UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)

For the Fiscal Year Ended June 30, 20152018

or

For the transition period from             to             

Commission File Number: 001-37399

KEARNY FINANCIAL CORP.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (973) 244-4500

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

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.  o☒  YES    x☐  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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x☒  YES    o☐  NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x☒

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

Emerging growth company     ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 31, 20142017 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $187.3 million.$1.02 billion.  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 September 4, 2015August 20, 2018 there were outstanding 93,528,09298,243,200 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

KEARNY FINANCIAL CORP.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended June 30, 20152018

INDEX

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PARPARTT I

Item 1. Business

Forward-Looking Statements

This Annual Report 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:

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:

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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 was incorporated on September 2, 2014.  Kearny Financial is the holding company for Kearny Bank (the “Bank” or “Kearny Bank”), a federally‑nonmember New Jersey stock savings bank.  The Bank converted its charter to that of a New Jersey savings bank on June 29, 2017 having previously been chartered as a federally chartered stock savings bank.

On May 18, 2015, the Company completed its second-step conversion and stock offering through which it converted from the mutual holding company structure to a fully publicly held company.  In conjunction with that transaction, the Company sold 71,750,000 shares of its common stock at $10.00 per share, resulting in gross proceeds of $717.5 million.  The new shares issued included 3,612,500 shares sold to the Bank’s Employee Stock Ownership Plan (“ESOP”) with an aggregate value of $36.1 million based on the sales price of $10.00 per share.  Concurrent with the closing of the transaction, the Company also issued an additional 500,000 shares of its common stock with an aggregate value of $5.0 million and contributed these shares with an additional $5.0 million in cash to the KearnyBank Foundation.

The Company recognized direct stock offering costs of $10.7 million in conjunction with the transaction which reduced the net proceeds credited to capital.  After adjusting for transaction costs and the value of the shares issued to the Bank’s ESOP, the Company recognized a net increase in equity capital of $670.7 million, of which $353.4 million was contributed to the Bank by the Company as an additional investment in the Bank’s common equity.  Approximately $34.5 million of new capital proceeds were funded through withdrawals of existing customer deposits previously held by the Bank.

Each outstanding share held by the public stockholders of Kearny Financial Corp., a federal corporation, immediately prior to the closing of the conversion and stock offering was converted into 1.3804 shares of the Company’s new common stock while the shares previously held by Kearny MHC, the former mutual holding company, were cancelled concurrent with the closing of the transaction.

At June 30, 2015, the Company had 93,528,092 shares outstanding, comprising 71,750,000 new shares sold in the stock offering, 500,000 new shares issued to the KearnyBank Foundation and 21,278,092 exchanged shares, as adjusted for the cash settlement of fractional shares.  As a result of the completion of the second-step conversion and stock offering, all historical share and per share information has been revised to reflect the 1.3804-to-one exchange ratio.  At June 30, 2018, the Company had 99,626,400 shares outstanding.

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 OfficeNew Jersey Department of Banking and Insurance (“NJDBI”) and, as a nonmember bank, the Comptroller of the Currency (“OCC”).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 in New Jersey and New York and using these deposits, together with other funds, to originate or purchase loans for its portfolio and invest in securities.  Our loan portfolio is primarily comprised of loans collateralized by residentialcommercial and commercialresidential 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, U.S. government and agency debentures, bank-qualified municipal obligations, corporate bonds, asset-backed securities, and collateralized loan obligations.  The Bank maintains a small balance of single issuer trust preferred securitiesobligations and non-agency mortgage-backed securities which were acquired through the Company’s purchase of other institutions and does not actively purchase such securities.subordinated debt.

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At June 30, 2015,2018, net loans receivable comprised 49.3%67.9% of our total assets while investment securities, including mortgage‑backed and non-mortgage-backed securities, comprised 33.8%20.0% of our total assets.  By comparison, at June 30, 2014,2017, net loans receivable comprised 49.3 %66.7% of our total assets while securities comprised 38.7%23.0% of our total assets.  A significant long termlong-term goal of our business plan iscontinues to reallocatebe the reallocation of our balance sheet to reflect a greater percentage of interest-earning assets toin loans while in turn, reducing the relative size of the securities portfolio.  The composition and volume of loan originations and purchases during fiscal 2015 reflected that strategic focus as we increased our commercial loan origination and support staff and expanded relationships with loan participants and other external loan origination resources.

We operate from our administrative headquarters in Fairfield, New Jersey and had 4254 branch offices as of June 30, 2015.  Our internet address is2018. 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 practical 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 “Company Info” tab at the Company’s website. Information on ourthe Company’s website is not and should not be considered to bea part of this report.Annual Report on Form 10-K.

