delinquency status
in conjunction with its past maturity status, where applicable. A loan’s P&I payment delinquency status is based upon
the number of calendar days between the date of the earliest P&I payment due and the as of measurement date. A loan’s
past maturity status, where applicable, is based upon the number of calendar days between a loan’s contractual maturity
date and the as of measurement date. Based upon the larger of these criteria, loans are categorized into the following past
due tiers for financial statement reporting and disclosure purposes: Current (including 1-29 days), 30-59 days, 60-89
days and 90 or more days.
Nonaccrual 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 P&I payments owed substantially in accordance with the terms of the loan
agreement, regardless of past due status. Loans that become 90 day 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 P&I 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.
Classification of Assets
In compliance with the regulatory guidelines, the Company’s loan review system includes an evaluation process through
which certain loans exhibiting adverse credit quality characteristics are classified as Special Mention, Substandard,
Doubtful or Loss.
An asset is classified as Substandard if it is inadequately protected by the paying capacity and net worth of the obligor or
the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified 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. Assets, or portions thereof, classified as Loss are considered uncollectible or of so little value that their
continuance as assets is not warranted.
Assets 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 are designated as Special Mention by management.
Adversely classified assets together with those rated as Special Mention, are generally referred to as Classified Assets.
Non-classified assets are internally rated within one of four Pass categories or as Watch with the latter denoting a
potential deficiency or concern that warrants increased oversight or tracking by management until remediated.
Management generally performs a classification of assets review, including the regulatory classification of assets, on an
ongoing basis. The results of the classification of assets review are validated by the Company’s third party loan review
firm during their quarterly independent review. In the event of a difference in rating or classification between those
assigned by the internal and external resources, the Company will generally utilize the more critical or conservative
rating or classification. Final loan ratings and regulatory classifications are presented monthly to the Board of Directors
and are reviewed by regulators during the examination process.
F-14
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Allowance for Credit Losses
Effective July 1, 2020, the Company adopted the provisions of ASC 326 and modified its accounting policy for the
allowance for credit losses on loans. The allowance for credit losses represents the estimated amount considered
necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement
of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-
balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established
through a provision for credit losses that is charged against income. The methodology for determining the allowance for
credit losses is considered a critical accounting policy by management because of the high degree of judgment involved,
the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could
result in changes to the amount of the recorded allowance for credit losses.
The allowance for credit losses is reported separately as a contra-asset on the Consolidated Statements of Financial
Condition. The expected credit losses for unfunded lending commitments and unfunded loan commitments is reported on
the Consolidated Statements of Financial Condition in other liabilities while the provision for credit losses related to
unfunded commitments is reported in other non-interest expense.
Allowance for Credit Losses on Loans Receivable
The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount
expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans
which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool
continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer
similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk
characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an
individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the
allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not
exceed the aggregate of amounts previously charged off or expected to be charged off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such
segments include multi-family mortgage, nonresidential mortgage, commercial business, construction, one- to four-
family residential mortgage, home equity and consumer. For most segments the Company calculates estimated credit
losses using a probability of default and loss given default methodology, the results of which are applied to the
aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and
loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts
that affect the collectability of the reported amount.
The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant
available information from internal and external sources related to past events and current conditions, as well as the
incorporation of reasonable and supportable forecasts. The Company evaluates a variety of factors including third party
economic forecasts, industry trends and other available published economic information in arriving at its forecasts. After
the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to the historical average
economic variables. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected
prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless
either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt
restructuring will be executed with an individual borrower or the renewal option is included in the original or modified
contract at the reporting date and are not unconditionally cancelable by the Company.
Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in
the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described
above. Factors that the Company considers include changes in lending policies and procedures, business conditions, the
nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual
loans, the effect of external factors such as competition, legal and regulatory requirements, among others. Qualitative
loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the
most severe loss periods identified in the historical loan charge-offs of a peer group of similar-sized regional banks.
F-15
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Individually Evaluated Loans
On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its
disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with
other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected
cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling
costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will
charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized
cost basis of the loan.
Acquired Loans
Acquired loans are included in the Company's calculation of the allowance for credit losses. How the allowance on an
acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated (“PCD”)
loan. PCD loans are loans acquired at a discount that is due, in part, to credit quality. PCD loans are accounted for in
accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present
value of expected future cash flows and an allowance for credit losses at acquisition.
The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is
recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD
and non-PCD can have a significant impact on the accounting for these loans. Subsequent to acquisition, the allowance
for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and
originated loans.
Allowance for Credit Losses on Off-Balance Sheet Commitments
The Company is required to include unfunded commitments that are expected to be funded in the future within the
allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve
percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is
multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical
utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is
included in other liabilities on the Consolidated Statements of Financial Condition and the related credit expense is
recorded in other non-interest expense in the Consolidated Statements of Income.
Troubled Debt Restructurings (“TDR”)
A modification to the terms of a loan is generally considered a TDR if the Company grants a concession to a borrower,
that it would not otherwise consider, due to the borrower’s financial difficulties. In granting the concession, the
Company’s general objective is to obtain more cash or other value from the borrower or otherwise increase the
probability of repayment.
A TDR may include, but is not necessarily limited to, the modification of loan terms such as the reduction of the loan’s
stated interest rate, extension of the maturity date and/or reduction or deferral of amounts owed under the terms of the
loan agreement. In measuring the impairment associated with restructured loans that qualify as TDRs, the Company
compares the present value of the cash flows that are expected to be received in accordance with the loan’s modified
terms, discounted at the loan’s original contractual interest rate, with the pre-modification carrying value to measure
impairment.
All restructured loans that qualify as TDRs are placed on nonaccrual status for a period of no less than six months after
restructuring, irrespective of the borrower’s adherence to a TDR’s modified repayment terms during which time TDRs
continue to be adversely classified and reported as impaired. TDRs may be returned to accrual status and a non-adverse
classification if (1) the borrower has paid timely P&I payments in accordance with the terms of the restructured loan
agreement for no less than six consecutive months after restructuring, and (2) the Company expects to receive all P&I
payments owed substantially in accordance with the terms of the restructured loan agreement.
F-16
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Premises and Equipment
Land is carried at cost. Office buildings, leasehold improvements and furniture, fixtures and equipment are carried at
cost, less accumulated depreciation and amortization. Office buildings and furniture, fixtures and equipment are
depreciated using the straight-line method over their estimated useful lives of the respective assets. Leasehold
improvements are amortized using the straight-line method over the terms of the respective leases or lives of the assets,
whichever is shorter.
Construction in progress primarily represents facilities under construction for future use in our business and includes all
costs to acquire land and construct buildings, as well as capitalized interest during the construction period. Interest is
capitalized at the Company’s average cost of interest-bearing liabilities.
Other Real Estate Owned and Other Repossessed Assets
Properties and other assets acquired through foreclosure, deed in lieu of foreclosure or repossession are carried at
estimated fair value, less estimated selling costs. The estimated fair value of real estate property and other repossessed
assets is generally based on independent appraisals. 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. Thereafter, decreases in the properties’
estimated fair value are charged to income along with any additional property maintenance and protection expenses
incurred in owning the properties.
Federal Home Loan Bank Stock
Federal law requires a member institution of the FHLB system to hold restricted stock of its district FHLB according to a
predetermined formula. The restricted stock is carried at cost, less any applicable impairment. Both cash and stock
dividends are reported as income.
Goodwill and Other Intangible Assets
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the
consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net
assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at
least annually or more frequently if events and circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. The Company performed its annual impairment test during the fourth
quarter of its fiscal year ended June 30, 2023. Intangible assets with definite useful lives are amortized over their
estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on
our audited Consolidated Statements of Financial Condition.
In assessing impairment, the Company has the option to perform a qualitative analysis to determine whether the
existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the
reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, the
Company determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount,
then the Company would not be required to perform a quantitative impairment test.
For the year ended June 30, 2023, the annual quantitative assessment of goodwill for our single reporting unit was
performed utilizing a discounted cash flow analysis (“income approach”) and estimates of selected market information
(“market approaches”). The income approach measures the fair value of an interest in a business by discounting expected
future cash flows to present value. The market approaches take into consideration fair values of comparable companies
operating in similar lines of business that are potentially subject to similar economic and environmental factors and could
be considered reasonable investment alternatives. The result of the income approach was weighted at 50% and the results
of the market approaches comprised the remaining 50% in determining the fair value of our single reporting unit. The
results of the annual quantitative impairment analysis indicated that the fair value exceeded the carrying value for our
single reporting unit.
No impairment charges were required to be recorded in the years ended June 30, 2023, 2022 or 2021. If an impairment
loss is determined to exist in the future, such loss will be reflected as an expense in the Consolidated Statements of
Income in the period in which the impairment loss is determined.
The balance of other intangible assets at June 30, 2023 and 2022 totaled $2.5 million and $3.0 million, respectively,
representing the remaining unamortized balance of the core deposit intangibles ascribed to the value of deposits acquired
by the Bank through the acquisition of Clifton Bancorp Inc. in April 2018 and MSB Financial Corp. in July 2020.
F-17
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Bank Owned Life Insurance
Bank owned life insurance is accounted for using the cash surrender value method and is recorded at its net realizable
value. The change in the net asset value is recorded as a component of non-interest income. A deferred liability has been
recorded for the estimated cost of postretirement life insurance benefits accruing to applicable employees and directors
covered by an endorsement split-dollar life insurance arrangement.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company - put
presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes
The Company and its subsidiaries file consolidated federal income tax returns. Federal income taxes are allocated to each
entity based on their respective contributions to the taxable income of the consolidated income tax returns. Separate state
income tax returns are filed for the Company and its subsidiaries on either a consolidated or unconsolidated basis as
required by the jurisdiction. The federal income tax rate of 21% was applicable for the years ended June 30, 2023, 2022
or 2021.
Federal and state income taxes have been provided on the basis of the Company’s income or loss as reported in
accordance with GAAP. The amounts reflected on the Company’s state and federal income tax returns differ from these
provisions due principally to temporary differences in the reporting of certain items for financial statement reporting and
income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes applicable
to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in
the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance
provided for the full amount which is not more likely than not to be realized.
The Company identified no significant income tax uncertainties through the evaluation of its income tax positions as of
June 30, 2023 and 2022. Therefore, the Company has no unrecognized income tax benefits as of those dates. Our policy
is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements
of Income. The Company recognized no material interest and penalties during the years ended June 30, 2023, 2022 or
2021. The tax years subject to examination by the taxing authorities are the years ended June 30, 2022, 2021 and 2020.
Retirement Plans
Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not
immediately recognized. Employee 401(k) and profit sharing plan expense is the amount of matching contributions.
Deferred compensation plan expense allocates the benefits over years of service.
Employee Stock Ownership Plan
The cost of shares issued to the Employee Stock Ownership Plan (the “ESOP”), but not yet allocated to participants, is
shown as a reduction of shareholders’ equity. Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated and unallocated ESOP shares either reduce
retained earnings or reduce debt and accrued interest as determined by the ESOP Plan Administrator.
F-18
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (continued)
Comprehensive Income
Comprehensive income is comprised of net income and other comprehensive income (loss). Other comprehensive
income (loss) includes items recorded in equity, such as unrealized gains and losses on securities available for sale,
unrealized gains and losses on derivatives and amortization related to post-retirement obligations. Comprehensive
income is presented in a separate Consolidated Statement of Comprehensive Income.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as
liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Management does not believe there now are such matters that will have a material effect on the financial statements.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial
letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are
funded. (See Note 17, Commitments, for additional information).
Derivatives and Hedging
The Company utilizes derivative instruments in the form of interest rate swaps and caps to hedge its exposure to interest
rate risk in conjunction with its overall asset/liability management process. In accordance with accounting requirements,
the Company formally designates all of its hedging relationships as either fair value hedges, intended to offset the
changes in the value of certain financial instruments due to movements in interest rates, or cash flow hedges, intended to
offset changes in the cash flows of certain financial instruments due to movement in interest rates, and documents the
strategy for undertaking the hedge transactions, and its method of assessing ongoing effectiveness. The Company does
not use derivative instruments for speculative purposes.
All derivatives are recognized as either assets or liabilities in the Consolidated Financial Statements at their fair values.
For a derivative designated as a cash flow hedge, the gain or loss on the derivative is recorded in other comprehensive
income and subsequently reclassified into interest expense in the same period during which the hedged transaction
affects earnings. For a derivative designated as a fair value hedge, the gain or loss on the derivative as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.
Derivative instruments qualify for hedge accounting treatment only if they are designated as such on the date on which
the derivative contract is entered and are expected to be, and are, effective in substantially reducing interest rate risk
arising from the assets and liabilities identified as exposing the Company to risk. Those derivative financial instruments
that do not meet the hedging criteria discussed below would be classified as undesignated derivatives and would be
recorded at fair value with changes in fair value recorded in income.
The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting
changes in cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability
exists that the forecasted transaction will no longer occur; or (d) management determines that designating the derivative
as a hedging instrument is no longer appropriate. In all cases in which hedge accounting is discontinued and a derivative
remains outstanding, the Company will carry the derivative at fair value in the Consolidated Financial Statements,
recognizing changes in fair value in current period income in the Consolidated Statements of Income.
In accordance with the applicable accounting guidance, the Company takes into account the impact of collateral and
master netting agreements that allow it to settle all derivative contracts held with a single counterparty on a net basis, and
to offset the net derivative position with the related collateral when recognizing derivative assets and liabilities. As a
result, the Company’s Statements of Financial Condition could reflect derivative contracts with negative fair values
included in derivative assets, and contracts with positive fair values included in derivative liabilities.
F-19
Note 1 - Summary of Significant Accounting Policies (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company’s interest rate derivatives are comprised of interest rate swaps and caps hedging variable rate wholesale
funding and accounted for as cash flow hedges. The carrying value of interest rate derivatives is included in the balance
of other assets or other liabilities and comprises the remaining unamortized cost of interest rate caps and the cumulative
changes in the fair value of interest rate derivatives. Such changes in fair value are offset against accumulated other
comprehensive income, net of deferred income tax.
In general, the cash flows received and/or exchanged with counterparties for those derivatives qualifying as interest rate
hedges are generally classified in the financial statements in the same category as the cash flows of the items being
hedged.
Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense. The
notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of
default by a counter party, the risk in these transactions is the cost of replacing the agreements at current market rates.
Net Income per Common Share (“EPS”)
Basic EPS is based on the weighted average number of common shares actually outstanding adjusted for the ESOP
shares not yet committed to be released. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock, such as outstanding stock options or restricted stock units, were exercised or converted
into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted
EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect
of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock
method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully
disclosed in Note 18, Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these
estimates.
Operating Segments
Public companies are required to report certain financial information about significant revenue-producing segments of
the business for which such information is available and utilized by the chief operating decision makers. Substantially all
of the Company’s operations occur through the Bank and involve the delivery of loan and deposit products to customers.
Management makes operating decisions and assesses performance based on an ongoing review of its banking operation,
which constitutes the Company’s only operating segment for financial reporting purposes.
Stock Compensation Plans
Compensation expense related to stock options, non-vested stock awards and non-vested stock units is based on the fair
value of the award on the measurement date with expense recognized on a straight-line basis over the service period of
the award. The fair value of stock options is estimated using the Black-Scholes valuation model. The fair value of non-
vested stock awards and stock units is generally the closing market price of the Company’s common stock on the date of
grant. The Company accounts for forfeitures as they occur.
Advertising and Marketing Expenses
The Company expenses advertising and marketing costs as incurred.
Reclassification
Certain reclassifications have been made in the consolidated financial statements to conform to the current year
presentation. Such reclassifications had no impact on net income or stockholders’ equity as previously reported.
F-20
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 – 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.
Adoption of New Accounting Standards
In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic
848” that extends the period of time preparers can utilize the reference rate reform relief guidance. In 2020, the FASB issued ASU
2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate
reform on financial reporting. The objective of the guidance in Topic 848 is to provide relief during the temporary transition
period, so the FASB included a sunset provision within Topic 848 based on expectations of when LIBOR would cease being
published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to
June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications
may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which
entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective
upon issuance. The Company adopted this ASU on December 21, 2022 on a prospective basis; therefore, there was no impact to
its consolidated financial statements upon adoption.
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 adopted this ASU on July 1, 2022 on a prospective basis; therefore, there was no
impact to its consolidated financial statements upon adoption.
Note 3 – Business Combination
On July 10, 2020, the Company completed its acquisition of MSB Financial Corp. (“MSB”) and its subsidiary, Millington Bank.
In accordance with the merger agreement, approximately $9.8 million in cash and 5,853,811 shares of Company common stock
were distributed to former MSB shareholders in exchange for their shares of MSB common stock.
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. Management
engaged a third-party specialist to develop the fair value estimate of certain MSB’s assets and liabilities as of the acquisition date.
The assets and liabilities, both tangible and intangible, were recorded at their fair values as of July 10, 2020 based on
management’s best estimate using the information available as of the merger date. The application of the acquisition method of
accounting resulted in the recognition of bargain purchase gain of $3.1 million and a core deposit intangible of $690,000. During
the year ended June 30, 2021, the Company completed all MSB tax returns and determined that there were no material
adjustments to the balance of deferred income tax assets or bargain purchase gain associated with the MSB acquisition.
F-21
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 – Business Combination (continued)
The Company recorded the assets acquired and liabilities assumed through the merger at fair value as summarized in the
following table:
Cash paid for acquisition
Value of stock issued
Total purchase price
Cash and cash equivalents
Investment securities
Loans receivable
Allowance for loan losses
Premises and equipment
FHLB stock
Accrued interest receivable
Core deposit intangibles
Bank owned life insurance
Deferred income taxes, net
Other assets
Total assets acquired
Deposits
FHLB borrowings
Advance payments by borrowers for taxes
Other liabilities
Total liabilities assumed
Net assets acquired
Bargain purchase gain
________________________________________
Explanation of certain fair value related adjustments:
As Recorded
by MSB
Fair Value
Adjustments
As Recorded
at Acquisition
(In Thousands)
$
$
$
9,830
45,133
54,963
14,126
3,490
530,244
—
4,477
3,345
1,701
690
14,663
3,881
5,325
$
14,126 $
—
4,000
537,589
(6,037)
7,698
3,345
1,701
—
14,663
1,729
4,830
(510) (a)
(7,345) (b)
6,037 (c)
(3,221) (d)
—
—
690 (e)
—
2,152 (f)
495 (g)
583,644 $
(1,702)
$
581,942
458,392 $
1,786 (h) $
62,900
794
810
—
—
(756) (i)
$
522,896 $
1,030
$
$
$
460,178
62,900
794
54
523,926
58,016
(3,053)
$
$
(a) Represents the fair value adjustments on investment securities.
(b) Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark
adjustment and the reversal of deferred fees/costs and premiums.
(c) Represents the elimination of MSB’s allowance for loan losses.
(d) Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will
be amortized on a straight-line basis over the estimated useful lives of the individual assets.
(e) Represents the intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an
identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.
(f) Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets,
liabilities assumed and identifiable intangible assets recorded.
(g) Represents an adjustment to other assets acquired.
(h) Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the
remaining term of the time deposits.
(i) Represents an adjustment to other liabilities assumed.
F-22
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 – Business Combination (continued)
The fair value of loans acquired from MSB was estimated using cash flow projections based on the remaining maturity and
repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash
flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of MSB’s
allowance for loan losses associated with the loans that were acquired. For information regarding purchased loans which have
been determined to be PCD, refer to Note 5, Loans Receivable.
The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing
the sum-of-the-years digits method.
The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these
accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the
contractual future cash flows using market rates offered for time deposits of similar remaining maturities.
Merger-related expenses were recorded in the Consolidated Statements of Income as a component of non-interest expense and
include costs relating to the Company’s acquisition of MSB, as described above. These charges represent one-time costs
associated with acquisition activities and are expensed as incurred. Direct acquisition and other charges were recorded in merger-
related expense on the Consolidated Statements of Income. Direct acquisition and other charges incurred in connection with the
MSB merger totaled $4.3 million for the year ended June 30, 2021.
Note 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.
Available for sale:
Debt securities:
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Total debt securities
Mortgage-backed securities:
Residential pass-through securities (1)
Commercial pass-through securities (1)
Total mortgage-backed securities
Amortized
Cost
Gross
Unrealized
Gains
June 30, 2023
Gross
Unrealized
Losses
(In Thousands)
Allowance for
Credit Losses
Fair
Value
$
138,281 $
4 $
2,115 $
— $
381,915
159,666
679,862
539,506
164,499
704,005
268
—
272
2
—
2
5,187
24,648
31,950
103,357
21,105
124,462
—
—
—
—
—
—
136,170
376,996
135,018
648,184
436,151
143,394
579,545
Total securities available for sale
$
1,383,867 $
274 $
156,412 $
— $
1,227,729
________________________________________
(1) Government-sponsored enterprises.
F-23
Note 4 - Securities (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amortized
Cost
Gross
Unrealized
Gains
June 30, 2022
Gross
Unrealized
Losses
(In Thousands)
Allowance for
Credit Losses
Fair
Value
Available for sale:
Debt securities:
Obligations of state and political subdivisions
$
28,485 $
39 $
89 $
— $
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Total debt securities
Mortgage-backed securities:
Collateralized mortgage obligations (1)
Residential pass-through securities (1)
Commercial pass-through securities (1)
Total mortgage-backed securities
169,506
315,693
159,871
673,555
7,451
595,337
185,781
788,569
—
—
175
214
—
45
1
46
2,949
7,880
6,649
17,567
329
80,624
19,771
100,724
—
—
—
—
—
—
—
—
28,435
166,557
307,813
153,397
656,202
7,122
514,758
166,011
687,891
Total securities available for sale
$
1,462,124 $
260 $
118,291 $
— $
1,344,093
________________________________________
(1) Government-sponsored enterprises.
Amortized
Cost
Gross
Unrecognized
Gains
June 30, 2023
Gross
Unrecognized
Losses
(In Thousands)
Allowance for
Credit Losses
Fair
Value
Held to maturity:
Debt securities:
Obligations of state and political subdivisions $
16,051 $
Total debt securities
Mortgage-backed securities:
Residential pass-through securities (1)
Commercial pass-through securities (1)
Total mortgage-backed securities
16,051
118,166
12,248
130,414
— $
—
321 $
321
— $
—
15,730
15,730
—
—
—
12,736
2,239
14,975
—
—
—
105,430
10,009
115,439
Total securities held to maturity
$
146,465 $
— $
15,296 $
— $
131,169
________________________________________
(1) Government-sponsored enterprises.
F-24
Note 4 - Securities (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Amortized
Cost
Gross
Unrecognized
Gains
June 30, 2022
Gross
Unrecognized
Losses
(In Thousands)
Allowance for
Credit Losses
Fair
Value
Held to maturity:
Debt securities:
Obligations of state and political subdivisions $
21,159 $
Total debt securities
Mortgage-backed securities:
Residential pass-through securities (1)
Commercial pass-through securities (1)
Total mortgage-backed securities
21,159
84,851
12,281
97,132
44 $
44
78 $
78
— $
—
21,125
21,125
—
—
—
8,587
1,552
10,139
—
—
—
76,264
10,729
86,993
Total securities held to maturity
$
118,291 $
44 $
10,217 $
— $
108,118
________________________________________
(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 June 30, 2023:
June 30, 2023
Amortized
Cost
Fair
Value
(In Thousands)
$
— $
21,865
363,433
294,564
$
679,862 $
—
21,526
339,589
287,069
648,184
June 30, 2023
Amortized
Cost
Fair
Value
(In Thousands)
$
3,386 $
12,054
611
—
3,361
11,776
593
—
$
16,051 $
15,730
Available for sale debt securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Held to maturity debt securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
F-25
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Securities (continued)
Sales of securities available for sale were as follows for the periods presented below:
Available for sale securities sold:
Proceeds from sales of securities
Gross realized gains
Gross realized losses
Net (loss) gain on sales of securities
Year Ended June 30,
2023
2022
2021
(In Thousands)
$
$
$
105,199 $
100,336 $
98,084
— $
(15,227)
(15,227) $
— $
(565)
(565) $
1,196
(470)
726
Gains resulting from calls of securities available for sale were as follows for the periods presented below:
Available for sale securities called:
Gross realized gains
Gross realized losses
Net gain on calls of securities
Year Ended June 30,
2023
2022
2021
(In Thousands)
$
$
— $
—
— $
6 $
—
6 $
41
—
41
During the years ended June 30, 2023, 2022 and 2021, there were no gains or losses recorded on sales or calls 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:
Securities pledged:
Pledged for borrowings at the FHLB of New York
Pledged to secure public funds on deposit
Pledged for potential borrowings at the Federal Reserve Bank of New York
Total carrying value of securities pledged
June 30,
2023
June 30,
2022
(In Thousands)
$
— $
201,239
529,216
$
730,455 $
178,048
357,841
378,071
913,960
F-26
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Securities (continued)
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 June 30, 2023 and 2022:
June 30, 2023
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Total
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Securities Available for Sale:
Asset-backed securities
$
33,833 $
129 $
98,828 $
Collateralized loan obligations
Corporate bonds
Commercial pass-through securities
Residential pass-through securities
46,903
25,511
63,531
10,520
135
1,354
1,380
702
294,813
109,507
79,863
1,986
5,052
23,294
19,725
14 $ 132,661 $
26
31
12
341,716
135,018
143,394
2,115
5,187
24,648
21,105
425,170
102,655
108
435,690
103,357
Total
$ 180,298 $
3,700 $ 1,008,181 $ 152,712
191 $ 1,188,479 $ 156,412
June 30, 2022
Less than 12 Months
12 Months or More
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Total
Fair
Value
Unrealized
Losses
(Dollars in Thousands)
Securities Available for Sale:
Obligations of state and political
subdivisions
$
11,310 $
89 $
— $
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Collateralized mortgage obligations
Commercial pass-through securities
161,303
236,967
129,407
7,122
63,045
2,928
6,435
6,464
329
3,194
Residential pass-through securities
237,928
26,566
5,254
70,846
3,815
—
102,817
274,197
—
21
1,445
185
—
16,577
54,058
30 $
11,310 $
15
24
27
6
166,557
307,813
133,222
7,122
21
165,862
106
512,125
89
2,949
7,880
6,649
329
19,771
80,624
Total
$ 847,082 $
46,005 $ 456,929 $
72,286
229 $ 1,304,011 $ 118,291
F-27
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Securities (continued)
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 June 30, 2023 and 2022:
June 30, 2023
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
Number of
Securities
Fair
Value
Unrecognized
Losses
(Dollars in Thousands)
Securities Held to Maturity:
Obligations of state and political
subdivisions
$ 13,642 $
268 $
2,088 $
Commercial pass-through securities
—
Residential pass-through securities
38,135
—
319
10,009
67,295
53
2,239
12,417
32 $ 15,730 $
1
10,009
9 105,430
321
2,239
12,736
Total
$ 51,777 $
587 $ 79,392 $
14,709
42 $ 131,169 $
15,296
June 30, 2022
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
Number of
Securities
Fair
Value
Unrecognized
Losses
(Dollars in Thousands)
Securities Held to Maturity:
Obligations of state and political
subdivisions
$
8,681 $
78 $
— $
Commercial pass-through securities
Residential pass-through securities
10,729
76,264
1,552
8,587
—
—
Total
$ 95,674 $
10,217 $
— $
—
—
—
—
15 $
8,681 $
1
8
10,729
76,264
78
1,552
8,587
24 $ 95,674 $
10,217
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 June 30, 2023. 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 June 30, 2023 on
available for sale securities.
The sale of available for sale securities during the year ended June 30, 2023 was part of a wholesale restructuring and the
proceeds were reinvested in higher yielding securities. The Company was not required to sell these securities.
At June 30, 2023, the held to maturity securities portfolio consisted 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 June 30, 2023 on held to
maturity securities.
F-28
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable
The following table sets forth the composition of the Company’s loan portfolio at June 30, 2023 and 2022:
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
Total commercial loans
June 30,
2023
June 30,
2022
(In Thousands)
$
2,761,775 $
2,409,090
968,574
146,861
226,609
1,019,838
176,807
140,131
4,103,819
3,745,866
One- to four-family residential mortgage
1,700,559
1,645,816
Consumer loans:
Home equity loans
Other consumer
Total consumer loans
Total loans
Unaccreted yield adjustments (1)
43,549
2,549
46,098
42,028
2,866
44,894
5,850,476
5,436,576
(21,055)
(18,731)
Total loans receivable, net of yield adjustments
$
5,829,421 $
5,417,845
___________________________
(1) At June 30, 2023, included a fair value adjustment to the carrying amount of hedged one- to four-family residential mortgage loans.
