UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K10-K

(Mark One)

For the Fiscal Year Ended June 30, 20182021

orOr

For the transition period fromto

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.  ☒  YES    Yes☐  NONo

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐  YES    Yes☒  NONo

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒  YES    Yes☐  NONo

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).  ☒  YES    Yes☐  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.  ☒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.

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 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. ☒

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

The aggregate market value of the voting and non-voting common equity held by non‑affiliates of the Registrant on December 31, 20172020 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $1.02 billion.$815.8 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 20, 20182021 there were outstanding 98,243,20077,004,871 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, 20182021

INDEX

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PART I

Item 1. Business

Forward-Looking Statements

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:

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 is the holding company for Kearny Bank (the “Bank” or “Kearny Bank”), a 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.  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 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 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.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, U.S. government and agency debentures, bank-qualified municipal obligations, corporate bonds, asset-backed securities, collateralized loan obligations and subordinated debt.

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At June 30, 2018, net loans receivable comprised 67.9% of our total assets while investment securities, including mortgage‑backed and non-mortgage-backed securities, comprised 20.0% of our total assets.  By comparison, at June 30, 2017, net loans receivable comprised 66.7% of our total assets while securities comprised 23.0% of our total assets.  A significant long-term goal of our business plan continues to be the reallocation of our balance sheet to reflect a greater percentage of interest-earning assets in loans while reducing the relative size of the securities portfolio.

We operate from our administrative headquarters in Fairfield, New Jersey and had 54 branch offices asother administrative locations throughout the state of New Jersey. As of June 30, 2018.2021, we had 48 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 practicalpracticable 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”“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.

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Acquisition of CliftonMSB Financial Corp. (“MSB”)

On April 2, 2018,On July 10, 2020, the Company completed its acquisition of Clifton Bancorp Inc. (“Clifton”), the parent company of Clifton Savings Bank, a federally chartered stock savings bank.MSB and its subsidiary, Millington Bank. In conjunctionaccordance with the acquisition,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. As a result of the merger, the Company acquired assetsloans with aggregate fair values totaling $1.61 billion including loans and securities$530.2 million, assumed deposits 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$460.2 million and $414.1 million, respectively.

Merger consideration associated withacquired four branch offices located in Somerset and Morris counties. The application of the acquisition totaled $333.9 million and primarily comprised 25.4 million sharesmethod 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 acquiredaccounting resulted in the Company’s recognition of $102.3bargain purchase gain of $3.1 million and a core deposit intangible of $690,000.

COVID-19 Pandemic

As the Company’s business is primarily conducted within the states of New Jersey and New York, which have each been significantly impacted by COVID-19, the operations of the Company have been similarly impacted. We continue to monitor developments related to COVID-19, including, but not limited to, its impact on our employees, clients, communities and results of operations.

Employee Matters. As the COVID-19 pandemic initially unfolded, and stay-at-home orders were mandated by government officials, many of our non-branch personnel transitioned to working remotely or in goodwill associateda hybrid-remote environment. Through June 30, 2021 many of our non-branch personnel have continued to work in a hybrid-remote fashion. Our information technology infrastructure has afforded us the ability to work remotely with little interruption as we continue to service the needs of our clients. For those essential employees who are unable to work from home, we have provided personal protective equipment and have established procedures and guidelines to ensure a safe working environment.

Retail Branches. At the outset of the pandemic we modified our branch hours and access to ensure the safety of our employees and clients. Where possible, branch lobbies were initially transitioned to appointment-only access, with the Clifton acquisition.majority of branch operations being conducted via our drive-up windows. As certain branches did not have drive-up capabilities or suitable alternatives, we temporarily closed certain locations. In the months following, and in accordance with the protocols recommended by the Centers for Disease Control and Prevention (“CDC”), we have outfitted our branches with protective barriers and continued to provide our staff with personal protective equipment. As of June 30, 2021, all of our branches were fully operational.

CARES Act, Paycheck Protection Program and Health Care Enhancement Act (“PPP Enhancement Act”).  On March 27, 2020, the CARES Act was signed into law. Among the more significant components of the CARES Act, as it pertains to the Company, was the creation of the Paycheck Protection Program (“PPP”), the modification of rules and regulations surrounding troubled debt restructured loans (“TDRs”) and modifications to the tax code to allow for the carryback of net operating losses.