Acquisition of Clifton

3On April 2, 2018, the Company completed its acquisition of Clifton Bancorp Inc. (“Clifton”), the parent company of Clifton Savings Bank, a federally chartered stock savings bank.  In conjunction with the acquisition, the Company acquired assets with aggregate fair values totaling $1.61 billion including loans and securities with fair values of $1.12 billion and $326.9 million, respectively.  The Company assumed liabilities with aggregate fair values totaling $1.38 billion in conjunction with the Clifton acquisition including deposits and borrowings with fair values of $949.8 million and $414.1 million, respectively.

Merger consideration associated with the acquisition totaled $333.9 million and primarily comprised 25.4 million shares of the Company’s common stock valued at $330.7 million that were issued to Clifton stockholders to reflect an exchange of 1.191 of Company shares for each outstanding share of Clifton common stock at the time of closing.  Merger consideration also included $3.2 million in cash distributed to eligible holders of outstanding options to purchase Clifton stock as well as cash distributed to Clifton stockholders for the settlement of fractional shares.  The amount by which merger consideration exceeds the fair value of net assets acquired resulted in the Company’s recognition of $102.3 million in goodwill associated with the Clifton acquisition.

Business Strategy

Our goal is to continue to evolve from a traditional thrift business model toward that of a full service community bank, profitably deploying capital and enhancing earnings through a variety of balance sheet growth and diversification strategies. The key strategic initiatives of our business plan are presented below accompanied by an overview of our activities and achievements in support of those initiatives:

During fiscal 2015, we increased2018, our commercial mortgage loan portfolio, including multi-family and nonresidential mortgage loans, increased by 33.1%22.6%, or $325.3$563.9 million, to $1.31$3.06 billion at June 30, 20152018 from $983.8 million$2.50 billion at June 30, 2014.2017. This increase reflected commercial mortgage loan originations and purchases in fiscal 20152018 totaling $290.9$458.8 million. Additionally, we acquired commercial mortgage loans with fair values totaling approximately $397.0 million and $136.1 million, respectively.pursuant to our acquisition of Clifton. At June 30, 2015,2018, our commercial mortgage loan portfolio comprised 62.3%67.0% of total loans compared to 56.4%77.0% of total loans at June 30, 2014.2017.

We plan to continue to increase our portfolio of commercial mortgage loans by expanding loan acquisition volumecontinuing to acquire loans through all available channels, including retail and broker originations, as well aswhich may be supplemented with individual and pooled loan purchases and participations.  Additionally, we intend to continue to expand our commercial lending infrastructure and resources, which will be supported by new product and pricing strategies designed to increase origination volume in a very competitive marketplace.

We plan to continue to focus our efforts on expanding our commercial non-real estate secured and unsecured business lending activities through all available channels. During fiscal 2015,2018, our commercial business loans increasedloan origination and purchase volume totaled $54.2 million, reflecting retail originations of $25.9 million augmented by $32.2 million, to $99.5 million at June 30, 2015 compared to $67.3 million at June 30, 2014.  We anticipate this loan segment to increase in the future. In addition, we will attempt to expand our relationships with these borrowers to include commercial deposits and other products, with the goal of increasing our non-interest income.

During fiscal 2015, we continued to augment our commercial business lending resources including hiring a senior Small Business Administration (“SBA”) lending officer dedicated to that function as well as hiring additional administrative resources to support an anticipated increase in SBA lending volume. Additionally, we augmented our retail commercial business lending strategies during fiscal 2015 with additional resources and strategies focused on the acquisition of commercial and industrial (“C&I”) loans through wholesale channels.channels totaling $28.3 million. Additionally, we acquired commercial business loans with fair values totaling approximately $5.4 million pursuant to our acquisition of Clifton.

Through these strategies,We continued the realignment and expansion of our commercial business lending infrastructure during fiscal 2018 which contributed to a modest increase in aggregate commercial business loan origination and purchase volume for the year.  As a result of those enhancements, we anticipate anthat the outstanding balance of this loan segment will continue to increase in the level of non-interest income through greater gains on sale of SBA loan originationsfiscal 2019 and other business loan-related fee income. Moreover, the expandedthereafter.  Our business lending strategies are expectedwill continue to be undertaken within a larger set of strategic

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initiatives designed to promote other business banking services intended to increase commercial deposit balances and services.services and the associated increase in the level of non-interest income recognized in conjunction with those business customer relationships.

We plan to modestly increase the outstanding balance of our portfolio ofresidential mortgage loans, including one- to four-family first mortgages while stabilizing the balance ofmortgage loans and home equity loans and home equity lines of credit, andwhile generally maintaining our conservative underwriting standards. During fiscal 2015, our portfoliothe allocation of such loans as a percentage of the total loan portfolio.  Notwithstanding, a significant portion of one- to four-family first mortgage loans originated will continue to be sold into the secondary market, as discussed below.  During fiscal 2018, our aggregate portfolio of one- to four-family mortgage loans increased by $3.8$738.1 million to $684.0 million$1.39 billion, or 32.5%30.4% of total loans, from $680.2$650.1 million or 39.0%20.1% of total loans at June 30, 2014.  We2017.  During the year ended June 30, 2018, we originated and purchased $78.2$53.0 million and $55.9$26.3 million, respectively, of one- to four-family first mortgage loans held in portfolio.  Additionally, we acquired residential mortgage loans totaling approximately $713.9 million pursuant to our acquisition of Clifton.