The Bank has granted loans to officers and directors of the Company and its subsidiaries and to their associates. As of June 30,
2023 and 2022, such loans totaled approximately $2.5 million and $2.6 million, respectively. During the year ended June 30,
2023, the Bank granted no new loans to related parties. During the year ended June 30, 2022, the Bank granted two new loans to
related parties totaling $1.8 million.
F-29
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
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 June 30, 2023 and 2022, by loan segment:
One- to four-family residential mortgage
2,019
1,202
30-59 Days
60-89 Days
Payment Status
June 30, 2023
90 Days and
Over
Total Past
Due
(In Thousands)
Current
Total
$
2,958 $
— $
10,756 $
13,714 $ 2,748,061 $ 2,761,775
792
528
—
—
16
—
25
—
—
—
8,233
236
—
3,731
50
—
9,025
780
—
959,549
146,081
226,609
968,574
146,861
226,609
6,952
1,693,607
1,700,559
75
—
43,474
2,549
43,549
2,549
$
6,322 $
1,218 $
23,006 $
30,546 $ 5,819,930 $ 5,850,476
30-59 Days
60-89 Days
Payment Status
June 30, 2022
90 Days and
Over
Total Past
Due
(In Thousands)
Current
Total
$
3,148 $
3,056 $
7,788 $
13,992 $ 2,395,098 $ 2,409,090
4,026
98
—
1,525
28
—
—
57
—
253
35
—
18,132
22,158
155
—
3,455
—
—
997,680
176,497
140,131
1,019,838
176,807
140,131
310
—
5,233
1,640,583
1,645,816
63
—
41,965
2,866
42,028
2,866
$
8,825 $
3,401 $
29,530 $
41,756 $ 5,394,820 $ 5,436,576
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
Home equity loans
Other consumer
Total loans
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
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 P&I payment 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 P&I 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 years ended June 30, 2023, 2022 and 2021.
F-30
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following tables present information relating to the Company’s nonperforming loans as of June 30, 2023 and 2022:
Performance Status
June 30, 2023
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
$
— $
5,686 $
—
—
—
—
—
—
11,815
71
—
1,640
—
—
(In Thousands)
13,428 $
4,725
181
—
5,031
50
—
19,114 $ 2,742,661 $ 2,761,775
968,574
952,034
16,540
146,861
146,609
252
226,609
226,609
—
1,700,559
1,693,888
6,671
43,549
43,499
50
2,549
2,549
—
$
— $
19,212 $
23,415 $
42,627 $ 5,807,849 $ 5,850,476
Performance Status
June 30, 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)
$
— $
8,367 $
18,286 $
26,653 $ 2,382,437 $ 2,409,090
—
—
—
—
—
—
12,602
19,292
31,894
212
—
3,543
302
—
81
1,561
4,946
1,129
—
293
1,561
8,489
1,431
—
987,944
176,514
138,570
1,019,838
176,807
140,131
1,637,327
1,645,816
40,597
2,866
42,028
2,866
$
— $
25,026 $
45,295 $
70,321 $ 5,366,255 $ 5,436,576
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Troubled Debt Restructurings
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 $17.4 million and $22.2 million as of June 30, 2023 and 2022, respectively. The allowance for credit
losses associated with the TDRs presented in the tables below totaled $274,000 and $365,000 as of June 30, 2023 and 2022,
respectively. As of June 30, 2023, there were no significant commitments to lend additional funds to borrowers whose loans had
been restructured in a TDR.
F-31
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following tables present total TDRs at June 30, 2023 and 2022:
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
Total commercial loans
Accrual
June 30, 2023
Non-accrual
Total
# of Loans
Amount
# of Loans
Amount
# of Loans
Amount
(Dollars In Thousands)
— $
3
6
—
9
—
170
3,197
—
3,367
2 $
2
—
—
4
5,400
700
—
—
6,100
2 $
5
6
—
13
5,400
870
3,197
—
9,467
One- to four-family residential mortgage
39
6,752
4
774
43
7,526
Consumer loans:
Home equity loans
Total
Commercial loans:
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
Total commercial loans
6
368
54 $
10,487
—
—
8 $
6,874
6
368
62 $
17,361
Accrual
June 30, 2022
Non-accrual
Total
# of Loans
Amount
# of Loans
Amount
# of Loans
Amount
(Dollars In Thousands)
— $
4
5
—
9
—
389
3,631
—
4,020
2 $
2
2
1
7
5,626
1,565
82
1,561
8,834
2 $
6
7
1
5,626
1,954
3,713
1,561
16
12,854
One- to four-family residential mortgage
29
4,488
16
3,314
45
7,802
Consumer loans:
Home equity loans
Total
5
43 $
164
8,672
2
1,364
25 $
13,512
7
1,528
68 $
22,184
F-32
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following table presents information regarding TDRs that occurred during the years ended June 30, 2023 and 2022:
Year Ended June 30, 2023
Year Ended June 30, 2022
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
# of Loans
Pre-
modification
Recorded
Investment
Post-
modification
Recorded
Investment
# of Loans
(Dollars In Thousands)
— $
— $
1
2
2
1
313
74
708
35
—
345
74
705
35
2 $
12,091 $
12,073
—
—
13
2
—
—
3,812
1,477
—
—
3,924
1,477
6 $
1,130 $
1,159
17 $
17,380 $
17,474
Multi-family mortgage
Nonresidential mortgage
Commercial business
One- to four-family residential mortgage
Home equity loans
Total
During the year ended June 30, 2023, there were charge-offs of $121,000 related to TDRs. During the year ended June 30, 2022,
there were no charge-offs related to TDRs. During the year ended June 30, 2023, there were two TDR defaults totaling $649,000.
During the year ended June 30, 2022, there were three TDR defaults totaling $305,000.
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 year ended June 30, 2023, capitalized prior past due amounts, reduced the interest rate or modified the
repayment terms.
Individually Analyzed Loans
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 June 30, 2023, the carrying value of individually analyzed loans, including loans acquired with
deteriorated credit quality that were individually analyzed, totaled $42.6 million, of which $38.2 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 allowance for credit losses 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 18 for additional disclosure
regarding fair value of individually analyzed collateral dependent loans.
F-33
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following table presents the carrying value and related allowance of collateral dependent individually analyzed loans at the
dates indicated:
Commercial loans:
Multi-family mortgage
Nonresidential mortgage (1)
Construction
Total commercial loans
One- to four-family residential mortgage (2)
Consumer loans:
Home equity loans (2)
June 30, 2023
June 30, 2022
Carrying
Value
Related
Allowance
Carrying
Value
Related
Allowance
(In Thousands)
$
19,114 $
326 $
26,653 $
16,207
—
35,321
2,875
—
3,001
—
3,327
—
—
30,733
1,561
58,947
4,305
35
849
2,696
—
3,545
77
—
Total
$
38,196 $
3,327 $
63,287 $
3,622
________________________________________
(1) Secured by income-producing nonresidential property.
(2) 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 considered uncollectible or of so little value that their continuance as assets is not warranted.
F-34
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following table presents the risk category of loans as of June 30, 2023 by loan segment and vintage year:
Term Loans by Origination Year for Fiscal Years ended June 30,
2023
2022
2021
2020
2018
Prior
Revolving
Loans
Total
(In Thousands)
Multi-family mortgage:
Pass
Special Mention
Substandard
Doubtful
Total multi-family mortgage
Nonresidential mortgage:
Pass
Special Mention
Substandard
Doubtful
Total nonresidential mortgage
Commercial business:
Pass
Special Mention
Substandard
Doubtful
Total commercial business
Construction loans:
Pass
Special Mention
Substandard
Doubtful
Total construction loans
Residential mortgage:
Pass
Special Mention
Substandard
Doubtful
Total residential mortgage
Home equity loans:
Pass
Special Mention
Substandard
Doubtful
Total home equity loans
Other consumer loans
Pass
Special Mention
Substandard
Doubtful
Other consumer loans
Total loans
$ 603,260 $ 954,554 $ 213,482 $ 198,969 $ 226,929 $ 510,485 $
—
—
—
954,554
—
9,809
—
223,291
—
—
—
198,969
6,006
9,432
—
242,367
—
—
—
603,260
109,725
—
—
—
109,725
10,364
—
—
—
10,364
25,070
—
—
—
25,070
220,443
—
—
—
220,443
28,644
—
—
—
28,644
83,032
—
708
—
83,740
25,304
—
—
—
25,304
36,389
—
—
—
36,389
143,086
—
—
—
143,086
195,521
—
—
—
195,521
454,504
—
542
—
455,046
491,460
—
—
—
491,460
7,682
—
—
—
7,682
2,567
—
—
—
2,567
607
—
—
—
607
51,933
—
—
—
51,933
7,875
47
395
—
8,317
12,275
—
—
—
12,275
80,431
—
—
—
80,431
1,264
—
—
—
1,264
59,197
—
919
—
60,116
1,731
176
60
—
1,967
2,961
—
—
—
2,961
45,741
1,168
80
—
46,989
2,478
—
—
—
2,478
6,647
22,202
—
539,334
414,742
378
21,497
—
436,617
8,776
2,456
1,385
—
12,617
1,093
—
—
—
1,093
422,472
425
8,215
—
431,112
7,280
—
287
—
7,567
— $ 2,707,679
12,653
—
41,443
—
—
—
2,761,775
—
6,000
—
—
—
6,000
59,031
371
246
—
59,648
5,735
—
—
—
5,735
945,072
378
23,124
—
968,574
141,725
3,050
2,086
—
146,861
226,609
—
—
—
226,609
—
—
—
—
—
1,690,129
1,593
8,837
—
1,700,559
21,384
—
—
—
21,384
43,262
—
287
—
43,549
367
—
—
—
367
2,474
—
—
75
2,549
$ 951,989 $ 1,697,890 $ 967,598 $ 353,683 $ 357,180 $ 1,429,252 $ 92,884 $ 5,850,476
42
—
—
75
117
247
—
—
—
247
912
—
—
—
912
302
—
—
—
302
494
—
—
—
494
110
—
—
—
110
F-35
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
The following table presents the risk category of loans as of June 30, 2022 by loan segment and vintage year:
Multi-family mortgage:
Pass
Special Mention
Substandard
Doubtful
Total multi-family mortgage
Nonresidential mortgage:
Pass
Special Mention
Substandard
Doubtful
Total nonresidential mortgage
Commercial business:
Pass
Special Mention
Substandard
Doubtful
Total commercial business
Construction loans:
Pass
Special Mention
Substandard
Doubtful
Total construction loans
Residential mortgage:
Pass
Special Mention
Substandard
Doubtful
Total residential mortgage
Home equity loans:
Pass
Special Mention
Substandard
Doubtful
Total home equity loans
Other consumer loans
Pass
Special Mention
Substandard
Doubtful
Other consumer loans
Total loans
Term Loans by Origination Year for Fiscal Years ended June 30,
2022
2021
2020
2018
2017
Prior
Revolving
Loans
Total
(In Thousands)
$ 963,263 $ 250,385 $ 211,101 $ 264,174 $ 248,058 $ 438,642 $
—
—
—
963,263
231,777
—
—
—
231,777
46,888
—
—
—
46,888
16,407
—
—
—
16,407
472,160
—
—
—
472,160
3,197
—
—
—
3,197
—
—
—
250,385
—
—
—
211,101
—
9,821
—
273,995
—
5,935
—
253,993
87,309
—
720
—
88,029
38,791
—
38
—
38,829
95,526
—
—
—
95,526
524,163
—
—
—
524,163
692
—
—
—
692
53,983
—
—
—
53,983
12,155
62
319
—
12,536
10,337
—
—
—
10,337
88,645
—
—
—
88,645
1,681
—
—
—
1,681
60,714
—
933
—
61,647
3,581
186
—
—
3,767
3,039
—
—
—
3,039
49,316
1,205
83
—
50,604
3,117
—
120
—
3,237
49,285
—
4,026
—
53,311
4,861
2,173
1,347
—
8,381
6,509
—
—
—
6,509
55,139
—
—
—
55,139
2,027
—
—
—
2,027
6,814
10,897
—
456,353
491,849
591
32,599
—
525,039
6,455
873
61
80
7,469
1,017
—
1,561
—
2,578
442,517
621
11,593
—
454,731
7,321
—
1,539
—
8,860
— $ 2,375,623
6,814
—
26,653
—
—
—
2,409,090
—
6,052
—
—
—
6,052
980,969
591
38,278
—
1,019,838
58,662
215
58
2
58,937
5,735
—
—
—
5,735
171,393
3,509
1,823
82
176,807
138,570
—
1,561
—
140,131
374
—
—
—
374
1,632,314
1,826
11,676
—
1,645,816
22,334
—
—
—
22,334
40,369
—
1,659
—
42,028
442
—
—
—
442
2,783
—
—
83
2,866
$ 1,734,134 $ 997,932 $ 378,754 $ 396,664 $ 379,618 $ 1,455,925 $ 93,549 $ 5,436,576
471
—
—
—
471
34
—
—
83
117
258
—
—
—
258
375
—
—
—
375
308
—
—
—
308
895
—
—
—
895
F-36
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 – Loans Receivable (continued)
Purchased Credit Deteriorated Loans
PCD loans are acquired loans that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit
quality since origination. Non-PCD loans are acquired loans that have experienced no or insignificant deterioration in credit
quality since origination. To distinguish between the two types of acquired loans, the Company evaluates risk characteristics that
have been determined to be indicators of deteriorated credit quality. The determining criteria may involve loan specific
characteristics such as payment status, debt service coverage or other changes in creditworthiness since the loan was originated,
while others are relevant to recent economic conditions, such as borrowers in industries impacted by the pandemic.