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program. As part of this program the SBA guarantees 100% of the PPP loans made to eligible borrowers. As a qualified SBA lender, the Bank is automatically authorized to originate PPP loans. On April 16, 2020, the original authorization of $349 billion in funding for the PPP was exhausted. On April 23, 2020, the PPP Enhancement Act was signed into law and provided an additional $310 billion in funding for the PPP program. As of June 30, 2021 we had approximately 15 loans with total outstanding balances of $10.2 million under the PPP.

Based on Section 4013 of the CARES Act, the 2021 Consolidated Appropriations Act and related regulatory guidance promulgated by federal banking regulators, qualifying loan modifications, including short-term payment deferrals, are not considered to be TDRs. Additional information regarding loans modified in accordance with this guidance is provided in the tables below.

2021 Consolidated Appropriations Act. The 2021 Consolidated Appropriations Act was signed into law on December 27, 2020.  The $900 billion relief package includes legislation that extends certain relief provisions of the CARES Act that were set to expire on December 31, 2020. This legislation extends this relief to the earlier of 60 days after the national emergency declared by the President is terminated or January 1, 2022.

Business Strategy

Our goal is to continue to evolveIn recent years we have evolved our business model from that of a traditional thrift business model towardinto that of a fullfull-service community bank. This evolution has been accomplished by growing our commercial loans and deposits, expanding our product and service community bank,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 strategic initiativescomponents of our business planstrategy are presented below accompaniedas follows:

As demonstrated by an overview of our activities and achievements in support of those initiatives:

During fiscal 2018, our commercial mortgage loan portfolio, including multi-family and nonresidential mortgage loans, increased by 22.6%, or $563.9 million, to $3.06 billion atthe June 30, 2018 from $2.50 billion at June 30, 2017. This increase reflected commercial mortgage loan originations in fiscal 2018 totaling $458.8 million. Additionally,2021 Tier 1 Leverage ratios of the Company and the Bank of 11.76% and 10.23%, respectively, we acquired commercial mortgage loans with fair values totaling approximately $397.0 million pursuant to our acquisition of Clifton. At June 30, 2018, our commercial mortgage loan portfolio comprised 67.0% of total loans compared to 77.0% of total loans at June 30, 2017.

Wecurrently maintain, and plan to continue to increasemaintain, capital levels in excess of regulatory minimums and internal capital adequacy guidelines.

In addition to our portfoliorobust capital levels, we maintain significant sources of commercial mortgage loans by continuing to acquire loans through all available channels, including retailboth on- and broker originations, which may be supplemented with individualoff-balance sheet liquidity and pooled loan purchases and participations.  Additionally, we intendplan to continue to expanddo so.  At June 30, 2021, our commercial lending infrastructureliquid assets included $67.9 million of short-term cash and resources,equivalents supplemented by $1.68 billion of investment securities classified as available for sale which willcan be supported by new productreadily sold or pledged as collateral, if necessary. In addition, we had the capacity to borrow additional funds totaling $651.0 million via unsecured lines of credit and pricing strategies designed to increase origination volume in a very competitive marketplace.$2.13 billion and $233.1 million, without pledging additional collateral, from the Federal Home Loan Bank of New York and Federal Reserve Bank, respectively.

We plan to continue to focus on growing and diversifying our effortsretail non-maturity deposit base with an emphasis on expanding our commercial non-real estate securedgrowth in core non-maturity deposits and, unsecured business lending activities through all available channels.in particular, non-interest bearing deposits. During fiscal 2018, our commercial business loan origination2021, excluding acquired balances, we successfully grew core non-maturity deposits by $712.5 million and purchase volume totaled $54.2 million, reflecting retail originations of $25.9 million augmented by the acquisition of commercial and industrial (“C&I”) loans through wholesale 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.

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 that the outstanding balance of this loan segmentnon-maturity deposits will continue to increase in fiscal 20192022.