We plan to expand and enhance our residential mortgage lending infrastructure to support the continuing origination of residential mortgage loans for sale into the secondary market.  Our mortgage banking business strategy resulted in the recognition of $742,000 in gains on the sale of $78.8 million of mortgage loans held for sale during the year ended June 30, 20152018, compared to $78.2recorded gains of $713,000 on the sale of $84.4 million and $22.4 million, respectively,of mortgage loans during the year ended June 30, 2014.

The overall stability in the outstanding balance of the2017.  We anticipate that residential mortgage loan portfolioorigination and more significantly, its decline as a percentage of total loans, continues to reflect our decreased strategic focus on residential mortgage lending.  We anticipate that this segment of our loan portfoliosale activity will continue to declinesupport long-term growth in our non-interest income through the recognition of recurring loan sale gains, while also serving to help manage the Company’s exposure to interest rate risk through the sale of longer-duration, fixed-rate loans into the secondary market.

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Loan Maturity Schedule.  The following table sets forth the maturities of our loan portfolio at June 30, 2015. 2018.  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.

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The following table shows the dollar amount of loans as of June 30, 20152018 due after June 30, 20162019 according to rate type and loan category.

One- to Four-Family Mortgage Loans.   Our lending activities include the origination of one- to four-family first mortgage loans, of which approximately $565.2 million or 95.4% are secured by properties located within New Jersey and New York as of June 30, 2015 with the remaining $27.1 million or 4.6% secured by properties in other states.  Our largest outstanding balance at that date was $1.8 million, which was secured by a residential property located in Little Silver, New Jersey and was performing in accordance with its terms.

During the year ended June 30, 2015, Kearny Bank originated $51.3 million of one- to four-family first mortgage loans compared to $78.2 million in the year ended June 30, 2014.  To supplement loan originations, we also purchased one- to four-family first mortgages totaling $55.9 million during the year ended June 30, 2015, compared to $22.4 million during the year ended June 30, 2014.

The balance of one- to four-family mortgage loans at June 30, 2015 and 2014 included a small portfolio of Non-Income Verification (“NIV”) loans that were originated by Atlas Bank prior to 2011.  Atlas’ NIV loan program did not require the borrower to provide full financial documentation upon application.  As such, Atlas Bank relied solely on the loan-to-value ratio of the property and the borrower’s credit when approving an application under this program.  The NIV program was terminated by Atlas Bank in 2011. The NIV loans acquired from Atlas Bank had outstanding balances of approximately $15.9 million at June 30, 2015.  All of the NIV loans acquired from Atlas Bank on that date were current and performing as agreed with the exception of one loan with an outstanding balance of approximately $283,000, for which principal and interest are current but certain real estate taxes are delinquent.

In total, origination and purchase volume of one- to four-family mortgage loans outpaced loan repayments during fiscal 2015 resulting in a net increase in the outstanding balance of this segment of the loan portfolio.  Our business plan calls for generally maintaining a reduced strategic emphasis on one- to four-family mortgage lending by modestly increasing the outstanding balance of this segment of the portfolio but reducing its basis as a percentage of total assets.

We will originate a one- to four-family mortgage loan on an owner-occupied property with a principal amount of up to 95% of the lesser of the appraised value or the purchase price of the property, with private mortgage insurance required if the loan-to-value ratio exceeds 80%. At June 30, 2015, our one- to four-family mortgage loan portfolio was primarily comprised of loans secured by owner-occupied properties.  Our loan-to-value limit on a non-owner-occupied property is 75%.  Loans in excess of $1.0 million are handled on a case-by-case basis and are subject to lower loan-to-value limits, generally no more than 50%.

Our fixed-rate and adjustable-rate residential mortgage loans on owner-occupied properties have terms of ten to 30 years.  Residential mortgage loans on non-owner-occupied properties have terms of up to 15 years for fixed-rate loans and terms of up to 20 years for adjustable-rate loans.

Our adjustable-rate loan products provide for an interest rate that is tied to the one-year Constant Maturity U.S. Treasury index and have terms of up to 30 years with initial fixed-rate periods of one, three, five, seven, or ten years according to the terms of the loan and annual rate adjustment thereafter. We also offer an adjustable-rate loan with a term of up to 30 years with a rate that adjusts every five years to the five-year Constant Maturity U.S. Treasury index.  There is a 200 basis point limit on the rate adjustment in any adjustment period and the rate adjustment limit over the life of the loan is 600 basis points.