As part of the acquisition of MSB, the Company purchased loans, for which there was, at acquisition, evidence of more than
insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:
Purchase price of PCD loans at acquisition
Allowance for credit losses at acquisition
Non-credit discount at acquisition
Par value of acquired PCD loans at acquisition
Residential Mortgage Loans in Foreclosure
At July 10, 2020
(In Thousands)
$
$
65,347
3,901
167
69,415
The Company may obtain physical possession of one- to four-family real estate collateralizing a residential mortgage loan or
nonresidential real estate collateralizing a nonresidential mortgage loan via foreclosure or through an in-substance repossession.
As of June 30, 2023, the Company held one nonresidential property with a carrying value of $13.0 million in other real estate
owned that was acquired through foreclosure on a nonresidential mortgage loan. As of that same date, the Company held three
residential mortgage loans with aggregate carrying values totaling $950,000 and six commercial mortgage loans with aggregate
carrying values totaling $9.2 million which were in the process of foreclosure. As of June 30, 2022, the Company held one single-
family property in other real estate owned with a carrying value of $178,000 that was acquired through foreclosure on a
residential mortgage loan. As of that same date, the Company held seven residential mortgage loans with aggregate carrying
values totaling $1.5 million which were in the process of foreclosure.
F-37
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 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 replaced the incurred loss methodology with an expected loss methodology,
referred to as the “CECL” methodology. See Note 1, Summary of Significant Accounting Policies, for additional information on
the adoption of Topic 326.
Allowance for Credit Losses on Loans Receivable
The following tables present the balance of the allowance for credit losses (“ACL”) at June 30, 2023 and 2022. The balance of the
ACL is based on the CECL methodology, as noted above. The tables identify the valuation allowances attributable to specifically
identified impairments on individually analyzed loans, including those acquired with deteriorated credit quality, as well as
valuation allowances for impairments on loans collectively evaluated. The tables include the underlying balance of loans
receivable applicable to each category as of those dates.
Allowance for Credit Losses
June 30, 2023
Loans
acquired with
deteriorated
credit quality
individually
analyzed
Loans
acquired with
deteriorated
credit quality
collectively
evaluated
Loans
individually
analyzed
Loans
collectively
evaluated
Total allowance
for credit losses
(In Thousands)
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
$
— $
— $
326 $
26,036 $
26,362
—
—
—
3
—
—
70
9
—
132
—
—
3,001
20
—
70
—
—
5,882
1,411
1,336
10,032
338
68
8,953
1,440
1,336
10,237
338
68
$
3 $
211 $
3,417 $
45,103 $
48,734
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Unaccreted yield adjustments
Loans receivable, net of yield adjustments
Balance of Loans Receivable
June 30, 2023
Loans
acquired with
deteriorated
credit quality
individually
analyzed
Loans
acquired with
deteriorated
credit quality
collectively
evaluated
Loans
individually
analyzed
Loans
collectively
evaluated
Total loans
(In Thousands)
$
— $
— $
19,114 $
2,742,661 $
2,761,775
333
—
—
570
25
—
3,562
4,237
5,735
4,433
—
—
16,207
252
—
948,472
142,372
220,874
968,574
146,861
226,609
6,101
1,689,455
1,700,559
25
—
43,499
2,549
43,549
2,549
$
928 $
17,967 $
41,699 $
5,789,882 $
5,850,476
(21,055)
$
5,829,421
F-38
Note 6 – Allowance for Credit Losses (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for Credit Losses
June 30, 2022
Loans
acquired with
deteriorated
credit quality
individually
analyzed
Loans
acquired with
deteriorated
credit quality
collectively
evaluated
Loans
individually
analyzed
Loans
collectively
evaluated
Total allowance
for credit losses
(In Thousands)
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
$
— $
— $
849 $
24,472 $
—
—
—
—
26
—
73
9
—
229
—
—
2,696
16
—
148
—
—
7,821
1,767
1,486
7,163
219
84
25,321
10,590
1,792
1,486
7,540
245
84
$
26 $
311 $
3,709 $
43,012 $
47,058
Balance of Loans Receivable
June 30, 2022
Loans
acquired with
deteriorated
credit quality
individually
analyzed
Loans
acquired with
deteriorated
credit quality
collectively
evaluated
Loans
individually
analyzed
Loans
collectively
evaluated
Total loans
(In Thousands)
$
— $
— $
26,653 $
2,382,437 $
2,409,090
377
—
—
87
329
—
5,033
1,267
5,735
6,460
58
—
31,517
293
1,561
8,402
1,102
—
982,911
175,247
132,835
1,019,838
176,807
140,131
1,630,867
1,645,816
40,539
2,866
42,028
2,866
$
793 $
18,553 $
69,528 $
5,347,702 $
5,436,576
(18,731)
$
5,417,845
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Unaccreted yield adjustments
Loans receivable, net of yield adjustments
F-39
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 – Allowance for Credit Losses (continued)
The following tables present the activity in the ACL on loans for the years ended June 30, 2023, 2022 and 2021:
Changes in the Allowance for Credit Losses
Year Ended June 30, 2023
Balance at
June 30, 2022
Charge-offs
Recoveries
Provision for
(reversal of)
credit losses
Balance at
June 30, 2023
(In Thousands)
$
25,321 $
10,590
1,792
1,486
7,540
245
84
(493) $
(39)
(364)
—
—
—
—
— $
1,534 $
26,362
—
29
—
2
—
55
(1,598)
(17)
(150)
2,695
93
(71)
8,953
1,440
1,336
10,237
338
68
$
47,058 $
(896) $
86 $
2,486 $
48,734
Changes in the Allowance for Credit Losses
Year Ended June 30, 2022
Balance at
June 30, 2021
Charge-offs
Recoveries
(In Thousands)
(Reversal of)
provision for
credit losses
Balance at
June 30, 2022
$
28,450 $
(1,896) $
— $
(1,233) $
16,243
2,086
1,170
9,747
433
36
(2,646)
(193)
—
—
—
(2)
812
160
—
147
27
2
(3,819)
(261)
316
(2,354)
(215)
48
25,321
10,590
1,792
1,486
7,540
245
84
$
58,165 $
(4,737) $
1,148 $
(7,518) $
47,058
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Multi-family mortgage
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential mortgage
Home equity loans
Other consumer
Total loans
Changes in the Allowance for Loan Losses
Year Ended June 30, 2021
Balance at
June 30, 2020
(prior to
adoption of
ASC 326):
Impact of
adopting
Topic 326
Charge-offs
Recoveries
(In Thousands)
Initial
allowance on
PCD loans
(Reversal of)
provision for
credit losses
Balance at
June 30, 2021
Multi-family mortgage
$
20,916 $
8,408 $
— $
— $
250 $
(1,124) $
Nonresidential mortgage
Commercial business
Construction
One- to four-family residential
mortgage
Home equity loans
Other consumer
Total loans
8,763
1,926
236
4,860
568
58
2,390
(421)
80
9,106
92
(15)
(80)
(1,446)
—
(13)
(32)
(41)
—
17
—
4
—
9
1,720
1,007
99
720
105
—
3,450
1,003
755
(4,930)
(300)
25
28,450
16,243
2,086
1,170
9,747
433
36
$
37,327 $
19,640 $
(1,612) $
30 $
3,901 $
(1,121) $
58,165
F-40
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 – Allowance for Credit Losses (continued)
Allowance for Credit Losses on Off Balance Sheet Commitments
The following table presents the activity in the ACL on off balance sheet commitments recorded in other non-interest expense for
the years ended June 30, 2023, 2022 and 2021:
Balance at beginning of the period
Impact of adopting Topic 326 (1)
(Reversal of) provision for credit losses
Balance at end of the period
________________________________________
(1) Adoption of CECL accounting standard effective July 1, 2020.
Note 7 – Leases
Year Ended June 30,
2023
2022
2021
(In Thousands)
1,041 $
1,708 $
—
(300)
741 $
—
(667)
1,041 $
$
$
—
536
1,172
1,708
The Company leases certain premises and equipment under operating leases. As of June 30, 2023, the Company had right-of-use
assets totaling $16.1 million and lease liabilities totaling $17.2 million, which were recorded in other assets and other liabilities,
respectively, on the Statement of Financial Condition. By comparison at June 30, 2022, the Company had right-of-use assets of
totaling $18.4 million and lease liabilities of totaling $19.2 million.
As of June 30, 2023, the weighted average remaining lease term for operating leases was 6.56 years and the weighted average
discount rate used in the measurement of operating lease liabilities was 2.70%. Total operating lease costs for the years ended June
30, 2023, 2022 and 2021 was $3.7 million, $3.7 million and $3.8 million, respectively.
There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the year ended
June 30, 2023. At June 30, 2023, the Company had no leases that had not yet commenced.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease
liability at June 30, 2023 and 2022 is as follows:
Less than one year
After one year but within two years
After two years but within three years
After three years but within four years
After four years but within five years
Greater than five years
Total undiscounted cash flows
Less: discount on cash flows
Total lease liability
June 30,
2023
2022
(In Thousands)
$
3,445 $
3,183
3,071
2,963
1,941
4,305
18,908
(1,687)
$
17,221 $
3,614
3,187
2,905
2,817
2,707
5,956
21,186
(2,001)
19,185
F-41
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 – Premises and Equipment
Land
Buildings and improvements
Leasehold improvements
Furnishings and equipment
Construction in progress
Less accumulated depreciation and amortization
Total premises and equipment
June 30,
2023
2022
(In Thousands)
$
11,773 $
45,886
12,029
29,720
71
99,479
51,170
$
48,309 $
12,192
48,156
11,336
29,431
426
101,541
48,260
53,281
Depreciation expense on premises and equipment for the fiscal years ended June 30, 2023, 2022 and 2021 totaled $5.7 million,
$6.0 million and $5.9 million, respectively.
Note 9 – Goodwill and Other Intangible Assets
Balance at June 30, 2020
Acquisition of MSB Financial Corp.
Amortization
Balance at June 30, 2021
Amortization
Balance at June 30, 2022
Amortization
Balance at June 30, 2023
Goodwill
Core Deposit
Intangibles
(In Thousands)
$
210,895 $
—
—
210,895
—
210,895
—
$
210,895 $
3,995
690
(980)
3,705
(685)
3,020
(563)
2,457
Scheduled amortization of core deposit intangibles for each of the next five years and thereafter is as follows:
Year Ending
June 30,
2024
2025
2026
2027
2028
Thereafter
Core Deposit
Intangible
Amortization
(In Thousands)
$
526
495
467
441
353
175
F-42
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 – Deposits
Deposits at June 30, 2023 and 2022 are summarized as follows:
Non-interest-bearing demand
Interest-bearing demand
Savings
Certificates of deposits
Total deposits
June 30,
2023
2022
Balance
Weighted
Average
Interest Rate
Balance
Weighted
Average
Interest Rate
(Dollars in Thousands)
$
609,999
0.00 % $
653,899
0.00 %
2,252,912
748,721
2,017,551
2.43
0.48
3.02
2,265,597
1,053,198
1,889,562
0.56
0.17
0.80
$
5,629,183
2.12 % $
5,862,256
0.50 %
Brokered deposits at June 30, 2023 and 2022 are summarized as follows:
June 30,
2023
2022
Balance
Weighted
Average
Interest Rate
Balance
Weighted
Average
Interest Rate
(Dollars in Thousands)
$
$
635,314
635,314
4.28 % $
4.28 % $
761,862
761,862
1.14 %
1.14 %
Certificates of deposits
Total brokered deposits
A summary of certificates of deposit by maturity at June 30, 2023 follows:
One year or less
After one year to two years
After two years to three years
After three years to four years
After four years to five years
After five years
Total certificates of deposit
June 30,
2023
(In Thousands)
$
1,896,132
71,317
23,155
13,775
7,590
5,582
$
2,017,551
Certificates of deposit with balances of $250,000 or more at June 30, 2023 and 2022, totaled approximately $883.7 million and
$897.4 million, respectively. The Bank’s deposits are insurable to applicable limits by the FDIC.
F-43
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 – Borrowings
Borrowings at June 30, 2023 and 2022 consisted of the following:
FHLB advances
Overnight borrowings(1)
Total borrowings
June 30,
2023
June 30,
2022
(In Thousands)
$
$
1,281,812 $
225,000
1,506,812 $
651,337
250,000
901,337
________________________________________
(1) At June 30, 2023, represented $125.0 million of FHLB overnight line of credit borrowings and $100.0 million of unsecured overnight
borrowings from other financial institutions. At June 30, 2022, represented FHLB overnight line of credit borrowings.
Fixed-rate advances from FHLB of New York mature as follows:
By remaining period to maturity:
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
Greater than five years
Total advances
$
Unamortized fair value adjustments
Total advances, net of fair value adjustments
$
June 30, 2023
June 30, 2022
Balance
Weighted
Average
Interest Rate
Balance
Weighted
Average
Interest Rate
(Dollars in Thousands)
972,500
103,500
6,500
—
200,000
—
1,282,500
(688)
1,281,812
5.36 % $
2.68
2.82
—
3.98
—
4.92 %
$
520,000
22,500
103,500
6,500
—
—
652,500
(1,163)
651,337
2.04 %
2.63
2.68
2.82
—
—
2.17 %
At June 30, 2023, FHLB advances and overnight line of credit borrowings were collateralized by the FHLB capital stock owned
by the Bank and mortgage loans with carrying values totaling approximately $4.60 billion. At June 30, 2022, FHLB advances and
overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and
securities with carrying values totaling approximately $3.58 billion and $178.0 million, respectively.
F-44
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 – 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 and assets.
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 June 30, 2023 and 2022:
June 30, 2023
Asset Derivatives
Liability Derivatives
Location
Fair Value
Location
Fair Value
(In Thousands)
Derivatives designated as hedging instruments:
Interest rate contracts
Total
Other assets
$
$
71,624 Other liabilities
71,624
$
$
—
—
June 30, 2022
Asset Derivatives
Liability Derivatives
Location
Fair Value
Location
Fair Value
(In Thousands)
Derivatives designated as hedging instruments:
Interest rate contracts
Total
Other assets
$
$
41,223 Other liabilities
41,223
$
$
—
—
Cash Flow Hedges of Interest Rate Risk
The Company uses derivatives 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, interest rate caps and an interest rate floor as part of
its interest rate risk management strategy. These interest rate products are designated as cash flow hedges. As of June 30, 2023,
the Company had a total of 13 interest rate swaps and caps with a total notional amount of $1.45 billion hedging specific
wholesale funding positions and one interest rate floor with a notional amount of $100.0 million hedging floating-rate available
for sale securities.