We plan to continue focusing on growing and thereafter.diversifying our loan portfolio with a particular emphasis on growth in commercial real estate, commercial business and commercial construction loan segments. Our business lending strategiesfocus, as it relates to new loan originations, will 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 balanceson high quality loans with strong sponsors and services and the associated increase in the level of non-interest income recognized in conjunction with those business customer relationships.favorable credit metrics.

We plan to increase the outstanding balance of our residential mortgage loans, including one- to four-family first mortgage loans and home equity loans and home equity lines of credit, while generally maintaining the 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,leverage our aggregate portfolio of one- to four-family mortgage loans increased by $738.1 million to $1.39 billion, or 30.4% of total loans, from $650.1 million or 20.1% of total loans at June 30, 2017.  During the year ended June 30, 2018, we originated and purchased $53.0 million and $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 lendingbanking 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, 2018, comparedmarket and to recorded gains of $713,000 on the sale of $84.4 million of mortgage loans during the year ended June 30, 2017.supplement our loan growth initiatives. 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 through the sale of longer-duration, fixed-rate loans into the secondary market.

In recent years, we have diversified the composition and allocation of our investment portfolio into new asset sectors, including asset-backed securities, corporate bonds, municipal obligations, collateralized loan obligations, commercial mortgage-backed securities (“MBS”) and subordinated debt while reducing our concentration in traditional residential MBS. Several of the added sectors include floating rate securities that reduce the level of interest rate risk (“IRR”) embedded in our securities portfolio.

Our securities portfolio increased by $207.7 million, or 18.8%, to $1.31 billion, or 20.0% of total assets, at June 30, 2018 from $1.11 billion, or 23.0% of total assets, at June 30, 2017.  The increase in the outstanding balance of securities portfolio for the year ended June 30, 2018, largely reflected the impact of securities with fair values of $326.9 million acquired from Clifton. The Company sold a significant portion of the securities originally acquired from Clifton with a portion of the sale proceeds reinvested into shorter-duration, higher-yielding securities and the remainder reinvested into loans.

The decrease in the portfolio as a percentage of total assets is indicative of the Company’s intent to continue to reduce the portion of earning assets held in the securities portfolio in favor of additional growth in loans.  As such, we expect to continue utilizing cash flows from the securities portfolio to fund a portion of our expected loan growth while maintaining the diversity of sectors represented in the portfolio.

We continue to emphasize and maintain strong asset quality as we grow and diversify our loan portfolio. Nonperforming assets decreased by $2.9 million to $17.6 million, or 0.27% of total assets, at June 30, 2018 compared to $20.5 million, or 0.43% of total assets, at June 30, 2017 and $21.9 million, or 0.49% of total assets, at June 30, 2016.

Our total deposit balances increased by $1.14 billion during fiscal 2018 with aggregate deposits totaling $4.07 billion at June 30, 2018 compared to $2.93 billion at June 30, 2017.  The increase in deposits for the year ended June 30, 2018 largely reflected the impact of deposits with fair values of $949.8 million assumed in conjunction with the Clifton acquisition while also reflecting the continuing effects of product, pricing and marketing strategies implemented during fiscal 2018.  The deposits assumed from Clifton are housed across a retail banking network of 12 branches located in New Jersey’s Passaic, Bergen, Hudson and Essex counties.

The increase in overall deposits during fiscal 2018 reflected a $418.2 million increase in non-maturity deposits coupled with a net increase of $725.7 million in certificates of deposit.  The net increase in non-maturity deposits included a $44.5 million, or 16.7%, increase in non-interest-bearing deposit accounts for fiscal 2018.

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At June 30, 2018,2021, we had a total of 54 branches comprising 52 branches located in northern and central New Jersey with two additional branches located in Brooklyn and Staten Island, New York.48 branches. We plan to selectively evaluate branch network expansion opportunities with a particular focus on limited branch expansion in Brooklyn and Staten Island.  We will also continuewhile continuing to evaluate additional de novo branch opportunities to contiguously expand our existing New Jersey branch network with an emphasis on “fill-ins” between our northern and central New Jersey locations.

In light of the Clifton acquisition, we expect to continue placingplace strategic emphasis on leveraging the opportunities to increase market share and expand the depth and breadth of customerclient relationships within our expandedexisting branches.