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The Dodd-Frank Act prohibits lenders from making residential mortgages unless the lender makes a reasonable and good faith determination that the borrower has a reasonable ability to repay the mortgage loan according to its terms. A borrower may recover statutory damages equal to all finance charges and fees paid within three years of a violation of the ability-to-repay rule and may raise a violation as a defense to foreclosure at any time. As authorized by the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) has adopted regulations defining “qualified mortgages” that would be presumed to comply with the Dodd-Frank Act’s ability-to-repay rules. Under the CFPB regulations, qualified mortgages must satisfy the following criteria: (i) no negative amortization, interest-only payments, balloon payments or a term greater than 30 years; (ii) no points or fees in excess of 3% of the loan amount for loans over $100,000; (iii) borrower’s income and assets are verified and documented; and (iv) the borrower’s debt-to-income ratio generally may not exceed 43%. Qualified mortgages are conclusively presumed to comply with the ability-to-repay rule unless the mortgage is a “higher cost” mortgage, in which case the presumption is rebuttable.  Kearny Bank will not grant a non-qualified mortgage loan unless such loan falls under the “temporary qualified mortgage” guidance and there were additional factors to support the exception (which may include a review of the borrower’s creditworthiness and whether a deposit relationship exists). 

We offer a first-time homebuyer program 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.  This program is also available outside these areas, but only to persons who are existing deposit or loan customers of Kearny Bank and/or members of their immediate families.  The financial incentives offered under this program are a one-eighth of one percentage point rate reduction on all first mortgage loan types and the refund of the application fee at closing.

The fixed-rate residential mortgage loans that we originate generally meet the secondary mortgage market standards of the Federal Home Loan Mortgage Corporation (“Freddie Mac”).  However, as our business plan continues to call for increasing total loans on both a dollar and percentage of assets basis, we generally do not currently sell such loans into the secondary market. However, we may consider selling longer-term, fixed-rate loan originations into the secondary market in the future for balance sheet management purposes and to expand our sources of non-interest income.

Substantially all of our residential mortgages include “due on sale” clauses, which give us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party.  Property appraisals on real estate securing our one- to four-family first mortgage loans are made by state certified or licensed independent appraisers approved by Kearny Bank’s Board of Directors.  Appraisals are performed in accordance with applicable regulations and policies.  We require title insurance policies on all first mortgage real estate loans originated.  Homeowners, liability and fire insurance and, if applicable, flood insurance, are also required.

Multi-Family and Nonresidential Real Estate Mortgage Loans.  We also originate commercial mortgage loans on multi-family and nonresidential properties, including loans on apartment buildings, retail/service properties and land as well as other income-producing properties, such as mixed-use properties combining residential and commercial space.  Our growingcontinued strategic emphasis in commercial lending resulted in the origination of approximately $290.9$458.8 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2015, compared to $334.42018. We originated $727.4 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2014.  Our largest outstanding commercial2017.  Additionally, we acquired multi-family and nonresidential real estate mortgage loan balance at June 30, 2015 was $19.9loans with fair values totaling approximately $397.0 million which is secured by a multi-family apartment building and performing in accordanceconjunction with its terms.our acquisition of Clifton.

Our commercial mortgage acquisition strategies also included purchases of whole loans and participations totaling $136.1 million and $87.0$126.7 million during the yearsyear ended June 30, 20152017.  However, there were no such purchases during fiscal 2018.  The loan purchases in fiscal 2017 were funded during the first quarter ended September 30, 2016 and 2014, respectively.reflected the deployment of excess liquidity that had accumulated through June 30, 2016 due to an increase in loan prepayments during the fourth quarter of fiscal 2016.

In total, commercial mortgage loan acquisition volume, significantlyincluding the loans acquired in conjunction with the Clifton acquisition, outpaced loan repayments during fiscal 20152018, resulting in the reported net increase in the outstanding balance of this segment of the loan portfolio.  Our business plan continues to call for maintaining our strategic emphasis on commercial mortgage lending by increasing this segment of the portfolio on both a dollar andbasis while maintaining its basis as a percentage of assets basis.total loans.

We generally require no less than a 25% down payment or equity position for mortgage loans on multi-family and nonresidential properties.  For such loans, we generally require personal guarantees.guarantees.  However, the Bank may consider multi-family and nonresidential real estate mortgages for approval on a non-personally guaranteed (non-recourse) basis when the overall strengths of a proposed loan asset sufficiently mitigates the risk of exculpating the principal owners from their personal guarantee. In such cases, the Bank generally requires borrowers to execute an indemnification agreement which personally obligates those individuals in the circumstances of fraud, negligence, environmental issues, improper conveyance, condemnation, bankruptcy or other additional provisions deemed appropriate by the Bank.