For derivatives designated as cash flow hedges, the gain or loss on the derivatives is recorded in other comprehensive income
(loss), net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction
affects earnings.
For cash flow hedges on the Company's wholesale funding positions, amounts reported in accumulated other comprehensive
income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s
hedged variable rate wholesale funding positions. During the year ended June 30, 2023, the Company reclassified $20.4 million as
a reduction in interest expense. During the next 12 months, the Company estimates that $33.8 million will be reclassified as a
reduction in interest expense.
For cash flow hedges on the Company’s assets, amounts reported in accumulated other comprehensive income (loss) related to
derivatives will be reclassified to interest income as interest payments are received on the Company’s hedged variable rate assets.
During the year ended June 30, 2023, the Company did not reclassify any amount to interest income. During the next twelve
months, the Company estimates that $200,000 will be reclassified as a reduction in interest income.
F-45
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 – Derivative Instruments and Hedging Activities (continued)
The table below presents the pre-tax effects of the Company’s derivative instruments designated as cash flow hedges on the
Consolidated Statements of Income for the years ended June 30, 2023, 2022 and 2021:
Year Ended June 30,
2023
2022
2021
(In Thousands)
Amount of gain recognized in other comprehensive income
$
39,002 $
35,844 $
10,825
Amount of gain (loss) reclassified from accumulated other comprehensive income to
interest expense
20,393
(4,273)
(8,281)
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates.
The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes
in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate
amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without
the exchange of the underlying notional amount. Such derivatives are used to hedge the changes in fair value of certain of its
pools of fixed rate assets. As of June 30, 2023, the Company had five interest rate swaps with a notional amount of $675.0 million
hedging fixed-rate residential mortgage loans.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or
gain on the hedged item attributable to the hedged risk are recognized in interest income.
The table below presents the effects of the Company’s derivative instruments designated as fair value hedges on the Consolidated
Statements of Income for the year ended June 30, 2023. There were no fair value hedges for the years ended June 30, 2022 and
2021:
Loss on hedged items recorded in interest income on loans
Gain on hedges recorded in interest income on loans
Year Ended
June 30,
2023
(In Thousands)
$
(11,437)
14,563
As of June 30, 2023, the following amounts were recorded on the Statement of Financial Condition related to cumulative basis
adjustment for fair value hedges. There were no fair value hedges at June 30, 2022:
Loans receivable:
Carrying amount of the hedged assets
June 30, 2023
$
663,563
Fair value hedging adjustment included in the carrying amount of the hedged assets
(11,437)
________________________________________
(1) This amount includes the amortized cost basis of the closed portfolios of loans receivable used to designate hedging relationships in which
the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At June
30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.10 billion.
F-46
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12 – Derivative Instruments and Hedging Activities (continued)
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 Statement of Financial Condition as of June 30, 2023 and 2022, 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 Statement of Financial Condition.
June 30, 2023
Gross Amounts Not Offset
Gross Amount
Recognized
Gross Amounts
Offset
Net Amounts
Presented
Financial
Instruments
Cash Collateral
Received (Posted)
Net Amount
(In Thousands)
Assets:
Interest rate contracts
Total
Liabilities:
Interest rate contracts
Total
$
$
$
$
72,418 $
72,418 $
(794) $
(794) $
71,624 $
71,624 $
794 $
794 $
(794) $
(794) $
— $
— $
— $
— $
— $
— $
— $
— $
71,624
71,624
— $
— $
—
—
June 30, 2022
Gross Amounts Not Offset
Gross Amount
Recognized
Gross Amounts
Offset
Net Amounts
Presented
Financial
Instruments
Cash Collateral
Received (Posted)
Net Amount
(In Thousands)
Assets:
Interest rate contracts
Total
$
$
41,223 $
41,223 $
— $
— $
41,223 $
41,223 $
— $
— $
— $
— $
41,223
41,223
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. As of June 30, 2023, 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 June 30, 2023 and June 30,
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 June 30, 2023 and 2022,
included $11.7 million and $20.3 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 our financial condition or results
of operations.
F-47
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – 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, Atlas Bank Retirement Income Plan and Supplemental Executive
Retirement Plan:
Year Ended June 30,
2023
2022
2021
Affected Line Item in the
Consolidated Statements of Income
(In Thousands)
Service cost
Interest cost
(Accretion) amortization of unrecognized (gain) loss
Expected return on assets
Net periodic benefit cost
$
$
281 $
369
(24)
(99)
527 $
547 $
279
80
(110)
796 $
106 Salaries and employee benefits
262 Other expense
83 Other expense
(113) Other expense
338
The other components of net periodic benefit cost are required to be presented in the Consolidated Statements of Income
separately from the service cost component. The table above details the affected line items within the Consolidated Statements of
Income related to the net periodic benefit costs for the periods noted.
ESOP
In conjunction to the Company’s initial public stock offering in February 2005, the Bank established an ESOP for all eligible
employees. The ESOP purchased 2,409,764 shares of Company’s common stock with proceeds of a loan from the Company to
the ESOP. In connection with the completion of the Company’s mutual to stock conversion in May 2015, the ESOP purchased an
additional 3,612,500 shares of the Company’s common stock at a price of $10.00 per share with the proceeds of a new loan from
the Company to the ESOP. The Company refinanced the outstanding principal and interest balance of $3.8 million and borrowed
an additional $36.1 million to purchase the additional shares. The Company makes discretionary contributions to the ESOP
equaling principal and interest payments owed on the ESOP’s loan to the Company. Such payments may be reduced by the
amount of dividends paid on shares of the Company’s common stock held by the ESOP. The outstanding loan principal balance at
June 30, 2023 was $26.4 million.
ESOP shares pledged as collateral are initially recorded as unearned ESOP shares in the Consolidated Statements of Financial
Condition. ESOP compensation expense was approximately $1.9 million, $2.5 million and $2.1 million for the years ended June
30, 2023, 2022 and 2021, respectively, representing the fair value of shares allocated or committed to be released during the year.
At June 30, 2023 and 2022, the ESOP shares were as follows:
Shares purchased by ESOP
Less: Shares allocated
Less: Shares committed to be released
Remaining unearned ESOP shares
June 30,
2023
2022
(In Thousands)
6,022
3,564
100
2,358
6,022
3,363
100
2,559
Fair value of unearned ESOP shares
$
16,624 $
28,430
Employee Stock Ownership Plan Benefit Equalization Plan (“ESOP BEP”)
The Bank has a non-qualified plan to compensate its executive officers who participate in the Bank’s ESOP for certain benefits
lost under such plan by reason of benefit limitations imposed by the Internal Revenue Code (“IRC”). The ESOP BEP expense was
approximately $17,000, $40,000 and $37,000 for the years ended June 30, 2023, 2022 and 2021, respectively. The liability totaled
approximately $16,000 and $20,000 at June 30, 2023 and 2022, respectively.
F-48
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
Employees’ Savings and Profit Sharing Plan
The Bank sponsors the Employees’ Savings and Profit Sharing Plan and Trust (the “Plan”), pursuant to Section 401(k) of the
Internal Revenue Code, for all eligible employees. Employees may elect to contribute up to 75% of their compensation subject to
the limitations imposed by the Internal Revenue Code. The Bank will contribute a matching contribution up to 3.5% of an eligible
employee’s salary deferral contribution, provided the eligible employee has contributed 6%. The Plan expense amounted to
approximately $1.4 million, $1.4 million and $1.3 million for the years ended June 30, 2023, 2022 and 2021, respectively.
Multi-Employer Retirement Plan
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), a tax-qualified
defined-benefit pension plan. The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is
001. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the
Employee Retirement Income Security Act of 1974 and the IRC. There are no collective bargaining agreements in place that
require contributions to the Pentegra DB Plan.
The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind
all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to
provide benefits to participants of other participating employers.
The Pentegra DB Plan is non-contributory and covers all eligible employees. In April 2007, the Board of Directors of the Bank
approved, effective July 1, 2007, freezing all future benefit accruals under the Pentegra DB Plan.
Funded status (market value of plan assets divided by funding target) of the Pentegra DB Plan based on valuation reports as of
July 1, 2022 and 2021 was 103.17% and 113.78%, respectively. Total contributions, made to the Pentegra DB Plan, which include
contributions from all participating employers and not just the Company, as reported on Form 5500, were $142.4 million and
$248.6 million for the plan years ended June 30, 2022 and 2021, respectively. The Bank’s contributions to the Pentegra DB Plan
were not more than 5% of the total contributions to the Pentegra DB Plan. During the years ended June 30, 2023, 2022 and 2021,
the total expense recorded for the Pentegra DB Plan was approximately $180,000, $372,000 and $329,000, respectively.
F-49
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
Atlas Bank Retirement Income Plan (“ABRIP”)
Through the merger with Atlas Bank, the Company acquired a non-contributory defined benefit pension plan covering all eligible
employees of Atlas Bank. Effective January 31, 2013, the ABRIP was frozen by Atlas Bank. All benefits for eligible participants
accrued in the ABRIP to the freeze date have been retained. The benefits are based on years of service and employee’s
compensation. The ABRIP is funded in conformity with funding requirements of applicable government regulations.
The following tables set forth the ABRIP’s funded status and net periodic benefit cost:
Change in benefit obligation:
Projected benefit obligation - beginning
Interest cost
Actuarial gain
Benefit payments
Projected benefit obligation - ending
Change in plan assets:
Fair value of assets - beginning
Actual return on assets
Benefit payments
Fair value of assets - ending
Reconciliation of funded status:
Projected benefit obligation
Fair value of assets
Funded status included in other assets
Accumulated benefit obligation
Valuation assumptions
Discount rate
Salary increase rate
Net periodic benefit cost:
Interest cost
Expected return on assets
Amortization of net loss
Total expense (benefit)
Valuation assumptions
Discount rate
Long term rate of return on plan assets
$
$
$
$
$
$
$
June 30,
2023
2022
(In Thousands)
1,816
78
(46)
(148)
1,700
2,907
(42)
(148)
2,717
(1,700)
2,717
1,017
$
$
$
$
$
$
2,149
62
(247)
(148)
1,816
3,220
(165)
(148)
2,907
(1,816)
2,907
1,091
(1,700)
$
(1,816)
5.00 %
N/A
4.50 %
N/A
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
$
78
(99)
28
7
$
$
62
(110)
21
(27)
$
$
61
(113)
22
(30)
4.50 %
3.50 %
3.00 %
3.50 %
2.75 %
3.50 %
F-50
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
The Bank does not expect to contribute to the ABRIP in the year ending June 30, 2024.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Years ending June 30:
2024
2025
2026
2027
2028
2029-2033
Benefit
Payments
(In Thousands)
$
146
147
148
145
140
637
At June 30, 2023 and 2022, unrecognized net loss of $475,000 and $475,000, respectively, was included in accumulated other
comprehensive income (loss).
The assets of the ABRIP are invested in a Guaranteed Deposit Fund (“GDF”) with Prudential Financial, Inc. The GDF is a group
annuity fund invested in public and private-issue debt securities through various sub-accounts. The underlying assets are valued
based on quoted prices for similar assets with similar terms and other observable market data and have no redemption restrictions.
The investments in the plan were monitored to ensure that they complied with the investment policies set forth in the plan
document. The plan’s assets were reviewed periodically by management, which included an analysis of the asset allocation and
the performance of the GDF prepared by Prudential Financial, Inc.
The overall investment objective of the ABRIP is to ensure safety of principal and seek an attractive rate of return. The GDF
utilizes a full spectrum of fixed income asset classes to provide the opportunity to maximize portfolio returns and diversification.
The fair value of the ABRIP’s assets at June 30, 2023 and 2022 by asset category (see Note 18 for the definitions of levels), are as
follows:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2023
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
Prudential Guaranteed Deposit Fund
$
— $
2,717 $
— $
2,717
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2022
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
Prudential Guaranteed Deposit Fund
$
— $
2,907 $
— $
2,907
F-51
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
Benefit Equalization Plan (“BEP”)
The Bank has an unfunded non-qualified plan to compensate executive officers of the Bank who participate in the Bank’s
qualified defined benefit plan for certain benefits lost under such plans by reason of benefit limitations imposed by Sections 415
and 401 of the IRC. There were approximately $244,000, $241,000 and $239,000 in contributions made to and benefits paid
under the BEP during each of the years ended June 30, 2023, 2022 and 2021, respectively.
The following tables set forth the BEP’s funded status and components of net periodic benefit cost:
Change in benefit obligation:
Projected benefit obligation - beginning
Interest cost
Actuarial gain
Benefit payments
Projected benefit obligation - ending
Change in plan assets:
Fair value of assets - beginning
Contributions
Benefit payments
Fair value of assets - ending
Reconciliation of funded status:
Accumulated benefit obligation
Projected benefit obligation
Fair value of assets
Funded status included in other liabilities
Valuation assumptions
Discount rate
Salary increase rate
Net periodic benefit cost:
Interest cost
Amortization of net actuarial loss
Total expense
Valuation assumptions
Discount rate
Salary increase rate
June 30,
2023
2022
(In Thousands)
2,592
111
(34)
(244)
2,425
—
244
(244)
—
$
$
$
$
2,999
86
(252)
(241)
2,592
—
241
(241)
—
(2,425)
$
(2,592)
(2,425)
—
(2,425)
$
$
(2,592)
—
(2,592)
$
$
$
$
$
$
$
5.00 %
N/A
4.50 %
N/A
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
$
111
46
157
$
$
86
71
157
$
$
85
75
160
4.50 %
N/A
3.00 %
N/A
2.75 %
N/A
It is estimated that contributions of approximately $241,000 will be made during the year ending June 30, 2024.
F-52
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Years ending June 30:
2024
2025
2026
2027
2028
2029-2033
Benefit
Payments
(In Thousands)
$
241
237
232
227
221
999
In April 2007, the Board of Directors of the Bank approved, effective July 1, 2007, freezing all future benefit accruals under the
BEP related to the Bank’s defined benefit pension plan.
At June 30, 2023 and 2022, unrecognized net loss of $626,000 and $707,000, respectively, was included in accumulated other
comprehensive income (loss).
Postretirement Welfare Plan
The Bank has an unfunded postretirement group term life insurance plan covering all eligible employees. The benefits are based
on age and years of service. During the years ended June 30, 2023, 2022 and 2021, contributions and benefits paid totaled
$13,000, $12,000 and $12,000, respectively.