We also plan to continue to evaluate and optimize the performance of our existing branch network while also considering selectthrough additional branch consolidation opportunities to optimize that network. We continue to developconsolidations, where appropriate. Such efforts will take into consideration historical branch profitability, market demographic trajectory, geographic proximity of consolidating branches and deploy strategies to promote the “relationship banking” business model throughout our branch network with an emphasisexpected impact on expanding business customer relationships linked to business lending initiatives.the Bank’s clients and communities served.

As a complement to the “organic” growth strategies, we continue to actively seek out opportunities to prudently deploy capital, diversify our balance sheet, enter new markets and enhance earnings through mergers and acquisitions with other financial institutions. With the completion of the Clifton acquisition during fiscal 2018, we have now acquired a total of six banks in the last 18 years. We expect to place the greatest emphasis on opportunities to expand within the existing markets we serve or to enter new markets that are generally contiguous to such markets.

In addition to potential acquisitions of financial institutions or their branches, we may explore additional opportunities for acquisitions or strategic partnerships to broaden our product and service offerings in the future.

In conjunction with our effortsrecent years the Company’s 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 control operating expenses, while expandingthe continual evaluation of branch consolidation opportunities.

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In recognition of the ongoing evolution of our business towards digital channels we have invested significant human resources and capital towards enhancing product and service offerings, we continued to deploy a number of technologies during fiscal 2018 that supportboth our internal IT infrastructure as well as our external customer-facingand client-facing technology systems. We consider the noted enhancements to be one of several continuing strategies to control growth in non-interest expenses and improve our overall operating efficiency.

The Company’s operating efficiency is also expected to be enhanced as a resultOur ongoing technology transformation will impact nearly every area of the Clifton acquisition throughCompany including the residential and commercial lending functions, retail deposit gathering, risk management and back office operations. We continually strive to enhance our digital banking services which the Company’s primary sources of revenue, including net interest income and non-interest income, are expectedallow us to increase proportionately greater than the increaseserve our clients’ needs in non-interest expenses arising from the acquisition.

For the year ended June 30, 2018, the Company’s ratio of non-interest expense to average assets totaled 1.86% compared to 1.76% for the year ended June 30, 2017.  For those same comparative periods, the Company’s operating efficiency ratio increased to 72.7% from 71.2%, respectively.  The increase in the non-interest expense ratio and efficiency ratio in fiscal 2018 primarily reflected merger-related expenses of $6.7 million that were recognized in conjunction with the Clifton acquisition.  The Company estimates that merger-related expenses increased its ratio of non-interest expense to average assets by 0.13% for the year ended June 30, 2018 while adding 5.00% to its efficiency ratio for the same period.an omnichannel environment.

Market Area.At June 30, 2018,2021, 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 these markets and our predominant sources of deposits are the communities in which our offices are located as well as the neighboring communities.

Our primaryacquisition of Millington Bank on July 10, 2020 enabled us to enhance our New Jersey market area is largely urban and suburban with a broad economic base as is typical within the New York metropolitan area.  Service jobs represent the largest employment sector followed by wholesale/retail trade. A downturnnewly expanding into Somerset county while expanding upon our existing presence in the local economy could reduce the amount of funds available for deposit and the ability of borrowers to repay their loans which would adversely affect our profitability.Morris county.

Competition. We operate in a highly competitive market area with a highlarge concentration of banking and 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 managerialtechnological resources and lending limits. Our ability to compete successfully is a significant factor affecting our growth potential and profitability.

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Our competition for deposits and loans historically has comecomes primarily from other insured financialdepository institutions such as local and regional commercial banks, savings institutions and credit unions located in our primary market area. We also compete withface competition from out-of-market depository institutions operating via online channels and from non-depository institutions including mortgage banking andbanks, finance companies, for real estate loansinsurance companies and with commercial banks and savings institutions for consumer loans.  We also face competition for attracting funds from providers of alternative investment products such as equity and fixed income investments, including securities such as corporate, agency and government securities, as well as the mutual funds that invest in these instruments.