We generally offer fixed-rate and adjustable-rate balloon mortgage loans on multi-family and non-residential properties with final stated maturities ranging from five to twelve years and initial interest rate reset terms ranging from five to seven years, where applicable.  Our balloon mortgage loans within this category generally have payments based on amortization terms from 25 to 30 years.  We also offer fully amortizing fixed-rate and adjustable-rate mortgage loans on multi-family and non-residential properties

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with terms up to 25 years.  Our commercial mortgage loans are primarily secured by properties located in New Jersey and New York and, to a lesser extent, properties located in eastern Pennsylvania.

Commercial mortgage loans are generally considered to entail a greater level of risk than that which arises from one- to four-family, owner-occupied real estate lending.  The repayment of these loans typically is dependent on a successful operation and income stream of the borrower and the real estate securing the loan as collateral.  These risks can be significantly affected by economic conditions.  In addition, commercial mortgage loans to single borrowers or related groups of borrowers generally carry larger balances than one- to four-family mortgage loans.  Consequently, such loans typically require substantially greater evaluation and oversight efforts compared to residential real estate lending.

Commercial Business Loans.  We also originate commercial term loans and lines of credit to a variety of professionals, sole proprietorships and small businesses in our market area includingarea.  Our business loan products include our Small Business Express Loan, which offers customers a simplified and expedited application and approval process for term loans and lines of credit up to $100,000, as well as loans originated through the SBA in which Kearny Bank participates as a Preferred Lender.  Kearny BankWe originated approximately $20.0$25.9 million of commercial business loans during the year ended June 30, 20152018 compared to $24.1$34.1 million during the year ended June 30, 2014.  Of the loans2017.  Additionally, we originated, our largest outstandingacquired commercial business loan balance at June 30, 2015 was $6.0loans with fair values totaling approximately $5.4 million which was secured by a hotel.  This loan was performing in accordance with its original terms at June 30, 2015.our acquisition of Clifton.

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Our commercial business loan acquisition strategies included purchases of wholesale C&I loan participations totaling $41.0$28.3 million and $4.9$17.0 million during the years ended June 30, 20152018 and 2014,2017, respectively.  Our C&I loan participations at June 30, 20152018 included 2124 loans with an outstanding balance of $41.7$35.3 million.  These participations includedwere comprised entirely of our pro rata interest in 17 loans totaling $25.1 million representing the obligations of 1316 separate commercial borrowers that were acquired through Kearny Bank’s membership in BancAlliance, a cooperative network of lending institutions that serves as a conduit for institutional investors to participate in middle-market commercial credits.  The BancAlliance network is supported and managed on a day-to-day basis by Alliance Partners and its wholly-owned subsidiary AP Commercial LLC which acts as investment advisor and asset manager for loans acquired through the BancAlliance network while retaining a portion of such loans as an investor.  At June 30, 2014,2017, our BancAllianceC&I loan participations had an outstanding balance of $4.9$27.4 million representing our pro rata interest in four13 loans.

Our C&I participations at June 30, 2015 also included four additional loans purchased during fiscal 2015 through the broadly syndicate commercial loan market.  Such loans had an aggregate outstanding balance of $16.6 million at June 30, 2015 representing the obligations of three separate commercial borrowers that are generally rated by independent, third-party credit rating agencies.

Our largest wholesale C&I loan participation at June 30, 2015 comprised two loans to a U.S.-based global food processing company with aggregate outstanding balances totaling $9.7 million.  The loans were performing in accordance with their original loan terms at June 30, 2015 and were paid off in full in July 2015.

In total, the aggregate volume of commercial business loan acquisition volumeloans originated, purchased and acquired outpaced loan repayments and sales during fiscal 20152018 resulting in the reported net increase in the outstanding balance of this segment of the loan portfolio.  As a complementnoted earlier, we continued to realign and expand our commercial mortgage strategies, our business plan calls for expanding our strategic emphasis on the acquisitionlending infrastructure during fiscal 2018.  As a result of commercial businessthose enhancements, we anticipate this loan segment will increase as we continue to emphasize loans acquired through both retail origination channels as well as purchaseswhile diminishing the emphasis on loans and participations acquired thoughpurchased through wholesale sources withchannels.  Through these efforts, we hope to increase this segment of the goal of increasing thisloan portfolio on both a dollar basis and as a percentage of assets basis.

Our commercial business loan activity during fiscal 2015 included the sale of $1.2 million of SBA loan participations which resulted in the recognition of related sale gains totaling approximately $111,000 for the year ended June 30, 2015.  By comparison, we sold $737,000 of SBA loan participations during fiscal 2014 which resulted in the recognition of related sale gains totaling approximately $80,000.  Our business plan calls for a continued increase in SBA lending activity from the levels reported during fiscal 2015.  Toward that end, we restructured our SBA lending function during fiscal 2015 to support the expected increase in SBA loan origination and sale activity during fiscal 2016.total loans.