The following tables set forth the accrued accumulated postretirement benefit obligation and the net periodic benefit cost:
Change in benefit obligation:
Projected benefit obligation - beginning
Service cost
Interest cost
Actuarial gain
Premiums/claims paid
Plan amendments
Projected benefit obligation - ending
Change in plan assets:
Fair value of assets - beginning
Contributions
Premiums/claims paid
Fair value of assets - ending
Reconciliation of funded status:
Projected benefit obligation
Fair value of assets
Funded status included in other liabilities
Valuation assumptions
Discount rate
Salary increase rate
F-53
June 30,
2023
2022
(In Thousands)
$
$
$
$
$
$
1,085
95
48
(214)
(13)
35
1,036
—
13
(13)
—
(1,036)
—
(1,036)
$
$
$
$
$
$
1,108
116
33
(160)
(12)
—
1,085
—
12
(12)
—
(1,085)
—
(1,085)
5.00 %
3.25 %
4.50 %
3.25 %
Note 13 – Benefit Plans (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net periodic benefit cost:
Service cost
Interest cost
Amortization of net actuarial gain
Total expense
Valuation assumptions
Discount rate
Salary increase rate
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
$
95
48
(28)
115
$
$
116
33
(12)
137
$
$
106
27
(14)
119
4.50 %
3.25 %
3.00 %
3.25 %
2.75 %
3.25 %
It is estimated that contributions of approximately $54,000 will be made during the year ending June 30, 2024.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Years ending June 30:
2024
2025
2026
2027
2028
2029-2033
Benefit
Payments
(In Thousands)
$
54
62
74
82
99
580
At June 30, 2023 and 2022, unrecognized net gain of $529,000 and $377,000, respectively, were included in accumulated other
comprehensive income (loss).
F-54
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
Directors’ Consultation and Retirement Plan (“DCRP”)
The Bank has an unfunded retirement plan for non-employee directors. The benefits are payable based on term of service as a
director. In December 2015, the Board of Directors of the Bank approved freezing all future benefit accruals under the DCRP
effective December 31, 2015.
During the years ended June 30, 2023, 2022 and 2021, contributions and benefits paid totaled $49,000, $49,000 and $69,000,
respectively.
The following table sets forth the DCRP’s funded status and components of net periodic cost:
Change in benefit obligation:
Projected benefit obligation - beginning
Interest cost
Actuarial gain
Benefit payments
Projected benefit obligation - ending
Change in plan assets:
Fair value of assets - beginning
Contributions
Benefit payments
Fair value of assets - ending
Reconciliation of funded status:
Accumulated benefit obligation
Projected benefit obligation
Fair value of assets
Funded status included in other liabilities
Valuation assumptions
Discount rate
Salary increase rate
Net periodic benefit cost:
Interest cost
Amortization of net actuarial gain
Total expense
Valuation assumptions
Discount rate
Salary increase rate
June 30,
2023
2022
(In Thousands)
2,646
117
(194)
(49)
2,520
—
49
(49)
—
$
$
$
$
3,116
92
(513)
(49)
2,646
—
49
(49)
—
(2,520)
$
(2,646)
(2,520)
—
(2,520)
$
$
(2,646)
—
(2,646)
$
$
$
$
$
$
$
5.00 %
N/A
4.50 %
N/A
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
$
117
(69)
48
$
$
92
—
92
$
$
89
—
89
4.50 %
N/A
3.00 %
N/A
2.75 %
N/A
F-55
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 13 – Benefit Plans (continued)
It is estimated that contributions of approximately $72,000 will be made during the year ending June 30, 2024.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Years ending June 30:
2024
2025
2026
2027
2028
2029-2033
Benefit
Payments
(In Thousands)
$
72
118
138
157
176
1,301
At June 30, 2023 and 2022, unrecognized net gain of $840,000 and $716,000, respectively, was included in accumulated other
comprehensive income (loss).
Supplemental Executive Retirement Plan (“SERP”)
On June 16, 2021, the Bank approved the SERP, effective as of July 1, 2021. The SERP is a non-qualified deferred compensation
plan which provides participants with a retirement benefit equal to the present value of an annual benefit of 50% of the
participant’s highest annual base salary. In December 2022, the Board of Directors of the Bank approved freezing all future
benefit accruals under the SERP effective December 31, 2022.
The following tables set forth the SERP’s funded status and net periodic benefit cost:
June 30,
2023
2022
(In Thousands)
$
$
$
$
437
185
11
633
(633)
—
(633)
$
$
$
$
—
431
6
437
(437)
—
(437)
3.00 %
N/A
3.00 %
4.00 %
Change in benefit obligation:
Projected benefit obligation - beginning
Service cost
Interest cost
Projected benefit obligation - ending
Reconciliation of funded status:
Projected benefit obligation
Fair value of assets
Funded status included in other liabilities
Valuation assumptions
Discount rate
Salary increase rate
F-56
Note 13 – Benefit Plans (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net periodic benefit cost:
Service cost
Interest cost
Total expense
Valuation assumptions
Discount rate
Salary increase rate
Year Ended June 30,
2023
2022
(In Thousands)
$
$
185
11
196
$
$
431
6
437
3.00 %
4.00 %
3.00 %
4.00 %
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Years ending June 30:
2024
2025
2026
2027
2028
2029-2033
Benefit Payments
(In Thousands)
$
—
—
—
—
—
633
Note 14 – Stock Based Compensation
Kearny Financial Corp. 2021 Equity Incentive Plan (“2021 Plan”)
At the Company’s 2021 Annual Meeting of Stockholders held on October 28, 2021, the stockholders approved the 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 years ended June 30, 2023 and 2022, the Company granted 323,218 RSUs (comprised of 238,121 service-based RSUs
and 85,097 performance-based RSUs) and 251,905 RSUs (comprised of 181,588 service-based RSUs and 70,317 performance-
based RSUs), respectively. The service-based RSUs generally vest in three tranches over a period of 3.0 years and the
performance-based RSUs will cliff vest upon the achievement of performance measures over a three-year period. 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. At June 30, 2023, there were
5,825,421 shares remaining available for future grants of stock options, restricted stock or RSUs under the 2021 Plan, subject to
the limitations noted above.
Kearny Financial Corp. 2016 Equity Incentive Plan (“2016 Plan”)
No grants were made under the 2016 Plan during the years ended June 30, 2023 and 2022. As of October 28, 2021, the 2016 Plan
was frozen and the Company no longer makes grants under the 2016 Plan.
Stock options granted under the 2016 Plan vest in equal installments over a five-year service period. Stock options were granted at
an exercise price equal to the fair value of the Company's common stock on the grant date based on the closing market price and
have an expiration period of 10 years. No stock options were granted during the years ended June 30, 2023, 2022 and 2021.
F-57
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 – Stock Based Compensation (continued)
There were no restricted stock awards granted during the years ended June 30, 2023 and 2022. There were 53,706 restricted stock
awards granted during the year ended June 30, 2021.
2021 Plan and 2016 Plan
The following table presents stock-based compensation expense for the years ended June 30, 2023, 2022 and 2021:
Stock option expense
Restricted stock expense
Restricted stock unit expense
Total stock-based compensation expense
Years Ended June 30,
2023
2022
2021
$
$
153 $
725
2,058
2,936 $
849 $
2,049
896
3,794 $
1,823
3,850
—
5,673
During the years ended June 30, 2023, 2022 and 2021, the income tax benefit attributed to our stock-based compensation expense
was $836,000, $1.0 million and $1.6 million, respectively.
Stock Options
The following is a summary of the Company’s stock option activity and related information for its option plans for the year ended
June 30, 2023:
Outstanding at June 30, 2022
Granted
Exercised
Forfeited
Outstanding at June 30, 2023
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Options
(In Thousands)
3,253 $
—
—
(269)
2,984 $
14.97
—
—
14.76
14.99
4.5 years
—
—
3.5 years
Exercisable at June 30, 2023
2,924 $
15.03
3.5 years
Aggregate
Intrinsic
Value
(In Thousands)
61
$
$
$
—
—
The Company generally issues shares from authorized but unissued shares upon the exercise of vested options.
There were no vested options exercised during the years ended June 30, 2023 and 2022. A total of 41,412 vested options, with an
aggregate intrinsic value of $158,000, were exercised during the year ended June 30, 2021. In fulfillment of these exercises, the
Company issued 41,412 shares from authorized but unissued shares. The cash proceeds from stock option exercises during the
year ended June 30, 2021 totaled approximately $373,000. A portion of such exercises represented disqualifying dispositions of
incentive stock options for which the Company recognized $47,000 in income tax benefit.
Expected future compensation expense relating to the 60,000 non-vested options outstanding as of June 30, 2023 is $59,000 over
a weighted average period of 0.5 years.
Restricted Stock
Restricted shares awarded under the 2016 Plan generally vest in equal installments over a five-year service period. In addition to
the requisite service period, the vesting of certain restricted shares awarded to management are also conditioned upon the
achievement of one or more objective performance factors established by the Compensation Committee of the Company’s Board
of Directors. In accordance with the terms of the 2016 Plan, such factors may be based on the performance of the Company as a
whole or on any one or more business units of the Company or its subsidiaries. Performance factors may be measured relative to a
peer group, an index or certain financial targets established in the Company's strategic business plan and budget.
F-58
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 – Stock Based Compensation (continued)
The Company fully achieved the applicable performance targets for fiscal 2022 and therefore all eligible performance-based
restricted shares successfully vested during the year ended June 30, 2023.
The performance factors and underlying cost basis of the remaining unvested performance-based restricted shares are generally
expected to be determined annually concurrent with the anniversary date of the original grants.
For service based awards management recognizes compensation expense for the fair value of restricted shares on a straight-line
basis over the requisite service period. For performance vesting awards management recognizes compensation expense for the fair
value of restricted shares on a straight-line basis over the requisite service period; however, if the corporate performance goals to
which the vesting of such shares are tied are not achieved, recognized compensation expense is adjusted accordingly.
The following is a summary of the Company’s restricted share award activity for the year ended June 30, 2023:
Vesting Contingent on Service
Conditions
Vesting Contingent on
Performance and Service
Conditions
Weighted
Average
Grant Date
Fair Value
Restricted
Shares
Weighted
Average
Grant Date
Fair Value
Restricted
Shares
(In Thousands)
(In Thousands)
75 $
—
(32)
—
43 $
13.34
—
13.38
—
13.31
61 $
—
(25)
—
36 $
13.33
—
13.38
—
13.30
Non-vested at June 30, 2022
Granted
Vested
Forfeited
Non-vested at June 30, 2023
During the years ended June 30, 2023, 2022 and 2021, the total fair value of vested restricted shares were $767,000, $4.3 million
and $4.2 million, respectively. Expected future compensation expense relating to the 78,826 non-vested restricted shares at June
30, 2023 is $527,000 over a weighted average period of 2.9 years.
Restricted Stock Units
RSUs awarded under the 2021 Plan generally vest in equal installments over a specified service period. In addition to the requisite
service period, the vesting of certain RSUs are also conditioned upon the achievement of one or more objective performance
measures established by the Compensation Committee of the Company’s Board of Directors. In accordance with the terms of the
2021 Plan, such measures may be based on the performance of the Company as a whole or on any one or more business units of
the Company or its subsidiaries. Performance measures may be measured relative to a peer group, an index or certain financial
targets established in the Company’s strategic business plan and budget.
For service-based RSUs, the Company recognizes compensation expense for the fair value of RSUs on a straight-line basis over
the requisite service period of each tranche. For performance-based RSUs, the Company recognizes compensation expense for the
fair value of RSUs on a straight-line basis over the requisite service period; however, the compensation will be adjusted
accordingly based on the achievement of the performance measures.
F-59
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 14 – Stock Based Compensation (continued)
The following is a summary of the Company’s RSU activity for the year ended June 30, 2023:
Vesting Contingent on Service
Conditions
Vesting Contingent on
Performance and Service
Conditions
Restricted
Stock Units
(In Thousands)
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Grant Date
Fair Value
Restricted
Stock Units
(In Thousands)
182 $
238
(61)
(17)
342 $
13.68
11.85
13.68
12.73
12.45
70 $
85
—
—
155 $
13.68
11.85
—
—
12.68
Non-vested at June 30, 2022
Granted
Vested
Forfeited
Non-vested at June 30, 2023
Expected future compensation expense relating to the 497,664 non-vested RSUs at June 30, 2023 is $3.6 million over a weighted
average period of 2.1 years.
Note 15 – Stockholders’ Equity
Regulatory Capital
Federal banking regulators impose various restrictions or requirements on the ability of savings institutions to make capital
distributions, including cash dividends. A savings institution that is a subsidiary of a savings and loan holding company, such as
the Bank, must file an application or a notice with federal banking regulators at least 30 days before making a capital distribution.
A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited
treatment under the applications processing rules of federal banking regulators; (ii) the total amount of all capital distributions,
including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings
institution’s net income for that year to date plus the institution’s retained net income for the preceding two years; (iii) it would
not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with federal banking
regulators or applicable regulations. Federal banking regulators may disapprove a notice or deny an application for a capital
distribution if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital
distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any
statute, regulation or agreement.
During the fiscal year ended June 30, 2023, an application for quarterly capital distributions from the Bank to the Company was
approved by federal banking regulators. The amount of dividends payable is based on 60 percent of quarterly net income of the
Bank.
During the years ended June 30, 2023, 2022 and 2021, dividends paid by the Bank to the Company, in conjunction with quarterly
capital distributions, as discussed above, totaled $26.3 million, $56.7 million and $43.9 million, respectively.
The Bank and the Company are subject to various regulatory capital requirements administered by federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and consolidated Company must
meet specific capital guidelines that involve quantitative measures of their respective assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. The Bank’s and consolidated Company’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.
The minimum capital level requirements applicable to both the Bank and the consolidated Company include: (i) a common equity
Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%
for all institutions. The Bank and the consolidated Company are also required to maintain a “capital conservation buffer” of 2.5%
above the regulatory minimum capital ratios which results in the following minimum ratios: (i) a common equity Tier 1 capital
ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations
on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer
amount. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.
F-60
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 – Stockholders’ Equity (continued)
At June 30, 2023 and 2022, the regulatory capital ratios, of both the Company and the Bank were in excess of the levels required
by federal banking regulators to be classified as “well-capitalized” under regulatory guidelines.