There are large retail banking competitors operating throughout our primary market area, including Bank of America, Citibank, JP Morgan Chase Bank, PNC Bank, TD Bank, and Wells Fargo Bank and we also face strong competition from other community-based financial institutions.brokerage firms.

Lending Activities

General. Our loan portfolio is comprised of multi-family loans, nonresidential real estate loans, commercial business loans, construction loans, one- to four-family residential mortgage loans, home equity loans and lines of credit and consumer loans. In conjunction with our strategic efforts to evolve from a traditional thrift to a full-service community bank,recent years our lending strategies have placed increasing emphasis on the origination of commercial loans compared to one- to four-family mortgage portfolio lending.  The year-to-year trends in the composition and allocation of our loan portfolio, as reported in the table below, generally highlight those changes in business strategy while also highlighting the growth in residential mortgage loans resulting from the Clifton acquisition in fiscal 2018.  In particular, the outstanding balance of our commercial mortgages, including loans secured by multi‑family, mixed‑use and nonresidential properties, have increased significantly over the past several years.  By comparison, the outstanding balance of our residential mortgage loans, including one- to four-family and home equity loans, remained fairly stable throughout the four years ended June 30, 2017 while increasing during the latest fiscal year ended June 30, 2018 due primarily to the Clifton acquisition.loans.

Our commercial loan offerings also include secured business loans, many of which are secured by real estate, and unsecured business loans.  Commercial loan offerings include programs offered through the SBA in which Kearny Bank participates as a Preferred Lender.  Our consumer loan offerings primarily include home equity loans and home equity lines of credit as well as account loans, overdraft lines of credit, vehicle loans and personal loans.  We also offer construction loans to builders/developers as well as individual homeowners.  We have also purchased out-of-state one- to four-family first mortgage loans to supplement our in-house originations. For more information, please see “Lending Activities (Loan Originations, Purchases, Sales, Solicitation and Processing).”  

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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.

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, 2021:

Loan Maturity Schedule. The following table sets forth the maturities of our loan portfolio at June 30, 2018.2021. 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, 20182021 due after June 30, 20192022 according to rate type and loan category.category:

Multi-Family and Nonresidential Real Estate Mortgage Loans. At June 30, 2021, multi-family loans totaled $2.04 billion, or 41.8% of our loan portfolio, while nonresidential loans totaled $1.08 billion, or 22.1% of our loan portfolio. We originate commercial mortgage loans on a variety of multi-family and nonresidential properties,property types, including loans on apartment buildings, retail/service properties and land as well as other income-producing properties, such as mixed-use properties combiningwhich combine residential and commercial space. Our continued strategic emphasis in commercial lending resulted in the origination ofWe originated approximately $458.8$352.5 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2018. We originated $727.42021, compared to $258.5 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2017.2020. Supplementing our organic originations were loan purchases and participations totaling $21.4 million during the year ended June 30, 2021, compared to $55.5 million during the year ended June 30, 2020. Additionally, in conjunction with our acquisition of MSB we acquired multi-family and nonresidential real estate mortgage loans with fair values totaling approximately $397.0 million in conjunction with our acquisition of Clifton.

Our commercial mortgage acquisition strategies also included purchases of whole loans and participations totaling $126.7 million during the year ended June 30, 2017.  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 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, including the loans acquired in conjunction with the Clifton acquisition, outpaced loan repayments during fiscal 2018, 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 a dollar basis while maintaining its basis as a percentage of 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.  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.$231.0 million.

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 twelvefifteen 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 onwith amortization terms which generally range from 2515 to 30 years.  We also offer fully amortizing fixed-rate and adjustable-rate mortgage loans on multi-family and non-residential properties 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.the surrounding states.

Commercial Business (C&I) Loans. At June 30, 2021, commercial business loans totaled $169.0 million, or 3.5% of our loan portfolio. We originate commercial term loans and lines of credit to a variety of professionals, sole proprietorships and small businessesclients in our market area. OurIncluded within 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 asare loans originated through the SBA in which Kearny Bank participates as a Preferred Lender. We originated approximately $25.9$104.6 million of commercial business loans during the year ended June 30, 2018 compared to $34.12021, of which $4.0 million were originated under the SBA PPP program. By comparison, we originated approximately $108.5 million during the year ended June 30, 2017.2020, of which $69.7 million were originated under the SBA PPP program. Additionally, in conjunction with our acquisition of MSB we acquired commercial businessC&I loans with fair values totaling approximately $5.4$103.9 million. Our non-SBA 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.