At June 30, 2015,2018, approximately $57.7$50.5 million or 58.0%58.9% of our commercial business loans represent loans originated through our retail channel while the remaining $41.7$35.3 million or 42.0%41.1% comprise loans acquired through the wholesale C&I loan participation channels discussed earlier.  Of the retail originated loans, approximately $51.1$43.2 million or 88.5%85.5% are “non-SBA” loans consisting of secured and unsecured loans totaling $47.4$39.6 million and $3.7$3.6 million, respectively.  We generally require personal guarantees on all “non-SBA” commercial business loans originated.  Marketable securities may also be accepted as collateral on lines of credit, but with a loan to value limit of 50%.  The loan to value limit on secured commercial lines of credit and term loans is otherwise generally limited to 70%. Unsecured commercial loans may take the form of overdraft checking authorization up to $25,000$10,000 and unsecured lines of credit up to $25,000.$100,000.  Our “non-SBA” commercial term loans generally have terms of up to 2010 years and are mostly fixed-rateadjustable-rate loans.  Our commercial lines of credit have terms of up to two yearsone year and are generally adjustable-rate loans.  We also offer a one-year, interest-only commercial line of credit with a balloon payment.

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The remaining $6.6$7.3 million or 11.5%14.5% of commercial business loans originated represent the retained portion of SBA loan originations.originations, of which approximately $688,000 is guaranteed by the SBA.  Such loans are generally secured by various forms of collateral, including real estate, business equipment and other forms of collateral.  Kearny Bank generally sells the guaranteed portion of eligible SBA loans originated, which ranges from 50% to 90% of the loan’s outstanding balance while retaining the nonguaranteed portion of such loans in portfolio.  Kearny Bank also retains both the guaranteed and non-guaranteed portion of those SBA originations that are generally ineligible for sale in the secondary market.  At June 30, 2015, approximately $1.8The Company sold $2.8 million of SBA loan participations which resulted in the retained portionrecognition of Kearny Bank’s SBA loans is guaranteed by the SBA.

Unlike single-family, owner-occupied residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans, including those originated under SBA programs, are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of fundsrelated sale gains totaling approximately $262,000 for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment.  Commercial business loans, therefore, generally have greater credit risk than residential mortgage loans.  In addition, commercial business loans may carry larger balances to single borrowers or related groups of borrowers than one- to four-family first mortgage loans.  As such, commercial business lending requires substantially greater evaluation and oversight efforts compared to residential or commercial real estate lending.

Home Equity Loans and Lines of Credit.  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.  During the year ended June 30, 2015, Kearny Bank originated $21.32018.  By comparison, we sold $9.6 million of home equity loans and home equity lines of credit compared to $29.0 millionSBA loan participations during fiscal 2017 which resulted in the year ended June 30, 2014.  However, repaymentsrecognition of home equity loans and lines of credit outpaced loan origination volume during fiscal 2015 resulting in the reported net decline in the outstanding balance of this segment of the loan portfolio.  Our largest outstanding home equity loan and line of credit balance at June 30, 2015 was $493,000, which was secured by a single family residence located in Basking Ridge, New Jersey and performing in accordance with its terms.

Collateral value is determined through a property value analysis report provided by a state certified or licensed independent appraiser.  In some cases, we determine collateral value by a full appraisal performed by a state certified or licensed independent appraiser.  Home equity loans and lines of credit do not require title insurance but do require homeowner, liability and fire insurance and, if applicable, flood insurance.

Home equity loans and fixed-rate home equity lines of credit are generally originated in our market area and are generally made in amounts of up to 80% of value on term loans and of up to 75% of value on home equity adjustable-rate lines of credit.  We originate home equity loans secured by either a first lien or a second lien on the property.

Account Loans and Other Consumer Loans.  In addition to home equity loans and lines of credit, our consumer loan portfolio primarily includes loans secured by savings accounts and certificates of deposit on deposit with Kearny Bank and overdraft lines of credit as well as vehicle loans and personal loans.  We will generally lend up to 90% of the account balance on a loan secured by a savings account or certificate of deposit.  At June 30, 2015, passbook or certificate loans totaled $4.0 million and other consumer loans totaled $292,000.  Our largest outstanding passbook or certificate loan balance was $225,000, which was secured by a certificate of deposit and performing in accordance with its terms.  At June 30, 2014, our largest other consumer loan balance at that date was $20,000, which was unsecured and performing in accordance with its terms.

Consumer loans entail greater risks than residential mortgage loans, particularly consumer loans that are unsecured.  Consumer loan repayment is dependent on the borrower’s continuing financial stability and is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. The application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on consumer loans in the event of a default.

Our underwriting standards for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment and any additional verifiable secondary income.related sale gains totaling approximately $822,000.

Construction Lending.  Our construction lending includes loans to individuals for construction of one- to four-family residences or for major renovations or improvements to an existing dwelling.  Our construction lending also includes loans to builders and developers for multi-unit buildings or multi-house projects.  At June 30, 2015,2018, construction loans totaled $5.7$23.3 million.  Our largest construction loan balance at that date was $1.3 million, which was secured by a residential property located in Oakhurst, New Jersey and performing in accordance with its terms.

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During the year ended June 30, 2015,2018, construction loan disbursements were $4.3$25.2 million compared to $3.8$3.0 million during the year ended June 30, 2014.  However, the repayment of construction loans more than offset these2017.  Construction loan disbursements outpaced repayments during fiscal 20152018 resulting in the reported net declineincrease in the outstanding balance of this segment of the loan portfolio.

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 published in the Wall Street Journal 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.  The Board of Directors reviews Kearny Bank’s business relationship with a builder or developer prior to accepting a loan application for processing.  We generally do not make construction loans to builders on a speculative basis.  There must be a contract for sale in place. Financing is provided for up to two houses at a time in a multi-house project, requiring a contract on one of the two houses before financing for the next house may be obtained.

Construction

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We continue to evaluate lending isopportunities and strategies through which we may expect to expand our construction lending activity, funding commitments and outstanding balances in the future.  If undertaken, we expect that the growth in our construction lending program will be supported by a corresponding expansion of our internal lending infrastructure and resources to support a growing number of relationships and projects with builders/borrowers.

One- to Four-Family First Mortgage Loans Held in Portfolio.  Our portfolio lending activities include the origination of one- to four-family first mortgage loans, of which approximately $1.25 billion or 96.2% are secured by properties located within New Jersey and New York as of June 30, 2018 with the remaining $49.3 million or 3.8% secured by properties in other states.

During the year ended June 30, 2018, Kearny Bank originated $53.0 million of one- to four-family first mortgage portfolio loans compared to $67.9 million in the year ended June 30, 2017.  To supplement portfolio loan originations, we also purchased one- to four-family first mortgages totaling $26.3 million during the year ended June 30, 2018, while no such loans were purchased during fiscal 2017.

One- to four-family first mortgage loan repayments generally consideredoutpaced the origination volume of such loans during fiscal 2018.  However, we acquired one- to involve a higher degreefour-family first mortgage loans with fair values totaling approximately $703.1 million in conjunction with the Clifton acquisition which resulted in the net increase in the outstanding balance of this segment of the loan portfolio during fiscal 2018.  Our business plan generally calls for increasing the aggregate balance of residential mortgage loans, including one- to four-family first mortgage loans as well as home equity loans and home equity lines of credit discussed below, on a dollar basis while maintaining the aggregate balance of such loans as a percentage of the total loan portfolio.

We will originate a one- to four-family mortgage loan on an owner-occupied property with a principal amount of up to 95% of the lesser of the appraised value or the purchase price of the property, with private mortgage insurance required if the loan-to-value ratio exceeds 80%. At June 30, 2018, our one- to four-family mortgage loan portfolio was primarily comprised of loans secured by owner-occupied properties.  Our loan-to-value limit on a non-owner-occupied property is 75%.  Loans in excess of $2.0 million are handled on a case-by-case basis and are subject to lower loan-to-value limits, generally no more than 50%.

We offer a first-time homebuyer program 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.  This program is also available outside these areas, but only to persons who are existing deposit or loan customers of Kearny Bank and/or members of their immediate families.  The financial incentives offered under this program are a one-eighth of one percentage point rate reduction on all first mortgage loan types and the refund of the application fee at closing.

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”).

Substantially all of our residential mortgages include “due on sale” clauses, which give us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party.  Property appraisals on real estate securing our one- to four-family first mortgage loans are made by state certified or licensed independent appraisers approved by Kearny Bank’s Board of Directors.  Appraisals are performed in accordance with applicable regulations and policies.  We require title insurance policies on all first mortgage real estate loans originated.  Homeowners, liability and fire insurance and, if applicable, flood insurance, are also required.

One- to Four-Family Mortgage Loans Held for Sale.  During fiscal 2018, we further expanded and enhanced our mortgage banking infrastructure to support the continued origination of one- to four-family mortgage loans for sale into the secondary market.  As above, the loans we originate for sale generally meet the same secondary mortgage market standards as those applicable to loans originated for portfolio.  Moreover, such loans are generally originated by, and sourced from, the same resources and markets as those loans originated and held in portfolio, as discussed above.

As noted earlier, our mortgage banking business strategy resulted in the recognition of $742,000 in gains associated with the sale of $78.8 million of mortgage loans held for sale during the year ended June 30, 2018.  As of that date, an additional $863,000 of loans were held and committed for sale into the secondary market.  As noted earlier, we anticipate that residential mortgage loan origination and sale activity will continue to support long-term growth in our non-interest income through the recognition of recurring loan sale gains, while also serving to help manage the Company’s exposure to interest rate risk thanthrough the sale of longer-duration, fixed-rate loans into the secondary market.  However, the volume of such originations and sales is likely to reflect variations in the levels of consumer demand for refinancing which generally moves inversely with movements in longer-term market interest rates.

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Home Equity Loans and Lines of Credit.  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.  During the year ended June 30, 2018, Kearny Bank originated $20.2 million of home equity loans and home equity lines of credit compared to $18.5 million in the year ended June 30, 2017. Repayments of home equity loans and lines of credit generally outpaced loan origination volume during fiscal 2018.  However, the Company acquired home equity loans and lines of credit with fair values of $10.8 million in conjunction with Clifton acquisition which resulted in a net increase in the outstanding balance of this segment of the loan portfolio.

Collateral value is determined through a property value analysis report, or full appraisal where appropriate, provided by a state certified or licensed independent appraiser.  Home equity loans and lines of credit do not require title insurance but do require homeowner, liability and fire insurance and, if applicable, flood insurance.

Home equity loans and fixed-rate home equity lines of credit are generally originated in our market area and are generally made in amounts of up to 80% of value on term loans and of up to 75% of value on home equity adjustable-rate lines of credit.  We originate home equity loans secured by either a first lien or a second lien on the property.

As noted earlier, our business plan generally calls for increasing the aggregate balance of residential mortgage lending. Ifloans, including home equity loans and home equity lines of credit as well as one- to four-family first mortgage loans discussed above, on a dollar basis while maintaining the initial estimateaggregate balance of construction cost provessuch loans as a percentage of the total loan portfolio

Consumer Loans.  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 Kearny Bank.  Our unsecured consumer loans at June 30, 2018 primarily include $5.5 million of loans acquired through the Company’s relationship with Lending Club, an established peer-to-peer (i.e. marketplace) lender.  Through this relationship, the Company had previously purchased high-quality, unsecured consumer loans originated through Lending Club’s online platform.  The Company limited its original investment in Lending Club loans to approximately $25.0 million in aggregate outstanding balances and has since discontinued purchases of such loans in favor of investing in other loan alternatives.

The remaining balance of consumer loans at June 30, 2018 includes $3.4 million of loans fully secured by savings accounts or certificates of deposit held by the Bank and $109,000 of other unsecured consumer loans.  Additionally, we acquired consumer loans with fair values totaling approximately $476,000 in our acquisition of Clifton. We will generally lend up to 90% of the account balance on a loan secured by a savings account or certificate of deposit.

Our consumer loans generally entail greater risks compared to the other categories of loans that we originate or purchase and hold in portfolio.  Consumer loan repayment is dependent on the borrower’s continuing financial stability and is more likely to be inaccurate, weadversely affected by job loss, divorce, illness or personal bankruptcy. The application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on consumer loans in the event of a default.

Our underwriting standards for internally originated consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan.  The stability of the applicant’s monthly income may be compelled to advancedetermined by verification of gross monthly income from primary employment and any additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover the entire unpaid portion of the loan.  In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period.verifiable secondary income.

Loans to One Borrower.  FederalNew Jersey law generally limits the amount that a savings institutionbank may lend to onea single borrower and related entities to the greater of $500,000 or 15% of the institution’s unimpaired capital and surplus.funds. Accordingly, as of June 30, 2015,2018, our loans-to-one-borrower limit was approximately $104.3$148.1 million.

Notwithstanding regulatory limitations regarding loans to one borrower, the Bank has established a more conservative set of internal thresholds that further limit our lending exposure to any single borrower or set of borrowers affiliated by common ownership.  In that regard, the Bank’s internal “house limits” are $20.0$35.0 million for a single loan transaction and $60.0$85.0 million for aggregate loans to a common ownership or an affiliated group of borrowers/guarantors. These limits apply irrespective of whether the obligations are on a personally guaranteed/recourse basis or non-personally guaranteed/non-recourse basis.  Exceptions to these internal limits may be considered on a case-by-case basis, subject to the review and approval of each exception by the Bank’s Board of Directors.

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At June 30, 2015,2018, our largest single borrower had an aggregate outstanding loan balance of approximately $38.0$58.2 million comprising threeone commercial mortgage loan and four multi-family mortgage loans. Our second largest single borrower had an aggregate outstanding loan balance of approximately $36.0$56.9 million comprising three commercialsix multi-family mortgage loans.  Our third largest borrower had an aggregate outstanding loan balance of approximately $27.0$44.2 million comprising four commercialmulti-family mortgage loans, two commercial business lines of credit and one residential mortgage loans with an additional $4.1 million available to the borrower through the unused portions of those lines of credit.loans.  At June 30, 2015,2018, all of these lending relationships were current and performing in accordance with the terms of their loan agreements.  By comparison, at June 30, 2014,2017, loans outstanding to Kearny Bank’s three largest borrowers totaled approximately $25.4$48.2 million, $24.7$46.3 million and $24.5$44.6 million, respectively.

Loan Originations, Purchases, Sales, Solicitation and Processing.  The following table shows totalportfolio loans originated, purchased, acquired and repaid during the periods indicated.