The following tables present information regarding the Bank’s regulatory capital levels at June 30, 2023 and 2022:
At June 30, 2023
Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets)
$ 695,417
13.31 % $ 417,853
8.00 % $ 522,316
10.00 %
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Tier 1 capital (to adjusted total assets)
659,783
659,783
659,783
12.63 %
313,389
6.00 %
417,853
12.63 %
235,042
4.50 %
339,505
8.15 %
323,922
4.00 %
404,902
8.00 %
6.50 %
5.00 %
At June 30, 2022
Actual
For Capital
Adequacy Purposes
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
Total capital (to risk-weighted assets)
$ 672,274
13.10 % $ 410,429
8.00 % $ 513,036
10.00 %
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Tier 1 capital (to adjusted total assets)
642,336
642,336
642,336
12.52 %
307,822
6.00 %
410,429
12.52 %
230,866
4.50 %
333,473
8.70 %
295,163
4.00 %
368,954
8.00 %
6.50 %
5.00 %
The following tables present information regarding the consolidated Company’s regulatory capital levels at June 30, 2023 and
2022:
At June 30, 2023
Actual
For Capital
Adequacy Purposes
Amount
Ratio
Amount
Ratio
$ 770,621
734,987
734,987
734,987
(Dollars in Thousands)
14.75 % $ 418,015
14.07 % 313,511
14.07 % 235,133
9.07 % 324,170
8.00 %
6.00 %
4.50 %
4.00 %
At June 30, 2022
Actual
For Capital
Adequacy Purposes
Amount
Ratio
Amount
Ratio
$ 778,253
748,315
748,315
748,315
(Dollars in Thousands)
15.17 % $ 410,515
14.58 % 307,886
14.58 % 230,914
10.14 % 295,290
8.00 %
6.00 %
4.50 %
4.00 %
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Tier 1 capital (to adjusted total assets)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Tier 1 capital (to adjusted total assets)
F-61
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 15 – Stockholders’ Equity (continued)
Stock Repurchase Plans
On August 1, 2022, the Company announced the authorization of a new stock repurchase plan to repurchase up to 4,000,000
shares, and the completion of the Company’s previous stock repurchase plan, which authorized the repurchase of 7,602,021
shares.
During the year ended June 30, 2023, the Company repurchased a total of 2,820,398 shares of its common stock at a total cost of
$27.4 million, or $9.73 per share, including 2,495,253 shares, or 62.4% of the shares authorized for repurchase under the current
repurchase program, at a cost of $23.8 million, or $9.54 per share.
Note 16 – Income Taxes
The components of income taxes are as follows:
Current income tax expense:
Federal
State
Deferred income tax expense:
Federal
State
Valuation allowance
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
6,145 $
2,634
8,779
12,720 $
7,057
19,777
12,051
5,058
17,109
1,902
887
2,789
—
2,895
2,128
5,023
—
2,673
2,016
4,689
(535)
Total income tax expense
$
11,568 $
24,800 $
21,263
F-62
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16 – Income Taxes (continued)
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 rates applicable to those periods. The federal income tax rate of
21% was applicable for the years ended June 30, 2023, 2022 and 2021.
Years Ended June 30,
2023
2022
2021
Income before income taxes
Statutory federal tax rate
Federal income tax expense at statutory rate
(Reduction) increases in income taxes resulting from:
Tax exempt interest
State tax, net of federal tax effect
Incentive stock options compensation expense
Income from bank-owned life insurance
Disqualifying disposition on incentive stock options
Non-deductible merger-related expenses
Bargain purchase gain
Other items, net
Valuation allowance
Total income tax expense
Effective income tax rate
$
$
(Dollars In Thousands)
$
92,347
$
52,379
21 %
21 %
84,496
21 %
11,000
$
19,393
$
17,744
(143)
2,781
12
(1,840)
—
—
—
(242)
11,568
—
(266)
7,257
45
(1,281)
—
—
—
(348)
24,800
—
(345)
5,464
85
(1,255)
(33)
49
(641)
730
21,798
(535)
$
11,568
22.09 %
$
24,800
26.86 %
$
21,263
25.16 %
The effective income tax rate represents total income tax expense divided by income before income taxes. Retained earnings at
June 30, 2023, includes approximately $38.4 million of bad debt allowance, pursuant to the IRC, for which income taxes have not
been provided. If such amount is used for purposes other than to absorb bad debts, including distributions in liquidation, it will be
subject to income tax at the then current rate.
A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and
upon examination also include resolution of the related appeals or litigation process, if any. A tax position that meets the more
likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater
than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers
the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable
income within the carryover period. A valuation allowance is provided when it is more likely than not that some portion of the
deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the
periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessments as of
June 30, 2023 and 2022, the Company determined it is more likely than not that all deferred tax assets will be realized.
During the year ended June 30, 2021, the Company reversed a valuation allowance totaling $535,000 which was associated with
the realization of a capital loss carryforward.
F-63
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16 – Income Taxes (continued)
The tax effects of existing temporary differences that give rise to deferred income tax assets and liabilities are as follows:
Deferred income tax assets:
Purchase accounting
Accumulated other comprehensive income:
Defined benefit plans
Unrealized loss on securities available for sale
Allowance for credit losses
Benefit plans
Compensation
Stock-based compensation
Uncollected interest
Depreciation
Net operating loss carryover
Capital loss carryforward
Other items
Deferred income tax liabilities:
Deferred loan fees and costs
Accumulated other comprehensive income:
Derivatives
Defined benefit plans
Goodwill
Other items
June 30,
2023
2022
(In Thousands)
$
4,098 $
6,327
—
45,018
14,211
2,603
1,440
3,161
1,313
2,335
2
191
839
26
34,104
13,809
2,494
2,023
2,834
1,705
1,931
4
141
844
75,211
66,242
1,710
838
16,940
78
4,510
—
23,238
11,542
—
4,510
2
16,892
49,350
Net deferred income tax asset
$
51,973 $
The Company has various state and local NOL carryforwards which will begin to expire in the year ending June 30, 2025.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of New Jersey and
various other states. The Company is generally no longer subject to examination by federal, state and local taxing authorities for
tax years prior to June 30, 2020.
F-64
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 17 – Commitments
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit. These transactions involve elements of
credit and interest rate risk in excess of the amounts recognized in the Consolidated Statements of Financial Condition. The
Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management’s credit
evaluation of the borrower. At June 30, 2023 and 2022, the Bank had $251.2 million and $510.5 million in commitments to
originate loans, including unused lines of credit.
The Bank is party to standby letters of credit through which it guarantees certain specific business obligations of its commercial
customers. The balance of standby letters of credit at June 30, 2023 and 2022 were approximately $115,000 and $130,000,
respectively.
In addition to the commitments noted above, at June 30, 2023, the Company’s pipeline of loans held for sale included $11.7
million of in-process loans whose terms included interest rate locks to borrowers that were paired with a best-efforts commitment
to sell the loan to a buyer at a fixed price within a predetermined timeframe after the sale commitment is established.
The Company and subsidiaries are also party to litigation which arises primarily in the ordinary course of business. In the opinion
of management, the ultimate disposition of such litigation should not have a material adverse effect on the consolidated financial
position of the Company.
Note 18 – 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.
F-65
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 – Fair Value of Financial Instruments (continued)
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 June 30, 2023 and 2022:
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.
Those assets and liabilities measured at fair value on a recurring basis are summarized below:
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2023
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
$
$
$
$
— $
—
—
—
136,170 $
376,996
135,018
648,184
— $
—
—
—
136,170
376,996
135,018
648,184
—
—
—
— $
436,151
143,394
579,545
1,227,729 $
—
—
—
— $
436,151
143,394
579,545
1,227,729
— $
71,624 $
— $
71,624
— $
1,299,353 $
— $
1,299,353
Assets:
Debt securities available for sale:
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Total debt securities
Mortgage-backed securities available for sale:
Residential pass-through securities
Commercial pass-through securities
Total mortgage-backed securities
Total securities available for sale
Interest rate contracts
Total assets
F-66
Note 18 – Fair Value of Financial Instruments (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2022
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
$
$
$
$
— $
—
—
—
—
28,435 $
166,557
307,813
153,397
656,202
—
—
—
—
— $
7,122
514,758
166,011
687,891
1,344,093 $
— $
—
—
—
—
28,435
166,557
307,813
153,397
656,202
—
—
—
—
— $
7,122
514,758
166,011
687,891
1,344,093
— $
41,223 $
— $
41,223
— $
1,385,316 $
— $
1,385,316
Assets:
Debt securities available for sale:
Obligations of state and political subdivisions
Asset-backed securities
Collateralized loan obligations
Corporate bonds
Total debt securities
Mortgage-backed securities available for sale:
Collateralized mortgage obligations
Residential pass-through securities
Commercial pass-through securities
Total mortgage-backed securities
Total securities available for sale
Interest rate contracts
Total assets
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 June 30, 2023 and 2022:
Individually Analyzed Collateral Dependent 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. Individually analyzed collateral dependent loans are considered a Level 3 valuation by the Company.
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.
F-67
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 – Fair Value of Financial Instruments (continued)
Those assets and liabilities measured at fair value on a non-recurring basis are summarized below:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2023
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
$
$
$
$
— $
— $
449 $
—
—
—
—
7,300
9,972
449
7,300
9,972
— $
— $
17,721 $
17,721
— $
— $
— $
— $
12,956 $
12,956 $
12,956
12,956
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
June 30, 2022
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In Thousands)
Total
$
$
$
$
— $
— $
2,035 $
—
—
—
—
7,517
11,479
— $
— $
21,031 $
2,035
7,517
11,479
21,031
— $
— $
— $
— $
178 $
178 $
178
178
Collateral dependent loans:
Residential mortgage
Multi-family mortgage
Nonresidential mortgage
Total
Other real estate owned, net:
Nonresidential
Total
Collateral dependent loans:
Residential mortgage
Multi-family mortgage
Nonresidential mortgage
Total
Other real estate owned, net:
Residential
Total
F-68
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 – Fair Value of Financial Instruments (continued)
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:
Collateral dependent loans:
Residential mortgage
Multi-family mortgage
Nonresidential mortgage
Fair
Value
Valuation
Techniques
June 30, 2023
Unobservable
Input
(Dollars in Thousands)
Range
Weighted
Average
$
449 Market valuation of
underlying collateral
7,300 Market valuation of
underlying collateral
9,972 Market valuation of
underlying collateral
(1) Adjustments to reflect current
(2)
6.93%
6.93 %
conditions/selling costs
(1) Adjustments to reflect current
(2)
6% - 9%
7.78 %
conditions/selling costs
(1) Adjustments to reflect current
(2)
9% - 16%
11.78 %
conditions/selling costs
Total
$ 17,721
Other real estate owned, net:
Nonresidential
$ 12,956 Market valuation of
underlying collateral
(3) Adjustments to reflect current
(2)
4.00%
4.00 %
conditions/selling costs
Total
$ 12,956
Collateral dependent loans:
Residential mortgage
Multi-family mortgage
Nonresidential mortgage
Fair
Value
Valuation
Techniques
June 30, 2022
Unobservable
Input
(Dollars in Thousands)
Range
Weighted
Average
$ 2,035 Market valuation of
underlying collateral
7,517 Market valuation of
underlying collateral
11,479 Market valuation of
underlying collateral
(1) Adjustments to reflect current
(2)
7% - 10%
8.97 %
conditions/selling costs
(1) Adjustments to reflect current
(2)
10% - 12%
11.06 %
conditions/selling costs
(1) Adjustments to reflect current
(2)
9% - 18%
12.72 %
conditions/selling costs
Total
$ 21,031
Other real estate owned, net:
Residential
Total
$
$
178 Market valuation of
underlying collateral
178
(3) Adjustments to reflect current
(2)
6.00%
6.00 %
conditions/selling costs
________________________________________
(1) The fair value basis of collateral dependent 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 loans and other real estate owned is adjusted to reflect management estimates of selling costs
including, but not limited to, real estate brokerage commissions and title transfer fees.
(3) The fair value basis 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.
At June 30, 2023, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $21.0
million and valuation allowance of $3.3 million reflecting an aggregate fair value of $17.7 million. By comparison, at June 30,
2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $24.6 million and
valuation allowances of $3.6 million reflecting an aggregate fair value of $21.0 million.
F-69
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18 – Fair Value of Financial Instruments (continued)
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 June 30, 2023 and 2022, the Company held other real estate owned totaling
$13.0 million and $178,000, respectively, whose carrying value was written down utilizing Level 3 inputs.
The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial
instruments as of June 30, 2023 and 2022:
June 30, 2023
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In Thousands)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
$
70,515 $
70,515 $
70,515 $
— $
Investment securities available for sale
1,227,729
1,227,729
Investment securities held to maturity
Loans held-for-sale
Net loans receivable
FHLB Stock
Interest receivable
Interest rate contracts
146,465
9,591
131,169
9,442
5,780,687
5,261,808
71,734
28,133
71,624
—
28,133
71,624
—
—
—
—
—
14
—
1,227,729
131,169
9,442
—
—
8,924
71,624
Financial liabilities:
Deposits
Certificates of deposits
Borrowings
Interest payable on deposits
Interest payable on borrowings
3,611,632
2,017,551
1,506,812
6,826
5,282
3,611,632
1,989,434
1,498,920
6,826
5,282
3,611,632
—
—
1,933
—
—
—
—
—
—
—
—
—
—
5,261,808
—
19,195
—
—
1,989,434
1,498,920
4,893
5,282
F-70
Note 18 – Fair Value of Financial Instruments (continued)
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2022
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
(In Thousands)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
$
101,615 $
101,615 $
101,615 $
— $
Investment securities available for sale
1,344,093
1,344,093
Investment securities held to maturity
Loans held-for-sale
Net loans receivable
FHLB Stock
Interest receivable
Interest rate contracts
118,291
28,874
108,118
28,831
5,370,787
5,215,079
47,144
20,466
41,223
—
20,466
41,223
—
—
—
—
—
2
—
1,344,093
108,118
28,831
—
—
5,210
41,223
Financial liabilities:
Deposits
Certificates of deposits
Borrowings
Interest payable on deposits
Interest payable on borrowings
3,972,694
1,889,562
901,337
722
1,611
3,972,694
1,866,341
900,505
722
1,611
3,972,694
—
—
147
—
—
—
—
—
—
—
—
—
—
5,215,079
—
15,254
—
—
1,866,341
900,505
575
1,611
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.