During the year ended June 30, 2021, we sold $43.6 million inof PPP loans. At June 30, 2021, the balance of commercial business loans included PPP loans totaling $10.2 million.

Supplementing our acquisitionorganic origination of Clifton.

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Ourcommercial business loans was the funding of wholesale commercial business loan acquisition strategies included purchases of wholesale C&I loan participations totaling $28.3$251,000 and $2.7 million and $17.0 million duringfor the years ended June 30, 2021 and 2020, respectively. During fiscal 2018 and 2017, respectively.  Our C&Iwe opted to discontinue the purchase of wholesale commercial business loan participations and thus all of the wholesale commercial business loans funded during fiscal 2021 and 2020 were comprised of advances on previously committed lines of credit. Our outstanding balance of wholesale commercial business loan participations totaled $11.9 million and $20.8 million at June 30, 2018 included 24 loans with an outstanding balance of $35.3 million.  These participations were comprised entirely of our pro rata interest in the obligations of 16 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 supported2021 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.2020, respectively.

Construction Lending. At June 30, 2017,2021, construction loans totaled $93.8 million, or 1.9% of our C&I loan participations had an outstanding balanceportfolio. Our construction lending includes loans to individuals, builders or developers for the construction or renovation of $27.4 million representing our pro rata interest in 13 loans.  

In total,one- to four-family residences or for the aggregate volumeconstruction of commercial businessreal estate or multi-family residential buildings. In conjunction with our acquisition of MSB we acquired construction loans originated, purchased andwith fair values totaling approximately $48.2 million.

During the year ended June 30, 2021, construction loan disbursements were $50.4 million compared to $7.2 million during the year ended June 30, 2020. Construction loan disbursements, including construction loans acquired from MSB, outpaced loan repayments during fiscal 20182021 resulting in the reported net increase in the outstanding balance of this segment of the loan portfolio.  As noted earlier, we continued to realign and expand our commercial business lending infrastructure during fiscal 2018.  As a result of those enhancements, we anticipate this loan segment will increase as we continue to emphasize loans acquired through retail origination channels while diminishing the emphasis on loans and participations purchased through wholesale channels.  Through these efforts, we hope to increase this segment of the loan portfolio on both a dollar basis and as a percentage of total loans.

At June 30, 2018, approximately $50.5 million or 58.9% of our commercial business loans represent loans originated through our retail channel while the remaining $35.3 million or 41.1% comprise loans acquired through the wholesale C&I loan participation channels discussed earlier.  Of the retail originated loans, approximately $43.2 million or 85.5% are “non-SBA” loans consisting of secured and unsecured loans totaling $39.6 million and $3.6 million, respectively.  We generally require personal guarantees on all “non-SBA” commercial business loans originated.  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 $10,000 and unsecured lines of credit up to $100,000.  Our “non-SBA” commercial term loans generally have terms of up to 10 years and are mostly adjustable-rate loans.  Our commercial lines of credit have terms of up to one year and are generally adjustable-rate loans.

The remaining $7.3 million or 14.5% of commercial business loans originated represent the retained portion of SBA loan 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.  The Company sold $2.8 million of SBA loan participations which resulted in the recognition of related sale gains totaling approximately $262,000 for the year ended June 30, 2018.  By comparison, we sold $9.6 million of SBA loan participations during fiscal 2017 which resulted in the recognition of related sale gains totaling approximately $822,000.8

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, 2018, construction loans totaled $23.3 million.

During the year ended June 30, 2018, construction loan disbursements were $25.2 million compared to $3.0 million during the year ended June 30, 2017.  Construction loan disbursements outpaced repayments during fiscal 2018 resulting in the reported increase 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.