F-71
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 19 – Comprehensive Income
The components of accumulated other comprehensive (loss) income included in stockholders’ equity are as follows:
Net unrealized loss on securities available for sale
$
(156,138) $
(118,031)
June 30,
2023
2022
(In Thousands)
Tax effect
Net of tax amount
Fair value adjustments on derivatives
Tax effect
Net of tax amount
Benefit plan adjustments
Tax effect
Net of tax amount
45,018
(111,120)
58,414
(16,940)
41,474
268
(78)
190
34,104
(83,927)
39,805
(11,542)
28,263
(89)
26
(63)
Total accumulated other comprehensive loss
$
(69,456) $
(55,727)
Other comprehensive (loss) income and related tax effects are presented in the following table:
Years Ended June 30,
2023
2022
2021
(In Thousands)
Net unrealized loss on securities available for sale
$
(53,334) $
(128,601) $
(11,704)
Net realized loss (gain) on securities available for sale (1)
15,227
559
(767)
Fair value adjustments on derivatives
18,609
40,117
19,106
Benefit plans:
(Accretion) amortization of actuarial (gain) loss (2)
Net actuarial gain
Net change in benefit plan accrued expense
Other comprehensive (loss) income before taxes
Tax effect
(24)
381
357
80
924
1,004
(19,141)
(86,921)
5,412
25,050
Total other comprehensive (loss) income
$
(13,729) $
(61,871) $
________________________________________
83
236
319
6,954
(2,067)
4,887
(1) Represents amounts reclassified out of accumulated other comprehensive (loss) income and included in gain on sale of securities on the
Consolidated Statements of Income.
(2) Represents amounts reclassified out of accumulated other comprehensive (loss) income and included in the computation of net periodic
pension expense. See Note 13 – Benefit Plans for additional information.
F-72
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 20 – Revenue Recognition
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income.
The following table presents the Company’s sources of noninterest income for the years ended June 30, 2023, 2022 and 2021.
Sources of revenue outside the scope of ASC 606 are noted as such.
Non-interest income:
Deposit-related fees and charges
Loan-related fees and charges (1)
(Loss) gain on sale and call of securities (1)
(Loss) gain on sale of loans (1)
(Loss) gain on sale of other real estate owned
Income from bank owned life insurance (1)
Electronic banking fees and charges (interchange income)
Bargain purchase gain (1)
Miscellaneous (1)
Years Ended June 30,
2023
2022
2021
(In Thousands)
$
1,881 $
1,733 $
1,412
1,225
(15,227)
(1,645)
(139)
8,645
1,759
—
6,252
847
(559)
2,539
5
6,167
1,626
—
1,576
485
767
5,574
—
6,267
1,717
3,053
1,751
Total non-interest income
$
2,751 $
13,934 $
21,026
________________________________________
(1) Not within the scope of ASC 606.
A description of the Company’s revenue streams accounted for under ASC 606 is as follows:
Service Charges on Deposit Accounts
The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-
based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are
recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request. Account
maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period
over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft
occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Gains/Losses on Sales of OREO
The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally
occurs at the time of an executed deed. Gain/Losses on the sales of OREO falls within the scope of ASC 606, if the Company
finances the transaction. Under ASC 606, if the Company finances the sale of OREO to the buyer, the Company is required to
assess whether the buyer is committed to perform their obligations under the contract and whether the collectability of the
transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded
upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the
transaction price and related gain (loss) on sale if a significant financing component is present. Generally, the Company does not
finance the sale of OREO properties.
Interchange Income
The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks.
Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided
by an outsourced technology solution.
F-73
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 21 – Parent Only Financial Information
Kearny Financial Corp. operates its wholly owned subsidiary Kearny Bank and the Bank’s wholly-owned subsidiaries CJB
Investment Corp. and 189-245 Berdan Avenue LLC. The consolidated earnings of the subsidiaries are recognized by the
Company using the equity method of accounting. Accordingly, the consolidated earnings of the subsidiaries are recorded as
increases in the Company’s investment in the subsidiaries. The following are the condensed financial statements for Kearny
Financial Corp. (Parent Company only) as of June 30, 2023 and 2022, and for each of the years in the three-year period ended
June 30, 2023.
Condensed Statements of Financial Condition
Assets
June 30,
2023
2022
(In Thousands)
Cash and amounts due from depository institutions
$
48,839 $
Loans receivable
Investment in subsidiary
Other assets
Total Assets
Liabilities and Stockholders' Equity
Other liabilities
Stockholders' equity
Total Liabilities and Stockholders' Equity
26,384
794,080
827
77,750
28,201
788,021
448
$
870,130 $
894,420
846
869,284
$
870,130 $
420
894,000
894,420
Condensed Statements of Income and Comprehensive Income
Dividends from subsidiary
Interest income
Equity in undistributed earnings of subsidiaries
Total income
Directors' compensation
Other expenses
Total expense
Income before income taxes
Income tax expense
Net income
Comprehensive income
Years Ended June 30,
2023
2022
(In Thousands)
2021
$
26,282 $
1,749
156,728 $
1,508
178,918
1,993
(88,452)
(114,969)
69,784
65,942
14,912
42,943
532
1,715
2,247
40,696
530
1,976
2,506
67,278
308
2,660
2,968
62,974
(259)
63,233
68,120
(115)
40,811 $
27,082 $
(269)
67,547 $
5,676 $
$
$
F-74
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 21 – Parent Only Financial Information (continued)
Condensed Statements of Cash Flows
Cash Flows from Operating Activities:
Net income
Adjustment to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net Cash Provided by Operating Activities
Years Ended June 30,
2023
2022
(In Thousands)
2021
$
40,811 $
67,547 $
63,233
(14,912)
88,452
114,969
(379)
271
25,791
176
(184)
484
160
155,991
178,846
Cash Flows from Investing Activities:
Repayment of loan to ESOP
Proceeds from the maturity of investment securities available for sale
Outlays for business acquisitions
Other, net
1,817
—
—
—
1,758
15,000
—
—
Net Cash Provided by (Used in) Investing Activities
1,817
16,758
1,702
—
(9,008)
118
(7,188)
Cash Flows from Financing Activities:
Exercise of stock options
Cash dividends paid
—
—
373
(28,499)
(30,693)
(28,648)
Repurchase and cancellation of common stock of Kearny Financial Corp.
(27,558)
(129,520)
(119,021)
Cancellation of shares repurchased on vesting to pay taxes
Net Cash Used In Financing Activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
(462)
(977)
(803)
(56,519)
(161,190)
(148,099)
(28,911)
77,750
11,559
66,191
$
48,839 $
77,750 $
23,559
42,632
66,191
F-75
KEARNY FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 22 – Net Income per Common Share (EPS)
Basic EPS is based on the weighted average number of common shares actually outstanding, including both vested and unvested
restricted stock awards, adjusted for ESOP shares not yet committed to be released. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock, such as outstanding stock options or unvested RSUs, were
exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the
Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include
the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury
stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.
The following schedule shows the Company’s earnings per share calculations for the periods presented:
For the Year Ended June 30,
2023
2022
2021
(In Thousands, Except Per Share Data)
Net income
$
40,811 $
67,547 $
63,233
Weighted average number of common shares outstanding - basic
Effect of dilutive securities
Weighted average number of common shares outstanding- diluted
64,804
—
64,804
70,911
22
70,933
82,387
4
82,391
Basic earnings per share
Diluted earnings per share
$
$
0.63 $
0.63 $
0.95 $
0.95 $
0.77
0.77
Stock options for 2,983,530, 3,115,000 and 3,246,138 shares of common stock were not considered in computing diluted earnings
per share at June 30, 2023, 2022 and 2021, respectively, because they were considered anti-dilutive. In addition, 497,664 and
251,905 RSUs were not considered in computing diluted earnings per share at June 30, 2023 and 2022, respectively, because they
were considered anti-dilutive.
F-76
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: August 25, 2023
KEARNY FINANCIAL CORP.
/s/ Craig L. Montanaro
By: Craig L. Montanaro
President and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on August 25, 2023 on behalf of the Registrant and in the capacities indicated.
/s/ Craig L. Montanaro
Craig L. Montanaro
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Keith Suchodolski
Keith Suchodolski
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Theodore J. Aanensen
Theodore J. Aanensen
Director
/s/ Curtland E. Fields
Curtland E. Fields
Director
/s/ Catherine A. Lawton
Catherine A. Lawton
Director
/s/ Joseph P. Mazza
Joseph P. Mazza
Director
/s/ Leopold W. Montanaro
Leopold W. Montanaro
Director
/s/ Charles J. Pivirotto
Charles J. Pivirotto
Director
/s/ Melvina Wong-Zaza
Melvina Wong-Zaza
Director
/s/ Raymond E. Chandonnet
Raymond E. Chandonnet
Director
/s/ John N. Hopkins
John N. Hopkins
Director
/s/ John J. Mazur, Jr.
John J. Mazur, Jr.
Director
/s/ John F. McGovern
John F. McGovern
Director
/s/ Christopher Petermann
Christopher Petermann
Director
/s/ John F. Regan
John F. Regan
Director
L
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O
REHOLDERS
BOARD OF DIRECTORS
John J. Mazur, Jr.
Chairman
Craig L. Montanaro
President/Chief Executive Officer
Theodore J. Aanensen
Raymond E. Chandonnet
Curtland E. Fields
John N. Hopkins
KEARNY OFFICERS
EXECUTIVE LEADERSHIP
Craig L. Montanaro*
President/Chief Executive Officer
Keith Suchodolski*
Senior Executive Vice President
Chief Financial Officer
Sean Byrnes*
Executive Vice President
Deputy Chief Financial Officer
Anthony V. Bilotta, Jr.*
Executive Vice President
Chief Banking Officer
Thomas D. DeMedici*
Executive Vice President
Chief Credit Officer
Catherine A. Lawton
Dr. Joseph P. Mazza
John F. McGovern
Leopold W. Montanaro
Christopher Petermann
Charles J. Pivirotto
John F. Regan
Melvina Wong-Zaza
John V. Dunne*
Executive Vice President
Chief Risk Officer
Patrick M. Joyce*
Executive Vice President
Chief Lending Officer
Erika K. Parisi*
Executive Vice President
Chief Administrative Officer
Timothy A. Swansson*
Executive Vice President
Chief Technology and
Innovation Officer
SENIOR VICE PRESIDENTS
Redwan Ahmed
Director of Information Technology
Gail Corrigan*
Corporate Secretary
Jack D. Anastasi
Director of Government
and Vertical Banking
Jeffrey Apostolou
Director of Residential Lending
Cassia J. Beierle, Esq.
General Counsel
Gary F. Brozowski
Director of Commercial RE Lending
Timothy Green
Cyber Defense Officer
Kenneth Helmrich
BSA/OFAC Officer
Matthew Lindenberg
Chief Marketing Officer
Cheryl L. Lyons
Loan Servicing
Assistant Secretary
FIRST VICE PRESIDENTS
Andrew Antanaitis
Special Assets Manager
Daniel Benker
Facilities and
Administrative Services
Lynn Carnevale
Assistant Secretary
Grace Cruz-Beyer
Portfolio Risk Manager
Janet DeSiano
Senior Marketing Manager
Gina Donohue
Mortgage Underwriter
Assistant Secretary
Jacqueline Gibbs
Fair Lending Officer
Jennifer Hawley
Retail Administrative Officer
Michael Healy
Security Officer
Donald Jacquin
Commercial RE Team Leader South
Earl Jornadal
Project and Vendor
Management Services
Robert Kusant
Director of Internal Audit
Kimberly T. Manfredo
Director of Human Resources
Assistant Secretary
Veronica Ross
Director of Diversity,
Equity and Inclusion
Marianne McGoldrick
Senior Credit Officer
Christopher Rozewski
Director of Data Analytics
Robert L. Melchionne
Director of C&I Lending
Janine M. Specht
Director of Digital Banking
Frank A. Milley
Chief Investment Officer
Treasurer
Heather Moskal
Director of Retail
and Commercial Deposits
Johanna Maggiore
Loan Originations
Michael Mangione
Retail Sales and
Development Leader
Dawn Marcano
Private Client Manager
Suzanne Marcialis
Controller
Silvia Merino-Topley
Chief Compliance Officer
Lisa Pontrelli
Assistant Secretary
Michael Valente
Risk Officer
Mary E. Webb
Director of Retail
and Deposit Operations
Michael Reilly
Director of Investment Services
Kenneth Stevenson
Commercial RE Team Leader North
Jennifer Treshock
Operations
*Officer of Kearny Financial Corp.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders of Kearny Financial Corp. will be a virtual meeting conducted via webcast only on Thursday, October 26, 2023 at 10:00 a.m., Eastern Time. To be
admitted, please visit: https://meetnow.global/M7L7GP7. To join the meeting as a registered stockholder you must enter the control number found on your proxy card, notice or proxy
material notification email. Stockholders who own shares through an intermediary, such as a bank or broker, and wish to join the meeting, should follow the instructions on how to
attend the virtual annual meeting that are included in our proxy statement.
STOCK LISTING
The common stock is traded over-the-counter on the NASDAQ Global Select Market under the ticker symbol KRNY. As of August 28, 2023, the closing price of the KRNY common stock was $7.44.
Shareholder Inquiries:
Taryn Rockwell
Shareholder Relations Liaison
Assistant Secretary
(973) 244-4503
trockwell@kearnybank.com
Capital Market Inquiries:
Keith Suchodolski
Senior Executive Vice President
Chief Financial Officer
(973) 244-4034
ksuchodolski@kearnybank.com
Auditor
Crowe LLP
354 Eisenhower Parkway, Suite 2050
Livingston, NJ 07039
Legal Counsel
Luse Gorman, PC
Transfer Agent
Computershare Investor Services
P.O. Box 43006
Providence, RI 02940-3006
(800) 368-5948
Number of Shares
Outstanding
As of August 28, 2023
Kearny Financial Corp.
had 65,145,639 shares
of common stock
outstanding.
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120 Passaic Avenue
Fairfield, NJ 07004
NASDAQ - KRNY
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UAL REPORT 2023