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We continue to evaluate lending opportunities 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. At June 30, 2021, one- to four-family mortgage loans totaled $1.45 billion, or 29.7% of our loan portfolio. Our portfolio lending activities include the origination of one- to four-family first mortgage loans, of which approximately $1.25$1.35 billion, or 96.2%93.1%, are secured by properties located within New Jersey and New York as of June 30, 20182021 with the remaining $49.3$99.5 million, or 3.8%6.9%, secured by properties in other states.

During the year ended June 30, 2018, Kearny Bank2021, we originated $53.0$553.2 million of one- to four-family first mortgage portfolio loans compared to $67.9$197.8 million in the year ended June 30, 2017.2020. To supplement portfolio loan originations, we also purchased one- to four-family first mortgages totaling $26.3$60.1 million during the year ended June 30, 2018, while no such loans were purchased2021 compared to $15.0 million during fiscal 2017.

One- to four-family first mortgage loan repayments generally outpaced the origination volumeyear ended June 30, 2020. Additionally, in conjunction with our acquisition of such loans during fiscal 2018.  However,MSB, we acquired one- to four-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$132.5 million.

The fixed-rate residential mortgage loans including one- to four-family firstthat we originate for portfolio generally meet the secondary 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 percentagemarket standards 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%Federal Home Loan Mortgage Corporation (“Freddie Mac”). 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%.

WeIn 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. This program is also available outside these areas, but only to persons who are existing deposit or loan customersclients of Kearny Bank and/or members of their immediate families.  The financial incentives offered under this program are

One- to Four-Family Mortgage Loans Held for Sale. As a one-eighthcomplement to our residential one- to four-family portfolio lending activities, we operate a mortgage banking platform which supports the origination of one percentage point rate reduction on all first mortgage loan types and the refund of the application fee at closing.

The fixed-rate residentialone- to four-family mortgage loans thatfor sale into the secondary market. The loans we originate for portfoliosale 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, suchCorporation. 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.our portfolio.

As noted earlier, ourOur mortgage banking business strategy resulted in the recognition of $742,000$5.1 million in gains associated with the sale of $78.8$285.4 million of mortgage loans held for sale during the year ended June 30, 2018.2021. As of that date, an additional $863,000$16.5 million 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 through 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. At June 30, 2021, home equity loans and lines of credit totaled $47.9 million, or 1.0% 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. During the year ended June 30, 2018, Kearny Bank2021, we originated $20.2$15.8 million of home equity loans and home equity lines of credit compared to $18.5$16.4 million in the year ended June 30, 2017. Repayments2020. However, repayments of home equity loans and lines of credit generally outpaced loan origination volume and acquired loans 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 resulted2021, resulting in a net increasedecrease 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 Additionally, in conjunction with our acquisition 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 loans, includingMSB we acquired 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 aggregate balance of such loans as a percentage of the total loan portfoliowith fair values totaling approximately $14.1 million.

Other 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 Kearnythe 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 $3.42021 primarily include $3.0 million of loans fully secured by savings accounts or certificates of deposit held by the Bank and $109,000$262,000 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 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 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 determined by verification of gross monthly income from primary employment and any additional verifiable secondary income.

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, 2018,2021, our loans-to-one-borrowerlegal loans to one borrower limit was approximately $148.1$114.3 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 $35.0 million for a single loan transaction and $85.0 million 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, 2018,2021, our largest single borrower had an aggregate outstanding loan balance of approximately $58.2$48.5 million comprising one commercial mortgage loan and four multi-family mortgage loans. Our second largest single borrower had an aggregate outstanding loan balance of approximately $56.9$48.2 million comprising six multi-family mortgage loans. Our third largest borrower had an aggregate outstanding loan balance of approximately $44.2 million comprising four multi-family mortgage loans.  At June 30, 2018, all of2021, these lending relationships were current and performing in accordance with the terms of their loan agreements.  By comparison, at June 30, 2017, loans outstanding to Kearny Bank’s three largest borrowers totaled approximately $48.2 million, $46.3 million and $44.6 million, respectively.

Loan Originations, Purchases, Sales, Solicitation and Processing. The following table shows the principal balances of portfolio loans originated, purchased, acquired and repaid during the periods indicated.indicated: